AT&T Inc. (T)

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AT&T (T)

Q1 2011 Earnings Call

April 20, 2011 10:00 am ET

Executives

Rick Lindner - Chief Financial Officer, Principal Accounting Officer and Senior Executive Vice President

Brooks McCorcle - Senior Vice President of Investor Relations

John Stephens -

Ralph de la Vega - Chief Executive Officer of AT&T Mobility & Consumer Markets and President of Mobility & Consumer Markets

Analysts

John Hodulik - UBS Investment Bank

Michael McCormack - Nomura Securities Co. Ltd.

Jonathan Chaplin - Crédit Suisse AG

Michael Rollins - Citigroup Inc

Simon Flannery - Morgan Stanley

David Barden

Jason Armstrong - Goldman Sachs Group Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the AT&T First Quarter 2011 Earnings Release. [Operator Instructions] And as a reminder, today's call is being recorded. With that being said, I'll turn the conference now to Brooks McCorcle. Please go ahead.

Brooks McCorcle

Thanks, John. Good morning, everyone. Welcome to our first quarter conference call. It's really 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; Ralph de la Vega, AT&T's President and CEO for Mobility and Consumer Markets; and John Stephens, AT&T's Controller and CFO-designate.

We'll cover results, then we'll follow with Qs&As. Let me remind you that our release, investor briefing, supplementary information and the presentation slides that accompany this call are available on the Investor Relations page of the AT&T website, and, as a reminder, that's 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, I would like to call your attention to Slide 4, which provides the financial summary. Earnings per share for the quarter was $0.57, which is roughly in line with adjusted EPS from first quarter a year ago, and it's clearly up from our reported EPS of $0.41 this time last year. Our results this quarter also include approximately $0.02 of pressure from Alltel integration costs. As we have mentioned to you earlier this year, this merger-related cost will also impact margins, wireless churn and subscriber numbers, which Ralph will cover in a few minutes.

We will also see some impacts continuing into the second quarter as we complete customer migrations, but, overall, the integration process is going well and is in line with our overall expectations. Consolidated revenues were up 2.3% year-over-year, thanks to continued strength in mobile broadband, U-verse services and strategic business offerings. Consolidated operating income margin remained stable even with strong sales of smartphones, and cash flow continues to be strong, with cash from operating activities totaling $7.7 billion and free cash flow of $3.6 billion. With that, I will now turn the call over, one last time, to AT&T's Chief Financial Officer, Rick Lindner. Rick?

Rick Lindner

Thank you, Brooks. Good morning, everyone. Let me start with a couple of comments on the quarter overall. The highlights are on Slide 5. First off, we had a terrific start to the year. We saw a continuation of the positive revenue trends we've seen in the past few quarters. We had a very strong wireless quarter, with double-digit revenue growth. Stable trends in Wireline revenues driven by U-verse expansion and growth in strategic business services. Going into the quarter, we knew that with another carrier offering the iPhone for the first time, there was a possibility of some natural volatility, and our mobile broadband strategy would be tested as never before.

I'm very pleased to tell you that the results show our strategy is working. Our wireless business is performing at a high level, and customers, both new and existing ones, continue to choose AT&T. Smartphone sales continue to be strong. Postpaid ARPU continues to grow at a good clip. Churn remains relatively stable, both year-over-year and sequentially. Plus, we continued to expand into new wireless growth areas of connected devices and tablets. Ralph will provide you more details in a moment. But mobile broadband is driving unprecedented growth in our industry, and we're pleased with the results we're seeing.

We also continue to be pleased about the transformation of our Wireline business. U-verse continues to scale, helping drive consumer revenue per household up more than 6%, and strategic business revenues had its best quarter in more than two years. So on a number of fronts, it was a positive quarter and a good start to the year.

With that as background, let's look at detailed results starting with consolidated revenues on Slide 6. First quarter consolidated revenue totaled $31.2 billion, up $717 million or 2.3% versus a year ago. That increase was due to double-digit wireless growth, continued U-verse growth of more than 65% year-over-year and stable trends from our Business segment. You see these trends transforming our revenue mix. In the first quarter, 74% of revenues came from wireless, from Wireline Data and Managed Services. That's up from 70% a year ago and 65% two years ago. Revenues from these growth areas were up more than 9% in the first quarter. We are well-positioned here, and we expect these trends to continue to drive top line growth for the company as we go forward in this year.

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