AT&T Inc. (T)

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AT&T Inc. (T)

Q1 2009 Earnings Call

April 22, 2009 10:00 am ET

Executives

Brooks McCorcle - Head of Investor Relations

Rick Lindner – Chief Financial Officer

Analysts

John Hodulik - UBS

Tom Seitz - Barclays

Simon Flannery - Morgan Stanley

David Barden - Banc of America

Mike McCormack - JP Morgan

Jason Armstrong - Goldman Sachs

Michael Rollins - Citi Investment Research

Philip Cusick - Macquarie

Craig Moffett - Sanford Bernstein

Presentation

Operator

Welcome to the AT&T first quarter earnings release 2009 conference call. (Operator Instructions)

I will now turn the call over to Ms. Brooks McCorcle. Ms. McCorcle, you may begin.

Brooks McCorcle

Thank you. Good morning everyone. Welcome to our first quarter conference call. It's good to have you with us this morning. As Lorraine mentioned, this is Brooks McCorcle, Head of Investor Relations for AT&T. Joining me on the call this morning is Rick Lindner, AT&T's Chief Financial Officer. Rick will cover our results and following that we will have a Q&A session.

Before we get underway, let me remind you that our release, our first quarter investor briefing, supplementary information and the presentation slides that accompany this call are all available on the Investor Relations page of the AT&T website. That's www.att.com/investor.relations.

I also need to cover our Safe Harbor Statement, which is on slide two. That says that the information set forth in this presentation contains financial estimates and other financial forward-looking statements that are subject to risks and uncertainties and that actual results may differ materially. A discussion of the factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in these presentations based on new information or otherwise.

This presentation may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are also available on our website at www.att.com/investor.relations.

Before I turn the call over to Rick let me start with a quick financial recap which is on slide three. EPS for the quarter was $0.53. That includes $0.05 of pressure from incremental non-cash pension and retiree benefit costs. It is consistent with the full year outlook we provided in January. Consolidated revenues were relatively stable reflecting economic pressures primarily in voice, largely offset by continued strength in wireless, AT&T U-verse, broadband and strategic business services.

Our first quarter consolidated operating income margin was also in line with our full year outlook at 18.8%. This reflects strong wireless results and good execution on wire line and company wide cost initiatives. Finally, it was a strong free cash flow quarter with $4.6 billion versus $700 million in the first quarter a year ago, reflecting lower capital expenditures and cash tax payments.

With that as a quick overview, I will now turn the call over to AT&T’s Chief Financial Officer, Rick Lindner. Rick?

Rick Lindner

Thanks Brooks. Good morning everyone. It is great to have you with us this morning. Before I cover the details, I would like to take a moment to step back and talk just briefly about what we are seeing across the business and how we are executing and approaching things in this environment.

First, no surprise to everyone the economy has put pressure on usage and volumes particularly wire line voice in our business operations and access line loss continues to impact consumer revenues.

Second, in this environment we have taken a disciplined approach to cost which is reflected in our first quarter margins and free cash flow. We will continue to maintain a sharp focus on cost management as we go throughout this year.

Third, we have continued to invest in and to ramp growth in the areas that are key to our future. Those are wireless data, advanced business services and our AT&T U-verse platform. Our goal is simple. It is to make sure that when this economy rebounds that number one we are strong financially and two, we are strong operationally with good momentum in the areas that will lead the next wave of growth.

With that perspective, we are proud of what we accomplished in this first quarter. The highlights are on slide four. We delivered strong wireless growth with post-paid net adds up 24%. Our iPhone activations continue to be strong and we have seen no lessening in the iPhone’s attractive ARPU and churn characteristics.

Our wireless EBITDA margin expanded to over 40% this quarter. Our U-verse TV growth continues to ramp. We took a significant step up in broadband net adds. Wire line IP data revenue growth improved to 16% driven by U-verse and advanced business services. As Brooks mentioned our consolidated margins are on track with the full year outlook we provided in January. All in all it was a solid first quarter with good execution on the cost side and positive momentum in our key growth drivers.

Slide five shows how these drivers impacted our revenue trends. Total consolidated revenues were $30.6 billion that is down slightly year-over-year. This reflects a 12% reduction in wire line voice revenues and reductions in print advertising offset by growth in wireless and data services.

Wireless service revenues were up more than $1 billion, 9.6% and wire line data revenues were up 5.3%, slightly above our growth rate in this category over the past few quarters. Wire line IP data revenues were up 16.4% with double digit growth in both consumer and business. We have included on this slide a look at our first quarter revenue mix which is increasingly weighted to the growth areas of wireless, data and managed services. Two-thirds of our first quarter revenues came from these categories.

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