The U.S. Securities and Exchange Commission (SEC) is suing AT&T for providing non-public information to 20 different research firms, lowering earnings before earnings, according to a press release. This gave AT&T the expectations for the quarter when the erasure of information ‘knocked’, which could have made a nasty headline in the financial press, rather than a victory.
According to the SEC (PDF) complaint, AT&T learned in March 2016 that its quarterly results would not be from estimates, in part due to a “expected drop in smartphone sales expectations.” As you may remember, we used to live in a world where providers like AT&T subsidized part of the cost of your smartphone, but by that time AT&T had passed on the cost to the customer – meaning far fewer customers each. upgrade year or two. .
This quarter would be AT & T’s worst ever for smartphone upgrades: a record low of just 5 percent, according to the complaint. As a result, AT&T expected consolidated gross revenue to be “expected to fall more than $ 1 billion below the consensus estimate.”
Here is what happened next, from the complaint:
Fearing a revenue shortfall at the end of the quarter, AT & T’s CFO instructed AT & T’s IR division to ‘make the analysts who still have equipment revenue work too high’.
In turn, the Director of Investor Relations (“IR Director”) instructed Womack, Evans and Black to speak privately with analysts about their estimates to divert the “analysts” —they induce analysts to reduce their individual estimates. The aim was to encourage enough analysts to lower their estimates so that the consensus revenue estimate would drop to the level that AT&T is expected to report to the public – ie AT&T would not miss an income, which is the third consecutive quarter of the company would be. miss.
In their calls, the three IR executives “disclosed intentionally material non-public information regarding AT & T’s results”, the SEC claims. Of the 20 analytics companies listed in the complaint, all lowered their revenue estimates – and many took AT & T’s 5 percent directly. The SEC suggests that AT & T’s executives are hiding the fact that these numbers are not the kind that are supposed to be shared, so analysts may not have known they should not have had access to this information.
CEOs sent each other an email before the first quarter of 2016, the complaint reads. The company’s chief financial officer even apparently told the CEO that two analyst updates ‘might do it for us’, with the CEO responding ‘well’.
AT&T is anxiously pushing analysts to lower estimates so that a single quarter of earnings does not create bad news, even though the results stink. And it goes to the top, according to the SEC.
Just another reminder that CEOs care about in privacy. pic.twitter.com/qxbMNvVsYQ– Dave Benoit (@DaveCBenoit) 5 March 2021
AT&T eventually reported $ 40.535 billion in revenue for the first quarter of 2016, and according to the complaint, the amended estimates for consensus analysts barely beat by less than $ 100 million.
The company disputes the SEC’s allegations in a statement, claiming that “no material non-public information has been disclosed”.
“The information discussed during these March and April 2016 discussions relates to the widely reported, industry-wide phasing out of subsidy programs for new smartphone purchases and their impact on smartphone upgrade rates and equipment revenue,” the company said.
“AT&T not only publicly announced this trend on several occasions before calling the analyst concerned, but AT&T also made it clear that declining phone sales had no material impact on its earnings,” he continued. “Analysts and news media regularly wrote about this trend and investors understood that AT & T’s core business sold connections (ie wireless service plans), not devices, and that smartphone sales were not relevant to the company’s earnings.”