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AT&T Inc.

Q12021

4/21/2021

speaker
Operator
Teleconference Operator

Ladies and gentlemen, thank you for standing by. Welcome to AT&T's first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. If you should require assistance during the call, please press star then zero and an operator will assist you offline. Following the presentation, the call will be open for questions. If you would like to ask a question, please press one and then zero and you will be placed in the question queue. If you are in the question queue and would like to withdraw your question, you can do so by pressing one and then zero. And as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Amir Rozwedowski, Senior Vice President, Finance and Investor Relations.

speaker
Amir Rozwedowski
Senior Vice President, Finance and Investor Relations

Please go ahead. Amir Rozwedowski Thank you, and good morning, everyone. Welcome to our first quarter call. I'm Amir Rozwedowski, Head of Investor Relations for AT&T. Joining me on the call today are John Stanky, our CEO, and Pascal DeRoche, our Chief Financial Officer. Before we begin, I need to call your attention to our safe harbor statement. It says that some of our comments today may be forward-looking. As such, they're subject to risks and uncertainties described in AT&T's SEC filings. Results may differ materially. Additional information is available on the Investor Relations website. And as always, our earnings materials are on our website. With that, I'll turn the call over to John Stankey, John?

speaker
John Stankey
CEO

Thanks, Amir, and good morning, everyone. It's been about six weeks since our Analyst and Investor Day, so the framework for what we'll cover today will be familiar to you. We have a consistent, deliberate, and clear approach to the way we run our business, from our market focus areas to our 2021 priority to grow customer relationships with most U.S. households across these market focus areas, to our capital allocation plans. As you see in our quarterly results, our execution has been sharp and we have momentum. We continue to grow our customer relationships with strong subscriber growth and mobility, AT&T Fiber, and HBO Max. We also continue to invest both in capital spending and in content. Our ability to drive costs out of our business and deliver strong cash flows has allowed us to invest in strategic growth. However, as you can see from the results, we're investing wisely. We've been deliberate and intentional in allocating dollars where they'll generate returns. This supports the future of our business while also optimizing the returns on strategic opportunities across our portfolio. For example, cost transformation efforts in mobility yield improved year-over-year profits while we simultaneously invested to drive customer growth. Same at WarnerMedia, where EBITDA was down slightly, even with significant increased investment in HBO Max. The restructuring and consolidation of our WarnerMedia business is driving cost savings in our studio operations, networks, Salesforce, and technology. Our transformation initiatives across the company are driving efficiencies and freeing up capital to invest in our growth areas. And there's more opportunity ahead of us. Our deliberate capital allocation plan allowed us to invest and sustain our dividend at current levels, which we believe is attractive. We're prioritizing cash after dividends to reduce debt. And we continue to monetize non-core assets as we refine our overall business focus, as you saw us do in the quarter with our announced sale of a controlling interest in DirecTV and our other video assets. Let's look at the progress we made in delivering on our market focus areas on slide four. Our customer growth was impressive across Mobility, Fiber, and HBO Max, and we're doing it the right way with a focus on growing profitability. In Mobility, we added nearly 600,000 postpaid phones in the quarter, our best net ad first quarter in more than 10 years. Our subscriber momentum is strong, and we're taking share. Gross ads are up and our average promotional spend per net ad is significantly lower than a year ago. Our transformation program is enabling us to be competitive. At the same time, we're benefiting from a simplified go-to-market strategy and optimized sales and distribution channels. Mobility EBITDA was up more than 2% and service margins increased 100 basis points despite a 2020 first quarter compare where roaming revenues were largely unimpacted. You put it all together, and I believe this demonstrates the formula works. AT&T fiber net ads were strong and penetration levels continued to expand. We've added more than 1 million fiber subscribers in the last four quarters. IP broadband revenues grew nearly 5% in the quarter. and we're on pace to build out fiber to another 3 million consumer and business customer locations this year. HBO Max continues to deliver strong subscriber gains fueled by the success of our day and date theatrical strategy and our steadily strengthening post-COVID content slate. In the US, we've added more than 11 million domestic HBO Max and HBO subscribers in the last 12 months. It's a premium offer with a premium ARPU compared to other streaming platforms. And subscription revenues in the first quarter grew about 35% globally for Warner Media's direct-to-consumer business. And we're on track to launch HBO Max internationally and introduce an AVOD product in June. Across the board, We're encouraged by our momentum and how our management team is executing against our singular priority to grow customer relationships in our market focus areas. With that, I'll turn it over to Pascal to discuss the specifics of our first quarter results. Pascal, welcome, and the floor is yours.

speaker
Pascal DeRoche
Chief Financial Officer

Thank you, John, and good morning, everyone. Let's begin with our consolidated results on slide six. We started the year with growing revenues earnings and cash flows. Revenues were up from a year ago with gains in mobility and WarnerMedia, more than offsetting declines from video, legacy services, and FX. As a reminder, our communications segment has been recast to exclude our video business. For the quarter, communications EBITDA was essentially flat with the prior year. That demonstrates a marked improvement from the fourth quarter. Adjusted APS for the quarter was 86 cents. That's up more than 2% year over year. We also had a good start to the year with our cash flows. Cash from operations came in at $9.9 billion for the quarter. Free cash flow was $5.9 billion with higher sales of receivables, lower capex, and interest. Our dividend payout ratio was about 63%. CapEx was $4 billion. Growth capital investment was $5.7 billion. In addition, WarnerMedia's total cash content investment across all their business this quarter was $4.5 billion, slightly higher than last year. As we indicated at our analyst day, we are investing in our market-focused areas and we're seeing further validation of our strategy in the first quarter results. Therefore, we edged up our gross capital investment expectations to the $22 billion range for the year. Additionally, we increased our expected vendor financing payments, given our ability to negotiate favorable terms. Let's now look at our segment operating results, starting with our communications segment on slide seven. Mobility continues to lead the way in our communications business. We saw a strong customer growth in our postpaid phone base, growing service revenues, growing EBITDA with expanding EBITDA service margin. And that's with continued headwinds facing our high margin international roaming business that we estimate cost us about $100 million in EBITDA this quarter. Our simple, direct postpaid phone offers continue to resonate with customers. And as John mentioned, our mobility growth ad share is increasing and postpaid phone churn has stayed near record low levels. Cost transformation continues to be a big part of the story for mobility. Our more efficient sales processes and streamlined operations are driving down costs. In fact, our average promotional span per net ads is significantly lower than a year ago. Our cost efforts are also evident in business wireline, Cost management has helped expand EBITDA margins as customers transition away from higher margin legacy services and products. But the product simplification and the resulting cost savings have been key to delivering solid EBITDA. Consumer wireline is another business in transition. We are moving quickly to expand our fiber footprint, and our results show you why that is crucial. We added 235,000 AT&T fiber customers in the quarter. IP broadband ARPU grew 3.2% year over year. Our fiber penetration rate is more than 35% and growing. And total broadband net ads also increased. We expect this to be the trough in terms of year over year EBITDA growth. We expect trends to improve from here, driven by IP broadband revenue growth in the mid-single digits for the year. Let's move on to WarnerMedia, which is on slide eight. WarnerMedia results are the first chapter of what we expect will be a transformational year for the business. Revenues were up nearly 10%. Higher direct-to-consumer subscription and advertising revenues drove the growth. And even with higher customer acquisition and content costs associated with HBO Max and higher sports costs, EBITDA was down only slightly. Advertising revenues were up more than 18% driven by return of sports, especially the NCAA championship men's basketball tournament. Direct-to-consumer subscription revenues grew about 35% reflecting the success of HBO Max. We now have 44.2 million domestic HBO Max and HBO subscribers and nearly 64 million worldwide subscribers. Average monthly revenue per domestic customer is just a little less than $12. And now we have 11 million customers who combine one or more connectivity products with HBO Max or HBO. The same-day release of movies in theaters and on HBO Max has been a success. It has provided theaters with a steady flow of content in a pandemic-challenged environment, and it has also been a great catalyst for subscriber growth at HBO Max. The success of Godzilla vs. Kong at both the box office and on HBO Max bears this out. It had the largest domestic box office of any other movie in the last year, while also having the largest viewing audience of any other film or show on HBO Max since launch. And films such as Godzilla vs. Kong attract new retail customers who are staying because they enjoy other content on the platform. We're really looking forward to the introduction of our international and AVOD products planned for HBO Max later in June. We plan to have attractive price points for our AVOD offering, and we expect to lean into our international launch, reaching 60 additional markets by the end of the year. Our aim is to use our differentiated premium content offering to attract global customers. Now let's go to slide nine for an update on our capital allocation and liquidity. We made our $23 billion C-band Spectrum payments since we last talked to you in March. That drove net debt adjusted EBITDA ratio to 3.1 times. We expect this will be our peak leverage level. We're still on track to have a sizable reduction in debt by year end through a combination of strong free cash flows and proceeds from asset monetization. We'll continue to focus on debt reduction. We expect our net debt adjusted EBITDA to be around three times by year end. We also continue to actively evaluate other asset monetization opportunities. Our Treasury team has also been working tirelessly to lower our cost of debt. Our weighted average cost of debt is down 50 basis points year over year, driving about $150 million in lower interest costs in the first quarter. Our weighted average maturity for debt is 16 years at a weighted average cost of 3.8%. About 90% of our debt is at a fixed rate, so we feel we're well protected in an increasing interest rate environment. Amir, that's our presentation. We're now ready for the Q&A. Thank you, Pascal.

speaker
Amir Rozwedowski
Senior Vice President, Finance and Investor Relations

Operator, we're ready to take the first question.

speaker
Operator
Teleconference Operator

Thank you. As a reminder, ladies and gentlemen, if you'd like to ask a question, please press 1 and then 0. Your first question comes from the line of John Hudlick from UBS. Please go ahead.

speaker
John Hudlick
UBS Analyst

Great. Uh, thanks. Good morning guys. Uh, maybe two questions on the, on the water media side. I mean, you've got 64 million total HBO max subs, uh, and, uh, the AVOD and, and, and international launches coming later this year. And obviously some momentum, certainly more than we thought in the, in the first quarter, I mean, is the 67 to 70 million guide for, for year end. Does that, does that need to come up? And if not, you know, why, why, why do you expect to slow down? And then maybe for Pascal, you mentioned some of the drivers, but we expected a double-digit decline in WarnerMedia EBITDA this quarter, driven by all the content investment in HBO Max. Can you give us some more color on some of the drivers that kept that EBITDA essentially flat? And is that a trend that we can expect through the year, even as the investment ramps? Thanks.

speaker
Pascal DeRoche
Chief Financial Officer

Thank you for your question, John. A couple of things to keep in mind. First, as it relates to our guide, we provided our guide on Investor Day. And obviously, we're really pleased with how the business is performing. But at this time, we're not going to update our guides beyond what we've said already. But we are really pleased with the performance. And I think what you're seeing is we're putting out a really good product and consumers are responding. In terms of WarnerMedia overall, here's the thing to focus on. We've mentioned this several times, but over the course of the last several years, there's been a consistent transformation effort taking out duplicate costs across the organization. So we have combined technology organizations, sales function, content production systems, studios. So all that is what you're seeing coming through is offsetting the investment that we are making in HBO Max. That was the plan. That was deliberate, and that was our objective, and it's coming through. In terms of going forward, I'm not going to comment on what the exact trends are going to be, but Again, we have significant transformation savings that should help subsidize some of the investment we're making. Thanks, Pascal.

speaker
Amir Rozwedowski
Senior Vice President, Finance and Investor Relations

Operator, if we can go to the next question.

speaker
Operator
Teleconference Operator

Your next question comes from the line. Hold on one second.

speaker
Amir Rozwedowski
Senior Vice President, Finance and Investor Relations

I guess we're done. Operator, can we move to the next question then?

speaker
Operator
Teleconference Operator

Your next question comes from the line of David Barden from Bank of America. Please go ahead. Hey, guys.

speaker
David Barden
Bank of America Analyst

Thanks so much. Maybe two if I could. John, you talked at the analyst day about the prospect of accelerating fiber investment based on the success rate that the team had in deploying against the opportunity that they were presented with the $3 million. passings this year, potentially as many as 4 million next year. Could you talk a little bit about kind of what you're seeing on the ground relative to your expectations and how the recent price changes in the fiber business factor into that game plan? And then I guess the second question for Pascal, you know, you effectively lowered your CapEx guidance by boosting your plan to take advantage of vendor financing, but you kept the free cash flow guidance the same, implying lower operating cash flow from a quarter ago. Could you elaborate a little bit on how we kind of square that change in the guidance with what looks like relatively strong performance this quarter? Thanks.

speaker
Pascal DeRoche
Chief Financial Officer

Hey, Dave, let me start with the CapEx question, then I'll turn it over to John. Here's the context to keep in mind. Our first quarter performance was really strong. And typically, as you know, this is the low watermark for free cash flow delivery. And so we're really pleased with how the business is performing and the customer momentum. Rest assured, You should not read into this any more than it is. When we looked at our projections for capital spend, we thought it was appropriate to increase it, but we didn't think at this time of the year, given how early it is, it was appropriate to start to change guidance. We wanted to maintain some flexibility, but we are really comfortable with our free cash flow guidance, and it has not changed in any way as a result of the change that we've made to So there's really nothing more to it than that.

speaker
John Stankey
CEO

Yeah, and I tell you, Dave, just to kind of maybe put a finer point on what Pascal said, one of the things I'm trying to impress upon with the management team is we want to do things the right way and we want to do things in the sustainable way. And I have probably a little bit of a cultural shift. We have a very process-driven organization that's very focused on delivering what we ask them to do. And that's a great strength. But sometimes that means that people are very literal about looking at a number and saying, I will get you that number and maybe don't raise a point that says, if you gave me a little bit of flexibility, I could do something a lot more efficiently or effectively for the next two years. And I'm really trying hard with the management team to help them understand they have the latitude to do the right thing for the long haul and that While we want some consistency in how we run the business, there's a limit to doing that with de minimis returns or diminishing returns. And so with that, I've got to back up what I say to folks. And when they come in and they have compelling ways to think about how we should build or go about deploying, I need to be responsive and ensuring that I give them the latitude to do that. And given the number of things we have underway that we're scaling, including Fiber build as you asked the question of what we're doing around starting to roll into 5g deployment, etc Making sure that we get that latitude in there is really important to me and I think it's important to supporting them on what I'm seeing on the early days of you know I won't even call it the early days what I know about our base on our fiber deployment and what we know about the incremental work is it's you know from an operational perspective and a market perspective all green lights and That's one of the reasons why I'm really comfortable in letting the team run in the way that we're letting them run. And I like what I see in terms of our market position. If you look at things like customer lives, churn, customer satisfaction and net promoter scores, and the actual performance of the product, they're all great. And when you start looking at that, you know there's going to be goodness. And I've told you this before, I've not seen share movement on typical products like this as rapidly as we're able to get share movement once we deploy an area. And I frankly have never seen customer satisfaction levels move up and get to a promoting position in the market as we transition to product as fast as we're seeing. I think both of those things bode really well. As you heard Pascal talk about in the opening remarks, we think we're at kind of the bottom of our EBITDA compare. A lot of that is actually being driven by our strategy to start attaching content to broadband. That's been really good in terms of driving those customer lives up. It's driving churn down. It's driving engagement and satisfaction levels higher. We're going to get the benefit of that over the customer lifecycle. And as we start to lap that, you're going to start to see our EBITDA dynamics start to creep back up to where we want them. So I feel really good across the board.

speaker
Amir Rozwedowski
Senior Vice President, Finance and Investor Relations

Thanks very much. Operator, if we can move to the next question.

speaker
Operator
Teleconference Operator

Your next question comes from the line of Simon Flannery from Morgan Stanley. Please go ahead.

speaker
Simon Flannery
Morgan Stanley Analyst

Thank you. Good morning. John, can you talk a little bit about the plans for the C-band spectrum? What are you doing in the marketplace today? When do you expect to get the initial markets rolled out? And is that what the extra billion dollars is going on? Is that part of the $6 billion to $8 billion you called out? So any updates around the timing there would be great. And I think you just mentioned on CNBC around your interest in the 3.45. Perhaps you can expand on that. Thanks.

speaker
John Stankey
CEO

So, Simon, we gave you the POPs coverage guide at the analyst day, and we haven't changed any of that. Now, even without changing the pace and rate of where we are on C-band deployment, which, you know, will begin turning markets up late this year, That doesn't mean that in things that we're doing today that can help the 2022 build that we wouldn't make some decisions on deployment. And that is an aspect of some of this, the capital dynamic we described, but it's not the aspect. There are a variety of things that are playing into it. That's one of several. And so, you know, as we time certain things, The aggregate amount may be the same, but there's things that we can do today as we're touching towers and doing things in parts of the infrastructure that, for example, maybe aren't going to be in service until later in 22 that we could do a little more efficiently to pre-provision some things and not go back and touch them a second time. So some of that ordering is a dynamic that we're trying to drive through. I've told you I don't expect that there's going to be any change right now in our deployment plans and the growth from the guidance that we gave you five weeks ago. We'll see as we get into this a little bit deeper. As usual, we're in that cycle where technology is relatively new. Vendors have commitments. We're waiting on specific units. You know, global supply chains are stressed right now across the board. And you ask the question and you do the work and people will give you comfortable answers. But I'm a little skittish. I mean, we're seeing dynamics that are occurring in the global supply chain where unexpected things are popping up. And is it possible that we could see certain element shortages that start to crop up as everybody's racing to put stuff up on towers in May? And that's why I want to be a little bit cautious around guiding up or doing anything different until we get a little bit of momentum around that. In terms of where we are on the 3.45 end-of-year DoD auction, look, I believe that there could be an opportunity there. We're going to watch it carefully. We've always participated in any spectrum auction that comes forward or looked at it and said, does it make sense for the portfolio? And we can see some things that if the valuations are sound valuations, that makes sense for our business. I will tell you in the guidance we've provided you over the next several years, we have plugged in an expectation that we will be in Spectrum Markets as we guide down to our 2.5 debt to EBITDA level that we projected for you in 24. And so I expect within that plan, we're going to be looking at it and saying, do we like the valuations and does it make sense? And we do believe some of that spectrum could fit into our network portfolio and be helpful to us down the road if the auction is done in the way we think it's going to be done. Great. Thank you.

speaker
Amir Rozwedowski
Senior Vice President, Finance and Investor Relations

Thank you, Simon. Operator, if we can move to the next question.

speaker
Operator
Teleconference Operator

Your next question comes from the line of Michael Rollins from Citi. Please go ahead.

speaker
Michael Rollins
Citi Analyst

Thanks, and good morning. Two questions, if I could. First, Just curious if you could share more details on the customer engagement levels that you're seeing on the HBO Max platform to gain a better understanding of how customers are using the platform after the initial reason to purchase the service or activate onto the application. And then secondly, just curious if you could also provide some context on the customer verticals that are contributing to the improvement in the wireless postpaid subscriber growth and if you're seeing any impact or change to your growth or growth expectations from some of the recent promotional changes of your competitors. Thanks.

speaker
John Stankey
CEO

So, Mike, let me give you kind of – we're not going to give you any more guide publicly on the hours of engagement than what we gave you at Analyst Day. I don't want to get into kind of a, you know, every five-week update on those numbers. I think we gave you a good sense of of what's happening and our satisfaction that we're well up over two hours per day per account and I think that's a really good place to be and it certainly is probably higher than our engineered expectations when we launch the product and we'll take that goodness. The behaviors of what customers are doing really I don't think are dramatically different than what you would see on any other SVOD service. As Pascal mentioned, We clearly have a good reason for them to come in, and we're seeing in the customer data that many are opting to come in because of the theatrical slate opportunity. And credit to the team, they've done a remarkable job not only of engineering that strategy and executing it and carrying it through, and it's playing out exactly as we kind of laid out for you when we said we wanted to do it in terms of the mix. We've got more of the year to get through to see what that balance is between theatrical revenues versus SVOD, but when you look at the customer growth on SVOD and you see some of the early data coming back on movies like Kong versus Godzilla in the theater, I think you can all see that there's probably a pretty compelling rising tide lifting all boats in this case, and we feel was the right call for the moment we were in with the pandemic. and really comfortable about that. And that drives customer exploration of the product. And once they come in, they do what they do with any other SVOD service. They go to our high value series. So any of the new scripted series content that we have out there, HBO Originals, HBO Max Originals, they go for the high profile ones and they start to engage on those. And then, you know, guess what else they do? They dig deeper into the library. And there's workhorses in the library, depending on the demographic of the individual, that tends to sustain them around. And because of the good job of marketing the slate for the movies, I think what we're seeing is evidence that they say, well, gosh, I'm now into it two, three weeks, and I know there's another one coming next month that I want to see. I'm sticking around. And so our churn expectations have been consistent with what we expected moving in. And so I think it's just the classic approach to managing any SVOD service, although we're playing to our strengths and how we're tiering the content, and we're using theatrical maybe a little bit more heavily than other services might use because that's one of our strong suits, and it always has been with the strength of HBO and the theatrical slate that HBO offered in the core product. On the wireless side, I've said this before, I don't want to sound like a broken record, but part of our strength is that we're really able to cover the waterfront on some of the verticals in our distribution strategy, and in particular, you know, we've been particularly strong in using our enterprise business and our business sales force in not only selling into business segments, but ensuring that affinity plans in those areas can reach customers and their families at home for being part of that business that we sell to. The strength of FirstNet, which has opened up a vertical that we were under indexed in and share, and we're seeing really attractive share growth. And again, there's an affinity characteristic that occurs within that vertical. It's not only an affinity characteristic among coworkers, but we've managed to ensure that if somebody chooses to come on for the purpose of their work as a first responder, that they have a lot of incentives to maybe drag their family through that experience with attractive pricing and approach. We continue to be strong in our traditional verticals with our iOS-centric customer base, which tends to scale at what I would call the better part of the postpaid market. And we haven't lost any edge there. In fact, we've been a little bit stronger. And I would tell you, I think we still have room to run. I think we're probably under-indexed in a couple of verticals, especially if we start looking at the Hispanic community that we can do a little bit better in and how we position our brand and our product. And the team is focusing on those areas. So my point of view right now is our momentum is continuing. We're doing better, as you can see from the results. We still have a couple cards to play to try and sustain that. We've been very consistent in the market with a repetitive offer quarter after quarter. You're correct. We have seen our competitors continue to try to compete aggressively. They're mixing and changing their offers pretty frequently. we seem to be very consistent and very stable and that's a really good place for us to be and we're going to continue to play our game thanks operator if we can move to the next question your next question comes from the line of phil cusick from jp morgan please go ahead thanks john following up on wireless you talked last year about investing in the base

speaker
Phil Cusick
JP Morgan Analyst

How do you see the upgrade and retention outlook for the next few quarters? You've upgraded a lot of the base. Do you think there's just less need for new phones going forward? And second for Pascal, I believe with lower churn, you extended the life of wireless customers. Can you give us an idea how much that may have helped wireless EBITDA year over year?

speaker
John Stankey
CEO

Yeah, Phil, you know, it's hard to predict exactly where the ebbs and flows of the subscriber base goes. It's been fairly consistent and I expect it's going to remain pretty much on this pattern. The pattern that we would expect, given it was a new device launch, is it tapers off a little bit in the middle part of the year after you get through the bubble, immediately following a new device launch. And then, you know, as you get into the second part of the year and you get into the holiday season, it'll kick back up. But as I said, We have given you guidance that we think is consistent with the volumes that we're experiencing right now. We're really comfortable with where we're at. As we told you, you're going to see service profitability bounce back, and you're seeing EBITDA grow in the segment. We're very comfortable. We'll continue that trajectory. So I'll take the customer growth, and we can get that dynamic moving in the direction it's at. I feel really good about it. I don't think I'm going to guide you to suggest that there's going to be any dramatic shift one way or the other over what you're seeing right now on our direction.

speaker
Pascal DeRoche
Chief Financial Officer

And, Phil, a couple points. First, just to follow on him, John, the thing to keep in mind is, look, we saw not only customer momentum, we saw revenue gains as well as profitability gains in mobility. So the strategy is working, and we feel really good about it. As it relates to your question on customer lives, here's the context. Overall, this is something we do on a regular basis. We change lives of assets based on the most recent information we have. The net effect of changing lives this quarter was slightly negative to earnings. For wireless, it was positive. For consumer wireline, it was positive. direct TV assets, it was negative. So our balance, it was negative, and it was not significant by any stretch. And we disclosed that in our AK.

speaker
John Stankey
CEO

Makes sense. I think you'd expect to see a little bit of extension of wireless-wise with churn taking the direction it's taking. Seven handles on postpaid churn is rarefied error.

speaker
Phil Cusick
JP Morgan Analyst

Yeah. Agreed. Pascal, if I can follow up on a question earlier. I'm just getting a lot of incoming that where people are of two minds. Can you spoon feed us on the free cash flow versus increased vendor payments versus capex? I think there's a lot of misunderstanding about what are you spending and that's this year. What are you paying back for in previous years? And you mentioned also something about higher confidence, so higher spending as well. Can you just go deeper in that?

speaker
Pascal DeRoche
Chief Financial Officer

And Phil, as you know, we have a metric out there, a non-GAAP metric that's called gross capital investment. That is the sum of cash that we pay for CapEx plus amounts we pay to vendors for financing related to CapEx that don't flow through free cash flow. I will tell you that much of the time, those vendor financing payments don't necessarily relate to in-year purchases of CapEx, but relate to prior year. But it's a measure that we've historically provided as just another data point for people to consider. Overall, your takeaway should be from our free cash flow and from the guides we have out there. One, we intend to continue to fully invest in our businesses. Two, We expect to generate free cash flow at the levels that we've got it to, and we feel really good about the trajectory and being able to accomplish that based on where we are today. Thanks, Gus.

speaker
Operator
Teleconference Operator

Operator, we can move to the next question. Your next question comes from the line of Brett Feldman from Goldman Sachs. Please go ahead.

speaker
Brett Feldman
Goldman Sachs Analyst

Yeah, thanks for taking the question. I was hoping we could spend some time on the Avot product that will be launching this summer. Can you elaborate a bit on who you see as the addressable market for that offer? In other words, who do you think you can reach with the AVOD service that you aren't currently reaching with Max? And then how do you intend to reach those consumers? Do you think you'll be as efficient leveraging your existing channels as you have with HBO Max, or do you think you're going to need to broaden out and work with new partners as you bring that service to market? Thank you.