AT&T Inc. (T) on Q2 2021 Results - Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Welcome to AT&T's Second Quarter 2021 Earnings Call. At this time all participants are in a listen-only mode. Following the presentation, the call will be open for questions. And as a reminder, this conference is being recorded. I would like to turn the conference call over to your host, Amir Rozwadowski, Senior Vice President, Finance and Investor Relations. Please go ahead. Amir Rozwadowski: Thank you, and good morning, everyone. Welcome to our second quarter call. I'm Amir Rozwadowski, Head of Investor Relations for AT&T. Joining me on the call today are John Stankey, our CEO; and Pas Desroches, our CFO. Also joining us for the Q&A portion of our call are Jeff McElfresh, the CEO of our Communications Group; and Jason Kilar, CEO for WarnerMedia. Before we begin, I need to call your attention to our Safe Harbor Statement. It says that some of our comments today may be forward-looking. As such, they're subject to risks and uncertainties described in AT&T's SEC filings. Results may differ materially. Additional information is available on the Investor Relations Web site. And as always, our earnings materials are on our Web site. I also want to remind you that we are in the quiet period for the FCC Spectrum auction 110. So, unfortunately we can't answer your questions about that today. With that, I'll turn the call over to John Stankey. John? John Stankey: Good morning, everyone, and thanks for being with us. At the risk of being repetitive or I guess consistent, depending on your take, the framework for what I want to cover today should be familiar to you. It's been four quarters since we articulated a simplified strategy in how we planned on evaluating our success going forward based on three priorities. First, we wanted to grow subscriber relationships through our three market focus areas of 5G, Fiber, and HBO Max. Second, we initiated an effort to transform our business to be effective and efficient in everything we do so that we could allocate increased resources to support these focus areas. And third, we committed to deliberate capital allocation to support increased investment growth, improve returns, narrow our operating focus, and restore flexibility to our balance sheet. To achieve these priorities, we made some difficult near-term decisions to set our businesses up for success in the coming years. And that success is defined by improving our competitive position through the investment in best-in-class products and experiences for our customers. By doing so, we believe the execution of this strategy will drive better returns and profitable long-term growth. Let's look at what we've achieved in the past year on slide four. We've made notable progress on each of our priorities. In wireless, we're gaining share, lowering churn, and had our best 12 months of postpaid phone net adds in more than a decade. And we just posted record quarterly wireless EBITDA. Pascal Desroches: Thank you, John, and good morning, everyone. In the second quarter, we saw impressive growth across Mobility, Fiber, and HBO Max. We added nearly 800,000 postpaid phone, that's our best second quarter in more than 10 years. Subscriber momentum continues to be strong, and we continue to take share. The gross adds are up, churn is at record low levels, and our average promotional spend per net add is significantly lower than a year ago thanks to the consistency in our offerings. The story with Fiber remains much the same. We continue to see solid subscriber growth, with most of those customers new to AT&T. And broadband revenues grew more than 8%. HBO Max continues to exceed our expectation. Having surpassed the lower end of our global subscriber target six months ahead of plan, we are now raising our expectations to 70 million to 73 million global subscribers by the end of the year. We also launched our domestic ad-supported version of HBO Max, as well as our international offering in 39 Latin-American territories at the end of the quarter. That sets us up for additional customer growth as our addressable market expands. Let's now turn to slide seven, for our consolidated financial results. Last year, we saw the brunt of the pandemic's impact on our Q2 results. While the pandemic is still having some impact on our results, we're seeing our businesses emerge stronger than before, with growth accelerating in our market-focused areas. Revenues were up more than $3 billion or 7.6% from a year ago, gains in WarnerMedia, Mobility, and Consumer Wireline more than offset declines in video and legacy business services. Adjusted EBITDA declined mostly due to pandemic-impacted timing with sports costs in last year's second quarter. We'll talk more about that in a moment, but we expect most of that to reverse itself next quarter. In fact, we expect consolidated EBITDA to be flat to up modestly next quarter, and improving thereafter. Amir Rozwadowski: Thank you, Pascal. Operator, we're ready to take the first question. Operator: Of course. And our first question today comes from the line of John Hodulik with UBS. Please go ahead. John Hodulik: Okay, great, thanks. Good morning, guys. Anything you could tell us about the details of the wholesale deal with Dish, specifically just any thoughts, I know Pascal, you mentioned that it would affect revenues in '22, but just do you guys expect to take all of the traffic on to your network and maybe if you could give us a sense on when it should start to migrate or over what timeframe do you see that? And then also, as part of that announcement, there is some details about some spectrum that you guys could utilize from Dish, is that the 700 megahertz spectrum that you'd have access to, and maybe if you could give us some details on how quickly that could be put into -- it could be lit up and sort of used by AT&T Mobility, would be great. Thanks. John Stankey: Sure, John. So first, let me just kind of start out and step back and say, having watched some over the comments of the last couple of days, let me frame one thing, we have been in the wholesale business, since as long as I've been working for this company, and the wholesale business has been very good to our company. And it's a very important element of how we manage our returns and how we kind of think about tracking the right kind of scale on our business moving forward, and that -- it's both true in the fixed and wireless business. And we've been cognizant of percentages of traffic that we have in various aspects of our business and always try to maintain a balance. And I would say my experience with this company and looking at the relationships we've had from a wholesale perspective, we've always managed to strike relationships that we think are win-win relationships for the parties involved. Second thing, I would say is I believe that Dish is going to be a company that in their business model, what they choose to do moving forward is going to be successful one way or the other. And my point of view, and when we start thinking about wholesale businesses, when somebody is going to be successful, it's always nice for us to be successful along with them. We think there's accretive way to do that that drives a reasonable return back into the business, and again, manages the balance of that traffic in the aggregate of the business. And I think we've achieved that in this case. And frankly, given the nature of their business and where they are in its maturity, and what our interests are, and ultimately aggregating as much traffic on our networks as possible. I'm looking forward to demonstrating to Dish that we can be a good partner, and that we can carry the right kind of traffic, and we can do things to help them grow their infrastructure over time on parts of our network, where they may not have ready access to infrastructure that we can ultimately support them with. And I think that's a good thing for AT&T over the long haul, given the nature of our business and what we've done, and the balance that we like to keep between retail and wholesale traffic. The construct around this particular agreement, as you should think about it is, as you know, it was set up so that as Dish continues to build their own infrastructure for own and operate, they need places to put traffic. And so, while this is a 10-year agreement, it's discussed, I think in the disclosures is a minimum commitment per year, one should think about this as probably being something that's more front-end loaded than back-end loaded, in terms of how that commitment retires, and I think you should also think about it in terms of Dish has established with us a minimum annual commitment. That's not necessarily the annual commitment, or the maximum annual commitment, and a lot of this will be based on our effective performance with them, and ultimately what they choose to do in the market, but frankly, we'd aspire to possibly see that, you know, be something greater than what those minimum levels are, that have been put in place. But this was a comfortable construct that I think both parties could agree to get started and establish all the practices and processes that are necessary to have an effective wholesale arrangement like this. And I think that we need to demonstrate that we can do well, and ultimately see that grow. And I don't want to speak on behalf of Dish or Charlie. I'm sure he will, when he has a chance to comment on that. But I believe, one of the reasons they view this as being a good move for them is their assessment of where things were in the industry is, they felt like we could be a very capable and more capable partner than their current arrangement. And they have motivations or business reason to continue to deepen that relationship with us. I would go on to say, as we think about what we do with them on this relationship going forward, there are a lot of options that we can explore. Spectrum, as you know, is certainly one that's open. We have a variety of Spectrum licenses where our existing radio infrastructure can ultimately deploy and put to use some of their spectrum. That's been done through the pandemic. We have options to do some of that, as well as we move forward and look, I don't think any of us know over the course of a longer-term relationship, what's going to happen to other regs and specs on Spectrum. And I think parties will keep their mind open as those evolutions occur and look for some other options to pursue. But right now, we know what we need to do with the wholesale agreement that, frankly, is really no different than any other wholesale agreement that it's in the market, like what maybe Verizon does with Cable, or what we've done with other entities that have elected to use us on a wholesale basis. Jeff, do you want to add anything to that, your team did a great job pulling it together, is there anything you would add? Jeff McElfresh: John, I think you covered the broad strokes of it, I would just say the cadence between the two organizations and getting ready to begin migrating this traffic towards the latter part of this year, and I'm going into 2022 has been very positive, I think the comments from the operation have been that the AT&T network has got the capacity and the coverage with all of the investments that we've made over the last several years, we can actually afford to do something like this and not worry so much about our spectrum position. And our technology migration that we've got experience in and upgrading from 4G to 5G and making those transitions seamless is something I think the Dish organization is looking forward to working with us on. John Stankey: I don't think anybody around here is upset about taking $500 million a year out of the competitors pocket either so. John Hodulik: Got you, okay. It sounds good, guys. Thanks. John Stankey: Thanks very much. Operator, we can move to next question. Operator: We do have a question from the line of Simon Flannery with Morgan Stanley. Please go ahead. Simon Flannery: Yes, thank you very much. Good morning. Wonderful, you've got a quick update on the Warner Media Discovery deal, any updates on timing, regulatory process, tax status, structure, et cetera and then for Jeff, you did an interesting deal around the 5G core with Microsoft Azure. It'd be great just to learn more about the details of that any numbers you can give us and the opportunities that that gives you? Thanks. John Stankey: Is that a legal line change, Simon, or is that, Simon, 3.0. Simon Flannery: We'll figure it out on the transcript, yes. John Stankey: I think net of where we are on the Discovery process is no news is good news. We're basically tracking to the process, as we would expect to do. And I think you're probably familiar enough with these things that right now, it's a lot of work with the regulatory agencies and document production and providing information that's responsive to their requests so that they can begin the reviews. And all that is underway. There's nothing we see that that's been particularly problematic, nor is it far enough along where I think you can effectively say that anybody has developed any position or point of view on something. So, we continue to move through it, I'll tell you internally, all the normal steps are going on to be prepared operationally for when we would expect an approval. I think as I indicated, when we announced the transaction, Simon, we expected it was going to be next year, and probably close to a four year overview to get this done. And I don't have any reason to suggest it's going to be anything other than that, at this point. We've had some interesting and pleasant surprises in some cases, I think we moved through to DirecTV process a little bit faster than what we had expected. It's not a complicated transaction, I think certainly supports it. And if we were to be fortunate enough to do that, because of the straightforward nature of the transaction, we'll take it and we'll be prepared for that, if that were to happen. But at this point, I'm expecting it's going to be a fulsome review. And we'll run through the process as we normally do and get to the end of it and probably have as we approach the latter part of it a little bit more insight for you as to what's going on, it's just a little early, Jeff? Jeff McElfresh: Simon, on the Microsoft transaction, I think it's appropriate to point out that AT&T and Microsoft, we've got a very deep and wide ranging strategic relationship between the two firms and this particular deal that you referenced is just another example of how we choose to partner with companies like Microsoft who have expertise in doing things, they do this day in and day out for a living, and that is scaled compute. And as you know, over the last several years, our labs organizations and our network team has been hard at work virtualizing our core network functions. What this deal essentially does is it brings Microsoft to the edge of our network and supporting our network workloads, at a scale level for efficiency and as a partner in this, our engineers and their engineers are developing this solution on a broad scale across the business, across the network. We're going to enjoy some anchor tenant benefits from that, we're not disclosing any specific financial details. But one thing that we're not doing and I've kind of read this in the trade, in the press a bit is we're not outsourcing our core network function. We're relying upon Microsoft to develop a scaled compute and storage capabilities at the edge while we retain control of our network stack and the kinds of services and products that we're going to offer to the market. And as John has shared over the last four quarters, our focus here is to put our energy on the things that differentiate our service. And by doing this, it enables us to reallocate resources that were once attempting to build scaled network cloud compute capabilities. We rely on Microsoft for that and the Azure for operator's capability going forward. And then our product development teams and our engineers really work on the service layer, and the kinds of products and services that we intend to provide with our fiber and our 5G network to consumers and to our enterprise customers. Simon Flannery: Any color on timing? Jeff McElfresh: No, we've not disclosed product launches or capabilities. This deal just got announced and it's in the process right now of the integration of the two teams, we will go on for a more appropriate time. Simon Flannery: Thanks a lot. Jeff McElfresh: Thank you. John Stankey: Thanks very much. Operator, we can move to the next question. Operator: And we do have a question from the line of David Barden with Bank of America. Please go ahead. David Barden: Hey guys, thanks so much. Maybe two if I could. The first question is, Pascal, thanks for the information about what the perspective impact of the DTV dispositions might be, I guess a helpful mirror image of that would be what kind of EBITDA and free cash flow from DTV is baked into your current outlook as you've laid it out here today. And the second question is, obviously two new factors impacting the earnings outlook, one is changing Rio from operational to for sale and the benefit from depreciation there, and then the new kind of approach towards capitalized interest and having taken down the interest expense. Can you talk about what those two factors are doing to inform the new earnings growth outlook? Thanks. Pascal Desroches: Sure thing, Dave, on DTV, we have not provided detailed guidance yet. But as we said, once we -- once the transaction closes, we will provide details to help with the modeling. In terms of Rio, you said that you asked about the impact of stopping depreciation amortization. Think about it as $0.01 to $0.02 for the balance of the year. So, not significant and capitalized interest we just, as you saw in my remarks, I said that it's about $250 billion in Q2. So think about that as being the zone you should model going forward. David Barden: Thanks. And so, if I do that math, it kind of suggests that the -- for the balance of the organization, it still kind of more stable as top line. Is that fair? Pascal Desroches: I think that's fair. But remember, we are stepping up our investment significantly across the board in mobility, fiber, and HBO Max. So that -- some of this is self-imposed by the investments we're making. And you're seeing the delivery of the return to the top-line in over time. Over time, we expect to continue transformation effort and continued revenue growth, we're going to drive operating leverage, which should translate into EBITDA improvements. And I said this in my comments, we expect next quarter EBITDA to be flat up modestly. And so this is really a good outcome. The businesses are we're investing pulling our businesses, and we're delivering returns as evidenced by the revenue growth. And we're optimistic that all of that is going to translate into profit growth and cash going forward. David Barden: Great, thanks. John Stankey: Thanks very much, Dave. Operator, we can move to the next question. Operator: And we do have a question from the line of Phil Cusick of JPMorgan. Please go ahead. Phil Cusick: Hi, guys. Thanks. First, John. There are a lot of questions about the retention promo we launched last year, and it keeps running. But maybe talk about what else has changed in the wireless go-to-market strategy, aside from the retention promos in last year? And then what do you see driving the industry strength this quarter as well? And then quick follow-up, do those boost customers will most of them need new phones to come to your network? Or can you just convert them without a new phone? Thank you. John Stankey: So, Phil, since I have Jeff right here, I'm going to go ahead and just have him address it since he -- was his day in and day out. Jeff McElfresh: Yes, hey Phil, appreciate the question on the wireless business. We've been operating in this go-to-market model for the past four quarters. And I've got to tell you, it just continues to prove to be sustainable, I -- when I think about it, and I'd encourage you to think about as three simple elements. And the first is, we have simplified our offers in the market. And we have remained consistent in our offer constructs over the last four quarters, despite really a highly active and a competitive environment. But the second element that I think is sometimes overlooked is our persistent focus on the customer experience. And that is execution across our sales and distribution channels. Our newly formed a year ago, customer advocacy teams work in the grind on improving the experience of our products and our services. And then our network organization that just continues to put the capital into the ground and drive for third year in a row of the nation's best network. And those two things combined have responded and continued positive responses from the market and in customers. Both our existing subscriber base, as I think all are aware of, but also those of other competitors are choosing to join AT&T network. And we've been able to achieve and sustain taking share in multiple segments. It's across the board. It's not in any one particular segment. We're growing in consumer, we're growing in small business, we're growing with our first net position, we're growing in enterprise. And as Pascal mentioned earlier, we've set a 10-year record for net ad growth here in the second quarter, but we've also set a record for our turn and the NPS results that customers are giving us for our wireless products and services. And so in short, the customers themselves are telling us that we're doing something right. When you grow the top line revenue growth through the subscriber growth, remembering that we are third place in market share. We've got just a little over 27.5% of the market. Our growth trajectory right now is roughly 35% to 36% shared net adds. We're doing it also efficiently and through our transformation program and our distribution optimization, we're able to mine dollars out of the operations to support this growth and drive EBITDA growth at record levels here in the second quarter, year-over-year as well as sequentially. And so this operating leverage that we've achieved gives us confidence that this model is sustainable, but we got a lot of work to do. As I mentioned, we still have a third place share position in the market. We haven't made our way fully through upgrading our existing customer base on unlimited plans. We still are early in the cycle of upgrading our base on the 5G devices. And so teams are doing a great job. We are satisfied. I feel very strong about our position in the market, but we're staying focused on what customers want. And as long as we're getting the positive response, we're going to stick with it. John Stankey: And in terms of the overall strength in the market, Phil, I probably, I don't think there is any one particular thing I'd look at, but there is a number of factors. One obviously, many people are flushed with probably incremental cash and what they might've otherwise have had for a variety of different reasons. And they look for things to spend the money on. And I would say that generally speaking, these are high value, high utility services that we sell, and I can understand why on the margin, people may make a decision around that. I think secondly, the postpaid strength, clearly there has been some suppression on the prepaid market as I think value and things occur and there has been some movement in that direction. Third, you got to adjust some of these numbers in the industry. When you think about how many customer lines are actually what I would call an economic decision of paid for versus not paid for. And that probably is having a little bit of an impact on the aggregate numbers. Jeff, I don't know if you think there's anything else that you would point to? Jeff McElfresh: No, I wouldn't. I think you've covered it. John Stankey: Okay. Phil Cusick: And then on the boost conversion, thanks. John Stankey: Yes, there is -- obviously there -- I think boosts in, we've got a situation where additional work through whatever their arrangement is commercially with, T-Mobile on those. And then I think there has been some public discussion around what that entails and what's happening and we're not in the middle of that debate and what's occurring. And I think it still has a little bit of path to play, but yes, there is a segment of those customers that ultimately if they were to come over to our network will require a device change out exactly what the pace of that is and when that's necessary and how it occurs. And the total numbers of that I think is yet to be played out. Jeff, is there anything you would add on that? Jeff McElfresh: Yes, not a 100% required device conversion risk, some require SIM spots, and they're a little easier to transition, but you've covered it appropriate. Phil Cusick: Thanks, guys. John Stankey: Thanks very much, Phil. Operator, we can move to the next question. Operator: And our next question comes from the line of Michael Rollins. Please go ahead. Michael Rollins: Thanks, and good morning. Two questions if I could. First, when you take the plan investments in 5G and fiber all together, can you share the percent of homes over the next three to five years in the U.S., where AT&T can deliver better than DSL performing in the home? And secondly, just going back to the DISH transaction that you were describing earlier, because I think about some of the history, John that you were sharing when AT&T entered into some of those larger wholesale deals years ago, it felt like it was more resellers and that were complimentary to the AT&T focus, a lot of it on prepaid before AT&T was a larger provider in a prepaid category. So when you evaluated the deal this time with DISH, how did you consider whether or not DISH would be a competitor that maybe more complimentary to the addressable market that you're going after relative to a competitor that may be going directly after the same broad set of customers and revenue that AT&T currently proceeds? John Stankey: Hi, Michael. So why don't I have Jeff go ahead and answer your question on how we think about footprint for coverage of broadband, and then I'll come back and touch on your point of view on the wholesale piece. Jeff McElfresh: Yes, Mike. We've disclosed, we've got investment plans over the long-term to reach 30 million homes passed with fiber, which is clearly an excess of speeds, capable by copper cable or DSL. I would point to today our 5G network delivers speeds over 250 million POPs covered that exceed that of DSL. We have not made the choice or decision to launch wide scale fixed wireless internet, but rest assured that the strength of our wireless network is providing options for us as we migrate some of our legacy wire line, DSL customers, off of that technology over to a better technology, served up with fiber or wireless, and where it doesn't make sense for us to invest in fiber for the long-term in certain demographic areas or market areas. We choose to serve that with wireless and we'll leverage the 5G existing network that we've got with our sub-six spectrum strength. Outside of that, we're not disclosing the number of homes covered by the wireless network. We generally measure that in terms of POPs. John Stankey: So, Michael, in your comment I think I probably disagreed with the front end of your premise. I think we do things that are complimentary in terms of we think there are creative opportunities to bring profitable traffic on the network, but our portfolio owned and operated services, frankly covers the breadth of whatever a customer needs. I mean, there isn't really a customer base that we couldn't go out and sell an owned and operated service to. And we've been in that position for some period of time. We have a very strong prepaid business, which plays in the value segment. We have a variety of different pre-pay offers that are out there. We have great post-paid offers that cover a full gamut of things. So, yes, there are other operators out there that on a resale or MDNO basis go and attack other market segments. But I'd like to compete for those customers on an owned and operated basis as well. And that's always been the case. Now, I think where we're at in the U.S. market, maybe a little bit different than others is, there is kind of a direction toward more owned and operated competition than resale an MDNO operation. And as a result of that occurring, the number of wholesale options I would say moving forward in the future are going to become a little bit more concentrated. And so you're probably to see, where you choose to put that wholesale traffic on your network to be fewer options to go out pursue different partners. And as a result of that, if you want to continue to have an element of wholesale consistency in your market, and to Jeff's point, if you have some excess capacity that you can put to use and use it for either fixed cost coverage, or we're driving up incremental traffic in a place where you have some valid capacity, you're going to obviously choose to do that. I think that's the case here. And as I would also tell you, when you think about this relationship, a broader wholesale capability beyond just the wireless business is a part of this, which is really attractive to us as an infrastructure provider and something we do in our core. And there are opportunities for us to think about, again as we deploy as DISH deploys network infrastructure, where they go for us to do some things that I think are complimentary and helpful to both businesses. Jeff McElfresh: Yes. I would just only add John to your earlier comment during the call that we expect DISH to be successful in the market. And so the competitive dynamics are unchanged here and rather we get to participate in their success at this point. So that's how we analyzed it strategically. John Stankey: Thanks very much, Mike. Operator, we can move to the next question. Operator: And next question comes from the line of Doug Mitchelson with Credit Suisse. Please go ahead. Doug Mitchelson: Thanks so much. One for Jeff and one for Jason actually; Jeff, we've focused so much on promotions and subscribers and revenues and in wireless, and you've mentioned on a few occasions the ability to mind for cost efficiencies to support acquisition. What specifically are you addressing in the cost structure? How much is less there? It would be interesting to hear, Jason, I know you were super excited about the Latin-America launch for HBO Max were the learnings from the launch in Latam so far. What percentage of existing HBO subs has moved over to HBO Max, and as we kept track the app downloads, I think it's upwards of 6.5 million in since launch. And we're trying to figure out how much of that is new subscribers versus HBO Max existing customers pivoting over. Thanks so much. Pascal Desroches: Doug, in terms of our transformation agenda, I'd say we're roughly about a third of the way through. We've got two-thirds of the way to go. So we're in the early innings of it. Key themes around our transformation and cost takeout or things like optimizing our distribution elements be at stores and retail locations, and indirect agents as well as our digital and our online buy flows. Second area is transformation as we're now at a point in time where we're managing a higher percentage of our volume through digital than we ever have, and because we've perfected some of the ailments and our product experiences of the past. We're able to enjoy a lot more self-install and customer self-serve capabilities. And that's required us to work through not only the by flow experiences online, but also some of the platforms and technologies that are behind the scenes supporting our frontline resources. Third, our call center operations and our IT organization are hurt at work, just kidding, planning, simply more efficient per transaction. And as I said, I think we've got probably a two-thirds of the way left to go, it will take time, these initiatives are funded, they're inside of our outlook, and inside of our guidance and other teams just hard at work, and the grind day in and day out to drive it. John Stankey: Jason. Jason Kilar: Well, thanks for the questions. In terms of learnings from Latam so far at an overall level, we're feeling very good about the launch. A Beta was only two days before the end of the quarter. And so obviously, we're not sharing details, but this call. But in terms of the biggest lessons, number one is the content and the stories that we have on the service. The team did a remarkable job in terms of planning for this launch, and making sure that we put our best foot forward in terms of not only original new productions, but also an incredible library. And then the other three things I'd mentioned is distribution obviously is key. And we certainly lined up had healthy distribution partnerships ahead throughout Latin America. The tech and product works. And it's a modern experience that we're very proud of. And finally, you got to have the value. It's the value proposition is a very strong one in Latin America. And so in your last question, Doug, in terms of incrementality, and HBO migrations, we're seeing material incremental subscriber additions and so. Again, not for this call in at this moment, but certainly for the next quarter. Doug Mitchelson: Thank you both. John Stankey: Thanks very much. Operator, can we move to the next question. Operator: Of course. And our next question is from the line of Brett Feldman with Goldman Sachs. Please go ahead. Brett Feldman: Thanks. If you don't mind, first on fiber, you've had pretty consistent net adds, but you're still under penetrated, you're going to be meaningfully expanding the footprint, you've got a better service, you can match anybody's bundle. Can you help us think through whether there is an opportunity or the timeline for an opportunity to maybe step up that cadence of fiber net adds, because it certainly seems like that's an opportunity for the company. And then just as a follow up on the WarnerMedia side, you're six months into going day in day with the theatrical slate on HBO Max and in the theatres. I know, that was a strategy that was unique for this year, but I was hoping you could give us some insight into what you've learned from that, and how that might shape your view on what a more permanent strategy should be in terms of thinking about the theatrical release plate going forward? Thank you. John Stankey: Jeff, go ahead, why don't you to tackle the first one? Jeff McElfresh: Yes, Brett, so the first two quarters of this year have essentially been built selling into our aged fiber footprint from the prior bill. We are currently deploying some of the early stages of our next 3 million bill that we've disclosed for this year. As we cited earlier, Analysts Day, the bulk of that inventory is going to come online towards the back half of the year. And so my expectations are that our net add performance takes a step up as that inventory comes online. Having said that, thing that's really strong for us and exciting is one product continues to be durable as you point out the best technology. It's a great price value proposition. It's got the highest NPS scores in the industry. Two, 80% of our net performance here in the first-half of the year is actually new relationships AT&T. And that's given us an opportunity to move into those households with the best-in-class fixed broadband service as well as offer up some of the other products and services like wireless. And so, each of these execution elements we believe are going to continue to perform and continue to improve. This is not a quarterly game. This is a long-term plan. And we're just building momentum quarter-to-quarter. John Stankey: Jason, do you want to touch on the day-and-date issue? Jason Kilar: Sure, Brad thanks for the question. In terms of what we've learned, there's probably two things I'd highlight. One is that the motion picture format absolutely matters. And it matters in a number of ways. But I'll highlight to, it matters in theaters. By data versus comm, which we released this quarter, it's done over $463 million in revenue at the theaters. And so, so clearly motion pictures matter and will continue to matter when it comes to theatrical exhibition. They also matter at home, and absolutely, in terms of the response that we've gotten not just from that title, but from all of our day-and-date titles. We feel very good about the response that consumers have given it in the home. In terms of the things in terms of where things go in the future. I think it's fair to say that, and I've said this before publicly, I certainly don't anticipate as going back to the way the world was in 2015, or '16, or '17, where windows were quite lengthy between theatrical and home exhibition, whether it was an all the card transaction or something else. So we'll have shorter windows for a portion of our slate 45-days specifically, but the Warner Bros. is also going to be producing over 10 motion pictures that will be available on HBO Max on day one. And so I think that what you're going to see is this industry continues to evolve, and to continue to innovate in ways that not only works for consumers and fans, but also works for our business partners. Brett Feldman: Thank you. John Stankey: Thanks very much for the questions, Brett. Operator, we can move to the next caller. Operator: Your next question comes from Frank Louthan with Raymond James. … Frank Louthan: Great, thank you. Maybe just follow-up a little bit more on the consumer wireline, what point do we think that can really start to see the consistent top-line growth with based on all the fiber and broadband you've pushed out? And secondly, on FirstNet, where are we on penetration there? And can you comment on the FirstNet based and what percentage of that or have been net new customers AT&T? Thanks. Jeff McElfresh: Hey, Frank. We have achieved revenue growth in our consumer wireline business. And as Pascal pointed out, we expect that to continue to accelerate already looking at the 8% to 9%, only in the broadband business. And so we've got confidence. We've made that pivot now. In terms of FirstNet, we're over 17,000 agencies were ahead of all of our commitments with FirstNet authority, and all the IOC build out commitments and payments. As a result of that, and the subscriber base has peaked over 2.5 million, I'm not going to comment on what percent of that base is incremental or new to AT&T, I would just leave you with -- we are growing market share in a highly competitive wireless business and FirstNet has been a critical element for us to take share, and unseat possibly other carriers who have long held a strong position in public safety and in this part of the community. And so, that program continues to perform very strong and we don't see any signs of that slowing down. Pascal Desroches: Hey, Frank, one other thing that I would add on consumer wireline, as I said in the first quarter, we expect profitability trends to improve we saw they improved from Q1 to Q2, and we expect that to continue as we make our way through the back part of the year. And we will similar to what we've done with revenues, we will make the pivot on profits as we get through the back-half of the year. John Stankey: Thanks very much for the question. Frank Louthan: Thank you very much. John Stankey: Operator, if we can move to the next caller. Operator: And our next question comes from the line of Colby Synesael with Cowen. Please go ahead. Colby Synesael: Great, thank you. I think one of the debates for investors coming off the WarnerMedia announcement was how you actually get to that $20 billion in free cash flow in 2023 that you've guided to. And when you just run the EBITDA on the businesses that remain, you don't quite get there. And I think that the two things that you guys have outlined is number one, the cost synergies you've talked about, I think $1.75 billion to $2 billion by that time now you've also mentioned the billion dollars plus in distributions from DirecTV. I guess two questions there, number one is that as it relates to Jeff's response in response to Doug's question being one-third through the cost transformation, is that effectively one-third through getting the $1.75 billion to $2 billion and any color there. And then secondly, I guess as it relates to the components, is there anything else worth flagging, besides those two things that cost synergies and distribution that helps to kind of bridge that gap to that plus $20 billion? Thank you. Jason Kilar: A couple of points to keep in mind, one, when you look at interest, once the WarnerMedia transaction closes, our net debt will go down significantly and the interest savings for that are fairly meaningful, you can do the math, just think roughly $40 billion, $45 billion of cash coming in. And that's after our DirecTV cash that we expect to come in beginning of August. So, overall, we expect a meaningful savings in interest, one, two currently we've said this on a number of occasions. Currently, we are the contributions from WarnerMedia are not as meaningful as you may believe, right now, given the step up that we're experiencing in our content spending. So those two factors, I think are things you had when you consider those factors, relative to where we're today and the other factors you mentioned, I think that gets you to how it gets to $20 billion. John Stankey: I just reinforce the things we shared previously, Colby, around $6 billion margin on the cost structure of which as we've described to you, just correct, we're about a third of the way through that, we've been reinvesting a lot of the improvements that we've been able to drive into the operations so that we can accelerate our market momentum. As we go through the back half of this margin of the second, third, and then the final third, we do expect some of that's going to start hitting our bottom line, we have some of it targeted for how we want to continue to move into the market, but some of it is going to move through our bottom line. And it's going to ultimately be accretive to what we do on cash as we move through that. And that's part of our calculus on this. And Jeff gave you a little bit of a description of some of the things that we're working on. But I would also tell you that a major part of these efforts, and some of the stuff that comes at the back end is restructuring parts of the fixed asset inventory of our company, if you want to think about it in terms of the geographic footprint that we cover on the products that are associated with it, and the operations that are necessary to keep those products up and running. These are pretty fundamental hard things to do, they take a little bit of time, the business is doing them and when they're done, and we move through them, they have a meaningful impact on the cost structure as we move forward. And that's an element and then I look, we have some market momentum in places as we just described you, you heard our comments about where we're in the consumer space and the pivot we made there, we like what we're seeing in the wireless business and think we have a sustainable equation that we can take forward that's going to drive growth in those things. And that's what's going to get us out to those numbers. Jason Kilar: Yes, you remember the guidance is for two years from now that so the first full-year after the WarnerMedia transaction closes. So, we believe we'll grow our remaining business between now and then given the dynamics that we're seeing in the marketplace. Colby Synesael: Great. And there's just one quick point of clarification, then you were saying then that the one-third done, that's off to $6 billion broader cost savings target? John Stankey: That's right. Colby Synesael: Okay, thanks. Operator: Thanks very much for the questions, Colby. Operator, we have time for one last question. Operator: And that question comes from the line of Tim Horan with Oppenheimer. Please go ahead. Tim Horan: Thanks. And John, congratulations on some pretty radical transformation of the company and strategy and just in the same vein, would it be possible for Dish to light up their spectrum on your passive as well -- sorry, non-passive infrastructure wireless, the RAMs and the antennas relatively quickly, if they wanted to do so and the people that meet them. Pascal Desroches: Yes, that is technically possible. As John pointed out, the industry during the pandemic shared in spectrum to bring it to life to support the needs for broadband. And so there are certain spectral assets that are already engineered with our antennas and our radios that are deployed today. Tim Horan: And with that meet the FCC requirements on build out the Dish has at this point? Pascal Desroches: I'm not going to comment on that. Tim Horan: And then lastly, just on the whole go-to-market strategy, there's something that they may partner with AWS and AWS and other hyperscale has just done a phenomenal job digitizing the customer experience. Have you thought about the point, the same type of real radical digitization for customers, AWS will do same day delivery obviously, and it would really reduce the need for the number of stores that you have, and a lot of other processes you have? Pascal Desroches: We have done much of the very same thing in our operation over the last 18 months. In fact, our call to a higher percentage of our volumes are flowing through digital, we're getting higher gross adds than we ever have before with fewer doors as a result of our operations and our transformation of our distribution channels. And so, yes, we've got teams that that execute against those opportunities day in and day out. John Stankey: Tim, I will tell you, there's a fundamental reengineering going on right now, our supply chain and how we think about the logistics around that supply chain and an element of that is, of course, as we've learned during the pandemic, folks have changed behavior, we've accommodated a lot of that, frankly in terms of how effective we're on an omni channel approach. But we also realize that probably elements of more enhanced servicing and they kind of approach to it are going to be what we need to address going forward. And there's a lot of work underway with that. Tim Horan: Thanks very much for the question. Amir Rozwadowski: I'll turn over to John for our final comments. John Stankey: Look, I'll be real brief. I would say this. I think with yesterday's announcement on RIO and those that came before it, I would say we put the bulk of the framework in place to optimize our execution and performance in the business. And it's as simple as that. And that's what we're focused on. And I'm pleased with the momentum as we begin this chapter. I'd like to thank you all for joining us this morning, your interest in the business. I hope you enjoy the rest of your summer and I look forward to speaking with all of you very soon. Operator: And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and for using AT&T Conferencing Service. You may now disconnect.
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AT&T Reports Q1 EPS Beat, But Revenues Missed

AT&T (NYSE:T) reported its first-quarter earnings that exceeded analyst expectations, despite a slight shortfall in revenue.

In fiscal Q1/24, AT&T recorded an earnings per share (EPS) of $0.55, surpassing the analyst consensus of $0.53. The company's revenue for the quarter reached $30 billion, falling just below the anticipated $30.53 billion.

The report detailed that while total service revenues increased by $225 million, equipment revenues dropped by $336 million. Notably, mobility service revenues grew by 3.3%, and broadband revenues saw a 7.7% rise, largely due to the expansion of fiber services.

AT&T's adjusted EBITDA for the quarter stood at $11 billion, a 3.8% increase from the previous year and higher than the expected $10.89 billion. The company mentioned that the adjusted EPS included an approximate $0.11 impact from various factors including higher depreciation, non-cash pension and post-retirement costs, lower capitalized interest, and reduced equity income from DIRECTV. Looking ahead, AT&T maintained its full-year guidance for adjusted EPS to range between $2.15 and $2.25.

Telecommunications Sector Analysis: Verizon, AT&T, Comcast

Telecommunications Sector: A Deep Dive into Verizon, AT&T, and Comcast

In the rapidly evolving telecommunications sector, companies like Verizon (NYSE:VZ), AT&T (NYSE:T), and Comcast (NASDAQ:CMCSA) are drawing attention due to their strategic positioning amidst rising broadband costs. These firms are not only adapting to inflationary pressures by adjusting their pricing but are also capitalizing on the burgeoning demand for high-speed internet. This demand is fueled by the global shift towards remote work, the popularity of online entertainment, and the expansion of e-commerce. Each of these companies brings a unique value proposition to the table, from Verizon's focus on wireless service revenue growth to AT&T's ambitious plans for 5G and fiber network expansion, and Comcast's impressive net income and revenue increases.

Verizon stands out for its commitment to dividend returns and growth in wireless service revenue. Despite a slight dip in total operating revenue, the company's wireless segment has shown resilience and growth, which is a positive sign for investors looking for stable returns. The anticipated growth in wireless service revenue and adjusted EBITDA, coupled with a robust dividend yield, positions Verizon as a potentially lucrative investment. The company's recovery from past controversies and its forward-looking financial projections underscore its ability to navigate challenges and capitalize on opportunities in the telecommunications sector.

AT&T's financial metrics reveal a mixed picture, with a high dividend yield and a strategic focus on expanding its 5G and fiber networks. However, a closer look at its financial health, as indicated by ratios such as the current ratio, quick ratio, and debt to equity ratio, suggests potential liquidity and leverage challenges. The company's significant level of debt, as reflected in the debt to equity and net debt to EBITDA ratios, points to a reliance on borrowing to finance its operations. Despite these challenges, AT&T's substantial asset base and liquidity, as evidenced by its cash and cash equivalents, provide it with a foundation to pursue growth initiatives and potentially improve its financial standing over time.

Comcast's appeal lies in its dividend growth and the solid performance of its stock, which has seen capital gains alongside a moderate dividend yield. The company's significant increase in net income and revenue, particularly in the fourth quarter, highlights its operational efficiency and ability to generate profit. This financial strength, combined with a focus on dividend growth, makes Comcast an attractive option for investors seeking long-term value and stability in the telecommunications sector.

The financial health and strategic initiatives of Verizon, AT&T, and Comcast reflect their potential to thrive in the face of rising broadband costs and the increasing demand for high-speed internet. While each company faces its own set of challenges, their large size, ability to generate recurring revenue, and strategic focus on key growth areas position them as compelling investment opportunities in the telecommunications industry. Investors considering these stocks should weigh the companies' financial metrics, dividend yields, and growth strategies to make informed decisions aligned with their investment goals.

AT&T Earns an Upgrade at JPMorgan

JPMorgan analysts raised their rating on AT&T (NYSE:T) from Neutral to Overweight, also increasing the price target from $18.00 to $21.00.

The upgrade is based on AT&T's proven track record of consistent performance in its wireless and broadband divisions. The analysts highlighted the company's potential for sustained long-term growth, particularly in the broadband sector, thanks to its ongoing fiber optic network expansion and the exploration of new opportunities both within and beyond its current markets.

The analysts noted that AT&T has completed its period of heightened capital expenditures related to the deployment of 5G technology and anticipates a stable generation of free cash flow (FCF) moving forward. This FCF is expected to support ongoing dividend payments and facilitate debt reduction.

The analysts project AT&T's Mobility segment to experience robust growth, driven by both an increase in postpaid phone subscriptions and Average Revenue Per User (ARPU) for service revenue. They forecast a service revenue growth of 3.0% in 2024 and an EBITDA growth of 5.1%.

AT&T Earns an Upgrade at Oppenheimer

AT&T (NYSE:T) experienced a rise of over 1% intra-day today following an upgrade by Oppenheimer from Perform to Outperform, with a new price target of $21.

The analysts noted that AT&T had underperformed compared to the market and its industry peers in recent years, largely due to challenges faced during its transformation into a focused connectivity provider. However, they believe these difficulties are now in the past, and the stock is poised to benefit from several positive developments.

Key among these tailwinds are significant enhancements in network capacity and coverage in both wireless and wireline segments, leading to growth in Average Revenue Per User (ARPU). Improved trends in broadband subscribers and revenue, bolstered by fiber builds and Fixed Wireless, were also highlighted.

In addition, other factors contributing to AT&T's positive outlook include the potential merger of DirecTV with Dish, a concentrated effort on reducing expenses to boost free cash flow and strengthen the balance sheet, and an attractive valuation characterized by 15% free cash flow (FCF) and a 7% dividend yield.

AT&T Earns an Upgrade at Oppenheimer

AT&T (NYSE:T) experienced a rise of over 1% intra-day today following an upgrade by Oppenheimer from Perform to Outperform, with a new price target of $21.

The analysts noted that AT&T had underperformed compared to the market and its industry peers in recent years, largely due to challenges faced during its transformation into a focused connectivity provider. However, they believe these difficulties are now in the past, and the stock is poised to benefit from several positive developments.

Key among these tailwinds are significant enhancements in network capacity and coverage in both wireless and wireline segments, leading to growth in Average Revenue Per User (ARPU). Improved trends in broadband subscribers and revenue, bolstered by fiber builds and Fixed Wireless, were also highlighted.

In addition, other factors contributing to AT&T's positive outlook include the potential merger of DirecTV with Dish, a concentrated effort on reducing expenses to boost free cash flow and strengthen the balance sheet, and an attractive valuation characterized by 15% free cash flow (FCF) and a 7% dividend yield.

AT&T Shares Gain 6% After Q3 Beat

AT&T (NYSE:T) saw its stock rise by over 6% today as it reported third-quarter figures that exceeded expectations. The company posted an adjusted EPS of $0.64, surpassing analyst estimates by $0.02, and its revenue of $30.35 billion slightly exceeded the consensus estimate of $30.2 billion.

AT&T also reported that cash from operating activities for continuing operations in Q3 reached $10.3 billion, marking a $0.2 billion increase compared to the same period in 2022. This growth is attributed to operational expansion and timing of working capital, partly offset by lower receivable sales.

Notably, the third quarter's free cash flow stood at $5.2 billion, surpassing the expected $4.6 billion.

AT&T Stock a Strong Buy at Raymond James

Raymond James analysts updated their Analyst Current Favorites list, which showcases preferred stock recommendations from the Equity Research team. In the latest update, they've included AT&T (NYSE:T), a telecom company facing recent challenges.

The analysts at Raymond James have given AT&T a Strong Buy rating with a $25 price target, indicating a potential upside of more than 65% based on the closing price last Friday.

According to the firm, AT&T has become their Analyst Current Favorite because they see positive short-term prospects and expect investors to respond positively to the upcoming earnings results. They anticipate growth in free cash flow (FCF) throughout the year and a favorable trend in post-paid wireless subscribers during the latter part of the year, aligning with recent statements from the company's management. These developments are considered pivotal factors driving the stock's outlook.