AT&T Inc. (T) Earnings

Management highlights

### Customer Growth & Convergence - Added more than 1 million total advanced connectivity subscribers across fiber, fixed wireless, and postpaid phones, with all three categories posting higher net additions year-over-year. This marked AT&T's best-ever Q2 for AT&T fiber net additions, and a record quarter for combined fiber and fixed wireless net additions. - 42.5% of advanced home internet customers now also have a postpaid wireless account with AT&T; the convergence rate rises to 45% when excluding Lumen-acquired footprint customers. Converged customers have lower churn, higher brand affinity, and higher lifetime value. ### Fiber Expansion & Lumen Integration - 2026 is on track to be AT&T's largest year ever for fiber expansion, with plans to pass 8 million new locations, including over 4 million from the Lumen acquisition. AT&T added over 1 million new fiber locations in Q2 2026. - Integration of the Lumen footprint is progressing: converged gross additions in Lumen territories were up 45% in June 2026 compared to February 2026, proving the AT&T convergence playbook works in acquired markets. Brand and infrastructure conversion is nearly complete, with volume growth set to accelerate through the end of 2026. ### AI-Driven Connectivity Positioning - Agentic AI is projected to drive ~9x growth in enterprise traffic and ~7x growth in consumer traffic by 2035, with fundamentally new requirements for low latency, high bandwidth, and symmetrical uplink capacity. AT&T believes its fiber-enabled edge network convergence creates a durable competitive advantage to meet these demands. - AT&T is the only U.S. provider currently investing at scale to build the dense metro fiber and deep nationwide spectrum infrastructure required to support long-term AI connectivity demand, and targets operating the most advanced open communications network in the U.S. by 2030. ### Legacy Copper Exit - The FCC recently approved AT&T's request to discontinue legacy copper voice service at 60% of its California wire centers to support customer upgrades to advanced services. AT&T now has approval to discontinue legacy services in over 30% of all U.S. wire centers, with approvals effective by late 2026. - AT&T is on track to reach the goal of an orderly full legacy copper network shutdown by the end of the 2020s, which will unlock material cost structure reductions and streamline operations. ### Capital Return Update - AT&T is accelerating 2026 share repurchases by 25% from the prior target of $8 billion to a new target of ~$10 billion, pulling forward planned 2027-2028 buybacks to capitalize on what management views as a disconnect between AT&T's operating fundamentals and current stock valuation. Total 2026 capital return (dividends + buybacks) is expected to hit ~$18 billion, equal to 100% of projected 2026 full-year free cash flow. ### Leadership Transition - CFO Pascal Desroches will retire at the end of 2026. Jennifer Byrie will return to AT&T to take over the CFO role, with a deliberate transition plan in place to avoid disruption to operations.

Guidance

- **Consolidated Full-Year 2026**: Maintains guidance for low single-digit consolidated service revenue growth, 3-4% year-over-year adjusted EBITDA growth, and adjusted EPS in the range of $2.25 to $2.35. Expects full-year free cash flow of $18 billion or more, and total capital expenditure of $23 to $24 billion. - **Advanced Connectivity Full-Year 2026**: Reaffirms guidance for 5%+ full-year service revenue growth and 6%+ full-year adjusted EBITDA growth. Expects low single-digit compound annual growth in Advanced Connectivity business service revenues through 2028. - **Free Cash Flow Timing**: Expects relatively stable year-over-year free cash flow in Q3 2026, followed by strong year-over-year free cash flow growth in Q4 2026, driven by lapping 2025 discrete items including legal settlements and a large pension contribution. - **Cost Transformation**: Remains on track to achieve $4 billion in total consolidated annual cost savings by the end of 2028. - **Balance Sheet Leverage**: Expects net debt to adjusted EBITDA to rise to the 3.2x range following the close of the EchoStar spectrum license acquisition (expected by end of July 2026), then return to the 2.5x target leverage range within three years of transaction close.

Segment performance

AT&T operates two core product segments: Advanced Connectivity and Legacy. 1. **Advanced Connectivity**: This segment contributes over 90% of total AT&T service revenue and nearly 100% of adjusted EBITDA. In Q2 2026, segment service revenues grew 5.1% year-over-year (accelerating 150 basis points from Q1 2026 growth), and adjusted EBITDA grew 8% year-over-year, driven by top-line momentum and ongoing cost transformation initiatives. The segment has three sub-segments: - *Wireless*: Service revenues grew 3.3% year-over-year, driven by 432,000 postpaid phone net additions and successful Q2 2026 pricing actions. Postpaid phone ARPU grew year-over-year while churn declined, and the company added 147,000 new consumer postpaid wireless accounts, the best result in over three years. - *Advanced Home Internet*: Service revenues grew more than 27% year-over-year, driven by strong fiber net additions, accelerated fiber deployment, converged offer go-to-market strategy, and the Q1 2026 Lumen fiber asset acquisition. Reported fiber ARPU declined 1.3% year-over-year due to the full-quarter impact of lower-ARPU Lumen acquired subscribers; excluding Lumen, fiber ARPU was approximately flat year-over-year. - *Business Advanced Connectivity*: Service revenues grew 1.8% year-over-year, driven by momentum in wireless, fiber, and fixed wireless. 2. **Legacy**: This segment includes retired copper-based network services. In Q2 2026, legacy service revenues declined 26% year-over-year, and adjusted EBITDA declined approximately 46% year-over-year, as AT&T accelerates copper network shutdown and customer migration to advanced services. Consolidated Q2 2026 results: Total revenues grew 2.3% year-over-year, service revenues grew 2.7% year-over-year, adjusted EBITDA grew 5.2% year-over-year to an adjusted EBITDA margin of 39.1% (up 110 basis points year-over-year), adjusted EPS was $0.65 (up more than 20% from $0.54 year-over-year), and free cash flow was $4.7 billion (up ~$300 million year-over-year).

Risks & headwinds

Management did not outline material new or unexpected risks in this earnings call. The only risk-related discussion referenced standard forward-looking statement risks disclosed in AT&T's SEC filings, which note that actual results may differ materially from forward-looking projections due to unidentified or unanticipated factors. The known strategic tradeoffs discussed include: - Near-term pressure on fiber ARPU from the focus on converged customer growth, though management expects this to be offset by higher lifetime value and lower churn from converged customers over time. - Civil construction timelines for fiber buildout can be uneven across geographies, which may create incremental delays to ramping fiber expansion in the Lumen footprint.

Analyst Q&A

• Q: What traction have you seen with new value-focused wireless plans, how do you plan to manage fiber pricing across the customer base, and will the EchoStar satellite spectrum change your rural market assumptions?

  A: New value-segment plans are working as intended, delivering a three-year high in new consumer postpaid account growth while maintaining strong profitability and margin. For fiber, AT&T will target customers across all price points, from premium multi-gig users to value-oriented shoppers, optimizing for total lifetime value of converged accounts rather than individual product ARPU. For rural markets, AT&T will focus capital on high-return urban and suburban fiber buildout, and will partner with satellite providers to cover the 2% of customer traffic that falls outside AT&T's own footprint, rather than building out unprofitable rural terrestrial infrastructure.

• Q: Will Lumen footprint converged growth continue to ramp, and how will AT&T monetize growing AI-driven network traffic over the long term?

  A: Convergence traction in the Lumen footprint confirms AT&T's existing playbook works in acquired markets; infrastructure and branding conversion is nearly complete, and volume growth will accelerate through the end of 2026 as AT&T ramps construction. To monetize AI traffic, AT&T will leverage its low-band spectrum advantage to deliver the robust upstream capacity AI applications require, and will introduce differentiated tiered services for AI workloads, similar to how fixed broadband currently prices tiered speeds. Just as managed VPN became a premium service for wireline, managed high-performance wireless connectivity will become a premium offering for AI use cases.

• Q: What does the delayed 2027 upper C-band auction mean for your capital deployment strategy, and was the comment about solving 2027 corner cases a hint at future M&A?

  A: The delayed auction timeline was expected, and the EchoStar acquisition already gives AT&T the spectrum it needs to control its destiny for the next several years. AT&T now focuses on targeted, localized capacity augmentation using its dense fiber backhaul and small cells, rather than buying large national spectrum blocks, so the delay does not change strategy. The 2027 corner case comment refers to seamless satellite roaming for customers who travel outside AT&T's terrestrial coverage, not M&A; AT&T will launch seamless direct-to-device satellite coverage for out-of-network areas by 2027, solving the 2% of coverage gaps for converged customers.

• Q: How will AI-driven traffic growth impact fixed wireless access (FWA) prioritization, and would AT&T ever partner with Starlink as an MVNO competitor?

  A: Fiber is the optimal long-term technology for fixed traffic, so AT&T will always prioritize scarce mobility spectrum over FWA. FWA remains a useful tool for small business applications, copper retirement, and seeding new fiber markets, but will not be the core of AT&T's fixed strategy. AT&T does not need a wholesale MVNO agreement with a satellite provider to serve the mass market, as it already reaches 98% of customer traffic with its own infrastructure, and only needs a limited partnership to cover the small 2% gap of out-of-network coverage.

• Q: What factors are driving lower churn, how will higher device prices impact your strategy, and how will AT&T allocate any future excess free cash flow?

  A: Lower churn stems from multiple factors: better customer cohort management, stronger convergence, and modestly slower device upgrade activity. Higher device prices are expected to slow demand for upgrades, which will likely keep churn lower in coming quarters. With AT&T's stock currently undervalued, management has a near-term bias to pull forward additional share repurchases if more flexibility becomes available. The balance sheet is already in a strong position, so the board will revisit capital allocation priorities at its September 2026 meeting based on market conditions.