AT&T Inc. 5.35% GLB NTS 66 Q4 FY2024 earnings call

• 2024 Performance Review: Team delivered solid year with durable 5G and fiber subscriber growth. Mobility had 1.7 million postpaid phone net additions with service revenue growth 3.5%, led industry in postpaid phone churn for 14th time in 16 quarters. Added 1 million or more AT&T Fiber subscribers for seven straight years, achieved six consecutive quarters of positive broadband net adds.
• 2025 Priorities: Focus on executing on Analyst and Investor Day priorities, grow 5G and fiber subscribers with elevated customer experience, make progress on $3 billion plus run rate cost savings target by further integrating AI, evolve technology stacks and exit legacy copper network operations by end of 2029, received FCC approval to handle legacy voice services transition, plan to make detailed filings with FCC to stop selling legacy products in about 1,300 wire centers.
• AT&T Guarantee: First and only telecommunications company to offer guarantee for wireless and fiber network, a bold promise to deliver connectivity, deals, and prompt service or make things right if fall short, a converged full company effort spanning wireless and fiber, consumers and small businesses.

Mobility

• Fourth quarter: 482,000 postpaid phone net adds, mobility revenues up 3.3% for the quarter with service revenues also up 3.3%, fourth quarter Mobility EBITDA up about $500 million or by 6.1%, postpaid phone ARPU in the fourth quarter was $56.72, up nearly 1% year-over-year.
• Full year: Mobility service revenue growth 3.5%, EBITDA grew 6.3%, postpaid phone churn 0.85%, prepaid phone churn less than 3%.

Consumer Wireline

• Fourth quarter: 307,000 AT&T Fiber net adds, highest ever during the fourth quarter, broadband revenues grew 7.8% driven by fiber revenue growth of 17.8%, added 158,000 AT&T Internet Air consumer subscribers in the quarter, total broadband net adds 123,000, fiber ARPU $71.71, up $1.35 sequentially and 4.7% year-over-year.
• Full year: Consumer Wireline EBITDA grew 10%, exceeded guidance for full year growth in the mid to high-single digit range.

Business Wireline

• Fourth quarter: Revenues declined 10%, EBITDA was down 22% primarily due to continued industry wide secular declines in legacy services.
• Full year: Business Wireline EBITDA declined 18%, in line with guidance for declines in the high-teens range. 2025 expected to decline in the mid-teens range.

• 2025 outlook unchanged from Analyst and Investor Day, beginning in first quarter will report adjusted EPS and free cash flow excluding DIRECTV, anticipates growth in both metrics driven by consolidated adjusted EBITDA growth of 3% or better.
• Adjusted EPS guidance for 2025 $1.97 to $2.07, assumes depreciation and amortization expense slightly higher, lower interest expense, effective tax rate around 23%.
• Plan to start share repurchases in second half of 2025 once net debt to adjusted EBITDA in 2.5 times range, expect adjusted EPS to grow at double-digit CAGR from 2027, free cash flow guidance $16 billion plus in 2025.

• Uncertainty in regulatory execution regarding legacy product transition and decommissioning of copper infrastructure.
• Potential impact of market competition on business performance, especially in broadband and wireless segments.
• Economic environment changes affecting investment levels and revenue generation.

Q: On the regulatory filing about the legacy products, are there any direct cost savings that would come with this that you could potentially see in '25 if that's successful? And on tax reform. One, just what's your view on the chance of getting that through? And you mentioned that you could go a little faster with some of the CapEx. Would that be a '25 issue or '26? And what are some of the areas do you think that you could do more spending and accelerate the plan?

A: All right, John. Good morning. So the legacy filings, first of all, what you should understand is, as we laid out our new cost savings objectives for you over the next three years as we discussed in the Analyst Day, as we gave you that detail, you can see that we are expecting that we're going to make progress in taking those costs out of the business, and that's a key foundational element to those estimates. So what you would expect here in this filing is, we've kind of factored all those into the guidance we've given you and the timing of those things. I'm not going to break out on a per central office basis exactly how long it takes us to recognize that. But these are processes that take some time is what you should think about. We have to go through notice cycles with customers. We then have to ultimately transition them. We grandfather them. So these are not things like you file, and 90 days later, you're starting to see a dramatic shift or a step function shift in costs. These are what gets us to our objectives by '29 and ultimately, reshaping the footprint in the cost structure of the business. How those steps proceed? As I said in my comments, the first step is, we now have a framework. We're now going to put the first scale test of that framework in with about 1,300 wire centers. We expect that when we do that, the commission is going to say, what do I do with 1,300 wire centers? And we're going to work collaboratively with them to build a process to move through that as quickly and expeditiously as possible. My expectations are from the dialogue that's occurring right now, the new administration is interested in finding approaches to scale these more rapidly and have an appropriate way to clear them through faster because they believe if the right policies are in place, it will, in fact, stimulate investment in the right kind of going forward technologies. And we intend to embrace that and work with them and figure out how we take 1,300 successfully through the commission and then move through another tranche as we move through that. So that's all part of the process. And it's kind of how we expected this back two years ago when we started moving down this path and putting this framework in place and building the technologies to enable it. This is kind of what we expected would be the case. And I feel good, as I mentioned I think at the Analyst Day, I think with the administration change, we kind of moved to a little bit of a tailwind in terms of the receptivity of the approach as we go through that. On the tax reform side, look, I'm hopeful and I'm optimistic that a Washington that has one party in control can figure out how to set priorities for themselves. My indications would be that from an economic growth perspective that the Republicans believe this is a key driver of what will get the economy moving in the right direction. I would certainly say from my little part of the economy, those policies would drive accelerated and stimulated investment as they did the first time we were in place. I've used this comparison, we were peaking in about $24 billion of investment a couple of years ago. It's not an accident. Our tax bill is up about the same amount that we're down in capital investment right now. I don't expect we’d ever get back to $24 billion at this juncture, given how far along we are in our reinvestment strategies. But do I think that the first place I would go if I had a little bit of latitude might be to accelerate some of the fiber build, the answer to that is, yeah, I probably would look at tweaking that. And some of that might go into investment and completing the fiber plan earlier. Some of that may be returned to shareholders. We can't turn on a dime to answer your question, when you think about what occurs with the fiber build as I shared with you at the analyst conference, if you want to think about increments of $1 million a year. So if we're building $3 million right now, and we wanted to move to $4 million, that's probably a 12 month best case, 18 month worst case scenario to ramp to that level. And when you start thinking about how you gracefully do these things, increments of $1 million are kind of the graceful way to go about doing it. We’re not whipsawing vendor communities, supply chains, doing things that are inappropriate. So I think about that within the course of the year. Can you scale yourself up to get to another $1 million, that’s a decision that we’d have to make after we saw some tangibility that the tax cuts are, in fact, going to go into place.

Q: First of all, on the topic that we discussed at the Analyst Day, which was this notion of home games and away games and the benefits the fiber brings to the mobile business. I'm noticing in the fourth quarter that the gains in mobile net adds among fiber customers was equal to the total net adds for the quarter and about probably 22%, 23% of gross adds. Is that something -- is there some information value in examining how those pieces fit together? And then the second question I could -- Pascal. This Reign real estate deal and the $850 million it's contributing, I guess the question is going to be was that -- was knowing that, that's coming part of the $16 billion or is it part of the plus? And how do we think about maybe as we decommission the copper plant, especially, future real estate deals contributing to this cash flow picture?

A: Hi, Dave. I don't know that I would over rotate on the information value if I understand your question correctly. I think typically, when you look at what our strategies are for how we actually penetrate within the base, there isn't necessarily perfectly a timing to what I would call the net add dynamics that occur in broadband, whether or not we're successful at penetrating. There is some activity we get on installation, which is helpful to us. But when you start thinking about what we want to do to drive up that penetration number, the base of unaddressed individuals is much larger than the base of new customers going in. And so we have to do well in that unaddressed base in order to get net adds in it. There's different strategies associated with it. Pascal, do you want to address the Reign dynamic and the fact that it doesn't run through cash flow? Pascal Desroches: Yeah. So Dave, the Reign deal is, we're accounting for it as a financing transaction. It's not going to run through cash from operations or free cash flow. It will be running through our financing section of the balance sheet. You zoom out, Dave, when I think about what are the drivers of free cash flow being 2025, it starts with our expected EBITDA growth. We also, as we highlighted at Investor Day, in 2024, there was a, call it, about $0.5 billion of headwind associated with paying out a termination fee associated with our O-RAN modernization effort. Additionally, the other tailwind you should expect is, you're going to see some benefit from interest and working capital. We have -- if you saw the way we ended the year, our interest expense was down, and I would expect that to continue into 2025. And I wouldn't expect working capital to be a major factor one way or the other. And so really, those are the dynamics driving it.