John Stephens Discusses AT&T Results, Outlook at Oppenheimer Conference

John Stephens, AT&T Inc.* senior executive vice president and chief financial officer spoke today at the Oppenheimer Technology, Internet & Communications Conference.

Stephens said that the company was pleased by the second-quarter performance of its WarnerMedia business, renamed after AT&T closed its acquisition of Time Warner in June. Stephens noted that with the acquisition of Time Warner, AT&T has scaled premium content to augment AT&T’s 170 million direct-to-consumer relationships, advanced advertising technology and high-speed network capabilities.¹

WarnerMedia was accretive to AT&T’s second-quarter results in the 16 days following the close of the acquisition on June 14. For the full-quarter, WarnerMedia delivered revenue growth in all three of its operating units — HBO, Warner Bros and Turner. WarnerMedia received a total of 166 Primetime Emmy nominations this year, and Warner Bros has more than 75 series underway for the 2018-2019 television season, a company record.

Stephens said the company is confident in its ability to manage its debt portfolio. AT&T expects its net-debt-to-adjusted EBITDA ratio to reach the 2.9x range by the end of 2018, dropping to the 2.5x range by the end of 2019 and reaching historical levels in the 1.8x range by the end of 2022. The company expects 2018 full-year free cash flow in the high end of the $21 billion range with accretion from WarnerMedia offset by pressure from integration and deal-related costs. Stephens said the company expects 2019 free cash flow will increase from 2018 levels as one-time deal-related costs abate and the company takes advantage of opportunities to further lower capital intensity.

The company expects its 2018 dividend payout as a percentage of free cash flow will be in the low 60% range or lower. The company plans to give its board of directors the flexibility to continue to increase the quarterly dividend. He also noted that recently announced acquisitions are expected to be funded with pending asset sales and reiterated that the company will continue to explore opportunities to monetize non-core assets.

Other updates from the company include:

• AT&T’s recently announced investments, including AppNexus, AlienVault and the 2.5 GHz spectrum auction in Mexico, will be essentially funded by the company’s pending sale of data centers to Brookfield Infrastructure partners and recent spectrum sales, and don’t affect de-leveraging plans or targets.
• In the Entertainment Group segment, with a focus on new capabilities and revenue opportunities as well as advertising growth, AT&T believes it has an opportunity to improve trends in 2019.
• In wireless, AT&T expects that service revenues will continue to grow in the second half of 2018 and that they will increase for the full year, both on a comparable basis. The company also expects that its postpaid phone net additions will be positive for full-year 2018.
• In AT&T Business, with many indicators pointing to a stronger economy, the company remains hopeful that it will see a lift in demand for AT&T Business services.
• In Latin America, the company expects a positive EBITDA trajectory for AT&T Mexico exiting 2018, with plans to be EBITDA positive in 2019. AT&T also remains focused on growing its Vrio pay TV operations in Latin America.

¹ Represents cumulative video-capable D2C relationships across the following services: Postpaid, prepaid and reseller wireless; US and LatAm pay-TV, including DIRECTV NOW; Mexico wireless; and US consumer broadband.