Reports Second-Quarter Results
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Q2 2017 AT&T EARNINGS Investor Briefing No. 297 | JULY 25, 2017 Investor Briefing Q2 2017 AT&T EARNINGS Contents Consolidated Results 3 Business Solutions 5 Entertainment Group 7 Consumer Mobility 9 International 10 AT&T Mobility 12 Highlights 15 Financial and Operational Information 18 Discussion and Reconciliation 28 of Non-GAAP Measures Investor Briefing Q2 2017 AT&T EARNINGS Consolidated Results AT&T Reports Second-Quarter Results Nj Consolidated revenues of $39.8 billion Nj Operating income of $7.3 billion Nj Net income attributable to AT&T of $3.9 billion Nj Diluted EPS of $0.63 as reported and $0.79 as adjusted, compared to $0.55 and $0.72 in the year-ago quarter Nj Cash from operations of $8.9 billion Nj Free cash flow of $3.7 billion Company Maintains Full-Year Guidance HIGHLIGHTS: Nj U.S. wireless results: Best-ever postpaid phone churn of 0.79% Total postpaid churn including tablets of 1.01% Growing operating income margin of 30.4% with record-high EBITDA margins including best-ever wireless service margin of 50.4% Nj 2.8 million wireless net adds 2.3 million U.S., driven by connected devices, prepaid and postpaid 476,000 Mexico net adds Nj Entertainment Group results: 112,000 IP broadband net adds; 8,000 total broadband net adds More than 5.5 million AT&T Fiber customer locations passed Total video losses of 199,000 with DIRECTV NOW gains helping offset traditional TV subscriber decline; Total video subscribers essentially flat year over year Nj International results: Revenues up 10.8% with favorable operating trends Continued revenue growth and margin improvement in Mexico 3 CONTENTS Investor Briefing Q2 2017 AT&T EARNINGS Consolidated Results CONSOLIDATED FINANCIAL RESULTS Cash from operating activities was $8.9 billion in the second quarter and $18.2 billion year to date. Capital AT&T's consolidated revenues for the second quarter expenditures were $5.2 billion in the quarter and totaled $39.8 billion versus $40.5 billion in the year- $11.2 billion year to date. Free cash flow — cash from ago quarter, primarily due to declines in legacy operating activities minus capital expenditures — wireline services and consumer mobility. Compared was $3.7 billion for the quarter and $6.9 billion year with results for the second quarter of 2016, to date. operating expenses were $32.5 billion versus $34.0 billion; operating income was $7.3 billion versus $6.6 billion; and operating income margin was Cash from Operations 18.4% versus 16.2%. When adjusting for amortization, IN BILLIONS merger- and integration-related expenses and other $11.0 items, operating income was $8.6 billion versus $10.3 $10.1 $9.2 $8.9 $8.1 billion; and operating income margin was 21.6%, $5.8 $6.5 v v up 150 basis points versus the year-ago quarter. $5.5 $6.0 $5.2 Consolidated Revenues $4.8 $5.2 $3.7 $3.7 IN BILLIONS $3.2 $41.8 $40.5 $40.9 2Q16 3Q16 4Q16 1Q17 2Q17 $39.4 $39.8 Free Cash Flow Capital Expenditures 2Q16 3Q16 4Q16 1Q17 2Q17 Second-quarter net income attributable to AT&T totaled $3.9 billion, or $0.63 per diluted share, compared with $3.4 billion, or $0.55 per diluted share, in the year-ago quarter. Adjusting for $0.16 of costs for amortization, merger- and integration-related expenses and other items, earnings per diluted share was $0.79 compared with an adjusted $0.72 in the year-ago quarter, up 9.7%. Adjusted Earnings Per Share $0.79 $0.74 $0.74 $0.72 $0.66 2Q16 3Q16 4Q16 1Q17 2Q17 REPORTED: $0.55 $0.54 $0.39 $0.56 $0.63 4 CONTENTS Investor Briefing Q2 2017 AT&T EARNINGS Business Solutions The Business Solutions segment provides both wireless and wireline services to business customers and wireless services to individual subscribers who participate through employer-sponsored plans. AT&T's wireless and wired networks provide complete communications solutions to these customers. AT&T’s business customer revenues include results from enterprise, public sector, wholesale and small/midsize customers. FINANCIAL HIGHLIGHTS BUSINESS WIRELESS FINANCIAL RESULTS Total second-quarter revenues from business Business wireless revenues were essentially flat year customers were $17.1 billion, down 2.7% versus over year at $9.7 billion with service revenue growth the year-earlier quarter due to declines in legacy largely offsetting lower equipment revenues. wireline services. Nj Wireless service revenues were up 0.5% year Nj Growth in wireless service revenues and over year, reflecting continued migration from strategic business services helped offset declines consumer plans. in legacy wireline services and wireless equipment sales. BUSINESS WIRELINE FINANCIAL RESULTS Nj Second-quarter operating expenses were In business wireline, declines in legacy products $12.6 billion, down 5.5% versus the second were partially offset by continued growth in strategic quarter of 2016. Operating income totaled business services. Continued weakness in business $4.5 billion, up 6.1% year over year with cost fixed investment along with technology transitions efficiencies and depreciation more than also impacted results. Total business wireline offsetting declines in legacy services. revenues were $7.4 billion, down 5.9% year over year. Nj Second-quarter operating income margin Nj Strategic business services, the advanced wireline was 26.1%, up 220 basis points year over year capabilities that lead AT&T’s most advanced with growth in IP revenues and increased cost business solutions — including VPNs, Ethernet, efficiencies more than offsetting declines in cloud, hosting, IP conferencing, voice over IP, higher-margin legacy services. dedicated internet, IP broadband and security services — continued its solid performance. Revenues grew by $223 million, or 8.0%, versus Revenues & EBITDA Margin IN BILLIONS the year-earlier quarter. These services represent 41% of total business wireline revenues and $17.8 $18.0 $17.6 $16.8 $17.1 an annualized revenue stream of more than $12 billion. Growth in strategic business services helped offset a decline of more than $600 million 38.2% 38.5% 39.6% 39.7% 34.9% in legacy services in the quarter. $6.7 $6.8 $6.3 $6.7 $6.8 2Q16 3Q16 4Q16 1Q17 2Q17 Revenues EBITDA EBITDA Margin 5 CONTENTS Investor Briefing Q2 2017 AT&T EARNINGS Business Solutions Strategic Business Services Revenues IN BILLIONS $3.0 $3.0 $3.0 $2.9 41.0% $2.8 40.1% 38.5% 37.1% 35.8% 2Q16 3Q16 4Q16 1Q17 2Q17 Strategic Services Revenues % of Business Wireline Revenues SUBSCRIBER METRICS At the end of the second quarter, AT&T had more than 84 million business wireless subscribers. Nj Business Solutions added 36,000 postpaid subscribers and added 2.2 million connected devices in the second quarter. Postpaid business wireless subscriber churn increased to 0.97% versus 0.91% in the year-ago quarter due to tablets. Connected Device Subscribers & Net Adds IN MILLIONS 33.6 31.4 29.4 30.6 28.1 2.6 2.2 1.2 1.3 1.3 2Q16 3Q16 4Q16 1Q17 2Q17 Net Adds Subscribers Nj During the quarter, the company also added 12,000 high-speed IP broadband business subscribers. Total business broadband had a loss of 17,000 subscribers. 6 CONTENTS Investor Briefing Q2 2017 AT&T EARNINGS Entertainment Group AT&T’s Entertainment Group provides entertainment, high-speed internet and communications services predominantly to residential customers in the United States. FINANCIAL HIGHLIGHTS Nj Entertainment Group EBITDA margin was 24.6%, compared to 24.7% in the second quarter of Total revenues were $12.7 billion, generally flat versus 2016, with video and IP broadband revenue the year-earlier quarter, but up sequentially. growth and cost efficiencies mostly offsetting Nj Total video revenues were up 2.1% with satellite TV content-cost pressure, declines in legacy gains more than offsetting declines in IPTV. services and start-up costs for DIRECTV NOW. AdWorks continues to show strong gains with Revenues and EBITDA Margin revenues up nearly 15%. IN BILLIONS $13.2 Nj Broadband revenues were down slightly in the $12.7 $12.7 $12.6 $12.7 quarter as the company introduced simplified pricing. IP broadband revenues grew by 3.2%. 24.7% 23.5% 23.9% 24.6% 20.8% Product Revenues IN BILLIONS $13.2 $12.7 $12.7 $12.6 $12.7 $3.1 $3.0 $2.7 $3.0 $3.1 $1.9 $1.9 $1.9 $1.9 $1.9 2Q16 3Q16 4Q16 1Q17 2Q17 Revenues EBITDA EBITDA Margin $9.6 $9.2 $9.0 $9.0 $9.0 $1.9 $1.8 $1.7 $1.7 $1.6 2Q16 3Q16 4Q16 1Q17 2Q17 High-speed Internet Video Other Second-quarter operating expenses were $11.0 billion, essentially flat from a year ago as cost synergies helped offset annual content-cost increases. Nj Operating income totaled $1.7 billion, up slightly from the year-ago quarter. Nj Second-quarter operating income margin was 13.1%, up from 13.0% in the year-earlier quarter. 7 CONTENTS Investor Briefing Q2 2017 AT&T EARNINGS Entertainment Group SUBSCRIBER METRICS Entertainment Group continued to gain broadband subscribers in the second quarter. Total video subscribers were down 199,000 in the quarter as DIRECTV NOW subscribers helped offset Nj The Entertainment Group had a net gain of traditional video decreases. The company ended the 112,000 IP broadband subscribers in the second quarter with 25.2 million total video subscribers, quarter with DSL losses of 104,000, for total essentially flat from a year ago. broadband subscriber growth of 8,000.