Verizon Communications Inc.

Good morning and welcome to the Verizon third quarter 2019 earnings conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions following the presentation. To ask a question, press star 1 on your touchtone phone. If at any point your question has been answered, you may remove yourself by pressing star 2. Today's conference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to your host, Mr. Brady Conner, Senior Vice President, Investor Relations.

Thanks, Brad. Good morning, and welcome to our third quarter earnings conference call. This is Brady Conner, and I'm here with Hans Vestberg, our Chairman and Chief Executive Officer, and Matt Ellis, our Chief Financial Officer. As a reminder, our earnings release, financial and operating information, and the presentation slides are available on our Investor Relations website. A replay and transcript of this call will also be made available on our website. Before I get started, I'd like to draw your attention to our safe harbor statement on slide two. Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Discussion of factors that may affect future results is contained in Verizon's filings with the SEC, which are available on our website. The presentation contains certain non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials on our website. The quarterly growth rates disclosed in our presentation slides and during our formal remarks are on a year-over-year basis, unless otherwise noted as sequential. As a reminder, we are in the middle of a millimeter wave spectrum auction, so we will not be able to comment on our current millimeter wave spectrum holdings or spectrum strategies. Now let's take a look at consolidated earnings for the period. For the third quarter, we reported earnings of $1.25 per share on a GAAP basis. These reported results contain two special items, a net pre-tax gain from dispositions of assets and businesses of $261 million and a $291 million pre-tax pension remeasurement charge. The gain from dispositions includes several transactions during the quarter. primarily the sale of our Sunnyvale Yahoo Campus as we look forward to moving to our new Verizon Media Group facility in San Jose. The mark-to-market pension charge was related to our management pension plan, which triggered remeasurement earlier in the year as a result of the voluntary separation program. The charge is primarily due to the reduction in the discount rate assumption during the quarter. The net impact of these special items was minimal to net income. resulting in adjusted earnings per share of $1.25, which is up 2.5% compared to $1.22 a year ago. Let's now move to slide four and take a closer look at our earnings profile for the second quarter. Consistent with previous quarters, we have illustrated the ongoing impacts to earnings from the adoption of accounting standard ASC 606 for revenue recognition and ASC 842 for leases. As we pointed out the past two quarters, we have realized a lesser benefit in 2019 than we realized last year from the adoption of ASC 606, primarily due to the deferral of commission expense. This reduction in benefit creates a year-over-year headwind to both reported earnings per share and adjusted earnings per share, which will continue until the end of 2020. The impact was three cents for the third quarter and nine cents on a year-to-date basis. Accounting standard ASC 842 for leases resulted in a gross up on the balance sheet for all operating leases at the beginning of the year. In addition, the lease standard affects our earnings per share primarily due to the expensing of certain lease costs, which results in a headwind of one cent in the third quarter and four cents year to date. We expect the fourth quarter impact to be within the previously provided range of one to two cents per share. As you can see on the earnings waterfall slide, adjusted EPS growth of 2.5% reflects the strong underlying performance of the business, partially offset by the impacts of the deferral of commission expense and the adoption of the leasing standard. Matt will take you through the details of the quarterly performance later in the call. With that, I'll now turn the call over to Hans.

Thanks, Brady, and thanks, everyone, for joining the third quarter earnings call. I want to start by saying that I'm very pleased how well the team executed our strategy and operation this quarter. We made a lot of progress on our overall strategy, so I'm very happy with it. Let's start with the network. I think the network team is continuing to execute extremely well. I'm confident in our ability to keep winning the third-party awards on the 4G network. We are just continuing to do a really good job there. At the same time, our team is executing on our 5G strategy. We're now up to 15 markets where we have deployed our 5G ultra-wideband. Our commitment to 30 markets by year-end is still committed, and we will continue to do so the rest of this year. At the same time, we also launched a 5G home city based on the NR standard. That proves the model now is moving into the standard 5G to really see that we get the full benefit of the deployment and development on the 5G standard when it comes to 5G home. We're also doing a lot of things in OneFiber, continue to have a very high pace in that, and that OneFiber is so important for our overall intelligent edge network that we're deploying in the company in order to realize the multipurpose network to gain all the efficiencies and serve our customers even better over time. So, in short, a lot of progress in the network. At the same time, our strategy execution in the quarter showed a lot around our business model, the flexibility we have in the business model. Just recently, we made an announcement with Disney and our agreement with Disney when it comes to Disney+. I think this proves the model that we have decided to have with a very strong network distribution and a brand that attracts the best brands on the planet to work with us, and we're extremely excited over that. At the same time, we continue to deploy also 5G ultra-wideband in stadiums, especially now with NFL, 13 stadiums when the season kicked off, having 5G coverage. This is important for us because it's part of the dense urban areas where you have a lot of viewers at the same time when really our 5G is coming to excel because of the 5G build that we're doing with our assets. It's making a real big difference here. At the same time, we're also working, of course, with our 5G Mobile Edge compute. And as we stated already in the beginning of the year, we're going to launch the first 5G Mobile Edge Compute Center in the fourth quarter, and that is in progress, and we're going to announce that later this quarter. So we're excited about that. At the same time, you see us engaging much more with large enterprises because with the 5G platform and the eight currencies, we are now a lot of interactions. We announced in this quarter, for example, collaboration with SAP. Corning, all of them are use cases for the 5G mobile edge compute. So we're excited over that opportunity we're creating with the 5G mobile edge compute with the largest companies in the market. When it comes to Verizon Media Group, they also had a quarter with a lot of strategy execution and came out with a lot of new products in the portfolio, a new mail service. They also had the enhancement on the Yahoo Sports and Finance, a lot of traction on it. We saw a great take up on our NFL that we have now with Yahoo Sports. So all in all, our Verizon Media Group is executing on the strategy we laid out one year ago in a really good way. And finally, earlier in the quarter, I think we continued to lead the charge in the wireless and consumer market with our new mix and match, which is just continuation of how we want to bring our customers to understand how they can move up in the value chain to unlimited. I have to say Ronan Dunn and his team are doing an excellent job to really move this market forward And as you can see in our operation performance, we had a really good quarter when it comes to wireless additions here. One of the best third quarter we've had in several years. So really this paying off what we're doing in the model and actually moving this forward. So all in all, a lot of progress on our strategy. Of course, a lot more to be done, but it's clearly now positioning us where we want to be as a company with our customers and our shareholders. Finally, this, of course, came down to our finance. We had a revenue growth of almost 1% in the quarter. More important, we continued to have a wireless service growth in the quarter. We continue on the same levels almost we have the previous quarters. And all in all, that converted into a continued EPS growth. growth that we had in this quarter as well and that is of course coming with a very strong underlying operational performance with some headwinds coming from accounting but to be honest very good work from the team which is based on our commitment of cost efficiencies or voluntary that we have done and all of all of the things we're doing at the same time That also concluded in a very strong free cash flow, continued to take control of our balance sheet and seeing that we're putting ourselves and our board in a good position going forward. So all in all, the finance performance really sort of resonated with the strategic execution we did in the quarter. We had a lot of execution when it comes to responsible business, and this is important to us because it's part of our strategy. We made commitments around our education, our 5G to schools. We made commitments around our CO2 emissions. All in all, this is part of our strategy. It's part of our responsible business. Ultimately, it should be good business for all of us, for our customers, for our shareholders, and our employees. It should be part of that journey. So we continue on that path, and we think it's very important for all our stakeholders. All in all, a very good quarter. The team executed well on all the metrics. There's areas that we need to improve. There's areas that we're still working on. But in general, I would say I'm happy and satisfied how the Verizon team is showing up this quarter. I hand it over to Matt.