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    AT&T (T)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$16.50Last close (Apr 23, 2024)
    Post-Earnings Price$16.90Open (Apr 24, 2024)
    Price Change
    $0.40(+2.42%)
    • Strong performance in Mobility and Consumer Wireline businesses, with record low churn in Mobility and EBITDA growth exceeding expectations, leading to margin expansion and improved operating leverage.
    • Deliberate capital allocation focusing on fiber expansion, positioning AT&T for sustainable growth and potentially exceeding initial fiber build targets, while progressing towards deleveraging goals that may allow for returning capital to shareholders.
    • Confident transition of Business Wireline by focusing on growth areas in 5G and fiber, leveraging strong brand and distribution to capture opportunities in underpenetrated segments like SMB and mid-market, which is expected to lead to future growth in business services.
    • Accelerated decline in the Business Wireline segment due to a faster-than-expected decline in legacy voice services, leading management to revise EBITDA decline expectations to the mid-teens range from the prior outlook of around 10%. This transition is anticipated to be "a little bit painful for a couple of quarters." ,
    • Declining cash distributions from DIRECTV, with management expecting approximately a 20% annual decline. This reduction in cash flow contributions from DIRECTV could negatively impact AT&T's free cash flow.
    • Lower wireless gross additions over several quarters, which may indicate challenges in customer acquisition or market saturation. While churn has improved, the decrease in gross adds could raise concerns about future growth prospects in the Mobility segment.
    1. Capital Allocation Priorities
      Q: Can you discuss capital allocation options after reaching leverage target?
      A: AT&T is nearing its 2.5x leverage target early next year and is considering various capital allocation options. The Board is conducting a deliberate process to decide the best course of action, focusing on treating shareholders well and returning capital smartly. They will evaluate factors like interest rates, dividend yield relative to equity value, and opportunities for reinvestment to determine the right mix. The company feels confident about the balance sheet and does not see an immediate need to change its current trajectory.

    2. Business Wireline Decline
      Q: What's the endgame for the declining Business Wireline segment?
      A: The decline in Business Wireline is largely technology-driven, with traditional voice services being replaced by integrated communication services over IP. AT&T is transitioning to focus on growth businesses built on 5G and fiber, aiming to serve not just the top end but across the entire market. This shift involves rebuilding capabilities in distribution and product mix for the mid-market. While the transition may be challenging for a couple of quarters due to lower margins on new services, they are confident in the AT&T brand's strength in business and expect to offset declines with connectivity-based services in fiber and 5G.

    3. Mobility EBIT Growth Factors
      Q: Why didn't Mobility EBITDA outgrow service revenue despite lower churn and gross adds?
      A: The Mobility segment's EBIT growth was impacted by accelerated depreciation associated with equipment from the Ericsson Open RAN deal, depreciated over shorter lives. This accounting factor affected operating income, but overall, AT&T feels good about expense management and cost profile, as evidenced by EBITDA margin expansion within the business.

    4. Impact of Data Breach and Outage
      Q: Any impact from the data breach and outage on financials or net adds?
      A: AT&T does not see any long-term issues on customer sentiment or financials due to the data breach or outage. While they take these incidents seriously and are addressing root causes, they haven't observed impacts on customer metrics. The outage caused a couple of days of suppressed activity but did not affect weeks or months. Most financial impacts from the outage have been reflected in Q1 results, with a small amount carrying into Q2.

    5. Pricing Power and ARPU Growth
      Q: Does the low churn environment provide pricing power for ARPU growth?
      A: AT&T believes the healthy industry environment and increased customer usage (30–35% more each year) provide opportunities to adjust the value equation and take price increases where appropriate. They have been mindful and intelligent in implementing price changes, focusing on products with staying power. This approach has allowed them to drive ARPU up, maintain or improve margins, and keep churn low. They anticipate continuing this strategy throughout the year.

    6. Fixed Wireless Strategy
      Q: Will fixed wireless be a broad opportunity like for peers?
      A: AT&T does not intend to promote fixed wireless in the same manner as competitors. They believe wireless networks are not ideal for serving single-family homes that stream substantial video content at $50 per month. Instead, they're investing heavily in fiber for long-term flexibility and performance. However, they see a place for fixed wireless in serving businesses with appropriate usage profiles and as a bridging strategy in certain consumer scenarios, such as replacing copper DSL ahead of fiber deployment or in low-utilization areas. Overall, their fixed wireless approach is targeted and strategic, differing from peers.

    7. EBITDA Growth vs. Guidance
      Q: With Q1 EBITDA growth at 4.3%, what's affecting full-year guidance of around 3%?
      A: While the Mobility and Consumer Wireline segments are performing strongly, AT&T anticipates the Business Wireline segment to be slightly worse than expected due to an accelerated decline in legacy voice services, projected to be down in the mid-teens percentage range. Despite this, they are confident in managing through these challenges and still delivering around 3% EBITDA growth for the year, supported by margin expansion in the strong-performing segments.

    8. ACP Program Impact
      Q: What is the potential impact of the ACP program discontinuation?
      A: AT&T believes they can navigate the potential sunset of the ACP program without revising their financial guidance. They are proactively notifying customers and working to transition them to other arrangements. They used the program effectively, focusing on fixed broadband services, and expect to maintain customer relationships even as the subsidy ends. They do not anticipate significant financial impact from the program's discontinuation.

    9. Customer Acquisition vs. Retention Strategy
      Q: How is AT&T balancing marketing between acquisition and retention?
      A: AT&T is intentionally focusing on profitable customer growth rather than sheer volume. They prioritize acquiring "high-calorie" subscribers who bring more value, rather than competing for lower-margin customers. This strategy results in lower gross adds but is balanced with low churn and higher service revenues. Their marketing spend is rigorously allocated to segments that offer sustainable growth and profitability.

    10. Underpenetrated Segments Strategy
      Q: When will share gains in underpenetrated segments materialize?
      A: AT&T is making progress in underpenetrated segments like SMB, value, and cross-selling fiber to wireless customers and vice versa. They expect to see progress throughout 2024 as they refine their product lineup and distribution strategies. While ramping up in the value segment has been slower, they anticipate making strides this year, aligned with their business plan and performance expectations.

    11. BEAD Investments Timing
      Q: What's the outlook on BEAD investments?
      A: AT&T views BEAD investments as a 2025 issue, not impacting 2024 guidance. Progress at the state level is slow, and they will be selective in participating based on how states approach the program. They may discuss incremental investments in 2025 regarding capital reinvestment, but currently, BEAD is not a front-and-center concern.

    Research analysts covering AT&T.