AT&T Senior Executive Vice President and CFO John Stephens Updates Shareholders

John Stephens, senior executive vice president and chief financial officer of AT&T Inc.* (NYSE:T), spoke recently at the Oppenheimer Virtual Technology, Internet & Communications Conference where he provided an update to shareholders.

Network resilience. While acknowledging the competitive nature of the connectivity business, Stephens expressed confidence in AT&T’s ability to deliver upon the strength of its wireless and wireline networks. This comes at a time when connectivity has proven to be even more critical for both consumers and businesses. 

Leveraging improved wireless capabilities via initiatives such as new spectrum deployment (including FirstNet) and software based network capabilities, the company continues to benefit from reduced levels of wireless churn (even including disconnects for the Keeping Americans Connected program), rising adoption of AT&T Unlimited Elite wireless plans, which include access to HBO Max, and ongoing resilience across its business operations. While the Keeping Americans Connected Pledge expired on June 30, the company continues to work with its customers to find ways to help them become current on their accounts, including by offering extensions and payment plans.

Financial flexibility. AT&T is confident that it can continue to strengthen its balance sheet while simultaneously investing for targeted growth in areas of market focus—broadband connectivity, both fiber and 5G, and software-based entertainment like HBO Max and AT&T TV. Stephens said that AT&T is committed to supporting the dividend on its common stock, which has increased for 36 straight years. For full-year 2020, the company expects its dividend payout ratio to be in 60s% range and is targeting the low end of that range.¹

In addition, Stephens said that AT&T has continued to take advantage of low borrowing costs and rates to address upcoming debt maturities. As a result, the company has reduced the amount of its debt maturing within the next 4 years by about $23 billion, an improvement of about $8 billion since the end of the second quarter.² The company remains committed to opportunistically using its excess cash flow (after dividend commitments and capital expenses) to further reduce its debt levels. And AT&T continues to pursue asset monetization opportunities to further expand the company’s financial flexibility. 

Cost transformation initiatives. While visibility into the impact of COVID-19 on the overall economy and the duration of that effect remains somewhat limited, Stephens noted that AT&T is positioned to build upon its existing transformation initiatives. This will allow AT&T to leverage prior network expansion and optimization investments, streamline its IT / distribution systems and align its operations to drive deliberate investment in key areas of strategic focus. The recent retail location changes and reorganization of WarnerMedia are some of the steps taken to further execute against AT&T’s goal of driving out incremental costs and realizing additional efficiencies throughout its operations. 

Capitalizing on evolving consumer demand for content. Following the successful launch of HBO Max, Stephens noted that the recent reorganization of WarnerMedia will accelerate the businesses’ transition to meet evolving consumer needs. At the same time, WarnerMedia plans to continue to invest in content, expand its reach and scale and effectively operate its legacy businesses.  

The uncertainty around the duration of COVID-19’s impact makes it difficult to assess the slope of recovery in key areas of operations (e.g., advertising, theatrical release timelines and the resumption of content production). However, recent initiatives will better align WarnerMedia’s structure to help it meet its goal of fulfilling consumers’ ever-growing desire for high-quality content and well-told stories – when, where and how they want them.  As previously announced, AT&T ended its most recent quarter with 36.3 million domestic HBO Max and HBO subscribers, up 1.8 million from the end of 2019 and tracking to the company’s original end-of-year 2020 guidance.³        

_{¹Free cash flow dividend payout ratio is total dividends paid divided by free cash flow.}

_{² AT&T’s reduction in debt maturities is based on debt to be retired in 2020 through 2023 and excludes commercial paper.}

_{³ AT&T’s projections included both HBO Max and HBO subscribers.}