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spk08: Good morning and welcome to the Verizon Third Quarter 2022 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.
spk05: Thanks, Brad. Good morning, and welcome to our third 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. Now let's take a look at consolidated earnings for the third quarter. In the third quarter, we reported earnings of $1.17 per share on a gap basis. Reported third quarter earnings include a pre-tax loss from special items of approximately $881 million. This includes a net pre-tax charge of approximately $645 million, primarily related to a mark-to-market adjustment for our pension liabilities and the impacts of amortization of intangible assets related to track phone and other acquisitions of $236 million. Excluding the effects of these special items, adjusted earnings per share was $1.32 in the third quarter. With that, I'll now turn the call over to Hans to take us through a recap of the third quarter.
spk00: Thank you, Brady, and good morning, everyone, and thank you for joining us. Last quarter, we told you we would take actions. Today, I'm here to share the results those actions have delivered. We ended the third quarter with wireless service revenue growth up 10% year-over-year and 2% sequentially. And adjusted EBITDA grew sequentially by almost 3% to $12.2 billion. We had total phone gross ads of nearly 2.6 million and about 5% year-over-year increase. This includes an increase in consumer of 1.3%, a significant improvement from minus 11% in the second quarter. These results are early indicators that the actions we're taking across our businesses to build momentum are gaining traction. Of course, we are not done yet. I continue to work with my team to take actions to grow revenue and to take costs out of our business to unlock the full potential of Verizon. I am glad to see sequential improvements based on our efforts, but there is more to do. Based on our momentum and plans, our financial guidance for 2022 remains unchanged. Throughout the call, you'll hear the actions we took and the impact they've had on our business to position Verizon for growth. Our pricing actions in the second quarter in both our consumer and business groups helped increase our wireless service revenue. Postpaid phone net ads came in 8,000 for the quarter with a loss from consumer offset by gains in Verizon business. Matt will share more details with you later in the call. Let me turn to some of our group results. In consumer, we have started to gain traction with customers reacting positively to our new offerings and as a result, increased store traffic. Our welcome plan improved customers' pricing perception and contributed to consumer phone gross ads being up year over year. With the launch of the iPhone 14, we delivered the first of its kind Apple One Unlimited bundle. Verizon customers now have access to Apple's services all under one subscription. Apple remains a unique and trusted partner of Verizon because they recognize our network quality and high value of customers. In the value segment, we launched Total by Verizon, redefining no-contract wireless service, a key step in our continued integration of Tracfone. And just this week, we introduced a prepaid wireless home internet service on our Straight Talk brand. We continue to expand our offerings in the value segment, and customers are taking notice. This helped us to generate positive prepaid net ads for the quarter, our first positive quarter since Q2 2021. For postpaid, we're focused on attracting and retaining high-quality consumers in a disciplined and measured approach. As we see areas of opportunity, we will address them in a surgical manner, just like we have done with some of our recent actions. There is more progress to make. Our premium strategy is working. We ended the third quarter with 53% of our customers having a 5G phone and 81% of our base is on unlimited plans. With a 42% uptake on premium unlimited, there's a great opportunity for step-ups. And we see that demand with approximately 60% of our new customers choosing premium unlimited right from the start. It is clear we have a high-quality customer base, so we will continue to focus on retention and winning these customers. Moving to Verizon Business, we see a continued very good momentum in both fixed-wire access and mobility, and I'm encouraged also by the large 5G infrastructure deals we made in the quarter. These include digital transformation projects with Astellas Pharmaceuticals, Fujifilm, and our continued work with the Department of Defense. And this is just a start. We recently announced an important agreement with the U.S. Department of State to modernize its communications infrastructure across embassies and other locations around the world. I'm proud that we're part of a choice for these global enterprises and public sector clients. In broadband, our fixed wireless access and fire service continue to see strong demand. Total broadband net deaths were 377,000, a sequential growth of over 40%. All of these services are built to deliver on top of our world-class network. We have a premium network and experience that our customers value and that demands premium pricing. Our network is the core of our value proposition. America relies on us and we deliver. This was evident before, during and in the aftermath of Hurricane Ian. Our team did what we always do. We ran through the crisis. quickly restoring our network as needed and using our technology solutions to protect impacted areas. Bottom line, our network infrastructure was resilient and our people delivered in the way that you have come to expect from us. Our mission has always been to build and operate the best, most reliable, highest performing network. Our use of advanced technologies, our spectrum portfolio, and our expansive owned fiber footprint are critical to achieving that goal. Where we deploy our C-band, we see direct correlation to customer growth on both mobility and fixed-wise access. We are currently covering over 160 million POPs with C-band and on track to deliver 200 million within the first quarter of 2023. C-band usage is up 170% quarter over quarter, and fixed wireless access now covers more than 40 million households. Right now, more than 48% of our sales sites are connected by Verizon's own fiber. We're expecting to be about 50% by year end, with the majority of our 5G sites already on our own fiber. This not only improves network performance, but also improves our owners' economics. At the same time, we're making efforts to take costs out of our business. We're constantly thinking about how we run our enterprise every day to enhance our performance while delivering on our strategy. In this spirit, we have designed a company-wide cost savings program that we expect will save between 2 to 3 billion dollars annually by 2025. A first step in these efforts is the creation of a global service organization under the leadership of Craig Silliman. This is one part of our larger program to leverage cross-functional opportunities across the business. Over the past two years, under unprecedented circumstances, we have learned a lot about how we deliver our services to customers. Verizon Global Services will help unlock significant efficiencies and reduce costs across the business. Keeping in line with our company values and strategy, we continue to practice financial discipline even in a competitive market and deliver solid financial performance quarter over quarter. Verizon is in a strong position, no matter economical environment, with our high-quality customer base, diversified go-to-market options, including our value offering. The benefits from strengthening our organization through our cost savings program and the best network that just keeps getting better. I will now hand it over to Matt to go deeper into our results.
spk06: Thank you, Hans, and good morning, everyone. Our results from the third quarter were not yet where we would like them to be. But as you heard from Hans, the actions we've taken in the past two quarters are gaining traction in the marketplace. As a result, we saw positive developments in store traffic and consumer phone gross ads, further gains in broadband, and a sequential improvement in our financial results. We anticipate that we will be able to build on this momentum as we head into the fourth quarter. Let's now walk through results from the third quarter, beginning with an overview of our postpaid mobility results on slide seven. Our strategy for mobility growth is to drive revenue growth by attracting and retaining high-quality customers and migrating them into premium tiers. Premium penetration in the consumer segment increased to approximately 42% at quarter end, a sequential increase in line with prior quarters, even with the introduction of the Welcome Plan and the current economic backdrop. As a result of the continued increase in premium plan penetration, Combined with the benefit from our admin fee increase and the impact from meter price ups, consumer postpaid ARPA increased 3.8% year over year. Overall phone gross ads were up approximately 5% year over year, reflecting continued strength in business as well as the improvement in consumer gross ads. With the impact of 3Q churn, which increased as expected as a result of our recent pricing actions, phone net ads were 8,000 for the quarter. Business delivered 197,000 postpaid phone net ads in the quarter, their fifth consecutive quarter exceeding 150,000. The results were again balanced across the three customer groups, with enterprise delivering their best ever phone net ad performance, and SMB and public sector both seeing double-digit phone gross ad growth. On the consumer side, post-paid phone gross ads were up 1.3% year-over-year, a notable sequential improvement from an 11% decline in Q2. The launch of the Welcome plan and the Apple One Unlimited plan helped to generate more store traffic while providing another avenue to compete outside of promotional spend. We have now seen year-over-year improvement in phone gross ad performance for four consecutive months through September. and anticipate another low single-digit year-over-year growth performance in the fourth quarter. As expected, the pricing actions we took around administrative fees and metered plans led to an increase in disconnects. With certain price ups being phased in throughout the third quarter, we would anticipate some disconnect pressure to carry over into Q4. Taken together, we currently expect the gross ad and disconnect performance to result in positive consumer phone net ads in the fourth quarter. Let's now discuss broadband performance on slide eight. Total broadband net ads were 377,000 in the quarter, reflecting a strong demand for reliable and high-value broadband offerings. Fixed wireless access momentum continued throughout the third quarter. We added 342,000 net ads up from 256,000 in 2Q, reflecting increased demand across business and consumers. More than 75% of our consumer net ads are coming from urban and suburban locations, with data usage that continues to mirror our FIOS customers. We anticipate further share gains in this space as we continue to expand our household coverage and begin to realize benefits from our offering in the prepaid segment. We also added 61,000 Fios internet net ads during the third quarter, reflecting improved gross ad performance from Q2 as well as continued strong retention levels. Our ability to grow Fios, in spite of some secular headwinds due to lower move activity, shows that the quality, value, and reliability that FiOS offers continues to resonate strongly with customers. We further expanded our nationwide broadband opportunity by adding more fixed wireless households and businesses covered, as well as growing our FiOS open for sale within our ILEC footprint. Total fixed wireless household coverage surpassed 40 million in the quarter, including over $30 million covered by 5G Ultra Wideband. Fios Open for Sale is now at $16.9 million, a year-to-date increase of $410,000, and we remain on track to hit our full-year target of $550,000. Now, let's talk about the value market on slide 9. Our work to integrate TrackPhone continues, highlighted by the launch of our new prepaid brand, Total by Verizon, late in the quarter, as well as the launch of fixed wireless for our prepaid customers earlier this month. For the quarter, we deliver positive prepaid net ads of 39,000, which excludes a base adjustment of 102,000, primarily relating to a competitor's 3G network shutdown. we saw significant improvement in TrackPhone's performance, which had positive net ads for the first time since Q1 2021. With our current momentum, combined with the launch of our new brand and fixed wireless, we're excited about our positioning and ability to further grow in the value market, bringing more connectivity and benefits to customers in this space. Now let's move to the consolidated financial results on slide 10. On a consolidated basis, total revenue was up 4.0% year-over-year as wireless service revenue growth and higher wireless equipment revenue more than offset wireline declines and the net impact of last year's M&A activity. As a reminder, the third quarter last year only had two months of Verizon Media activity before its divestiture. Total wireless service revenue growth was up 10.0% from the prior year. primarily driven by our ownership of TrackPhone, continued effectiveness of our premium unlimited strategy, and business volumes. The core business is strong, as wireless service revenue, excluding all TrackPhone activities, grew above 3%. Additionally, we saw a benefit from the pricing actions taken earlier in the year, which we previously said would generate roughly $1 billion across Q3 and Q4. These actions helped to generate a sequential increase of $494 million in wireless service and other revenue, and an increase of $345 million of adjusted EBITDA, as total adjusted EBITDA came in at $12.2 billion for the quarter. We continue to feel the pressures of higher device subsidies and promotional spending, despite taking steps throughout Q3 to be disciplined, including the launch of the Welcome Plan, which comes without a device subsidy. Inflationary pressures remain elevated both from a year-over-year and sequential point of view, with the increase from Q2 primarily coming from higher electricity rates. Expectations for fall year 2022 impacts of inflation remain consistent with comments during our Q2 earnings call. To further mitigate inflation impacts, we have started a new cost savings program that we expect will provide a reduction in annual costs of $2 to $3 billion by 2025. This program will be focused on several areas within the business, including digitalization efforts to enhance the customer experience and streamlining internal operations through automation and process enhancements. While part of this will benefit the bottom line, a portion of these savings will be reinvested into the business to help accelerate opportunities. As Brady noted, adjusted EPS for the third quarter was $1.32. In addition to the impact from EBITDA, this reflects sequential pressures in interest expense due to rate increases and a reduction in other income associated with non-cash changes to pension and OPEB. Based on year-to-date interest rate increases and market expectations for additional Federal Reserve actions this year, we now estimate cash interest expense for 2022 to be about $400 million higher than our expectation coming into the year. We anticipate this pressure will continue into next year given the full year impact from interest rate increases, providing an EPS headwind in 2023. Likewise, the impact from non-cash pension costs due to higher interest rates and lower return on assets this year is expected to put additional pressure on below the line items for 2023. Now, let's take a look at our third quarter consumer financial results. Total consumer revenue for the quarter grew 10.8% year-over-year, driven by wireless service revenue growth of 11.0%, as well as higher equipment revenue. Wireless service revenue increases were the result of the inclusion of track phone, core wireless service revenue growth, and the impact of the pricing actions. Total Fios revenue was up versus the same period a year ago by 0.3% as growth from our internet base offset the revenue impact of a 9% year-over-year decline in video subscribers. Fios content costs have also dropped, resulting in an improved margin profile that we expect will continue to benefit from further shifts away from video. Consumer EBITDA was $10.6 billion, up 0.7% compared to the same period last year. The pricing actions, as well as the full inclusion of track fund results, more than offset the pressures from higher promotional activity and the impact of inflation. Next, let's take a closer look at the business financial results on slide 12. The business segment's wireless results remain strong in 3Q, though wireline service revenue declines continue due to ongoing secular headwinds. Wireless service revenue growth of 5.7% was up from 3.0% last quarter, aided by pricing actions as well as continued growth in our customer base. Wireline revenue declined by 6.7% versus prior year. Operating trends are consistent with prior quarters, though in Q3 we saw a sequential increase in USF revenue due to higher rates. Business EBITDA was $1.8 billion to the quarter, down 6.7% from the prior year. In addition to pressure from wireline, we experienced higher growth-related costs as wireless sales volumes were up by 15% from the prior year. Now let's move on to slide 13 and the cash flow summary. Cash flow from operating activities for the first three quarters of 2022 totaled $28.2 billion compared with $31.2 billion in the prior year period as working capital impacts from higher device activations and increased inventory levels continue as we expected. Capital spending for the first three quarters of the year totaled $15.8 billion, an increase of $2.0 billion compared to last year. CBAN spending was $4.5 billion for the first nine months of the year. The net result of cash flow from operations and capital spending is free cash flow of $12.4 billion for the first three quarters of the year. We exited the quarter with $129.3 billion in net unsecured debt, a sequential improvement of $1.3 billion, resulting in a net unsecured debt to adjusted EBITDA ratio of 2.7 times. As Hans mentioned earlier, our low unsecured bond maturities over the remainder of this year and next and strong operational cash flow generation puts our balance sheet in a strong position. Payment trends remain at or better than pre-COVID levels, and the quality of our postpaid base has never been better, as evidenced by recent asset-backed securities prospectus filings. As we look at Q3 results, We delivered the sequential revenue and EBITDA growth that we had anticipated from the actions taken in 2Q. Our guidance for 2022 remains unchanged. We are building momentum and remain confident that our strategy will deliver strong cash flow growth into the future. It is this confidence combined with the health of our balance sheet that enabled us to recently increase our dividend for the 16th consecutive year. We recognize the importance of the dividend to our shareholders, and we intend to continue to put the Board in a position to approve annual increases. I will now turn the call back to Hans for concluding comments before we open up to questions. Thank you.
spk00: Thank you, Matt. The actions we have taken are showing progress, but there is more work to be done. Our priorities through the end of the year and into 2023 are straightforward. Continue our traction in consumer wireless through the holiday season and into 2023. Maintain and grow our momentum in fixed wireless access and business wireless. Implement the initial framework of our cross-functional efficiency program. And improve our work in capital efficiencies. And finally, continue our measured and strategic approach to the market with financial discipline and increase momentum for the quarters to come. While there's work to be done, I'm confident that we are well positioned to deliver. So thank you. Now we're ready for your questions. Brady, back to you.
spk05: Thanks, Hans. Brad, we're ready to take questions.
spk08: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. To withdraw your request, please press star 2. One moment for our first question. Our first question will come from John Hudlick of UBS. Sir, your line is open.
spk02: Great. Thanks, guys. Two quick ones if I can. First, I know you guys don't, you often hold off on giving guidance until the fourth quarter call, but it sounds like you've got a number of sort of below-the-line headwinds to growth next year, but What's the prognosis for EBITDA growth in 23, given all the moving parts and all the cost savings you have coming through? And then, secondly, on post-paid phone churn, it ticked up. And just looking for clarification on Matt's comments that it's going to stay elevated. How do you expect that to progress as we move through to 23? What do you think is really driving it? It sounds like, obviously, the price increase, but just fundamentally, are the prices at Verizon just too high at this point, given what we're seeing from a macro environment and given something approaching network parity that we have in the market today? Thanks.
spk00: Thank you, John. I can start, and Matt will fill in. When it comes to the quarter and the gross ads and the churn, I think what happened is that we came out from the second quarter where the soft core from the consumer side when it comes to gross ads. We added a couple of new products all the way from the welcome plan to the price adjustment. And of course, the outcome we were expecting was that we continue to grow both ARPA, but also our wireless service revenue. And as you heard, we grew the service revenue with 3.5%. if we exclude track phone, but then with track phone. So that clearly is working for us and we will continue to do that. But we will do it in certain segments where we see weakness. I mean, we also saw very strong continuation in our premium segments where we continue to have now more than 81% of our consumers on unlimited. and 42 percent on unlimited premium so we that area is going well so we just need to find those areas and we will continue to do that but i think that we have a very competitive pricing in the market we add that with values like the one plan with apple right now apple one unlimited et cetera, and we have more to come. So it's for us to grind this to see that we do the right in the segment. And of course, we have the largest consumer base in the market, so we just need to see that we're doing this in the right way. And ultimately, our goal is to continue to grow our EBITDA. And you saw this quarter, we grew our EBITDA with almost 3%. And that's what we're doing, and we keep our guidance for the full year. So that's our job. And then on top of that, we take out costs. I think all in all, that's what we're working with constantly here, and it's a big ship we're moving. I think that this quarter we saw all the actions we took in the second quarter having positive impact. That doesn't mean we're done. We think we can do more, and we have more to do. So that's sort of the summary of where I think we are and how we're executing, and we'll continue to execute in this quarter and the quarters to come.
spk06: Yeah, thanks Hans and John. So maybe the second part of your question first around churn and is our pricing in the right place? I'd point you to the fact that our gross ads were up almost 5% on a year-over-year basis in 3Q. So obviously our offerings continue to resonate with customers, obviously built on having the best network, and consumers continue to see the value of that. So continue to believe that the gross ad traffic will be there and we'll get our fair share. On the churn side, just to put it in perspective, the pricing actions we took across both the metered plans and the fees touch more than 75 million phone customers. And so the uptick in churn that we saw in the quarter was highly expected. We kind of mentioned that 90 days ago that we expected it to happen. But the financial benefits came through as well, which was exactly as we expected, was the right approach to take. So obviously the impact of those changes will mitigate as we go forward here, and we'll continue to make sure that our churn is where it needs to be. to ensure the right results. In terms of the first part of your question, you're right, we'll speak to you more specifically about 2023 on the next call. We're obviously in the middle of our planning cycle right now. But you should certainly expect us to build on the momentum that you saw us deliver in the third quarter. You saw that wireless service revenue up sequentially 2%. As Hans mentioned, EBITDA up sequentially about 3%. That gives us a good platform to build on here in 4Q and then as we head into 23. And then, you know, you mentioned below the line, there'll be some pressures next year. I'm not going to quantify those now, but as you think about the specifics, Some of those we've spoken to all of you about before when we came out of the C-band auction. We said that we would expect depreciation to increase and capitalized interest to reduce as we've deployed C-band sites and put them on air and really having kind of significant year-over-year impacts in 23 and 24. So that's in line with what we've been talking about for a while. And then you lay on top of that, obviously interest rates are higher and we'll have a full year impact of that next year. And that impacts both the interest expense line, but also other non-cash below the line items around pension and OPEB, where the imputed interest cost will be higher with the higher macro rates, and then also start in the year with lower assets because of the performance this year. So we'll obviously quantify those things, but You know, as we think about 23, we had good momentum coming out of 3Q on a sequential basis, look to build on that in 4Q, continue to generate significant amounts of cash flow that puts us in a position to be successful going forward. Great. Thanks for all the details, guys.
spk05: Yep. Thanks, John. Brad, we're ready for the next question.
spk08: Thank you. The next question comes from Brett Feldman of Goldman Sachs. Your line is open, sir.
spk10: Yeah, thank you for taking the question. It's about your sort of emerging nationwide broadband strategies. I think you mentioned that you can now offer the fixed wireless product to over 40 million potential customers. I think from your analyst day last year, the ultimate target is 64 million, with 50 of that being residential and the rest being business. You're also, and you made a point about this, you're deploying a lot of fiber primarily to support your mobile network on a national basis. And so the real question is, you know, now that you have seen the fixed wireless product perform and what it does on the network side of things, how are you thinking about that target of eventually reaching 64 million homes? Do you think it could potentially be greater? And then yesterday AT&T talked about evaluating opportunities to do more of a fiber-to-home strategy out of region. I imagine leveraging some of the fiber they're deploying in their wireless network, considering how expansive your national fiber footprint is becoming, is that something you're evaluating as well? Thank you.
spk00: Thank you, Brett. When it comes to our national broadband strategy, first of all, I think it's working really good for us. You saw in the quarter adding 377,000. The Fios footprint continued to be extremely high quality customers and continued to grow. We will continue to expand that footprint. Outside that, we of course have a very high focus on fixed wireless access because of the speed of the market. Because the demand in the market right now is high for broadband, and of course we have a very disruptive model where it takes low single-digit minutes to actually get broadband at home. It's a totally different product when it comes to fixed wireless access. So we capture the market as soon as we can right now, you see on the growth rates. that is happening both for consumer as for business but as you're rightfully said we are deploying the network as we speak and we are just into certain markets given on the C-band we will have more and more markets and as we stated in the the state in the in the remarks i mean we are now covering 40 million households with the uh with our fixed wise access so we will continue to expand that and we we have plans and execution it's working well the quality is improving the customer satisfaction is really high on fixed wise access and of course uh uh uh there are the competition in these areas uh or of course not equally equally good the customer satisfaction so no i think So we're confident that this is a good strategy. Then when it comes to our fiber, you're absolutely right. We have done enormous investment in fiber. We want all this economics on our network, and we are getting that because the majority of all the 5G sites have our own fiber, and we're now passing 50%. by year-end on all our sites. Some sites will never need fiber, so it's not like 100% is the end goal. But in order to have a good experience for our customers, that's what we're doing. Then we want to see opportunities, especially for the business side, to use that fiber footprint outside. I like to see that some customers can get the better, or we can substitute third-party fiber that we were getting from others but clearly focus on fiber in the fires footprint fixed miles access going as fast as we can outside that so yeah we're confident about the strategy and it's working we've talked about with several years we come up with new products that's going to be multi spectrum that's going to handle everything from 4gc band millimeter wave so the resilience and the performance and quality on the product is even getting better so Yeah, that's where we are. Matt.
spk06: Brett, I'll just add one thing. You mentioned fiber to the home. Of course, our FiOS team had another good quarter here, 61,000 net ads despite a low mover environment. So as Hans said, we're very focused on doing broadband through fixed wireless access, but our FiOS business continues to perform very strongly. and add customers to that network, and we continue to build more open for sale in our FIOS footprint. And just as a point to note, 3Q was a milestone for FIOS in terms of going over 7 million connections for that business. So it continues to perform very strongly, and then we supplement it with fixed wireless access around the rest of the country.
spk05: Great.
spk06: Thank you.
spk05: Yeah, thanks, Brett. Brad, we're ready for the next question.
spk08: Thank you. The next question comes from Simon Flannery of Morgan Stanley. Your line is open, sir.
spk01: Great. Thank you. Good morning. Matt, quick one for you. Any changes to the 2023 CapEx guidance you gave out for that significant drop from this year? And then more broadly, back in March, you talked about a clear path to 4% plus revenue growth in 2024 and beyond. Could you maybe update us on how that looks, how the kind of things like mobile edge compute B2B applications are scaling and what you can do to get there and give us more visibility around that?
spk00: Yeah, I can start on the enterprise side with the mobile edge compute and the private 5G networks. As I said a couple of times, before right now uh we had three different sort of use cases on the edge computing one was private networks another was public mobile edge compute and the third was the the private 5G mobile edge compute. We see clearly a very strong demand on the private 5G networks, which is the prelude to going to all others, and the funnel is strong. And we talked about a couple of examples this quarter, which we have gained. And it's a normal, typical enterprise of B2B cycle, where you start with one proof of concept, then you start deploying it, and then you roll it out. So that's going to continue to happen over the years. not going to be any significant revenues in the short term. But over time, we're building a totally new opportunity for Sampan and his team to be with customers in larger sort of turnkey projects to reform and transform their digital asset for enterprises. So we are still really confident this is a good strategy for us. it's again we're building on the same network we build a network once and we have several different use cases where the mobility and now the fixed wireless access both are going uh in a high speed and now we're adding the mobile edge computer is starting to get yeah get off the to good starter especially with private 5g networks and then it will move into mobile edge compute so that's how i see that market continue for us yeah
spk06: Simon, so your first question around CapEx, obviously we'll be more specific on 23 guidance in January, but nothing has changed around our view of CapEx. So, you know, very much in line. And that's because of the great work the team has done this year. I mean, we said we'd be at 175 million POPs covered by the end of the year. As you heard Hans say earlier, already at more than 160 through 3Q. Not only will we be ahead of the 175, but we'll be at 200 at some point during the first quarter. So phenomenal speed that the team has built the network there. you know, a significant chunk of the $10 billion capex for C-band will have been covered between last year and this year, so there'll just be a small stub piece of that left next year, and then we'll be at those BAU levels that we've spoken to all of you about numerous times. In terms of the longer-term revenue growth, I mean, obviously we'll come back to that, but certainly encouraged by What we saw in the third quarter, as I mentioned in my prepared remarks, wireless service revenue growth, obviously the year-over-year 10% number has the noise in there from closing on the track phone acquisition November last year. But I mentioned even if you ignore all of the track revenues, up more than 3%. YEAR OVER YEAR. SO WE'RE BUILDING THE RIGHT MOMENTUM THERE. OBVIOUSLY WE'LL HAVE SIGNIFICANTLY MORE CUSTOMERS ON FWA THAT WILL BE BILLING NEXT YEAR THAN WE DID THIS YEAR. HANS MENTIONED THE POSITIVE MOMENTUM AROUND 5G PRIVATE NETWORKS AND MEC. SO WE'LL GET 23 PLAN LOCKED DOWN HERE AND THEN WE'LL BE IN A POSITION TO TALK ABOUT LONGER TERM WHERE WE SEE THINGS AS WELL, BUT CERTAINLY CONTINUING TO BUILD ON THE MOMENTUM THAT WE'VE SEEN IN THE LAST QUARTER.
spk08: Thanks, Bob.
spk05: Yeah, thanks, Simon. Brad, we're ready for the next question.
spk08: Thank you. The next question comes from Phil Cusick of JPMorgan. Your line is open.
spk12: Hi, guys. Thank you. First, a follow-up, please, on John's question. You're still losing accounts in consumer despite pushing pretty hard this quarter. What did you see in impact from the introduction on limited plan, and how did that contribute to your gross ads improvement this quarter? And then second, can you give us any idea of what's going on in business? You're seeing really strong ads, AT&T as well, and T-Mobile saying the same thing. Is this second lines being bought by businesses for their employees? What type of usage do you see in those lines? Just give us an idea of what's going on in the industry. Thanks very much.
spk00: I can start on the business side. We have seen strong business growth on the wireless side for for five consecutive quarters, so clearly what we see is that both from the government, from large enterprises, small and medium businesses, they rely on high-performing networks is extremely important, and that's what we're giving them, and that's why we are growing. I mean, we have had a really good run on it, and the team is doing a great job. I mean, this quarter was 197,000 full net ads in the business segment, and as Matt said, it's crossed over all the three segments, government, enterprise, and small and medium businesses. So clearly we have a good transformation there with our customers. And, of course, adding to that, we have a great sales force out there every day with all these accounts because it's about the network and it's about the go-to-market. And we have the strongest in both. So we feel really good about that.
spk06: Yeah, and just building on that maybe a little bit. I'm sorry, Hans, if I can just.
spk00: Go ahead.
spk06: Go ahead, Phil.
spk12: I just wanted to follow up on Hans. The question was more, what are people using this for? Industry penetration is very high. Everybody's looking around trying to figure out where we're going. Do you think these are second lines being bought for maybe high security measures? What's the usage look on the growing lines in business versus maybe the new lines in consumer? We're just trying to get an idea of
spk00: what's driving the strength and it's not just you it's across the board no it's the same norm it's a normal we see more of course as any company we're going more mobile it's not like we see in secondary lines or something like that we remember we if it's sort of an iot line etc that's outside this we're talking about phone net ads here so this is normal lines that is coming into our customers for normal usage we we haven't seen any difference in that compared to previous quarter that is something something strange there no it's actually normal lines coming in that customers are transforming more to mobility
spk06: Yeah, and Phil, just maybe building on that a little bit, certainly the continued strong employment position feeds into this. That's very much supported. But look, I think the other thing as you think about business to think about is the depth of the relationships we have with business customers over many years from both wireless and legacy wireline relationships and the quality of the network continues to matter to our business customers and our team have been very effective at selling into those customers. But if the suggestion From anything that you've been hearing, these are secondary lines with low usage on it. That couldn't be more further from the truth. These are absolutely primary lines. We see it in the usage. Certainly as businesses continue, more and more people are mobile, and we see that. But these are absolutely primary use lines, and we know that from the usage we see on there. In terms of on the consumer side on accounts, certainly that trend is something that continued in the 3Q, but you also saw the positive momentum from a gross ad standpoint, and that feeds through into the account trend also. moving in a better line than it was. And as we said in the prepared remarks, expect 4Q to have positive phone net ads, and that should show up in the trend on the account side as well. So the overall gross ads are up 5%. They were up on a year-over-year based in consumers, so there's a lot of good things going on. And then within our base, we just have to keep reminding people of the value. The team is doing an outstanding job there, and they've got more to bring to the market here as we go forward.
spk12: Any idea what the contribution from Wellcome Unlimited was, Matt? Thank you.
spk06: Yeah, it's mixed. You've got to think about the contribution from welcome in two ways. One, obviously, in terms of the number of ads that people signed up for. But more importantly, the number of additional visits to the stores that it drove. Because certainly some people who came in took welcome, but it also gave us the opportunity to talk to more customers coming into the stores about all of our plans. So we'd have a good number of customers that came in because they'd seen the welcome pricing. but then actually purchased one of our mix and match price plans as well. So, you know, we don't really have a specific breakout there for you, but definitely a contributor to the increase in store traffic and the increase in gross ads. Great. Thank you.
spk05: Yeah, thanks, Phil. Brad, we're ready for the next question.
spk08: Thank you. The next question comes from David Barton of Bank of America. Your line is open, sir. Hey guys, thanks so much for taking the questions.
spk03: I guess, too, if I could, I'd like to ask a corollary to Phil's question there, which is, obviously, we had negative 11% gross ads last quarter, positive 1% consumer this quarter. Where are those gross ads coming from? I think you highlighted that you felt there was a hole in the portfolio with respect to BYOD. That would suggest that the BYOD concentrated players, maybe the cable players, are maybe ones that are giving you market share, or maybe you've seen something else in the porting ratios that have changed the game. I'd be interested in where you think this SOGA shift is coming from. And then the second piece, Matt, you know, your exposure on the balance sheet to variable rates, rising rates, is not because you have floating rate debt per se, but because you took actions in terms of swaps and hedges to create that variable rate exposure. Theoretically, you could buy your way out of that if you felt that was an economic way to go. arguably you could maybe take those losses through your adjusted EPS and it could affect your earnings per share trajectory. Is there any part of you that thinks that there's an economic opportunity that might present itself to reverse gear in some of that variable rate exposure? Thanks.
spk00: Thank you. A couple of things what drove the growth. First of all, I think, as Matt said, the welcome plan drove, because that was a segment we were softer in the first and the second quarter, and that's why we addressed it. That was probably the quickest turnaround we have done ever to bring out a new plan, dedicated and nationwide. And that should be a reflection how we plan to work. I mean, we will be very agile. We will quickly move into segments where we see softness in our consumer base. And I'm happy with what I've seen so far. also the marketing work because if you think about the the the growth we had both in gross ads but also as matt said when it comes to store visits that was up more than double digit in the quarter compared to second quarter uh so all that together worked and that's what we need to continue to work and see if there are other weaknesses in the consumer portfolio remember now we're going all the way from the premium down to the the lowest and most cost-efficient plans on our prepaid and the work we're doing we have integrated that in our consumer group right now and we look into that we're doing the right things for every segment and see that we have the right offerings for our customers that might be that we're aggressive in certain segments and not in others and that's sort of where we come with our size right now we can do that and I was happy with seeing what happened in the second quarter, or in the third quarter, with some of the action we had taken. But we're not finished yet. We need to do more of this. We need to be more surgical. We need to attack the areas where we see weakness. But that was what was growing the gross ads in the quarter, clearly.
spk06: Yeah, hey, on the question around interest rates, so we've absolutely had a targeted... a targeted rate of effective variable to fix and that served us very well, continues to serve us very well over the course of the economic cycle and we think that creates value over the course of the cycle for the company and obviously shareholders as well. As you mentioned, Dave, obviously this year has seen significant increase there, and so some of those hedges have obviously moved around in value. I couldn't be happier with the work the Treasury team has done, not just this year but over many years now, to not just manage the overall debt profile but also the interest rate expense. You see that in the income statement over the past year. few years, where even as our debt has gone up to pay for the C-band acquisition and so on, our total interest expense cost has actually remained relatively flat. So we'll continue to manage the balance sheet there. And as you mentioned, if there's opportunities to create incremental value, I think our track record would tell you very strongly that you should expect us to be doing everything, taking full advantage of those.
spk05: Thanks, guys. Thanks, Dave. Brad, we're ready for the next question.
spk08: Thank you. The next question comes from Michael Rollins of Citigroup. Your line is open.
spk09: Thanks, and good morning. When you look across the strategic products, postpaid phones for consumer and business and Fios broadband, what's the risk that customers trade down in rate plan tiers if the U.S. goes into recession? And then pivoting over to the value segment, has Verizon begun to migrate any prepaid customers to the postpaid base, and can you size the future opportunity and timing for this possible migration? And then just one more, if I could, on prepaid. Is there an update on the size and timing of savings, especially for roaming, when you think about the track phone integration?
spk00: Okay, let me start with the first one. As we said earlier, I mean, The welcome plan worked very well for us, and we didn't see many of our customers trading down. Actually, it was more about softness in the marketplace there, and that's where we actually gained success. But on the other hand, we see so many of our customers coming into the store, and then after a conversation, of course, we saw them actually doing a step up and going for another plan. So it actually worked. We didn't see that step down in the market. has happened so far where I think we're segmenting it up with the values we're having in each and every segment. But if they would do it over time, given the economic situation, we would be better prepared than anybody else. I mean, we are actually addressing all the segments of the market so we can work with that. When it comes to the prepaid to the postpaid migration, that is, of course, one of the pillars in In our strategy to see that our customers can do that and part of our acquisition strategy to see that we can offer the customers. That will take some IT work and as I said before, that will technically meaning that you can more easily work in between prepaid and postpaid. That will take some time before it's finished. But already today, of course, we have a collaboration in between our groups as this is sort of under one roof, the whole value and premium segment. So I think that's what we're going to do. But that's, of course, an opportunity for us over time to have more of that. But already right now, we have seen a good sign on our value segment as we start growing in this third quarter. And we'll just add the new products, including total wireless, which is a higher end of the value market. as well as adding now fixed-wise access to some of the brands. So there's much more to do, and we're encouraged what we've seen so far about the potential, and that was the reason we acquired Tracfond, because we saw this potential to play in all the consumer segments and adding products in different ways and scaling sort of our or our platforms. The more we can scale the platforms, the network and the product, the more efficient we're going to be on the return on capital invested.
spk06: Yeah, a couple of follow-ups there, Mike. So the risk of trading down, we've obviously seen a number of different economic cycles during the life of the wireless business, and we don't historically see significant amounts of trade down during a macro downturn. So I don't expect anything different, again, because the value that people place on their connectivity products, whether that's broadband or or wireless is higher than ever. So we'll obviously monitor it closely, but history would suggest the risk of that is not that high. And then your last question around integration on roaming. We should largely have the roaming integration, all of the customers over onto the Verizon network. during 2023. We haven't quantified the benefit of that, but obviously it's significant. But that should be in the financials by the end of next year.
spk05: Thanks very much. Yeah, thanks, Mike. Brad, we're ready for the next question.
spk08: The next question comes from Tim Horan of Oppenheimer. Your line is open, sir.
spk07: Thank you. So CBAN build-out's going faster and sounds like better than expected. So Matt, can you talk about when you think you'll largely be done with that spending and maybe just the ultimate, thinking on the ultimate of POPs covered and capacity that you're adding? Any color there would be great.
spk00: Yeah, I can start and Matt will come in there as well. But when it comes to receiving spending, you remember we said we're going to do an additional $10 billion on CAPEX. The year is not ended, but you have seen more or less what we're guiding. So it's going to be some portion left for the next year on CAPEX, but that's a smaller part. And then it's going to be BAU, because then we have done all our initials. What is happening after that is, of course, we're getting a much more spectrum to the sites, and we get some more markets. But then we're down to BAU, as we've always been building capacity and network on 4G, 3G. Now we'll do it on 5G with the spectrum we have. so feel good about that situation and how we have been doing it and this was part of the strategy we laid out for the network already 2017 in order to draw the benefit of a unified network with a strong sort of edge capability with different type of access technologies and now of course with a C band we're adding that strength so we're going to pass the 200 million pops in the in the first quarter 2023 and then we will just continue to deploy as we get things back more spectrum and still today we're using mainly 60 megahertz there are some places where i've started to trial out 100 megahertz but as you know we have 161 megahertz nationwide and in some places we have 200 megahertz so we have So much more spectrum and capacity, but the guys have been building smart. So when the spectrum comes, we turn it up. It's not going out to the site again. So we're ready for that.
spk06: Yeah, so Tim, just on the exactly what Hans said on the timing, if you think about it, we're still spending on the LTE network today. And that's obviously 10 plus years from when we launched. So that's because the usage on the network continues to grow. The utility people get from it continues to grow. And that's why you see our customer base expanding as a result. But as you think about connecting the dots here, As we said, we'll be close to 200 million, well, we'll cross 200 million POPs in the first quarter of next year. The 10 billion will largely be spent. You know, we said there'd be a stub left over to go next year, so that kind of overlaps there. So think about it from the standpoint that 10 billion took care of covering the first roughly 200 million POPs. Then the rest of it goes into BAU, and you create space in BAU because those 200 million POPs have now got C-band coverage. We said over half of our base is a 5G-compatible device in their hands. And so the usage growth in those areas is going on C-band. That means we don't have to continue spending on LTE in those markets. And then combined with other programs that are coming to an end on the peak spend, such as One Fiber, Intelligent Edge Network, That's the space for the C Bank continued build, both from a coverage and a capacity standpoint, to be in the BAU level spend, just like as we continue to expand the LTE network for many years, it was part of the BAU level spend. So absolutely peak level this year. CapEx comes down next year, and then I'd expect even further in 24 as the $10 billion is completely gone, as we spoke about earlier this year. And, you know, that obviously has a positive impact on free cash flow and the decisions we'll be able to have in front of us as a result of that going forward. So could it be happier with the pace at which the team has built it out and spent that money? Unbelievable work the team's done there, and it puts us in a great place to reduce capex going forward.
spk07: So any updates on the ultimate amount of coverage that you'll have or, you know, POPs covered and rough timing on that?
spk06: I think Kyle has said pretty clearly that you should expect when you get 4G today, you should be expecting to get 5G in the future as we continue to build out.
spk00: Yeah, our C-band spectrum is nationwide, every market, every state, so we are just going to complete that and see that we have a similar 4G network, as Matt says.
spk07: Good. Thank you.
spk00: Yeah, thanks, Tim.
spk05: Brad, we're ready for the next question.
spk08: The next question comes from Craig Moffitt of Moffitt Nathanson. Your line is open. Hi, thank you.
spk11: Hans, I wonder if you could talk about convergence a little bit, particularly on the consumer side of your business. There's certainly a broad sense that the industry is moving toward converged offerings of wireless and home Internet services. How do you think about that, and how do you think about it differently in areas where you have Fios and where you have fixed wireless broadband? Is that in some ways what's driving the fixed wireless broadband deployment, or do you see them as still somewhat two separate services that are trying to fill two separate needs?
spk00: Hey, Greg. I think that first of all, we have seen some early steps of convergence in the market where mobility and home is going together. Of course, ultimately the customers will define is that the best model. I think we're in a great position. uh for for obvious reasons where we deploy our fix remember when we deploy our network on the c-band we start in urban and suburban and that's of course also where the fixed-wise access opportunity arises so then the combination of fiction and home and mobile is emerging there. So we're going to play on that. And as you have seen, we have offerings on that in the market and also working with our Fios footprint equally much. We have the optionality and the customers will decide if that is a good way forward. I think we are in a very strong position. We have owners economics on all our home broadband and all our mobility and be able to see that we can follow the market. And it goes back a little bit to what I said before. We need to be agile and be surgical in different segments. If we see that, for example, convergence is happening in certain segments, we quickly come up with offerings and do that. And that's what the team is working with constantly right now. And if that is a trend going there and it's just accentuated, we're going to be super well positioned for that. If it's not, we're also super positioned for keeping it separate. We're going to see that the market, we're going to drive the market. We think it's a strength for us that we have all this economics on both mobility and broadband. So we will drive it where we see a good traction on it. And as you have seen already, we have already offerings out there, and we'll continue to do so.
spk05: Thanks, Craig. Operator, Brad, we have time for one last question.
spk08: Thank you. Your last question will come from Frank Loudon of Raymond James. Your line is open.
spk04: Great, thank you. What are the largest factors impacting your churn in your base right now? And kind of after we get through this bump from the pricing action, what do you need to address to get the churn back down, and how soon can we see those tactics begin to work?
spk00: I think when it comes to the consumer churn, as Matt explained, vast majority in the third quarter was coming from the price adjustments we did which was a deliberate decision we took in the second quarter and and it was as expected that was the the larger piece of it in the in the churn and as matt said before our our job right now is to continue to drive this downwards and and and see that that is evaporating out there we have some leakage into the into October from it because given how the price adjustments came out in the market.
spk06: Yeah, just trying to build on that a little bit. So absolutely, we expected to see that increase, but it was certainly a good trade for us because it drove the gross ad increase that we spoke about earlier. It also drove a 2% sequential increase in service revenue and 3% in EBITDA. So we'll work through the bubble from that as we go forward. But obviously, the actions produce the type of results that we wanted. We'll expect to get back to more normal levels going forward. We constantly have to communicate to our base of customers the value of being on the Verizon network, and that's something that we've got many years of doing. As we just spoke about a couple of questions ago, the quality of that network, with the C-band build-out is expanding rapidly, and we have the opportunity to continue to demonstrate to customers the premium service they get on Verizon. And as we do that, I'm very confident that Churn will get back to the levels we'd expect it to be. And combined with the improved gross ad performance, we'll see that show up in the financials, and more importantly, in strong cash flow from the business. So really happy with the sequential trajectory we have. We need to keep building on that as we go forward here. That's what the team's focused on.
spk04: All right, great. Thank you very much.
spk05: Yeah, thanks, Brad. Brad, that's all the time we have today.
spk08: Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using Verizon Conference Services. You may now disconnect.
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