Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AT&T Inc (T, Financial) added 419,000 postpaid phone net adds in Q2 2024, showing growth despite market normalization.
- Mobility EBITDA grew by more than 5% in Q2, driven by over 3% growth in service revenue and 100 basis points of service margin expansion.
- Consumer wireline business delivered over 7% EBITDA growth in Q2, driven by approximately 18% growth in fiber revenues.
- AT&T Inc (T) generated $4.6 billion in free cash flow in Q2, up nearly $400 million year-over-year.
- The company is on track to meet its target of net debt to adjusted EBITDA in the 2.5 times range by the first half of 2025, providing greater financial flexibility.
Negative Points
- Revenues were down slightly in Q2 2024 due to declines in Business Wireline Service revenue and low-margin mobility equipment revenues.
- Adjusted EPS was $0.57 compared to $0.63 in the year-ago quarter, reflecting a decline.
- Business Wireline EBITDA was down 13.9% due to continued industry-wide secular declines in legacy voice services.
- The company expects a one-time payment of $480 million in Q3 related to wireless network transformation, impacting cash flow.
- AT&T Inc (T) faces ongoing pressure from regulatory and competitive environments, impacting its ability to fully capitalize on its investments.
Q & A Highlights
Q: John, you talked about higher activity levels in the second half in wireless. Are these comments just a function of typical seasonality, or are you expecting a new upgrade cycle? What does this mean for churn levels, profitability, and overall competition?
A: (John Stankey, CEO) There is seasonality, especially with new device cycles. We expect a typical suppression effect before new devices launch and an increase afterward. We are positioned to handle this either way. While we don't know exactly what new features will drive upgrades, we are prepared to respond to customer needs. Additionally, AI features in new devices may not immediately drive significant changes, but we are ready to adapt.
Q: Can you provide an update on the Gigapower partnership and potential open access relationships?
A: (John Stankey, CEO) We will provide more detailed insights at our upcoming investor day. We believe we have a strong formula for selling both fiber and wireless services together, which is recognized by potential partners. We are exploring various models, including capital-light arrangements and partnerships, to expand our fiber footprint and drive growth.
Q: What are your expectations for the Affordable Connectivity Program (ACP) impact in the third quarter?
A: (John Stankey, CEO) We are mostly through the ACP transition, and while there has been some impact, it aligns with our expectations and guidance. We have managed the transition well, and our prepaid business has performed strongly despite the ACP changes.
Q: Can you elaborate on your long-term fiber passing targets and the potential for accelerating build-out?
A: (John Stankey, CEO) We are on track to reach 30 million fiber passings by next year and see potential to go beyond that due to better-than-expected returns. We will provide more details on our capital allocation strategy and future build-out plans later this year.
Q: How are you managing network capacity given the current spectrum policy environment?
A: (John Stankey, CEO) We view capacity as a fixed resource and are deliberate in how we deploy it. We advocate for policy changes to improve spectrum availability and are exploring secondary market options. Our investment in fiber and open RAN technology will help us manage capacity efficiently and support future growth.
Q: Can you discuss the strength in postpaid phone net adds and any changes in the competitive landscape?
A: (John Stankey, CEO) Our growth is driven by strong performance in various channels, including business and public safety segments. We are intercepting customers effectively and seeing incremental improvements in our marketing strategies. Our growth is not solely driven by aggressive low-price offers but by a balanced approach.
Q: What progress have you made on your multiyear cost-cutting targets, and how do you see the durability of EBITDA growth?
A: (John Stankey, CEO) We are making significant progress in improving margins and managing costs. Our investments in fiber and technology are driving operational efficiencies, and we continue to find opportunities to reduce costs and improve profitability.
Q: Are you concerned about a potential slowdown in wireless industry volumes and limited pricing power?
A: (John Stankey, CEO) We have anticipated moderating volumes and have factored this into our guidance. Our strategy includes both industry growth and share take opportunities. We focus on quality growth, delivering value to customers, and maintaining competitive offerings to sustain our business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
