AT&T Inc. (NYSE:T) has delivered a relatively robust performance in the second quarter of 2023, with encouraging results backed by strong wireless traction and customer additions. While lower demand for legacy voice and data services posed some challenges, the company’s solid subscriber growth and resilient business model, along with a strong cash flow position resulting from effective operational plans, contributed to its success. AT&T remains committed to strategic investments in key areas like 5G and fiber, adapting its business to the evolving market landscape to foster long-term growth. Additionally, the company aims to maintain a healthy dividend payment while actively addressing its debt through prudent measures. Despite good results, AT&T stock was dipping in early trading Tuesday.
Net Income
On a GAAP basis, AT&T reported a net income of $4,437 million, equivalent to 61 cents per share, compared to $4,105 million or 57 cents per share in the year-ago quarter. The significant year-over-year increase can be attributed to top-line growth and lower operating expenses.
Excluding non-recurring items, adjusted earnings stood at 63 cents per share, slightly lower than the 65 cents per share in the year-earlier quarter. Nevertheless, the adjusted earnings for the second quarter outperformed the Consensus Estimate by 3 cents.
Quarterly Details
AT&T’s GAAP operating revenues for the quarter registered a 0.9% year-over-year increase, reaching $29,917 million. This growth was primarily driven by higher revenues from the Mobility, Mexico, and Consumer Wireline segments, partly offset by lower revenues from Business Wireline services. Although the top line fell short of the consensus estimate of $30,087 million, the overall performance remains positive.
Adjusted operating income for the quarter was $6,395 million, compared to $5,897 million in the prior-year quarter, resulting in adjusted operating income margins of 21.4% and 16.7% respectively. The company’s Adjusted EBITDA also improved, reaching $11,053 million compared to $10,330 million in the year-ago quarter.
AT&T experienced significant momentum in its subscriber base, with 464,000 post-paid net additions, including 326,000 postpaid wireless phone additions. The postpaid churn rate was 0.95%, slightly higher than the 0.93% recorded in the year-ago quarter. The company’s postpaid phone-only average revenue per user (ARPU) increased by 1.5% year over year to $55.63, driven by improved international roaming and a shift towards higher-priced unlimited plans. AT&T continues to expand its 5G coverage, reaching 175 million people with mid-band 5G spectrum and serving more than 290 million people through its nationwide 5G network.
Segmental Performance
The Communications segment witnessed growth in total operating revenues, reaching $28,845 million compared to $28,695 million. While the Business Wireline segment declined by 5.6% to $5,279 million, the Mobility business grew by 2% to $20,315 million, and the Consumer Wireline segment increased by 2.4% to $3,251 million. However, the segment’s revenues fell short of estimates.
Service revenues from the Mobility unit increased by 4.9% to $15,745 million, driven by solid subscriber gains. However, equipment revenues declined by 7.2% year over year to $4,570 million due to lower volumes in a challenging macroeconomic environment. Revenues from the Consumer Wireline business increased due to gains in fiber broadband. AT&T recorded net fiber additions of 251,000 and can now serve 20.2 million consumers and over 3 million business customer locations across more than 100 U.S. metro areas with fiber. Meanwhile, revenues from the Business Wireline segment declined due to a shift in customer preference towards more advanced IP-based offerings.
In the Latin America segment, total operating revenues reached $967 million, showing a strong year-over-year increase of 19.7%. This growth was driven by favorable currency impact and higher sales in service and equipment revenues. The adjusted EBITDA for the segment also improved to $146 million, achieving a margin of 15.1% compared to 10.8% in the year-ago quarter.
Cash Flow & Liquidity
AT&T generated $16,600 million in cash from operations during the first six months of 2023, compared to $15,370 million in the prior-year period. The company’s free cash flow at the end of the quarter was $4,209 million, compared to $1,384 million in the year-ago period. As of June 30, 2023, AT&T had $9,528 million in cash and cash equivalents, with long-term debt amounting to $128,012 million. The net debt to adjusted EBITDA ratio was approximately 3.1x.
Future Outlook
AT&T remains committed to optimizing its operations, reducing operating costs, and focusing on the expansion of 5G and fiber-based connectivity. Additionally, the company aims to extend the reach of its software-based entertainment platforms. For 2023, AT&T expects its free cash flow to be around $16 billion, driven by cost-saving measures. The company is actively working on reducing its debt burden by monetizing non-core assets. AT&T continues to be on track to achieve its target of reaching 200 million people with mid-band 5G by the end of 2023 and expanding its fiber locations to more than 30 million by the end of 2025.
AT&T Stock Performance
AT&T stock has fallen by 21.8% year-to-date, while the S&P 500 has gained 19.3%.
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