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

Good afternoon. I'm Stacey Maris, Senior Vice President, Secretary and Chief Privacy Officer at AT&T. Welcome to the AT&T 2024 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. [Operator Instructions] 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 2024 Annual Stockholders' Meeting. In a few moments, we'll begin with the business portion of the meeting; and 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 Alltel; 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; Marissa Mayer, CEO of Sunshine Products and former CEO, President and a member of the Board of Directors of Yahoo!. Marissa is our newest Director, and we're very excited to welcome her to the AT&T Board of Directors. She joined us in March of this year. Mike McCallister is the retired Chairman and CEO of Humana. Beth Mooney is retired Chair and CEO of KeyCorp. Matt Rose is the retired Chair and CEO of Burlington Northern Santa Fe. John Stankey, of course, is our CEO and President of AT&T; Cindy Taylor, President and CEO of Oil States International. Luis Ubiñas, who is Chairman of the Statue of Liberty - Ellis Island Foundation and former President of the Ford Foundation; and myself, the Chairman of the Board, which is a position I'm very 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, who is 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 do not need to vote today. Your shares will be voted in accordance with the directions that you already provided. If you're 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 11 incumbent directors for reelection. 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 2024. 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 stockholder 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. It's competitive in the market for key talent, and it aligns the interest of our executives with your interest as stockholders. Your Board of Directors recommends a vote for this proposal. We will now turn to our stockholder proposals. Item #4 in our proxy is a stockholder proposal submitted by Kenneth Steiner. As set forth in our proxy, we offer each proponent the opportunity to submit a prerecorded introduction for their proposal. This year, Mr. Steiner opted not to submit an introduction to his proposal, so we refer you to Page 12 of the proxy where his proposal and his statement in support of the proposal is set out in full. Because Mr. Steiner opted not to submit a statement, the Board will also not provide its response, which can -- which would be found on Page 13 of the proxy. The next item is a stockholder proposal submitted by John Chevedden. Again, as set forth in our proxy, we offer each proponent the opportunity to submit a prerecorded introduction for their proposal. This year, Mr. Chevedden opted not to submit an introduction to his proposal. So we refer you to Page 14 of the proxy where his proposal and his statement in support of the proposal is set out in full. And again, because Mr. Chevedden opted not to submit a statement, the Board will also not provide its response, but you can find it on Page 15 of the proxy. The next and last item is a stockholder proposal submitted by the National Center for Public Policy Research. I understand that Stefan Padfield has submitted a statement on behalf of the National Center for Public Policy Research introducing his proposal. We'd like to listen to it now.

My name is Stefan Padfield, and I am the Deputy Director of the Free Enterprise Project. The Free Enterprise Project is part of the National Center for Public Policy Research, which is a shareholder of AT&T and the proponent of the proposal set forth as item 6. Our proposal requests a report on how AT&T's policies and practices impact workforce civil liberties. Why is such a report necessary? Well, AT&T recently scored an abysmal 10% on the Viewpoint Diversity Score Index, which rates companies on their level of respect for free speech and religious freedom. AT&T received this low score because it apparently, one, reserves the right to deny service to customers who express views opposed by AT&T executives; two, pressure stakeholders to discriminate as those executives wish; and three, supports legislation that would roll back long-standing statutory protections of religious liberty. In addition, AT&T actively supports the ill-named Equality Act, which would repeal viewpoint protections while forcing American life into alignment with fringe theories that harm, among others, women, girls and small children. Furthermore, AT&T opposed common sense voting integrity provisions that most Americans of all surface characteristic categories support. These unnecessary divisive stances alienate many current and potential employees and other stakeholders. AT&T opposes our proposal over the course of 3 pages of what are ultimately empty platitudes, claiming that its existing policies and disclosures address all our concerns. But if that were true, AT&T would not have received a score of 10% on the Viewpoint Diversity Score Index in the first place, and it would not have refused our request for it to participate in the associated survey. For all these reasons, we urge our fellow shareholders to support the proposal set forth as item 6.

Thank you. With all due respect, AT&T believes that the proponent's comments misrepresent AT&T's commitment in this important area. AT&T has codified policies to prohibit discrimination of any kind across all stakeholder groups and to protect workforce civil liberties. The company provides robust and regular reporting on these matters, underscoring our dedication to transparency as we continue to create an inclusive culture that respects and welcomes all viewpoints. Therefore, your Board recommends a vote against this stockholder proposal. That was the last item that was required for vote today, so please finalize your votes and submit them now. [Voting]

The polls are now closed. That concludes our official business. And while we await the 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, and good afternoon, everyone. 2023 was another year of strong, consistent execution against our strategy to be the best connectivity provider through 5G and fiber. With a focused investment-led approach, we're delivering high-performance converged networking at scale, and a breadth that's second to none in the United States. This positions AT&T to define and lead the future of connectivity. We measure our progress against 3 key strategic priorities: one, grow durable 5G and fiber customer relationships; two, be effective and efficient in everything we do; and three, be deliberate with our capital allocation. Here's how we delivered on all 3 of those last year. In wireless, we achieved the company's best ever full year mobility operating income. We added more than 1.7 million high-value postpaid phone customers and grew mobility service revenues by 4.4%, fastest growth among the top 3 national wireless providers. With AT&T Fiber, we added 1 million or more customers for the sixth consecutive year and we closed 2023 with the ability to serve more than 26 million consumer and business fiber locations. In tandem with strong execution, our effective and efficient operations allowed us to achieve our 3-year $6 billion plus run rate cost transformation target ahead of schedule. We also made progress on an incremental $2 billion plus in targeted savings by mid-2026. Importantly, we're seeing the benefits from these cost reduction efforts translate into improved operating leverage as evidenced by the adjusted EBITDA margin expansion we delivered in 2023. We did all this while generating nearly $17 billion in free cash flow, up nearly 20% year-over-year. Our deliberate capital allocation strategy supported full year capital investments of more than $23 billion as we continue to invest in 5G and fiber at historic levels. This is consistent with our stated strategy to build durable customer relationships as the nation's leading converged connectivity provider on the foundation of 5G and fiber. In fact, no company has invested more capital in U.S. telecommunications infrastructure over the past 5 years and that we reduced our net debt by more than $3 billion in 2023. As we shared last month, this momentum is carried into the first quarter of this year, reporting strong free cash flow, industry-leading prepaid phone churn and profitable growth in our core strategic areas. As stewards of your company's capital, we continually review our business for opportunities to streamline, simplify and modernize our operations. As I report to you for the fourth time since stepping into my role, I'm proud of the progress the AT&T team has made repositioning your company to achieve competitive performance amongst our peers. But we're keenly aware there is more work to do. We're working expeditiously to retire legacy products and infrastructure, remove associated costs and reinvest those savings into 5G and fiber, building a connectivity portfolio with real long-term growth opportunities as we connect more communities nationwide. And speaking of connecting communities, last year, we completed a $2 billion 3-year commitment to help close the digital divide. Through this effort, nearly 5 million Americans benefited from our discounted Internet services and digital literacy programs. We're not stopping there. Last month, we committed to an additional $3 billion with the goal to help 20 million more Americans get and stay connected to affordable high-speed Internet access by 2030. Sound public policy is tremendously important to this effort. We continue to advocate for solutions at all levels of government that are crucial to connecting more Americans and supporting the future of high-performance networking. These include: advocating for a permanent broad-based and sustainable solution to subsidizing Internet connectivity for low-income households; urging the federal government to bring more spectrum to market, which is essential for providers like AT&T to continue delivering an affordable and seamless experience for our customers; and ensuring the broadband equity access and deployment program is administered in a manner that effectively and responsibly invests taxpayer money, stimulates private investment, and drives participation from the nation's most experienced and capable infrastructure providers. U.S. technology leadership has been built on the effective capital allocation and innovation of the private sector, scaled through efficient government partnerships and co-investments. The final steps to connect every American to the Internet should follow the same winning formula. I'm proud of our accomplishments, and I'm confident we have the strategy, skills and asset base to capture the opportunities ahead of us. With North America's largest wireless network, the nation's largest fiber network, no company is better positioned to define the future of high-performance networking than AT&T. I'm grateful for our dedicated employees from our senior leadership team to our union representative employees who share a passion for connecting people to greater possibility. This passion shows in our performance and is underscored by the external recognition we received, including our ongoing inclusion on the Dow Jones Sustainability Index for North America, 4 consecutive years as one of LinkedIn's top 10 companies in the United States to grow your career, being named to Fortune's most innovative companies list. I also want to recognize the invaluable insights and support of Bill, our independent Chairman and our entire Board of Directors. Of course, I'm grateful to all of you, our stockholders, for your confidence in AT&T. We'll continue to be responsible stewards of your capital, build on our momentum to deliver strong returns and strive every day to operate our company in a responsible and sustainable manner. Bill, let me turn it back to you.

Thank you, John. So now we're 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. For any questions of general interest that we don't get to today, we'll post responses on our Investor Relations website within 30 days. And for questions that are specific to individual stockholders, we'll just respond to you directly. Stacey, we're ready for some questions.

Thanks, Bill. Our first question is about our stock price. How does AT&T plan to create long-term stockholder value and deliver better returns?

Thanks, Stacey. And I think as I indicated in my opening, we're driving an investment-led strategy to put the right infrastructure in place that allows us to attract what we think are attractive long-term customers. And we're focused on that to grow both our wireless and our fiber subscriber base and then ultimately capture the value that we can deliver to customers by selling as many combined customers in wireless and fiber as possible. And you're seeing in our operating results that were being pretty good and effective in making that happen. So we're growing the company the right way, frankly, and I feel very comfortable that those investments are sound especially when you see things like our improved churn performance and the high customer satisfaction levels on the products and services we're putting out there. That tells me that we're being successful building those durable relationships I talked about. And if we get down this path of convergence, it drives even clearer benefits, better long-term lifetime values of customers, lower churn levels, higher satisfaction that drives to improve profitability over time. So the formula feels pretty good, and most importantly, we've managed to drive this growth while making the business financially more sound, protecting the dividend, which we're deeply committed to and continuing to grow cash flows. And Bill, I know this is something the Board's spent a lot of time on and paying attention to the stock price. So is there anything you'd like to add to that?

Yes, I agree. I think we're in a very good place. The Board is very pleased with AT&T's strategic focus on 5G and fiber; and frankly, the company's consistent operating results give us a lot of confidence for the future. As a Board, we've analyzed the opportunities in the marketplace as the industry converges, and we continue to believe that, at AT&T, we're making the right investments to drive sustainable growth and create long-term stockholder value. How about another question, Stacey?

Sure. We've been asked to address the industry environment. What are our thoughts on the health of the industry and how do we plan to attract customers?

Well, I would tell you, Stacey, that I feel like we're in a position where the industry structure is actually quite good. We've come off of several years of record investment in telecommunications. And yes, so the policies up to this point have been really strong for creating an industry environment that, I think, is driving significant investment in key infrastructure in the U.S., companies that are delivering better products and services every day to customers with more value. And at the end of the day, I think that's a really important thing for the competitiveness of the U.S. economy and ultimately, the well-being of our broader population. AT&T, in this industry that, I think, has been growing in a very rationable and predictable way, has managed to add over 1.5 million additional subscribers this past year for postpaid voice services. We're now growing actual share of broadband subscribers in the country, which is a big turnaround from where we were several years ago, and the profitability of those customers is really sound. Again, I think it's a good structure in the industry. And when customers stick with us longer, that only helps us consistently invest back in the industry, bring more value to customers and drive profitability over the long haul. So I feel pretty good about where things are. What's your next question, Stacey?

We received a question asking what we're doing to connect more people to the Internet, including low-income and hard-to-reach customers. How is the current regulatory environment affecting those efforts?