AT&T Inc. Chief Executive John Stankey on Monday addressed the elephant in the room, admitting he could’ve managed investor expectations — and the business — differently, in the lead-up to the telecommunications company’s last earnings report.
Recall that AT&T’s stock
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suffered a historic one-day selloff — its worst in more than two decades — after the most recent report in April, as the company widely missed expectations with its free-cash flow.
While AT&T’s management indicated prior to the latest report that cash flow in the first quarter would be lighter than in other periods, the $1 billion that AT&T posted ended up being well short of the $3 billion-plus that analysts were modeling.
Stankey told investors at a JPMorgan conference Monday that AT&T’s business has been “changing a lot,” leading to cash flow that’s lighter in the first quarter of the year as AT&T deals with its evolved supply base, market position and investment plans.
See also: AT&T stock’s ‘historic’ plunge baffles Wall Street
But, he admitted, “I was wrong” not to recognize how Wall Street would come to view such a light quarter of free-cash flow, especially in the wake of a guidance cut on the metric a year earlier.
“Clearly, our investor base is not enamored with that lumpiness,” Stankey said at the conference, according to a transcript provided by AlphaSense/Sentieo. “So as a management team, [we’ve] got to step back and ask ourselves, what do we need to do to start architecting the business a little bit differently to accept the fact that investors would like to see a little bit more predictability and ratability around it?”
Stankey acknowledged that investors would acutely remember the recent past, when AT&T ended up having to bring down its full-year free-cash flow expectations for 2022. That’s something management doesn’t anticipate having to do this time around, even with the slower start to the year.
“Probably if I was doing my job right, probably [I] should have stumbled to that earlier and probably should have immediately understood that given what took place in 2022, that people would, without listening to what’s being said or whatever data was put out there, go to a ‘déjà vu all over again’ moment, [and] say, here we are again, we’re just going through this process that occurred in the early part of ’22 to guide down on cash.”
But things are different now for three reasons, according to Stankey. For one, the company’s business metrics are improving, he said.
“Profitability, customer metrics, customer growth, ARPU [average revenue per user] growth, Ebitda [earnings before interest, taxes, depreciation and amortization] growth, the profitability of our largest business, the guide that we’ve given on Ebitda growth of 3% or better, those are all going to drive real improvements in cash flow as we move through the year,” he said.
Plus: “Customers are paying us” and AT&T executives “have every reason to believe they’re going to continue paying us.”
Additionally, AT&T faced steep handset expenditures itself in the first quarter, which come on a lag based on strong handset sales to consumers that took place during the holiday quarter. Given seasonal dynamics and expectations for lower handset demand this year, “we have a pretty good line of sight to know that our handset commitments for the course of the year are going to be down,” Stankey noted.
Finally, he said the company has visibility into capital spending for the balance of the year.
“You don’t just wake up in November and say, ‘Gee, I think I’m going to go spend money in December,’” Stankey said. “You’re making money decisions in May for money that you’re going to spend in November and December.”
