The speaker welcomes participants to AT&T's Fourth Quarter 2023 Earnings Call and introduces the company's CEO and CFO. He reminds listeners of the Safe Harbor statement and directs them to the Investor Relations website for more information. The CEO discusses the company's progress in becoming the best high performance network provider, with strong financial results and investments in 5G and fiber assets. He also mentions the company's focus on simplifying operations and improving the customer experience.

The company has experienced significant growth in wireless services over the past year, with over 1.7 million postpaid phone net additions and strong service revenue growth. This is a result of their investment-led strategy, which has improved their position and brand perception in the industry. They have also expanded their 5G and fiber networks, with mid-band 5G now available to over 210 million people and a focus on building fiber to drive success.

Over the past three years, AT&T has significantly expanded its reach by passing more than 26 million consumer and business locations with its fiber network. This has resulted in a 70% increase in AT&T fiber subscribers and a doubling of fiber revenues. The company expects to continue driving margin expansion as it scales its fiber footprint. In addition, AT&T has achieved its $6 billion cost savings target and is making strong progress towards its new target of $2 billion in additional savings by mid-2026.

The company is seeing the benefits of their cost reduction efforts reflected in improved operating leverage and margin expansion. They are confident in their ability to deliver on their promised goals and their capital allocation strategy has resulted in meaningful benefits and improved results. They have reduced their short-term obligations and plan to continue their success in 2024 by adding quality customers and maintaining their strong momentum.

AT&T plans to improve its performance by targeting underpenetrated segments, such as value-oriented customers and small to medium sized businesses, and expanding its fiber customer base. They remain on track to pass their 30 million plus fiber location target by 2025 and may even exceed it by an additional 10-15 million locations. They also plan to explore opportunities to extend their brand beyond their traditional footprint. AT&T believes they are best suited to provide converged connectivity with their largest wireless and fastest growing fiber networks. This is important as network traffic continues to increase at a rate of over 30% each year.

AT&T's fiber footprint and large wireless network give them a unique advantage in growing their business. They are investing in flexible and open networks to meet the needs of customers in all market segments. The company is focused on putting the customer first and simplifying processes, including through the use of AI. They are also working towards achieving cost savings and have a positive outlook for the future. Pascal Desroches will now speak.

In the fourth quarter, the company saw a 2.2% increase in revenues, driven by wireless service, broadband, and Mexico, but offset by a decline in business wireline. Adjusted EBITDA and EPS were up for the quarter and full year, but adjusted EPS was down 11.5% due to various factors. Free cash flow for the quarter was $6.4 billion, and for the full year, it exceeded expectations at $16.8 billion. The company reduced vendor financing obligations by $3.3 billion, and cash from operating activities increased by $1 billion. Capital expenditures were $4.6 billion for the quarter and $23.6 billion for the full year, with a focus on investing in 5G and fiber. The company also reduced net debt by $3.3 billion and strengthened its balance sheet.

Despite challenges in our legacy wireline business, we have successfully completed a pension liability transfer and continued to grow our mobility segment for the sixth year in a row. Our strong performance is a result of our go-to-market strategy and steady subscriber growth. Revenues and EBITDA have both increased, with service revenues up 4% for the quarter and 4.4% for the year. We also saw margin expansion and low churn rates, indicating customer satisfaction with our value proposition. Our prepaid business also saw positive results. We are confident in the future growth of our mobility business and will now shift focus to our consumer and business wireline results.

The financial and operational performance of the fiber business has exceeded expectations, with 273,000 new fiber customers added in the fourth quarter. This has led to growth in broadband revenues and fiber ARPU. The company also introduced a fixed wireless access service, AT&T Internet Air, which has gained 93,000 subscribers. Business wireline EBITDA was down in the fourth quarter due to one-time items, but is expected to improve in 2024. Wireless service revenues and FirstNet connections continue to grow. For 2024, the company expects to grow mobility subscribers and maintain a strong position in the industry.

The company expects to see growth in wireless and broadband revenues due to an increase in subscribers and higher ARPUs. This should result in a 3% growth in consolidated revenues for the full year. EBITDA is expected to grow in the mid-single digits for mobility, while business wireline is expected to see a decline. Consumer wireline is expected to see mid-single digit growth due to fiber and fixed wireless revenues. Non-cash headwinds of $0.24 are expected, mainly from higher depreciation related to the company's Open RAN transformation. Overall, consolidated adjusted EBITDA is expected to grow by 3% for the full year.

In 2024, AT&T expects to face headwinds of approximately $0.07 due to higher non-cash pension and postretirement benefit costs, as well as $0.08 from other factors such as lower spectrum-related interest capitalization and lower adjusted equity income from DIRECTV. They also anticipate a consistent effective tax rate in 2024. However, they have been able to lower their pension obligation and do not expect any significant contributions to their pension plans for the next decade.

In 2024, adjusted EPS is expected to be between $2.15 to $2.25, with anticipated growth in adjusted EBITDA. Adjusted EPS is expected to start growing again in 2025. Cash taxes are expected to increase in 2024 and 2025, while DIRECTV cash distributions are expected to decline. AT&T's debt levels have not changed significantly and are not the responsibility of AT&T. Capital investment is expected to be around $21-22 billion, with a focus on paying off short-term vendor financing. This will result in free cash flow of $17-18 billion in 2024.

In the paragraph, the speaker discusses the company's progress on improving their free cash flow and their plans for the future. They mention their expectation for first quarter free cash flow and their goal of achieving a target range of 2.5 times net debt to adjusted EBITDA by the first half of 2025. They also mention the sustainability of their postpaid phone growth and their focus on under-penetrated markets in value, SME, and conversion segments. They expect a slowdown in activity levels in 2023, but a more normalized level in the coming year.

The speaker expects the company's performance in the market to remain consistent and sustainable. They have been successful in growing their postpaid phone net adds and outperforming their peers while maintaining a low churn rate and increasing ARPU. The company will continue to make tweaks and adjustments to their strategies, taking into account competition from regional players such as cable companies.

The speaker discusses the financial performance of the three large wireless carriers and their focus on disciplined business practices and driving returns on investments. They also mention their plans to reach a 2.5 times leverage ratio by the first half of 2025 and their priorities for using excess cash, including investing in the business, protecting the dividend, and reducing debt. The speaker also briefly mentions their exposure to ACP and their thoughts on BEAD.

The decision on what to do with the company's capital is approaching and will be based on various factors such as stock performance, interest rates, business growth opportunities, and policies. The management team is excited about the progress made and the potential options available. The balance sheet is in good shape and there is a lot of potential for driving shareholder value. The team is focused on making the best decision for shareholders.

The speaker expresses disappointment that regulators have not updated subsidy structures to ensure that everyone has access to the internet. They believe that with the right political will and policies, this could be achieved. They also mention that their company has plans in place in case the ACP program is cancelled.

AT&T believes they can manage the challenges they face effectively and will continue to lobby for a more holistic approach to regulation. There has been some progress on the BEAD front, but there are still 50 different states with different viewpoints. They will be measured and targeted in their approach to investing in BEAD, focusing on states with the right policies. Texas seems to be a good opportunity, but there are other states where policies may not align effectively. Overall, AT&T has 10-15 million opportunities to invest and knows the average cost per location.

John Stankey is discussing pricing in the wireless industry and how AT&T is focused on adding value for their customers before considering any potential price changes. He mentions the company's investments in their network and the increase in usage by customers. He also briefly touches on the AT&T Air effort and its potential for growth in the future.

The company is seeing increased value and utility from their networks, leading to ARPU growth and potential for higher priced plans and pricing adjustments. They have a track record of success and expect to continue running the business effectively in the future. They are focused on investing in fiber for fixed broadband needs, but acknowledge that fixed wireless serves a certain segment of the market.

The company plans to use fixed wireless technology in certain business situations, such as targeting small businesses and using it as a transition away from legacy assets. They may also use it to penetrate certain consumer segments and meet obligations in state franchise agreements. While they may not see the same level of success as competitors, they are committed to growing their customer base and remaining broadband positive. Overall, the company sees fixed wireless as a valuable tool for sustainable growth.

The operator introduces a question from David Barden of Bank of America, who asks about the range of the company's free cash flow guidance and whether it is dependent on capital investment or other factors. John and Pascal respond, stating that they have made progress in paying down short-term financing obligations and have good line of sight on capital spend and cash taxes. They expect EBITDA to grow and do not anticipate any major issues with working capital. They may continue to reduce short-term financing obligations depending on their performance.

The speaker discusses the factors that could potentially impact the company's ability to meet their financial guidance. They emphasize the importance of staying consistent with their commitments and making decisions within that context. They mention the possibility of making adjustments based on efficiency or market changes, but assure that they are confident in meeting their commitments.

John Stankey, CEO of AT&T, believes that the economy has been resilient and will likely continue to be so in 2024. He expects policy to favor economic growth, and while there may be some inflation, he believes the economy will remain productive. AT&T has not seen any red flags in terms of consumer spending or business formation, and overall, they feel confident about the state of the economy in the coming year.

The business wireline side experienced weaker wholesale revenues in the fourth quarter, which was unexpected. This was due to industry restructuring and renegotiation of contracts. However, the company is now in a better position for 2024 and is shifting its focus to the mid-market, with some progress already seen. This requires opening up new distribution channels.

The company is working on developing new ways to sell their products through direct channels, which requires them to repackage and reprice their products. They are seeing progress in their fiber-driven revenues and are growing in the business marketplace, thanks to their wireless infrastructure. They also have plans to expand their fixed wireless assets and believe that convergence will help them stand out in the mid-market.

Pascal Desroches and Mike discuss the decline in legacy revenues and the potential to reduce costs in that sector. Amir Rozwadowski asks about the company's longer term capital intensity and free cash flow growth. John Stankey believes that their current high levels of investment are necessary for building sustainable infrastructure, particularly in terms of fiber. He expects that in the future, the company will aim for a mid-teens percentage of revenue for capital allocation.

The company is confident in their performance and plans to continue investing at a high level. They believe they have passed the worst of their investments and will use new technology to manage their capital more efficiently. The company is committed to maintaining a mid-teens capital intensity and finding ways to deliver value to shareholders.

The speaker thanks the audience for listening and apologizes for the long remarks. They express pride in the company's performance in 2023 and the strong fundamentals of the business. They are excited about the future and believe that AT&T is well-positioned for the changing consumer landscape. The speaker also announces that it is the last call for Amir.

The speaker discusses the departure of a team member and the addition of a new one. They thank everyone for their time and conclude the call.

This summary was generated with AI and may contain some inaccuracies.