AT&T Inc. (T)

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AT&T Inc. (T)

Q4 2009 Earnings Call Transcript

January 28, 2010 10:00 am ET

Executives

Brooks McCorcle – SVP, IR

Rick Lindner – Senior EVP and CFO

John Stankey – President and CEO, AT&T Operations Inc.

Analysts

Simon Flannery – Morgan Stanley

John Hodulik – UBS

Jason Armstrong – Goldman Sachs

David Barden – Banc of America/Merrill Lynch

Phil Cusick – Macquarie Research

Michael Rollins – Citi Investment Research

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the AT&T fourth quarter 2009 earnings release. For the conference, all the participants are in a listen-only mode. However, there will be an opportunity for your questions, and instructions will be given at that time. (Operator instructions) As a reminder, today's call is being recorded.

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, and welcome to our fourth quarter conference call. It is 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 today are Rick Lindner, AT&T's Chief Financial Officer; and John Stankey, AT&T's President and CEO for AT&T Operations.

Rick and John will update our results in a minute. Then we will take your questions.

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, which is www.att.com/investor.relations.

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 www.att.com/investor.relations.

Before I turn the call over to Rick, let me quickly call your attention to slide 4, which provides a consolidated financial summary. Fourth quarter earnings per share was $0.51, that includes $0.04 of pressure due to severance charges, offset by $0.04 of tax-related benefits.

Fourth-quarter consolidated revenues were stable at $30.9 billion, up slightly on a sequential basis for the third straight quarter with strength in wireless, AT&T U-verse, and strategic business services.

While consolidated margins of obviously reflect the charges we took in the quarter, our wireless margin was slightly up sequentially, and our already strong wireline margin was stable. Cash flow continues to be strong, with 2009 cash from operations and free cash flow up substantially over 2008, reflecting solid cost management, lower capital expenditures, and the timing of cash tax payments.

With that 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 good to have you with us this morning.

Before I get into the detailed results, I would like to start with a quick overview and a couple of comments on our positioning as we head into 2010. Fourth-quarter highlights are on slide five. When you look at the year overall, I believe that in a challenging economy, we executed with a great deal of focus and we executed well. 2009 was a terrific year for wireless growth, our best net add year ever; we built momentum in key growth areas: wireless data, U-verse, and advanced business solutions. Margins were generally stable throughout the year and cash flow was up substantially. Across the board, we strengthened what we believe is the industry's best growth profile, with continued leadership in mobile broadband, further expansion of premier business capabilities, powerful IP-based platforms for both our consumer and business services, and continued financial strength, with cash flow coming from the strong wireless business and a wireline business that continues to have many solid margins.

Most important, we closed the year well. In the fourth quarter, wireless unit growth, wireless data growth, wireless ARPU were all strong. We continue to have solid traction in terms of U-verse gains. Wireline consumer trends continue to be encouraging. Combined U-verse and broadband revenue growth was up better than 30% for the second consecutive quarter, and those revenues make up a growing percentage of our consumer revenue mix, which helped drive our third consecutive quarter of improved year-over-year revenue comparisons in consumer. We maintained mid-teens growth in our most advanced business products. Our cost initiatives are yielding benefits, supporting both margins and cash flow. We ended 2009 with cash from operations and free cash flow, both up substantially over 2008. And as you know, we increased our dividend for the 26th consecutive year, while we have reduced debt.

So from a number of perspectives, it was a very solid year and a good fourth quarter, and looking to 2010, like almost everyone, we model a continuing slow recovery in the economy and employment. But that said, with our operational strength, we believe we are well positioned to deliver stable to improved earnings in 2010, with additional opportunity as the economy turns. And our long-term view of the business continues to be quite positive.

With that perspective, let us take a look at detailed results, starting with consolidated revenues which are covered on slide six. Now as Brooks mentioned, we have seen consolidated revenue trends stabilize over the past three quarters. Revenues totaled $30.9 billion in the fourth quarter, down less than a percent year-over-year, and slightly up sequentially. This was our third consecutive quarter of modest sequential revenue improvement.

These trends reflect a number of things. The first is good wireless growth. Second, we continue to deliver strong growth in U-verse, which continues to gain scale, driving improved consumer revenue comparisons. And third, our business revenue comparisons were somewhat more favorable this quarter. A fundamental thing for us is that our revenue mix is undergoing a substantial transformation, increasingly weighted to wireless, data, and managed services. In the fourth quarter, 70% of revenue came from these categories, and that was up 1000 basis points over the past two years. And taken together, these revenues grew 6.5% in the fourth quarter. This shift in mix reflects broader industry changes and the fact that we have been aggressive, taking a leadership position in areas like mobile broadband and IP-based products. There is every reason to expect this mix shift will continue, as our wireless data initiatives and our U-verse platform continue to scale.

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