Verizon Communications Q3 2024 Pre Recorded Earnings Report

Verizon Communications EPS Results

• Actual EPS: $1.19
• Consensus EPS: $1.18
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $1.22

Verizon Communications Revenue Results

• Actual Revenue: $33.30 billion
• Expected Revenue: $33.42 billion
• Beat/Miss: Missed by -$120.34 million
• YoY Revenue Growth: +0.90%

Verizon Communications Announcement Details

• Quarter: Q3 2024 Pre Recorded
• Date: 10/22/2024
• Time: Before Market Opens
• Conference Call Date: Monday, October 21, 2024
• Conference Call Time: 8:00PM ET

Verizon Communications (NYSE:VZ) is the US's largest provider of mobile and telephone services. It has its roots in the original Bell system and is one of only 3 “baby Bells” to exist today. The company was spun off from the original Bell network as Bell Atlantic when it was split into 7 companies in 1984. The original home range was from New Jersey to Virginia but, ironically, shortly after the split the baby bells, including Bell Atlantic, began to merge together in order to expand their territories.

Bell Atlantic acquired NYNEX, another baby Bell, in a move that expanded operations into New York and New England. MCI was also added, expanding the long-distance services, then the company acquired until-then independent operator GTE and became a national carrier. The company changed its name to Verizon following the GTE merger and it is a blend of the Latin word veritas which means Truth and Horizon.

Over the years, Verizon has expanded its territory and its offerings to include mobile, internet and entertainment. Among the more notable were the purchase and merging of AOL and Yahoo! which were later spun off in a sale to Apollo Global Management. Among the more important changes the company has made was to sell off its land-based wirelines. Verizon began selling off its land-based wirelines in 2005 in order to focus more fully on mobile and Internet technology.

Today, Verizon offers communications, information technology, and entertainment products to consumers globally. The company operates in 2 key segments that include Consumer and Business. The Consumer segment provides wireless connectivity, internet access for mobile devices, and wireless and mobile devices including those for the IoT. As of the end of the year 2021, the company laid claim to more than 143 million retail subscribers and was the largest mobile provider by almost 30%.

The Business segment provides connectivity at the enterprise level that includes mobile, networking, Internet access, VOIP and video, security and IoT. As of 2021, this segment had more than 27 million wireless and 477,000 broadband connections. Both the Consumer and Business segments are being upgraded to the 5G protocol. At the end of 2022 more than 175 million users were covered by the service.

Verizon is the US's 24th largest company by revenue and a member of both the S&P 500 and the Dow Jones Industrial Average. The company has paid a dividend every quarter since it went public in 2000 and had increased the payment for 18 consecutive years as of 2022.

Verizon Communications Q3 2024 Pre Recorded Earnings Call Transcript

[Operator]

Hello, and welcome to our Q3 2024 results discussion. I'm Brady Connor, and on this recording, you'll hear from our Chairman and Chief Executive Officer, Hans Vestberg as well as our Chief Financial Officer, Tony Schiadis. Before we begin, I'd like to draw your attention to our Safe Harbor statement, which can be found at the start of the earnings presentation posted on our Investor Relations website. 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 Investor Relations website.

[Operator]

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. A detailed overview of our Q3 results and other materials related to this discussion was posted this morning to our Investor Relations website. Additionally, we hope you'll join us for a webcast of our sell side analyst meeting for a strategic broadband update that starts at 9 a. M.

[Operator]

Eastern Time this morning, October 22. With that, I'll turn it over to Hans.

[Speaker 1]

Thank you, Brady. Good morning, and welcome to Verizon's 3rd quarter earnings update. Before we dive into our performance in the quarter, we must address the devastating impact of the Hurricanes Helena and Milton on communities throughout the southern parts of United States. At Verizon, we always run through a crisis. Our teams acted quickly to assist all the affected communities, and we're deeply invested in helping everybody come back stronger.

[Speaker 1]

Our superior network made a real difference during these events. Our network infrastructure was resilient and delivered for customers and the first responders who really relied on it. Now let's dive into our Q3 performance. The actions we have taken since early 2023 are driving improvements across all our businesses. In the Q3, we delivered sequential and year over year growth in wireless service revenue and adjusted EBITDA, and we had a strong free cash flow of US6 $1,000,000,000 Wireless service revenue was up 2.7 percent over last year.

[Speaker 1]

Our quarterly adjusted EBITDA of US12.5 billion dollars is the highest we have ever reported and the highest in the telecom industry by far. With these results, we are confident that we will not just deliver on our 2024 financial guidance, but the wireless service revenue and adjusted EBITDA growth will come in at or above the midpoint of our guided range. Our momentum continues to build from a strong operational performance across mobility, broadband and private networks. While bringing choice and value to our customers, we signed strategic M and A and implemented cost efficiencies to make Verizon stronger. I'm proud of our team and excited about how we're using our scale and industry leading position to bring value, services and experience to our customers every day.

[Speaker 1]

We're deepening customer relationships and offering critical services that earn us a high return on capital. And we delivered our 18th consecutive annual dividend increase. In the Q3, we brought more C band and network capacity to states across the country. As always, our network is the foundation for our success in mobility, broadband and private networks. As Brady mentioned, following the earnings call, we will be providing an update on our broadband strategy.

[Speaker 1]

We will share our vision for the future of broadband, including ambitious new targets that reflect the strong demand that we're seeing across both fixed wireless and fiber offerings. Now let's discuss how our superior network and our strategy are driving results across our business. In mobility, we more than doubled postpaid phone net adds over last year with 239,000. Importantly, we also delivered positive consumer postpaid net adds in the quarter, both with and without our second number offering. We are focused on delivering choice, value and simplicity to our customers through MyPlan, MyHome and new business offerings.

[Speaker 1]

Our strategy of giving our customers more options than other wireless providers continues to drive positive momentum in both postpaid phone, gross adds and churn. We have applied the same operational rigor and commitment to our prepaid brands, and results are very encouraging. For the first time since the acquisition of Tracfone, we had positive prepaid net adds for the quarter, excluding SafeLink. We expect our prepaid business to continue improving quarter by quarter as we further refine our offerings and execution. In broadband, we ended the quarter with nearly 4,200,000 Fixed Wireless Access subscribers alongside a strong Fios growth.

[Speaker 1]

The continued success of our Fixed Wireless offering allowed us to reach our goal of 4000000 to 5000000 Fixed Wireless Access subscribers with 15 months ahead of our original plan. This confirms a strong demand for our offering and its high level of customer satisfaction. In Private Networks, we see a strong momentum and exciting opportunities. We're expanding our sports partnership through an agreement with FIFA, where we will provide extensive network services for the 2026 Men's World Cup and serve as a tournament supporter of the 2027 Women's World Cup. We also expanded our partnership with the Madison Square Garden family of companies to become the official wireless provider for all its venues, including Madison Square Garden and The Sphere.

[Speaker 1]

We will be providing a more detailed update on capital allocation at our analyst meeting this morning. But our capital allocation priorities remain to invest in the business, support our dividend and pay down debt. We executed on all three during the quarter, including our pending acquisition of Frontier Communications, a tower transaction with Vertical Bridge, a Spectrum acquisition from U. S. Cellular and a new satellite partnership and organization improvements.

[Speaker 1]

All will enhance our capabilities, help us serve our customers even better and support financial growth. Let me walk you through each of these transactions. First, our pending Frontier acquisition will expand our total addressable market in mobility and broadband. Post close, Verizon will stand unmatched as the only company with the ability to serve both fixed wireless access and fiber at scale. 2nd, we announced a transaction with Vertical Bridge involving more than 6,000 towers deepening a relationship with a valued strategic partner.

[Speaker 1]

In addition to the cash proceeds, we will lease back capacity at a very favorable terms providing long term cost stability. 3rd, we're acquiring valuable low and mid band spectrum from U. S. Cellular, which will enhance our spectrum portfolio and expand our network capacity when the deal closes. 4th, we have further expanded our satellite capabilities, adding a partnership with Skylo on top of our ongoing work with ASD SpaceMobile.

[Speaker 1]

By using satellite technology, we're extending our network reach to previously underserved areas, opening up new market opportunities and reinforcing our commitment to connectivity. And finally, we continue to make progress on costs. Our voluntary separation program allowed employees to make informed decisions about their futures while helping us manage cost as we transform our workforce and adapt to new technologies. Overall, I'm very pleased with our continued improvement in operational and financial execution. Now, Tony will talk about our Q3 result in greater detail.

[Speaker 1]

Thanks, Hans, and good morning. Our Q3 results demonstrate our continued focus on operational excellence

[Speaker 2]

and reflect our ability to deliver both customer and financial growth. With our differentiated offerings and value proposition, we're continuing to drive year over year improvements in postpaid phone net ads and broadband connections, all while maintaining our discipline around promotions. Starting with our consumer results, postpaid phone net ads were 81,000 for the 3rd quarter. This compares to a prior year net loss of 51,000. The year over year improvement was driven by continued gross ad growth of about 6% in the period.

[Speaker 2]

This marks the 7th consecutive quarter of year over year postpaid phone gross ad growth. Additionally, phone churn improved by 1 basis point compared to last year. For the full year, we continue to expect positive consumer postpaid phone net adds both with and without the impact of our 2nd number offering. America's Best Network together with the benefits of MyPlan continues to be a differentiator for us. We offer customers a compelling value proposition with one of a kind perks.

[Speaker 2]

Moving to prepaid, the team is successfully executing on its strategy and improving the trajectory of the business, delivering 80,000 net ads excluding SafeLink. Our core prepaid brands, Visible, Total Wireless and Straight Talk continue to perform well driving a total year over year improvement of over 300,000 net adds when excluding SafeLink and the related ACP impacts. With ACP pressures now firmly behind us, we're confident that the rigor being applied to our prepaid operations will position us well going into 2025. Moving to business results, postpaid Phonet ads were 158,000 in the Q3, representing another quarter of solid growth. We saw sustained buying activity throughout the quarter and had strong contributions from small and medium businesses, enterprise and public sector customers.

[Speaker 2]

Businesses continue to trust Verizon for their mission critical functions over any other provider. Shifting to broadband, our total net additions were 389,000 for the quarter. Fixed wireless access once again had a strong quarter contributing 363,000 net adds. Our FWA subscriber base now stands at nearly 4,200,000 customers. As Hans mentioned earlier, we are pleased to have reached our FWA customer target 15 months ahead of schedule.

[Speaker 2]

This reflects the popularity of fixed wireless access and customer demand for high quality broadband services. Fios Internet net adds totaled 43,000 for the quarter, an improvement of 15,000 sequentially. We saw momentum build throughout the quarter as we further distanced ourselves from the effects of the ACP shutdown. In total, we now have over 11,900,000 broadband subscribers, a nearly 16% increase year over year. We continue to make good progress in growing our customer base and look forward to sharing additional broadband updates at our analyst event later this morning.

[Speaker 2]

Moving to the financials, our sustained focus on profitable growth contributed to a strong quarter. We are on track to meet our 2024 guidance with both wireless service revenue and adjusted EBITDA growth trending at or above the midpoint of our guided ranges. Consolidated revenue for the Q3 totaled $33,300,000,000 essentially flat compared to the prior year. Service and other revenue growth of 1.7% was offset by declines in wireless equipment revenue as total upgrade volume was down over 10% year over year. Wireless service revenue was $19,800,000,000 representing year over year growth of 2.7% or $513,000,000 Sequentially, wireless service revenue grew by $70,000,000 in spite of a full quarter's impact from the end of ACP as well as headwinds from promo amortization.

[Speaker 2]

Looking ahead to the Q4, we expect sequential growth in wireless service revenues to be driven by volume improvements, increased contributions from FWA, and our recently communicated pricing actions. This will partially be offset by the continued promo amortization headwind. Consumer postpaid ARPA continues to grow at strong rates with the Q3 above $139 and up 4.2 percent year over year. Targeted pricing actions, FWA expansion and the further adoption of MyPlan are all contributing to ARPA growth. We have more than doubled our MyPlan subscriber base since the end of last year, which represents over 37% of the consumer postpaid phone base.

[Speaker 2]

Additionally, PERC revenue continues to provide a notable benefit. We continue to grow fixed wireless access into a long term sustainable business. Total FWA revenue, which is included in wireless service revenue, was $562,000,000 for the quarter. That was up $215,000,000 versus the prior year period. FWA is on pace to generate more than $2,000,000,000 in revenue for us this year.

[Speaker 2]

Prepaid revenue for the quarter declined by over $40,000,000 sequentially with the Q3 having a full quarter's impact of the ACP shutdown. This overall service revenue impact continues to be within our previously provided range for 2024. Prepaid revenue represented a 100 basis point drag on total wireless service revenue growth for the Q3. However, the actions we have taken to improve our prepaid customer results are working, positioning us for better revenue performance going forward. Consolidated adjusted EBITDA for the Q3 totaled $12,500,000,000 an increase of 2.1% year over year.

[Speaker 2]

This is the 2nd quarter in a row in which adjusted EBITDA has grown faster than service and other revenue. As Hans mentioned, this also represents the highest quarterly adjusted EBITDA we've ever reported. Continued wireless service revenue growth and lower upgrade volumes helped to drive this result. Upgrades in the Q3 were down over 10% year over year. We continue to be disciplined with our promotional spend, maintaining our targeted and segmented approach to customer retention.

[Speaker 2]

We continue to see healthy and consistent payment trends with bad debt levels in line with expectations and our high quality customer base remains resilient. As we previously disclosed, we are implementing our voluntary separation program. Over 50% of the approximately 4,800 impacted employees have already exited the business. The savings from the program are expected to begin to materialize in our 4th quarter results and beyond. Adjusted EPS in the quarter was $1.19 down 2.5% compared to the prior year period.

[Speaker 2]

Growth in adjusted EBITDA was offset by below the line items including higher interest expense. However, on a sequential basis, interest expense decreased quarter over quarter as a result of lower interest rates and lower average debt levels. Cash flow from operating activities totaled $26,500,000,000 for the 9 months ended September 30, 2024 compared to $28,800,000,000 in the prior year period. The results reflect over $750,000,000 of higher adjusted EBITDA. This was offset by higher cash taxes of approximately $2,500,000,000 as well as higher interest expense primarily driven by the decrease in capitalized interest and higher interest rates.

[Speaker 2]

Year to date capital spending was $12,000,000,000 This was approximately $2,100,000,000 less than the same period last year. Our full year guidance for CapEx remains unchanged at a range of $17,000,000,000 to $17,500,000,000 and back to business as usual levels of capital intensity. The net result of cash flow from operations and capital spending is free cash flow of $14,500,000,000 for the 1st 3 quarters of 2024, largely in line with the prior year period. For the Q4, there are several items to keep in mind around cash flow. First, upon the closing of our Tower transaction, we expect to receive approximately $2,800,000,000 in proceeds.

[Speaker 2]

This will be partially offset by higher cash taxes and interest expense as well as the anticipated impact from severance payments related to our voluntary separation program. Net unsecured debt at the end of the quarter was $121,400,000,000 an improvement of over $1,400,000,000 compared to the previous quarter and more than $800,000,000,000 lower year over year. Our net unsecured debt to consolidated adjusted EBITDA ratio was 2.5 times flat compared to the prior quarter. Bottom line, the cash generation of the business is strong and we are on track to pay down debt as planned. In closing, our Q3 performance continued the ongoing trend of delivering strong operational performance and financial results.

[Speaker 2]

We achieved positive postpaid phone net adds in consumer, which positions us well to be net add positive for the full year. We reached our goal for fixed wireless access subscribers more than a year ahead of schedule, and we did it all in a financially disciplined manner consistent with our overall strategy. We are now focused on finishing the year strong, setting us up for success in 2025. With that, I will turn it back to Hans for his closing comments.

[Speaker 1]

Thank you, Tony. We're well positioned for a great Q4 and to carry our momentum into 2025. Our offerings from My Plan to My Home are resonating with our customers and driving deeper engagements. Our brand refresh has been successful and tells a compelling story about the central role our services play in customers' lives. Looking to the end of the year and into 2025, our priorities are: 1st, deliver on our 2024 financial guidance with continued focus on wireless service revenue, adjusted EBITDA growth and strong free cash flow.

[Speaker 1]

We will sustain momentum in mobility and broadband. As we expand our 5 gs ultra wideband network and scale our private networks business, we're opening up new opportunities for growth and innovation. The rapid adoption of fixed wireless offering and the continued strength of Fios demonstrate the effectiveness of our network centric strategy. And we will execute on our capital allocation priorities by investing in the business, supporting our dividend and paying down debt. At the same time, we're scaling AI to improve employee and customer experiences as well as unlocking new revenue streams.

[Speaker 1]

I'm more excited than ever about Verizon's prospects. Our superior network, coupled with our customer centric innovations and strategic investments, position us uniquely in this market. We're connecting people, empowering them to do more, experience more and achieve more. The transformative moves we made this year from our pending Frontier acquisition to our expanded partnership in private networks are setting the stage for sustained growth and value creation. I'm looking forward to all of you joining us at 9 a.

[Speaker 1]

M. Eastern Time for our broadband updates and Q and A.