AT&T Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Customer-Centric Focus: Launched the AT&T Inc. guarantee, a promise to provide reliable connectivity, good deals, and deserving service. Made significant fiber expansion and network modernization investments, expecting to achieve the target of passing over 30 million total locations with fiber network by mid-2025 and aiming for over 50 million by 2029.
• Financial Confidence: Confident in delivering 2025 financial guidance. First quarter results showed growth in consolidated service revenue and adjusted EBITDA. Plan to commence share repurchases during the second quarter. Capital allocation focused on fiber deployment and wireless network modernization, with balance sheet strengthening, reducing net debt by ~$1 billion in the first quarter.
• Business Performance: First quarter performance showed mobility and consumer wireline businesses driving growth, offsetting secular pressure on business wireline. Mobility business had solid results with revenue and EBITDA growth. Consumer wireline benefited from subscriber gains and ARPU growth. Business wireline saw trends in revenue and EBITDA, with focus on fiber and advanced connectivity services.

Segment Performance

• Mobility Business: Total mobility revenues were up 4.7% year over year with service revenues up 4.1%. Service revenue growth was driven by strong customer growth, including 324,000 postpaid phone net adds and postpaid phone ARPU growth. Postpaid phone gross adds increased by about 13% year over year, but churn was impacted by promotional financing periods and competitive offers. Mobility EBITDA grew 3.5% year over year, with margins down 50 basis points due to increased advertising and marketing spend.
• Consumer Wireline: Delivered solid broadband subscriber growth. AT&T Inc. Fiber had 261,000 net adds, consumer wireline revenue grew 5.1% versus prior year, driven by fiber revenue growth of 19% and fiber ARPU growth of 6.2%. Consumer wireline EBITDA grew 18.6% for the quarter. The quarter benefited from vendor settlements positively impacting total wireline operating expenses by ~$100 million, with ~$55 million impact in consumer wireline.
• Business Wireline: Revenues declined approximately 9% year over year, primarily due to pressures on legacy and other transitional services, but fiber and advanced connectivity services grew 4.5%. Business wireline EBITDA declined less than 2% versus prior year, with benefits from pricing actions on legacy services and cost-saving initiatives, though some favorability was nonrecurring.

Guidance

• First Quarter Results: Adjusted EPS was $0.51 in the quarter, $0.03 higher than prior year excluding DIRECTV. First quarter free cash flow was $3.1 billion. Capital investment in the first quarter was $4.5 billion, slightly lower year over year.
• Second Quarter Outlook: Expect capital investment in the $4.5 billion to $5 billion range and free cash flow of approximately $4 billion. Full-year free cash flow expected to be $16 billion plus. Full-year capital investment expected to be in the $22 billion range.
• Share Repurchases: Plan to commence share repurchases under the $10 billion authorization this quarter, with at least $3 billion completed by year-end and the remainder during 2026.

Risks

• Macro Environment Uncertainty: U.S. policies pursuing global trade rebalancing and domestic manufacturing could increase costs of smartphones, devices, network, and technical equipment. The magnitude of cost increases depends on vendor pass-through and impact on consumer/business demand.

Q: Peter Supino with Wolfe Research asked about tariffs and growth environment.

A: Peter was told about handling tariff impacts by understanding customer needs and adjusting support, and about managing growth environment by being comfortable with guidance as there are many expense management opportunities. Pascal added Q1 was impacted by launch expenses for the guarantee but organic expense performance was good.

Q: Benjamin Swinburne with Morgan Stanley asked about acquisition talks and FCC orders.

A: John Stankey said no comment on rumors but is open to inorganic investments that can improve shareholder value, and on FCC orders, progress has been made with regulatory tailwinds and applications pending to pull costs out.

Q: John Hodulik with UBS asked about churn and business wireline.

A: Pascal said 2Q churn expected to be similar to 1Q with seasonality in the second half, and on business wireline, benefits from price increases and settlements but trends expected to moderate. John added on gross adds and focus on high-value customers.

Q: Michael Rollins with Citi asked about fixed wireless and ARPU.

A: John Stankey said fixed wireless net adds are due to network modernization, and on ARPU, will continue to find opportunities based on product performance and market realities.

Q: Bryan Kraft of Deutsche Bank asked about churn and gross adds.

A: Pascal said 2023 churn a proxy for 2025, and John added on focus on high-value customers and LTV. Pascal also talked about mobility revenue guidance.

Q: Sebastiano Petti with JPMorgan asked about mobility EBITDA guidance and fiber.

A: Pascal said confident in mobility guidance with cost actions, and John said confident in fiber investment as a long-term bet.

Q: Jim Schneider of Goldman Sachs asked about consumer health and capital allocation.

A: John said not seeing major consumer behavior changes, and on capital allocation, committed to executing share buyback program.

Q: Kannan Venkateshwar with Barclays asked about macro growth framework and property commissions.

A: John said focusing on steady progress in market share through infrastructure modernization and brand repositioning, and on property commissions, visibility on business opportunities over next three years but some opportunities may arise unexpectedly