AT&T Investor Update Q AT&T EARNINGS. 4 th Quarter Earnings. January 30, 2019

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Clyde Rogers
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1 AT&T Investor Update 4 th Quarter Earnings January 30, 2019 Q AT&T EARNINGS

2 Q AT&T EARNINGS Agenda Strategic Review Randall Stephenson Chairman and Chief Executive Officer Results and Outlook John Stephens Senior Executive Vice President and Chief Financial Officer Q&A 2

3 Cautionary Language Concerning Forward-Looking Statements Information set forth in this presentation contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this presentation based on new information or otherwise. This presentation may contain certain non-gaap financial measures. Reconciliations between the non-gaap financial measures and the GAAP financial measures are available on the company s website at The quiet period for FCC Spectrum Auctions 101/102 (28Ghz and 24Ghz) is now in effect. During the quiet period, auction applicants are required to avoid discussions of bids, bidding strategy and post-auction market structure with other auction applicants. 3

4 Solid Results Executed Strategic Imperatives 2018 Summary Record cash flows FCF of $22 billion, debt reduction on plan, dividend payout 60% Wireless service revenue and EBITDA growth Solid smartphone gains with low churn WarnerMedia continues growth Strong revenue and margin trends Solid subscriber gains in Latin America Closed Time Warner deal Accretive from Day 1 Xandr launched Integrating AppNexus platform; Turner begins using Xandr data Best Network, per GWS Also: 5G introduced; FirstNet deployment ahead of schedule Fiber deployment accelerates More than 11 million locations; ARPU improves with mix shift 4

5 De-lever through strong free cash flow, non-core asset sales Lead in network through fiber, 5G and FirstNet investments Key 2019 Initiatives Grow wireless service revenues Stabilize Entertainment Group EBITDA Deliver merger synergies, grow WarnerMedia, launch DTC Expand targeted advertising, data analytics 5

6 Q AT&T EARNINGS Results and Outlook

7 Financial Summary $ in billions, except EPS Highlights 2018 Full-Year Highlights ADJUSTED EPS Adj. OI Margin REVENUES ADJUSTED EPS Adj. OI Margin REVENUES $0.78 $0.86 $41.7 $48.0 $3.05 $3.52 $160.5 $ % 19.6% 18.4% 20.6% Reported EPS $3.08 $0.66 Adjustments: Merger-related amortization 1 $0.12 $0.25 Merger integration items $0.07 $0.06 Asset sales, impairments, other adjustments 2 $0.48 $0.04 Actuarial (gain) loss on benefit plans $0.19 ($0.07) Tax-related items 3 ($3.16) ($0.08) Adjusted EPS $0.78 $0.86 Full-year adjusted EPS of $3.52, up more than 15% Includes ~$0.26 impact of ASC 606, and ~$0.18 from WarnerMedia $171 billion in revenues; $174 billion on a comparable basis, up nearly 9% due to TWX acquisition Solid growth in Mobility service revenues and WarnerMedia 1 includes $0.17 of purchase accounting amortization for WarnerMedia, $0.07 for DIRECTV and $0.01 for Other. 2 includes $0.04 severance and $0.04 other, partly offset by -$0.04 gain on sale of data center colocation operations and assets. 3 includes true-up to deferred taxes liability remeasurement, partly offset by other tax items. 7

8 Record Cash Flows Drive Financial Strength $ in billions, except EPS CAPEX FREE CASH FLOW $9.5 $5.1 $4.5 Cash From Operations $12.1 $4.2 $7.9 $38.0 $21.6 $ $43.6 $21.3 $ Record operating and free cash flows for the year $43.6 billion cash from operations $22.4 billion free cash flow, up $5.9 billion, or 36% $7.9 billion free cash flow in 4Q Capex of $21.3 billion, consistent with prior year Approximately $23 billion with FirstNet 1 Full-year dividend payout of FCF improves to 60% Fourth-quarter payout of 46% Strong cash flow enables balanced capital allocation Investing at record levels Solid dividend payout Significant debt reduction 1 Excludes FirstNet reimbursement. 8

9 Debt reduction plans on track De-levering with record FCF Expect strong 2019 cash generation Plus asset monetization initiatives $180B ~$171B 2 ~$12B FCF after dividends ~$6-8B cash generation 3.0x 1 2.8x 1 ~$158B ~$150B Real estate sales ~2.6x 1 ~2.5x 1 Non-core asset sales Working capital initiatives At Merger Close YE YE Net debt to Adj. EBITDA ratio; illustrative of approximately $60B Adj. EBITDA 2 Includes 4Q cash collateral posting of ~$1 billion, net of change in foreign debt. 9

10 * Communications Segment EBITDA Growth and Margin Expansion $ in billions $39.1 $38.3 REVENUES EBITDA EBITDA MARGIN Wireless service revenues up 2.9% and EBITDA up 13.3% Record 4Q Mobility EBITDA service margin of 48.6%, up 450 basis points 304,000 postpaid smartphones and 467,000 branded smartphones added to base 134,000 postpaid phone net adds; 26,000 prepaid net adds $11.5 $ % 30.5% EG revenue and EBITDA trends improve DIRECTV Now subscribers down 267,000 as discounted introductory offers ended; traditional video subscribers down 391,000 EG profitability expected to improve throughout 2019, with EBITDA stable for full year Mobility Entertainment Group Business Wireline $19.2 $19.1 $12.6 $12.2 $7.4 $ % 37.5% 18.9% 16.4% 37.9% 36.0% * presented on a comparable basis to remove the impact of revenue recognition accounting change and the USF policy election. 10

11 * WarnerMedia Segment Revenue and Profit Growth; Strong Cash Generation $ in billions REVENUES OP INCOME OI MARGIN $8.7 $ % $9.2 $ % Revenue growth of 5.9%; operating income growth of 33.2%, with double-digit gains in all units Delivering on merger promise of EPS and cash flow accretion; solid expense management 4 Golden Globe awards and 11 Academy Award nominations Strong Warner Bros. box office performance propels the studio s best operating income year ever Home Box Office subscribers and revenues impacted by carriage dispute Turner subscription revenues grow; ad revenues impacted by domestic audience declines, partly offset by higher pricing Warner Bros. Home Box Office Turner $ % $ % $1.7 $ % 37.2% * Results reflect the combination of historic Time Warner adjusted results and AT&T s RSNs (reported in the Turner division). Otter Media financials included in WarnerMedia results after the 8/7/18 acquisition of the controlling interest. Prior to this date, Otter Media was included as an equity-method investment. $3.2 $3.2 Op. Income Op. Income Op. Income +$295M +$138M +$221M 33.1% 40.2% 11

Xandr and Latin America Segment Results Xandr continues significant momentum Strong revenue and EBITDA growth Applying Xandr data and analytics to Turner inventory AppNexus integration underway AT&T

12 Xandr and Latin America Segment Results Xandr continues significant momentum Strong revenue and EBITDA growth Applying Xandr data and analytics to Turner inventory AppNexus integration underway AT&T programmatic spend moved to AppNexus platform AT&T digital inventory moving to AppNexus platform Solid subscriber growth in Mexico 1 million net adds in 4Q; 3.2 million for full year 18.3 million total subscribers Mexico 4Q EBITDA impacted by higher operational expenses, including some non-recurring items Expect improvement throughout 2019 Vrio revenues and EBITDA pressured by FX Remained cash flow positive 12

13 2019 FREE CASH FLOW $26B range 2019 Consolidated Guidance DIVIDEND PAYOUT High 50s % NET DEBT TO ADJ. EBITDA GROSS CAPITAL INVESTMENT 1 2.5x range $23B range ADJ. EPS GROWTH % Low single digits 1 Excludes expected FirstNet reimbursement in the $1 billion range; includes potential vendor financing. Adjustments to EPS include merger-related amortization in the range of $7.5 billion, a non-cash mark-to-market benefit plan gain/loss, merger integration and other adjustments. We expect the mark-to-market adjustment which is driven by interest rates and investment returns that are not reasonably estimable at this time, to be a significant item. Our EPS, free cash flow and EBITDA estimates depend on future levels of revenues and expenses which are not reasonably estimable at this time. Accordingly, we cannot provide a reconciliation between our non-gaap metrics and the reported GAAP metrics without unreasonable effort. (Our 2019 outlook for Net Debt to Adjusted EBITDA ratio excludes the impact of a new accounting standard for leases (ASC 842) that is effective beginning January 1, 2019 to be consistent with our existing multi-year guidance on this debt ratio). 13

14 Q&A Q AT&T EARNINGS

AT&T Reports Fourth-Quarter Results

News Release AT&T Reports Fourth-Quarter Results Full-Year Consolidated Results Diluted EPS of $2.85 as reported compared to $4.76 in the prior year (2017 impacted by tax reform) Adjusted EPS of $3.52