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AT&T Reports Fourth-Quarter and Full-Year Results

PRNewswire 25-Jan-2023 6:31 AM

Continued strong subscriber growth

  •  
    • 656,000 postpaid phone net adds; nearly 2.9 million for the full year
    • 280,000 AT&T Fiber net adds, 12 straight quarters with more than 200,000 net adds; more than 1.2 million net adds for full-year 2022, fifth straight year with 1 million or more AT&T Fiber net adds

Subscriber additions driving revenue growth

  •  
    • Domestic wireless service revenues up 5.2%; 5.1% for the full year
    • Consumer broadband revenues up 7.2% driven by AT&T Fiber revenue growth of more than 31%; full-year broadband revenues grew 6.4% with AT&T Fiber revenues up nearly 29%

Network deployment on or ahead of schedule

  •  
    • Mid-band 5G spectrum covering 150 million people, more than two times higher than original end-of-year target
    • Ability to serve more than 19 million consumer locations and more than 3 million business customer locations in more than 100 U.S. metro areas with fiber

Transformation supporting margin growth

  •  
    • Achieved more than $5 billion of $6 billion-plus run-rate cost savings target at year end

Fourth-Quarter Consolidated Results

  • Revenues from continuing operations1 of $31.3 billion
  • Reported EPS from continuing operations of ($3.20)2 due to non-cash charges compared to $0.66 in the prior year
  • Adjusted EPS* from continuing operations of $0.61 compared to $0.56 in the prior year
  • Cash from operating activities from continuing operations of $10.3 billion
  • Capital expenditures from continuing operations of $4.2 billion; capital investment* from continuing operations of $4.7 billion
  • Free cash flow* from continuing operations of $6.1 billion

Full-Year Consolidated Results

  • Revenues from continuing operations of $120.7 billion
  • Reported EPS from continuing operations of ($1.10)2 due to non-cash charges
  • Adjusted EPS* from continuing operations of $2.57
  • Cash from operations of $35.8 billion
  • Capital expenditures of $19.6 billion; capital investment* of $24.3 billion
  • Free cash flow* of $14.1 billion

2023 Outlook – Continuing Operations

For the full year AT&T expects:

  • Wireless service revenue growth of 4% or higher
  • Broadband revenue growth of 5% or higher
  • Adjusted EBITDA* growth of 3% or higher
  • Capital investment* of about $24 billion, consistent with 2022 levels
  • Free cash flow* of $16 billion or better, up $2 billion from 2022
  • Adjusted EPS* of $2.35 to $2.45, which includes an expected ($0.25) of impacts from higher non-cash pension costs related to higher interest rates, lower capitalized interest and impacts from an expected higher effective tax rate of 23% to 24%

Note: AT&T's fourth-quarter earnings conference call will be webcast at 8:30 a.m. ET on Wednesday, January 25, 2023. The webcast and related materials, including financial highlights, will be available on AT&T's Investor Relations website at https://investors.att.com.

DALLAS, Jan. 25, 2023 /PRNewswire/ -- AT&T Inc. (NYSE:T) reported fourth-quarter results that showed sustained momentum in customer additions across 5G and fiber and solid growth in wireless service and broadband revenues.

"We're committed to connecting people to greater possibility, and our results demonstrate that our customers are responding to this," said John Stankey, AT&T CEO. "Our consistent go-to-market strategy and the simplicity of our offerings drove continued robust, high-quality wireless and fiber customer additions in the fourth quarter. Over the last 10 quarters, we've demonstrated sustainable momentum in growing customer relationships, with 7.5 million postpaid phone net adds and 2.9 million AT&T Fiber net adds.

"We met or surpassed all of our profitability targets for the year all while investing at record levels to bring the benefits of our 5G and fiber technologies to even more people. As we enter 2023, I'm confident in the trajectory of our business and in our team's ability to deliver profitable and durable growth for our shareholders."

Consolidated Financial Results

Revenues from continuing operations for the fourth quarter totaled $31.3 billion versus $31.1 billion in the year-ago quarter, up 0.8%. This increase primarily reflects higher Mobility, Mexico and Consumer Wireline revenues, partly offset by lower Business Wireline revenues.  

Operating expenses from continuing operations were $52.4 billion versus $26.2 billion in the year-ago quarter. Operating expenses increased primarily due to non-cash goodwill impairments and asset abandonments and restructuring charges in the current quarter totaling $26.8 billion. Goodwill impairments of $24.8 billion were associated with our Business Wireline, Consumer Wireline and Mexico reporting units and were driven by higher interest rates consistent with the macroeconomic environment, with secular declines also impacting Business Wireline growth rates. Asset abandonments of $1.4 billion were associated with certain wireline conduits no longer required to support our copper and fiber networks. To a lesser extent, the year-over-year increase also reflected higher bad debt expense and increased depreciation, partly offset by lower wireless equipment costs from lower volumes and the lack of 3G network shutdown costs in the fourth quarter of 2022.

Operating income (loss) from continuing operations was ($21.1) billion versus $4.9 billion in the year-ago quarter. When adjusting for the asset impairments and abandonments, and other items, adjusted operating income* from continuing operations was $5.7 billion versus $5.0 billion in the year-ago quarter.

Equity in net income of affiliates of $0.4 billion primarily from the DIRECTV investment. With adjustment for our proportionate share of intangible amortization, adjusted equity in net income from the DIRECTV investment* was $0.7 billion.

Income (loss) from continuing operations was ($23.1) billion versus $5.2 billion in the year-ago quarter. Earnings per common share from continuing operations was ($3.20) versus $0.66 in the year-ago quarter. Adjusting for ($3.81), which includes asset impairments and abandonments, an actuarial loss on benefit plans, our proportionate share of intangible amortization from the DIRECTV equity method investment and other items, earnings per diluted common share* from continuing operations was $0.61 compared to $0.56 in the year-ago quarter.

Cash from operating activities from continuing operations was $10.3 billion, up $2.3 billion year over year. Capital expenditures from continuing operations were $4.2 billion in the quarter versus $3.5 billion in the year-ago quarter. Capital investment* from continuing operations, which includes $0.5 billion of cash payments for vendor financing, totaled $4.7 billion.

Free cash flow* from continuing operations was $6.1 billion for the quarter.

Full-Year Results

Revenues from continuing operations for the full year totaled $120.7 billion versus $134.0 billion in 2021, down 9.9% reflecting the impact of the U.S. Video separation in July 2021. Excluding the impact of U.S. Video, operating revenues for standalone AT&T* were up 2.1%, from $118.2 billion, primarily driven by higher revenues from Mobility, and, to a lesser extent, Mexico and Consumer Wireline, partially offset by lower Business Wireline revenues. 

Operating expenses from continuing operations were $125.3 billion compared with $108.1 billion in 2021 primarily due to higher non-cash asset impairments and abandonments, and restructuring charges, partly offset by the inclusion in the prior year of U.S. Video results for seven months as well as other divested businesses. To a lesser extent, the year-over-year increase reflects higher bad debt expense, the elimination of CAF II government credits and increased wholesale network access charges. Wireless equipment costs were up slightly year over year as the impacts of higher sales volumes and the sale of higher-priced smartphones were largely offset by lower 3G network shutdown costs. 

Operating income (loss) from continuing operations was ($4.6) billion versus $25.9 billion in 2021. When adjusting for asset impairments, abandonments, restructuring, and other items, adjusted operating income* from continuing operations was $23.5 billion versus $26.2 billion a year ago. When excluding the impacts of prior-year dispositions, standalone AT&T* adjusted operating income totaled $22.3 billion for full year 2021.

Equity in net income of affiliates of $1.8 billion primarily from the DIRECTV investment. With adjustment for our proportionate share of intangible amortization, adjusted equity in net income from the DIRECTV investment* for full year 2022 was $3.4 billion.

Income (loss) from continuing operations was ($6.9) billion versus $23.8 billion a year ago. Earnings per common share from continuing operations was ($1.10) versus $3.02 for full-year 2021. With adjustments for both years, adjusted earnings per diluted common share from continuing operations* was $2.57 versus $2.63 for full-year 2021. On a standalone AT&T* comparative basis, adjusted earnings per diluted common share was $2.41 for 2021.

Cash from operating activities from continuing operations was $35.8 billion, down from $37.2 billion in the prior year due to inclusion of U.S. Video in 2021. Capital expenditures from continuing operations were $19.6 billion for the full year, versus $15.5 billion for full-year 2021. Capital investment* from continuing operations, which includes $4.7 billion of cash payments for vendor financing, totaled $24.3 billion.

Free cash flow* from continuing operations was $14.1 billion for the full year. Total debt was $135.9 billion at the end of the fourth quarter, and net debt* was $132.2 billion.

Communications Operational Highlights

Fourth-quarter revenues were $30.4 billion, up 0.5% year over year due to increases in Mobility and Consumer Wireline, which more than offset a decline in Business Wireline. Operating income was $7.2 billion, up 12.7% year over year, with operating income margin of 23.8%, compared to 21.2% in the year-ago quarter. Operating income in the quarter reflects the lower costs associated with a third-quarter 2022 retirement benefit plan change of about $115 million, with about $50 million for Business Wireline, $40 million for Consumer Wireline and $20 million for Mobility.

Mobility

  • Revenues were up 1.7% year over year to $21.5 billion due to higher service revenues. Service revenues were $15.4 billion, up 5.2% year over year, primarily driven by subscriber and postpaid ARPU growth. Equipment revenues were $6.1 billion, down 6.3% year over year, driven by lower volumes.
  • Operating expenses were $15.5 billion, down 2.3% year over year primarily due to lower equipment costs including the absence of 3G network shutdown costs, gains from tower transactions, decreased advertising costs and lower content costs. These decreases were partially offset by higher bad debt expense, increased amortization of customer acquisition costs and the elimination of CAF II government credits.
  • Operating income was $6.0 billion, up 13.4% year over year. Operating income margin was 28.1%, compared to 25.2% in the year-ago quarter.
  • EBITDA* was $8.1 billion, up 10.1% year over year with EBITDA margin* of 37.8%, up from 34.9% a year ago. EBITDA service margin* was 52.6%, up from 50.3% in the year-ago quarter.
  • Total wireless net adds were 6.4 million including:
    • 1.1 million postpaid net adds with:
      • 656,000 postpaid phone net adds
      • 39,000 postpaid tablet and other branded computing device net adds
      • 409,000 other net adds
    • (13,000) prepaid phone net adds
  • Postpaid churn was 1.01% versus 1.02% in the year-ago quarter.
  • Postpaid phone churn was 0.84% versus 0.85% in the year-ago quarter.
  • Prepaid churn was less than 3%, with Cricket substantially lower.
  • Postpaid phone-only ARPU was $55.43, up 2.5% versus the year-ago quarter, due to pricing actions, higher international roaming and a mix shift to higher-priced unlimited plans.
  • FirstNet® connections reached approximately 4.4 million across more than 24,000 agencies. FirstNet is the nationwide communications platform dedicated to public safety. The AT&T and FirstNet networks cover more than 99% of the U.S. population, and FirstNet covers more first responders than any other network in America.

Business Wireline

  • Revenues were $5.6 billion, down 4.5% year over year due to lower demand for legacy voice and data services and product simplification, partly offset by growth in connectivity services. The quarter also included approximately $90 million in revenues from intellectual property sales, an increase of about $15 million year over year.
  • Operating expenses were $4.8 billion, down 3.8% year over year due to ongoing operational cost efficiencies, credits associated with a retirement benefit plan change in the third quarter of 2022 and lower amortization of deferred fulfillment costs, partly offset by higher wholesale network access costs and higher depreciation expense.
  • Operating income was $801 million, down 8.6%, with operating income margin of 14.2% compared to 14.8% in the year-ago quarter.
  • EBITDA* was $2.2 billion, down 1.5% year over year with EBITDA margin* of 38.3%, compared to 37.2% in the year-ago quarter. EBITDA margin for both periods includes the impacts from intellectual property sales.
  • AT&T Business serves the largest global companies, government agencies and small businesses. More than 750,000 U.S. business buildings are lit with fiber from AT&T, enabling high-speed fiber connections to more than 3 million U.S. business customer locations. Nationwide, more than 10 million business customer locations are on or within 1,000 feet of our fiber.3

Consumer Wireline

  • Revenues were $3.2 billion, up 2.2% year over year due to gains in broadband more than offsetting declines in legacy voice and data and other services. Broadband revenues increased 7.2% due to fiber growth of more than 31%, partly offset by non-fiber revenue declines of 12.6%.
  • Operating expenses were $2.9 billion, down 3.5% year over year due to lower network and customer support costs, decreased advertising costs, credits associated with a retirement benefit plan change in the third quarter of 2022, and lower content costs, partly offset by the elimination of CAF II government credits, higher depreciation expense and higher bad debt expense.
  • Operating income was $376 million, up 86.1% year over year with operating income margin of 11.6%, compared to 6.4% in the year-ago quarter.
  • EBITDA* was $1.2 billion, up 20.5% year over year with EBITDA margin* of 37.0%, up from 31.4% in the year-ago quarter.
  • Total broadband losses, excluding DSL, were 43,000, reflecting AT&T Fiber net adds of 280,000, more than offset by losses in non-fiber services. AT&T Fiber now has the ability to serve more than 19 million customer locations and offers symmetrical, multi-gig speeds across parts of its entire footprint of more than 100 metro areas.

Latin America – Mexico Operational Highlights4

Revenues were $861 million, up 22.3% year over year primarily due to growth in both service and equipment revenues, including favorable foreign exchange impacts. Service revenues were $579 million, up 19.4% year over year, driven by growth in wholesale revenue and subscribers. Equipment revenues were $282 million, up 28.8% year over year due to higher sales.

Operating loss was ($79) million compared to ($117) million in the year-ago quarter. EBITDA* was $85 million compared to $36 million in the year-ago quarter.

Total wireless net adds were 605,000, including 515,000 prepaid net adds, 71,000 postpaid net adds and 19,000 reseller net adds.

FirstNet and the FirstNet logo are registered trademarks and service marks of the First Responder Network Authority. All other marks are the property of their respective owners.


1 With the closing of the WarnerMedia transaction in April 2022, historical financial results have been recast to present WarnerMedia and other divested businesses, including Vrio, Xandr and Playdemic, as discontinued operations. Consolidated results reflect AT&T's remaining continuing operations, which include U.S. Video and certain other dispositions in the prior year.


2 Reported Earnings per Common Share from continuing operations is calculated using Income (Loss) from Continuing Operations, less Net Income Attributable to Noncontrolling Interest and Preferred Stock Dividends and adjustment for distributions on Mobility II preferred interests and share-based payments (in periods of net income) or adjustment of carrying value of noncontrolling interest (in periods of net loss), divided by the weighted average common shares outstanding for the period.


3 The more than 3 million U.S. business customer locations are included within the 10+ million U.S. business customer locations on or within 1,000 feet of our fiber.


4 Latin America segment results have been recast to classify Vrio as a discontinued operation. Segment results consist solely of AT&T Mexico operations.

About AT&T

We help more than 100 million U.S. families, friends and neighbors, plus nearly 2.5 million businesses, connect to greater possibility. From the first phone call 140+ years ago to our 5G wireless and multi-gig internet offerings today, we @ATT innovate to improve lives. For more information about AT&T Inc. ((T), please visit us at about.att.com. Investors can learn more at investors.att.com.

Cautionary Language Concerning Forward-Looking Statements

Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise. This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company's website at https://investors.att.com.

Non-GAAP Measures and Reconciliations to GAAP Measures

Schedules and reconciliations of non-GAAP financial measures cited in this document to the most directly comparable financial measures under generally accepted accounting principles (GAAP) can be found at https://investors.att.com and in our Form 8-K dated January 25, 2023. Free cash flow, EBITDA, adjusted operating income and net debt are non-GAAP financial measures frequently used by investors and credit rating agencies.

Adjusted diluted EPS from continuing operations includes adjusting items to revenues and costs that we consider non-operational in nature, including items arising from asset acquisitions or dispositions. We adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often-significant impact on our results (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses). Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income. The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for adjustments that, given their magnitude, can drive a change in the effective tax rate, in these cases we use the actual tax expense or combined marginal rate of approximately 25%.

For 4Q22, Adjusted EPS from continuing operations of $0.61 is Reported EPS from continuing operations of ($3.20) adjusted for $3.57 impairments, abandonments and restructuring, $0.19 actuarial loss on benefit plans, $0.04 proportionate share of intangible amortization at the DIRECTV equity method investment, $0.04 benefit-related and other costs and $0.01 impact of Accounting Standards Update (ASU) No. 2020-06, minus $0.04 benefit from tax items.

For 4Q21, Adjusted EPS from continuing operations of $0.56 is Diluted EPS from continuing operations of $0.66 adjusted for $0.05 proportionate share of intangible amortization at the DIRECTV equity method investment, $0.01 asset impairments and $0.01 impact of ASU No. 2020-06, minus $0.11 actuarial gain on benefit plans, $0.03 benefit from tax items and $0.03 of benefit-related and other costs.

For 2022, Adjusted EPS from continuing operations of $2.57 is Reported EPS from continuing operations of ($1.10) adjusted for $3.59 impairments, abandonments and restructuring, $0.19 benefit-related and other costs, $0.16 proportionate share of intangible amortization at the DIRECTV equity method investment, and $0.06 impact of ASU No. 2020-06, minus $0.20 actuarial gain on benefit plans and $0.13 benefit from tax items.

For 2021, Adjusted EPS from continuing operations of $2.63 is Diluted EPS from continuing operations of $3.02 adjusted for $0.09 proportionate share of intangible amortization at the DIRECTV equity method investment, $0.03 impact of ASU No. 2020-06, and $0.02 asset impairments, minus $0.42 actuarial gain on benefit plans, $0.08 benefit from tax items and $0.03 of benefit-related and other costs.

The company expects adjustments to 2023 reported diluted EPS to include our proportionate share of intangible amortization at the DIRECTV equity method investment in the range of $1.3 billion, a non-cash mark-to-market benefit plan gain/loss, the impact of ASU No. 2020-06 and other items. The company expects the mark-to-market adjustment, which is driven by interest rates and investment returns that are not reasonably estimable at this time, to be a significant item. Our projected 2023 Adjusted EPS depends on future levels of revenues and expenses, most of which are not reasonably estimable at this time. Accordingly, we cannot provide a reconciliation between these projected non-GAAP metrics and the reported GAAP metrics without unreasonable effort.

Capital investment from continuing operations is a non-GAAP financial measure that provides an additional view of cash paid for capital investment to provide a comprehensive view of cash used to invest in our networks, product developments and support systems. In connection with capital improvements, we negotiate with some of our vendors to obtain favorable payment terms of 120 days or more, referred to as vendor financing, which are excluded from capital expenditures and reported in accordance with GAAP as financing activities. Capital investment from continuing operations includes capital expenditures from continuing operations and cash paid for vendor financing ($0.5 billion in 4Q22, $4.7 billion in 2022). For 2023, capital investment is expected to be about $24 billon, consistent with 2022 levels. Due to high variability and difficulty in predicting items that impact capital expenditures and vendor financing payments, the company is not able to provide a reconciliation between projected capital investment and the most comparable GAAP metrics without unreasonable effort.

Free cash flow from continuing operations for 4Q22 of $6.1 billion is cash from operating activities from continuing operations of $10.3 billion, plus cash distributions from DIRECTV classified as investing activities of $0.4 billion, minus capital expenditures from continuing operations of $4.2 billion and cash paid for vendor financing of $0.5 billion. 

For 2022, free cash flow from continuing operations of $14.1 billion is cash from operating activities from continuing operations of $35.8 billion, plus cash distributions from DIRECTV classified as investing activities of $2.6 billion, minus capital expenditures from continuing operations of $19.6 billion and cash paid for vendor financing of $4.7 billion.

Due to high variability and difficulty in predicting items that impact cash from operating activities, cash distributions from DIRECTV, capital expenditures and vendor financing payments, the company is not able to provide a reconciliation between projected free cash flow and the most comparable GAAP metric without unreasonable effort.

EBITDA is operating income before depreciation and amortization. EBITDA margin is operating income before depreciation and amortization, divided by total revenues. EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.

Adjusted EBITDA is calculated by excluding from operating revenues and operating expenses certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs, significant abandonments and impairment, benefit-related gains and losses, employee separation and other material gains and losses.

EBITDA and Adjusted EBITDA estimates depend on future levels of revenues and expenses which are not reasonably estimable at this time. Accordingly, we cannot provide a reconciliation between projected EBITDA and projected Adjusted EBITDA and the most comparable GAAP metrics without unreasonable effort.

Standalone AT&T results reflect the historical operating results of the company presented as continuing operations, and also excludes U.S. Video and other 2021 dispositions included in Corporate and Other. Standalone AT&T results are presented to provide 2021 full-year results that are comparable to 2022 continuing operations financial data. For the current and future quarters and 2022, standalone AT&T is the same as continuing operations. See our Form 8-K dated January 25, 2023, for further discussion and information.           

Operating Revenues of standalone AT&T for 2021 of $118.2 billion is calculated as Operating Revenues from continuing operations of $134.0 billion less revenues of $15.8 billion from U.S. Video and other divested businesses.

Adjusted Operating Income of standalone AT&T for 2021 of $22.3 billion is calculated as Adjusted Operating Income from continuing operations of $26.2 billion less $3.9 billion from U.S. Video and other divested businesses, including a comparative adjustment applied to prior periods for estimated DIRECTV-related retained costs. After the 3Q21 DIRECTV transaction, we retained incurred operations and support costs and depreciation of network infrastructure, that provides both U-verse video and broadband services to customers. Approximately 60% of these costs will be received from DIRECTV through transition service agreements and commercial arrangements.

Standalone AT&T Adjusted diluted EPS for 2021 of $2.41 is calculated as Adjusted EPS from continuing operations of $2.63 less $0.22 of adjustments to exclude operating income of U.S. Video (including estimated retained costs) and other dispositions, and include our estimate of equity in net income from DIRECTV investment.

Adjusted Operating Income from continuing operations is operating income from continuing operations adjusted for revenues and costs we consider non-operational in nature, including items arising from asset acquisitions or dispositions. For 4Q22, Adjusted Operating Income from continuing operations of $5.7 billion is calculated as operating income from continuing operations of ($21.1) billion plus $26.7 billion of adjustments. For 4Q21, Adjusted Operating Income from continuing operations of $5.0 billion is calculated as operating income from continuing operations of $4.9 billion plus $0.1 billion of adjustments.

For 2022, Adjusted Operating Income from continuing operations of $23.5 billion is calculated as Operating Income from continuing operations of ($4.6) billion plus $28.1 billion of adjustments. For 2021, Adjusted Operating Income from continuing operations of $26.2 billion is calculated as operating income from continuing operations of $25.9 billion plus $0.3 billion of adjustments. Adjustments for all periods are detailed in the Discussion and Reconciliation of Non-GAAP Measures included in our Form 8-K dated January 25, 2023.

Adjusted Equity in Net Income from DIRECTV investment of $0.7 billion for 4Q22 ($3.4 billion for 2022) is calculated as equity income from DIRECTV of $0.4 billion ($1.8 billion for 2022) reported in Equity in Net Income of Affiliates and excludes $0.4 billion ($1.5 billion for 2022) of AT&T's proportionate share of the noncash depreciation and amortization of fair value accretion from DIRECTV's revaluation of assets and purchase price allocation. Our projected 2023 adjusted equity in net income from DIRECTV investment depends on financial projections provided by DIRECTV.  The company is not able to provide a reconciliation to the most comparable GAAP metric as DIRECTV's financial results are not reasonably estimable by AT&T. 

Net Debt of $132.2 billion at December 31, 2022 is calculated as Total Debt of $135.9 billion less Cash and Cash Equivalents of $3.7 billion).

Discussion and Reconciliation of Non-GAAP Measures for Continuing Operations

We believe the following measures are relevant and useful information to investors as they are part of AT&T's internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of AT&T and its segments. Management also uses these measures as a method of comparing performance with that of many of our competitors. These measures should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (GAAP).

On April 8, 2022, we completed the previously announced separation of our WarnerMedia business. With the separation and distribution, the WarnerMedia business met the criteria for discontinued operations. For discontinued operations, we evaluated transactions that were components of AT&T's single plan of a strategic shift, including dispositions that may not have individually met the criteria due to materiality, and have determined discontinued operations to be comprised of WarnerMedia, Vrio, Xandr and Playdemic Ltd. (Playdemic). These businesses are reflected in our historical financial statements as discontinued operations, including for periods prior to the consummation of the WarnerMedia/Discovery transaction. The information below refers only to our continuing operations and does not include discussion of balances or activity of WarnerMedia, Vrio, Xandr and Playdemic.

Free Cash Flow

Free cash flow is defined as cash from operations and cash distributions from DIRECTV (classified as investing activities) minus capital expenditures and cash paid for vendor financing (classified as financing activities). Free cash flow after dividends is defined as cash from operations and cash distributions from DIRECTV, minus capital expenditures, cash paid for vendor financing and dividends on common and preferred shares. Free cash flow dividend payout ratio is defined as the percentage of dividends paid on common and preferred shares to free cash flow. We believe these metrics provide useful information to our investors because management views free cash flow as an important indicator of how much cash is generated by routine business operations, including capital expenditures and vendor financing, and from our continued economic interest in the U.S. video operations as part of our DIRECTV equity method investment, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.

Free Cash Flow and Free Cash Flow Dividend Payout Ratio

Dollars in millions






Fourth Quarter


Year Ended


2022

2021


2022

2021

Net cash provided by operating activities from continuing operations1

$       10,348

$          8,077


$       35,812

$        37,170

Add: Distributions from DIRECTV classified as investing

         activities

444

1,323


2,649

1,323

Less: Capital expenditures

(4,229)

(3,494)


(19,626)

(15,545)

Less: Cash paid for vendor financing

(460)

(583)


(4,697)

(4,596)

Free Cash Flow2

6,103

5,323


14,138

18,352







Less: Dividends paid

(2,014)

(3,749)


(9,859)

(15,068)

Free Cash Flow after Dividends

$         4,089

$          1,574


$         4,279

$          3,284

Free Cash Flow Dividend Payout Ratio

33.0 %

70.4 %


69.7 %

82.1 %

Includes distributions from DIRECTV of $379 in the fourth quarter and $1,808 for the year ended December 31, 2022.

For Standalone free cash flow see Exhibit 99.4

 

Cash Paid for Capital Investment

In connection with capital improvements, we negotiate with some of our vendors to obtain favorable payment terms of 120 days or more, referred to as vendor financing, which are excluded from capital expenditures and reported in accordance with GAAP as financing activities. We present an additional view of cash paid for capital investment to provide investors with a comprehensive view of cash used to invest in our networks, product developments and support systems. 

Cash Paid for Capital Investment

Dollars in millions






Fourth Quarter


Year Ended


2022

2021


2022

2021

Capital Expenditures

$           (4,229)

$           (3,494)


$         (19,626)

$         (15,545)

Cash paid for vendor financing

(460)

(583)


(4,697)

(4,596)

Cash paid for Capital Investment

$           (4,689)

$           (4,077)


$         (24,323)

$         (20,141)

 

EBITDA

Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) – net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP.

EBITDA service margin is calculated as EBITDA divided by service revenues.

These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T's ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing cash generation potential with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which management is responsible and upon which we evaluate performance.

We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Mobility business unit operating margin. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.

There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. For market comparability, management analyzes performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.

EBITDA, EBITDA Margin and EBITDA Service Margin

Dollars in millions






Fourth Quarter


Year Ended


2022

2021


2022

2021

Income (Loss) from Continuing Operations

$         (23,120)

$             5,202


$           (6,874)

$           23,776

Additions:






Income Tax Expense (Benefit)

(77)

939


3,780

5,395

Interest Expense

1,560

1,626


6,108

6,716

Equity in Net (Income) of Affiliates

(374)

(444)


(1,791)

(603)

Other (Income) Expense - Net

919

(2,429)


(5,810)

(9,387)

Depreciation and amortization

4,595

4,500


18,021

17,852

EBITDA

(16,497)

9,394


13,434

43,749

Transaction and other cost

84

(2)


425

41

Benefit-related (gain) loss

(109)

(20)


108

(128)

Assets impairments and abandonment and restructuring

26,753

108


27,498

213

Adjusted EBITDA1

$           10,231

$             9,480


$           41,465

$           43,875

Less: Video and Other dispositions

4


(3,807)

Standalone AT&T Adjusted EBITDA2

$           10,231

$             9,484


$           41,465

$           40,068

See page 5 for additional discussion and reconciliation of adjusted items.

See Exhibit 99.4 for reconciliation of Standalone AT&T Adjusted EBITDA.

 

Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin

Dollars in millions






Fourth Quarter


Year Ended


2022

2021


2022

2021

Communications Segment

Operating Income

$         7,221

$          6,410


$       29,107

$        28,393

Additions:






Depreciation and amortization

4,258

4,156


16,681

16,409

EBITDA

11,479

10,566


45,788

44,802







Total Operating Revenues

30,365

30,206


117,067

114,730







Operating Income Margin

23.8 %

21.2 %


24.9 %

24.7 %

EBITDA Margin

37.8 %

35.0 %


39.1 %

39.0 %

Mobility

Operating Income

$         6,044

$          5,332


$       24,528

$        23,370

Additions:






Depreciation and amortization

2,080

2,050


8,198

8,122

EBITDA

8,124

7,382


32,726

31,492







Total Operating Revenues

21,501

21,146


81,780

78,254

Service Revenues

15,434

14,669


60,499

57,590







Operating Income Margin

28.1 %

25.2 %


30.0 %

29.9 %

EBITDA Margin

37.8 %

34.9 %


40.0 %

40.2 %

EBITDA Service Margin

52.6 %

50.3 %


54.1 %

54.7 %

Business Wireline

Operating Income

$            801

$             876


$         3,252

$          4,027

Additions:






Depreciation and amortization

1,360

1,317


5,314

5,192

EBITDA

2,161

2,193


8,566

9,219







Total Operating Revenues

5,635

5,901


22,538

23,937







Operating Income Margin

14.2 %

14.8 %


14.4 %

16.8 %

EBITDA Margin

38.3 %

37.2 %


38.0 %

38.5 %

Consumer Wireline

Operating Income

$            376

$             202


$         1,327

$             996

Additions:






Depreciation and amortization

818

789


3,169

3,095

EBITDA

1,194

991


4,496

4,091







Total Operating Revenues

3,229

3,159


12,749

12,539







Operating Income Margin

11.6 %

6.4 %


10.4 %

7.9 %

EBITDA Margin

37.0 %

31.4 %


35.3 %

32.6 %







Latin America Segment - Mexico






Operating Income

$            (79)

$           (117)


$          (326)

$           (510)

Additions:






Depreciation and amortization

164

153


658

605

EBITDA

85

36


332

95







Total Operating Revenues

861

704


3,144

2,747







Operating Income Margin

-9.2 %

-16.6 %


-10.4 %

-18.6 %

EBITDA Margin

9.9 %

5.1 %


10.6 %

3.5 %

 

Adjusting Items

Adjusting items include revenues and costs we consider non-operational in nature, including items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often-significant impact on our results (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses). Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income. Prior periods have been recast for consistency to include gains on benefit-related and other cost investments.

The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for adjustments that, given their magnitude, can drive a change in the effective tax rate, in these cases we use the actual tax expense or combined marginal rate of approximately 25%.  

Adjusting Items

Dollars in millions






Fourth Quarter


Year Ended


2022

2021


2022

2021

Operating Expenses






Transaction and other costs

84

(2)


425

41

Benefit-related (gain) loss

(109)

(20)


108

(128)

Asset impairments and abandonment and restructuring

26,753

108


27,498

213

Adjustments to Operations and Support Expenses

26,728

86


28,031

126

 Amortization of intangible assets

16

28


76

170

Adjustments to Operating Expenses

26,744

114


28,107

296

Other






 DIRECTV intangible amortization (proportionate share)

359

434


1,547

826

Benefit-related (gain) loss, transaction financing costs and other

420

(84)


1,242

(421)

Actuarial (gain) loss

1,839

(1,119)


(1,999)

(4,140)

Adjustments to Income Before Income Taxes

29,362

(655)


28,897

(3,439)

Tax impact of adjustments

1,082

(131)


882

(854)

Tax-related items

329

240


977

608

Adjustments to Net Income

$           27,951

$              (764)


$           27,038

$           (3,193)


Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs, actuarial gains and losses, significant abandonments and impairment, benefit-related gains and losses, employee separation and other material gains and losses. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T's calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.

Adjusted Operating Income, Adjusted Operating Income Margin,

Adjusted EBITDA and Adjusted EBITDA Margin

Dollars in millions






Fourth Quarter


Year Ended


2022

2021


2022

2021

Operating Income

$     (21,092)

$          4,894


$       (4,587)

$        25,897

Adjustments to Operating Expenses

26,744

114


28,107

296

Adjusted Operating Income

5,652

5,008


23,520

26,193







EBITDA

(16,497)

9,394


13,434

43,749

Adjustments to Operations and Support Expenses

26,728

86


28,031

126

Adjusted EBITDA

10,231

9,480


41,465

43,875







Total Operating Revenues

31,343

31,095


120,741

134,038







Operating Income Margin

(67.3) %

15.7 %


(3.8) %

19.3 %

Adjusted Operating Income Margin

18.0 %

16.1 %


19.5 %

19.5 %

Adjusted EBITDA Margin

32.6 %

30.5 %


34.3 %

32.7 %

 

Adjusted Diluted EPS


Fourth Quarter


Year Ended


2022

2021


2022

2021

Diluted Earnings Per Share (EPS)

$          (3.20)

$               0.66


$          (1.10)

$               3.02

DIRECTV intangible amortization (proportionate share)

0.04

0.05


0.16

0.09

Actuarial (gain) loss 1

0.19

(0.11)


(0.20)

(0.42)

  Impairments, abandonments and restructuring

3.57

0.01


3.59

0.02

  Benefit-related, transaction and other costs1, 2

0.05

(0.02)


0.25

Tax-related items

(0.04)

(0.03)


(0.13)

(0.08)

Adjusted EPS

$            0.61

$               0.56


$            2.57

$               2.63

Less: Video and Other dispositions


(0.22)

Standalone AT&T Adjusted EPS

$            0.61

$               0.56


$            2.57

$               2.41

Year-over-year growth - Adjusted

8.9 %



6.6 %


Weighted Average Common Shares Outstanding

   with Dilution (000,000)

7,533

7,541


7,587

7,503

Includes adjustments for actuarial gains or losses associated with our pension and postemployment benefit plans, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. We recorded total net actuarial gains of $2.0 billion in 2022. As a result, adjusted EPS reflects an expected return on plan assets of $3.2 billion (based on an average expected return on plan assets of 6.75% for our pension trust and 4.5% for our VEBA trusts), rather than the actual return on plan assets of $11.3 billion loss (actual pension return of -14.8% and VEBA return of -13.2%), included in the GAAP measure of income. Adjustments also include the impact to our 2022 quarterly benefit expense accruals that resulted from quarterly remeasurements of plan assets and obligations, which included increases in the assumed discount rates.


As of January 1, 2022, we adopted, through retrospective application, Accounting Standards Update (ASU) No. 2020-06, which requires that instruments which may be settled in cash or stock to be presumed settled in stock in calculating diluted EPS. While our intent is to settle the Mobility II preferred interests in cash, the ability to settle this instrument in AT&T shares will result in additional dilutive impact, the magnitude of which is influenced by the fair value of the Mobility II preferred interests and the average AT&T common stock price during the reporting period, which could vary from period-to-period.


Additionally, in the fourth quarter of 2022, all outstanding Mobility II preferred interests were put to us, with approximately one-third redeemed in the fourth-quarter; approximately 107 million interests will be redeemed primarily in October 2023 and 107 million redeemed in October 2024, per the terms of the agreement, unless called or put is accepted by AT&T prior. With the certainty of redemption, the remaining Mobility preferred interest was reclassified from equity to a liability at fair value, with approximately $2.7 billion recorded in current as "Accounts payable and accrued liabilities" and $2.7 billion as "Other noncurrent liabilities. The difference between the carrying value of the Mobility preferred interest and the fair value of the instrument upon settlement and/or balance sheet reclassification was recorded as an adjustment to additional paid-in capital; the fair value adjustment of these instruments is required to be included when calculating EPS.


Given our intent to settle the Mobility II preferred interests in cash, and the nonoperational fair value adjustment recorded as "Additional Paid in Capital," we have excluded these impacts from our adjusted EPS calculation. The per share impact was to decrease reported diluted EPS $0.01 and $0.01 for the quarters ended December 31, 2022 and 2021, and $0.06 and $0.03 for the year ended December 31, 2022 and 2021, respectively.


See Exhibit 99.4 for reconciliation of Standalone AT&T Adjusted EPS.

 

Net Debt to Adjusted EBITDA

Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. Our Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters Adjusted EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt.

Net Debt to Adjusted EBITDA - 2022

Dollars in millions









Three Months Ended





March. 31


June  30,


Sept.  30,


Dec.  31,


Four Quarters



2022 1


2022 1


2022 1


2022 1


Adjusted EBITDA


$           10,190


$           10,330


$           10,714


$           10,231


$            41,465

End-of-period current debt










7,467

End-of-period long-term debt










128,423

Total End-of-Period Debt










135,890

Less: Cash and Cash Equivalents










3,701

Net Debt Balance










132,189

Annualized Net Debt to Adjusted EBITDA Ratio










3.19

As reported in Exhibit 99.4

 

Net Debt to Adjusted EBITDA - 2021

Dollars in millions









Three Months Ended





March 31,


June 30,


Sept. 30,


Dec. 31,


Four Quarters



2021 1


2021 1


2021 1


2021 1


Adjusted EBITDA


$           11,661


$           11,931


$           10,803


$             9,480


$           43,875

End-of-period current debt










24,620

End-of-period long-term debt










151,011

Total End-of-Period Debt










175,631

Less: Cash and Cash Equivalents










19,223

Net Debt Balance










156,408

Annualized Net Debt to Adjusted EBITDA Ratio










3.56

As reported in Exhibit 99.4

 

Supplemental Operational Measures

We provide a supplemental discussion of our business solutions operations that is calculated by combining our Mobility and Business Wireline operating units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results.

Supplemental Operational Measure


Fourth Quarter


December 31, 2022


December 31, 2021


Mobility

Business

Wireline

Adjustments1

Business

Solutions


Mobility

Business

Wireline

Adjustments1

Business

Solutions

Operating Revenues










Wireless service

$     15,434

$            —

$          (13,176)

$      2,258


$   14,669

$          —

$        (12,561)

$      2,108

Wireline services

5,473

5,473


5,727

5,727

Wireless equipment

6,067

(5,130)

937


6,477

(5,447)

1,030

Wireline equipment

162

162


174

174

Total Operating Revenues

21,501

5,635

(18,306)

8,830


21,146

5,901

(18,008)

9,039











Operating Expenses










Operations and support

13,377

3,474

(11,195)

5,656


13,764

3,708

(11,437)

6,035

EBITDA

8,124

2,161

(7,111)

3,174


7,382

2,193

(6,571)

3,004

Depreciation and amortization

2,080

1,360

(1,716)

1,724


2,050

1,317

(1,700)

1,667

Total Operating Expenses

15,457

4,834

(12,911)

7,380


15,814

5,025

(13,137)

7,702

Operating Income

6,044

801

(5,395)

1,450


5,332

876

(4,871)

1,337

Non-business wireless reported in the Communications segment under the Mobility business unit.

Results have been recast to conform to the current period's classification.

 











Supplemental Operational Measure


Year Ended


December 31, 2022


December 31, 2021


Mobility

Business

Wireline

Adjustments1

Business

Solutions


Mobility

Business

Wireline

Adjustments1

Business

Solutions

Operating Revenues










Wireless service

$     60,499

$            —

$          (51,710)

$      8,789


$   57,590

$          —

$        (49,429)

$      8,161

Wireline service

21,891

21,891


23,224

23,224

Wireless equipment

21,281

(17,712)

3,569


20,664

(17,250)

3,414

Wireline equipment

647

647


713

713

Total Operating Revenues

81,780

22,538

(69,422)

34,896


78,254

23,937

(66,679)

35,512











Operating Expenses










Operations and support

49,054

13,972

(40,547)

22,479


46,762

14,718

(38,702)

22,778

EBITDA

32,726

8,566

(28,875)

12,417


31,492

9,219

(27,977)

12,734

Depreciation and amortization

8,198

5,314

(6,763)

6,749


8,122

5,192

(6,744)

6,570

Total Operating Expenses

57,252

19,286

(47,310)

29,228


54,884

19,910

(45,446)

29,348

Operating Income

24,528

3,252

(22,112)

5,668


23,370

4,027

(21,233)

6,164

Non-business wireless reported in the Communications segment under the Mobility business unit.

Results have been recast to conform to the current period's classification.

 

* Further clarification and explanation of non-GAAP measures and reconciliations to their most comparable GAAP measures can be found in the "Non-GAAP Measures and Reconciliations to GAAP Measures" section of the release and at https://investors.att.com.

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