Verizon Communications Inc.

Good morning and welcome to the Verizon fourth 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.

Thanks, Brad. Good morning, and welcome to our fourth quarter earnings conference call. I'm Brady Conner, and I'm joined by our Chairman and Chief Executive Officer, Hans Vestberg, and Matt Ellis, our Chief Financial Officer. Before we begin, I'd like to draw your attention to our Safe Harbor Statement, which can be found on slide two of the presentation. 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. 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. Earlier this morning, we posted to our investor relations website a detailed review of our fourth quarter and full year results. I hope you all had a chance to read the material. I am going to briefly discuss the financial highlights before turning the call over to Hans to lead a discussion on our strategy, guidance, and forward-looking view of the business. Slide three shows a summary of our results. Consolidated total operating revenue was $35.3 billion in the fourth quarter, up 3.5% year-over-year. Wireless service revenue grew 5.9% year-over-year in the fourth quarter, benefiting from unlimited planned migrations, our best fourth quarter total postpaid net additions in seven years, pricing actions that we began implementing in June of 2022, and a full quarter contribution from Track Zone. Consolidated adjusted EBITDA was $11.7 billion for the fourth quarter, down 0.2% year over year. Wireless service revenue growth was offset by higher promotional expense, declines in our high margin legacy wireline business, and inflationary cost pressures. Adjusted earnings per share in the fourth quarter was $1.19, a decrease of 10.5% compared to the similar period in 2021, driven by higher interest expense, depreciation, and lower pension-related income. Finally, we delivered $14.1 billion of free cash flow for the full year 2022 and exited the year with a net unsecured debt adjusted EBITDA ratio of 2.7 times. With that, I'll now turn the call over to Hans.

Thank you, Brady, and good morning, everyone. On today's earnings call, I will focus on our strategy, guidance, expectation for the business, and why I'm so excited about the opportunities for the year ahead. Let me start by saying that we deliver against all of our revised financial targets provided in July, including 8.6% wireless service revenue growth, 47.9 billion of adjusted EBITDA, and adjusted earnings per share of $5.18. i'm pleased that the momentum built during the third quarter continued into the fourth quarter last quarter we set expectation for positive consumer phone net ads in the fourth quarter and we delivered against that expectation although we have more work to do i'm encouraged by the improvement and expect to build on the momentum in 2023 The improvement in the consumer performance was complemented by yet another strong mobility quarter in Verizon Business Group, as well as continued success in fixed wireless access with NetDads up sequentially in both consumer and business. Together with Fios' result, we added 416,000 broadband subscribers in the quarter, our best total broadband performance in over a decade, and approximately 1.3 million total broadband net adds for the year. Regarding our guidance, we have positioned ourselves to improve on our performance in 2023. and expect to build a good underlying operational momentum, although that will be offset by the impacts of the non-cash factors, such as promo amortization in our revenue growth and adjusted EBITDA. Additionally, we're seeing some impact of high interest rates. At the same time, we expect our capital spending to reduce significantly in 2023, as we reach the end of our incremental C-band spending, which will be a tailwind for free cash flow. We are striving to make further improvements and take even more action that will ultimately lead to better performance than the guidance we have outlined today. Matt will discuss the guidance in more detail later in the call. The industry enters 2023 with continued macroeconomic uncertainty as elevated inflation and interest rates impact the broader economy. Still, demand for our service remains strong, given the growing importance of mobility and broadband to both consumers and businesses. The combination of our network reliability, diverse portfolio of products and services, and the industry's strongest customer base provides us the flexibility to meet the changing customer needs, even in difficult economic environments. We measure our success in maximizing value across stakeholders by our ability to grow service revenue, EBITA, and cash flow. Taking these three metrics together is how we hold ourselves accountable. We're well positioned to improve our performance and accelerate growth on a go-forward basis with network quality as the foundation for our strategy and growth. We expect the wireless mobility and nationwide broadband will be the most significant contributors to Verizon's growth for the next several years. In 2022, we made important progress in each of these businesses. Our growth in these areas will be driven by extending our network advantage using our C-band spectrum, which we expect will strengthen our network leadership in the coming years. We're taking a balanced approach on how we run our business. Adding the right customers and generating ongoing profits from them is how we maximize value. We remain focused on our cost reduction and efficiency actions, while also maximizing our return on invested capital via better monetizing our assets to put us on track to improve free cash flow going forward. We are proud of being the strongest in the industry in terms of generating cash and want to preserve that while also continuing to strengthen our balance sheet. We are executing with discipline and will continue driving a strategy which produces sustainable long-term growth and profitability. As connectivity plays an increasingly important role for consumers and businesses, it is the quality of the connectivity that matters the most. Not all networks are architected and built the same, nor have the same quality. We have seen these differences in the past and expect that 5G will be no different. Our engineers have the best track record for designing and building networks that produce the best experience. Our network will continue to evolve with a relentless commitment to quality and reliability, adding capacity where needed and filling service gaps where they exist, even as capital intensity declines in the coming years. In the shift to 5G, we have been rapidly building up our C-band spectrum with the most aggressive deployment plan in our company's history. We are tracking to 200 million POPs this quarter and are well ahead of schedule to reach our 250 million POPs targeted by year end 2024. C-band propagation is very similar to that of AWS and PCS spectrum, which covers more than 300 million POPs today. This gives us a clear path to scale CBAN quickly and efficiently, including in the 330 markets where we expect to gain complete access to the CBAN spectrum later this year. Due to the timing of spectrum availability, our deployment strategy targets the highest user areas first, with the capability to deliver the most distinguished experience in places where the majority of customers consume mobile services. As additional spectrum is cleared, we will have access to many new markets. As with prior generations of wireless technology, customers in all areas can expect to receive the best network experience. and where we have built out the c-band we're only getting started early deployments have limited to 60 megahertz or 100 megahertz in some early clearance markets consumer performance in this market has been encouraging as an evidence by better retention more favorable gross ad trends and higher premium uptake in addition the majority of our consumer fixed wireless net ads are on c-band With the final transfer spectrum expected to be available in late 2023, we can deploy an average of 161 MHz and up to 200 MHz in certain markets across the entire continental US. When we turn on the full breadth of Spectrum, we expect peak download speed to reach 2.4 gigabits per second, up from the 900 megabits per second we see with 60 megahertz deployed, all while supporting far more users and applications. At the same time, we're also deploying our 5G standalone core. So by the end of the year, you should see a network with incredible speeds, both downlink and uplink and position deliver 5G capabilities such as network slicing, voice over 5G, NR among others. We believe our network will allow us to maintain our premium position with our wireless mobility customers and provide reliable fixed wireless access services to consumers and businesses across the country. This is an example of how we can monetize our multi-purpose network by scaling several revenue streams on the same infrastructure to enhance our return on investment. We're adding far more capacity to our network than the peak usage increase we're expecting in fixed wireless markets. We continue to expect that we'll have 4-5 million fixed wireless subscribers by the end of 2025, and those subscribers will be enabled by our current build and capital plans. Our mobility and broadband plans are supported by our deep fiber position and ongoing fiber investments. Approximately 50% of our sites are now served by our own fiber, up from 45% last year. We believe we are the only provider serving the level of its widest network with its own fiber. This supports superior quality of services and end-to-end owner's economics. That means better reliability and high emergence, and look for us to continue to expand the percentage of sites on our own fiber. We also expanded our FIOS footprint by over 550,000 locations in 2022, extending our FIOS open for sales to more than 70 million locations. You can expect continued fiber expansion in the years ahead. In summary, network quality is the foundation for our strategy and growth, and all of the moves we are making are focused on ensuring we continue our network leadership in the future. As I mentioned earlier, Verizon's success should be measured against three important metrics. Service revenue, EBITDA, and free cash flow. Let me now cover each of these in detail and tell you why I'm so confident in our ability to deliver against all three of these benchmarks. We expect that our network differentiation will be the cornerstone of our service revenue growth and that it will allow us to continue to attract the highest quality customer base in the industry and maintain our market leading share of the B2B market. Our fixed wireless access is also expected to contribute more meaningfully to service revenue as we enter the year growing rapidly with a base of more than 1.4 million subscribers. 2022 demonstrates to us that we need to be even more agile and responsive in the consumer market. This is one of the reasons I assumed leadership of the business late last year. We are moving into 2023 with momentum and expectation for improved performance based on recent actions and planned initiatives. After integrating TrackOne over the last year, we now have full complement of offerings from entry-level prepaid all the way up to premium unlimited postpaid plans for the first time in our history. This will enable us to better attract new customers while also retaining customers through their mobile journey. You have already seen us take more segmented approach to the market through the Welcome Unlimited and One Unlimited plans in postpaid and the launch of Total by Verizon in prepaid. We are already seeing the benefits from these actions. In 2023, our plans will continue to evolve as we look for the best ways to cater to our customers, whether through network experience, content or other product offerings. Each new offering gives us an opportunity to engage with prospective customers and ensure they receive the plan that best fits their needs. We remain disciplined around our core pricing and continue to perform well with our premium customers on retention and step-up activity. As we move into 2021-3, we're taking a more localized approach with our network and go-to-market strategy, providing greater autonomy to the teams on the frontline and speeding up the pace of decision-making. This will allow us to compete more effectively across geographies, particularly where dynamics may differ by individual market. Finally, we continue to revise our sales compensation structure, ensuring we have the right incentives in place to drive sales growth. The customers we have and continue to attract represent the highest quality customer base in the industry. Based on our customer payment patterns, which are at or better than pre-pandemic levels, and the low delinquency rates in our securitized device payment plan portfolios, we continue to see only a limited impact from the macroeconomic environment on our customers. While we are watching this closely, we have a lot of confidence in the resilience of our customer base. Scaling on new business such as private 5G networks and edge computing will also be a strategic focus in 2023. Our funnel is strong and we're making the appropriate investment to ensure such services provide a meaningful contribution to future growth in the years ahead, which differentiates us in the industry. You can expect Verizon to compete, but I want to underline again that we will not sacrifice financial volumes. We continue to focus on improving our cost of acquisition and retention and believe current promotion incentives are not sustainable for the industry in the long run. Although we have participated to some extent in this dynamic, expect us to pursue more ways to move away from the aggressive handheld subsidies with offers like Welcome Unlimited plan, which offers attractive headline pricing for customers while reducing device subsidies. We manage the business for profitability and such actions drive healthy lifetime value for the business. Moving to business wireline, we are taking several actions to reduce the financial impact of the unit and are scaling back on pursuing low margin revenue in order to again drive improved profitability. While this may result in missing out on revenue, it is the right move and one that will lead to higher margin and cash flow over time. At the same time, we are focused on further improving the cost structure through greater efficiencies. You may recall that we embarked on a new cost-cutting initiative late last year. A component of this initiative is the formation of Verizon Global Services. This organization is accelerating efforts to drive cross-functional efficiencies, enabling us to reinvest savings in network security and customer growth while contributing to long-term profitability. Additional opportunities exist in sourcing, sales and marketing and corporate systems among others. The heavy lifting is now underway as we execute against our goal to deliver 2 to 3 billion dollars of run rate savings by 2025. So our Evita strategy is clear. Grow profitable volumes in both consumer and business based on our increasingly differentiated network and manage our expenses the way you would expect us to do. By growing service revenue in Vita, we believe that we will be able to provide our shareholders with increasingly healthy free cash flow, which will support the strength of our balance sheet and fund our dividend growth. Our current streak of raising the dividend 16 years in a row is unmatched in the industry, and we intend to be able to continue that trend. Because our mobility and fixed-wire actions products leverage the same infrastructure, they provide a capital-efficient path to future cash flow growth. We believe that we will become increasingly efficient with our capital, using less capital to generate every dollar of revenue for years to come. That will enable us to produce expanding cash flow that we can both reinvest in our business and return to our shareholders. And as you know, we're doing all of this as our capital spending budget is expected to decline from 23.1 billion in 2022 to under 19 billion at the midpoint of our guidance range this year. A reduction of nearly 20% year-over-year. In 2024, we expect our CAPEX to be around 17 billion, which we expect to represent the lowest capital intensity in over a decade and among the lowest in the industry. We expect we will deliver a best-in-class network experience while reducing our 2022 CAPEX leverage by more than 5 billion over the next couple of years. With that, I turn it over to Matt to discuss guidance.

Thank you, Hans, and good morning. I want to spend some time walking you through our 2023 guidance, while also commenting on our longer-term outlook. Our 2023 guidance reflects momentum we have exiting 2022, which we expect to drive wireless service revenue growth. For 2023, we expect total wireless service revenue to grow between 2.5 and 4.5%, driven by increased penetration of premium unlimited plans, scaling of fixed wireless, continued growth in products and services such as content and device protection plans, and the full year impact of our pricing actions taken in 2022. As noted in our earnings materials, our wireless service revenue growth outlook includes an approximately 190 basis point benefit from a large allocation of our administrative and telco recovery fees, which partially recover network operating costs to wireless service revenue from other revenue. In addition, we expect promo amortization to be approximately $1 billion higher than last year. We expect adjusted EBITDA to be within a range of $47.0 billion to $48.5 billion. This outlook reflects expected higher wireless service revenue offset by wireline and other revenue declines and higher marketing and network operating expenses. Full year adjusted earnings per share is expected to be $4.55 to $4.85. As noted on our third quarter earnings call, higher interest rates are expected to result in approximately 25 to 30 cents of interest expense pressure in 2023 due to higher floating rate debt costs and higher securitization costs for our growing device payment portfolio. We continue to believe we have the right debt structure for the long term and have managed to balance sheet appropriately by keeping short term maturities to a minimum in this higher interest rate environment. Higher rates of pension and OPEB in addition to the lower pension asset base resulting from negative returns in 2022 are also expected to impact our adjusted EPS by approximately 12 to 15 cents compared to 2022. This flows through other income and expense on our income statement. Finally, we expect approximately three to five cents of impact from higher depreciation expense, primarily driven by the C-band equipment being put into service across 22 and into 23. Our adjusted effective income tax rate is expected to be in the range of 22.5 to 24.0% based on current legislation. Capital spending for the fall year is expected to be between $18.25 and $19.25 billion, including the final approximately $1.75 billion of the incremental $10 billion of C-band related capital spending. And we continue to expect total capital spending to be approximately $17 billion in 2024. The reduction from the 23.1 billion capex in 2022 is expected to drive higher free cash flow in 2023, despite increases in cash interest and cash taxes. As previously discussed, we will complete our accelerated $10 billion seed man program this year, after which all seed man capital expenditures will be part of our business as usual capital program. Looking beyond 2023, Given our exit rate from 2022, we don't expect to hit the long-range outlook as we projected at the investor day last year. However, due to the way we have positioned our network and service offerings coming into 2023, we do expect increasing growth in revenue and cash flow in subsequent years. I will now turn it back over to Hans.

Thank you, Matt. Let me summarize the Verizon opportunity in a few key points. We are making the necessary improvements to drive better performance. We have the best network and it's only getting better even as capital intensity improves. We have the largest EBITDA base in industry and a clear path to free cash flow expansion. And finally, we have one of the most attractive dividends in the market and we intend to be able to continue the trend of growing the dividend each year. By that, I hand it over to Brady to start the Q&A.

Thanks, Hans. Brad, we're ready to take questions.

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 please for our first question. Your first question comes from Simon Flannery of Morgan Stanley. Your line is open, sir.

Thanks a lot, and good morning. I had a couple of questions on the guidance. The first one is, how are you thinking about your confidence and the visibility of this guide as compared to a year ago? Obviously, we'd had the war and stuff like that, but I think the reductions in guidance obviously were a concern for investors. So as you went through this process, was there deliberate conservatism that you were trying to bake in to make sure that you could hit, and I think, Hans, you might have mentioned, exceed expectations? the guidance with additional steps. So that kind of setup would be great. And then I guess for Matt, you called out some of the pressures on the bottom line, but you had a 30-cent range on your EPS guide. I think it was 15 cents a year ago, and it sounded like on the items you gave the range wasn't that wide. So perhaps you can just give us some color on, you know, what caused you to be as wide this year on the EPS. Thank you.

Thank you Simon, I can start. I mean, when it comes to the guidance, I mean, we, of course, it's a little bit uncertain, as we said, coming into the year, but we're laser focused on the service growth and on the Vita expansion and hence also the cash flow expansion. And that's how we're running our business and that's how we take decisions. And as I said, I mean, our job is, of course, to see that we are meeting or exceeding the guidance we have given out. And that's how we're going to work all year. Our teams are set up to work like that. We are in the beginning of the year, so we're going to see how it turns out. But clearly, we have a super laser focus in the whole company, how we're executing right now, and how it hangs together. And as I said before, we have now all the assets, all the way from the network to the prepaid, to the postpaid, all that. And from us, it's a lot of execution in a competitive market. But we definitely believe we can compete very well in that market. Matt?

Thanks, Hans. Good morning, Simon. So if you think about the guide for the year, obviously there's a number of items in there. As I think about the range, you know, we can get to the top end of the range there with, you know, strong execution, you know, the activity around the cost program scaling, that flywheel moving faster than our base assumption. And just if we see more volumes come through the business there, obviously the low end, will reflect the promo environment, the overall competitive environment, and then we'll see items like inflation and so on. So the range of the EPS guide, I think, very similar to the EBITDA guide that we've given. And I think it reflects as we come into this year when you think about some of the unknowns that will play out here in the macro environment. and the competitive environment we feel is the right range to have for 2023. As Hans said, there's a lot of things for us to stay focused on and make sure we produce the best result possible.

Thank you. Thanks, Simon. Brad, we're ready for the next question.

Thank you. The next question comes from John Hudlick of UBS. Your line is open, sir.

Great. Thanks, guys. Can we talk about consumer margins within the guidance, Joe? They were down about 400 basis, almost 400 basis points in 22. And Matt and Hans, you guys gave some good color on inputs and takes around promotions around rising global services. And I think, I guess, higher marketing and network operation costs. But I guess any other puts and takes to call out. And as we look into 23, as part of the guidance, should we expect the consumer margins to sort of flatten here? And do you guys have visibility that as you guys a lot of these initiatives take hold, that we can start to see some improving margins on the consumer side. Thanks.

Thank you. I can start. Of course, we're doing quite a lot in the consumer segment right now, all the way from addressing areas where we have softness in our portfolio with Wellcome, for example, in order to create growth, but also we're regionalizing our business both on the network side and the consumer side in order to take quicker decision, but also that the network is so strong in local markets when we're building out the CBAN. We want to take advantage of that, and as we said before, we have the chance to, or we don't have a chance, we see the coordination between CBAN deployment and and step-ups, and, of course, fixed-wise access, and the majority of our fixed-wise access customers are coming on CBAN right now. So that's why. And finally, we have also worked with spending, the consumer investment, I call it, all the way what we're doing above the line on promo, what we're doing below the line on retention, and how much we do in media. We're doing that much more agile. I think that will help us to manage and continue our clear path and a clear strategy target of growing our top line and expanding our EBITDA. That's our job. Then there are some headwinds that Matt has talked about, but obviously the underlying should be improving with the cost cuts and the way we're working in the consumer group. Matt.

Yeah, thanks Hans. Good morning, John. So if you think about the year-over-year reduction in 22, remember at the start of the year we said that we expected about a 200 basis point impact because of the inclusion of Tracfone in the business for the year. Obviously, accretive and absolute terms, but from a margin standpoint, we did expect to see that. So then, obviously, there's some other items in there. We talked a little bit about the inflation impact last year, obviously, the competitive environment and the promo piece in there as well. So, you know, there'll be some things that we have the opportunity to improve on this year, synergies from within TrackPhone as we move more customers over to our own network will be an upside. But then, as we mentioned in the prepared remarks, obviously the promo amortization is expected to be up on a year-over-year basis as the delay between being at these higher levels from a cash basis and then that flowing through on an accounting basis. So when you net those things out, Expect something initially on probably a similar type of level in 23 to 22 with some opportunities to push that as we go forward into subsequent years.

Great. Thanks, guys.

Yeah, thanks, John. Brad, we're ready for the next question.

Thank you. The next question comes from Brett Feldman of Goldman Sachs. Your line is open, sir.

Thanks. I'm actually going to stick with consumer and I was hoping we'd get a little more insight into two different tools you're using to go to market. The first is Welcome Unlimited. You've been advertising it quite a bit and you've mentioned it a couple of times during your prepared remarks. I'm wondering to what extent are you finding that Welcome Unlimited is indeed a popular plan with new consumers versus the extent to which it's driving wireless shoppers into your channels where you're actually more frequently converting them into a higher tiered plan. That's the first question. And then it seems like you have been reluctant to make greater use of device promos. Obviously, you were using them to some extent last year. How are you thinking about the role of device promos as you go to market this year and you look to sort of sustain these positive consumer phone ad ads? Thank you.

Thanks, thanks. the the welcome unlimited is working exactly as we wanted i mean it creates the store traffic we bring our customers in and we see that the customer gets the plans they want we have we have not seen any any any any step downs over or that is coming from that we're more seeing an opportunity for our customers to have a conversation with them. And of course, remember that to bring your own device, it's for four lines, and that's the way we've been dealing. And we learned a lot from the first welcome we started with somewhere in the third quarter, I remember, or beginning or end of the second, when we saw a little bit. And that was an area where we were soft. That's where we clearly saw that customers were going to others. This we now have diverted and then they come to us. And if you then add that, you see our Premium Unlimited continued to do well. We went up now to 45% actually from 41% in the third quarter, I think. So we added 4% more on Unlimited Premium. So that is working for us. Just need to be agile, stay close to see which segment and then be aggressive in the segment we need and the segment we're performing well in. We let them continue to perform well. And when it comes to device promos, yeah, we understand that's part of the competition and part of the market. We will be part in that as well. But we will continue to be cautious and see that we actually are using device promos in the right moment for the right customers. And you saw us last year coming in and out. Sometimes we were a little bit more aggressive, and others we were actually the least aggressive. And I think that's how we will continue this year, depending on where the market is going. But what you can expect from us in the consumer unit is to be agile, take quick decisions, and see if they're working, then we'll continue. If they're not working, we're pulling them. That's why I'm into this basically every day myself nowadays. And I think this is proven that we get the momentum with the team, and the team is actually executing well. We have more to do. I always say that. It's going to take a long time before I feel that I'm 100% satisfied or happy, but definitely it's work to do here, but I've seen the good momentum.

Thank you. Thanks, Brad. Brad, ready for the next question?

The next question comes from Phil Cusick of JPMorgan. Your line is open.

Hi, guys. Thank you. Thinking with wireless, on service revenue, when I pull out the definition change from other to service revenue, you're guiding to roughly 1% to 2% wireless service revenue growth in 23, which is a big deceleration from almost 6% this quarter. How should we think about this in regards to phone ads and ARPU and the impact of promotions on service revenue? Can you just put the pieces together for us? And do you expect that service revenue will stay positive each quarter this year or actually flips to negative at some point? And, you know, just on top of that, typically we see things much slower in terms of subscribers from 4Q to 1Q. While I don't expect you to guide on subscribers, do you think we'll see sort of typical seasonality this quarter, or do you anticipate sort of better performance? Thank you very much.

I can start and then Matt can break down the numbers you're talking about. I mean, yes, on the premium segment, there is seasonality in the first quarter. I don't think that's going to be different this year. However, our work is to keep up the momentum that we had from the fourth quarter into this year, where we had good store traffic year, quarter over quarter, and also high conversion rate. But it also means that we need agile and see what's happening in the market. And it's a bit early, too. to do any guidance or something like that, which we're not doing on NetAds. But clearly, there is going to be seasonality, but we have good momentum, and we're going to continue to execute and be very close to the market. Matt.

Yeah, Phil, so kind of unpacking some of the piece parts of your question there. So seasonality, absolutely. We expect that to look reasonably as you would expect throughout the year from an overall standpoint. In terms of the service revenue guide, your math is correct. When you think about the fourth quarter, you said close to 6%. Remember that included a full quarter of owning track in 4Q this year versus – only part of 4Q last year. So, you know, as we get into 23, finally on a year-over-year basis, we talk about stuff on an apples-to-apples basis and not with and without M&A items, which is nice. So, you know, once you remove that, very similar. In terms of the piece parts within Wireless Service Revenue Guide, think about you've got the positive impacts of the price ups. Obviously, we had six months impact last year approximately. You get a four-year impact this year. Also the benefit of the FWA momentum we had and having 1.4 million subscribers in the base at the start of this year that we're billing throughout the year. But that's offset by the promo amortization, which as I mentioned in the upfront comments will be higher in the income statement year over year with the timing of the recognition of that. And then also the impact of the volumes last year offsetting some of the ARPA benefit we had. You know, the task for the team going forward is to continue the momentum that we started to see in the second half of last year, as Hans mentioned, and that will put us in a position to continue to push service revenue in a positive direction going forward.

Thanks, guys.

Yeah, thanks, Phil. Brad, we're ready to take the next question.

Thank you. The next question is from David Barton of Bank of America. Your line is open.

Hey, guys. Good morning. Thanks for taking the questions. The first one, maybe, Matt, could we refresh the free cash flow outlook for 2023? You know, I think the midpoint was $21 billion for 2023 from last year's analyst day. I think if we look at the EBITDA guidance, which is roughly flat, the interest expense guidance, which is up a billion, the CapEx, which is down $4 billion – It feels like it should be roughly 17 billion unless there's other things in taxes and working capital related to some of these promotions. So if you could kind of refresh that a little bit, that'd be awesome. And then Hans, you know, you called up three things as it relates to the CBAN deployment. And, you know, this has been a big success for Verizon is getting this bill done. I think that some people have been asking themselves like where the return is is from all the money that's been spent. And you highlighted higher retention, better gross ads, and higher premium take rate. Are there numbers that you can put around that that we could grab onto and say, oh, when in 2024 Verizon doubles their footprint in C-band with the new spectrum getting cleared, we can put a number on that and say, oh, this is going to be the return that Verizon gets from this build. Thank you so much.

Why don't you start, Matt, and I'll take the second question.

Yeah. So on the free cash flow, David, you know, obviously last year we said that we expect you had the right number of expectations where we said free cash flow might be for 23. As I, you know, think about what we see the business today versus where it was a year ago, a couple of factors. that are different. CAPEX very much in line with where we thought it would be at this point. Tim did a great job last year deploying CBAND and obviously we spent most of the $10 billion so you get a nice year-over-year benefit. Offsetting that, cash taxes will be higher this year as we have less benefit from a higher CAPEX number and also both depreciation dropping down. That was in our expectation last year. Interest rates were obviously very different than we expected last year. You touched on those. And then the jump-off point from the EBITDA and the business at the end of 22 to 23, lower than we hoped it would be at the investor there a year ago. So you've got the right moving parts there. We're not guiding specifically to a cash flow number. We historically haven't. But you've got the right moving pieces in there. So net-net, the capex reduction year over year gives us a good tailwind to think about cash flow for this year. So with that, I know, Haji, to collect the CBAN question.

Yeah, and it's, of course, a focus for us to continue to grow the cash flow, as we've said so many times. So we will continue on that work. When it comes to the CBAN, first of all, we have said from the beginning that the CBAN acquisition we did is a multi-decade spectrum. It's going to it's so much and in so many years and of course that was a deliberate decision because we believe we're going to be in wireless business for the eternity of the of ryzen's uh history so that's very important however when it comes to c impacts and i think i mentioned some of them if you think about fixed wise access the majority of all new customers are coming on the c-band right now that's a clear indication without the c-band we couldn't grow the broadband right now. We did a history-high 1.4 billion net ads in the year of broadband subscribers. So, of course, a lot of contribution to the C-band, and that's a clear metric you have. The other metric you have is, of course, unlimited premium, where we say that actually we're performing very well where we have deployed the C-band in order to get customers to step up. And the step up is very important. We are in a multi-subscription business. or we are in a subscription business, and the more you can see that you're upgrading the price, the P on that quantity, it's enormously important for long-term value for our customers. The third one that is coming, and I mentioned also when I opened, is, of course, private 5G networks, mobile edge compute. All that is, of course, going to be very much supported by... They will come back and start reporting on that when we feel that that is coming into the play from a more significant portion. But mobility, and remember also that we have the wireless business side, the business side actually growing because of the reliability of our network and the resilience of our network, which is how our enterprise customers are buying from us when it comes to wireless business. I think there are many metrics that you can see already now that is really connected to the C-band. Then I just want to remind you, I think it's one year since we launched the C-band. It's only one year, and we're going to cross 200 million POPs. We have never built so fast. in the in the entire history of the company and we're well ahead of the plan to hit the 250 million pops that we said that in yesterday by end of 24. so i think that this is really a game changer in the market and we see performance-wise we outperform and we have the most resilient 5g network in the nation and we're just starting you're starting with 60 and 100 megahertz And as you heard me talking, we have 160 on average. It's going to be 200 later on. It is a game changer, and we can already see it right now, and we see already metrics right now that is proving it. Good.

Thanks, Hans. Thank you.

Yeah, thanks, Dave. Brad, ready for the next question?

The next question comes from Craig Moffitt of Moffitt Nathanson. Your line is open.

I'm sorry, Michael Rollins of Citibank, your line is open.

Hi, good morning. Two questions if I could. The first one, as you mentioned earlier in discussion, that you pulled back from some of those longer term targets that you had previously added the 3 plus percent service revenue and other growth for this year and 4 plus percent for next year. Can you unpack the categories? that are at or above the plan from a few years ago? And then the areas of shortfall, and if those areas, do you view those as temporary or more permanent changes in the opportunity for Verizon?

Thanks. I can start. First of all, we're more confident than ever that we have the right strategy and we have the five vectors of growth. Some are actually exceeding our expectations, some are a little bit slower, and some have a little bit different jump-off points. That's where we are. But there's no difference how we see the market and how we believe we can compete in all the five vectors of growth that we outlined the last time. It's more a push in time than something else because of this year or this year, 22, I guess I should say, had some jump-off that is not really helping us. But all in all, the whole strategy, where we're going, I have a lot of confidence in that team. The team has a lot of confidence. We're executing. We're eliminating the things that have been distracting us all the way from Verizon Media Group, et cetera. Then we have some headwinds at the concept that we work with as well that we don't talk so much about. On the Y-line side, I talked about that today. I mean, everything from the cost out, but not only that. We're going to be even more prudent what type of business we're taking, which will reduce our top line probably, but it will improve our profitability and cash flow. So you're going to see us taking many actions to see that we're delivering on the plans, the long-term plans, but there are some shifts in it. Matt.

Yeah, thanks, Hans. So, Mike, as you think about the conversation we had last year and we talked about the long-term outlook, we provided the piece parts. Maybe if I go through some of those. and where we are. Some of them were absolutely where we expected to be. Think about nationwide broadband with the year we had on FWA, but also FIOS and the expectation to continue to see very good progress there. That's very much in line with the expectations we outlined a year ago. Also, business segment mobility results with six consecutive quarters above 150,000 net ads, very much in line with the expectations that we had at the investor day. A couple of areas where we are behind versus our expectation at that point in time. Firstly, you think one of them, mobile edge compute and 5G private networks. You're talking about the technology adoption there on a new technology, that adoption curve, a little slower than maybe we would like, but you heard from Hans in the prepared remarks. feeling like we're starting to see some momentum there. So still feel good about the opportunity there, but the pace of the adoption curve a little different than we hoped it might be. But the upside there still looks very good. And then, of course, the other one, consumer mobility. At this time a year ago, we had higher expectations for 22 than where we ended up. Obviously, a lot of that – variants occurred in the first part of the year and you saw the actions taken. But if you think about the piece parts of the long-term outlook that we described a year ago and then how those have played out in the past 12 months, hopefully that gives you a little more color in terms of where things are moving along very much in line and where we also saw some areas where we've had to, you know, we have opportunity to see further improvement as we go forward.

Thanks, Craig. Yeah, thanks, Mike. Brad, we're ready for the next question.

Thank you. The next question comes from Craig Moffitt of Moffitt Nathanson. Your line is open.

Yes, hi. Sorry, I hope you can hear me. So, Hans, I wonder if you could just talk a bit about your bundling strategy, particularly on the consumer side, with both the strength now in fixed wireless but also FIOS. Is it your view that going forward the consumer is going to buy wireless and wireline or fixed access together? Or is that more of a sort of a financial bundling strategy rather than a real product bundling strategy?

Hey, Craig. No, I think it's a really good question. Of course, we have seen this as a very – strong consumer movement in Europe that is to a high degree have convergence in the US where I would say much lower, but clearly it is something that our customers are asking for. So it's actually a consumer uh feedback and i spent a lot of time in the stores meeting a lot of our consumers and they see a clear advantage to have the same provider on the broadband as on the on the wireless i don't think we'll get into any european levels but clearly this is a movement and verizon is super good position here we have owners economics on our broadband and on our wireless nationwide both of them and that's of course we're going to meet the customers here if the customer think that is what they need we're going to offer it and that's why we have these bundles in the market if they want to have them separate we can do that as well we have owners economics on both of them but I think that trend will continue given how the the consumer research we're doing and the consumers we're talking to, that's something that is active. And it's not only consumers. You need to think about small and medium business as well. Make it convenient for them both having the wireless and the broadband. Because any SMB today, and you know, we probably serve half of the SMBs in the country, Any SMB today need a digital front door, and then being mobile first. So this is really good for us, and if you look at the numbers this year on both on fixed-wise access and mobility in the business segment, SMB has been very important for us. So yes, I think there's something in there, definitely, and it's a consumer desire, and we're going to meet that desire as we continue.

And are there big differences between the way you think about it in bios versus non bios markets?

No, it's not different. We see it in the same way. If the customer, of course, we're much more mature historically in the FIOs footprint. On the other side, when we do fixed-wise access, it's a much more natural discussion with the customer as we have it from the beginning. So I would say that we probably have a big opportunity on the FIO segment to have discussions both on the fixed and the mobile. On the fixed wireless access, I think that there you start actually on a strong position when you start offering fixed wireless access with many of the customers sort of coming in either or a cable provider and have our wireless, and that's how they move over to us. Got it.

All right, thank you.

Yeah, thanks, Craig. Yeah, Brad, ready for the next question.

Thank you. The next question comes from Cannon Benkateshwar. of Barclays. Your line is open.

Thank you. When we think about the balance between unit growth versus pricing, obviously, there's a made a deliberate choice not to change unit growth in the near term. But could you help us think through how you think about this longer term, because once you see market share, obviously it can be pretty expensive to get it back. And so when we think about this balance between pricing and unit growth, how important is unit growth, not just for short term, you know, as you look at 2023, but also longer term, especially when it comes to post-paid phone growth. Thank you.

Thank you. Good question. I think that you heard us at least. I mean, we think that profitable growth is the most important, both to have the right customers retained with us and the ones we're getting. So that's an overarching measurement we need to have. Then, of course, it's always going to be new customers that are important for our base. But remember also, this market right now, if you talk about the premium segment, there are, of course, a certain amount of switchers in the market, and then there are a certain amount of people going from pre- to post-paid. That is no infusion of new customers in the system. So they're coming from two sources, and you need to think about how you do that. And I think we have a great opportunity right now with the track phone brands we have to see and total wireless. to see that we are taking care of that pre- to post-migration, which we have not been part of before. We still have some work with the IT stacks and all of that, but clearly today we are running on both sides. And on the switcher pool, yeah, there we're going to be seeing that we're prudent and disciplined, but we will go for the units we think are the right. But it's a subscription model, long-term, that is even more important to increase the fee sometimes than increasing the queue, because this is long-term, that you stay with the customers to get the long-term value from them. But it's a balance of it all the time, and that we will continue to have.

All right. Thank you.

Yeah, great. Thanks, Canan. Brad, ready for the next question?

The next question comes from Doug Mitchelson of Credit Suisse. Your line is open.

Thanks so much. You talked about amortization being up a billion dollars for phone subsidies to catch up with cash spending. Embedded in all your guidance, is cash spending at peak levels? Is there a scope for it still to go higher? I know it depends on the competitive environment that it could eventually improve, but are we at peak levels? It's just a question of amortization catching up. And I'm curious when you think about the service revenue guide for wireless, you know, are there any price increases anticipated in that guide and kind of what level of price increase? I know it's sensitive topic, but just curious how we should think about that revenue growth. Thank you.

Thank you. Now, if we talk about the price increases, I just want to come back to what I said before. We will be surgical and segmented in our approach. There are certain segments we need to be more aggressive on. There might be areas where we see opportunities for price increases. There are no major price increases included at this moment. We need to see where the market is going and also where cost levels are going. But, you know, we will always look at that. But it's nothing right now that we have in our plans. Matt?

Yeah, on the promotion piece, you've got the – the understanding of the accounting treatment versus the cash there, Doug, and certainly our assumption is that the marketplace will continue to be competitive, but we're not going to go into 100% details of what's in the guide there, but we do assume that we'll continue to see competitive level in line with the past couple of years, and then as Hans said, we'll continue to look for ways to put plans in the marketplace that reduce the level of subsidy out there as well, and we'll continue to push for those opportunities. Great.

Thank you. Yeah, thanks, Doug. Brad, ready for the next question?

The next question comes from Tim Horan of Oppenheimer. Your line is open, sir.

Thanks, guys. Matt, can you talk about your goals for free cash flow? And I'm specifically interested How much do you think you can reduce the debt by per year, you know, kind of going forward at this point? And then secondly, can you talk about the gating factor for fixed wireless growth? It seems like you're implying with your 2025 guidance that this is kind of a good run rate, you know, but yet your speeds are going to be increasing threefold and, you know, coverage are going to basically get a massive amount of capacity kind of going out there. But do you think this is a good run rate for fixed wireless or can accelerate?

I can start with fixed wireless access. First of all, we just reiterated what you said in the investor day, 45 million subscribers on fixed-wise access. Our job is always to try to beat that, but that was, we just reiterated that, and we are well ahead on that plan. Then the second is, of course, when it comes to our capacity, we have definitely capacity for that and much more. And again, we have a multi-usage of our network that has been sort of the basis for this, meaning the same radio stations are serving mobility, fixed-wise access, and mobile edge compute, and we're not doing separate. In the distant future, way above the 4 and 5, we can always come into sort decisions of splitting cells in order to get more fixed-wise access, but that's very far away from now. We have ample capacity for the guide and much more than that. And, of course, our team is doing everything to see that we can continue to exceed our targets.

Hey, Tim, on the free cash flow question, so absolutely one of our goals is to continue to grow cash flow. Hans mentioned that you should measure us on revenue growth, EBITDA growth, and cash flow growth, and that cash flow growth is something we expect to be able to continue to generate going forward. Obviously the capital reduction from the high point in 22 to the guy we gave for this year and then an even lower amount next year will be a positive towards that. As we continue to obviously make progress on the income statement as well, you should see that contribute there as well. So that puts us in a position where we can start to see accelerated levels of debt reduction versus what you've seen in the past year or so. So that's the targets we have ahead of us and look forward to discussing progress against that as we go forward here.

Thank you. Yeah, great. Thanks, Tim. Brad, we've got time for one more question.

Thank you. The final question for today will come from Brian Kraft of Deutsche Bank. Your line is open.

Hi, good morning. I wanted to ask you about business-based phone net ads. They seem to be a bit lighter this quarter than they've been in the past four or five quarters. And I'm just wondering if you're seeing trends that are softened due to macroeconomic factors such as corporate staff reductions or if it's competitive reasons or is it any slowdown in the secular trend toward company-issued devices? And then related to that, can you talk about what you're assuming in the guidance at a high level for the macroeconomic environment? You know, for example, are you assuming soft landing scenario with, you know, small macro impact? Or are you, you know, baking in a more protracted downturn in the guidance? Thank you.

Thank you. Yeah, so this is a multifaceted question on the fourth quarter, of course. On the business-to-business side, SMBs continue very strong, and as I said, they need a digital storefront and a mobile first strategy in today's world after COVID. So I think that we have been performing very well. On the enterprise side, it's a little bit different, but we see that bring your own device is going down and you see more companies saying that they want the company phone which is of course Helping us here. So and that we got that trend we have seen for a couple of quarters So I think both of them are pretty solid on the consumer side as I said, we we had positive net that we had also as I said before a little bit spillover from the churn from the price increase at the beginning of the quarter and And then there were actually fewer days of sales in the fourth quarter than a normal quarter. So I don't think there are any new things more than what I said. Customers were a little bit later in the holiday season to do. They had higher intent when it comes to consumers. But it was nothing macroeconomically different than I talked about. Matt and I talked about the bad debt and the delinquency being like pre-COVID or equal or better than pre-COVID. No, there's nothing there. We are, of course, watching it, but so far we continue to progress well.

Yeah, just to add on a couple of points. You know, as you think about the VBG net ads, you're always going to see a little bit of volatility up and down from one quarter to the next just because of the size of some of the transactions there. So, you know, all in all, though, jobs numbers continue to be good, business numbers good. Obviously, there's been some high-profile transactions. layoff announcements, but overall job numbers are good and you see that show up in the overall numbers that we've produced throughout the year and look forward to continuing to have best-in-class market share within the Verizon Business Group space as we go forward. In terms of the macroeconomic assumptions in the guide, I wouldn't say we have anything too dissimilar to what you've heard from a number of other people during earnings season. But one of the things I come back to is the resiliency of our customer base. We've been through different types of economic environments in the past. We know customers pay their phone bills before they pay other bills and other outgoings. We fully expect that to continue. And so we're obviously watching the macroeconomic environment. But as Hans said, the payment patterns continue to be very strong. And we'll stay close to that. But so far, so good.

Great.

Thank you.

Thanks, Brian. Brad, that's all the time we have today.

Ladies and gentlemen, this does conclude the conference for today. Thank you for your participation and for using Verizon Conference Services. You may now disconnect.