AT&T Second Quarter Highlights:
* $0.60 diluted EPS, compared to $0.67 diluted EPS, and $0.60 per diluted share when excluding a significant item in the second quarter of 2010
* Consolidated revenues of $31.5 billion in the second quarter, up more than $680 million, or 2.2 percent, versus the year-earlier period
* 9.5 percent growth in wireless revenues, with a 7.4 percent increase in wireless service revenues
* Total wireless subscribers up 1.1 million to reach 98.6 million subscribers in service, with gains in every customer category including 331,000 postpaid net adds
* Best-ever second-quarter smartphone sales of 5.6 million; nearly 70 percent of total postpaid sales were smartphones
* iPhone activations remain strong at 3.6 million, with 24 percent of subscribers new to AT&T; iPhone subscriber churn down slightly sequentially
* Sales of Android and other smartphones doubled year over year; more than 40 percent of smartphone sales in the quarter
* Branded computing subscribers (includes tablets, aircards, MiFi devices, tethering plans and other data-only devices) up 545,000, almost doubling since the second quarter of 2010 to reach 4.0 million
* 23.4 percent growth in wireless data revenues, up $1 billion versus the year-earlier quarter
* Postpaid subscriber ARPU (average monthly revenues per subscriber) up 2.0 percent to $63.87, the tenth consecutive quarter with a year-over-year increase
* Fourth consecutive quarter of year-over-year growth in wireline consumer revenues, driven by AT&T U-verse® services
* 202,000 net gain in AT&T U-verse TV subscribers to reach 3.4 million in service, with continued high broadband and voice attach rates
* 21.9 percent growth in wireline consumer Internet Protocol (IP) data revenues to reach nearly half of consumer revenue, driven by continued AT&T U-verse expansion
* Continued increase in strategic business services revenues, up 19.4 percent year over year, their strongest growth in six quarters
AT&T Inc. (NYSE:T) today reported second-quarter results, highlighted by robust mobile broadband growth, record second-quarter smartphone sales and stable sequential wireline revenues.
"We delivered another strong quarter capping a solid first half of the year," said Randall Stephenson, AT&T chairman and chief executive officer. "Mobile broadband growth continues to be robust, and we are seeing encouraging signs in wireline revenues. This adds to our confidence as we look ahead.
"Mobile broadband with IP infrastructure and cloud services are transforming our industry and are creating unprecedented opportunity. AT&T is strongly positioned to lead in this new era," Stephenson said. "Our planned acquisition of T-Mobile USA will accelerate development of next-generation capabilities, and it will lay the groundwork for continued high-tech innovation for years to come."
Second-Quarter Financial Results
For the quarter ended June 30, 2011, AT&T's consolidated revenues totaled $31.5 billion, up more than $680 million, or 2.2 percent, versus the year-earlier quarter, marking the company's sixth consecutive quarter with a year-over-year revenue increase.
Compared with results for the second quarter of 2010, AT&T's operating income margin was 19.6 percent, compared to 19.7 percent; and operating expenses were $25.3 billion versus $24.7 billion; operating income was $6.2 billion, up from $6.1 billion.
Second-quarter 2011 net income attributable to AT&T totaled $3.6 billion, or $0.60 per diluted share. These results compare with reported net income attributable to AT&T of $4.0 billion, or $0.67 per diluted share, in the second quarter of 2010. Earnings per share for the second quarter of 2011 matched earnings per share excluding the Telmex Internacional transaction in the year-ago second quarter.
Second-quarter 2011 cash from operating activities totaled $9.0 billion, and capital expenditures totaled $5.3 billion. Free cash flow — cash from operating activities minus capital expenditures — totaled $3.7 billion.
Compared with results for the first half of 2010, year to date through the second quarter, cash from operating activities totaled $16.8 billion versus $15.8 billion; capital expenditures totaled $9.5 billion compared to $8.2 billion; and free cash flow totaled $7.3 billion versus $7.6 billion.
Led by increased wireless demand, AT&T now expects capital expenditures in the $20 billion range for full-year 2011. Previously, the company expected capital expenditures in the low-to-mid $19 billion range. Free cash flow guidance remains unchanged, with expected growth over 2010 levels.
WIRELESS OPERATIONAL HIGHLIGHTS
Led by continued strong performance in mobile broadband in the second quarter, AT&T delivered solid growth in its wireless business, including strong revenue growth, record second-quarter smartphone gains and strong net adds including postpaid and branded computing devices. Highlights included:
Postpaid Leads Solid Subscriber Gains.
AT&T posted a net gain in total wireless subscribers of 1.1 million, to reach 98.6 million in service. This included gains in every customer category. Net adds for the quarter include postpaid net adds of 331,000. Excluding the impacts of the Alltel and Centennial integration migrations, postpaid net adds were 504,000. Prepaid net adds were 137,000, connected device net adds were 379,000 and reseller net adds were 248,000. Second-quarter net adds reflect adoption of smartphones, increases in prepaid subscribers and sales of tablets and connected devices such as automobile monitoring systems, security systems and a host of other products.
Strongest Quarter Ever for Branded Computing Device Sales.
AT&T had a record quarter with branded computing subscribers, a new growth area for the company that includes tablets, aircards, MiFi devices, tethering plans and other data-only devices. AT&T added 545,000 of these devices to reach 4.0 million, nearly twice as many in service as a year ago. Most of those new subscribers were tablets, with 377,000 added in the quarter, of which 30 percent were postpaid.
Postpaid Churn Remains Stable.
Total churn was 1.43 percent versus 1.29 percent in the second quarter of 2010 and 1.36 percent in the first quarter of 2011. Postpaid churn was 1.15 percent, compared to 1.01 percent in the year-ago second quarter and 1.18 percent in the first quarter of 2011. Excluding the impacts of the Alltel and Centennial migrations, postpaid churn of 1.06 percent for the quarter was relatively stable with 0.99 percent in the year-ago quarter and better than the 1.12 percent in the first quarter of 2011.
Smartphones Near 70 Percent of Postpaid Sales.
AT&T continues to deliver robust smartphone sales. (Smartphones are voice and data devices with an advanced operating system to better manage data and Internet access.) In the second quarter, 5.6 million smartphones were sold, a second-quarter record and the third-highest quarter ever. Smartphone sales also increased more than 43 percent year over year. Sales of non-iPhone smartphones more than doubled year over year. Nearly 70 percent of postpaid device sales were smartphones. During the quarter, 3.6 million iPhones were activated.
At the end of the quarter, 49.9 percent of AT&T's 68.4 million postpaid subscribers had smartphones, up from 35.8 percent a year earlier. The average ARPU for smartphones on AT&T's network is 1.8 times that of the company's non-smartphone devices. More than 85 percent of smartphone subscribers are on FamilyTalk or business plans. Churn levels for these subscribers are significantly lower than for other postpaid subscribers.
Strong Wireless Revenue Growth Continues.
Total wireless revenues, which include equipment sales, were up 9.5 percent year over year to $15.6 billion. Wireless service revenues increased 7.4 percent, to $14.2 billion, in the second quarter.
Wireless Data Revenues Lead Growth.
Wireless data revenues — driven by Internet access, access to applications, messaging and related services — increased more than $1 billion, or 23.4 percent, from the year-earlier quarter to $5.4 billion. AT&T's postpaid wireless subscribers on monthly data plans increased by 19.5 percent over the past year. Versus the year-earlier quarter, total text messages carried on the AT&T network increased by 24 percent to 190.8 billion, and multimedia messages increased by 54 percent to 4.0 billion.
Postpaid ARPU Expansion.
Driven by strong data growth, postpaid subscriber ARPU increased 2.0 percent versus the year-earlier quarter to $63.87. This marked the tenth consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU. Postpaid data ARPU reached $24.57, up 16.6 percent versus the year-earlier quarter.
Wireless Margins Expand Sequentially Even with Strong Smartphone Sales.
Second-quarter wireless margins reflect increased operating costs associated with strong smartphone sales, high customer upgrade levels and the Alltel and Centennial merger costs, offset in part by improved operating efficiencies and further revenue growth from the company's growing base of high-quality smartphone subscribers. AT&T's second-quarter wireless operating income margin was 27.0 percent versus 28.9 percent in the year-earlier quarter, and AT&T's wireless EBITDA service margin was 41.1 percent, compared with 43.1 percent in the second quarter of 2010. Without customer migration and integration costs from the Alltel and Centennial mergers, the service margin would have been 42.0 percent. (EBITDA service margin is earnings before interest, taxes, depreciation and amortization, divided by total service revenues.) Second-quarter wireless operating expenses totaled $11.4 billion, up 12.5 percent versus the year-earlier quarter, and wireless operating income was $4.2 billion, up 2.3 percent year over year.