2nd Quarter Earnings Conference Call

Transcription

1 2nd Quarter Earnings Conference Call AT&T Investor Update July 21, 2016

2 Agenda 2Q16 Results Business Update Q&A

3 Cautionary Language Concerning Forward-Looking Statements Information set forth in this presentation contains financial estimates and other forwardlooking 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 1000 (also known as the 600 MHz incentive 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 2Q16 Results

5 2Q16 Financial Summary $ in billions, except EPS Revenues Adjusted EPS Free Cash Flow % Entertainment Adj. OI Margin Capital Investment 2 $40.5 $0.70 $0.72 $4.5 $4.8 $ % 2Q % 2Q16 2Q15 2Q16 2Q15 2Q15 2Q16 2Q16 Reported EPS $0.59 $0.55 Adjustments: 19.8% 20.1% $4.7 $5.6 Amortization of intangibles $0.01 $0.14 Merger, integration and other 1 $0.10 $0.03 Adjusted EPS $0.70 $ Q16 includes merger-related items for DIRECTV ($0.01) and Mexico/Other wireless ($0.01). 2 2Q16 includes $95 million capital purchases in Mexico with favorable vendor payment terms. Consolidated revenues of $40.5 billion, up 22.7% DIRECTV acquisition and gains in IP-based services drove growth Net Income continues to grow Adjusted EPS of $0.72 for the quarter, up 6.7% year to date Adjusted operating margins expand year over year Cash from operations of $10.3 billion, up 12.5% Free cash flow of $4.8 billion Capital investment of $5.6 billion; $10.3 billion year to date Dividends of $3 billion per quarter 61% of second-quarter free cash flow 73% year to date 5

6 2Q16 Results: Business Solutions Financial Results ($ in billions) Revenues EBITDA $ % EBITDA Margin $ % $6.7 $6.7 Continued margin expansion Revenue down slightly due to divested business and FX Growth in Enterprise on an adjusted basis Small business growth driven by mobility Legacy continues to be challenged 2Q15 2Q16 Business Solutions Revenue Mix Wireless 55% 16% 18% Strategic Services 11% Other Data Legacy Voice/Other Wireline Strategic Services Revenues $2.6 32% 2Q15 $2.8 36% 2Q16 % of Wireline Bus. Rev. Wireless and strategic services more than 70% of revenues Strong demand for highly secure, mobile business solutions Strategic services revenues up more than $200 million, or 8%, year over year 36% of business wireline revenues 6

7 2Q16 Results: Entertainment Group Revenue Trends 1 ($ in billions) Video/Ad Sales IP Voice/Data Legacy/Other Video led by growth in recurring subscription revenue $12.7 $ % +12.2% -17.1% 2Q15 2Q16 Adjusted 70% 19% 11% Ad Sales growing double-digit year to date IP Broadband revenues up 15%; total broadband revenues up nearly 7% Offsetting continued legacy pressure and non-recurring PPV events EBITDA ($ in billions) EBITDA Margin $2.4 22% $2.9 22% $3.1 $3.1 24% 25% 3Q15 4Q15 1Q16 2Q16 Continued margin expansion, with content savings on track 342,000 U.S satellite TV net adds; nearly 1 million added since close More than 80% of TV subscribers on satellite platform Seasonality impacted total video net results 54,000 IPBB adds (74,000 including Business Solutions) 7 1 Adjusted to include prior-period DIRECTV revenues on a comparable basis.

8 2Q16 Results: U.S. Wireless Wireless Trends ($ in billions) 2Q15 2Q16 Δ Service Rev (0.2) Equipment Rev (0.2) Total Revenues (0.4) Cash Opex (0.5) EBITDA EBITDA Margin 40.1% 41.4% 130bps EBITDA Svc. Mgn. 48.5% 49.8% 130bps Phone Subscribers (in thousands) Postpaid-Smart Postpaid-Feature Prepaid Postpaid Churn % 1.16% 1.18% 1.10% 0.97% 2Q15 3Q15 4Q15 1Q16 2Q16 Record EBITDA margins 41.4% and 49.8% service Record 2Q BYOD and upgrade rate impact revenues Postpaid phone-only ARPU + Next grows to $70 75% of smartphone base off subsidy More than 90% of smartphone sales off subsidy 0.97% postpaid churn, second-best quarter ever 1.4 million total net adds 185,000 branded phone net adds Almost 800,000 branded smartphones added to base ~600,000 feature phone migrations and disconnects 2.1 million North American net adds, including 1.4 million branded U.S. Phone Base Continues to Grow 8

9 2Q16 Results: International 2Q16 Mexico Wireless Subscribers (in thousands) 9,213 (37) Net Adds 614 9,955 Mexico 10 million wireless subscribers Nearly 780,000 branded net adds Mexico City launched Revenues up 13% sequentially 65 million LTE POPs covered and 61 cities launched 1Q16 Reseller Postpaid Prepaid 2Q16 Mexico LTE Deployment (millions of POPs) Cities Launched DIRECTV Latin America Subscriber growth and stable cash flows Revenues of $1.2 billion, up 8% sequentially Continued profitability and positive cash flow 87,000 TV net adds, even with losses from natural disaster in Ecuador Sky Mexico added 121,000 net subscribers 1 3Q15 4Q15 1Q16 2Q16 4Q16e 1 AT&T owns a 41% equity interest in Sky Mexico 9

10 2016 Guidance on Track Double-digit consolidated revenue growth DIRECTV drives revenue growth even with pressure from equipment sales and FX Adjusted 1 EPS growth in the mid-single digit range or better Up nearly 7% year to date Stable consolidated margins even with ramp in Mexico investment Improved consolidated operating margins Expanding EBITDA margins in all domestic segments Capital spending in the $22 billion range Trending toward the low end at mid-year Free cash flow growth with dividend coverage in the 70s% 73% year to date 1 Expected range excludes adjustments for non-cash mark-to-market benefit plan adjustments, merger integration costs and other adjustments that are not reasonably estimable at this time. 10

11 Business Update

12 Strategy Be the World s Premier Integrated Communications Company Connectivity Building Blocks Project VIP/LTE Fiber Spectrum Strategic acquisitions 5G Industry-Leading Cost Structure Merger synergies Project Agile efficiencies Softwaredefined network Product profitability focus Integrated Solutions Global business solutions Unique consumer offers Expansion of product set Secure & flexible Financial Foundation Strong liquidity position Benefit and compensation plans Debt refinancing & diversification Sound corporate governance 12

13 Connectivity: Sustained Data Growth Requires Multi-Layer Strategy Expand network assets 4G LTE and network densification; Mexico buildout; 380 million North American 4G LTE POPs Drive fiber deeper into network; GigaPower and Business Fiber deployment 5G development; trials, testing, standards Deploy broad spectrum portfolio 150 MHz of spectrum; 40 MHz of readily available spectrum WCS and AWS bands will be deployed over the next several years Continuous 2G and 3G spectrum refarming and acquisition Software-defined Network Upgrading traditional architecture with flexible, dynamic, intelligent network that can rapidly adjust and deliver next-generation services AT&T Mobile Data Traffic Growth 150,000% ( ) Expect 10x traffic growth by Capital Intensity 20% 18% 16% 14% 12% 10% Total Wireless Wireless capacity added e Project VIP Gigabytes (millions)

14 Industry-Leading Cost Structure: Drives Margins and Cash Flows DIRECTV merger synergies On track to $1.5 billion+ run rate by end of year $2.5 billion+ run rate by end of 2018 Project Agile and automation benefits Digital First, automating and streamlining operations, exiting less profitable lines of business On track for $3 billion run-rate cost savings Virtualize network with software Software-defined networks, standardized hardware with open-source software Capital and operational efficiencies; new revenue opportunities EBITDA Margin Expansion Illustrative 40% 35% 30% 25% e 2017e+ Free Cash Flow (in billions) Illustrative $20 $15 Significant free cash flow growth expected $10 $ e 2020e+ Free cash flow is cash from operations less capital expenditures. 14

15 Integrated Solutions: Unique Set of Assets Drives Growth Opportunities Unmatched portfolio of integrated assets World s largest pay TV provider + largest North American wireless network + pervasive broadband coverage 1 Fiber deployment to 12.5 million customer locations on track Unique consumer offers Game-changing OTT launch on track; choice and flexibility for every segment TV bundle with unlimited wireless, NFL Sunday Ticket and other promotional offers Cross selling, advertising, Cricket, IoT, Mexico wireless U.S. Wireless Subscribers (millions) 2Q Q16 71% 154% 153% Go-to-market integrated business services Mobile and fixed business solutions Network Functions on Demand, NetBond, global reach with secure network 20 0 Postpaid Smartphones Prepaid Connected Devices 1 Wireless and broadband assessment based on coverage. 15

16 Summary Becoming the premier integrated communications company Unprecedented assets and capabilities to lead in connectivity and integrated solutions Redefining seamless connectivity Virtualized functionality of networks drives efficiencies and new services Operating with an industry-leading cost structure Merger synergies, Project Agile, SDN and cost efficiencies Increasing growth opportunities Cross selling, integrated services, advertising, new products, OTT services, international 16

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