AT&T Inc.

Ladies and gentlemen, thank you for standing by. Welcome to AT&T's second quarter 2022 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 1 and then 0. As a reminder, this conference is being recorded. I would like to turn the conference call over to our host, Amir Rozwedowski, Senior Vice President of Finance and Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to our second 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 CFO. 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. I also want to remind you that we are in the quiet period for the FCC Spectrum Auction 108. So unfortunately, we can't answer questions about that today. And as always, additional information and earnings materials are available on the Investor Relations website. With that, I'll turn the call over to John Stanky.

John? Thanks, Amir, and good morning, everyone. Thank you for joining us today. Last quarter, I shared that AT&T had entered a new era with the right asset-based capabilities and financial structure to become America's best broadband provider. I'm happy to share this morning that we're continuing our progress, improving our infrastructure, and expanding our customer base across our twin engines of growth, 5G and fiber. We saw historic levels of second quarter net additions thanks to our disciplined and consistent go-to-market strategy and solid execution building fiber and deploying our mid-band 5G spectrum assets. In mobility, we brought in the most second quarter postpaid phone net ads in more than a decade, just like last quarter, building on our momentum from 2021. It's noteworthy that we sustain this momentum in a highly competitive environment. Industry growth in the first half of 2022 has been stronger than the expectations I shared with you late last year. In our view, this strong performance reinforces that our success is not solely promotion-led, but instead reflective of our improved value proposition in the market. Even though better-than-anticipated customer growth metrics resulted in some higher-than-expected success-based investment, ARPU and profitability in 2Q improved, and we expect that trend line to accelerate in the second half of the year. As Pascal will discuss shortly, we're in fact increasing our service revenue growth guidance for 2022. In Fiverr, we continue to invest in building out a premium network, drive a great build velocity, and deliver on our stated expectations for accelerated customer growth through improved penetration rates. We're finding success in serving more customers in new and existing markets with what we believe is the best wired internet offering available. This is evidenced by our more than 300,000 second quarter AT&T FiberNet ads marking our 10th straight quarter with more than 200,000 FiberNet ads. The strength and value of the AT&T Fiber experience is enabling us to increase share in our fiber footprint and convert more IP broadband internet subscribers to fiber subscribers. Ultimately, Our fiber strategy is a sustainable and long-term technology play that will support key macro trends. We expect to see a continuation of favorable ARPU trends as we expand the availability of what we believe is a best-in-class network with a multi-decade lifespan. So I'm very pleased with the strong customer growth we're seeing. Our success only reinforces the improved value proposition we're providing. We expect our investment in top-tier technology to translate into strong resiliency for our services for years to come. Over the last eight quarters, we've achieved an industry-best 6 million postpaid phone net ads, while adding nearly 2.3 million AT&T Fiber customers, increasing our Fiber subscriber base by more than 50%. I'm also very proud with the progress our teams have made in rapidly expanding our 5G and fiber footprints. I'm pleased to say that we've achieved our target of covering 70 million mid-band POPs two quarters ahead of our year-end target and are now on track to approach 100 million mid-band POPs by the end of this year. Our expanded consumer wireline fiber footprint now gives us the ability to serve 18 million customer locations. This is an increase of nearly 2 million from the start of the year. Our teams are running hard to deliver these world-class services to our customers. We expect our commitment to investing in our core connectivity networks to serve as the foundation for AT&T's growth for decades to come. Moving to our second major priority, it's more important than ever we be effective and efficient across our operations. The dispositions we executed over the last two years provide us with operating flexibility to adjust as needed to what is proving to be an increasingly pressured economic backdrop without requiring us to materially compromise on our investment priorities and financial obligations. We have strong visibility on achieving more than $4 billion of our $6 billion transformation cost savings run rate target by the end of this year. As we shared before, we've initially reinvested these savings to fuel growth in our core connectivity businesses. However, as we enter the back half of this year, we expect these savings to start to contribute to the bottom line. As you're likely aware, we're taking proactive measures, such as selective pricing adjustments, to address as much of the very real inflationary pressures that are clearly impacting all parts of our economy. The pricing strategy we implemented is being executed in a proactive and methodical way that enables some of our longest standing customers the opportunity to take advantage of our most robust offers while also ensuring that we're responding to the real-time cost pressures in our business. I believe we've navigated this difficult reality effectively and thus far are seeing results that are consistent with our expectations, although not sufficient to cover all inflationary impacts. Last quarter, I shared that we're seeing inflationary pressures, and we estimate those to be more than $1 billion above the elevated cost expectations embedded into our outlook. We're clearly operating in different times and the macroeconomic backdrop is evolving in a dynamic manner. Still, we're confident in our ability to emerge from this chapter a stronger company, thanks to our position as one of the world's largest scaled telecom operators, our improved underlying financial flexibility, the cost reduction initiatives we have in place, the essential nature of the services we provide, and our pricing actions that help partially offset these impacts. With that said, the current environment is not easy to predict. We're seeing more pressure on business wireline than expected, and on the consumer side of our business, we're seeing an increase in bad debt to slightly higher than pre-pandemic levels, as well as extended cash collection cycles. However, it's important to note that historical patterns in previous economic cycles suggest customers have managed their accounts similar to what we're experiencing today. In fact, we feel even better about the resiliency of our services given the elevated importance of connectivity in everyone's lives. We view this cycle no differently and still expect customers will pay their bills, albeit a little less timely. Furthermore, as I mentioned before, we feel better about our underlying financial flexibility than we have in quite a while. This is why we're confident we can maintain our focus for growth over the long term by investing in the future of connectivity through 5G and fiber. It's our belief that near-term cyclical economic uncertainty does not warrant a retrenchment in the deployment of long-lived assets. The long-term economic justification for these investments remains sound, and timing of the market development supports our intent to invest through this cycle. Importantly, we maintained our focus on paying down debt, with the $40 billion in proceeds from the completion of the WarnerMedia discovery transaction in April helping us to significantly reduce our net debt in the quarter. I'd also like to touch on free cash flow directly. While free cash did come in lower than we expected this quarter, there were several notable factors that drove this. The first is the timing of higher success-based investments on the back of our robust customer growth. Additionally, we front-end loaded our capital investment plans in order to kickstart our growth initiatives. We expect these plans to seasonally moderate through the course of the year as we achieve our $24 billion capital investment plan, and I'm pleased we've been able to effectively manage our supply chain and front-end load some of our work this year. In addition to these investment-driven impacts, we're seeing some longer collection cycles and inflationary costs that we've not been successful in fully offsetting. These cash flow impacts, along with expectations for a more tempered economic climate in the latter half of the year, have led us to adjust our cash flow expectations for the full year, even with our expected material improvements over the next two quarters. The key takeaway is that we understand the emerging economic pressures on our business and feel confident in our ability to manage through them while at the same time investing for the long-term benefit of our customers and shareholders. While we're not immune to the pressures impacting the broader economy, the repositioning of our business to focus on core connectivity solutions The underlying financial flexibility achieved through a significant reduction of our debt and the ability to invest in access technologies built for the long term allows us to opportunistically maneuver through this economic climate. Finally, I want to take a moment to discuss our business wireline unit and our focused efforts to reposition the asset. There is a sizable base of business revenue coming from legacy voice and data services This business is increasingly facing secular pressures as customers replace traditional voice services with mobile and other collaboration solutions. On the data front, VPN and legacy transport services are being impacted by technology transitions to software-based solutions. Today, approximately half of our segment revenue comes from these types of services. Last quarter, we shared that we're experiencing additional government sector pressure related to the reallocation of spending priorities. This pressure tied to the timing and restructuring of government spending continued in 2Q. While we're hopeful that some spending will return and the enterprise infrastructure solutions contract volumes and share gains will offset pricing reductions over time, we consider it prudent to reset expectations. It's worth noting that approximately 20% of the year-over-year business wireline revenue declines in the second quarter were due to government spending impacts. Lastly, we saw inflation and wholesale network access charges we incur to provide services to customers outside of our footprint due to contractual resets. This cost pressure resulted in more than 20% of the segments year over year EBITDA decline. This pressure will be managed through opportunities to operate more efficiently, movement of traffic to alternate providers, symmetrical wholesale pricing adjustments, and natural product migration trends. Looking ahead, these developments only strengthen our resolve in executing our transformation. including actions to accelerate cost takeouts and simplify our product portfolio. We expect these actions to mitigate the year-over-year pressure in this segment's profitability over time, but we now expect business wireline EBITDA declines in the low double digits this year and our expectation for stabilization extends to the back half of 2024. However, we remain confident in our efforts to reposition the segment. The deployment of fiber is leading to an acceleration of growth each quarter in our connectivity solutions, which delivered close to 15% growth this quarter. Our fiber expansion also provides us with the ability to gain market share in S&B, which is an under-penetrated segment for us. Moreover, We continue to utilize our business relationships to expand opportunities and mobility. Since last year, we've taken more than one full point of share in the business mobility space. Our focus on fiber and 5G continues to gain traction, and we expect to use our strong enterprise and growing SMB relationships to take advantage of opportunities as they expand. We know this transformation won't happen overnight, but similar to our turnarounds in mobility and consumer wireline, we're confident we have the right strategy in place and in our ability to execute it successfully. I'll now turn it over to Pascal to discuss the details for the quarter. Pascal?

Thank you, John, and good morning, everyone. Let's start by taking a look at our subscriber results for our market focus areas on slide five. As John mentioned, our consistent and disciplined go-to-market strategy continues to resonate with customers. In the quarter, we had a remarkable 813,000 postpaid phone net ads, our best second quarter in more than a decade. Looking at Fiverr, we had 316,000 net ads as we delivered upon our expectations to accelerate our subscriber growth. Our Fiverr deployment plans remain on track, and we expect to continue our solid momentum with customers. Now let's move to our second quarter consolidated financial summary on slide six. First, it's important to note with the closing of the WarnerMedia transaction in April, historical financial results have been recast to present WarnerMedia and certain other divested businesses, including Brio, Sander, and Playdemic as discontinued operations. While continuing operations provide a clearer view of our remaining operations, keep in mind that there continues to be some year-over-year comparative challenges as the prior year results also include direct TV and certain other dispositions. Therefore, where applicable, I will highlight our financial results on a comparative, like-for-like basis in addition to continuing from operations. Comparative revenues for the quarter were $29.6 billion, up 2.2% or more than $600 million year-over-year. This was largely driven by wireless revenue growth and, to a lesser extent, higher Mexico and consumer wireline revenues, partially offset by declines in business wireline. Comparative adjusted EBITDA was up 1.7% year over year as growth in wireless, Mexico, and lower corporate costs were partially offset by business wireline declines. We continue to expect the year over year EBITDA trend line to progressively improve through the year as we begin to lap 3G shutdown costs and stepped up investments in technology that began in the second half of 2021. Adjusted EPS from continuing operations for the quarter was 65 cents. On a comparative standalone AT&T basis, adjusted EPS was 64 cents in the year-ago quarter. Adjustments for the quarter were made to exclude a gain in our benefit plans non-cash restructuring and impairment charges, and our proportionate share of direct TV and tangible amortization. Cash from operations for our continuing operations came in at $7.7 billion for the quarter. Capital investments of $6.7 billion was up $1.7 billion year over year. Free cash flow was $1.4 billion. Direct TV cash distributions were $800 million in the quarter. Cash flow for the quarter was affected by several key factors. First, as expected, we had higher front-end loaded capital investments as we ramped our fiber and 5G mid-band spectrum deployment. As John already noted, we expect lower capital investment levels in the back half of the year in line with our expectations of $24 billion. The second is the timing of consumer collections, as it's taking about two more days than last year to collect customer receivables. The impact of this is almost $1 billion for the quarter. The last item is some incremental success-based investments, including device payments tied to accelerate subscriber growth. Now, let's take a deeper look at our communication segment operating results, starting with mobility on slide seven. Our mobility business continues its record-level momentum. Revenues were up 5.2%, with service revenues growing 4.6%, driven by subscriber growth. Mobility post-paid phone offer was $54.81, up 81 cents sequentially, or 1.1% year-over-year. This is ahead of our prior expectations for stabilizing in the second half of the year. This improvement is largely a result of more customers trading up to higher price on limited plans and improved roaming trends. Our June pricing actions were a modest benefit as well, but given the timing of the increases, we would expect our pricing actions to be a larger factor in the back half of the year. Given our expectations for ARPU, we now expect service revenue growth of 4.5% to 5% per year. That is up from our previously stated expectations of 3% plus. Mobility EBITDA increased 2.5% year-over-year despite an approximately $100 million impact from lower cap to government credits and higher first net costs. We also had around $130 million of higher bad debt expense during the quarter. While bad debt is now slightly higher than pre-pandemic levels, it is being offset by better than expected customer revenue growth. We remain confident that mobility adjusted EBITDA growth accelerates in the second half of the year due to revenue growth and the lapping of 3G shutdown investments that began in the second half of 2021. Again, our customer growth performance was better than we expected, especially when you consider we became less active in promotional activities compared to others in our industry. So it's clear to us. that the strategic change we made to simplify our go-to-market strategy two years ago continue to yield great results and that our value proposition is resonating in the marketplace. Now, let's turn to our operating results for consumer and business wireline on slide eight. Our fiber growth was solid as we continue to win share where we have fiber. Our total consumer wireline revenues are up again this quarter, even with declines from copper-based broadband services. Our broadband revenues grew 5.6% due to fiber revenue growth and higher broadband ARPU driven by a customer mix shift to fiber and recent broadband pricing actions. Our fiber ARPU was $61.65, up 5.3% year-over-year, with gross addition intake ARPU in the $65 to $70 range. We expect overall fiber output to continue to improve as more customers roll off promotional pricing and onto simplified pricing constructs. We accelerated our fiber footprint build and now have the ability to serve 18 million customer locations with great AT&T fiber experience that consistently receives high net promoter scores. As you heard at analyst day, Our plans center on pivoting from a copper-based product to fiber, and we're doing just that. We continue to expect EBITDA growth to accelerate through the remainder of 2022, driven by continued growth in broadband revenues and the lapping of technology investments that began in the second half of 2021. Looking at business wireline, as John stated, revenues and earnings came in lower than we expected. There are two main factors that are driving the shortfall to our expectations. The first is lower revenue than anticipated from the government sector. The second is inflationary pressure on wholesale network access costs. On a combined basis, these two factors accounted for about $100 million in EBITDA pressure year over year. While the business wireline transition and portfolio rationalization creates incremental pressure on near-term revenues, it underscores the importance of transitioning to our own and operated connectivity services as well as growing 5G and fiber integrated solutions. In fact, our connectivity services revenue growth continues to accelerate as we are up nearly 15% year over year. Both areas, business 5G and fiber, continue to perform well with business wireless service revenue growth of 7.4% and a sequential increase in our first net wireless base of more than 300,000. Before we shift to questions, I want to provide you an update on how we are thinking about the rest of the year, given the dynamic macro environment we're operating in. As I mentioned previously, we like the momentum in our mobility business, both on a service revenue and EBITDA basis. While we maintain expectations that 2022 industry post-pay phone demand levels are unlikely to replicate 2021, the strength we experienced in the first half of the year, coupled with better output trends, give us confidence in our raised service revenue outlook and expectations for an improved EBITDA trajectory. On consumer wireline, we are largely trending on plan given mix shift to higher ARPU fiber plans, which is driving both revenue and adjusted EBITDA growth. On business wireline, you know the near term challenges we are facing, which reduces our expectations. We now expect business wireline to decline in the low double digit EBITDA range for the year. Putting this all together, we remain comfortable in our ability to deliver revenue, adjusted EBITDA, and EPS within our prior guidance ranges for the year. Moving to free cash flow. Given the combination of elevated success-based investment, the potential for further extension of payments by our customers, inflation, and the more challenging environment facing our business wireline unit, we consider it prudent to take a more conservative outlook to free cash flow for the year. Given these factors, we anticipate pressure of about $2 billion to our free cash flow guidance from our prior $16 billion range for the year. Now, before the questions on how we get to the implied $10 billion of free cash flow in the second half of the year when we generated $4 billion in the first half of the year, let me provide you with some specific items to consider. Our outlook reflects the following expectations. $3 billion plus lower device payment versus the first half of the year due to timing. Nearly $2 billion lower capital investment versus the first half of the year as we reach our $24 billion expectations for the full year. The balance of the improvement relative to the first half of the year is due to wireless customer growth, including our recent pricing increases and lower cash interest expense. We expect these benefits to be partially offset by reduced distributions from direct TV and our expectations for incremental tax payments in the second half of the year. However, we do expect full year tax payments to be lower than we previously anticipated. Additionally, we expect typical free cash flow seasonality with the fourth quarter higher than the third quarter. Although we're not providing an updated 2023 outlook, we expect Improved cash conversion of EBITDA in 2023. Here's how. Better mobility cash flow as we get a full year benefit from a larger subscriber base at higher ARPU levels. We expect MVNO volumes to ramp and become more material through the course of the year. International roaming trends should improve as well. We expect broadband revenue growth from the mixed shift to higher price fiber to continue. On the cost structure, we expect a full year benefit from our cost transformation efforts implemented in 2022 in conjunction with reaching our $6 billion plus target by the end of 2023. Additionally, the cost actions we plan to execute in business wireline in the second half of the year should produce more than 300 million of savings in 2023 relative to 2022. Also recall, that we have no 3G shutdown costs in 2023. In addition, we expect lower cash interest expense as we get a full year benefit from the debt pay down actions taken in 2022. All these factors should more than offset the expected lower distribution from direct TV and an expected year over year increase in cash taxes. In summary, there is no doubt we're operating in a dynamic macro environment but we feel confident in both the resilient nature of our business and the underlying financial flexibility we gained from recent dispositions. Amir, that's our presentation. We're now ready for the Q&A.

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

Thank you. Ladies and gentlemen, if you wish to ask a question, please press 1 and 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. Our first question will come from the line of John Hudlick with UBS. Please go ahead.

Thanks, guys.

Hey, John. You're breaking up. You're breaking up.

Okay. Can you hear me now?

Yep.

Okay.

Yeah, two parts. On the, I guess for Pascal, I guess you're... Hey, John, sorry.

You're breaking up right now. Why don't we go to the next question and reconnect you? Okay.

Thank you. Our next question will come from Simon Flannery with Morgan Stanley. Please go ahead.

Great. Thank you very much. Good morning. Just coming back to the 2023 free cash flow, Can you help us a little bit with the CapEx? Is that still expected to be about $24 billion before dropping off the following year, especially given that you've said you've pulled forward some of the 5G spend? And I guess, you know, any updated thoughts on what you want to do in terms of fiber? Are you going to continue at this 3.5, 4 million homes or locations a year, and you're going to stop at 30 million? What's the latest thought there? And then you've referenced DirecTV a couple of times. I just want to make clear, has anything changed at DirecTV, or is this just the quarterly kind of cadence of the payments, or are you still expecting the same distributions that you put out in your guidance for 22 and 23 as overall? Thank you.

Sure. Thanks, Simon. Look, the thing is, I think you have to keep in mind is one of the things that we When we did all the dispositions, our plan was to invest significantly this year and next year, both the $24 billion level. And as you see so far, the momentum in our business remains really strong. Those investments are providing attractive returns, and everything we see suggests that these were really good decisions. So, yes, we are expecting $24 billion next year. We continue to expect to deploy fiber at the pace we've previously guided. And as it relates to DirecTV, nothing has changed at all. We expected around $4 billion this year. As you can see from the first couple of quarters, that's more front-end loaded. And next year, we expect $3 billion. So nothing has changed in that regard, and we feel really good about how the business is performing.

Great. And just a quick follow-up. On the price increases, what's your early read of what customers are doing? Are they paying the extra $6 or $12? Are they migrating to unlimited plans? Is that accretive or not? And any surprises on churn?

Everything is tracking as we kind of expected when we laid it out, Simon. As I shared with you, I think when we indicated we were going to do it, what we have is past models from executing these types of things that allow us to go and try to evaluate how customers are going to react and behave when the changes occur. And in this particular case, we had a great opportunity to ensure that while we were going through a price increase on a segment of plans, we were able to also provide the option for a customer to think about moving to other plans and ultimately get more value. And I think in many cases, very attractive characteristics associated with that. And we're seeing customers do both. In some cases, they're choosing to pay the increase of their existing plan and not move. But as you would expect, there's a degree of inertia in any subscription base. Sometimes it takes a little bit of time for somebody to process what's occurred and react. And we're also seeing some uses an opportunity to migrate into better plans and trade up and take not only some of that value that we're giving, but as you're seeing, we're starting to drive the improvements in ARPUs that we told you would occur and And certainly this is a component of that happening. But I would tell you it is tracking as we expected. It will be accretive as we expected. And I think, you know, everything we've given you for end-of-year forecasts is consistent with what is occurring right now in the market in the early days of the change. Great. Thanks, John.

Thanks very much, Simon. Operators, we can get the next question.

Thank you. Our next question will come from Brett Feldman with Goldman Sachs. Please go ahead.

Yeah, thanks. I guess sort of a two-part question related to the timing issue that you highlighted with collections. So the first one is, you know, what gives you confidence that really is a timing issue and not really a non-payment issue? You alluded to some prior experience in different economic cycles, so I was hoping you could maybe just elaborate on that. And then I'm curious to what extent this might be shaping the way you think about going to market, particularly in your wireless business. As you move into the back half of the year, you know, you've obviously done very well with a certain offer or suite of promotions. Does it make sense to maintain the same promotional stance in a more difficult environment, particularly where there may be some timing issues? It certainly seems like your financial guidance anticipates lower volumes in the back half, but if that's a misunderstanding, any color there would be helpful. Thank you.

You know, Brett, first of all, I'd say that, you know, our most recent experience in looking at kind of a challenge cycle is probably coming out of the 2008 recession and the dynamic around it. And as I indicated in my earlier remarks, you know, we've evaluated that, we look at that, and that was a pretty stressed time, if you recall. And I don't know that I can exactly predict what's going to occur over the next year or so, but My guess is it probably won't be quite as shocking as that cycle is what's occurred in a worst-case scenario. And we go back and we look at patterns and behaviors that have occurred in those cycles and evaluated them. And the other great thing we know that today is we have far better data than we've ever had that's more dynamic in how we do algorithmic scoring and things like that that allow us to be even more effective in and managing customer risk. So I think we feel pretty comfortable that we've got a reasonable record of data that allows us to do some projection on that as we start to see these things move. And as I said, this typically is not an issue of people not paying. It's an issue of when they pay. And I don't believe there's anything in our credit scoring and how we've looked at our customer base coming in that would cause those trends to be dramatically different than a previous period. You know, in terms of how we go to market, I think we had a fantastic quarter. And I don't know that I'd want to go to market any differently than the quarter that we put on the board. In fact, you know, looking at many of your commentaries, you've been articulating that others have been much more aggressive in the market and probably leaning in to promotional activity in a heavier way. And I would say I would characterize our approach as being much more tempered and inconsistent with the past, and we have not really responded to that increased promotional activity that we're seeing from others in the market right now. We've kind of been continuing to play our game, and we put up a record quarter or second quarter for ourselves in a 10-year period. And as I've told you before, we like each of these incremental subscribers we're bringing in. We think the economics of them are very strong, albeit there is investment at the front end to bring them onto the network. I'm not going to shy away from that kind of growth. I don't know what the overall market's going to do for the next several quarters. I expect it will be, as I said in my comments, a bit more tepid as maybe economic stress comes in. But I've been saying that we expected it to be a little bit slower for the better part of nine months now, and it hasn't materialized yet. We'll take the growth if it comes in. I expect it's going to slow a little bit, and I'm going to continue to play our game as long as it's working, and it's working right now.

And, Brett, one other point as it relates to the overall credit quality of our customer base. While we did see an uptick in bad debt, overall, there's nothing at all concerning. You know, it's up slightly for pre-pandemic levels. So our call-out here was really just a caution that, question investors given the broader macro trends that are happening. So, you know, we're not in any way alarmed by this. Thank you.

Operator, if we can move to the next question.

Thank you. Our next question will come from the line of Phil Cusick with J.P. Morgan. Please go ahead.

Thanks very much, Gus. A couple of follow-ups and one new one. Can you, John, talk anything about recent customer trends, June and July? You just said a minute ago you expect things to slow down, but it doesn't sound like you've seen slower customer trends so far. It's a little surprising given the elevated DSOs. And it sounds like you guys don't have a lot of confidence in that 2023 free cash flow number. Is there just less visibility, so you don't want to cut that now? Or are you still reasonably confident in the $20 billion and you think you can get there? We could use a little more. And then finally, can you just get into the recent launch of plans that don't include HBO? What's the potential cost savings from that shift of customers away and what's been the reaction? Thank you.

Hi, Phil. So let me touch on these first, and then Pascal can come in and backfill to the extent he wishes to do so. So customer trends, first of all, I don't want to go down a path on stuff we haven't disclosed, but the first part of July, as you'd expect, tends to be a little bit more suppressed because it's a high holiday and vacation period. And that's what I would call seasonal and cyclical, and we certainly saw a little bit of that occurring. But I'm not seeing anything in the market right now that suggests we're seeing a move away from what the first half of the year represented. And I think kind of moving into the second part of your question, I hate to describe it this way, but I think we've got a little bit of a tale of two cities going on here. And when you see 9% inflation, it tends to hit those in the low end of the market really, really hard. And it's difficult when you walk up to the gas pump and have to fill the car and you get the electric bill come in and you see the kind of step-ups that people are seeing. And And I think there's an adjustment period that goes on. The flip side is you've got another segment of the population that banked a lot of money during the pandemic. They weren't traveling. They weren't dining out. They were feeling a little bit more flush. And they're making different decisions. And as you know, our postpaid base is probably skewed a little bit more to the higher socioeconomic dynamics and probably a bit more insulated. But there is a portion of the base that clearly is starting to adjust to this dynamic that there's higher calls on their cash in any given quarter. And they're having to adjust betting patterns and behaviors and prioritization of how they order bills. And I think we're seeing that there's a little bit of that starting to occur. As Pascal said, it's not alarming in the way it's happening, but it is moving out collection cycles a bit as we typically see when this type of stress starts to show up. And that's what the working capital issue is around it. So I would tell you I don't see anything in here that would be out of pattern for this occurring. I think you've got two different parts of the economy, though, that are working in different ways. And how they develop over the course of the next several quarters is a little bit of a visibility issue, to be candid with you. And I don't know, you know, if you'd asked me six months ago, would we be seeing 9% inflation annualized? I don't think I would have picked it as being that strong, but here we are. And now the question is, how fast do we eradicate it and what rate? And if you have a good pick on that or good insights, then I can probably be a little bit more precise on what I think 23 brings. I think what's important to understand, as Pascal articulated in his comments, is the fundamentals of the business are really strong. We feel really good about some of the mechanical things that will improve cash flow yields into 23. That's not going to change. But what happens in the overall economic pattern is a bit uncertain. And without seeing how the Fed reacts, how fast we see the curve starting to abate on the inflation side, trying to make that pick right now just feels like it's a bit of an overreach. And so I think we're reserving the right to to get a little bit more visibility on 23 to declare. But I think the strong improvement dynamics are what I would call mechanical, and the performance of the business is supporting the fact that we're going to see that improved conversion on cash flows as we move through the year. And then finally, on your question about the plans is, look, we still have a lot of streaming services in our base that we're using. We're trying a couple different things. Part of this has been segment-driven to look at opportunities for us to address areas that we think there is potential for stronger growth. And we shifted the mix of our plan and what we gave away, so to speak, and some of the benefits, especially as we were executing the price changes that we had talked about previously. And we felt that this quarter and where we stood, that working on things like more generous hotspot capabilities and better roaming moving into the summer might be a better play in the market. And I would tell you, we kind of like what we saw in our results, despite a lot of the changes by others in the industry in terms of what their value proposition is to customers. And it It feels like it was a good pivot and rotation at this moment for what we needed to do with the kind of changes we were making broadly in our plans. That doesn't mean that that's the strategy forever, and it doesn't mean it's the strategy for the rest of the year. As we move through the summer months and, you know, we get through the peak travel periods and we look at what other options we have, we could choose to do something different and in what we decide to do from a promotional perspective and what we choose to bring in as part of the bundles moving forward. I don't think anything should be viewed as static. And I think entertainment as part of a wireless bundle is probably something that's going to be around with us in this industry for a good period of time because I think customers, certain customers resonate with it. And HBO Max is a great product. We like the fact that we're kind of viewed as being the place to come to get it. And when it's right for us to put that up in the front line to do that, we'll continue to do that.

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

Thank you. Our next question comes from the line of Michael Rollins with Citi. Please go ahead.

Thanks, and good morning. So a follow-up and a question. When you're discussing some of the impacts that your customers are experiencing in this inflationary environment, can you talk about how AT&T is using the ACP program, the size of it, and the opportunity to use that, which may be different than some past cycles customers had to deal with a potentially tougher macro climate? And then secondly, Just in terms of the infrastructure money that's out there, can you give us an update on your expectations for the size of the opportunity that AT&T could pursue? Thanks.