AT&T Investor Update 2018 AT&T EARNINGS. 2 nd Quarter Earnings. July 24, 2018

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1 AT&T Investor Update 2 nd Quarter Earnings July 24, 2018 Q AT&T EARNINGS

2 AT&T Investor Update Results and Outlook Business Update John Stephens Senior Executive Vice President and Chief Financial Officer Randall Stephenson Chairman and Chief Executive Officer Business Unit Key Initiatives Q&A John Stankey CEO, WarnerMedia Brian Lesser CEO, AT&T Advertising and Analytics John Donovan CEO, AT&T Communications Lori Lee CEO, AT&T Latin America 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 Auction 903 (also known as the CAF II auction) 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 Q AT&T EARNINGS Results and Outlook John Stephens

5 Financial Summary $ in billions, except EPS ADJUSTED EPS REVENUES CASH FROM OPS 2 Adj. OI Margin 2 $0.79 $ % 21.1% Highlights $39.8 $39.9 $39.0 Historical Accounting Method 1 $8.7 $5.2 Capex Free Cash Flow $10.2 $5.1 $3.5 $5.1 Reported EPS $0.63 $0.81 Adjustments: Actuarial gain on benefit plans ($0.03) ($0.21) Merger-related items and amortization 3 $0.18 $0.30 Other adjustments 4 $ Adjusted EPS $0.79 $ Historical accounting method removes the impact of the adoption of revenue recognition accounting including a USF policy election and are comparable to. 2 is recast for ASU No (post employment benefit plans) and ASU No (cash flows). 3 includes $0.08 of merger-related interest expense (net) and debt exchange costs, $0.02 tax item, and $0.16 of intangible amortization. 4 includes severance and other. Adjusted EPS of $0.91, up 15.2% Includes ~$0.02 of Time Warner partial quarter Year-to-date adjusted EPS of $1.77 $39.0 billion in consolidated revenue $1.1 billion from Time Warner partial quarter, net of eliminations ~$900 million reduction from USF netting Adjusted operating income margin of 21.1% 19.2% on a comparable basis decline primarily from video Cash from operations of $10.2 billion; year-to-date $19.2 billion, up $1.5 billion Free cash flow of $5.1 billion Year-to-date free cash flow of $8.0 billion, up $1.5 billion 5

6 Financial Results $ in billions REVENUES EBITDA MARGIN AT&T Mobility REVENUES Business Solutions EBITDA MARGIN $17.5 $17.6 $ % service margin on comparable basis $9.7 $9.4 $9.1 Wireless growth helps offset legacy service pressure 42.2% 41.4% Historical Accounting Method 44.1% Solid customer growth Comparable service revenue up slightly year over year; up 2% sequentially 37.4% 35.8% 38.0% Historical Accounting Method Cost structure initiatives sustain margins Wireline EBITDA margin up slightly year-over-year REVENUES $12.7 $ % 21.8% Historical Accounting Method Entertainment Group EBITDA MARGIN $ % Video transition impacts revenues and margins Tailored video offerings for each segment Adworks continues double-digit growth REVENUES $2.0 $254M $2.0 $129M EBITDA Historical Accounting Method International $2.0 $148M Strong revenue growth in Mexico Solid wireless and video customer metrics Strong constant currency revenue growth, with FX pressure in LatAM 6

7 Results WarnerMedia $ in billions Revenues Adj. Op Income WarnerMedia $7.3 $7.8 $1.8 $1.8 $1.3 $ Days Reporting Considerations Sixteen days of WarnerMedia results included in AT&T consolidated results Pro forma data to be filed with the SEC in August Trending schedules are available on the IR website Future quarters comparison items: Results will continue to be reported on an operational basis Subscriber revenue eliminations (e.g. content) in the $3 billion range annually Purchase accounting impacts will be captured in Corporate and Other Turner HBO Warner Bros. $3.1 $3.2 $1.5 $1.7 $3.0 $3.3 $1.0 $1.0 $0.5 $0.6 $0.3 $0.3 7

8 Raising adjusted EPS to the high-end of the $3.50 range Includes estimated impacts of tax reform and new accounting standard Outlook Raising Free Cash Flow to the high-end of the $21 billion range Dividend payout of Free Cash Flow in the low 60s% Inclusive of 2018 deal and integration costs Capital Investment of approximately $25 billion; $22 billion net of expected FirstNet reimbursements and vendor financing Includes fiber build commitment Focused on de-leveraging net debt to EBITDA of 2.9x Expect year-end 2019 leverage in the 2.5x range Return to historical levels by year-end AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, 2018 Mobilizing AT&T Intellectual Your World Property. and DIRECTV All rights are reserved. registered AT&T, trademarks Globe logo, and Mobilizing service marks Your of World AT&T and Intellectual DIRECTV Property are registered and/or trademarks AT&T affiliated and service marks of AT&T Intellectual Property and/or AT&T affiliated

9 Q AT&T EARNINGS Business Update Randall Stephenson

10 AT&T: A Modern Media Company Customer A fresh approach to how media and entertainment works for consumers, creators, distributors and advertisers AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, 2018 Mobilizing AT&T Intellectual Your World Property. and DIRECTV All rights are reserved. registered AT&T, trademarks Globe logo, and Mobilizing service marks Your of World AT&T and Intellectual DIRECTV Property are registered and/or trademarks AT&T affiliated and service marks of AT&T Intellectual Property and/or AT&T affiliated

11 Organized for Speed, Efficiency and Value Creation AT&T Inc. John Donovan Lori Lee Brian Lesser John Stankey Communications Latin America Advertising & Analytics WarnerMedia Consumers, Business, Network & Technology Mexico Wireless, Vrio Data insights for relevant advertising Turner, HBO, Warner Bros. 11

12 Q AT&T EARNINGS WarnerMedia John Stankey

13 WarnerMedia ($ in billions) Turner Subscription Revenue $1.67 $1.67 $1.67 $1.69 $1.79 $1.77 1Q17 3Q17 4Q17 1Q18 HBO Subscription Revenue $1.30 $1.36 $1.42 $1.46 $1.43 $1.53 1Q17 3Q17 4Q17 1Q18 Primetime Emmy Nominations Turner: Revenue up 4% on gains in subscription and advertising revenues Consistent subscriber trends drive subscription revenues up 6% Advertising revenues up 3% due to strength from sports properties 3 of the Top 5 ad-supported cable networks in primetime among adults Home Box Office: Revenue up 13% on strong gains in subscription revenues Strong U.S. digital subscription revenue growth Warner Bros.: Producing record number of series More than 75 series underway for the television season 166 Primetime Emmy Nominations HBO received 108 nominations, including 22 for Game of Thrones the most of any show 1 Westworld is produced by Warner Bros. for HBO, and each includes the series nominations. Turner HBO WB WarnerMedia 13

14 Merger closed, with integration well underway Apply data to Turner ad inventory Positioned WarnerMedia content on AT&T distribution platforms WarnerMedia Key Initiatives Deliver on merger synergies of $2.5 billion run-rate by end of 2021 $1.5 billion cost savings; $1.0 billion revenue related synergies Integrating corporate staff functions, eliminating duplication and implementing supply chain policies Plan to step-up investment in premium content and direct-to-consumer relationships Enhance the HBO experience, while maintaining/strengthening the brand reputation Exploring international distribution opportunities AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, 2018 Mobilizing AT&T Intellectual Your World Property. and DIRECTV All rights are reserved. registered AT&T, trademarks Globe logo, and Mobilizing service marks Your of World AT&T and Intellectual DIRECTV Property are registered and/or trademarks AT&T affiliated and service marks of AT&T Intellectual Property and/or AT&T affiliated

15 Q AT&T EARNINGS AT&T Communications John Donovan

16 AT&T Communications Operating Results Postpaid Phone Momentum Net Adds (k) st Qtr 2nd Qtr 3rd Qtr 4th Qtr Strong year-over-year improvement in all major products Wireless Postpaid phone net adds of 46,000, an improvement of 135,000 from last year Solid smartphone gains and postpaid phone churn of 0.82% Prepaid net adds of 453,000, up 186,000 from last year Wireless Service Revenue Growth 1 3.0% 1.0% -1.0% -3.0% 3Q17 4Q17 1Q18 3Q18e 4Q18e TV and Broadband Subscribers 2 (millions) Traditional Streaming DSL IPBB EG Video & Broadband Video net adds of 80,000, an improvement of 279,000 from last year Traditional video net losses of 262,000, an improvement of 89,000 from last year Another strong quarter of DTV NOW net adds at 342,000, up 190,000 from last year Broadband net adds of 23,000, up 15,000 from last year and the 7 th consecutive quarter of positive net adds 246,000 subscribers added to the fiber network Wireless service revenue growth 1, first time since first quarter 2014 Expect continued improvement in second half, with growth for the full year Q16 2Q16 1 On a comparable basis, excluding the impact of ASC Subscriber counts include subs in Entertainment Group and Business Solutions. 16

17 AT&T Communications Key Initiatives Video Portfolio Evolution Launched a $15 offering called WatchTV, leading with Turner content Expanding line-up of video product offerings to all market segments Launched Open Video platform with early strong engagement metrics Continue driving industry leading cost structure Platform transformation in video and legacy Distribution enhancements Strong momentum in digital sales Investing in the future FirstNet Network build accelerating 5G Evolution covers ~100 million people and is available in more than 140 markets Mobile 5G launch plans on track AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, 2018 Mobilizing AT&T Intellectual Your World Property. and DIRECTV All rights are reserved. registered AT&T, trademarks Globe logo, and Mobilizing service marks Your of World AT&T and Intellectual DIRECTV Property are registered and/or trademarks AT&T affiliated and service marks of AT&T Intellectual Property and/or AT&T affiliated

18 Q AT&T EARNINGS Advertising & Analytics Brian Lesser

19 AT&T Advertising and Analytics has a distinct competitive advantage AdWorks Revenue (In millions) $687 $759 $ % +10% 1H16 1H17 1H18 Content Distribution Large scale portfolio of ad inventory with Turner content TNT, TBS, CNN, Adult Swim, Bleacher Report, Cartoon Network, trutv, NBA on TNT Supplemented with AT&T inventory Scale in TV, Mobile and Wired Broadband 170 million direct-to-consumer relationships Turner reach: ~90% of all U.S. pay-tv households Turner Advertising Revenue (In millions) $2,580 $2,478 $2,627 Data Vast data, targeting and measurement capabilities Data insights from subscriber relationships Mobile location and web-browsing enables targeting and attribution 1H16 1H17 1H18 Technology Premium Marketplace Announced acquisition of AppNexus Advanced ad formats 19

20 Q AT&T EARNINGS Latin America Lori Lee

21 AT&T LatAm Operating Results and Key Initiatives Mexico Subscriber Growth (millions) Q Strong subscriber and revenue growth in Mexico 756,000 wireless net adds in 2Q Added more than 3 million subscribers over the last year Mexico Wireless Network Build Target POPs (m) 50 2Q16 Vrio TV Subs (millions) Covered POPs Initial investment cycle nearly complete LTE build, stores and distribution in place Systems conversions nearly complete Consistent pay-tv performance in Latin America Stable subscribers and profitability World Cup helps drive strong video subscriber gains, but provides seasonal expense pressure in second quarter 1Q17 3Q17 4Q17 1Q18 21

22 Q&A Q AT&T EARNINGS