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Text: I'm Amir Rozwadowski, head of investor relations for AT&T.
Joining me on the call today are John Stankey, our CEO, and Pascal Desroches, our CFO.
Before we begin, I need to call your attention to our safe harbor statement.
Results may differ materially.
Additional information is available on the Investor Relations website.
And as always, our earnings materials are on our website.
In addition, the FCC Spectrum Auction 110 results have been announced, but we're still in the quiet period, so we're limited in what we can say.
I hope you're all doing well, and a belated happy new year to all of you.
1.5 years ago, we began simplifying our business strategy to reposition AT&T for growth.
As you can imagine, this was a significant undertaking requiring us to not only focus our operational efforts toward growing customers, but also doing so in a manner that set us up for an improved profit trajectory in the coming years.
Simultaneously, we took on the task of structuring our communications, video, and media businesses in a manner that ensures their future success with the right capital structures, access to capital, and most importantly, the ability to drive better returns in a manner consistent with their respective market opportunities.
I'm pleased with the results our teams delivered last quarter, last year, and for the last six quarters while this repositioning was underway.
We finished last year with strong momentum in growing customer relationships, achieving outstanding yearly subscriber growth across Mobility, fiber, and HBO Max.
In Mobility, strong network performance and a consistent go-to-market strategy helped us lead the industry with about 3.2 million postpaid phone net adds.
That's more customers than we added in the prior 10 years combined.
We achieved this growth the right way with full year Mobility EBITDA up about $1 billion.
In fiber, we ended the year with a great build velocity, passing more than 2.6 million additional customer locations.
We added more than one million fiber subscribers for the fourth consecutive year, and full year broadband revenues were up 6.5% as we returned our Consumer Wireline business to revenue growth.
We also surpassed our high-end guidance for global HBO Max and HBO subscribers, adding 13.1 million subscribers in 2021, more than any year in HBO's history.
HBO Max and HBO now reaches a base of 73.8 million subscribers globally.
WarnerMedia is well positioned as a dynamic global business.
In addition to growing customer relationships, we also continue to make great progress in repositioning our operations to be more effective and efficient.
We achieved more than half of our $6 billion cost savings run rate target, which we've reinvested into operations supporting our growth.
This includes simplifying and enhancing our customer experience, which has resulted in higher customer self-service, lower customer churn and greatly improved mobility NPS and industry-leading fiber NPS.
We also continue to rationalize our low-margin Business Wireline services as we reinvest savings into segments that support improving returns.
video assets in Vrio to our pending WarnerMedia transaction.
Together, these and other asset monetizations will generate more than $50 billion, and AT&T shareholders will own 71% of one of the world's foremost media companies in the new Warner Bros.
We also continue to generate meaningful levels of free cash flow, nearly $27 billion in 2021, a number we feel good about when looking at our business after the WarnerMedia transaction.
So to summarize, we did what we said we were going to do last year.
I'm really proud of what our team has accomplished, and we're very pleased with the momentum we have.
Turning the page to this year, we'll be consistent in focusing on these same three operational and business priorities.
Now that our asset disposition initiatives are largely complete, I expect we'll take our execution to the next level.
To that end, we're encouraged with how the process for the WarnerMedia deal is progressing and now expect the transaction to close in the second quarter.
Going forward, we aim to be America's best broadband provider powered by 5G and fiber, and defined by greater ubiquity, reliability, capacity, and speed.
We're confident we can achieve that because in wireless, our focus will be continuing our subscriber momentum while increasing the pace of our 5G deployment.
We're confident in our ability to compete with 5G and our disciplined approach to selectively targeting and taking share in underpenetrated segments of the consumer and business marketplace.
While we're still in the quiet period, I can share that we're very pleased with the results of Spectrum Auction 110.
We received 40 megahertz of quality mid-band spectrum that we can begin to put into service this year, and we plan to efficiently deploy it with our C-band spectrum using just one tower climb.
We're on track to cover 200 million POPs using mid-band spectrum by the end of 2023.
And our network is only going to get better as we effectively deploy our new spectrum holdings.
In wired broadband, we have the fastest-growing fiber network and expect to capitalize on the expansion of our fiber footprint and accelerate subscriber growth.
The best-in-class experience we provide is getting even better with our multi-gig rollout, which brings the fastest Internet to AT&T fiber customers with symmetrical 2-gig and five-gig speed tiers.
This will truly differentiate how our customers experience the Internet.
Coming off an outstanding year with HBO Max, we plan to hand off the business with a strong exit velocity, and we look to further our international momentum and deliver more world-class content for viewers.
When the deal closes, the investments made in both content and HBO Max growth, coupled with strong execution by the team, will ensure Warner Bros.
Discovery is positioned as a leading global media company with the depth of content and the capabilities required to lead in the next era of media.
As we expand our customer base, we'll continue to responsibly remove costs from the business.
We have a clear line of sight to achieving more than two-thirds of our $6 billion cost savings run rate target by the end of this year.
And importantly, we expect the CD savings start to fall to our bottom line beginning in the back half of the year.
Our increased ability to reinvest in our business will fuel growth and allow us to deliver an even better customer experience as we further improve NPS and sustain low churn levels.
As we expand our fiber reach, we'll be orienting our business portfolio to leverage this opportunity and stabilize our Business Wireline unit by growing connectivity with small to midsized businesses.
We also plan to use our strong fiber and wireless asset base, broad distribution and converged product offers to strengthen our overall market position.
We're now at the dawn of a new age of connectivity where customers want more consolidated and integrated offers, and we're well positioned to meet that demand.
Our 5G network is already the best and most reliable.
And it will be enhanced by our accelerated fiber expansion in 5G spectrum deployment, a great reputation for advanced and reliable networking and our expertise to bring it all together for the customer.
We remain laser-focused on reducing debt, and we'll strengthen our balance sheet by using proceeds from the WarnerMedia transaction to achieve a 2.5 times net debt to adjusted EBITDA by the end of 2023.
We also expect to remain a top dividend-paying company after deal close, with a dividend payout in the $8 billion to $9 billion range where anywhere in that range should rank us among the best dividend yields in corporate America.
We're now in the middle innings of our transformation, and the momentum we have is real and sustainable.
We're well positioned post deal close to have a capital structure and balance sheet that puts us in an attractive position relative to our peers.
In addition, we believe it provides us with the financial flexibility to invest significantly in our business and the flexibility to pursue additional shareholder value creation initiatives over time.
We look forward to giving you more detail at our virtual analyst event, which we expect to host in March.
Slide 6 should look familiar.
As our pre-release earlier this month already indicated, we continue to deliver growth in postpaid phones, fiber, and HBO Max.
John just highlighted our full year results.
We're really pleased with them and expect the momentum we've built in 2021 to carry over to 2022.
Let's now take a look at our financial summary on Slide 7, starting with revenues.
Adjusted EBITDA was down 8% for the quarter on a comparable basis.
Growth in mobility was more than offset by a decline at WarnerMedia from the increased HBO Max investment, the new DIRECTV advertising channel arrangements, and lower contribution from basic networks.
Our consolidated operating income results continue to be impacted by certain retained costs from DIRECTV that are in the process of being rationalized.
Apart from WarnerMedia's contributions, our Communications segment EBITDA was up approximately 2% for the quarter.
Adjusted earnings per share for the quarter was $0.78.
In addition to merger amortization, adjustments for the quarter were made to exclude our proportionate share of DIRECTV intangible amortization and a gain in our benefit plan.
For the year, earnings per share was up nearly 7% with strong organic growth in mobility, lower interest, lower benefit costs, and higher investment gains.
We exceeded our free cash flow guidance for the year.
For the quarter, cash from operations was $11.3 billion, spending increase year over year with capex of $3.8 billion and gross capital investments totaling $4.9 billion.
Free cash flow for the quarter was $8.7 billion even with a year-over-year increase of $1.4 billion in capex.
For the full year, free cash flow was $26.8 billion despite an increase in capex of about $900 million and more than $4 billion in higher cash content costs.
Our total dividend payout ratio was about 56%.
This included cash distributions from DIRECTV of $1.9 billion.
Let's now look at our segment operating results, starting with our Communication business on Slide 8.
For the second consecutive quarter, our Communications segment grew both revenues and EBITDA.
A big part of that growth was driven by our increasing strength in mobility, which turned in another solid quarter.
Service revenues were up 4.6% for the quarter and 3.7% for the year driven by postpaid and prepaid subscriber gains.
Postpaid phone churn continues to run at low levels and in fact, hit a record low for the full year.
Our strong subscriber momentum continues with industry-leading postpaid phone growth.
Prepaid also continues to deliver impressive results with phone churn less than 3% and revenues up mid-single digits.
Cricket momentum continues with strong ad and phone churn substantially lower than 3%.
Mobility EBITDA was up more than $300 million, driven by growth in service revenues and transformation savings.
This growth comes without a material return to international roaming and with 3G shutdown costs of about $130 million during the quarter.
We remain on track to successfully shut down our 3G network next month and expect 3G shutdown impacts to peak in the first quarter of 2022 at about $250 million.
In addition, we expect another $100 million of expense in the first quarter associated with investment in our FirstNet operations and the completion of support funding for the CAF II program.
Business Wireline EBITDA margins continue to be stable as we rationalize our portfolio of low-margin products.
This rationalization process will continue in 2022.
And as we lap the beginning of this process, we should see improving revenue trends in Business Wireline in the latter part of 2022.
We believe we're really well positioned in the enterprise space.
And there is an interesting dynamic as public and private networking stock.
We have the account management infrastructure, the consulting expertise and the capabilities to support those businesses through that evolution as converged wireline and wireless solutions become the norm.
At the same time, we're energized by the opportunities that our fiber expansion creates in the small to midsized business segment, and we plan to be more active there going forward.
Turning to Consumer Wireline.
Our fiber customer growth and fiber network expansion continues.
And we continue to win share wherever we have fiber.
We added 271,000 fiber customers even in a traditionally slow fourth quarter.
And our fiber network continues to get even better with our new multi-gig speeds for AT&T fiber.
Driven by our strength in fiber, total Consumer Wireline revenues were up for the third consecutive quarter.
We had sequential EBITDA growth in the fourth quarter.
Segment EBITDA did decline year over year due to a onetime pandemic-related benefit in last year's fourth quarter and higher network costs, including storms in the quarter.
Let's move to WarnerMedia's results, which are on Slide 9.
WarnerMedia revenues were up 15.4%, led by strong content licensing and D2C growth.
D2C subscription revenues grew 11%, reflecting continued success of HBO Max, partially offset by lower wholesale revenues related to the termination of our arrangement with Amazon at the end of the third quarter.
Content and other revenues were up 45%, reflecting higher TV licensing and theatrical releases.
Advertising revenues were down about 13% primarily due to lower audiences with tough comparison to the political environment in last year's fourth quarter.
Costs were up year over year due to a significant increase in programming and marketing, including the international launch costs for HBO Max.
Incremental HBO Max investments for the quarter was approximately $500 million.
The fourth quarter also included the impact of about $380 million in DIRECTV advertising revenue sharing cost.
We also launched some incredible content in the fourth quarter, including the premiere of the hit series And Just Like That and the third season of Succession.
With the production team operating close to full throttle, we expect peak content investment in 2022 with an even stronger release schedule, including Batman, Winning Time: The Rise of Lakers Dynasty and the highly anticipated Game of Thrones prequel House of the Dragon.
Now let's look at our 2022 guidance on Slide 11.
What we're showing you today is a full year view of our consolidated revenue outlook excluding DIRECTV and Vrio from both periods.
Our outlook does include a full year of expected results for WarnerMedia and Xandr.
We also included our full year expectation for WarnerMedia's stand-alone contribution to help you model post close.
We now expect the WarnerMedia Discovery transaction to close in the second quarter.
Given this, we plan to update guidance for Remainco at our upcoming virtual analyst event in March.
Until then, let me walk you through our expectations for the year.
First, we expect consolidated revenue growth in the low single-digit range with wireless service revenue growth of about 3% plus for the full year.
Mobility EBITDA is expected to grow low single digits plus over the course of the year as we continue to take disciplined share of subscribers with attractive long-term value.
As noted earlier, several onetime related impacts such as peaking 3G network shutdown costs are expected to impact year-over-year EBITDA trends in the first quarter.
Consumer Wireline revenues and EBITDA are expected to grow on improving fiber subscriber trends.
However, we expect front-end loaded investments to impact first quarter year-over-year EBITDA trends as we ramp up promotional efforts around our new multi-gig offering.
As noted earlier, we expect year-over-year comparison pressures to ease in our Business Wireline segment through the course of the year.
However, we expect product rationalization to peak in the first quarter, resulting in more pronounced margin pressures in the first part of the year before recovering in the back half of the year.
Consolidated adjusted earnings per share is expected to be in the $3.10 to $3.15 range.
This guidance reflects WarnerMedia's declining contributions due to anticipated investment initiatives, a 200 basis point increase in our effective tax rate and no anticipated investment gains.
We also expect adjusted equity income contributions from DIRECTV to be about $3 billion for the year.
Look for more details on our earnings outlook during our upcoming virtual analyst event.
Gross capital investment is expected to be in the $24 billion range and capital expenditures in the $20 billion range.
Free cash flow is expected to be in the $23 billion range.
That includes expected DIRECTV cash distribution of approximately $4 billion and $2 billion in higher expected cash taxes in 2022, reflecting the expiration of the immediate expensing of R&D and lower limitations on interest expense deductions starting this year.
We expect WarnerMedia's full year contributions when including Xandr to be revenues in the $37 billion to $39 billion range, EBITDA in the $6 billion to $7 billion range, and free cash flow contribution of approximately $3 billion as we expect 2022 to be the peak investment year for HBO Max.
We're now ready for the Q&A.
Operator, we're ready to take the first question.

user
at&t - qtrly earnings per share $0.69; qtrly adjusted earnings per share $0.78; qtrly consolidated revenue $41 billion versus $45.7 billion.
at&t - qtrly mobility service revenues $21.1 billion, up 5.1%; qtrly warnermedia total revenue $9.9 billion, up 15.4%.
at&t - at quarter-end, there were 73.8 million global hbo max and hbo subscribers; qtrly domestic subscriber arpu was $11.15.
at&t - qtrly results that showed continuing customer growth in wireless, fiber and hbo max.
at&t - 271,000 at&t fiber net adds in quarter for consumer wireline.
at&t - expects to close in warnermedia transaction in second quarter.
at&t - for 2022, including warnermedia and xandr, co sees consolidated revenue growth in the low-single digits range.
at&t - for 2022, including warnermedia and xandr, co sees adjusted earnings per share from $3.10 to $3.15.
at&t - for 2022, including warnermedia and xandr, co sees gross capital investment in the $24 billion range.
at&t - for 2022, including warnermedia and xandr, co sees free cash flow in $23 billion range.
at&t - for 2022, co sees revenue contribution for warnermedia and xandr to be in $37 billion to $39 billion range.

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