During its Q1 earnings conference call, AT&T executives outlined the impact of the coronavirus pandemic, which included a $600 million decline in revenue. As the first major U.S. service provider to report its earnings, AT&T's results could foreshadow what's to come from additional service provider earnings reports.
AT&T CEO and Chairman Randall Stephenson said the COVID-19 pandemic had a 5 cents per share impact on AT&T's first quarter. With not knowing when the coronavirous will play out, AT&T also cut its annual forecast on Wednesday due to the uncertaintiy.
"The economic impact has been swift and there is no consensus on how long this downturn lasts," Stephenson said. "A lot hinges on when and how we open things back up. When do we have sufficient testing protocols in place so people feel comfortable returning to work or school or even going shopping?
"Bottom line, we have very little visibility into the broader economic situation, which makes it impractical to provide detailed financial guidance."
AT&T reported revenue of $42.8 billion in the first quarter, which missed Wall Street's projection of $44.2 billion. AT&T executives attributed the lost revenue to losing advertising for events such as college basketball's March Madness tournament and lower wireless equipment sales. AT&T said the coronavirus pandemic also had a $435 million impact on EBITDA.
On the conference call, Stephenson acknowledged that it has been a "chaotic few weeks" for AT&T due to the coronavirus. Stephenson said half of AT&T's employees are now working from home. The company has also made an effort to provide more personal protection protocols and equipment and given its employees an additional four weeks of paid time off for "COVID related needs," according to Stephenson.
With connectivity more essential now than ever before, Stephenson noted that AT&T has adopted flexible payment options, waived late fees and overages, and lifted data caps to help its customers through the crisis.
Stephenson said that AT&T would continue to invest in critical growth areas such as 5G, which it expects to have nationwide coverage by this summer, broadband and HBO Max, the latter of which slated to launch on May 27. Another growth area for AT&T is fiber. AT&T added 209,00 fiber customers in the first quarter to surpass the 4 million subscriber mark.
Stephenson said that despite unprecedented volumes of voice calls, text and video streaming due to COVID-19, AT&T's network "is performing very well."
"I'm heartened by the fact that our core subscription based businesses, wireless, broadband and enterprise networks, are critical valued services in these times," said AT&T's John Stankey, president and chief operating officer of AT&T and the head of AT&T's Warner Media division on the conference call. "They represent more than 60% of revenues and more than 70% of our EBIDTA. They have proven to be resilient, and they help provide a recurring stream of revenue and solid cash flows even in times of economic stress.
"They also provide a foundation that can absorb pressure from the other parts of the business that are facing headwinds because of COVID-19."
Stankey said that AT&T is re-evaluating how it will serve its customers going forward by aligning its portfolio to changes in customers' behaviors, and that it still expects to deliver $6 billion in cost savings by 2023.
For its distribution strategy, Stankey said AT&T would be adjusting locations, location sizes, the own versus agency mix, the point of sale support systems and compensation structures.
"The second initiative is focused on our field operations, which will benefit from our product evolution to customer self installs, the shift of our broadband base to lower cost fiber and improved systems and AI capabilities that will reduce truck rolls and eliminate second visits," Stankey said. "These efficiencies will enhance our ability to continue to invest in our key growth initiatives."
Combined, those two initiatives would slash $1 billion in recurring costs from the AT&T's bottom line. Stankey said there were a total of 10 areas that AT&T is working on to cut its costs, but didn't provide any details on the other eight. AT&T has previously indicated that there would be job cuts in order to lower its labor costs. In the fourth quarter, AT&T cut its workforce by 4,040 jobs, according to a press release by the Communications Workers of America (CWA.