Q1 2025 AT&T Inc Earnings Call
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Unknown Executive, Pascal Desroches, Brett Feldman
Unknown Executive, Pascal Desroches, Brett Feldman
Good morning, and welcome to AT&T's first quarter of 2025 earnings call. At this time, all participants are enabled in the only mode. Should you need assistance through the call, please press star of the zero and an operator will assist you outlines.
Following the presentation, the call will be open for questions.
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And as a reminder, this conference is being recorded.
Speaker Change: I would now like to turn the conference hall over to our host, Brett Feldman, Senior Vice President, Finance and Investor Relations
Speaker Change: Please go ahead. Thank you and good morning. Welcome to our first quarter call. I'm Brett Feldman, head of investor relations for AT&T.
Speaker Change: Joining me on the call today are John Stankey, our chairman and CEO and Pascal Desroches RCFO Before we begin I need to call your attention to our safe harbor statement It says that some of our comments today may be forward looking [inaudible]
Speaker Change: As such, their subject to risks and uncertainties described in AT&T's SEC filings results may differ materially. Additional information as well as our earnings materials are available on the investor relations website. With that, I will turn the call over to John Stankey, John .
Speaker Change: Thanks, Brett. I appreciate everyone joining us this morning. And I'm pleased to share that we followed a strong performance in 2024 with a solid start to 2025.
Speaker Change: We also grew adjusted EPS and free cash flow when excluding direct TV with both metrics performing consistent with the outlook we provided in March.
Speaker Change: Pascal will run you through the details of our first quarter results and outlook. So I'm going to use my time to cover two topics that are top of mind for our management team. [inaudible]
Speaker Change: First, I'll review the core operating principles driving our strategy. This includes how our differentiated position is the largest converged provider across 5G and fiber is fueling growth in high value customer relationships.
Speaker Change: After that, I'll discuss why we expect to deliver on our 2025 financial guidance.
and commence our planned share repurchases during the second quarter.
Speaker Change: despite operating in a macro environment with diminished visibility. So let's start with the core operating principles that are enabling us to drive our long-term strategy forward. As always, we begin with a focus on the customer. The core operating principles are enabling us to drive our long-term strategy forward.
Speaker Change: This is why we launch the AT&T Guarantee, which is a promise to our customers that we'll provide them with connectivity they can depend on, the deals they want, and the service they deserve, Guarantee, or we'll make it right [inaudible]
Speaker Change: AT&T is the first and only carrier that offers a guarantee for wireless and fiber networks to both consumers and small businesses.
Speaker Change: The key reason we can make this promise is because of the significant fiber expansion in network modernization investments we're making to be the best connectivity provider in America.
Speaker Change: Little over three years ago, we set a target of passing over 30 million total locations with our fiber network by the end of 2025.
Speaker Change: I'm proud to say that we expect to achieve that target before mid-year.
Speaker Change: As we continue to ramp towards our objective of reaching 50 million plus total locations with Fiber by 2029 through a combination of our organic build, giga power and other commercial open access agreements.
Speaker Change: We're also making great progress at retiring our Legacy Copper Network, as we transition to modern 5G wireless and fiber technology, and we have an opportunity to move even faster following recent FCC orders.
Speaker Change: We appreciate Chairman Carr and the FCC for their leadership to advance the tech transition and update requirements to better reflect today's technology and competitive marketplace
Speaker Change: Our customer focused, investment led business model, has positioned AT&T as a trusted provider of critical connectivity services. As a result, we're well positioned to drive sustainable growth through a range of market and economic cycles. Our customer focused, investment led business model, has positioned AT&T as a trusted provider of critical connectivity services.
Speaker Change: Our first quarter results present further evidence that our differentiated strategy is working. We came into the year with an expectation that the wireless industry would see further normalization in net ads and overall activity levels
Speaker Change: So far, this is played out and to no surprise, we have seen shifts and offers and promotions as the major providers compete for a moderating pool of new customers.
Speaker Change: Despite a slow January , we were able to fine tune our offers and competed very well against the backdrop for the balance of the quarter.
Speaker Change: This was especially true within our fiber footprint, which is the largest and fastest growing in the U.S. [inaudible]
Speaker Change: As we've said before, where we have fiber, we win in fiber and 5G. This dynamic continues to drive growth is shown by our increasing rate of converge customer penetration and significant wireless share gains within our fiber footprint. [inaudible]
Speaker Change: These trends continued, and in some cases strengthened in the first quarter. [inaudible]
Speaker Change: For example, a significant portion of wireless gross ads that took our lead offers during the first quarter were with converged accounts [inaudible]
Speaker Change: This is a key reason why we had more converged household gross ads within our fiber footprint during the first quarter compared to last year.
Speaker Change: As a result, our converged penetration continues to climb with more than four and ten AT&T fiber households also now subscribing to our mobility services.
Speaker Change: This is a key trend because accounts with both fiber and wireless services have lifetime values that are more than 15% greater than customers with standalone services.
Speaker Change: The message here is that the primary driver of our growth is our success at executing our fiber and 5G playbook that are increased investments in customer acquisition or retention are driving sustained growth in high value customer relationships. Thank you.
The fundamentals of our business are very strong. [inaudible]
Speaker Change: and we continue to feel confident that our strategy and plans for 2025 are on track.
Speaker Change: However, all companies in the US are now operating with less visibility as the administration pursues policies that are intended to facilitate its lottable goal of creating more equitable global trade and improve domestic manufacturing capabilities.
Speaker Change: Like others, we're closely monitoring this journey to rebalance global trade and its impact on the broader economy. The announced terrorists could potentially increase the cost of smartphones and other devices as well as the cost of network and technical equipment. Let's go ahead and see what's going on.
Speaker Change: The magnitude of any increase will depend on a variety of factors including how much of the terrorists our vendors pass on and the impact that the terrorists have on consumer and business demand. Let's begin.
Speaker Change: Based on the 90-day pause on reciprocal terrorists and our visibility into the supply chain, we believe we can manage the anticipated higher costs within the 2025 financial guidance we provided at the beginning of the year.
Speaker Change: Our expectations reflect our strong finance of performance in the first quarter.
Speaker Change: The historical resilience of demand for our critical connectivity services across economic cycles and our decision to reduce discretionary expenses and accelerate cost actions that we had planned for later in this year.
Speaker Change: The priorities we laid out in our 2024 analyst and investor day have not changed and we continue to operate our business to achieve the financial plan and capital returns we outlined in December . As we shared during that presentation.
Speaker Change: These long-term plans are based on an outlook that assumes a macroeconomic environment with low single-digit GDP growth and moderating inflation.
Speaker Change: If we ultimately face a lower growth environment over this period, we have the option to adjust our operating posture to prioritize cash flow.
Speaker Change: This gives us confidence and our ability to execute the expanded capital returns program announced at our analyst and investor day we plan on commencing share repurchases this quarter.
Speaker Change: We also continue to evaluate opportunities to deploy our financial flexibility towards strategic investments that complement our organic growth plan, additional capital returns, or further improvements to our balance sheet.
So with that, I'll turn it over to Pascal, Pascal.
Pascal Desroches: Thank you, John , and good morning everyone. Let's start by reviewing our first quarter financial summary on slide five. At a consolidated level, total revenues were up 2%, service revenues were up 1.2%, and adjusted EBITDA was up 4.4%.
Pascal Desroches: The primary driver of this solid performance was growth in our mobility and consumer wireline businesses, which continues to more than offset secular pressure on business wireline. As a reminder, beginning with our first quarter results, adjust the PS and free cash flow, exclude direct TV.
Pascal Desroches: Adjusted the PS was 51 cents in the quarter, which was 3 cents higher than the prior year when excluding direct TV
Pascal Desroches: First quarter free cash flow was $3.1 billion, which was up more than $350 million on a comparable basis.
Pascal Desroches: First quarter capital investment of $4.5 billion was slightly lower year-over-year due to lower vendor financing payments, reflecting the good progress made in reducing these balances for the past couple of years.
Pascal Desroches: For the second quarter, we expect capital investment in the $4.5 to $5 billion range and free cash flow of approximately $4 billion. And we continue to expect full year free cash flow of $16 billion plus.
Pascal Desroches: Now, let's look at the trends we're seeing in our mobility business on slide six.
Pascal Desroches: Our mobility business delivered solid results to start the year, growing both revenues and EBITDA in a wireless market that remains both healthy and competitive. [inaudible]
Pascal Desroches: Total mobility revenues were up 4.7% year over year with service revenues up 4.1% [inaudible]
Pascal Desroches: Service Rep new growth was primarily driven by strong customer growth, including 324,000 post-paid phone net ads, as well as continued post-paid phone ARPU growth
Pascal Desroches: Postpaid phone gross ads increased by about 13% year-over-year, which more than all set a normalizing trend in churn.
Pascal Desroches: Postpaid phone churn of 0.83%, it was up 11 basis points from the first quarter last year.
Pascal Desroches: This increase was primarily driven by the normalization of customers reaching the end of their equipment promotional, financing periods in the fourth quarter, which is a trend we highlighted on our prior call.
Importantly, involuntary churn remained low and consistent with our expectations.
Pascal Desroches: Based on the current market dynamic and the return to a more normalized cadence of promotional roll-offs, we expect post-paid phone turn to remain at a similar level in 2Q with typical seasonality in the back half of the year as we approach the holidays.
1st quarter mobility EBITDAG grew 3.5% year over year. [inaudible]
EBITDA margins of 43% was down. Now, let's get started.
Pascal Desroches: 50 basis points versus last year. This was due to increased advertising and marketing spend related to the launch of the AT&T guarantee, as well as higher spending on customer acquisition and device upgrades.
Pascal Desroches: We're very pleased with the uptake rate of our offers among you and existing high-quality customer cohort. This is evident in our post-paid phone ARP, who would screw 1.8% year-over-year and in the continued growth of our base of confirmed accounts.
Pascal Desroches: Before I discuss our first quarter consumer wireline performance, I want to provide some insights into the trends we're seeing in our mobility business so far in the second quarter. Post-paid phone net ads remain solid, with both gross ads and churn broadly in line with our expectations.
Pascal Desroches: However, upgrades have trended higher than expected since the announcement of the reciprocal tariffs in early April , which we believe triggered an acceleration and consumer upgrade behavior.
Pascal Desroches: If upgrade rates remain elevated, this could represent a pull forward from the second half of the year.
Now, let's move to consumer wireline results on slide 7.
Pascal Desroches: In the quarter, Consumer War line performance was led by solid broadband subscriber growth for both AT&T fiber and AT&T internet air.
Pascal Desroches: We delivered 261,000 AT&T Fibernet ads up from 252,000 in the first quarter of last year.
Pascal Desroches: This was driven by growth in our consumer location served with fiber which reached 23.8 million at the end of one queue and growing contribution of net ads and regions served with gigapower fiber
Pascal Desroches: We love the return profile of fiber and the lifted provides our mobility business only makes investing in fiber more attractive. Thank you.
Pascal Desroches: AT&T Internet Air net ads were 181,000 in the quarter, which is a significant improvement from a year ago, driven by broader availability across our distribution channels.
Pascal Desroches: Our combined success with these two services helped us deliver 137,000 total broadband net ads in the quarter. This marks our seventh straight quarter of overall broadband subscriber growth and second consecutive quarter with more than 100,000 broadband net ads. [inaudible]
Pascal Desroches: This was driven by fiber revenue growth of 19% reflecting subscriber gains and solid fiber arpeggrofe of 6.2%
Consumer Waterline EBIT I grew 18.6% for the quarter. [inaudible]
Pascal Desroches: Our first corner results benefited from vendor settlements that positively impacted our total waterline operating expenses by approximately $100 million. Roughly $55 million of the impact wasn't consumer waterline with the rest in business waterline.
Pascal Desroches: This item has no impact on guidance as it was factored into our full year plan.
Now let's turn to Business Wireline on slide 8.
Pascal Desroches: Starting this quarter, we're providing more detail on the revenue components within BusinessWireline to match the disclosures and targets we provided at our analysts and industry day.
Pascal Desroches: Business Waterline Reb News declined approximately 9% year-over-year, primarily due to continued pressures on legacy and other transitional services which declined 17.4%
Pascal Desroches: About one third of these revenues are from value-added services which are variable on a quarterly basis. The remaining two thirds, which is predominantly fiber connectivity, is growing at a faster rate and accelerated relative to the fourth quarter. [inaudible]
Pascal Desroches: Business Waterline Ibnad declined less than 2% versus the prior year. I want to call out a few factors that contributed to this improved trend. [inaudible]
Pascal Desroches: On the top line, we've benefited from pricing actions on legacy services which help moderate revenue declines, although we expect this benefit to diminish over their next few quarters. [inaudible]
Pascal Desroches: On the expense side, business waterline operating at support costs were down about 400 million year over year.
Pascal Desroches: This decrease is due to solid execution against our cross-saving initiatives including lower force, contractor and access costs.
Pascal Desroches: Lower expenses also reflect the vendor's settlement I mentioned earlier, as well as the prior de-consolidation of our cybersecurity business.
Speaker Change: while I appreciate that our first quarter EBDA performance is pacing ahead of plan.
Speaker Change: Some of the favorability was non-recurring, and we are facing an operating environment with less visibility. So, we expect to see a normalization in the trajectory of business waterline EBIDAD during the remainder of the year. [inaudible]
Speaker Change: We also saw solid trends across business solutions, which includes the contributions from business mobility and FirstNet.
Speaker Change: As we announced earlier this month, we now have more than 7 million FirstNet connections which is a tremendous milestone. We continue to grow connections because FirstNet truly is in a league of its own. [inaudible]
Speaker Change: Let's be clear, no matter if it's New York City Police Department, the Fire Department of New York City, the Federal Bureau of Investigation, or any of the nearly 30,000 public safety agencies and organizations that use First Net.
Speaker Change: First net continues its strong momentum and remains the first responder communication solution of choice.
Speaker Change: Now let's move to slide 9 to discuss our camp application.
Speaker Change: Our capital investment is largely driven by our fiber deployment and wireless network modernization. These remain strategic priorities and we expect these initiatives to remain on pace with the timelines we outlined at our analyst and investor day in December .
Speaker Change: We continue to expect our full-year capital investment to be in the $22 billion range.
Speaker Change: During the first quarter, we made further progress on strengthening our balance sheet and reduced net debt by about $1 billion.
Speaker Change: This was driven by our strong free cash flow, and net proceeds related to asset sales and strategic investments, partially offset by $1.2 billion of currency headwinds related to the weakening of the US dollar. This was driven by our strong free cash flow, and net proceeds
Speaker Change: We ended the quarter with net debt to adjust the EBITDA of 2.63 times versus 2.68 times at the end of last year.
Speaker Change: Since the beginning of 2020, we have reduced our net debt by $32 billion to $32 billion.
Speaker Change: Based on this improvement in our balance sheet, expected proceeds from the sale of our 70% stake in direct TV and our financial outlook for the remainder of the year, we are now in a position to begin executing on the incremental capital returns we outlined at our analyst and investor day. [inaudible]
Speaker Change: We expect to begin Sherry purchases under our $10 billion authorization this quarter, with at least $3 billion completed by year and and the remainder during 2026.
Speaker Change: We're really pleased with the team's performance and our start to the year and we're excited to continue to build on this progress.
Speaker Change: Brett, that's our presentation. We're now ready for the Q&A. Thank you, Pascal. Operator, we're ready to take the first question. We're ready to take the first question.
Thank you [inaudible]
We will now begin the question of intercession.
To ask a question, press star then one. [inaudible]
Speaker Change: If you're using a speaker phone, please pick up your handset before pressing the keys. [inaudible]
To withdraw your question, please press star them too.
Speaker Change: Today's first question comes from Peter Supino with a little research. Please go ahead.
Peter Cepino: Good morning, a question on tariffs and another on the growth environment. If tariffs increase the cost of phones
I wonder how you would envision...
Peter Cepino: and the industry, potentially reacting to that on a sustained basis. And then with your comments on the possibility of a slower growth environment, I wonder if you could refresh us on me.
Peter Cepino: Expense Reduction Opportunity, Outside of Consumer Wireline, and what else you might have in mind for a slower growth marketplace. Thank you.
Good morning, Peter. So first of all, [inaudible]
Peter Cepino: Let's kind of start with our customer base and customers and…
Peter Cepino: What might happen or not happen in terraces? As I said in my comments, it's a disability is not great around what the future holds, but if I think about the dynamics of handset costs, it's probably important for us to take a step back and realize we're dealing with...
Peter Cepino: skew costs on hand sets right now that are quite a bit more expensive than they were even four years ago or three years ago . . .
Peter Cepino: and whenever those dynamics have occurred, we've come up with different solutions in the marketplace that...
Peter Cepino: Ultimately allows the customer to manage through those things. Customers, of course, make choices
Peter Cepino: From their point of view as to what they wish to do, like possibly extending life cycles of handsets [inaudible]
Peter Cepino: And we've done that within the context of our business model, even though we've been seeing average cost of assets increasing over time as you know we've done a nice job of improving the profitability and performance of this business.
Peter Cepino: So, if tariffs are the next driver of an increase in the unit cost of handsets, I imagine we're going to have to go through the exact same play, which is
Peter Cepino: First of all, understand what the customer needs and then make some adjustments to how we...
Peter Cepino: Support them in that process, but that process is going to be taking that cost as we've traditionally done and largely moving it through to the end user and fitting it into the business model of ultimately what we can afford to derive the right level of returns in our business.
Peter Cepino: and I think we've demonstrated over time that we've done that fairly effectively. Bye-bye.
Peter Cepino: So, I think that if ultimately costs are passed to us, from those that we buy hand sets from...
Peter Cepino: Unfortunately for the customer, we're going to have to come up with some new ways for them to figure out how to digest.
That increase in pricing. [inaudible]
Peter Cepino: The modest adjustments we made to those day in a day out but we'll find different creative ways to build plans and approaches and supports that allow them to continue to use the network. Thank you very much.
Peter Cepino: Effectively, and do what they need to do and feel good about it. And I also don't know, I mean, if I step back and think about consumer behavior in this, handsets are just, you know, one part of the broader ecosystem of the decisions that consumers are going to have to make on. [inaudible]
Peter Cepino: Goods and Services, and if they're flat panel TV and their house is going to be more expensive and if they're a lot top is going to be more expensive and how they choose to kind of manage this dynamic within that ecosystem, I think we're all going to learn but I feel pretty good that we've we've demonstrated we can get through that cycle. [inaudible]
in terms of a growth environment.
Peter Cepino: Look, I thought we've given you some pretty good views around how we're managing costs across the business and its entirety. It's not just consumer wire line work.
We laid out for you in the analyst day.
Peter Cepino: What we're doing across the entire wire line business and there's there's certainly in that $6 billion pool that...
Peter Cepino: We're looking at plenty of opportunity to address things that we can move forward and readjust and we're being pretty diligent about that but we're also improving other parts of our business actively and we've shared some of that with you. We've talked about what we're doing broadly across our call centers.
Peter Cepino: We talked to you about how we're getting more efficient and our software development and our information technology organizations.
Peter Cepino: shared with you that we've done a lot better in how we've managed our digital channels for acquisition.
Peter Cepino: customer awareness and that's before I think we really got good at the operational side of our digital channels which we're investing pretty heavily on that I think we can have some additional uplift and the efficiency of how we bring customers into the business and support them.
Peter Cepino: So I think what we gave you an indication that we're very comfortable with our guidance for this year is...
Peter Cepino: There's a lot of places we know we can go and operate the business a little more effectively and continue to work our expense lines
Peter Cepino: More aggressively. And I think you saw that in the first quarter. We clearly invested a little bit more in customer acquisition, but I'm pretty proud of the overall margin performance of the team delivered and how we balance those things out. And I think we know how to do that and we'll continue to do that going forward.
Peter Cepino: Peter, one other thing to add, you know, Q1 when you look at it was impacted by launch expenses associated with our guarantee. So the organic expense performance was really, really good.
Thanks, Peter. We'll go to the next question, please.
Speaker Change: Our next question will come from Benjamin Swinburne with Morgan Stanley . Please go ahead.
Benjamin Swinburne: Thanks, good morning. Two questions. I doubt you'll answer this specifically, but I figured I'd ask anyway. There was a press report back in March around AT&T and talks to acquire women's mass markets, consumer fiber business.
Benjamin Swinburne: I'm curious to be in any comment on that, or maybe just if you can't or won't talk more broadly about how you're thinking about inorganic investment at AT&T, just given the transformation over the last few years, but also the success you're having with your fiber strategy in general.
Benjamin Swinburne: And then I was curious if you could talk a little bit more about the FCC's recent orders on kind of legacy infrastructure. Sounded like you thought maybe you could move quicker.
Benjamin Swinburne: I don't know if that's on wire centers or that 6 billion pool or kind of all the above but could you come back to that comment and tell us what's happened and how that may impact your ability to take costs out of the business even faster than you have already sort of laid out for us. Thank you very much.
Benjamin Swinburne: Good morning, Ben. I'm not going to make any comments on rumors and speculation that you referenced.
What I can tell you is... [inaudible]
Benjamin Swinburne: I'll repeat what I've said about inorganic activity in the business and always keep my mind open to something that I think can improve value for the shareholder.
that's clear.
and others.
Benjamin Swinburne: centered on what we have laid out as our key strategic press in the business.
Benjamin Swinburne: That's to be the best in connectivity. I've articulated that anything that allows me to accelerate what I believe is a reordering of assets for a converged connectivity in the markets. [inaudible]
Benjamin Swinburne: It becomes a make-by kind of analysis which is, I know what I can make it for and I have plenty of opportunity to make. Thank you.
More infrastructure investment in the business and across the nation.
Demonstrated that we're pretty good at that
Benjamin Swinburne: Completing our recent commitments early, our cost per, we've been giving you a lot of insight into how effectively we've been doing that on our fiber build.
Benjamin Swinburne: I think you should take some satisfaction in what you see happen in the fixed wireless.
Benjamin Swinburne: Growth, that's an artifact, not exclusively, but partly because of our modernization efforts in the wireless network that as we complete those things it opens up, geographies that we previously had closed to the world.
Benjamin Swinburne: that we can now sell it into, so you can see that we're getting operational execution around those things. [inaudible]
Benjamin Swinburne: and as long as I can build opportunity and do it effectively, that's a good thing to do. And I think it's a...
Benjamin Swinburne: A sensible deployment of shareholder capital. If something were to come up in organically that looked like it rivaled those types of business cases or looked similar to that or gave me a way to accelerate that were the market power of accelerating that did something good. Of course I'd be open to it. [inaudible]
Benjamin Swinburne: And as I've said earlier, I continue to be looking for opportunities in the business to find...
Benjamin Swinburne: Those nice tack-ons, bolt-ons, add-ons to our connectivity business that are a little less capital intensive that...
Benjamin Swinburne: might be that next thing that we can interest our customers in and making an incremental purchase decision from us that is going to the tree to connectivity and how they use our core services.
Benjamin Swinburne: And don't know if and when something like that will pop around, but certainly if it does, I know would...
Benjamin Swinburne: I would spend a lot of time understanding whether or not we can build some organic value for the shareholder as a result of it.
Benjamin Swinburne: on the FCC orders. Here's what I would tell you right now. [inaudible]
Benjamin Swinburne: I think we're in a great place. We talked a little bit about this in December when we had you all together and I think I characterized it at the time that...
Benjamin Swinburne: We've been working on this for a number of years and that there had been a lot of pick and shovel work to get to this time and a lot of which we weren't necessarily exposing you to or talking about but to get to the moment we talked about in December , took years of work at the state level. [inaudible]
Benjamin Swinburne: set up properly. And I felt like we had it all in a in a pretty decent package. And I used the characterization in December, and I said it felt like we were about ready to move from maybe an environment where there was a bit of regulatory headwinds or a little reticence.
to change to one with regulatory tailwinds. [inaudible]
Benjamin Swinburne: and that ended up being true. And I think this SEC since it's seeded.
What, 90 days-ish ago?
has already moved to take out some procedural steps. [inaudible]
Pascal Desroches: on the applications that we had pending to begin doing the things in wire centers that we articulated to you in December . We needed to do to pull those costs out. And I think we're sitting at somewhere along the lines right now about 25% of our wire centers where we have...
Pascal Desroches: What I would call fairly clean sailing to act on all the plans.
Pascal Desroches: that we told you we needed to do to sunset, and we have more applications now pending, and we're actively working with the FCC about how to do that more effectively. I would tell you right now my bias internally as I talk with our folks is...
Pascal Desroches: I think we now are focused on the effectiveness of our execution and less on the effectiveness of our operational execution and less on the effectiveness of the execution of our legal and regulatory affairs organization.
Pascal Desroches: I'm going to say that deliberately because internally I know there will be a couple of departments that will be running down the hallways cheering and skipping and saying that they're not on the critical path anymore. And that's the way I feel and I feel that we are now at a point where our operating groups need to go get the work done. [inaudible]
Pascal Desroches: and there's plenty of runway in front of them to do that. And they are doing that and beginning to step up on that, and that's how the management team is focused. We still have regulatory steps to get through, but I'm not worried about those becoming inhibitors for us to achieve the guidance that we put in front of you back in December . [inaudible]
Thanks a lot. Thanks, man. We'll go to the next question
Speaker Change: And our next question comes from John Hubbeck with UBS. Please go ahead.
John Hubbeck: Great, thank you. And I think just two quick ones. First for Pascal, is there any way to frame the impact of the or quantify the impact of the higher upgrades that you're seeing so far in the second quarter? I guess you gave us the free cash loads for the quarter, but anything on what that could do to wireless margins or wireless eithiograph. That's number one.
John Hubbeck: and then, on the business side, if we add back the vendor adjustments, it looks like Evita was only down about 5%.
John Hubbeck: Is this a good rate going for it? I mean obviously the trend had been above 20% you guys have been done a great job on the cause side but is this about the level that we should expect as we look out over the next 12 months in that segment? Thanks.
Hey, John , thank you for the question.
First on upgrades.
John Hubbeck: Here is the way where I think you should think about it.
John Hubbeck: Probably Layton Q1, and as I mentioned in my comments in Q2, we've accelerated Q2. We saw an acceleration of upgrades. We think some of this may be a pull forward in anticipation of the tariffs.
John Hubbeck: So in terms of Q2, I would expect elevated levels of upgrades that you see Q1 as a bench should be as a benchmark. I think, you know, thinking about it in the context of at least around the same levels. [inaudible]
John Hubbeck: And so as you make your way through the bow to the year, of course, we're always impacted by the normal seasonality that you get with upgrades, being more heavily weighted towards the second half of the year. I'm not sure, but
John Hubbeck: You know, I think that's a good way to think about our upgrade and you know, may be seen how much of this was a pull forward from second half. [inaudible]
John Hubbeck: In terms of business wildlife performance, I would start and say, we're really pleased with the execution of the team.
John Hubbeck: You know there's new leadership team in place there and they've come in and I think they've gotten the organization focused on it.
on Driving.
Speaker Change: Growth in Connectivity Repnews, and we're pleased with how that is going. But importantly, they've taken some steps to really rationalize some of the cost space, recognizing that they're based to have a pretty meaningful work.
John Hubbeck: based of legacy revenues. I think this quarter you've benefited from price increases on legacy plans.
John Hubbeck: Come with higher turn as you make your way through subsequent quarters. So I think as you think about about the year, we do expect some of the trends to moderate and that we will see a pickup in legacy revenue declines as you make your way through.
John Hubbeck: Also, this quarter we benefited from the settlement I mentioned in my commentary. That was think about that as around $45 million.
John Hubbeck: So, we're really pleased, but I think it's too early to really change our outlook for that segment.
Thanks, John . We'll be in the next question, please.
Speaker Change: Thank you, and our next question comes from Michael Rollins at City. Please go ahead.
Michael Rollins: Thanks, and good morning. Two topics I could. First, AT&T reported an acceleration of fixed wireless net ads and it coming into time when you're expanding the mid-band 5G coverage. So curious if you can give us an update.
Michael Rollins: on how AT&T is looking at the penetration and financial prospects from fixed wireless and to these network enhancements.
Michael Rollins: If you an expanded opportunity to take more share of broadband outside of the 50 plus, you know, million passings that you're trying to get to.
with Fiber by the end of the decade.
Michael Rollins: and then just second on R2. I'm just curious when you think about the pricing actions at AT&T's employed over the last couple of years,
Michael Rollins: and you set that against a competitive backdrop in macro landscape. Could you just frame the opportunities for AT&T to continue to improve R2 for both post-paid phones and the fiber subscribers? Thanks.
Michael Rollins: Morning, Mike. So, as I just mentioned, you know, part of what's happening on the fixed wireless side is, as we've done the modernization of the conversion of the octel loosen.
Michael Rollins: Excuse me, Nokia, dating myself, that Nokia footprint, Indity Ericsson footprint, that conversion as we go into those geographies.
Michael Rollins: Opens up territory where we, because we had not done the modernization to the level we like with all of our spectrum assets and the most modern equipment, they typically were not open for fixed wireless access.
Michael Rollins: and that has opened up some footprint that will continue to open up as we go through that over the course of the next couple of years.
and I would also tell you on the margin.
Michael Rollins: We're seeing better performance off of that investment than what we would have anticipated. So as we kind of thought about one of the economic reasons why we felt this was the right move. We're seeing better performance off of that investment than what we would have anticipated.
We understood that we would get some...
Better yields off the network.
Michael Rollins: Given the equipment deployments we were using, the more modern equipment, some of the...
Michael Rollins: Strategies around how we would actually integrate on a single vendor solution. [inaudible]
Michael Rollins: And those are helping. We've also been doing the network as a letting breed and thing. [inaudible]
Michael Rollins: We've gotten better at yield and traffic management in some ways that we can use some of those efficiencies back against the network in places that maybe we hadn't anticipated two years ago that have opened up some opportunity. Thank you very much.
and I would just tell you.
Michael Rollins: Our strategy overall around how we think about using fixed wireless access has not changed
Michael Rollins: What's happening is, I think you're seeing the learning benefits of focus. Thank you.
The business, in my estimation,
Michael Rollins: Has a much clearer point of view right now on the multi-year capital deployment and what we're doing and what footprints in terms of our investment. [inaudible]
Michael Rollins: So it's not just about where you're deploying fiber and where you aren't, it's about what you need to do to make sure that you can transition out of legacy services so that you have the right infrastructure in place, whether it be wireless fixed, to serve those customers.
Michael Rollins: I think that clarity and the repeatability of that month and month out.
Michael Rollins: is allowing all the organizations that are necessary to serve customers and sell product.
Michael Rollins: to get a lot better at what they're doing. And so we're moving up that learning curve of where we want to deploy our fixed wireless muscle.
Michael Rollins: All consistent with what I talked about before, which is we'd like to use it as a catch product from...
Michael Rollins: Legacy Broadband Services that we're not going to invest in building fiber in. We'd like to use it as a holding product. When we know we're going to be building fiber within a period of time but we can provide a better solution. [inaudible]
Michael Rollins: It wore some market penetration on a converged basis until that fiber gets there. [inaudible]
Michael Rollins: Nothing has really changed in our point of view other than we're getting better at all aspects of how we run our business yields on the wireless network efficiency lining up markets to distribution channels coming up with the right offers that we can make it accretive over the long haul and I think that just means we're going to get better over time.
Michael Rollins: On the <unk> side look I am.
Michael Rollins: I'm, sorry to sound like a broken record, we're going to continue to do what we've done pretty consistently over the last five years, which is we're going to find opportunities in our customer base, where we think utility and value has improved tremendously and because of the performance of the products and how customers are using them allow us to have opportune.
<unk> to possibly.
Michael Rollins: Just what that means for pricing.
Michael Rollins: I think we've done that pretty artfully over the last several years you see the right trends.
Michael Rollins: <unk> performance I think in this quarter you shouldn't see anything in there that you look at it and say, that's disconcerting or different than what you've been seeing over the last number of years.
Michael Rollins: We're also going to be very sensitive to the realities of the markets. We're in.
Michael Rollins: If we walk into a slower growth economic environment or there's a.
Michael Rollins: The dynamic that goes on later in this year, where growth is is not what we expected. It to be then we'll be smart about how we work with our customers over the long haul and make sure that we do the right thing to keep the franchise healthy and make sure that we're providing value in the right ways back to those customers. So.
Michael Rollins: I will tell you.
Michael Rollins: Great products superior products generally allow you to have a little bit more pricing flexibility and I've been saying all along you should expect that since fiber is the best fixed broadband product in the market over time, you're going to continue to see margins improve on it youre going to see it scale operationally you're going to.
Michael Rollins: See it get more profitable and you are seeing that and I don't think we're at the end of that runway that dynamic continuing to two.
Michael Rollins: Ah materialized.
Mike: Hi, Thanks for the questions, Mike, we're going to get an excellent operator.
Absolutely. Our next question comes from Bryan Kraft Deutsche Bank. Please go ahead.
Bryan Kraft: Thanks, Good morning.
Bryan Kraft: Just regarding Pascal is churn comments I wanted to follow up there I think you said Pascal that <unk> would be similar to <unk> and then second half would be characterized by typical seasonality.
Speaker Change: And that means that we should look at the historical sequential step ups in the back half of the year off with <unk> and estimated churn is that the right way to think about and also in general how much of the higher churn as a function of would you say contract roll offs picking up versus increased competitive intensity and then lastly, I was wondering if you would just comment on your.
Speaker Change: Your outlook for gross add performance would you expect this momentum and year over year gross adds to continue.
Speaker Change: And lastly, if upgrades are being pulled forward due to tariff concerns do you think switching between carriers is also <unk>.
Speaker Change: Being pulled forward it seems like but yourselves and Verizon.
Speaker Change: Rising yesterday were talking about pretty strong gross add performance currently thanks.
Speaker Change: Yeah.
Brian: Hey, Brian.
Speaker Change: Thank you for the question.
Speaker Change: Remember coming into the year, we said that we would have a higher level of contract roll offs. This year.
Speaker Change: And we also said that we would expect the overall industry growth to be lower than it has been those two factors.
Speaker Change: Were baked into our expectations that this year, we would we would have higher churn that we saw last year.
Speaker Change: I think is a good.
Speaker Change: Rule of thumb 2023 was probably a year, where we had similar levels of contract roll offs that we're seeing.
Speaker Change: In 2025.
Speaker Change: And so I think thats a good.
Speaker Change: Benchmark with thinking about how this is playing out in 2025 and I would expect as you look at sequential.
Speaker Change: Performance in churn.
Speaker Change: For the back half of the brew keeps you in the back half of the year I would tell you 2023 is probably a good proxy to use.
Speaker Change: As your benchmark in terms of gross adds but I can tell you is what we've seen so far in.
Speaker Change: In the second quarter.
Speaker Change: We continued with really good performance in.
Speaker Change: We're happy with how the team is executing and competing for the gross adds in the marketplace.
Speaker Change: Yeah, Brian I'd, just add in I mean, obviously, we gave you some guidance and we characterize for you what we expect.
Speaker Change: And growth in our wireless business and we do expect to continue growing our customer base and being competitive in the market to do that.
Speaker Change: It's a math issue if it turns up a little bit the outgrowth is going to end up going up a little bit as a result of that and that's kind of a plan. We're operating two right now and that's all baked into what we just articulated for you moving forward, but what I would stress is the comments I made earlier in the call which is.
Speaker Change: How we're focusing on which customers to bring in as we're driving those gross additions and our focus on.
Speaker Change: The high value customers, especially in the converged space.
Speaker Change: And when you Ltvs are going up because you consolidated customers and we just gave you an indication that that's the case then you obviously, maybe invest a little bit differently as a result of that and what I think we're doing I'm very comfortable with.
Speaker Change: Relative to the customers I see coming in.
Speaker Change: Our ability to put incremental products and services on them that have durability and longevity and whether that's.
Speaker Change: Fiber customer that we're adding wireless onto what are the other way around or it's the newly consolidated fixed wireless access customer that has good runway because of the profile of the network in that area that ultimately consolidates wireless lines.
Speaker Change: I'm willing to invest in those in the right way because of that increased lifetime value.
Speaker Change: And I think we're doing a good job of making that happen and I am very comfortable running that play moving forward to the balance of this year.
Speaker Change: So the question is Brian Thank you.
Speaker Change: I'll go next question operator.
Speaker Change: The next question comes from Sebastiano Petti with Jpmorgan. Please go ahead.
Sebastiano Petti: Hi, Thank you for taking the question.
Speaker Change: Just wanted to maybe.
Speaker Change: Just kind of wrapping.
Speaker Change: Brian as well as John and Mike's question, just help us think about it.
Speaker Change: Comfort or the confidence in getting to the higher end of the mobility service revenue I guess more particularly to EBITDA guidance of the higher end of three to four just what underlies our underscores that confidence from the management team just kind of given the higher activity that we're seeing here, obviously cost opportunities, but just.
John: Double click on that a little bit and then John coming back to perhaps what you talked about of.
Speaker Change: The longer term plans are based on.
Speaker Change: Low single digit GDP moderating inflation and the management team's ability to adjust your operating posture to prioritize free cash flow I mean does that put your $45 million 45 and.
Speaker Change: Fiber target.
Speaker Change: <unk> yeah.
Speaker Change: At risk at all as you think about or extrapolate over the next several years.
Speaker Change: Let me start in terms of how to think about mobility. This past quarter, we delivered three 5% growth.
Speaker Change: It's important to keep in mind that we that included a cost of launching our AT&T guarantee.
Speaker Change: So.
Speaker Change: So we were able to absorb that.
Speaker Change: Uh huh.
Speaker Change: Higher promotions and still delivered 3.5% growth as I look at the rest of the year here a couple of things to keep in mind. There are some adjustments we're going to we've made on auto bill pay discount, which should also help the balance of the year.
Speaker Change: So we said we are accelerating some of our cost actions that were planned for later in the year.
Speaker Change: We're moving those forward that will help.
Speaker Change: AT&T mobility from here. So overall, we feel really good about the marker we put out there at the beginning of the year and we continue to.
Speaker Change: March towards that.
Speaker Change: Especially auto.
Speaker Change: To answer your question I, obviously like everybody else.
Speaker Change: My visibility is not.
Speaker Change: Not perfect right now I wake up every morning, expecting that I could see something.
Speaker Change: Today that I hadn't seen before we have to adjust to.
I feel good about our flexibility in being able to do that given where the business is right now after several years really hard work.
Speaker Change: Can you give us that latitude.
Speaker Change: The way I think about our capital allocation.
Speaker Change: And it's really related to how I characterize our confidence in moving forward with the share buyback right now.
Speaker Change: Trying to be pretty deliberate and foundational and strategic in how we do these things and as I shared.
Speaker Change: Pink fibers, a fundamental element to communications networks moving forward.
Speaker Change: I view it as a very long lived asset.
Speaker Change: We're investing in this not for this year or next year, we're investing in it for decades.
Speaker Change: I view, the restructuring and reordering of the industry that we're in.
Speaker Change: Fairly seminal moment around that and that there is a window here as a result of that reorder rate of that window is not going to stay open forever.
Speaker Change: And I look at the characteristics of the business case in fiber.
Speaker Change: And I would say that when you have a deployment and an investment.
That doesn't require what I would say as new market development, but its a share take.
Speaker Change: You know the growth environment and aggregate is less of an impact on it.
Speaker Change: Like all of those customers are going to disappear theres still homes out there with people in them that want a better service.
Speaker Change: And so.
Speaker Change: Historically my bias is when you get into these economic cycles you use.
Speaker Change: Your balance sheet and your strength to continue to press. Your bets that are the right long term bets are going to help you be in a better position structurally and as I think about.
Speaker Change: Our investments in fiber I have a lot of reasons to think about that as an important structural long term debt.
Speaker Change: We want to make sure we continue to push ahead on our supply chain is in pretty good shape on that front. We've talked about this several times, we have longer term contracts with our suppliers.
Speaker Change: There's been a lot of work to re shore and manufactured in the United States key elements of it and the most important element of building fiber.
Speaker Change: As services.
Speaker Change: People power.
Speaker Change: And those all our people who work here in the United States and they are not subject to the dynamics of.
Speaker Change: Tariffs and things like that so I feel like we can manage through the cost side of it pretty well and so my bias would be.
Speaker Change: That's a place we continue to lean in and push on and execute to our plan.
Speaker Change: Thanks for the questions about young well.
Speaker Change: Well go next question please.
Speaker Change: Thank you and our next question today comes from Jim Schneider of Goldman Sachs. Please go ahead.
Jim Schneider: Good morning, Thanks for taking my questions. Two if I may 1st of all in the overall consumer health, how would you kind of characterize the state of the consumer at this point, obviously, many moving parts of this market, but do you see any evidence of consumers less willing to trade up or even trading down or consumer credit quality issues that may sort of be impacting things over the next couple.
Speaker Change: Quarters from what you can see today.
Speaker Change: And the second is on capital allocation can you, maybe just sort of frame your earlier comments on M&A and buybacks in terms of is the buyback guidance you've provided independent of any inorganic activities might consider or is it contingent on it and if it is contingent is there a minimum level of buybacks you would not go below.
Speaker Change: Thank you.
Jim Schneider: Hi, Jim.
Speaker Change: So.
Speaker Change: I think the short answer to your question is I'm not seeing anything right now and a change in any dynamics in consumer behavior that I would say is.
Speaker Change: Out of pattern or out of trend of the business with maybe.
Speaker Change: A couple of things on the margin one is.
Speaker Change: I think the prepay market is a little bit slower than it had been I think that's probably an artifact of.
Speaker Change: Some degree of immigration.
Speaker Change:
Speaker Change: But I don't know that that's economic per se.
Speaker Change: I'm not concerned about it it's what we had expected and had been sharing with you that I would've expected that dynamic to.
Speaker Change: Evolve.
Speaker Change: As the policies of the United States changed around it.
Speaker Change: And.
Speaker Change: Think what Pascal shared with you earlier, which is maybe there's some behavior in the market right now where some people are trying to get ahead of.
Speaker Change: Perceptions of what might happen to unit costs on things that are important to them and pre buying.
Speaker Change: As a result of that and we'll see if that is in fact, the case our sense is that there's a little bit of that going on and how that sustains itself over what period of time and when does that shift I don't know, but other than that I think that's that's all I've seen certainly watch what's going on in the broader economy.
Speaker Change: I don't have any news to break on that it's not my news. It's it's you know what I see macro economist.
Speaker Change: Representing its what I hear from retailers.
Speaker Change: We continue to pay attention to it but as we started out as I shared with you in my opening comments.
Speaker Change: The good news is you know, we're not showing up we're not that dining out experience, we're not that discretionary choice.
Speaker Change: We're pretty far down the list of things that people are going to part ways with their managing dollars and cents.
Speaker Change: And I think that's a good place to be.
Speaker Change: And I believe the combination as I said earlier, our opportunities to run our business more efficiently our opportunities to take share in places and still grow even if it's growing on.
Speaker Change: On more value oriented plans portend well for the company, even if some consumers are going to put off choices on some upgrades or incremental purchases in places.
Speaker Change: A question on the Oh, I'm, sorry, the capital allocation I apologize.
Speaker Change: Small trivial question.
Speaker Change: [laughter] look we gave you our guidance and our commitment and our order of capital allocation for a reason and we intend to execute it carried through and that's a priority for this management team in the business to do that.
Speaker Change: I can't see everything in the future I don't know that something doesn't come up.
Speaker Change: We're starting down this path our confidence and our share buyback is indicative of the fact that we're starting it early that we're doing at a time, where I think some would say the visibility isn't great right now as it was six months ago.
Speaker Change: Because we believe strongly in it we think it's the right thing to do and I.
Speaker Change: I am committed to executing carrying it forward.
Jim Schneider: Thanks for the question Jim.
Speaker Change: Operator, we can take our last question.
Speaker Change: Absolutely and our final question today comes from kind of been perpetual or with Barclays. Please go ahead.
Perpetual: Thank you.
Perpetual: So John just from a macro environment perspective, I get it.
Perpetual: Is it a certain crude stream look youre working with especially on the wireless side I mean in terms of either trying to retain a certain amount of shares in the market to sit in the amount of activity.
Perpetual: And you know is that is that something that sets a floor in some ways in terms of managing our P&L on the mobility side.
Perpetual: And then on the copper decommissioning side.
Perpetual: I think there's been a couple of real estate fields at least with some of the winter centers earlier. This year is there more opportunity to the extent capital.
Perpetual: Did that business potentially.
Perpetual: And if that's the base at some point then you know what.
Perpetual: What should we look out for in terms of goalposts as that process moves along thank you.
Perpetual: Sure.
Perpetual: No.
Perpetual: There.
Speaker Change: The way I think about it I've articulated this before is very focused on what our shares of revenues are within an industry.
Speaker Change: And we've as we talk about things like our gross adds or net adds inflated in the value of a particular node at a gross add and the.
Speaker Change: The way I try to get the management team centered on it is if we can drive recurring service revenues and we have the right margin structure, that's going to be a good thing for the business and I think if you go back and if you look at what we've been able to do over the last couple of years.
Speaker Change: We've done a really good job of managing our share of service revenues in the markets that we're actively participate in that.
Speaker Change: And I think we've done that in a way that is returning.
Speaker Change: And.
Speaker Change: I believe that that's where I should have the team focused and that's where we will continue to be focused always with the mindset that I think to be a really great company. We're ultimately going to have to be a share leader in places.
Speaker Change: And I'm fully aware that we're not in that position right now.
Speaker Change: And I would like to see our team achieve that.
Speaker Change: Don't view that as a quarter to quarter thing.
Speaker Change: <unk> engineer, a quarter's net adds or gross adds based on some assumptions around that but I step back and I say what are the right things we need to do structurally in the business.
Speaker Change: That allow us over time to affect that kind of a share shift how do we get the asset base lined up properly.
Speaker Change: How do we position the brand in the most effective way what do we do to ensure that we've got the right kind of innovation and converged offers in place that will ultimately yield the shifts and share the designated as a market leader in terms of the overall revenues that are available at the pool of the market that we choose to play in.
Speaker Change: And I think we're making steady progress across those things I. Just gave you examples of the modernization that we're doing in the infrastructure that I think will serve us well for the long haul you see what we're trying to do to reposition the brand right now and establish the framework of how we continue to evolve the platform.
Speaker Change: And the value proposition to the customer on that platform.
Speaker Change: When I talk about where we're going on the innovation of converged products. Those are important things that come in with it. So I think thats, how I tried to get the management team focus as opposed to saying in this quarter I need to engineer for this number because of some expected goal of me being a share leader in a position I think that's earned over time.
Speaker Change: I'm not earned.
Speaker Change: The 90 day cycle.
Speaker Change: In terms of where we have additional opportunities.
Speaker Change: We've given you I think about as good a visibility to our business over the next three years as we've done in a long time.
Speaker Change: When we talked to you in December we outlined for you that we have a pretty good handle on that package of opportunity as we restructure the business exit legacy businesses exit footprint that theres, a lot of pools of cost and opportunity in that we have taken what I believe are achievable and reasonable.
Speaker Change: Estimates are that and factored them into our guidance over the next three years that we've provided to you.
Speaker Change: And some of those things like where we think we have higher value assets for disposition that we can use to reinvest back in the business as cash flows to modernize things or pay for fiber investment. We've done the best planning, we can about that and incorporated those things that we can catch but I'm gonna be honest with you.
Speaker Change: When youre just assembling infrastructure, that's been built over 100 years, sometimes youre going to Miss something [laughter].
Speaker Change: Sometimes there's going to be an opportunity that presents itself you didn't expect I mean, maybe we were wrong in our estimates of what copper might sell for in the market. When it's reclaim it sells higher than we expect and theres incremental money that comes from it.
Speaker Change: But we've done our best of kind of giving you our point of view, what we think all those things in the mix master, including property dispositions and things that we can work through are going to yield back to the shareholder base and I'm not in a position to kind of tell you that I think there is a.
Speaker Change: Remarkable upside or downside you should bet at this juncture.
Speaker Change: Folks I appreciate you being with us today and I. Thank you for your continued interest in AT&T as I said at the beginning of my comments I feel really good about where we started the year coming off what was a really solid and foundational year and I couldnt be more delighted and the fact that this is the quarter that we're making a pivot in.
Speaker Change: And are adjusting our capital allocation to begin a buyback program that we worked really hard to get to.
Speaker Change: And can demonstrate to our shareholders that are there patients with US is has been rewarded so thank you very much for your time and everybody have a good rest of the week.
Speaker Change: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Speaker Change: [noise] [music].