Verizon Communications Inc.

Good morning and welcome to the Verizon fourth 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 touch tone 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 fourth quarter earnings conference call. This is Brady Conner, and I'm here with our Chairman and Chief Executive Officer, Hans Vestberg, 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 we 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. Discussions of factors that may affect future results is contained in Verizon's filings with the SEC, which are available on our website. This presentation contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials posted 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. In addition to our comments today, on February 13th, Verizon will be hosting an investor day in New York City and will be webcasting presentations by Hans and the leadership team. More information about the event will be posted on our IR website. As a reminder, we're 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 strategy. Now let's take a look at consolidated earnings for the fourth quarter and full year. In the fourth quarter, we reported earnings of $1.23 per share, resulting in full-year earnings of $4.65 per share on a GAAP basis. Reported fourth quarter earnings include a net pre-tax loss from special items of approximately $2.4 billion, including an early debt extinguishment charge of $2.1 billion, an impairment charge of $236 million, primarily related to the write-down of goodwill within our media business, and a net charge related to severance and annual mark-to-market for our pension and OPEB liabilities of $135 million. In addition, we recorded a $2.2 billion tax benefit related to the sale of preferred shares in a foreign affiliate. The cash impact related to the tax benefit of this sale will be realized in 2020. Excluding the effects of these special items, adjusted earnings per share was $1.13 in the fourth quarter, up 0.9% compared to $1.12 a year ago. Full year adjusted earnings per share was $4.81, up 2.1% compared to $4.71 a year ago. Let's now move to slide four and take a closer look at our fourth quarter earnings profile. The impacts to earnings from the adoption of accounting standards ASC 606 for revenue recognition and ASC 842 for leases continued throughout 2019. As we illustrated in previous quarters, we realized the lesser benefit from the adoption of ASC 606 in 2019 compared to the prior year, primarily due to the deferral of commission expense. The reduction of the benefit realized creates a year-over-year headwind to both reported earnings per share and adjusted earnings per share, which will continue throughout 2020. The impact was 3 cents for the fourth quarter and 12 cents for the full year. For 2020, we expect the headwinds from the deferral of commission expense to be approximately 9 cents. In addition to ASC 606, Accounting standard ASC 842 for leases, which was implemented at the beginning of 2019, results in a gross up on the balance sheet for all operating leases. This new leasing standard affects our earnings per share primarily due to the expensing of certain upfront lease costs, creating a headwind of one cent in the fourth quarter and five cents for the full year. We do not expect a year-over-year impact from the lease standard in 2020. Full-year adjusted EPS growth of 2.1%, illustrated on the earnings waterfall slide, reflects strong underlying performance of the business, partially offset by the impacts of the deferral of commission expense and the adoption of the leasing standard. Additional details of our quarterly performance will be covered by Matt later in this call. With that, I'll now turn the call over to Hans to take you through a recap of 2019 and a discussion of our strategic priorities for 2020.

thank you brady and thank you everyone for joining this uh fourth quarter earnings call uh let me summarize quickly a little bit everything we have done in 2019 which is building a great fundamental for 2020. the transformation was built on the network process changes brand changes go to market changes and of course also a lot of new talent coming into our team All that we're doing during 2019. We fortified our network with new architecture. We had a lot of process changes with a voluntary program. We rebranded and put one brand for everything we're doing in the company. We made a new go-to-market including new management teams. That has been a big change in the company that is solidifying our way of accessing the market in an even better way in 2020. So all that happening, we continue to actually execute well on our day-to-day business. Our network continues to be the best in the market. We just had new confirmation from JD Power and Root Metrics that again our network, our 4G network is clearly the best in the market. Very happy with the team that they keep up that work. The other thing that we have been very focused on is, of course, to continue to lead the market in wireless for consumers. And here we're seeing Ronan Dunn and his team continue with a good pace since Unlimited came out with new offerings, seeing that our customers are getting optionality. Optionality when it comes to the wireless offering, but also on the cable side with the Mix and Match that we came out with earlier this year. We also added in a lot of partnership as we now have network service as a strategy. We added in the Apple Music and more lately, of course, we included with Disney+. Both of them has been a win-win for both our partners, for our customers and for Verizon. And this is the strategy we want to have going forward. On the business side, we also did a lot of important partnerships where we had the same model. I think about the partnership with, for example, AWS, Amazon on the 5G mobile edge compute. Again, a totally new way of accessing a market that we have not been into. And speaking about 5G, we had our commitments, 30 cities, we made 31. We said we're going to launch 5G home with the NR standard. We did that, and we said we're going to launch the first 5G mobile edge compute. We did that in Chicago in December. So all in all, a year with so much execution, and at the same time, we continue to achieve what we want to do. And we round that up with our financials in the year and operation metrics. I'm really happy to report that we had our best year since 2013 when it comes to phone net ads, a growth of 28% year-over-year. And again, that is how our team has been working with the new model. And on the financial side, we continue to see that we had a good wireless service revenue over the year with 3.2% for the full year, which is the highest since 2014. And when it comes to our profitability, our EPS was up 2.1% in 2019 for the full year. And we continue to create strong cash flow, which is, of course, giving us the flexibility going forward to see that we can execute on our strategy. Ultimately, consumer group continue to have a very good year in 2019 with everything they're doing. The Verizon business group have, of course, the headwinds when it comes to the secular decline in the wildland side, at the same time as we're investing more in that area. We're investing in processes, tools, and structures. And why is that important? It's so important because this is one of the greatest opportunities for growth for us when it comes to the 5G and how we address the market. And I can tell you, during 2019, I made so many large corporations that we now can actually work with because our offering is so strong when it comes to fiber and 5G. But we need to put that structure in place for the Verizon business group in order for them to actually both execute on the revenue side, but also on the cost side. Ultimately, I think we have created a very strong fundamental for going into 2020. And if I just think about the priorities for 2020, first of all, continue to grow on the core business. I mean, we showed this year we can continue to grow 4G and our core businesses. And that will continue to do in 2020 as well, including building our network to be the best network in this market. Secondly, it's leveraging our new assets that we're building. We're building OneFiber, we're building our 5G, and seeing that we can start leveraging that with our customer. And I think that this year we will continue to have a lot of focus on our 5G build and what we're doing in 5G. And we will come back to that later on, how we see the 5G market when we will have an investor day later in February. So the third priority in 2020 is around our financials and our discipline there. And the ambition is to accelerate the growth in revenue and EPS in 2020 and continue to create strong cash flow as we did in 2019. But it's also to continue to have the discipline and efficiency in our CAPEX and OPEX plan. That's very important because this is really driving us going forward being able to execute on our strategy. And the fourth priority is around our customer centricity and our purpose-driven company. Both are very important to engage with all our stakeholders, if it's the society or employees or customers, to have that in our genes in a company every day. Here we will drive a lot around thinking about the customers, giving their optionality as we did in 2019. We will just continue to do that. And when it comes to our responsibility to drive a responsible business, we laid out a lot of things in 2019 what we want to do and combine our responsibility for our society with our strategy. We think that it strengthens us as a company to all our stakeholders and ultimately that will create even more value for all our stakeholders. All in all, I think we have a really good platform coming into 2020. We are excited for it, and we hope that all of you are excited for 2020 as well. So by that, I hand it over to Matt.