EX-99.3 4 t-4q2024exhibit993.htm EX-99.3 DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURES Document

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 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 classified as investing activities, 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 QuarterYear Ended
 2024202320242023
Net cash provided by operating activities1
$11,896 $11,378 $38,771 $38,314 
Add: Distributions from DIRECTV classified as investing activities— 602 928 2,049 
Less: Capital expenditures(6,843)(4,601)(20,263)(17,853)
Less: Cash paid for vendor financing(221)(1,006)(1,792)(5,742)
Free Cash Flow4,832 6,373 17,644 16,768 
Less: Dividends paid(2,037)(2,020)(8,208)(8,136)
Free Cash Flow after Dividends$2,795 $4,353 $9,436 $8,632 
Free Cash Flow Dividend Payout Ratio42.2 %31.7 %46.5 %48.5 %
1Includes distributions from DIRECTV of $1,072 and $2,027 in the fourth quarter and for the year ended December 31, 2024, and $332 and $1,666 in the fourth quarter and for the year ended December 31, 2023.

Beginning with our first-quarter 2025 reporting, as shown in the table below, we plan to revise our definition of free cash flow to remove cash flow related to our DIRECTV equity method investment, which we have agreed to sell to TPG Capital (TPG). Free cash flow is expected to be defined as cash from operations minus cash flows related to our DIRECTV equity method investment (cash distributions minus cash taxes paid from DIRECTV), minus capital expenditures and cash paid for vendor financing (classified as financing activities).
Free Cash Flow Excluding DIRECTV
Dollars in millions 
 Fourth QuarterYear Ended
 2024202320242023
Net cash provided by operating activities$11,896 $11,378 $38,771 $38,314 
Less: Distributions from DIRECTV classified as operating activities(1,072)(332)(2,027)(1,666)
Less: Cash taxes paid on DIRECTV254 236 656 782 
Less: Capital expenditures(6,843)(4,601)(20,263)(17,853)
Less: Cash paid for vendor financing(221)(1,006)(1,792)(5,742)
Free Cash Flow Excluding DIRECTV4,014 5,675 15,345 13,835 

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
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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 QuarterYear Ended
 2024202320242023
Capital Expenditures$(6,843)$(4,601)$(20,263)$(17,853)
Cash paid for vendor financing(221)(1,006)(1,792)(5,742)
Cash paid for Capital Investment$(7,064)$(5,607)$(22,055)$(23,595)

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.

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 QuarterYear Ended
 2024202320242023
Net Income$4,408 $2,582 $12,253 $15,623 
Additions:  
Income Tax Expense (Benefit)900 354 4,445 4,225 
Interest Expense1,661 1,726 6,759 6,704 
Equity in Net (Income) of Affiliates(1,074)(337)(1,989)(1,675)
Other (Income) Expense - Net(569)946 (2,419)(1,416)
Depreciation and amortization5,374 4,766 20,580 18,777 
EBITDA10,700 10,037 39,629 42,238 
Transaction and other cost22 26 123 98 
Benefit-related (gain) loss 55 (97)(67)(129)
Asset impairments and abandonments and restructuring
14 589 5,075 1,193 
Adjusted EBITDA1
$10,791 $10,555 $44,760 $43,400 
1See "Adjusting Items" section for additional discussion and reconciliation of adjusted items.
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Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions 
 Fourth QuarterYear Ended
 2024202320242023
Communications Segment
Operating Income$6,189 $6,608 $27,095 $27,801 
Add: Depreciation and amortization5,114 4,411 19,433 17,363 
EBITDA11,303 11,019 46,528 45,164 
Total Operating Revenues31,139 30,797 117,652 118,038 
Operating Income Margin19.9 %21.5 %23.0 %23.6 %
EBITDA Margin36.3 %35.8 %39.5 %38.3 %
Mobility
Operating Income$6,124 $6,214 $26,314 $25,861 
Add: Depreciation and amortization2,764 2,162 10,217 8,517 
EBITDA8,888 8,376 36,531 34,378 
Total Operating Revenues23,129 22,393 85,255 83,982 
Service Revenues16,563 16,039 65,373 63,175 
Operating Income Margin26.5 %27.7 %30.9 %30.8 %
EBITDA Margin38.4 %37.4 %42.8 %40.9 %
EBITDA Service Margin53.7 %52.2 %55.9 %54.4 %
Business Wireline
Operating Income$(211)$165 $(88)$1,289 
Add: Depreciation and amortization1,408 1,369 5,555 5,377 
EBITDA1,197 1,534 5,467 6,666 
Total Operating Revenues4,545 5,052 18,819 20,883 
Operating Income Margin(4.6)%3.3 %(0.5)%6.2 %
EBITDA Margin26.3 %30.4 %29.1 %31.9 %
Consumer Wireline
Operating Income$276 $229 $869 $651 
Add: Depreciation and amortization942 880 3,661 3,469 
EBITDA1,218 1,109 4,530 4,120 
Total Operating Revenues3,465 3,352 13,578 13,173 
Operating Income Margin8.0 %6.8 %6.4 %4.9 %
EBITDA Margin35.2 %33.1 %33.4 %31.3 %
Latin America Segment
Operating Income$21 $(43)$40 $(141)
Add: Depreciation and amortization150 180 657 724 
EBITDA171 137 697 583 
Total Operating Revenues1,044 1,090 4,232 3,932 
Operating Income Margin2.0 %(3.9)%0.9 %(3.6)%
EBITDA Margin16.4 %12.6 %16.5 %14.8 %
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Adjusting Items
Adjusting items include revenues and costs we consider non-operational in nature, including items arising from asset acquisitions or dispositions, including the amortization of intangible assets. While the expense associated with the amortization of certain wireless licenses and customer lists is excluded, the revenue of the acquired companies is reflected in the measure and that those assets contribute to revenue generation. 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 
 Fourth QuarterYear Ended
 2024202320242023
Operating Expenses  
Transaction and other costs$22 $26 $123 $98 
Benefit-related (gain) loss55 (97)(67)(129)
Asset impairments and abandonments and restructuring
14 589 5,075 1,193 
Adjustments to Operations and Support Expenses91 518 5,131 1,162 
   Amortization of intangible assets10 21 53 76 
Adjustments to Operating Expenses101 539 5,184 1,238 
Other  
   DIRECTV intangible amortization (proportionate share)— 294 797 1,269 
Benefit-related (gain) loss, impairments of investment and other10 76 156 390 
Actuarial and settlement (gain) loss – net
56 1,739 56 1,594 
Adjustments to Income Before Income Taxes167 2,648 6,193 4,491 
Tax impact of adjustments37 632 401 1,038 
Tax-related items222 271 222 271 
Adjustments to Net Income$(92)$1,745 $5,570 $3,182 
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, other income (expense) 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 impairments, 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.

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Adjusted Operating Income, Adjusted Operating Income Margin,
Adjusted EBITDA and Adjusted EBITDA Margin
Dollars in millions 
 Fourth QuarterYear Ended
 2024202320242023
Operating Income$5,326 $5,271 $19,049 $23,461 
Adjustments to Operating Expenses101 539 5,184 1,238 
Adjusted Operating Income5,427 5,810 24,233 24,699 
EBITDA10,700 10,037 39,629 42,238 
Adjustments to Operations and Support Expenses91 518 5,131 1,162 
Adjusted EBITDA10,791 10,555 44,760 43,400 
Total Operating Revenues32,298 32,022 122,336 122,428 
Operating Income Margin16.5 %16.5 %15.6 %19.2 %
Adjusted Operating Income Margin16.8 %18.1 %19.8 %20.2 %
Adjusted EBITDA Margin33.4 %33.0 %36.6 %35.4 %

Adjusted Diluted EPS
 Fourth QuarterYear Ended
 2024202320242023
Diluted Earnings Per Share (EPS)$0.56 $0.30 $1.49 $1.97 
DIRECTV intangible amortization (proportionate share)— 0.03 0.09 0.14 
Actuarial and settlement (gain) loss – net1
0.01 0.18 0.01 0.17 
   Restructuring and impairments
— 0.06 0.72 0.18 
   Benefit-related, transaction and other costs
— 0.01 (0.02)(0.01)
Tax-related items(0.03)(0.04)(0.03)(0.04)
Adjusted EPS$0.54 $0.54 $2.26 $2.41 
Year-over-year growth - Adjusted— %-6.2 % 
Weighted Average Common Shares Outstanding
   with Dilution (000,000)		7,215 7,191 7,204 7,258 
1Includes 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 a total net actuarial loss of $0.1 billion in 2024. As a result, adjusted EPS reflects an expected return on plan assets of $2.3 billion (based on an average expected return on plan assets of 7.75% for our pension trust and 4.00% for our VEBA trusts), rather than the actual return on plan assets of $0.4 billion (actual pension return of 1.4% and VEBA return of 8.0%), included in the GAAP measure of income.

Beginning with our first-quarter 2025 reporting, as shown in the table below, we plan to remove from adjusted earnings equity in net income from our investment in DIRECTV, which we have agreed to sell to TPG.

Adjusted Diluted EPS Excluding DIRECTV
 Fourth QuarterYear Ended
 2024202320242023
Diluted Earnings Per Share (EPS)$0.56 $0.30 $1.49 $1.97 
Equity in net income of DIRECTV
(0.12)(0.04)(0.22)(0.18)
Actuarial and settlement (gain) loss – net
0.01 0.18 0.01 0.17 
   Restructuring and impairments
— 0.06 0.72 0.18 
   Benefit-related, transaction and other costs
0.01 0.01 (0.02)— 
Tax-related items(0.03)(0.04)(0.03)(0.04)
Adjusted EPS$0.43 $0.47 $1.95 $2.10 
Year-over-year growth - Adjusted-8.5 %-7.1 % 
Weighted Average Common Shares Outstanding
   with Dilution (000,000)		7,215 7,191 7,204 7,258 

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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 deposits at financial institutions that are greater than 90 days (e.g., certificates of deposit and time deposits), from the sum of debt maturing within one year and long-term debt.
Net Debt to Adjusted EBITDA - 2024
Dollars in millions   
 Three Months Ended 
 March 31,June 30,Sept. 30,Dec. 31,Four Quarters
 
2024 1
2024 1
2024 1
2024
Adjusted EBITDA$11,046 $11,337 $11,586 $10,791 $44,760 
End-of-period current debt    5,089 
End-of-period long-term debt    118,443 
Total End-of-Period Debt    123,532 
Less: Cash and Cash Equivalents    3,298 
Less: Time Deposits150 
Net Debt Balance    120,084 
Annualized Net Debt to Adjusted EBITDA Ratio  2.68 
1As reported in AT&T's Form 8-K filed October 23, 2024.
Net Debt to Adjusted EBITDA - 2023
Dollars in millions   
 Three Months Ended 
 March 31,June 30,Sept. 30,Dec. 31,Four Quarters
 
2023 1
2023 1
2023 1
2023 1
Adjusted EBITDA$10,589 $11,053 $11,203 $10,555 $43,400 
End-of-period current debt    9,477 
End-of-period long-term debt    127,854 
Total End-of-Period Debt    137,331 
Less: Cash and Cash Equivalents    6,722 
Less: Time Deposits1,750 
Net Debt Balance    128,859 
Annualized Net Debt to Adjusted EBITDA Ratio  2.97 
1As reported in AT&T's Form 8-K filed October 23, 2024.

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Supplemental Operational Measures
As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and fixed operations. This combined view presents a complete profile of the entire business customer relationship and underscores the importance of mobile solutions to serving our business customers. Our supplemental presentation of business solutions operations is calculated by combining our Mobility and Business Wireline business 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, 2024December 31, 2023
 MobilityBusiness
Wireline
Adj.1
Business
Solutions		MobilityBusiness
Wireline
Adj.1
Business
Solutions
Percent Change
Operating Revenues        
Wireless service$16,563 $— $(14,088)$2,475 $16,039 $— $(13,648)$2,391 3.5 %
Wireline service
— 4,376 — 4,376 — 4,873 — 4,873 (10.2)%
Wireless equipment6,566 — (5,602)964 6,354 — (5,451)903 6.8 %
Wireline equipment— 169 — 169 — 179 — 179 (5.6)%
Total Operating Revenues23,129 4,545 (19,690)7,984 22,393 5,052 (19,099)8,346 (4.3)%
Operating Expenses    
Operations and support14,241 3,348 (11,830)5,759 14,017 3,518 (11,683)5,852 (1.6)%
EBITDA8,888 1,197 (7,860)2,225 8,376 1,534 (7,416)2,494 (10.8)%
Depreciation and amortization2,764 1,408 (2,259)1,913 2,162 1,369 (1,765)1,766 8.3 %
Total Operating Expenses17,005 4,756 (14,089)7,672 16,179 4,887 (13,448)7,618 0.7 %
Operating Income$6,124 $(211)$(5,601)$312 $6,214 $165 $(5,651)$728 (57.1)%
Operating Income Margin
3.9 %8.7 %
1Non-business wireless reported in the Communications segment under the Mobility business unit.
Supplemental Operational Measure
 Year Ended
 December 31, 2024December 31, 2023
 MobilityBusiness
Wireline
Adj.1
Business
Solutions		MobilityBusiness
Wireline
Adj.1
Business
Solutions
Percent Change
Operating Revenues        
Wireless service$65,373 $— $(55,561)$9,812 $63,175 $— $(53,752)$9,423 4.1 %
Wireline service— 18,064 — 18,064 — 20,274 — 20,274 (10.9)%
Wireless equipment19,882 — (16,630)3,252 20,807 — (17,585)3,222 0.9 %
Wireline equipment— 755 — 755 — 609 — 609 24.0 %
Total Operating Revenues85,255 18,819 (72,191)31,883 83,982 20,883 (71,337)33,528 (4.9)%
Operating Expenses        
Operations and support48,724 13,352 (40,010)22,066 49,604 14,217 (40,980)22,841 (3.4)%
EBITDA36,531 5,467 (32,181)9,817 34,378 6,666 (30,357)10,687 (8.1)%
Depreciation and amortization10,217 5,555 (8,353)7,419 8,517 5,377 (6,951)6,943 6.9 %
Total Operating Expenses58,941 18,907 (48,363)29,485 58,121 19,594 (47,931)29,784 (1.0)%
Operating Income$26,314 $(88)$(23,828)$2,398 $25,861 $1,289 $(23,406)$3,744 (36.0)%
Operating Income Margin
7.5 %11.2 %
1Non-business wireless reported in the Communications segment under the Mobility business unit.


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