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AT&T (T) Q3 2014 Results – Earnings Call Transcript

AT&T Inc. (NYSE:T) hosted a conference call with investors and analysts to discuss Q3 2014 earnings results on October 22, 2014 at 4:30 p.m. ET. The following are the webcast audio and the associated transcript of the event…

AT&T Inc. (NYSE:T)

Q3 2014 Results Earnings Conference Call

October 22, 2014 04:30 PM ET


Michael Viola – Senior Vice President of Investor Relations John Stephens – Chief Financial Officer


Mike McCormack – Jefferies

John Hodulik – UBS

Joe Mastrogiovanni – Credit Suisse

Simon Flannery – Morgan Stanley

Brett Feldman – Goldman Sachs

Phil Cusick – JPMorgan

Jennifer Fritzsche – Wells Fargo

David Barden – Bank of America

Amir Rozwadowski – Barclays

Jonathan Chaplin – New Street Research

Mike Rollins – Citi Investment and Research


Ladies and gentlemen thank you standing by. And welcome to the AT&T Third Quarter Earnings Release 2014 Conference Call. At this time all participants are in a listen-only, later we will conduct a question-and-answer session and instructions will be given at that time (Operator Instructions).And at this time I will turn the conference call over to your host, Senior Vice President of Investor Relations for AT&T Mr. Michael Viola. Please go ahead sir.

Michael Viola – Senior Vice President of Investor Relations John Stephens

Thank you, Tony and good afternoon everyone. Welcome to our third quarter conference call. It’s great to have you with us today. I’m Mike Viola, Head of Investor Relations for AT&T. Joining me on the call today is John Stephens, AT&T’s Chief Financial Officer. John will provide an update with the perspective on the quarter and then we’ll follow that with a Q&A session.

Let me remind you our earnings material is available on the Investor Relations page of the AT&T website and that’s I first need to draw your attention to our Safe Harbor statement before we begin which says that some of our comments today maybe forward-looking. As such they are subject to risks and uncertainties, results may differ materially. And additional information is available on the investor relations page of AT&T’s website. I also want to remind you that we are in the quite period for FCC Spectrum Auction 97 and AWS-3 Auction so we cannot address any questions about Spectrum today. So with that overview, I now turn the call over to AT&Ts Chief Financial Officer, John Stephens, John?

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John Stephens

Thank you, Mike. And hello everyone. Thank you for joining us today and we always appreciate your interest in AT&T. Before we report out on our quarterly results, I’d like to update you on Project VIP in the longer term view of our business transformation.

We’ve been focused on building ultra fast, video centric networks and providing mobile connectivity to any device, anywhere our customers needed. I am pleased to say we have made great progress. It’s been nearly two years since we first announced our VIP initiatives and our plans to transition to IP networks. Basically, we are doing everything we said we are going to do and more.

We reached our 4G LTE build target in the third quarter four months ahead of schedule. The nation’s most reliable LTE network now covers more than 300 million people. We continue to improve our self identity and add capacity to help keep our network best-in-class. We are also on pace with our wireline network goals. Our high-speed IT broadband network now reaches 57 million customer locations. About two thirds of our U-verse video footprint now has access to 45 megabit per second speeds.

We also continue to make progress on expanding our U-verse video footprint and we committed to deploy ultra fast AT&T GigaPower service in 17 markets. Our fiber to the business expansion also is going strong. We now pass more than 600,000 new business customer locations with fiber, well on our way to our one million goal.

The transformation of our customer base also continued in the quarter. Two years ago when we first introduced Project VIP less than half of our broadband customers had high speed IP broadband. Now a significant part of that transition is complete with nearly three quarters of our base on high speed U-verse broadband. And our strategic business services are on track to be nearly 30% total wireline business revenues by the end of this year.

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The transition in wireless is just as dramatic. There has been a steady shift of our subscribers to usage based plans; more than 80% of our smartphone base is now on usage-based plans. At the same time, mobile share value has helped move customers off the traditional subsidy model. We also have launched new business opportunities that will leverage our investment in a high speed networks.

The connected car is ready to take off. In the third quarter alone we added more than 500,000 connected cars as the 2015 model start to roll off the assembly lines. Digital Life, the first all-digital all-IP home security and automation platform has launched in 82 markets and has about a 140,000 subscribers. And AT&T has completed a Network On Demand trial in Austin that will enable companies to easily order, add or change services on their own in mere real time. A commercial roll out of Network On Demand enabled Ethernet services is expected in Austin by the end of this year.

Our financial strength allows us to invest while still returning substantial value to shareholders; in fact since 2012 we have returned more than $50 billion to shareholders through dividends and share buybacks. Cash flows are strong and we have been aggressive in monetizing non-strategic assets. Including the sale of our Connecticut wireline property we have generated about 16 billion in cash proceeds from asset sales.

This has helped us average nearly $20 billion a year in free cash flow and asset sales over the last two years and we expect to do the same this year in 2014. At the same time we’ve kept our financial house in order by funding a pension plan, making significant working capital improvements and taking advantage of historically low interest rates.

This is the heavy lifting our employees are doing everyday that you don’t always notice in the quarterly numbers. We are just managing for the short term or managing and investing for the long term. Now with that view, let’s take a look at third quarter results starting with our financial summary on slide four.

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Consolidated revenue grew to $33 billion up $800 million or 2.5% year-over-year. This was driven by continued wireless growth as we repositioned our business model, solid consumer wireline growth, once again led by U-verse and continued growth in strategic business services.

Reported EPS for the quarter was $0.58. In the quarter we had $0.03 of cost associated with merger and integration related expenses. We also redeemed some debt early in the quarter to take advantage of low interest rates; both reductions in cost had a $0.02 impact on the quarter. When you exclude these items earnings per share were $0.63 compared to an adjusted $0.66 a year earlier.

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