AT&T Inc. (T) Earnings Call Transcript & Summary

Good afternoon. I'm Stacey Maris, Senior Vice President, Deputy General Counsel and Secretary AT&T. Welcome to the AT&T 2023 Annual Stockholders' Meeting. Please note that today's meeting is being recorded. If you'd like to follow along with our slide presentation, please click the slides button located in the upper right corner of the webcast screen. Before we get started, I'd like to call your attention to our safe harbor statement. Some of our comments today may be forward-looking. As such, they're subject to risks and uncertainties referenced in our filings with the Securities and Exchange Commission. Actual results may differ materially. Later in today's meeting, we will respond to questions from stockholders. We've already received a number of questions. If you are a stockholder and wish to submit a question or comment, we invite you to do so at any time by clicking the Q&A icon. Depending on the number of questions we receive, it may not be possible to answer them all during this meeting. For questions we don't address, we will post responses on our Investor Relations website within 30 days. If your question is about your AT&T account, we will follow up with you individually. Now it's my pleasure to turn our meeting over to AT&T Chairman, Bill Kennard.

Thank you, Stacey. Good afternoon. I'm Bill Kennard, your Independent Chairman of AT&T's Board of Directors. On behalf of our Board, our management team and our employees, I want to welcome you to AT&T's 2023 Annual Stockholders' Meeting. In a few moments, we'll begin the business portion of the meeting. Then John Stankey, our CEO, will give a report on the state of your company, and then we'll end by answering your questions. But first, I'd like to introduce your Board of Directors. The following directors have been nominated for reelection: Scott Ford, CEO of WestRock Coffee Company and former President and CEO of [Altel]; Glenn Hutchins, Chairman of North Island and North Island Ventures and a co-founder of Silver Lake; Steve Luczo, managing partner of CrossPoint Capital Partners and former Chairman of the Board of Seagate Technology; Mike McCallister, retired Chairman and CEO of Humana; Beth Mooney, retired Chair and CEO of KeyCorp; Matt Rose, retired Chairman and CEO of Burlington Northern Santa Fe. John Stankey, CEO and President of AT&T; Cindy Taylor, President and CEO of Oil States International; Luis Ubiñas, Chairman of the Statue of Liberty, Ellis Island Foundation and former President of the Ford Foundation; and myself, the Chairman of the Board, a position I'm honored to hold. Now before we move to the official business of this meeting, I want to let you know that in addition to Stacey, with us today are John Stankey and David McAtee, our General Counsel. Also joining us is Chris Chastain. He's the global assurance partner representing our auditor, Ernst & Young. Now let's turn to the business portion of the meeting, starting with a few reminders about voting. If you already submitted your proxy or voting instructions, you don't need to vote today. Your votes will be voted in accordance with the directions that you provided. If you are a stockholder and have not yet submitted your vote or you want to change your vote, you may vote today by clicking the vote button on the website hosting this broadcast. So with that, the polls are now open. Our first order of business is to vote on the election of directors. This is item #1 in the proxy. The Board has nominated all 10 incumbent directors for re-election. The name and background of each director can be found in the proxy statement. Your Board of Directors recommends a vote for each nominee. Next up is ratification of the appointment of Ernst & Young as our independent auditors for 2023. This is item #2. Your Board recommends a vote for this item as well. The next item is the advisory vote on executive compensation, which is item #3. Given the dynamic global marketplace in which AT&T competes, your Board of Directors is committed to attracting and retaining the talent necessary to create shareholder value and deliver on our strategic objectives. As described more fully in our proxy, the Board's Human Resources Committee has structured an executive compensation program that pays for performance, is competitive in the market for key talent and aligns the interest of our executives with your interest as stockholders. Your Board of Directors recommends a vote for approval of this proposal. Item #4 is an advisory approval on how stockholders vote on executive compensation. This proposal allows stockholders to indicate their preference for voting on executive compensation every 3 years, 2 years or 1 year. Your Board of Directors recommends a vote for every 1 year on this proposal. Item 5 in your proxy is a stockholder proposal submitted by Kenneth Steiner. I understand that Kim Franklin has submitted a statement on behalf of Mr. Steiner introducing the proposal. We will listen to that now.

Independent Board Chairman, Proposal #5. This is Kim Franklin on behalf of Kenneth Steiner, the sponsor. Shareholders request that the Board of Directors adopt an enduring policy and amend the governing documents in order that 2 separate people hold the office of the Chairman and the Office of the CEO. Whenever possible, the Chairman of the Board shall be an independent director. Under the current rules, AT&T can on short notice, give the 2 most important jobs at AT&T to 1 person for a long period into the future. The roles of Chairman and CEO are fundamentally different and should be held by 2 directors, a CEO and a Chairman who is completely independent of the CEO and the company. This proposal topic won 40% support at the 2020 AT&T Annual Meeting. The 40% support likely means a majority vote from the shares that have access to independent proxy voting advice to make a more informed voting decision. The Board of Directors should respect this majority vote. A lead director is no substitute for an independent Board Chairman. According to the 2022 AT&T annual proxy meeting -- annual meeting proxy, the AT&T Lead Director has 4 primary duties, some of which are shared with others. I regret that this presentation is not live. AT&T gave Kenneth Steiner, the sponsor, an ultimate him that this proposal could not be presented live at the annual meeting in spite of the fact that much of this meeting will be live. The ultimate responsibility for this presentation being forced to be on tape is Mr. Glenn Hutchins, Chair of AT&T Governance Committee. The ascending complexities of the company with $120 billion in market capitalization, like AT&T and with the stock price of less than half of what it was more than 20 years ago, increasingly demand that 2 people fill the 2 most important jobs at AT&T on an enduring basis, Chairman and CEO. Please vote yes, Independent Board Chairman, Proposal #5.

Well, thank you for that. I would like everyone to know that we ask all of our proponents to record their statements simply to ensure that technical difficulties don't distract from their message. So we do appreciate your understanding. For the reasons described in our proxy, AT&T opposes this proposal. As you know, the AT&T Board is committed to independent Board leadership. The Board's current practice is to elect an Independent Director as Chairman. I'm honored to serve in that important capacity. But the Board also believes that it is in the best interest of our stockholders to have the flexibility to adjust to future business conditions that may require a different Board leadership structure. The Board, therefore, poses a policy that would restrict future boards from acting in the best interest of the company and its stockholders in response to the facts and circumstances relevant to the company at that time. Therefore, your Board recommends a vote against this stockholder proposal. The next and last item is a stockholder proposal submitted by the Nathan Cummings Foundation. I understand the proponent has submitted a statement introducing its proposal, and we'll listen to that now.

Good morning, Mr. Chairman, members of the Board and fellow shareholders. My name is Rachel Fasano. I'm here on behalf of the Nathan Cummings Foundation to move Proposal 6, which requests the Board commission a third-party independent racial equity audit analyzing AT&T's impacts on black, indigenous and people of color by [BIPOC] communities, and publish a report on the results on the company's website. AT&T has stated its commitment to advancing racial equity and justice for all, recognizing "the history of violence and systemic racism on black people still face". However, news reports have identified numerous areas where AT&T's products, policies and practices may be promoting racial inequity. Allowing racial inequities to flourish is deeply harmful to [BIPOC] communities, is bad for diversified investors given the high cost of a system to the economy and could expose the company to significant risks. It is also simply the wrong thing to do. AT&T opposes the request for a racial equity audit, claiming that it already ensures the company's commitment to racial equity is reflected in its goals and actions. Instead of embracing a company-wide audit, AT&T is resisting, offering instead a narrow and severely limited audit of its community programs aimed at helping to close the digital divide for underserved and underrepresented communities. This in no way meets standard expectations with respect to racial equity audits, best practice requires that the audit cover company's policies, practices and products. Further, while environmental, social and governance and diversity, equity and inclusion reporting are important, they in no way [albeit] the need for a racial equity audit as AT&T seems to suggest in its statement in opposition to item #6.

Thank you. For the reasons described in our proxy, AT&T opposes this proposal because we feel it's largely duplicative of our current practices and many disclosures that we already make. As an example, just 1 example. AT&T already has commissioned a third-party audit to determine the impact of our community programs designed to help close the digital divide for underserved and underrepresented communities. Therefore, your Board recommends a vote against this stockholder proposal. So that was the last item that required your vote today. Please finalize your votes and submit them now. The polls are now closed. That concludes our official business. While we await preliminary voting results, John Stankey will give an update on the state of your company, and then we'll take your questions. John?

Thanks, Bill. Good afternoon, everyone. Over the past year, AT&T continued to refocus around a connectivity strategy that has helped simplify our company and position us for a sustainable growth. We believe connectivity changes everything. And in an instant, a connection can improve someone's life, help grow a business or change someone's story. Thanks to the disciplined work of our teams, we're delivering on that strategy. We measure our progress against 3 key strategic priorities, the same ones we've shared with you before. Grow durable 5G and fiber customer relationships, strengthen our balance sheet and be deliberate with our capital allocation. Here's how we delivered on all 3 last year. In wireless, we had 2.9 million postpaid phone net additions, our second best annual results in more than a decade, and we did it while continuing to focus on profitability. We increased mobility EBITDA by nearly 4%, making 2022 the most profitable year on record for our wireless business and we grew our consolidated adjusted EBITDA margin for continuing operations by 160 basis points. We also built on our strong momentum in AT&T Fiber. As we've shown quarter after quarter where we build fiber, we win. Last year marked our fifth straight year with 1 million or more net additions raising our fiber subscriber base to more than $7 million. We possess the nation's largest fiber network, which we believe will be important to sustaining our franchise into the next decade. In tandem with our strong execution, we ended the year achieving more than $5 billion of our 3-year $6 billion plus run rate transformation target. We did this generating more than $14 billion in free cash flow. And our deliberate capital allocation strategy enabled us to make record investments in 5G and fiber that are instrumental positioning AT&T for the future. Full year capital investments were $24 billion, an all-time high, and we reduced net debt by roughly the same amount. Our total stockholder return last year was 5.8% and that was better than most of our peers in the S&P 500. This shows our strategy is working and enabling us to deliver on our commitments to provide shareowner value. We believe these solid results reflect the impact of our streamlined portfolio and support our simplified capital allocation framework. As stewards of your company's capital, we continually review every part of our business to make sure we're investing to grow in a long-term sustainable manner. Last year, we sold and spun off assets that no longer supported our core connectivity strategy. That included our separation from WarnerMedia, which allowed us to tighten our focus and strengthen the experience and value proposition we offer our customers. We continue to drive efficiency, streamline our operations and distribution, including rationalizing our wireline copper infrastructure and simplifying our offers and legacy services. We're reinvesting those savings into the future in fiber and 5G wireless where we've demonstrated improved returns. We're also taking advantage of the opportunities that will enable our capital investments to go further and help accelerate and expand AT&T fiber. GigaPower, our innovative joint venture with BlackRock that launched last week will increase the availability of our fiber service outside our traditional wireline markets. And we're working with state and local governments to find opportunities for co-investment in broadband infrastructure. These investments will help us close the digital divide by bringing fast Internet access to millions of unconnected Americans. Through these efforts and others, we're building a brand and reputation that is differentiated, trusted and appreciated by employees, customers and communities. We're investing in critical infrastructure that benefits those customers and communities. We offer people well-paying, middle-class jobs and foster a constructive, supportive culture that allows individuals to bring their full authentic selves to work. We engage on policy issues that reinforce our ability to hire skilled workers, innovate and deploy advanced networks, all of which influence how we direct our private capital. Our teams have worked hard to constructively shape bipartisan policy that supports our business objectives like the Infrastructure Investments and Jobs Act, which will play a powerful role in narrowing the digital divide. Our responsibilities as a good corporate citizen are important to us, and we're honored by the external recognition we've received, including our ongoing inclusion on the Dow Jones Sustainability Index for North America, recognition as a top 10 company from LinkedIn and the America Opportunity Index for upward mobility and opportunity to grow a career. And making Newsweek's list of America's most responsible companies. I'm proud of our accomplishments and feel energized about the opportunities ahead of us. We'll continue to be responsible stewards of our capital to build on the momentum we've established and deliver stronger returns, including an attractive dividend to our stockholders. I want to recognize that our successful transformation over the last several years is due in large part to our experienced leadership team. This team has remained focused and committed to our purpose and mission. We were guided by the insights, advice and support of Bill, our independent Chairman and our Board of Directors. We've built the Board with a deliberate focus on skills and experience to help us manage costs and implement our transformation plans. My thanks to the Board for your partnership and to Bill for your leadership. I also want to thank all of our employees from management to more than 60,000 union employees for everything they've done for AT&T. Our success begins and ends with them. Of course, I want to thank you, our stockholders, for your confidence in AT&T. In everything we do, we operate with you at the forefront. You have my word that we're committed to delivering value and competitive returns. Robust ubiquitous connectivity is the foundation that will enable society to innovate and evolve in ways we can't imagine today and we intend for AT&T to connect people to this greater possibility. As we move forward, we'll remain focused and disciplined in our execution to grow customer relationships, [it] profitably and in all the right ways and build a sustainable company for the next generation. Bill, I'll turn it back to you.

Thanks, John. That was great. We're now going to move into the question-and-answer portion of the meeting. As Stacey mentioned at the start, we've received a number of questions, and we'll address the ones asked most often today. But for any questions of general interest that we aren't able to get to today we'll post responses on our Investor Relations website within 30 days. for questions that are specific to individual stockholders we'll respond to you directly on that. So Stacey, we're ready for the questions.

Okay. Our first question concerns our stock price. What are our plans to create long-term shareholder value and deliver better returns in the future?

I'll take that, Bill. So first, I would tell you, as I mentioned in my previous comments, I think we're very much on the right track as a business. I highlighted the fact that our total shareholder return last year was 5.8%, better than most of our peers in the industry and certainly far better than the negative 18% of the S&P 500 however, none of us are taking satisfaction on that alone. We continue to work on improving the cash performance of our business. I mentioned that we're being very deliberate in our capital allocation to make sure that we can deploy new infrastructure in places that we can grow the business, like our fiber deployment and our 5G deployment. That growth is allowing us to grow revenues, and we're also investing in our capabilities of how we manage the business to become more efficient, better managing our expenses. When you put those 2 things together, it will ultimately result in better cash production from the business, and our commitment and guidance this year to generate $16 billion of cash flow, improving over last year's $14 billion by $2 billion. And this management team remains committed to continue to improve that year-over-year. And when we do that, I believe we'll see shareholder value improve and the stock price go up.

I would just add that on behalf of the Board, we're very pleased as a Board with the renewed strategic focus on 5G and fiber. We think that it's really made a difference. We are always analyzing strategic opportunities, and we believe that with this renewed focus on fewer priorities, the company's results over the last year -- couple of years show that, that strategy is working. So Stacey, another question, please?

Our next question is related to the first. Is the dividend safe?

Sure. I'll take that one. As a Board, we know the importance of our dividend to our stockholders. And we feel very comfortable with the level of our dividend. We all know that AT&T is among the highest dividend yield payers in the Fortune 500. The Board is fully supportive of management's capital allocation strategy to invest for long-term sustainable growth. And maybe we should talk a little bit more about strategy then, John.

Yes. I think the fundamental or core answer to that question is, as I mentioned just a few seconds ago, we'll generate $16 billion of free cash flow this year that we're committed to. The dividend load on the business and round numbers is about $8 billion of the shareholder base annually. So obviously, you can see there's great coverage relative to that $8 billion commitment of dividend to the $16 billion of cash flow, which fully makes us in a strong position to pay that. As I said earlier, we intend to run this business better next year than we do this year, and we expect that we'll continue to grow our ability to generate cash out of the business. When we're doing the investments and the way that we're doing it and allocating capital, and getting the kind of effective growth that we've talked about, we'll be in really good shape as we move forward to secure that.

So that segues into our next topic, which is how do we know our business strategy is working?

Well, I'll start with that, Bill. I'd say, first of all, results speak for themselves when you kind of look at the numbers. We have had 11 quarters of over 400,000 postpaid phone net adds. I indicated in my prepared remarks that last year was our second best in history. We had 13 quarters of 200,000 or more fiber net adds. That's been really strong. When you think about those customers that we're adding in both cases, the average amount that those customers are paying us each month has been improving, going up, average revenue per user. That's good. We have industry-leading churn in both core products. It's the lowest churn in our fiber broadband product, and we are currently at the lowest churn in our postpaid wireless phone base. And when you see that kind of efficiency, ARPU is going up each year as well as lower churn and customer growth, that's kind of the golden thread of any subscription business. So I think, frankly, when you can achieve that, one has to conclude that by and large customers find value in your products and service. They're happy with it. They're happy with those products. They're staying with it, and that indicates the strategy is on track.