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

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 /CNW/ -- 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. (NYSE: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 operations^1	$       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 Flow^2	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 %
^1Includes distributions from DIRECTV of $379 in the fourth quarter and $1,808 for the year ended December 31, 2022.
^2For 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 EBITDA^1	$           10,231	$             9,480		$           41,465	$           43,875
Less: Video and Other dispositions	—	4		—	(3,807)
Standalone AT&T Adjusted EBITDA^2	$           10,231	$             9,484		$           41,465	$           40,068
^1See page 5 for additional discussion and reconciliation of adjusted items.
^2See 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 costs^1, 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

¹  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.

²  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.

³  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
^1As 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
^1As 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	Adjustments^1	Business Solutions		Mobility	Business Wireline	Adjustments^1	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
^1Non-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	Adjustments^1	Business Solutions		Mobility	Business Wireline	Adjustments^1	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
^1Non-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.

SOURCE AT&T

Fletcher Cook, AT&T Inc., Phone: [phone], Email: [email protected]; or Brittany Siwald, AT&T Inc., Phone: [phone], Email: [email protected]