8-K: AT&T Reports Strong 2023 Results Driven by 5G and Fiber Growth, Exceeds Free Cash Flow Guidance

AT&T's fourth-quarter and full-year 2023 results show strong performance, with significant gains in 5G and fiber subscribers, leading to increased operating income and free cash flow.

Summary

• AT&T reported a strong fourth quarter and full year for 2023, driven by growth in 5G and fiber subscribers.
• The company's fourth-quarter cash from operating activities was $11.4 billion, a 10% increase year-over-year, and full-year cash from operating activities reached $38.3 billion, up $2.5 billion from the previous year.
• Fourth-quarter free cash flow was $6.4 billion, and full-year free cash flow was $16.8 billion, exceeding previous guidance and up $2.6 billion year-over-year.
• Fourth-quarter revenues were $32.0 billion, a 2.2% increase year-over-year, and full-year revenues totaled $122.4 billion, up 1.4% from 2022.
• Operating income for the fourth quarter was $5.3 billion, with an adjusted operating income of $5.8 billion, and full-year operating income was $23.5 billion, with an adjusted operating income of $24.7 billion, up 5% year-over-year.
• Mobility service revenues increased by 4.4% for the full year, and consumer broadband revenues increased by 8.1%, driven by a 26.6% growth in AT&T Fiber revenue.
• The company added 526,000 postpaid phone net adds in the fourth quarter and over 1.7 million for the full year, with low churn levels and strong ARPU growth.
• AT&T Fiber net adds were 273,000 in the fourth quarter and 1.1 million for the full year, marking the sixth consecutive year with 1 million or more fiber net adds.
• AT&T achieved its $6 billion+ run-rate cost savings target in mid-2023 and is making progress on an additional $2 billion+ run-rate cost savings target by mid-2026.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and growth in key areas like 5G and fiber. The company exceeded its free cash flow guidance and is making progress on cost savings. However, there are some challenges in the Business Wireline segment and a slight decrease in adjusted EPS, which temper the overall sentiment.

Positives

• AT&T exceeded its full-year free cash flow guidance, reaching $16.8 billion.
• Mobility service revenues saw a 4.4% increase for the full year, achieving the company's best-ever full-year mobility operating income.
• Consumer broadband revenues grew by 8.1% for the full year, driven by a 26.6% increase in AT&T Fiber revenue.
• The company added 1.1 million AT&T Fiber net adds for the full year, marking the sixth consecutive year with over 1 million net adds.
• AT&T's mid-band 5G spectrum now covers over 210 million people, meeting its end-of-year target.
• The fiber network now passes over 26 million consumer and business locations, with a target of 30 million+ by the end of 2025.
• The company achieved over $6 billion in run-rate cost savings in mid-2023 and is targeting an additional $2 billion+ by mid-2026.
• Postpaid phone net adds were 526,000 in the fourth quarter and over 1.7 million for the full year.
• Fourth quarter revenues increased 2.2% year-over-year to $32.0 billion.
• Fourth quarter operating income was $5.3 billion, with adjusted operating income of $5.8 billion.
• Cash from operating activities increased by $2.5 billion year-over-year to $38.3 billion for the full year.

Negatives

• Business Wireline revenues decreased by 10.3% year-over-year due to lower demand for legacy voice and data services.
• Business Wireline operating income decreased by 69.4% year-over-year, impacted by non-recurring intellectual property transaction revenues in the prior year.
• Adjusted earnings per diluted common share from continuing operations decreased to $2.41 for the full year 2023, compared to $2.57 in 2022.
• The company expects a ($0.17) higher depreciation expense in 2024, including accelerated depreciation from the Open RAN transformation.
• The company expects ($0.07) lower other income due to declines in non-cash prior service credit amortization included in pension and postretirement benefits costs in 2024.
• The company expects ($0.05) lower capitalized interest and ($0.03) lower adjusted equity income from the DIRECTV investment in 2024.

Risks

• The company faces risks related to the ongoing transformation efforts and cost savings initiatives.
• There are risks associated with the competitive landscape in the telecommunications industry.
• The company's future performance is subject to various economic and market conditions.
• The company's 2024 outlook is subject to various factors, including the impact of higher depreciation expenses and lower other income.
• The company's ability to achieve its net debt-to-adjusted EBITDA target of 2.5x in the first half of 2025 is subject to various factors.

Future Outlook

For the full year 2024, AT&T expects wireless service revenue growth in the 3% range, broadband revenue growth of 7%+, adjusted EBITDA growth in the 3% range, capital investment in the $21-$22 billion range, free cash flow in the $17-$18 billion range, and adjusted EPS of $2.15 to $2.25. In 2025, the company expects to deliver Adjusted EPS growth.

Management Comments

• We accomplished exactly what we said we would in 2023, delivering sustainable growth and consistent business performance, resulting in full-year free cash flow of $16.8 billion, ahead of our raised guidance, said John Stankey, AT&T CEO.
• As we advance our lead in converged connectivity, we will continue to scale our best-in-class 5G and fiber networks to meet customers growing demand for seamless, ubiquitous broadband, and drive durable growth for shareholders, said John Stankey, AT&T CEO.

Industry Context

AT&T's focus on expanding its 5G and fiber networks aligns with the broader industry trend of increasing demand for high-speed broadband and wireless connectivity. The company's performance is being driven by its ability to attract and retain profitable customers in these key growth areas.

Comparison to Industry Standards

• AT&T's postpaid phone net adds of 1.7 million for the year are a strong result, but are down from 2.868 million in the prior year, indicating a potential slowdown in growth compared to previous periods.
• The company's fiber net adds of 1.1 million for the year are a positive result, demonstrating its ability to compete with other fiber providers such as Verizon and Google Fiber.
• AT&T's free cash flow of $16.8 billion is a strong result, but it is important to compare this to the free cash flow of other major telecommunications companies such as Verizon and T-Mobile to assess its relative performance.
• The company's adjusted EPS of $2.41 for the full year is down from $2.57 in the prior year, indicating a potential challenge in maintaining profitability compared to previous periods.
• The company's target of achieving net debt-to-adjusted EBITDA in the 2.5x range in the first half of 2025 is a key metric to watch, as it indicates the company's progress in deleveraging its balance sheet. This is comparable to targets set by other large telcos.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance and free cash flow generation.
• Customers will benefit from the expansion of 5G and fiber networks, providing faster and more reliable connectivity.
• Employees may be impacted by the ongoing transformation efforts and cost savings initiatives.
• Suppliers and vendors may be impacted by the company's capital investment plans and vendor financing arrangements.
• Creditors will be impacted by the company's progress in deleveraging its balance sheet and achieving its net debt-to-adjusted EBITDA target.

Next Steps

• AT&T will continue to scale its 5G and fiber networks to meet customer demand.
• The company will focus on achieving its 2024 financial outlook, including wireless and broadband revenue growth, adjusted EBITDA growth, and free cash flow targets.
• AT&T will continue to work towards its cost savings targets, aiming for an additional $2 billion+ in run-rate savings by mid-2026.
• The company will continue to expand its fiber network, targeting 30 million+ locations passed by the end of 2025.
• AT&T will work towards achieving its net debt-to-adjusted EBITDA target of 2.5x in the first half of 2025.

Key Dates

Keywords

5G, Fiber, Broadband, Wireless, Free Cash Flow, EBITDA, Mobility, Net Adds, Revenue, Operating Income