AT&T Inc. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Priorities: Focus on 5G and fiber as growth engines. Mobility has strong net adds and low churn. Fiber is growing with significant net adds, and convergence of 5G and fiber offers benefits like lower churn and higher LTV.
• Efficiency and Cost Management: Aim for $2B+ run rate cost savings by mid-2026. AI adoption improves efficiency. Cash operating expenses down y-o-y, adjusted EBITDA margin expanded 170 basis points.
• Capital Allocation: Capital investment down y-o-y but still top investor in US connectivity. Finished Q1 with net debt to adjusted EBITDA 2.9 times, target 2.5 times by H1 2025. Free cash flow $3.1B, up from $1B y-o-y.

Segment Performance

• Mobility: Delivered 349,000 postpaid phone net adds in Q1, with 71.6 million high-value postpaid phone subscribers (up 1.5 million y-o-y). Postpaid phone churn was 0.72%, the lowest first quarter on record. Service revenue grew 3.3%, Mobility EBITDA grew 7% y-o-y. Postpaid phone ARPU was $55.57, up nearly 1% y-o-y.
• Consumer Wireline: Had 252,000 AT&T fiber net adds, the 17th consecutive quarter with net adds above 200,000. Broadband revenues grew 7.7%, with fiber revenue growth at 19.5%. Fiber ARPU was $68.61, up over 4% y-o-y. Consumer wireline EBITDA grew 14.6%.
• Business Wireline: EBITDA down 16.5% due to secular decline of legacy voice. Wholesale market stabilized, but businesses transitioning to mobile/cloud services.

Guidance

• Full-year adjusted EBITDA growth expected in 3% range. Adjusted EPS $2.15-$2.25. Capital investment in $21B-$22B range. Mobility EBITDA to grow in higher end of mid-single-digit range. Consumer wireline EBITDA mid to high-single-digit growth. Business wireline EBITDA decline in mid-teens. Fiber expansion: On track to pass 30M+ consumer and business locations by end-2025, with potential to expand by 10M-15M additional locations.

Risks

• Business wireline legacy transition challenges, faster than expected decline in legacy voice services. Potential impact of ACP program sunset. Cyber security concerns and their potential impact on business sentiment.

Question and Answer

Q: Simon Flannery asked about capital allocation, outage impact.

A: John Stankey discussed capital allocation deliberation, outage impact being short-term and not affecting long-term sentiment.

Q: John Hodulik asked about mobility cost structure and Internet Air for business.

A: Pascal Desroches mentioned accelerated depreciation from Open RAN, John Stankey said Internet Air for business is national.

Q: Peter Supino asked about mobility EBIT growth and Internet Air for business.

A: Pascal Desroches explained depreciation from Open RAN, John Stankey said Internet Air for business is national.

Q: Bryan Kraft asked about marketing/sales budget balance.

A: John Stankey said strategy is intentional for profitable growth, low churn.

Q: David Barden asked about EBITDA growth and ACP program.

A: Pascal Desroches discussed segment guidance, John Stankey said ACP sunset manageable.

Q: Sebastiano Petti asked about business growth and cost cuts.

A: John Stankey said cost cuts are accelerated, progress in fiber penetration.

Q: Frank Louthan asked about economy and business wireline endgame.

A: John Stankey discussed business transition, shift to 5G/fiber in business.

Q: Walter Piecyk asked about fixed wireless market.

A: John Stankey said AT&T's approach differs, focusing on fiber with fixed wireless for specific uses.