4th quarter earnings - investors.att.com/media/files/a/att-ir/financial-reports...161,000 total...

© 2018 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.

AT&T Investor Update

4th Quarter Earnings

January 31, 2018





Agenda

Strategic Review Randall StephensonChairman and Chief Executive Officer

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

Q&A


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.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 https://investors.att.com.



2017

A benchmark year for AT&T and the country

4 © 2018 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


Strong wireless performanceRecord-low churn, great margins,solid smartphone gains

Fiber deployment acceleratesMore than 7 million locations; continued growth in bundles

1.2M DIRECTV NOW subs2.0 video platform nears launch

Success with Strategic Products

FirstNet100% opt-in – all 56 states and territories

Virtualized 55%of network functions

Strong growth in MexicoMore than 3 million new subs; LTE network nears completion

Executing Strategic Imperatives

Turning Point in Public Policy

Tax reform a substantial positive for U.S. economyPro-investment, pro-growth regulatory movesPublic policy shifts drive increased investment, jobs and wages



Key 2018

Initiatives



Launch next-generation video streaming platform

Building world’s premier gigabit network

Close Time Warner acquisition

Create new platform for targeted advertising

Continue to improve industry-leading cost structure

Grow customers and profitability in Mexico





Results and Outlook



4Q174Q16

$10.1 $9.9

$6.5 $5.1

$3.7 $4.8

4Q174Q16

$0.65

$0.66

$0.78

17.5% 16.5%

7

Financial Summary

Full-year adjusted EPS of $3.05, up 7.4%

Includes $0.13 of 4Q operational impacts of tax reform

Adjusted operating income margin of 19.8%, up 40 basis points

Free cash flow of $17.6 billion, up 3.9%

Includes $1 billion of employee-related payments due to tax reform

Capex of $21.6 billion4

ADJUSTED EPSREVENUES CASH FROM OPS

4Q174Q16

$41.8 $41.7

Adj. OI MarginCapexFree Cash Flow

$ in billions, except EPS

20172016

$163.8 $160.5

20172016

$2.92

$2.84$3.05

19.4% 19.8%

20172016

$39.3 $39.2

$22.4 $21.6

$16.9 $17.6

2017 Full-Year Highlights

REVENUES ADJUSTED EPS CASH FROM OPSCapexFree Cash Flow

4Q17 Highlights

4Q16 4Q17Reported EPS $0.39 $3.08

Adjustments:

• Deferred tax liability remeasurement -- ($3.16)

• Asset write-offs, natural disasters1 $0.05 $0.41

• Actuarial gain/loss on benefit plans $0.10 $0.19

• Merger-related items and amortization2 $0.17 $0.19

• Other adjustments3 ($0.05) $0.07

Adjusted EPS $0.66 $0.78

14Q17 includes $0.35 of non-cash asset abandonment and $0.05 impact of natural disasters.24Q17 includes $0.05 of merger-related interest expense (net) and $0.12 of intangible amortization.34Q17 includes $0.05 of employee-related charges and $0.02 of debt exchange costs.

4Q tax reformAdj. OI Margin4Q tax reform

4Excludes capital investments with extended payment terms, classified as “financing” on statement of cash flows.



4Q17 Operational Results$ in billions

AT&T Mobility

Entertainment Group

4Q16 4Q17

20.8% 19.1%

$12.7$13.2

EBITDA MARGIN

329,000 postpaid phone net adds with record-low postpaid phone churn

Includes 400,000 postpaid smartphone net adds and best-ever 4Q postpaid phone churn of 0.89%

541,000 total postpaid net adds

2.7 million total net adds; 681,000 branded net adds

4Q wireless service margin of 43.8%

EBITDA margin of 32.7% with 710,000 higher smartphone gross adds and upgrades year-over-year

Bundled sales continue to grow

161,000 total video net adds

368,000 DIRECTV NOW net adds; nearly 1.2 million in service in first 13 months

95,000 IP broadband net adds

Broadband subscribers in fiber footprint doubled year-over-year

EG pressured by video product transition

Margins impacted by content, product mix and platform costs

4Q16 4Q17

35.7% 32.7%

$18.8 $19.2

REVENUES EBITDA MARGINUPGRADE RATE

6.3% 7.0%

REVENUES



Revenues up 2.0%, driven by wireless equipment and strategic services

Business wireline revenue up 0.8% sequentially

Solid EBITDA of $6.2 billion

Business wireline EBITDA margin of 37.8%, up 270 bps

• Process automation and service delivery efficiencies

• 55% of network functions virtualized with software-defined networking

Revenues up 16.0%

Customer gains in Mexico and Latin America

Strong subscriber and revenue growth in Mexico

1.3 million wireless net adds in 4Q

15 million total subscribers, up 3 million year-over-year

Network build nearing completion with 96 million POPs

Significant EBITDA growth from both Mexico and Latin America

4Q17 Operational Results$ in billions

Business Solutions

International

4Q16 4Q17

$2.2$1.9

$30m

$279m

EBITDA

4Q16 4Q17

34.9% 33.6%

$18.0 $18.4

EBITDA MARGIN

REVENUES

REVENUES



Pension Plan Funded

10

Sound Financial Management

Strong balance sheet, further improved with tax reform

Fewer long-term tax liabilities; greater cash flows

Pension plan nearly fully funded; no material cash contributions expected

Debt maturities extended, ample near-term liquidity

Net debt-to-adjusted EBITDA improved to 2.23x; continue to expect return to historical range four years after TWX acquisition

Significant free cash flow growth, improving dividend payout ratio and de-levering with excess cash flows

Solid Foundation for the Future

12/31/17

Available Assets $54.6

Obligations1 $59.3

Funding at current rates 92%

Funding at 10-yr avg rate 107%

No material cash contributions expected for at least five years

Debt Maturities2 Extended

$31.1

$51.5

$0

$20

$40

$60

$80

$100

1-5 6-10 11+

$42.3 $40.0

$84.2

$0

$20

$40

$60

$80

$100

1-5 6-10 11+

$41.9

12/31/16 12/31/17

1 Current discount rate of 3.8%; 10-year average rate of 5.1%.2 Maturities assume all debt with redemption features are repaid at final maturity date.

$ in billions

Debt Portfolio

14.6 yearsweighted average

maturity

4.4%weighted average

interest rate

About 1/4of total is non-U.S.



2018Financial Impacts



Tax reform fuels investment, cash flow and earnings growthIncremental impacts expected for 2018:• Cash from operations up ~$3 billion• Capex higher by ~$1 billion• Effective tax rate approximately 23%

FirstNet deployment launches• Plans in place, ramping quickly; deploy multiple spectrum bands simultaneously• Timing of reimbursements impacts reported capital expenditures• Expenses impacted by sustainability payments and interest on spectrum

Accounting standard (ASC 606) – Revenue Recognition• Revenue classifications change• Commission expenses deferred• Additional disclosures to be provided



2018 Outlook

Adjustments include a non-cash mark-to-market benefit plan gain/loss, merger-related interest expense, merger integration and amortization costs 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 the largest of these items. Accordingly, we cannot provide a reconciliation between forecasted adjusted diluted EPS and reported diluted EPS without unreasonable effort.

Adjusted EPS in the $3.50 range

• Includes estimated impacts of tax reform and new accounting standard

Free cash flow of about $21 billion

Capex approaching $25 billion; $23 billion net of expected FirstNet reimbursements

• Includes $1 billion incremental tax reform investment



Q&A

4th quarter earnings - investors.att.com/media/files/a/att-ir/financial-reports...161,000 total...

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