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AT&T Inc. (T)

Q3 2009 Earnings Call

October 22, 2009 10:00 am ET


Brooks McCorcle - Senior Vice President of Investor Relations

Richard G. Lindner - Chief Financial Officer, Senior Executive Vice President

Ralph De La Vega - President and Chief Executive Officer - AT&T Mobility & Consumer Market


John Hodulik - UBS

Jason Armstrong - Goldman Sachs

Simon Flannery - Morgan Stanley

David Barden - Banc of America Merrill Lynch

Timothy Horan - Oppenheimer

Mike McCormack - J.P. Morgan



Good morning, ladies and gentlemen, thank you for standing by. Welcome to the AT&T third quarter earnings release 2009. (Operator Instructions) With that being said, I will turn the conference over to Brooks McCorcle, Senior Vice President of Investor Relations for AT&T. Please go ahead.

Brooks McCorcle

Thank you, John. Good morning, everyone. Welcome to our third quarter conference call. It’s great to have you with us this morning. As John mentioned, this is Brooks McCorcle, head of investor relations for AT&T, and joining me on the call this morning are Rick Lindner, AT&T's Chief Financial Officer; and Ralph De La Vega, AT&T's President and CEO for Mobility & Consumer Markets.

In a minute, Rick and Ralph will cover our results. Then we will follow with questions and answers.

Before we get underway, let me remind you that our release, 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

I also need to cover our Safe Harbor statement, which is on slide 3 and that says that information set forth in this presentation contains financial estimates and other forward-looking statements that are subject to risks and uncertainties and actual results may differ materially. A discussion of 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 this presentation 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

Before I turn the call over to Rick, let me call your attention to slide 4, which provides a consolidated financial summary. EPS for the quarter was $0.54, very much in line with results for the first half of the year, versus third quarter last year EPS includes $0.04 of pressure from incremental non-cash, pension OPEB expenses. In addition, this quarter EPS benefited by $0.03 from the resolution of tax issues, which were offset by $0.02 of pressure due to severance charges.

Consolidated revenues were stable at $30.9 billion. That’s up slightly on a sequential basis for the second straight quarter. This reflects strength in wireless, AT&T U-verse, and strategic business services offsetting economic pressures.

Our consolidated operating margin was also relatively stable, reflecting solid cost performance in both wireless and wireline, and free cash flow continues to be strong, $5.5 billion in the quarter and $13.9 billion year-to-date, both up substantially over comparable periods a year ago. This reflects solid cost efforts, lower capital expenditures, and the timing of cash tax payments.

With that quick overview, I’ll now turn the call over to AT&T's Chief Financial Officer, Rick Lindner. Rick.

Richard G. Lindner

Thanks, Brooks. Good morning, everyone. Before we get into the operational details, let me take just a brief minute to comment on the business overall and to put some perspective on the quarter.

When we talked with you in January, we outlined our expectations for the year and like everyone, we knew we faced a tough economy in a challenging business environment. So we laid out for you a clear set of objectives for 2009. The first was to be aggressive and persistent in improving our cost structure to preserve margins and to drive cash flow. And second, we committed to continued investment and expansion in the industry’s key growth areas. Number one among those is wireless data, and the explosion of capabilities that are enabled by wireless broadband. Number two is our all IP U-verse platform for a redefined consumer market built on integrated TV, broadband, and voice.

And number three, we wanted to expand and drive growth in our most advanced business capabilities, including products like virtual private networks, ethernet, hosting, IP conferencing, and application services. And I think what you have seen from us throughout 2009 and particularly in our third quarter results is that we’ve delivered against these top priorities. The highlights are on slide five.

Now Ralph is going to give you all the details in just a minute but I have to say we had just a terrific wireless quarter -- 2 million net adds, our best post-paid 3G integrated device quarter to date, strong ARPU growth, record low churn, and on top of it, margin expansion.

We had another solid U-verse quarter with continued high voice and broadband attach rates. I expect U-verse revenues this year will top $2 billion, with more growth ahead.

Strategic business service revenues were up better than 16% and more than 5% sequentially, and as Brookes noted, free cash flow continues to be strong. So from my perspective, the execution continues to be good across the business and we are delivering what we outlined to you.

Now with that as an overview, let’s turn now to revenue trends, which are on slide 6. Consolidated revenues for the quarter were $30.9 billion. That’s down slightly versus the third quarter a year ago, which was our peak revenue quarter, and up slightly from the second quarter of this year. This reflects continued good growth in wireless and in wireline data. Wireless service revenues were up better than $1.1 billion, or 10%, with 3.5% sequential growth. Wireline data revenues were up 5.4%, right in line with our growth rate in this category over the past few quarters, and up 2% sequentially. Wireline IP data revenues were up better than 18%, also consistent with recent trends and up 4.7% sequentially. These drivers in large part offset continuing pressures in wireline voice.

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