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© 2014 AT&T Intellectual Property. All rights reserved. AT&T, the AT&T logo and all other marks contained herein are trademarks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.
AT&T Investor Update
4Q13 Earnings Conference Call January 28, 2014
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Q and A
John Stephens Senior Executive Vice President and Chief Financial Officer
Introduction
Agenda
Results
Randall Stephenson Chairman and Chief Executive Officer
2013 Highlights and 2014 Outlook
Susan Johnson Senior Vice President-Investor Relations
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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 www.att.com/investor.relations.
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2013 Highlights
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Best-in-class network
Balance sheet strength
$25 billion invested in capital and spectrum
$23 billion returned to shareowners
Pension plan funded
Solid Financial Performance Revenue growth, expanding wireless margins, stable adjusted consolidated margins, 8.2 percent adjusted EPS growth, strong cash generation
Exceeded Project VIP Objectives Nearly 280 million 4G LTE POPs, U-verse expansion and speed upgrades, fiber to business build, GigaPower
Launched New Growth Platforms NetBond cloud alliances with IBM, Microsoft, CSC and Equinix; Digital Life, connected car, mobile payments
Strategic Opportunities Agreement to buy Leap, tower transaction, selling Connecticut wireline asset
Improved Spectrum Position 700 MHz deal, Alltel assets, Aloha licenses, 60+ smaller transactions
*Performance rankings of first in 56 cities and tied for first in 37 cities out of 125 total cities studied, based on second half RootMetrics® RootScore® report for each city in the second half of 2013 of 4 national mobile networks that rely on scores calculated from random samples. Your experiences may vary. The RootMetrics award is not an endorsement of AT&T. Visit rootmetrics.com for more details.
2013: Year of the Network
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A premier network experience • Highest ranked mobile network performance
according to RootMetrics® in more markets than any other carrier
• No one drops fewer calls than AT&T
• LTE build nearly complete
• More than 5 million new U-verse broadband customer locations since VIP launch – includes more than 1.5 million video locations
• 45 Mbps speeds to nearly two-thirds of U-verse video customer locations
• More than 250,000 new business customer locations reached with fiber
Nearest Competitor
RootMetrics® Ranks AT&T’s Mobile Network Performance Highest in More Markets than Anyone Else AT&T ranked 1st or tied for 1st in combined (call, text, data) performance in 93 of 125 cities tested in the second half of 2013*
56 First
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37 Tied First
37 Tied First
AT&T
93 out of 125 cities
68 out of 125 cities
All Others
5 out of 125 cities
Leading the Digital Ecosystem Transformation
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Entertainment U-verse
Health & Wellness
Connected Car
Machine-to-Machine
Payments & Offers
Isis
Integrated Business Solutions
Cloud
Remote control for life
Mobile
Ultra-Fast
Highly Secure
Ubiquitous
Virtualized
IP Network
Integrated IP network and cloud
Video Enablement & Services
Enterprise Security Services
Home Automation Digital Life
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8.2%
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2013 2012
2013 Financial Summary
4Q adjusted EPS of $0.53, up 20 percent year over year
• 8.2 percent increase for 2013
Full-year adjusted consolidated revenues up 1.9 percent
Stable adjusted consolidated operating income margin
$23 billion returned to shareowners through dividends and stock buyback
• 366 million shares repurchased in 2013
• 737 million shares repurchased since beginning of 2012
Full-Year Adjusted EPS*
$2.31 $2.50
4Q Adjusted EPS
2013 2012
$0.44
$0.53
20%
Adj. Operating Income Margin*
18.2% 18.0%
4Q13 2013
Reported EPS $1.31 $3.39
Adjustments:
Actuarial gains on benefit plan ($0.89) ($0.88)
Early debt redemption costs $0.07 $0.07
Employee separation charges $0.06 $0.06
AMX sales, tax items and other ($0.02) ($0.14)
Adjusted EPS $0.53 $2.50
* Adjusted for Ad Solutions and significant one-time items.
4Q12 4Q13 4Q12 4Q13 4Q12 4Q13
Wireless Service Revenues Up 4.8 Percent
Wireless Service Revenues ($ in billions)
Total wireless revenues up 4.5 percent
• Service revenues up 4.8 percent
• Data revenues up 16.8 percent
20 consecutive quarters of postpaid ARPU growth
• Total postpaid ARPU up 2.1 percent
• Phone-only postpaid ARPU up 3.9 percent
$18.4 $17.6
Wireless Data Revenues ($ in billions)
$5.7
$4.9
$15.7 $14.9
4.8%
16.8%
4.5%
8
22%
51%
LTE Smartphones % of Total Smartphones
Postpaid Phone ARPU growth
2.5% 3.9%
Equipment Revenue
$2.7 $2.8
Total Wireless Revenues ($ in billions)
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4Q13 4Q12
Record-Low Fourth-Quarter Postpaid Churn
Strength of network continues to drive lower churn • Postpaid churn 1.11 percent, record
4Q low • Total churn 1.43 percent, stable year
over year More than half a million branded smartphone net adds* • 299,000 postpaid smartphones • 230,000 prepaid smartphones More than 800,000 total net adds • Including 440,000 branded tablet net
adds
Total Subscribers (in millions)
107.0 110.4
Postpaid Churn
4Q13 4Q12
1.19% 1.11%
Total Churn
1.42% 1.43%
8 BPS
4Q13 Net Add Summary (in thousands)
Smartphone* Other Total Postpaid 299 267 566 Prepaid 230 (262) (32) Reseller/Conn.Devices - 275 275 Total Net Adds 529 280 809
* Excludes migration of AT&T feature phones
Smartphones Achieve a Record 93 Percent of Postpaid Phone Sales
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Smartphone base up nearly 5 million in 2013 • 1.2 million smartphones added in 4Q • Smartphones 93 percent of phone sales,
77 percent of postpaid phone base • Smartphone data usage per device
up more than 50 percent year over year More than 1.5 million smartphone customers have chosen AT&T Next since launch • More than 1 million, or 15 percent, of
smartphone gross adds and upgrades for the quarter
New Value plans help drive Mobile Share adoption • More than 21 million connections on Mobile
Share, almost a third of postpaid base • 15 percent have converted from
unlimited plans
Smartphones on AT&T Next
4Q12 4Q13
51.9
Postpaid Smartphone Devices (in millions)
47.1 39.4
4Q11
1%
9% 12% 13% 20%
Next % of Smartphone Gross Adds and Upgrades
Aug Dec Sep Oct Nov Jul
11%
More than 1.5 million
% of Postpaid Phone Sales
70% 77%
59%
88% 93%
84%
% of Postpaid Phone Base
Wireless EBITDA Service Margin
2013
39.6%
41.3%
2012
Postpaid Smartphone Sales (in millions)
Wireless Margins Continue to Expand
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2013 EBITDA service margin 41.3 percent with record annual smartphone sales
• Smartphone sales of 27.3 million
• More than half of smartphones LTE capable
Fourth-quarter wireless EBITDA service margin of 37.4 percent
• $5.9 billion in EBITDA, a 35 percent increase year over year
• Continued smartphone penetration
• Fewer upgrades; 8.6 percent of base in the quarter
• Impact of AT&T Next and new upgrade policy
26.9 27.3
38.7%
2011
25.3
Wireline Consumer Revenues Up 2.9 Percent
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Exceptional U-verse gains in 2013 • 630,000 U-verse high speed broadband
net adds in quarter, and a record 2.7 million for full year
• U-verse more than 60 percent of total broadband subscribers
• 45 Mbps to nearly two-thirds of U-verse TV customer locations
• U-verse TV net adds of 194,000 in the quarter, and a remarkable 924,000 for full year
• Record low 4Q U-verse TV churn
• TV Everywhere ramping - 135 channels in-home, 43 out of home
Total U-verse revenues up 28 percent for the quarter • U-verse revenues now 57 percent
of wireline consumer revenues
Total U-verse Subscribers (in millions)
Wireline U-verse Revenues ($ in billions)
$6.7
2012 2013
$9.2
$12.0 Consumer Revenue Growth
2011
0.3%
2.4% 1.9%
U-verse Video Subscribers
5.5
4Q12 4Q13
8.0
10.7
4Q11
3.8 5.5
4.5
U-verse Broadband Subscribers
10.4
7.7
5.2
Strategic Business Services Revenues Accelerate
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Customers migrating to IP and wireless • Strategic business services revenues up
17.4 percent, now more than 25 percent of ABS revenues
• 78,000 business IP broadband gains • Total ABS revenue down 3.4 percent,
service revenue down 2.4 percent Cloud gathering momentum • Leading cloud provider with more than
an Exabyte of virtualized storage • Serving world’s largest companies with
cloud-based solutions • Successful launch of Netbond aligned with
other top cloud providers
VPN market share leader • Best 4Q VPN net adds in four years • Security and IP applications driving
VPN demand
AT&T Business Services (ABS) Strategic Business Services Revenues ($ in billions)
Strategic business services are the next-generation capabilities that lead AT&T’s most advanced solutions — VPNs, Ethernet, cloud, hosting, IP conferencing, VoIP, MIS over Ethernet, U-verse and security services.
$2.2
$1.9
4Q13 4Q12
$1.7
4Q11
Strategic Business Services as % of Total ABS Revenues
18.1%
25.4%
20.9%
ABS Virtual Private Network
Up 17.4% YOY
4Q12 4Q13 1Q13 2Q13 3Q13
8.3% 4.7%
8.5% 11.2% 10.3%
VPN Ports In-Service VPN Revenue Growth
2012
18.2%
Operating Income Margin
12.2%
Consolidated (*Adjusted) Wireline
Consolidated and Wireline Margin Summary
Adjusted consolidated margins stable
• Wireless margin expansion helps offset Project VIP-related pressure
Wireline margin pressured by higher success-based costs
• Record annual U-verse net adds and business-related success-based costs
• Trailing operating costs and higher depreciation expense with Project VIP investment pressure
Project Agile expected to streamline processes and cut costs
2013
18.0%
10.7%
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* Excludes significant one-time items.
Reported Consolidated Operating Margin 10.2% 23.7%
Free cash flow is cash from operations less capital expenditures. Net debt is total debt less cash and cash equivalents. EBITDA is operating income before depreciation and amortization. Numbers may not foot due to rounding.
Strong Cash Flow and Return to Shareowners
Strong cash flow • Strong cash from operations due to
revenue growth and cost initiatives • Solid free cash flow even with
pressure from Project VIP expenditures and popularity of AT&T Next
Opportunistic asset monetization • Tower deal, AMX shares, real estate • Announced Connecticut wireline sale • Strong cash position with improved
leverage Outstanding return to shareowners • Nearly $23 billion in 2013,
both dividends and share buybacks • More than $45 billion in last two years • 30 consecutive years of dividend
increases
Cash From Operations $7.9 $34.8
Dividends Paid $2.4 $9.7
Free Cash Flow $2.5 $13.6
4Q13 AT&T Cash Summary ($ in billions)
Capital Expenditures $5.5 $21.2
Shares Repurchased $1.9 $13.0
Total Returned to Shareowners $4.3 $22.7
4Q13 2013
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Net-Debt-to-adjusted EBITDA 1.73
Cash from Asset Monetization $5.9 $ 7.0
Project VIP – exceeding objectives: network, speed upgrades and capital structure
Solid consolidated revenue growth
Strong cash generation
Opportunistic debt management, net-debt-to-adjusted EBITDA at 1.8x or lower
Share buybacks
Delivered on financial guidance
2013 Accomplishments
• Upper single-digit EPS growth • Continuing strength in wireless service and consumer revenues • Stable consolidated margins with wireless margin expansion • Capex in $21 billion range
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Business Transformation
Product/Revenue Transformation
Project VIP – Network Transformation
Transitioning all products by 2020 • IP • Mobile • Cloud
LTE, U-verse expansion, FTTB Video-first network Virtualized and software-defined network
Project Agile – People and Processes Transformation
Effortless customer interaction Digital first Cost savings from simplification of processes and platforms
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2014 Outlook on Track with Project VIP Plan
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Conservative assumptions Continued slow U.S. economic growth Excludes any impact from future buyback Excludes impact of Leap acquisition
Continued revenue and EPS growth Consolidated revenue growth in the 2 to 3 percent range; adjusted EPS growth in mid-single digits
Stable consolidated margins Continued improvement in wireless margins; Project VIP pressure in wireline
Capex in $21 billion range Peak Project VIP spend plus investments in Agile, Alltel and GigaPower
Free cash flow in $11 billion range and continued asset monetization Single A rating, pension plan funded, solid cash position
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© 2014 AT&T Intellectual Property. All rights reserved. AT&T, the AT&T logo and all other marks contained herein are trademarks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.
AT&T Investor Update
4Q13 Earnings Conference Call January 28, 2014