AT&T Inc.

Good morning and welcome to AT&T's fourth quarter 2025 earnings call. 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 are subject to risks and uncertainties described in AT&T's SEC filings. Results may differ materially. Additional information, as well as our earnings materials, are available on the Investor Relations website. With that, I'll turn things over to John Stanky. John?

Thanks, Brett. And Happy New Year to everybody. I appreciate you joining us today. As you can see in our earnings materials, we have a lot to cover. So I'm going to quickly summarize a few highlights from our results and then spend most of my time discussing how our investments and differentiated position support our long-term outlook for improved growth and significant capital returns. After that, Pascal will provide a little more color on our fourth quarter performance, plan changes to our segment reporting next quarter, and key drivers of our financial guidance through 2028. So our prepared comments are probably going to run a little bit longer than usual, but we'll allow a little extra time to take your questions. During our Analyst and Investor Day at the end of 2024, we outlined our path to become the best advanced connectivity provider in America, and I believe our team executed well against this strategy in 2025. We met or exceeded all of our consolidated full-year financial guidance, driven by another solid year of 5G and fiber subscriber growth. We reported over 1.5 million postpaid phone net ads for the fifth consecutive year and over 1 million AT&T fiber net ads for the eighth consecutive year. We also accelerated the growth of AT&T Internet Air with 875,000 net ads, which more than doubled our customer base from where we began the year. The result of this operating momentum was the best year for consumer broadband subscriber growth in a decade. This strong growth is a result of over five years of executing a sustainable investment-led business model that centers on providing customers with all of their advanced connectivity needs from one trusted provider. We also made progress on many of our capital allocation commitments in 2025. During the first half of the year, we achieved our target of net debt to adjusted EBITDA in the two and a half times range and commenced a share repurchase program. Overall, we returned over $12 billion to our shareholders through dividends and buybacks, which was more than a 50% increase from 2024. Our improved financial flexibility and confidence in our investment thesis also positioned us to make opportunistic strategic investments that benefit our customers and ultimately our shareholders. This includes our agreements to acquire Spectrum licenses from EchoStar and fiber assets from Lumen. And we continue to expect both these transactions to close early this year. These transactions represent key building blocks that significantly expand the total addressable market for our advanced connectivity services in the years ahead. Our investments in 5G and fiber, both organically and through our acquisitions, have positioned us to accelerate and scale the execution of our strategy in 2026. This includes the pace of our fiber expansion. Within our traditional operating region, we continue to expect that our annual pace of fiber construction will ramp from 3 million new locations in 2025 to a run rate of 4 million by the end of this year. We also expect to accelerate the availability of our fiber internet services outside of these areas following our acquisition of Lumens fiber assets and build capabilities. including GigaPower and the fiber assets that we're acquiring from Lumen. We expect to reach over 40 million customer locations with our fiber services by the end of this year, up from 32 million at the end of 2025. Beyond 2026, we plan to expand our fiber reach by approximately 5 million locations annually through the end of this decade. We expect this to drive rapid expansion of our opportunity to sell fiber and 5G together to both households and businesses at unmatched scale. The size and pace of our fiber deployment has positioned us to achieve these objectives with consistent execution and a high degree of capital efficiency. Over the past two years, in an inflationary environment, our average deployment cost per fiber passing has increased by approximately 2% annually, and we expect a similar trend over the next three years. While our internet strategy will remain fiber first, our investments in wireless network modernization and spectrum materially expand our opportunity to offer our advanced internet services over fixed wireless to the right customers in areas where we do not reach with fiber. Today, we're able to offer advanced internet services over fiber or 5G to over 90 million customer locations across the country. You can see the benefits of our scale and the improved growth of our advanced home internet connections. During each of the past two quarters, we've added over half a million combined AT&T Fiber and Internet Air customers, which is nearly 30% growth in net ads versus the second half of 2024. Our convergence strategy is a winning play, both structurally and in the market, During the fourth quarter, we once again saw acceleration in the portion of AT&T Fiber customers that also have our wireless services. Our fiber convergence rate climbed 200 basis points year over year to 42%, which is our fastest annual increase since we began tracking this metric. This is further evidence that where we have fiber, we win, with fiber and 5G. The impact of this success on our wireless business is material. We estimate that our share of postpaid phone subscribers is 10 percentage points higher in areas where we offer fiber than in areas where we don't. The power of our converged offers is evident across our business. In areas where we offer converged services, we rank number one in brand love and number one in net promoter score with consumers and small businesses in both wireless and and internet connectivity. And we're number one or number two with medium-sized businesses and enterprises. The scores for our converged offers are not simply better than our standalone services, they're improving in most categories. So it's no surprise that our converged customers remain our most valuable, with lower churn and a propensity to take higher internet speeds, attach more wireless lines, and stay with us longer. Our acquisition of Lumen fiber assets, which we expect to close in short order, is a key example of how we've positioned AT&T to materially improve share in home internet and wireless. We're acquiring a fiber network with only 25% customer penetration, well below AT&T fiber penetration of 40%. We estimate that fewer than 20% of these customers also subscribe to our wireless services. This is less than half of the convergence rate we've achieved in our current fiber footprint. We already have extensive wireless distribution in Lumen geographies, and soon we'll have the network assets and deployment capabilities needed to offer customers a better choice for connectivity at home and on the go. When we complete our work at the fiber location, we believe we're able to offer that customer access to the internet on a lower marginal cost structure than any competitor with industry-leading product performance. We see this as a structural advantage that provides us with the flexibility to price and position our fiber services to reach customers in underserved categories and geographies and ultimately achieve higher penetration. This includes value-conscious consumers who are currently being served by networks with lower capacity and higher marginal costs. Our ability to put the right offer in front of an expanding customer opportunity positions AT&T to compete on performance and value and not by leading with uneconomical device offers. As we accelerate the expansion of our fiber availability, this is how we expect to go to market. offers and marketing strategies that yield attractive returns by driving deeper fiber penetration and growth in high-value converged customer relationships. We're also making progress towards our goal of discontinuing legacy services in the large majority of our footprint by the end of 2029. We stopped the sales of all targeted legacy copper-based services in 85% of our wire centers. The FCC has approved our applications to discontinue copper-based services in more than 30% of our wire centers by the end of 2026. We appreciate the FCC and Chairman Carr's continued recognition of the importance of modernizing communications infrastructure and remain committed to supporting our customers every step of the way. The transformation of our network and support infrastructure is also driving the transformation of our cost structure as we benefit from open technologies, simplify our business processes, and deliver a better customer experience. Last year, we achieved over $1 billion of cost savings and we plan to accelerate efficiency gains across the company by leveraging AI, moving more customer transactions to digital and achieving greater operating leverage as we grow our customer base. We've been investing at the top of our industry for years and we expect this to continue based on the capital investment outlook we provided through 2028. This outlook anticipates that our major capital projects will be substantially completed by the end of 2030 or sooner. As we complete these investments, we expect our capital intensity to decline from a high teens percent of revenue to the mid-teens, driving higher durable long-term cash flow. But our shareholders will see the benefit much sooner. We believe the nature of our sustained investments and execution against the priorities I just outlined position us to drive improved growth now. That's exactly what's reflected in our long-term outlook. Over the next three years, we expect to drive accelerated growth in adjusted EBITDA, double-digit adjusted EPS growth, and strong free cash flow. We also expect to return $45 billion plus to our shareholders over the next three years through our attractive dividend and consistent pace of share repurchases. This represents nearly 30% of our market cap and over 75% of our expected free cash flow. Over time, we expect that our improved growth, declining capital intensity, and higher free cash flow will provide us with even greater flexibility to support enhanced shareholder returns. Over the past five years, we've evolved how we operate our business to be investment-led, customer-centric, and focused on being the best advanced connectivity company in America. This has changed how we talk about our company, and I think it reflects how we see industry assets reordering to compete with our success. So beginning with our first quarter results, we plan to adopt new segment reporting that aligns with this reality and the ongoing transformation of our company through the end of this decade. Pascal will walk you through the details of our planned new segment reporting and long-term guidance in just a moment. At a high level, we'll begin reporting the growth in our domestic wireless and fiber-based businesses, which we refer to as advanced connectivity, separate from the results of our legacy operations. By separating the performance of our advanced connectivity business from our declining legacy segment, we believe investors will have greater transparency into the returns we're generating on our growth investments in 5G and fiber. I'd like to close by reiterating a point that I made last quarter, which is that this is a great time to be in our industry. In my career, I've never seen federal policy this supportive of market-based investment in advanced networks. This welcome policy stance has been adopted at the front end of an AI revolution that we expect to increase the need for dense fiber networks and more symmetrical connectivity into and out of homes, businesses, and devices. We operate in a competitive marketplace. This is not new, and neither are the keys to success, which are investing in best-in-class technologies at scale in order to provide customers with connectivity that they can depend on at a good value. This is a winning play, and by running it well, I'm confident that we'll lead our industry in advanced connectivity service revenue and adjusted EBITDA by the end of this decade. With that, I'll turn it over to Pascal.

Pascal? Thanks, John. We had a strong finish to the year and met or exceeded all of our 2025 financial guides. In my view, one of the key takeaways from our fourth quarter performance is that it demonstrates our continued success at driving profitable growth, even in a competitive operating environment. We achieved over 4% growth in consolidated adjusted EBITDA during the fourth quarter, while expanding adjusted EBITDA margins by 20 basis points. This reflects the margin gains we achieved from growth in 5G, fiber, and fixed wireless service revenues driven by gains in convergence relationships, while taking costs out across the company. We are also winning with the right customers, with the right offers, and we believe that our investment-led convergence strategy positions us to sustain profitable growth over the next several years. Before I cover our long-term outlook, I want to highlight a few items from our fourth quarter and full year results. Adjusted EPS grew by over 20% in the fourth quarter to 52 cents and nearly 9% for the year, to $2.12. This was above our 2025 guidance for adjusted EPS at the higher end of the $1.97 to $2.07 range, with the upside primarily driven by a lower than expected effective tax rate and solid growth in adjusted EBITDA. Full year free cash flow was $16.6 billion, which grew by over $1 billion and came in towards the higher end of our 2025 guidance in the low to mid $16 billion range. This includes cash taxes of $1.1 billion excluding DirecTV, which were below the low end of the expected range by approximately $400 million. However, this cash tax benefit was offset by a decision to accelerate our planned pension funding by a similar amount. So in the quarter, the combination of lower cash taxes and higher pension contributions were effectively neutral to free cash flow. We made a $1.15 billion cash contribution to our employee pension plan in 2025 and expect to contribute an additional $350 million this year. As a result, we remain on track to contribute $1.5 billion of cash tax savings from provisions in the One Big Beautiful Bill Act to our employee pension plan by the end of 2026. Looking ahead, we expect annual cash taxes of approximately $1 to $1.5 billion through 2028. Our cash tax outlook primarily reflects further assessments of expected savings due to this legislation. Our goal is to put these savings to work over the next three years to fund working capital and growth initiatives. As John discussed, we are planning to adopt new segment reporting beginning with our first quarter 2026 results. Our largest segment going forward will be called Advanced Connectivity, which primarily represents results for our domestic 5G and fiber services. In 2025, advanced connectivity drove about 90% of our revenues and over 95% of our adjusted EBITDA on a recast basis, and substantially all of our organic and inorganic investments support growth in advanced connectivity. Our legacy segment represents results from our domestic services provided over our copper-based network. We have a goal of discontinuing a large majority of copper-based services by the end of 2029 and are managing our legacy segment to achieve this outcome. As John noted, the separation of our advanced connectivity results from our domestic legacy operations should provide investors with a better framework for assessing the returns on our investments in 5G and fiber. For example, over the past two years, our consolidated adjusted EBITDA grew by over 3% annually, while EBITDA from advanced connectivity grew considerably faster at an average of more than 6% annually. We also expanded EBITDA margin in this segment each of the past two years, which highlights how we are achieving profitable growth across 5G and fiber services to both consumers and businesses, even in periods of increased competitive activity and while making significant investments to scale our growing fiber and fixed wireless footprint. We've posted materials to our investor relations website that recast our results over the past three years under our plan new segments. We also intend to provide results for our mobility business as a supplemental disclosure for a transitional period. Now, let's talk about where our business is headed. In our earnings release, we provided long-term guides through 2028 that anticipates improved growth in consolidated financial performance driven by investments in our advanced connectivity segment. Here's how we expect to achieve that growth across our primary service categories. We expect total wireless service revenue growth in the 2% to 3% range annually over the next three years. The primary driver of this outlook is growth in consumer and business customer relationships as we continue to gain wireless subscriber share through convergence in areas where we offer fiber and fixed wireless internet services. Our outlook assumes a relatively stable trend in postpaid phone ARPU as our consistent disciplined approach to pricing is balanced by gains in under-penetrated categories, such as value-focused customers, as well as growth in converged customer relationships who enjoy a service discount that typically more than offset over time through lower churn and the purchase of additional services. We also continue to plan for an operating environment with elevated levels of new and existing customers that are eligible for device offers. While this has no impact on our service pricing, it does impact the calculation of ARPU as we amortize a portion of our device offers through our wireless service revenue. This was approximately a 90 basis points headwind to our reported postpaid phone ARPU growth in 2025, and our outlook anticipates a similar headwind this year. We expect our advanced home internet service revenues to grow organically by 20% plus annually through 2028, which is consistent with the annual growth we have achieved in these revenues over the past two years. The primary driver of this outlook is growth in customer relationships as we expand the reach of AT&T Fiber and the availability of Internet Air as we complete our 5G network modernization and continue to deploy Spectrum from our Echo Star transaction. Our long-term outlook assumes a lower contribution from ARPU growth than we have seen over the past few years. Similar to our approach in wireless, We intend to maintain a consistent approach to home internet pricing, balanced by gains in under-penetrated customer categories at different price points as we materially expand the availability of home internet services. Our outlook also factors in the portion of our convergence discount that we allocate to internet services as we grow our converged customer base. We continue to expect that we will close our acquisition of fiber assets from Lumen during the first quarter, which will add approximately $900 million of annualized fiber revenues. So we expect that our reported growth in advanced home internet revenues in 2026 will exceed 30%. Our business customers continue to utilize a range of fixed connectivity services at different stages in their life cycles. Over the past few years, growth in our business fiber and advanced connectivity services, which includes fixed wireless, has been more than offset by declines in business transitional and other services, which includes mature product categories such as VPN. Our outlook anticipate that service revenues from business customers across wireless, fiber and fixed wireless will accelerate over the next several years and more than offset expected continued declines in transitional and other services. Altogether, we expect that total business service revenues within the advanced connectivity segment will grow at a low single digit CAGR through 2028. We also intend to maintain our cost transformation initiatives across the business. We achieved over $1 billion of cost savings in 2025 and expect to achieve an additional $4 billion annual cost savings by the end of 2028. We expect these savings will be driven by the operating efficiencies John discussed earlier, along with reductions in legacy operations and support costs. Our long-term outlook does not anticipate a material contribution to EBITDA growth from our pending acquisitions until 2028, which is also when we expect these investments to become accretive to adjusted EPS. Putting this all together, we expect to achieve growth in consolidated adjusted EBITDA in the 3% to 4% range in 2026, improving to 5% or better in 2028. We expect Adjusted EPS to be in the $2.25 to $2.35 range in 2026 with a double-digit three-year CAGR through 2028. For 2026, our outlook for Adjusted EPS includes approximately $0.05 of dilution from stand-up costs and higher interest expense related to our transactions with Lumen and EchoStar and an effective tax rate in the 22% range. We also expect depreciation and amortization expense of about $20 billion annually through 2028 as incremental depreciation from our growth investments is offset by the roll-off of depreciated assets that have reached the end of their useful lives. For 2026, we expect free cash flows of $18 billion plus, reflecting primarily growth in adjusted EBITDA, lower pension contributions, and lower legal settlements, partially offset by higher capital investments and cash interests. We expect free cash flows to grow by $1 billion plus in 2027 and approximately $2 billion in 2028, driven primarily by growth in adjusted EBITDA. As John discussed, we have plans to accelerate and scale the execution of our strategy this year, and we expect some upfront investments to drive this outcome will be reflected in our first quarter results. This includes incremental spending as we prepare to integrate and scale the retail operations we've agreed to acquire from Lumen and investments to drive acceleration in the pace of our fiber deployment. We are also lapping approximately $100 million of one-time benefits we disclosed in the first quarter of last year. So in the first quarter of this year, we expect adjusted EBITDA growth to be below the run rate we expect for the full year with free cash flows in the $2 to $2.5 billion range. Before we take your questions, I want to cover our outlook for capital allocation and capital returns. We ended 2025 with net debt to adjusted EBITDA of 2.53 times and cash and cash equivalents of $18.2 billion. During the fourth quarter, we closed on a $17.5 billion delayed draw term facility. Based on our strong balance sheet, ability to draw on this facility, and our outlook for $18 billion plus of free cash flow in 2026, we are in excellent liquidity position as we plan to close our acquisition of assets from Lumen and EchoStar early this year. Immediately following the closing of these transactions, we expect our net debt to adjusted EBITDA to increase to approximately 3.2 times and then to decline to approximately three times by year end as we grow adjusted EBITDA and free cash flow. We also expect to receive cash from an equity partner that will also co-invest in the acquired Lumen Fiber assets. We continue to expect that our net leverage will return to a level consistent with our target in the two and a half times range within approximately three years following the closing of these acquisitions. And we continue to expect that we can achieve our deleveraging objectives by maintaining a consistent approach to capital returns. In 2025, we returned over $12 billion to shareholders, including over $8 billion in dividends and over $4 billion in share repurchases. As we outlined in our earnings release, we expect to return $45 billion plus to shareholders during 2026 to 2028. Under this capital return plan, we expect to maintain our current common stock dividend with a consistent pace of share repurchases through 2028, including approximately $8 billion of buybacks in 2026. Our board has authorized an additional $10 billion of share repurchases after we complete buybacks under the current authorization. This means we have the necessary board approvals to execute our planned share repurchases through approximately the end of next year. To wrap up, we executed well in 2025 and we're confident that we're positioned to drive improved growth and strong capital returns over the next three years. Thanks for listening to our extended presentation. Brett, we're now ready for the Q&A.