January 30, 2019 - investors.att.com/media/Files/A/ATT-IR... · 1 4Q18 includes $0.17 of purchase accounting amortization for WarnerMedia, $0.07 for DIRECTV and $0.01 for Other. 2

Q4 2018 AT&T EARNINGS

© 2019 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.

4th Quarter Earnings

AT&T Investor Update

January 30, 2019






Agenda

Strategic Review Randall StephensonChairman and Chief Executive Officer

Results and Outlook John StephensSenior Executive Vice President and Chief Financial Officer

Q&A

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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.

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.

Cautionary Language Concerning Forward-Looking Statements

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2018

Summary

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Solid Results

Record cash flowsFCF of $22 billion, debt reductionon plan, dividend payout 60%

Executed Strategic Imperatives

Closed Time Warner dealAccretive from Day 1

Wireless service revenue and EBITDA growthSolid smartphone gains withlow churn

Solid subscriber gains in Latin America

WarnerMedia continues growth Strong revenue and margin trends

Fiber deployment acceleratesMore than 11 million locations; ARPU improves with mix shift

Best Network, per GWSAlso: 5G introduced; FirstNet deployment ahead of schedule

Xandr launchedIntegrating AppNexus platform;Turner begins using Xandr data



Key 2019

Initiatives

5

Deliver merger synergies, grow WarnerMedia, launch DTC

Grow wireless service revenues

Expand targeted advertising, data analytics

De-lever through strong free cash flow, non-core asset sales

Stabilize Entertainment Group EBITDA

Lead in network through fiber, 5G and FirstNet investments






Results and Outlook



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

20182017

$160.5$170.8

2018 Full-Year Highlights

REVENUES

4Q17 4Q18Reported EPS $3.08 $0.66

Adjustments:

• Merger-related amortization1 $0.12 $0.25

• Merger integration items $0.07 $0.06

• Asset sales, impairments, other adjustments2 $0.48 $0.04

• Actuarial (gain) loss on benefit plans $0.19 ($0.07)

• Tax-related items3 ($3.16) ($0.08)

Adjusted EPS $0.78 $0.86

20182017

$3.05$3.52

18.4%20.6%

ADJUSTED EPSAdj. OI Margin

1 4Q18 includes $0.17 of purchase accounting amortization for WarnerMedia, $0.07 for DIRECTV and $0.01 for Other.2 4Q18 includes $0.04 severance and $0.04 other, partly offset by -$0.04 gain on sale of data center colocation operations and assets.3 4Q18 includes true-up to 4Q17 deferred taxes liability remeasurement, partly offset by other tax items.

4Q18 Highlights

4Q184Q17

$0.78$0.86

15.1%19.6%

ADJUSTED EPS REVENUES

4Q184Q17

$41.7

$48.0

Adj. OI Margin

Financial Summary$ in billions, except EPS

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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 FirstNet1

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

20182017

$38.0

$43.6

$21.6$21.3

$16.5$22.4

4Q18

4Q184Q17

$9.5

$12.1

$5.1

$4.2

$4.5$7.9

CAPEXFREE CASH FLOW

Cash From Operations

Record Cash Flows Drive Financial Strength$ in billions, except EPS

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2018

1 Excludes FirstNet reimbursement.



YE 20192019At Merger Close YE 2018

$180B

3.0x1

~2.6x1

~$171B2

2.8x1

1 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.

~$12B FCF after dividends

De-levering with record FCF Plus asset monetization initiatives

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Debt reduction plans on track

Expect strong 2019 cash generation

~2.5x1

~$158B~$150B

~$6-8B cash generation

Real estate sales

Non-core asset sales

Working capital initiatives



$ in billions

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

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

$19.2 $19.1

32.9%37.5%

4Q17 4Q18

18.9% 16.4%

$12.2$12.6

4Q17 4Q18

37.9% 36.0%

$7.4 $7.1

4Q17 4Q18

* 4Q18 presented on a comparable basis to remove the impact of revenue recognition accounting change and the USF policy election.

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4Q18* Communications Segment – EBITDA Growth and Margin ExpansionEBITDA MARGINREVENUES

EBITDA

Entertainment GroupMobility Business Wireline

4Q17 4Q18

$39.1 $38.3

29.3% 30.5%

$11.5 $11.7



$ in billions

4Q17 4Q18

REVENUES OI MARGIN

$8.7$9.2

22.6%28.4%

TurnerWarner Bros.

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

$3.2 $3.2$4.1$4.5

33.1%40.2%

12.7% 18.1%

* 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.

4Q17 4Q184Q17 4Q18

Home Box Office

$1.7 $1.7

28.8%37.2%

4Q17 4Q18

4Q18* WarnerMedia Segment – Revenue and Profit Growth; Strong Cash Generation

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OP INCOME

$2.0$2.6

+$295M +$138M +$221M

Op. Income Op. Income Op. Income



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

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

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4Q18 Xandr and Latin America Segment Results

2019

Consolidated Guidance

2019

FREE CASH FLOW $26B range

DIVIDEND PAYOUT High 50s %

NET DEBT TO ADJ. EBITDA 2.5x range

GROSS CAPITAL INVESTMENT1

$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).


companies. All other marks are the property of their respective owners.13




Q&A

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January 30, 2019 - investors.att.com/media/Files/A/ATT-IR... · 1 4Q18 includes $0.17 of purchase accounting amortization for WarnerMedia, $0.07 for DIRECTV and $0.01 for Other. 2