John Stephens, AT&T chief financial officer, spoke yesterday at the 2019 Global TMT West Conference in Las Vegas. Stephens addressed the company’s priorities for 2019:
- Growing free cash flow and paying down debt. AT&T (NYSE:T) expects gross capital investment in the $23 billion range with free cash flow1 in the $26 billion range with approximately $12 billion remaining after dividends. The company intends to use the $12 billion — as well as $6 billion to $8 billion it expects to raise from asset monetization — to reduce debt. The company plans to lower its net-debt-to-adjusted EBITDA ratio to the 2.5x range by the end of 2019 and to continue deleveraging through 2022. The vast majority of AT&T’s debt is fixed rate, protecting the company against interest rate increases.
AT&T has increased its quarterly dividend for 35 consecutive years. While dividend policy is determined by the company’s board of directors, AT&T’s leadership plans to give the board the flexibility to continue its current policy of annual increases. The company expects its 2019 dividend payout ratio will be in the high 50% range.2
- Delivering solid wireless results with growth in service revenues and EBITDA. Stephens said AT&T expects wireless service revenue growth to continue in 2019. AT&T is also focused on the transition to 5G technologies and is seeing speeds substantially faster than traditional LTE and with ultra-low latency. This will enable a wide range of use cases — from IoT to manufacturing, gaming to augmented and virtual reality.
AT&T expects 5G will eventually represent a significant revenue stream for the company but does not expect it to be a significant revenue stream in 2019. The company expects 5G investment to be managed within current capital intensity levels.
- Stabilizing Entertainment Group EBITDA. Stephens said AT&T remains confident in its ability to keep EBITDA levels in its Entertainment Group stable in 2019 as the company focuses on cost controls, profitability and retaining customers with offers that meet their needs. EBITDA support will come from improving video ARPU as promotional pricing expires for about 2 million linear video subscribers and as annual price increases help offset content cost increases.
The company will also focus on enhancing profitability in its over-the-top offerings. At the end of the second quarter last year, about 500,000 DIRECTV NOW subscribers were on $10 per month promotional pricing plans; By yearend 2018, virtually no subscribers remained on this plan. The company expects this and the expansion of its cloud DVR offer for DIRECTV NOW will support ARPU growth in 2019.
AT&T also expects growth in broadband revenues in 2019 driven by customer additions and ARPU increases as it expands its fiber network, which offers higher speeds and high reliability. By mid-2019, AT&T expects to cover 14 million customer locations, a nearly 30% increase from the end of 2018.
- Integrating WarnerMedia and sustaining growth at Home Box Office, Turner and Warner Bros. WarnerMedia’s reputation for creative excellence, along with its global scale; portfolio of iconic brands and franchises; and deep intellectual property, including the Warner Bros. library of content, positions AT&T well for success.
With the addition of WarnerMedia, AT&T has become a modern media company with a combination of customer data insights and premium content that sets up a virtuous cycle. AT&T can deliver premium content that drives consumer engagement, which generates data to drive better advertising and monetization models. In turn, this generates returns to invest in better content, which attracts even more viewers. And Xandr, AT&T’s advertising and analytics unit, gives the company further opportunities to monetize engagement.
- Accelerating advertising growth at Xandr. Xandr lets AT&T combine data with advertising technology to make addressable TV advertising more effective and valuable for advertisers. Over time, AT&T expects to apply data-powered targeting to significantly improve the yield on linear advertising inventory.
As announced earlier this week, Xandr is working with WarnerMedia’s Turner unit to improve the relevancy of advertising, fueled by data and content connections. The two organizations bring together a unique set of assets — valuable consumer data and insights, advanced advertising capabilities and engaged, passionate fanbases. This will let them better serve marketers and deliver better experiences to consumers. AT&T expects to realize $1 billion in revenue-related synergies, including its advertising operations, by yearend 2021.
AT&T announces fourth-quarter and full-year 2018 results on Wednesday, January 30. Results will be available before 7 a.m. ET, and the company will host a call to discuss results at 8:30 a.m. ET the same day. The earnings release, Investor Briefing and related materials, as well as a live webcast of the call, will be available at AT&T Investor Relations.
1 Free cash flow is cash from operating activities minus capital expenditures. Gross capital investment excludes expected FirstNet reimbursement in the $1 billion range; includes potential vendor financing.
2 Free cash flow dividend payout ratio is dividends divided by free cash flow.
AT&T 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. AT&T 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. AT&T 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.
AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc. Additional information is available at about.att.com. © 2019 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.
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