AT&T Provides Update on Strategy, Guidance for 2019

NEW YORK–(BUSINESS WIRE)–ATT* (NYSE:T)
provided an update on its strategy following the acquisition of Time
Warner, now known as WarnerMedia, as well as guidance for 2019. Guidance
includes significant expected growth in free cash flow, which will help
the company achieve its target of a debt ratio in the 2.5x range by the
end of 2019, as well as a low single digit growth rate in adjusted EPS.

The company is hosting a meeting with financial analysts today to
discuss its strategy and 2019 outlook. Presenters will include: Randall
Stephenson, chairman and CEO; John Donovan, CEO of ATT Communications;
John Stankey, CEO of WarnerMedia; Lori Lee, CEO of ATT Latin America;
Brian Lesser, CEO of Xandr; and John Stephens, CFO. The meeting will be
webcast on the ATT
Investor Relations
website beginning at 4 p.m. Eastern time. Related
materials will be available in the same location when the event begins.

“We are well positioned for success as the lines between entertainment
and communications continue to blur,” said Randall Stephenson, ATT
chairman and CEO. “If you’re a media company, you can no longer rely
exclusively on wholesale distribution models. You must develop a direct
relationship with your viewers. And if you’re a communications company,
you can no longer rely exclusively on oversized bundles of content.

“We have some of the world’s best content and 370 million
direct-to-consumer relationships across mobility, video, broadband and
our digital properties,”4 Stephenson said. “That exceptional
combination enables us to deliver a broad spectrum of entertainment
experiences — from premium video to skinnier over-the-top and
mobile-centric bundles of live content, and a subscription
video-on-demand product to launch late next year. And with Xandr, our
advertising business, we’re using insights from our customer
relationships, combined with our large advertising inventory, to drive
higher yields on advertising.

“Our leadership position in communications and entertainment gives us a
distinct advantage that will allow us to grow our share of both segments
over time,” he said.

Highlights of what ATT will cover in its analyst meeting today include:

2019 Financial Guidance

  • Free cash flow in the $26 billion range with a solid dividend payout
    ratio — in the high 50% range

    • 1 Free cash flow is cash from operating
      activities minus capital expenditures. Free cash flow dividend
      payout ratio is dividends divided by free cash flow.
  • Net-debt-to-adjusted-EBITDA ratio in the 2.5x range at year-end
  • Gross capital investment in the $23 billion range

    • 2 Excludes expected FirstNet reimbursement in
      the $1 billion range; includes potential vendor financing.
  • Adjusted EPS growth percentage in the low single digits

    • 3 Adjustments include merger-related adjusted
      amortization costs 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.
      Accordingly, we cannot provide a reconciliation between forecasted
      adjusted diluted EPS and reported diluted EPS without unreasonable
      effort.

Merger Synergies and Debt Reduction

  • The company expects total WarnerMedia synergies to reach a run rate of
    $2.5 billion by the end of 2021. About $1.5 billion will be cost
    synergies, including efficiencies in marketing and procurement
    functions and corporate overhead. The remaining $1 billion are revenue
    synergies expected from additional sales opportunities, lower
    subscriber churn and higher advertising. The company expects to reach
    a run rate of about $700 million by the end of 2019, increasing to $2
    billion by the end of 2020 and ramping to $2.5 billion by the end of
    2021.
  • ATT expects to end 2018 with a net-debt-to-adjusted-EBITDA ratio of
    about 2.8x, which it plans to reduce to the 2.5x range by the end of
    2019, implying an $18 billion to $20 billion reduction in debt. The
    company expects to use about $12 billion in free cash flow after
    dividends to pay down debt in 2019. It also expects to generate cash
    of at least $6 billion to $8 billion from other opportunities,
    including real estate sale-lease backs, sales of non-core assets and
    working capital initiatives.

Mobility

  • The Mobility business unit represents nearly half of ATT’s adjusted
    EBITDA and about 40% of its revenues.5
  • The company expects Mobility to continue to deliver top- and
    bottom-line growth. Mobility is growing both service revenues
    and EBITDA and will continue to do so in 2019.
  • The company expects its leadership in 5G and its FirstNet deployment
    will help sustain this growth. The company announced today that it has
    launched LTE-LAA technology — with theoretical peak speeds of up to
    1Gbps — in 31 markets across the United States.6
  • The company has the best wireless network in the United States,
    according to GWS.7

WarnerMedia

  • WarnerMedia represents about 17% of the company’s revenue and adjusted
    EBITDA5 and has been accretive to ATT’s adjusted EPS since
    the acquisition closed in June 2018.
  • WarnerMedia’s Home Box Office, Turner and Warner Bros. units grew
    revenues in the third quarter of 2018.
  • WarnerMedia expects to continue growing its top- and bottom-line and
    to be accretive to ATT’s adjusted EPS in 2019.
  • WarnerMedia is well positioned with its existing wholesale
    distribution of content, combined with its plans for a subscription
    video on demand (SVOD) service next year and potentially an
    advertising-supported video on demand service in the future.
  • WarnerMedia plans to launch its initial direct-to-consumer SVOD beta
    application in the fourth quarter of 2019.

    • The SVOD service will include three levels of service: an
      entry-level movie-focused package; a premium service with original
      programming and blockbuster movies; and a third service that
      bundles content from the first two plus an extensive library of
      WarnerMedia and licensed content.
    • The SVOD service will complement WarnerMedia’s existing business;
      benefit its current distribution partners; expand the audience and
      increase engagement around its content; and provide data and
      analytics to inform new products and better monetize content.

Business Wireline

  • This unit represents about 17% of the company’s adjusted EBITDA5
    and has delivered steady EBITDA ranging from $2.6 to $2.8 billion each
    quarter for the past three years.
  • The company’s FirstNet business continues to ramp, with 3,600 agencies
    and more than 250,000 subscribers as of the third quarter.

Entertainment Group (video and broadband business)

  • Entertainment Group represents about 15% of the company’s adjusted
    EBITDA5.
  • This unit expects stable EBITDA in 2019, compared with 2018 levels. In
    2019, the company expects:

    • Growth in broadband revenues and subscribers as ATT continues to
      expand its fiber network and adds additional higher-ARPU fiber
      subscribers.
    • Increased profitability in OTT video, as shown by recent price
      increases, lower content costs and adjustments to promotions. This
      will likely result in negative net adds at DIRECTV NOW in the
      fourth quarter of 2018 and in 2019.
    • A $1 billion improvement in linear video revenues driven by the
      remaining 2 million subscribers rolling off 2-year price locks and
      increased ad revenues from Xandr, ATT’s advertising business,
      which grew revenues more than 20% in the third quarter of 2018.

      • As the 2-year price locks roll off, the company expects a
        decline in linear video subscribers in 2019 consistent with
        the pace of decline in the third quarter of 2018.
    • Voice revenue declines and amortization of commissions and
      installment costs will continue to impact EBITDA and operating
      income.
    • Cost reductions driven by increased efficiency and automation will
      continue to provide cost savings.

ATT Latin America

  • The company expects to continue improving EBITDA and cash flows in its
    Mexico wireless operations in 2019.

    • ATT has more than 17 million wireless subscribers in Mexico,
      nearly double 2015 levels, and is the fastest growing wireless
      provider in the country. Mexico’s growing economy and expanding
      population offer opportunities for growth, and the company expects
      to continue to add subscribers. At the same time, it has
      opportunities to reduce costs and capital expenditures as it
      completes its LTE network build and systems integration work.
  • Vrio, ATT’s video operations in 11 countries in Latin America and the
    Caribbean, expects to sustain cash generation in 2019.

    • ATT is using technology to reduce Vrio’s cost structure through
      initiatives like electronic billing and automation. The company
      also sees growth opportunities from its recent launch of
      over-the-top service DIRECTV Go in Colombia and Chile.

Xandr

  • ATT expects continued strong growth in advertising revenues while it
    builds a premium advertising marketplace.

    • Advertising represents a nearly $7 billion annual revenue stream
      for ATT.8
    • ATT’s advertising unit Xandr grew revenues more than 20% on a
      comparable basis in the third quarter of 2018 and it plans to
      continue to deliver strong revenue growth in its existing media
      sales operations in 2019.

4 Represents cumulative 170 million video-capable
D2C relationships across the following services: Postpaid, prepaid and
reseller wireless; US and DTV LatAm pay-TV, including DIRECTV NOW;
Mexico wireless; and US consumer broadband as well as 200 million unique
visitors to digital properties, including CNN.com, HBO NOW®, Otter Media
and Bleacher Report.

5 As of 3Q18
6
Actual speeds are lower and will vary. See http://about.att.com/sites/broadband/performance
for more information on wireless speeds.

7
Based on GWS OneScore Sept. 2018. Excludes crowd sourced studies.

8
Includes WarnerMedia AdWorks and other revenues as of 3Q18.

*About ATT

ATT Inc. (NYSE:T)
is a diversified, global leader in telecommunications, media and
entertainment, and technology. It executes in the market under four
operating units. WarnerMedia’s HBO, Turner and Warner Bros. divisions
are world leaders in creating premium content, operate one of the
world’s largest TV and film studios, and own a world-class library of
entertainment. ATT Communications provides more than 100 million U.S.
consumers with entertainment and communications experiences across TV,
mobile and broadband services. Plus, it serves more than 3 million
business customers with high-speed, highly secure connectivity and smart
solutions. ATT Latin America provides pay-TV services across 11
countries and territories in Latin America and the Caribbean, and is the
fastest growing wireless provider in Mexico, serving consumers and
businesses. Xandr provides marketers with innovative and relevant
advertising solutions for consumers around premium video content and
digital advertising through its AppNexus platform.

ATT products and services are provided or offered by subsidiaries and
affiliates of ATT Inc. under the ATT brand and not by ATT Inc.
Additional information is available at about.att.com.
© 2018 ATT Intellectual Property. All rights reserved. ATT, the Globe
logo and other marks are trademarks and service marks of ATT
Intellectual Property and/or ATT affiliated companies. All other marks
contained herein are the property of their respective owners.

Cautionary Language Concerning Forward-Looking StatementsInformation
set forth in this news release 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 ATT’s filings with the
Securities and Exchange Commission. ATT disclaims any obligation to
update and revise statements contained in this news release based on new
information or otherwise.

This news release 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.

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