AT&T Reports Third-Quarter Results

October 22, 2020 6:26 AM

Solid wireless and fiber subscriber gains reflect resiliency of core connectivity businesses;

free cash flow guidance updated; debt reduction continues

Note: AT&T’s third-quarter earnings conference call will be webcast at 8:30 a.m. ET on Thursday, October 22, 2020. The webcast and related materials will be available on AT&T’s Investor Relations website at https://investors.att.com.

DALLAS--(BUSINESS WIRE)-- AT&T Inc. (NYSE:T) reported third-quarter results that showed solid subscriber growth in the company’s market focus areas of wireless and fiber broadband while continuing to reflect strong cash flows, financial strength and business resiliency. The company also updated guidance and now expects 2020 free cash flow of $26 billion or higher, with a dividend payout ratio in the high 50s%.2

Third-Quarter Highlights

Communications

WarnerMedia

“We delivered a solid quarter with good subscriber momentum in our market focus areas of connectivity and software-based entertainment,” said John Stankey, AT&T chief executive officer. “Wireless postpaid growth was the strongest that it’s been in years with one million net additions, including 645,000 phones. We added more than 350,000 fiber broadband customers and are on track to grow our fiber base by more than 25% this year. And we continue to grow and scale HBO Max, with total domestic HBO and HBO Max subscribers topping 38 million — well ahead of our expectations for the full year. Our strong cash flow in the quarter positions us to continue investing in our growth areas and pay down debt. We now expect 2020 free cash flow of $26 billion or higher with a full-year dividend payout ratio in the high 50s%.”

Consolidated Financial Results

AT&T’s consolidated revenues for the third quarter totaled $42.3 billion versus $44.6 billion in the year-ago quarter. The COVID-19 pandemic impacted revenues across all businesses, particularly WarnerMedia and also domestic wireless service revenues, primarily from lower international roaming. For the quarter, revenue declines included domestic video, Warner Bros. television and theatrical products, legacy wireline services and Latin America due to foreign exchange pressure. These declines were partly offset by higher wireless equipment revenues and higher advertising revenues associated with timing shift of sports from the first half of 2020.

Operating expenses were $36.2 billion versus $36.7 billion in the year-ago quarter. Expenses decreased from lower Entertainment Group costs, lower Warner Bros. film and television production costs associated with lower revenues, and foreign exchange impacts on Latin America expenses. These decreases were partly offset by higher Turner programming costs due to the shift of sports from the first half of the year, higher HBO Max investments, incremental COVID-19 costs and higher subscriber acquisition and fulfillment costs.

Operating income was $6.1 billion versus $7.9 billion in the year-ago quarter, due to the impact of lower revenues and operating expenses and incremental COVID-19 costs. Operating income margin was 14.5% versus 17.7% in the year-ago quarter. When adjusted for amortization and other items, operating income was $8.2 billion versus $9.9 billion in the year-ago quarter, and operating income margin was 19.4% versus 22.2% in the year-ago quarter.

Third-quarter net income attributable to common stock was $2.8 billion, or $0.39 per diluted common share, versus $3.7 billion, or $0.50 per diluted common share, in the year-ago quarter. Adjusting for $0.37, which includes merger-amortization costs, debt redemption premiums and other items, earnings per diluted common share was $0.76 compared to an adjusted $0.94 in the year-ago quarter. The company did not adjust for ($0.21) of impacts from COVID-19, including ($0.02) of incremental costs and ($0.19) of estimated revenues.

Cash from operating activities was $12.1 billion, and capital expenditures were $3.9 billion. Gross capital investment – which consists of capital expenditures plus cash payments of more than $600 million for vendor payments – totaled $4.5 billion. Free cash flow – cash from operating activities minus capital expenditures – was $8.3 billion for the quarter. Net debt declined by $2.9 billion sequentially in the quarter, and net debt to adjusted EBITDA at the end of the third quarter was 2.66x.6

Guidance

The company expects 2020 free cash flow of $26 billion or higher with a full-year dividend payout ratio in the high 50s%.2 The company also continues to expect gross capital investment in the $20 billion range in 2020.1

1Gross capital investment includes capital expenditures and cash payments for vendor financing and excludes expected FirstNet reimbursements; in 2020, vendor financing is expected to be about in the $3 billion range and FirstNet reimbursements are expected to be about $1 billion.
2Free cash flow dividend payout ratio is total dividends paid divided by free cash flow. Free cash flow is cash from operating activities minus capital expenditures. Due to high variability and difficulty in predicting items that impact cash from operating activities and capital expenditures, the company is not able to provide a reconciliation between projected free cash flow and the most comparable GAAP metric without unreasonable effort.
3Fastest Nationwide 5G network based on AT&T analysis of Ookla® of Speedtest Intelligence® data median 5G download speeds for Q3 2020 comparing only networks offering “nationwide” 5G coverage. 5G Coverage analysis based on carrier’s public statements. Fastest network based on analysis by Ookla® of Speedtest Intelligence® data of average download speeds for Q1, Q2, Q3 and Q4 2019, and median download speeds for Q1, Q2 and Q3 2020. Ookla trademarks used under license and reprinted with permission.
4Domestic HBO and HBO Max subscribers do not include customers that are part of a free trial.
5Worldwide HBO/HBO Max subscribers consist of domestic and international HBO subscribers and domestic HBO Max subscribers and excludes Cinemax subscribers.
6Net Debt to adjusted EBITDA ratios are non-GAAP financial measures that are frequently used by investors and credit rating agencies to provide relevant and useful information. Our Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters of Adjusted EBITDA.

*About AT&T

AT&T Inc. (NYSE:T) is a diversified, global leader in telecommunications, media and entertainment, and technology. WarnerMedia is a leading media and entertainment company that creates and distributes premium and popular content to global audiences through its consumer brands, including: HBO, HBO Max, Warner Bros., TNT, TBS, truTV, CNN, DC Entertainment, New Line, Cartoon Network, Adult Swim and Turner Classic Movies. Xandr, now part of WarnerMedia, provides marketers with innovative and relevant advertising solutions for consumers around premium video content and digital advertising through its platform. AT&T Communications provides more than 100 million U.S. consumers with entertainment and communications experiences across TV, mobile and broadband. Plus, it serves high-speed, highly secure connectivity and smart solutions to nearly 3 million business customers. AT&T Latin America provides pay-TV services across 10 countries and territories in Latin America and the Caribbean and wireless services to consumers and businesses in Mexico.

AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc. Additional information is available at about.att.com. © 2020 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.

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.

Discussion and Reconciliation of Non-GAAP Measures

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).

Free Cash Flow

Free cash flow is defined as cash from operations minus capital expenditures. Free cash flow after dividends is defined as cash from operations minus capital expenditures 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 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

Third Quarter

Nine-Month Period

2020

2019

2020

2019

Net cash provided by operating activities

$

12,123

$

11,389

$

33,048

$

36,725

Less: Capital expenditures

(3,851

)

(5,189

)

(13,283

)

(15,843

)

Free Cash Flow

8,272

6,200

19,765

20,882

Less: Dividends paid

(3,741

)

(3,726

)

(11,215

)

(11,162

)

Free Cash Flow after Dividends

$

4,531

$

2,474

$

8,550

$

9,720

Free Cash Flow Dividend Payout Ratio

45.2

%

60.1

%

56.7

%

53.5

%

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

Third Quarter

Nine-Month Period

2020

2019

2020

2019

Capital Expenditures

$

(3,851

)

$

(5,189

)

$

(13,283

)

$

(15,843

)

Cash paid for vendor financing

(611

)

(765

)

(1,965

)

(2,601

)

Cash paid for Capital Investment

$

(4,462

)

$

(5,954

)

$

(15,248

)

$

(18,444

)

FirstNet reimbursement

(64

)

(143

)

(103

)

Gross Capital Investment

$

(4,526

)

$

(5,954

)

$

(15,391

)

$

(18,547

)

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.

When discussing our segment, business unit and supplemental results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from operating contribution.

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 operating performance 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

Third Quarter

Year to Date

2020

2019

2020

2019

Net Income

$

3,168

$

3,949

$

9,694

$

12,271

Additions:

Income Tax Expense

766

937

3,003

3,059

Interest Expense

1,972

2,083

6,031

6,373

Equity in Net (Income) Loss of Affiliates

(5

)

(3

)

11

(36

)

Other (Income) Expense - Net

231

935

(1,589

)

967

Depreciation and amortization

7,030

6,949

21,537

21,256

EBITDA

13,162

14,850

38,687

43,890

Total Operating Revenues

42,340

44,588

126,069

134,372

Service Revenues

37,782

40,317

113,716

122,024

EBITDA Margin

31.1

%

33.3

%

30.7

%

32.7

%

EBITDA Service Margin

34.8

%

36.8

%

34.0

%

36.0

%

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

Dollars in millions

Third Quarter

Nine-Month Period

2020

2019

2020

2019

Communications Segment

Operating Contribution

$

7,648

$

8,036

$

23,963

$

24,718

Additions:

Depreciation and amortization

4,627

4,598

13,901

13,740

EBITDA

12,275

12,634

37,864

38,458

Total Operating Revenues

34,287

35,401

102,128

105,837

Operating Income Margin

22.3

%

22.7

%

23.5

%

23.4

%

EBITDA Margin

35.8

%

35.7

%

37.1

%

36.3

%

Mobility

Operating Contribution

$

5,691

$

5,742

$

17,284

$

16,818

Additions:

Depreciation and amortization

2,021

2,011

6,078

6,027

EBITDA

7,712

7,753

23,362

22,845

Total Operating Revenues

17,894

17,701

52,445

52,356

Service Revenues

13,883

13,930

41,520

41,383

Operating Income Margin

31.8

%

32.4

%

33.0

%

32.1

%

EBITDA Margin

43.1

%

43.8

%

44.5

%

43.6

%

EBITDA Service Margin

55.5

%

55.7

%

56.3

%

55.2

%

Entertainment Group

Operating Contribution

$

779

$

1,084

$

3,144

$

4,076

Additions:

Depreciation and amortization

1,277

1,316

3,875

3,978

EBITDA

2,056

2,400

7,019

8,054

Total Operating Revenues

10,053

11,197

30,637

33,893

Operating Income Margin

7.7

%

9.7

%

10.3

%

12.0

%

EBITDA Margin

20.5

%

21.4

%

22.9

%

23.8

%

Business Wireline

Operating Contribution

$

1,178

$

1,210

$

3,535

$

3,824

Additions:

Depreciation and amortization

1,329

1,271

3,948

3,735

EBITDA

2,507

2,481

7,483

7,559

Total Operating Revenues

6,340

6,503

19,046

19,588

Operating Income Margin

18.6

%

18.6

%

18.6

%

19.5

%

EBITDA Margin

39.5

%

38.2

%

39.3

%

38.6

%

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

Dollars in millions

Third Quarter

Nine-Month Period

2020

2019

2020

2019

WarnerMedia Segment

Operating Contribution

$

1,770

$

2,871

$

5,700

$

7,784

Additions:

Equity in Net (Income) of Affiliates

(11

)

(15

)

(30

)

(137

)

Depreciation and amortization

171

165

501

425

EBITDA

1,930

3,021

6,171

8,072

Total Operating Revenues

7,514

8,350

22,176

25,990

Operating Income Margin

23.4

%

34.2

%

25.6

%

29.4

%

EBITDA Margin

25.7

%

36.2

%

27.8

%

31.1

%

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

Dollars in millions

Third Quarter

Nine-Month Period

2020

2019

2020

2019

Latin America Segment

Operating Contribution

(177

)

$

(166

)

$

(562

)

$

(548

)

Additions:

Equity in Net (Income) of Affiliates

(14

)

(13

)

(26

)

(25

)

Depreciation and amortization

250

284

773

868

EBITDA

59

105

185

295

Total Operating Revenues

1,396

1,730

4,218

5,205

Operating Income Margin

-13.7

%

-10.3

%

-13.9

%

-11.0

%

EBITDA Margin

4.2

%

6.1

%

4.4

%

5.7

%

Vrio

Operating Contribution

$

(34

)

$

13

$

(101

)

$

43

Additions:

Equity in Net (Income) of Affiliates

(14

)

(13

)

(26

)

(25

)

Depreciation and amortization

126

162

400

496

EBITDA

78

162

273

514

Total Operating Revenues

753

1,013

2,392

3,112

Operating Income Margin

-6.4

%

%

-5.3

%

0.6

%

EBITDA Margin

10.4

%

16.0

%

11.4

%

16.5

%

Mexico

Operating Contribution

$

(143

)

$

(179

)

$

(461

)

$

(591

)

Additions:

Equity in Net (Income) Loss of Affiliates

Depreciation and amortization

124

122

373

372

EBITDA

(19

)

(57

)

(88

)

(219

)

Total Operating Revenues

643

717

1,826

2,093

Operating Income Margin

-22.2

%

-25.0

%

-25.2

%

-28.2

%

EBITDA Margin

-3.0

%

-7.9

%

-4.8

%

-10.5

%

Adjusting Items

Adjusting items include revenues and costs we consider non-operational in nature, such as 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.

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

Third Quarter

Nine-Month Period

2020

2019

2020

2019

Operating Revenues

Time Warner merger adjustment

$

$

$

$

72

Adjustments to Operating Revenues

72

Operating Expenses

Merger costs

38

190

431

579

Employee separation costs and benefit-related (gain) loss1

40

39

924

381

Impairments

73

2,515

Gain on spectrum transaction

(900

)

Adjustments to Operations and Support Expenses

151

229

2,970

960

Amortization of intangible assets

1,921

1,771

6,122

5,719

Adjustments to Operating Expenses

2,072

2,000

9,092

6,679

Other

Gain on sale of investments - net

(638

)

Debt redemption, impairments and other adjustments

1,263

11

1,670

362

Actuarial (gain) loss

63

1,917

63

4,048

Employee benefit-related (gain) loss1

(64

)

(22

)

Adjustments to Income Before Income Taxes

3,334

3,928

10,803

10,523

Tax impact of adjustments

648

755

1,791

2,183

Tax-related items

141

Impairment attributable to noncontrolling interest

105

Adjustments to Net Income

$

2,686

$

3,173

$

8,907

$

8,199

1 Total holding gains on benefit-related investments were approximately $125 million in the third quarter and for the first nine months of 2020.

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, severance 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, Adjusted EBITDA Margin and Adjusted EBITDA Service Margin

Dollars in millions

Third Quarter

Nine-Month Period

2020

2019

2020

2019

Operating Income

$

6,132

$

7,901

$

17,150

$

22,634

Adjustments to Operating Revenues

72

Adjustments to Operating Expenses

2,072

2,000

9,092

6,679

Adjusted Operating Income

8,204

9,901

26,242

29,385

EBITDA

13,162

14,850

38,687

43,890

Adjustments to Operating Revenues

72

Adjustments to Operations and Support Expenses

151

229

2,970

960

Adjusted EBITDA

13,313

15,079

41,657

44,922

Total Operating Revenues

42,340

44,588

126,069

134,372

Adjustments to Operating Revenues

72

Total Adjusted Operating Revenue

42,340

44,588

126,069

134,444

Service Revenues

37,782

40,317

113,716

122,024

Adjustments to Service Revenues

72

Adjusted Service Revenue

37,782

40,317

113,716

122,096

Operating Income Margin

14.5

%

17.7

%

13.6

%

16.8

%

Adjusted Operating Income Margin

19.4

%

22.2

%

20.8

%

21.9

%

Adjusted EBITDA Margin

31.4

%

33.8

%

33.0

%

33.4

%

Adjusted EBITDA Service Margin

35.2

%

37.4

%

36.6

%

36.8

%

Adjusted Diluted EPS

Third Quarter

Nine-Month Period

2020

2019

2020

2019

Diluted Earnings Per Share (EPS)

$

0.39

$

0.50

$

1.19

$

1.57

Amortization of intangible assets

0.22

0.19

0.68

0.62

Merger integration items

0.02

0.05

0.08

Debt redemption costs, (gain) loss on sale of assets and other

0.13

0.02

0.15

(0.01

)

Actuarial (gain) loss

0.01

0.21

0.01

0.44

Impairments

0.01

0.35

Tax-related items

(0.02

)

Adjusted EPS

$

0.76

$

0.94

$

2.43

$

2.68

Year-over-year growth - Adjusted

-19.1

%

-9.3

%

Weighted Average Common Shares Outstanding with Dilution (000,000)

7,173

7,356

7,186

7,350

Constant Currency

Constant Currency is a non-GAAP financial measure that management uses to evaluate the operating performance of certain international subsidiaries by excluding or otherwise adjusting for the impact of changes in foreign currency exchange rates between comparative periods. We believe constant currency enhances comparison and is useful to investors to evaluate the performance of our business without taking into account the impact of changes to the foreign exchange rates to which our business is subject. To compute our constant currency results, we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior year average foreign exchange rates. In calculating amounts on a constant currency basis, for our Vrio business unit (sale of this business unit closed in second quarter 2020), we exclude our Venezuela subsidiary in light of the hyperinflationary conditions in Venezuela, which we do not believe are representative of the macroeconomics of the rest of the region in which we operate.

Constant Currency

Dollars in millions

Third Quarter

2020

2019

AT&T Inc.

Total Operating Revenues

$

42,340

$

44,588

Exclude Venezuela

(6

)

Impact of foreign exchange translation

337

Operating Revenues on Constant Currency Basis

42,677

44,582

Year-over-year growth

-4.3

%

Adjusted EBITDA

13,313

15,079

Exclude Venezuela

8

Impact of foreign exchange translation

80

Adjusted EBITDA on Constant Currency Basis

13,393

15,087

Year-over-year growth

-11.2

%

WarnerMedia Segment

Total Operating Revenues

$

7,514

$

8,350

Impact of foreign exchange translation

25

WarnerMedia Operating Revenues on Constant Currency Basis

7,539

8,350

Year-over-year growth

-9.7

%

EBITDA

1,930

3,021

Impact of foreign exchange translation

21

WarnerMedia EBITDA on Constant Currency Basis

1,951

3,021

Year-over-year growth

-35.4

%

Latin America Segment

Total Operating Revenues

$

1,396

$

1,730

Exclude Venezuela

(6

)

Impact of foreign exchange translation

312

Latin America Operating Revenues on Constant Currency Basis

1,708

1,724

Year-over-year growth

-0.9

%

EBITDA

59

105

Exclude Venezuela

8

Impact of foreign exchange translation

59

Latin America EBITDA on Constant Currency Basis

118

113

Year-over-year growth

4.4

%

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

Dollars in millions

Three Months Ended

Dec. 31,

March 31,

June 30,

Sept. 30,

Four
Quarters

2019 1

2020 1

2020 1

2020

Adjusted EBITDA2

$

14,365

$

14,232

$

14,112

$

13,313

$

56,022

End-of-period current debt

5,898

End-of-period long-term debt

152,980

Total End-of-Period Debt

158,878

Less: Cash and Cash Equivalents

9,758

Net Debt Balance

149,120

Annualized Net Debt to Adjusted EBITDA Ratio

2.662

1 As reported in AT&T's Form 8-K filed January 29, 2020, April 22, 2020, and July 23, 2020.

2 Includes the purchase accounting reclassification of released content amortization of $102 million, $69 million, $75 million and $45 million in the four quarters presented, respectively.

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

Third Quarter

September 30, 2020

September 30, 2019

Mobility

Business
Wireline

Adjustments1

Business
Solutions

Mobility

Business
Wireline

Adjustments1

Business
Solutions

Operating Revenues

Wireless service

$

13,883

$

$

(11,932

)

$

1,951

$

13,930

$

$

(12,042

)

$

1,888

Strategic and managed services

3,967

3,967

3,900

3,900

Legacy voice and data services

2,031

2,031

2,252

2,252

Other services and equipment

342

342

351

351

Wireless equipment

4,011

(3,349

)

662

3,771

(3,079

)

692

Total Operating Revenues

17,894

6,340

(15,281

)

8,953

17,701

6,503

(15,121

)

9,083

Operating Expenses

Operations and support

10,182

3,833

(8,507

)

5,508

9,948

4,022

(8,325

)

5,645

EBITDA

7,712

2,507

(6,774

)

3,445

7,753

2,481

(6,796

)

3,438

Depreciation and amortization

2,021

1,329

(1,700

)

1,650

2,011

1,271

(1,709

)

1,573

Total Operating Expenses

12,203

5,162

(10,207

)

7,158

11,959

5,293

(10,034

)

7,218

Operating Income

5,691

1,178

(5,074

)

1,795

5,742

1,210

(5,087

)

1,865

Equity in Net Income (Loss) of Affiliates

Operating Contribution

$

5,691

$

1,178

$

(5,074

)

$

1,795

$

5,742

$

1,210

$

(5,087

)

$

1,865

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

Supplemental Operational Measure

Nine-Months Ended

September 30, 2020

September 30, 2019

Mobility

Business
Wireline

Adjustments1

Business
Solutions

Mobility

Business
Wireline

Adjustments1

Business
Solutions

Operating Revenues

Wireless service

$

41,520

$

$

(35,736

)

$

5,784

$

41,383

$

$

(35,837

)

$

5,546

Strategic and managed services

11,789

11,789

11,513

11,513

Legacy voice and data services

6,227

6,227

6,973

6,973

Other services and equipment

1,030

1,030

1,102

1,102

Wireless equipment

10,925

(8,968

)

1,957

10,973

(9,074

)

1,899

Total Operating Revenues

52,445

19,046

(44,704

)

26,787

52,356

19,588

(44,911

)

27,033

Operating Expenses

Operations and support

29,083

11,563

(24,004

)

16,642

29,511

12,029

(24,769

)

16,771

EBITDA

23,362

7,483

(20,700

)

10,145

22,845

7,559

(20,142

)

10,262

Depreciation and amortization

6,078

3,948

(5,114

)

4,912

6,027

3,735

(5,119

)

4,643

Total Operating Expenses

35,161

15,511

(29,118

)

21,554

35,538

15,764

(29,888

)

21,414

Operating Income

17,284

3,535

(15,586

)

5,233

16,818

3,824

(15,023

)

5,619

Equity in Net Income (Loss) of Affiliates

Operating Contribution

$

17,284

$

3,535

$

(15,586

)

$

5,233

$

16,818

$

3,824

$

(15,023

)

$

5,619

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

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

Fletcher Cook

AT&T

Phone: 214-912-8541

Email: fletcher.cook@att.com

Daphne Avila

AT&T Inc.

Phone: (972) 266-3866

Email: daphne.avila@att.com

Source: AT&T Inc.

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