3rd Quarter Earnings AT&T Investor Update October 24, 2017
© 2017 AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, Mobilizing Your World and DIRECTV are registered trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks are the property of their respective owners. AT&T Proprietary (Internal Use Only). Not for use or disclosure outside the AT&T companies except under written agreement.
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 https://investors.att.com. 2
© 2017 AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, Mobilizing Your World and DIRECTV are registered trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks are the property of their respective owners. AT&T Proprietary (Internal Use Only). Not for use or disclosure outside the AT&T companies except under written agreement.
Financial Summary $ in billions, except EPS
3Q Year-to-Date Highlights
3Q17 REVENUES
CASH FROM OPS
ADJUSTED EPS
Capex Free Cash Flow
Adj. OI Margin
$40.9
3Q16
$39.7
3Q17
$0.74
$0.74
2 3Q17 includes
3
$11.1
$5.8
$5.3
20.3%
20.3%
$5.2
$5.9
3Q16
3Q17
3Q16
3Q17
Reported EPS Adjustments: • TWX financing and natural disasters1 • Amortization of intangibles • Merger and integration • Other2 Adjusted EPS 1 3Q17 includes
$11.0
3Q16 $0.54
3Q17 $0.49
REVENUES
ADJUSTED EPS
CASH FROM OPS
Adj. OI Margin
$122.0
2016
$118.9
2017
$2.17
$2.26
20.1%
20.9%
2016
2017
Year-to-date adjusted EPS of $2.26, up 4.1% Adjusted operating income margin of 20.9%, up 80 bps
-$0.14 $0.03 $0.03 $0.74
$0.07 $0.12 $0.01 $0.05 $0.74
Cash from operations up slightly to $29.3 billion Capex of $16.5 billion FCF of $12.8 billion
$0.04 of merger-related interest expense (net) and $0.02 impact of natural disasters. $0.02 of tax-related items and $0.02 of severance costs.
© 2017 AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, Mobilizing Your World and DIRECTV are registered trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks are the property of their respective owners. AT&T Proprietary (Internal Use Only). Not for use or disclosure outside the AT&T companies except under written agreement.
Capex Free Cash Flow
$29.2
$29.3
$16.0
$16.5
$13.2
$12.8
2016
2017
AT&T Mobility $ in billions; Subscribers in millions
3Q17 Results REVENUES
Wireless and video bundling strategy driving results
EBITDA MARGIN
$18.2
$17.4
Record wireless margins 42.0% EBITDA margin and 50.4% wireless service margin with strong cost management
Best-ever third-quarter postpaid phone churn of 0.84% 41.2%
Strong year-over-year improvement in postpaid phone net adds
42.0%
Nearly 100,000 postpaid smartphones added to the base 3Q16
130,000 branded phone net adds, with 227,000 prepaid phone net adds
3Q17
Postpaid Smartphones
57.7
1.04%
3Q15 4
Share of Industry Service Revenue1
Prepaid Churn
Postpaid Phone Churn
58.7
Prepaid Phone Subscribers
59.3
13.0
14.5
Smartphones % of Phone base2 33% 33%
34%
11.0
0.90%
3Q16
87%
90%
92%
2Q15
2Q16
2Q17
0.84% 3Q17
3Q15
3Q16
3Q17
© 2017 AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, Mobilizing Your World and DIRECTV are registered trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks are the property of their respective owners. AT&T Proprietary (Internal Use Only). Not for use or disclosure outside the AT&T companies except under written agreement.
1 Industry defined as
the four largest national mobility service providers. each year.
2 Third quarter data presented for
Entertainment Group $ in billions; Subscribers in millions
3Q17 Results REVENUES
$12.7
EBITDA MARGIN
$12.6
Growth in video, advertising and high-speed Internet revenues offset by legacy services AdWorks revenues up 11%, with continued strong growth in targeted advertising
Margins pressured by content, product mix and platform costs
Building one of the largest footprints of high speed internet in the country Fiber deployment drives 125,000 IP broadband gains, as penetration approaches 50% in mature markets
25 million total TV subscribers, down 90,000 23.5%
21.3%
3Q16
3Q17
Enhancing Speeds and Coverage Customer locations Fiber to the Premise Other Fiber and HSI 1
Nearly 800,000 DIRECTV NOW subscribers in less than a year DIRECTV NOW has live, local channels in more than 75 markets
Multi-Product Success TV Households with Wireless Plans % of TV base
>50M
6.5 5.4
1
Phase 2 video platform on track for 2018 • Feature and content rich to support better
ARPUs and margins
>30M
>6M Today
Video Model Evolving
• Minimal subscriber acquisition costs
>14M >2020
22%
26%
3Q15
3Q17
Satellite churn drops by 50% when bundled with wireless
Includes customer locations with >50Mbps HSI, business locations within 1000’ of fiber; future 5G. © 2017 AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, Mobilizing Your World and DIRECTV are registered trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated 5 companies. All other marks are the property of their respective owners. AT&T Proprietary (Internal Use Only). Not for use or disclosure outside the AT&T companies except under written agreement.
Growing critical mass of data insights
Business Solutions and International $ in billions
Legacy services pressure revenues as structural transition of business wireline continues
3Q17 Business Solutions 3Q16
3Q17
Δ
Total Revenues
17.8
17.1
(0.7)
Expanding margins with stable EBITDA of $6.8 billion
Cash Opex
10.9
10.2
(0.7)
Continued focus on cost-management initiatives
EBITDA
6.8
6.8
0.0
•
Process automation and service delivery efficiencies
38.5%
40.0%
150 bps
•
Software-defined networking; 45% of network functions virtualized
EBITDA Margin
New technologies drive gains in strategic business services
3Q17 International
Revenues up 11.7%
REVENUES
Gains in Mexico and Latin America
$1.9
EBITDA
$2.1
Strong subscriber and revenue growth in Mexico, even with natural disasters Nearly 700,000 wireless net adds; 13.8 million total subscribers, up 29% year over year
90+ million LTE POPs, covering 75% of the population
Continued profitability in DIRECTV Latin America
6
$239m
$162m
3Q16
3Q17
© 2017 AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, Mobilizing Your World and DIRECTV are registered trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks are the property of their respective owners. AT&T Proprietary (Internal Use Only). Not for use or disclosure outside the AT&T companies except under written agreement.
Business Update Time Warner Acquisition DOJ approval pending; all other jurisdictions approved • Continue to expect to close by year-end • Pro forma statements after closing
Time Warner continues to perform better than our expectations
FirstNet 27 states and territories have opted in
New AT&T organization structure in place
90-day state opt-in clock started
• Streamlining corporate overhead • Data insights organization
December 28 state deadline • Automatic opt-in for states that don’t take action
Construction begins 1Q18
7
Business Opportunities
Portfolio management • Real estate and non-core asset monetization • International portfolio • Spectrum M&A
Network opportunities post natural disasters
© 2017 AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, Mobilizing Your World and DIRECTV are registered trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks are the property of their respective owners. AT&T Proprietary (Internal Use Only). Not for use or disclosure outside the AT&T companies except under written agreement.
Regulatory and Tax Reform Lighter touch regulation and pro-growth initiatives Regulatory clarity • Business data services • Privacy rules • Title II / Net Neutrality
Tax Reform framework • Encourages investment and jobs • Makes U.S. competitive • AT&T would step-up investments
• AT&T expects increased demand • Progress in legislative process
3Q17 Summary 2017 guidance on track Stable third-quarter adjusted earnings and margins with 13% growth in free cash flow Cost management offsetting legacy and video revenue and margin pressure; year-to-date adjusted EPS up more than 4%; response to natural disasters impacts quarter
Best-ever wireless EBITDA margins with record low third-quarter phone churn Continued growth of smartphone base and branded phones
On track to build one of the largest high speed internet footprints in the country Expansion of fiber footprint generating growth; fourth consecutive quarter of total Entertainment Group broadband gains
Video model evolving – ready to position content with advertising opportunity Bundles growing, DIRECTV NOW adding scale
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© 2017 AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, Mobilizing Your World and DIRECTV are registered trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks are the property of their respective owners. AT&T Proprietary (Internal Use Only). Not for use or disclosure outside the AT&T companies except under written agreement.
Q&A
© 2017 AT&T Intellectual Property. All rights reserved. AT&T, Globe logo, Mobilizing Your World and DIRECTV are registered trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks are the property of their respective owners. AT&T Proprietary (Internal Use Only). Not for use or disclosure outside the AT&T companies except under written agreement.
