Q3 2019 Earnings Call
Good morning, and welcome to the Verizon third quarter 2019 earnings Conference call.
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It is now my pleasure to turn the call over to your host Mr. Brady Connor Senior Vice President Investor Relations.
Thanks, Brad Good morning, welcome to our third quarter earnings Conference call. This is Brady Cotter and I'm here with Hans Vestberg, Our chairman and Chief Executive Officer, Amat Ellis, our Chief Financial Officer.
<unk>, our earnings release financial and operating information in the presentation slides are available on our Investor Relations website.
A replay and transcript of this call will also be made available on our website before I get started I like to draw your attention to our safe Harbor statement on slide two.
Information. This presentation contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties.
Discussion to factors that may affect future results is contained in Verizon filings with the FCC, which are available on our website.
The presentation contain certain non-GAAP financial measures reconciliation of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials on our website.
The quarterly growth rates disclosed in our presentation slides and three or four remarks on a year over year basis, unless otherwise noted sequential.
As a reminder, we're in the middle of the millimeter wave spectrum auction. So we will not be able to comment on our current millimeter wave spectrum holdings or spectrum strategy.
Now, let's take a look at consolidated earnings for the period.
For the third quarter, we reported earnings of one dollar and 25 cents per share on a GAAP basis.
These reported results contained two special items, a net pre tax gain from dispositions of assets in businesses up $261 million and a 291 million dollar pre tax pension remeasurement charge.
The gain from dispositions includes several transactions during the quarter, primarily the sale of our Sunnyvale Yahoo campus as we look forward to moving to our new varieties and media group facility in San Jose.
The mark to market pension charge was related to our management pension plan, which triggered remeasurement earlier in the year as a result of the voluntary separation program. The charges, primarily due to the reduction in the discount rate assumption during the quarter.
The net impact of these special items was minimal to net income, resulting in adjusted earnings per share of $1.25 cents, which is up 2.5 per cent compared to $1.22 a year ago.
Let's now move to slide four and take a closer look at our earnings profile for the second quarter.
Consistent with previous quarters, we've illustrated the ongoing impacts the earnings from the adoption of accounting standard S. C. Six so six for revenue recognition and see a 42 for leases.
As we pointed out the past two quarters, we've realized a lesser benefit in 2019 than we realized last year and the adoption of assay six so six primarily due to the deferral of commission expense.
This reduction in benefit creates a year over year headwind to both reported earnings per share and adjusted earnings per share, which will continue until the end of 2020. The impact was three cents for the third quarter and nine cents on a year to date basis.
Accounting standard S. C 842 for leases resulted in the gross up on the balance sheet for all operating leases at the beginning of the year.
In addition, the lease standard affects our earnings per share primarily due to the expensing of certain lease costs, which results in a headwind of once said in the third quarter and four cents year to date.
We expect the fourth quarter impact to be within the previously provided range of one to two cents per share.
As you can see on the earnings waterfall slide adjusted EPS growth of 2.5% reflects the strong underlying performance of the business, partially offset by the impacts of the deferral of commission expense and the adoption of the leasing standard Matt will take you through the details of the quarterly performance later in the call with that I'll now turn the call over there.
On.
Thanks, Brady and thanks, everyone for joining a third quarter earnings call I will just start by saying that I'm very pleased how well the team executed our strategy and operation. This quarter, we made a little progress on our old old strategy, So I'm very happy with it.
Let's start with a network I think the netbook team has continued to execute extremely well I'm, calling for them. So you know our ability to keep we need to third party awards on the Fourg network. We are you it's continuing to do a really good yield there at the same time our team is executing on all five use Rhapsody and we're now up.
If the markets, where we have deployed our Fide. He also weidenbaum alchemy, <unk> 30 markets by year end, it's they'll hold me did and we will continue to do so and the rest of this year.
The same time, we also launched a fiveg home safety based on the NRC found out that proves the mall doesn't always moving into the sound on five need to really see that we get the full benefit though the deployment on a developed bundled defied you standard when it comes to find the home. We're also doing a lot of things the wall.
On fiber continued to have a very high pace in that and that's one flybys. So important for older Real World Intelligence age net work that were deploying him to company in order to realize the multi purpose network to gain old efficiencies and serve our customers even better over time so in short.
A a little old the progress in the net worth.
At the same time or expected execution into quarter. It showed a lot around our business model. The flexibility will have ended bces mold that just recently, we know made announcement do we didn't need and our agreement with decent when it comes a distinct lost I think this proves the model that we have decided to have would do very strong network these to be.
<unk> on a brand that attracts the best brands on the planet. The work would also were extremely excited over not at the same time, we continue to deploy also five yards a wide bonding stadiums, especially now with NFL 13 stay Jones when the season keep keeps dolf having five.
Coverage. This is important for us because it's Paul told that dense urban areas, where you have a little old view worse at the same time, we when really our fiveg is coming to a excel because of the five you build that were doing we'd all were assets. It's we're making a real big difference here at <unk>.
Same time, we're also working of course with a five year mobile aged compute and that's ways. They did already a and B Neal de are we going to launch the first five immobile age compute centre in this fourth quarter and that is in progress and we're going announced that late this quarter. So we're excited or not that the same time you.
He also engaging much more with large enterprise says because with the five you platform and eight currencies. We are now a lot of interactions we announced in this quarter. For example collaboration with S.A.P. Corning all of them or use cases, four to five demobilized compute so were excited or that the opportunities where Craig.
Thing with their five year mobilization compute with the largest companies in the market.
When it comes the Horizon Media group. They also had the quarter. We didn't look those drafted execution on came out but it also new product into portfolio a new made a survey said they also had the enhancement on the yellow sports some finance a local traction on it we so a great take up well north and this flat fans that we have now what do you always.
Boards, so all in all or ISO media group is excuse me on this back into laid out one year ago in a really good way.
And finally, Oh earlier in the quarter I think we continued to lead the charge in the in the wireless and consumer market with our new mix and match, which is yours continuation all how we want to bring all costs. Most on this down how they can move up in the value chains on limited I have to say.
Ronan Don and his team are doing an excellent the old to really to move these more markets for ward and ask you can see and our operation performance. We had a really good quarter. When it comes to wireless additions here well know the best quarter <unk> third quarter, while adding several years, so really it's paying off what we're doing.
Hey, animal doesn't actually moving these four forward. So all in all local brokers on our strategy of course and look to more to be down, but it's clearly now positioning us we want to be as a company without customers a and our shareholders. Finally these of course came down to our finance we had to revenue growth.
Almost 1% in the quarter more importantly continued to have the wireless service growth in the quarter. We continue on the same level is almost who have a the previous quarters a an all in all of that converted into a continuous S. Gross growth that we had India squawk dress, while I'm not this of course coming.
I would have very strong underlying operational performance, we saw some headwinds coming from accounting, but to go in the very good work from the team which is based on our call Me then told the cost efficiencies or voluntary that's went down in all although things were doing at the same time. That's also conclude.
Today in a very strong free cash flow continued to take control our balance sheet, then seeing that were putting ourselves in a board into good position going forward. So all in all the finance a performance really salto resonated with strategic execution when that we'd be it in a quarter we.
We had the war so a lot, though the execution when console response would be snow and ice is important to us because it's part of our strategy. We made commitment around their education or a five you to schools, we made commitments around our CEO to me shows all in all of these as part of our strategy is part of our says responsible beast.
These ultimately it should be good beasties for all of loss for our customers for shareholders and our employees see should be part of that you're only so we continue on that path and we think is very important we're all our stakeholders.
All in all very good quarter, a team executed well on all the metrics is there's areas that we need to improve those areas, where we're still working on but in general I would say I'm happy and satisfied all the Verizon team is showing up this quarter by that.
I handed over to Matt Thanks, Hans and good morning, everyone, let's start with overview about consolidated operating and financial results.
On a reported basis third quarter consolidated revenue was $32.9 billion up 0.9%.
This growth is primarily driven by higher wireless service revenue, partially offset by lower wireless equipment revenue I don't go in declines in legacy wireline revenue predominantly in our business segment.
Year to date consolidated revenue is up 0.5%.
In line with a 40, a GAAP consolidated revenue guidance of low single digit percentage growth for 2019.
In the third quarter, we delivered strong adjusted EBITDAR margin, while positioning for future wireless revenue growth by updating a unlimited offer and executing effective promotions to drive strong wireless volumes.
The headwinds that Brady mentioned earlier from the deferral of commission expense and the lease accounting standard lowered EBITDA by $214 million, which is approximately a 70 basis point impact on EBITDA margin in the quota.
As reported third quarter consolidated adjusted EBITDA margin was 36.6%.
Down from 37.4% in the prior year.
Since we initiated a business excellence program in 2018, we have realized cumulative cash savings of $4.6 billion and are on track to achieve our goal of $10 billion, a cumulative cash savings by 2021.
Our voluntary separation program has produced approximately $900 million of expense savings year to date, including over 400 million of savings in this quarter.
The last tranche of employees exited the business in late June . So we have now reached out full run rates of expense savings for the DSP.
As Brady mentioned adjusted earnings per share for the course, I was $1.25 up from $1.22 a year ago.
This is the third quarter this year with adjusted EPS growth of two and a half the central Ohio, highlighting the strength and momentum in the business.
The combination of wireless service revenue momentum solid margin performance and strong customer volumes keeps us on track to achieve our adjusted EPS guidance of low single digit percentage growth to 2019, excluding the impact, but the lease accounting standards.
Additionally, we still expect have full year 2019, adjusted effective tax rate to come in at the lower end of the 24% to 26% range.
Now, let's review our operating segment results, starting with consumer on slide seven.
As a reminder, how consumer segment includes both wireless and wireline products and services targeting retail customers as well as how wireless wholesale operations.
In August we launched new unlimited price plans, which provide more choice to customers and an easier entry point into unlimited on the nation's best network.
As a result phone gross additions were up 10% over the prior year.
The popularity of the new mix and match plans and overall value proposition drove postpaid phone net additions of 239000 for the quarter more than doubled the 112000 last year.
Postpaid smartphone net additions were 372000 up from 295000 in the prior yet.
Total postpaid net additions were 193000, including other connected devices of 130000.
Primarily wearable was offset by tablet losses of 176000.
Our network leadership, coupled with the personalization about customer value proposition that to a postpaid phone churn of 0.79%, which was similar to last year, even with additional market participants.
Total postpaid device Activations were flat from prior year at 7.4 million, including 6.2 million phones.
Our retail postpaid upgrade rate was 4.9%.
Down from 5.1% a year ago, reflecting the continued elongation of the handset upgrade cycle.
In the third quarter prepaid net losses were 81000 compared to a loss of 96000 last year.
Our focus on the high value prepaid market has resulted in stable prepaid revenue despite declining volumes.
Files Internet net additions of 30000 were relatively flat sequentially and down year over year.
Files video results continued to be impacted by the ongoing shift away from linear video offerings with losses 67000.
Our customers see value in our high quality broadband offerings paired with multiple choices for video through linear TV bundles or over the top auction such as you to TV and the recently announced Disney plus.
Now, let's move to slide eight to discuss consumer financial performance.
In the third quarter total consumer operating revenues were $22.7 billion, which is up 1.4%.
This was primarily driven by continued strong growth in wireless service revenue and fire service offerings offset by declines in wireless equipment and legacy wireline services.
As we look to add value beyond conductivity. Other revenue grew 18.7% primarily driven by recurring services such as total mobile protection.
Consumer wireless service revenue increased by 2.1% over the prior year, even as we introduce new on them at your pricing.
We increased wireless service revenue and ARPA by driving customer step ups to unlimited plans from metered plans and increasing connections per account.
We have continued room for further growth that's around 50% to that customer account base is currently on unlimited plans.
And the third quarter consumer wireless equipment revenue decreased 5.6% as low upgrade rates more than offset an increasing phone gross adds.
Consume a spouse revenue increased by 1.7% due primarily to the demand for our broadband offerings.
Consumer EBITDA margin as a percentage of total revenue in the quarter was 45.3%, which was down 30 basis points in the prior year.
This includes headwinds of approximately 80 basis points from the deferral of commission expense and the new lease accounting standard.
We are extremely proud of the team's ability to drive significant volume in the quota while maintaining strong EBITDA margin.
Now, let's move to our business segment on slide nine.
Our business segment includes wireless and wireline products and services provided across four customer groups global enterprise small to medium business wholesale and public sector. Another.
Business, while this volumes remained strong with a 12% increasing gross adds to the quota primarily within small and medium business and public sector.
Postpaid net adds with 400000 compared to 364000 in the prior yet.
This includes 205000 phones 112000 tablets and 91000 other connected devices.
Our continued strong customer loyalty across the business segment. That's a phone churn is 0.98%, which was relatively flat sequentially and up slightly over the prior year.
Total postpaid churn of 1.22% was up five basis point compared to the probably yeah.
Total postpaid device Activations were up 5.7% well, our retail postpaid upgrade rate was 4.5% versus 4.8% in the prior year.
Let's now move to slide 10 to review the business financial performance.
Strong wireless service revenue growth and high quality fiber products were offset by softness in legacy wireline technologies cause in total operating revenues for the business segment to be approximately flat for the quarter.
Revenue from our business, while this products grew 6.9%, including 6.1% wireless service revenue growth.
This performance reflects Verizon is best in class network quality reliability and solutions based approach without business customers.
Revenue from our wireline products declined 6.7% in the quarter.
From a customer group perspective, global enterprise revenues declined 2.4%.
And by legacy pricing pressure and technology shifts.
Oh sell revenues declined by 13.7% driven by price compression and volume declines, which we expect to continue in a highly competitive marketplace.
Small to medium business revenue increased 6.2% driven by wireless service and files growth, partially offset by ongoing declines in traditional data and voice services.
Public sector. Another revenue increased 1.2% as a result of growth in wireless and wireline products and services.
Business segment, EBITDA margin was 25.2%, which was down 300 basis points, primarily driven by the decline in high margin wholesale revenue.
It's also includes headwinds of approximately 50 basis points from the deferred a commission expense and the new lease accounting standard.
Now, let's move on to slide 11 to discuss Fries and media group.
For the third quarter, Verizon Media group revenue was $1.8 billion, which was down 2.0% versus the prior year continue in the improvement in revenue trends.
Gains in native mobile advertising continues to be offset by declines in desktop appetizing, though the businesses building momentum in key areas.
We are migrating customers to our recently integrated native and demand side advertising platforms with double digit growth year over year.
For the first time, we are seeing mobile traffic increases outpaced desktop traffic declines in our core owned and operated products, including Sports Finance News Entertainment Hooman Mail.
Although it's early in the NFL season customer engagement has doubled over a year ago in terms of minutes watched as more and more fans are using their mobile devices to watch gains on Yahoo sports.
We are diversifying our monetization streams immediate group, including additional customer engagement opportunities on yahoos sports and fantasy platforms and the launch of new integrated content to commerce capabilities. This now move to slide 12, which reconciles Verizon to does your results to our legacy Verizon one <unk> results.
As we have previously committed to provide transparency for our transition to the new for us in two zero segmentation Slide 12 contains a reconciliation similar to the one we provided in the second quarter.
These waterfall charts reconcile revenue and EBITDA from a consumer and business segments back to wireless and wireline.
The tough chart shows consumer revenue of $22.7 billion in the quarter.
After removing consumer wireline and adding back business. While this we report total wireless revenues of $23.6 billion with EBITDA margin of 46.8%.
The bottom chart shows a similar reconciliation from business to wireline results, starting with business revenue of $7.9 billion and ultimately arriving at total wireline revenue of $7.1 billion in the quarter with EBITDA margin of 17.4%.
Airline revenues were down 3.8% from prior year with margins down from the prior period as a result to the ongoing precious in legacy product volumes and price compression.
You can find additional detail in our supplemental information included on our website.
Let's now move to slide 13 to discuss the wireless results.
Looking at overall wireless which includes both consumer and business total operating revenues increased 2.6% to $23.6 billion in the third quarter, primarily driven by 2.7% increase in service revenue.
Based on the momentum into business, which has carried over into October we expect total wireless service revenue growth for the fourth quota to be between three and 3.5%.
Total wireless EBITDA margin as a percentage of total revenue in the quarter was 46.8%.
This includes headwinds of approximately 90 basis points, primarily from the deferral of commission expense and the new lease accounting standard.
Excluding this impact EBITDA margin was 47.7% similar to prior year, despite the significant increasing volumes.
The success of our new mix and match unlimited plans translated into impressive volumes driven by phone gross adds up 10% to 2.7 million.
Which marks our highest quarter phone gross outperformance in the last five years.
Host paid phone net adds to the call. It took a 444000.
Which were up from 295000 a year ago.
Postpaid smartphone net additions in the quarter was 615000 up 21% from 510000 than the prior year.
Total postpaid net adds was 600 in 1000, consisting of tablet losses of 64000 and connected device gains of 221000, mostly driven by Wearables.
Postpaid phone churn of 0.82% was up slightly from 0.80% last year, while the total retail postpaid churn of 1.09% was up five basis points year over year.
For the quarter, we increased customer net accounts by 25000 as compared to zero into third quarter last year.
Total postpaid device Activations were up 1.1%.
This was driven by an increase in postpaid gross additions of 4.3 million up 7.7% from the prior year offset by a decrease in our retail postpaid upgrade rate the 4.8% from 5.0% a year ago.
To recap the while this quarter across consumer and business, we reset on limited pricing and absorb the initial impact from Optimizes, we've a competitive on the promotion front and we drove strong wireless volumes to set us up a future growth.
All of this was accomplished while growing EBITDA on a like for like basis, and generating one of our strongest free cash flow quarters in several years.
We are excited about the trends in our wireless products, while pushing forward to extend out five GE leadership.
That's now focus on a consolidated cash flow results and the balance sheet on slide 14.
Year to date cash flow from operating activities totaled $26.7 billion up from $26.2 billion during the prior year.
Benefits from year over year operational improvements and lower discretionary employee benefit contributions were partially offset by higher cash tax payments and payments related to the voluntary separation program.
Year to date capital spending was $12.3 billion, which was up slightly from the prior again.
Our capital expenditures continue to support the growth in data and video traffic on our industry, leading Fourg LTE network.
The launching continued build out about Fiveg Ultra wideband network.
The upgrade to out intelligent edge network architecture, and significant fiber deployment in 60, plus markets outside of our ILEC footprint.
We maintain our full year 2019, capex guidance range of $17.0 billion to $18.0 billion.
The net result to cash flow from operations and capital spending is free cash flow for the first three quarters of the yeah, a $14.4 billion.
We ended the quarter was $109.6 billion of total gross debt, which is 3.3 billion lower than the prior year.
The unsecured debt balance was $100.8 billion, which is lower year over year by 2.9 billion and lower sequentially by 1.3 billion.
Our net unsecured debt to adjusted EBITDA ratio at the end of the core to is 2.1 times.
But she's out talking to a range of 1.75 to two dogs zero times, reflecting the continued strengths about balance sheet.
We remain focused on reducing our unsecured debt portfolio, while continuing to actively manage our near term maturities optimize our overall funding footprint and lower our cost of capital.
Our capital allocation priorities continue to be in order to investing into business, continuing our commitment to the dividend and managing our balance sheet to achieve our targeted leverage range.
In the third quarter, we demonstrated yet another period of focused execution, we were able to maintain strong EBITDA performance and generate solid cash flow, while driving significant volumes to set ourselves up a future revenue growth in the fourth quarter and beyond.
We continue to be disciplines, our approach to capital allocation and we remain committed to strengthening our balance sheet overall late in the industry in Fiveg development.
With that I'll turn the call over to Brady. So we can get to your questions.
Thanks, Matt Brad we're now ready to take questions.
Thank you.
We'll now begin the question and answer session. If you would like to ask a question. Please press star one please UN mute your phone and record your name clearly when prompted your name is required to introduce your question to withdraw your request. Please press star to one moment for the first question.
Your first question comes from Brett Feldman of Goldman Sachs. You May go ahead.
Thanks for taking the question if we look at some of your most recent moves with the unlimited price adjustment and now the partnership with Disney to give away Disney plus for free for a year. It certainly seems like you're assuming a bit more of a growth posture than we've seen from the company recently and I was hoping you can maybe just sort of frame Twoish why you see this opportunity as we're sort of late in the.
Fourg cycle not quite in the Fiveg cycle, yet how are you. Hoping this is going to position you as you do get ready to ramp more aggressively in Fiveg and then of course anytime we see an operator become a little more growth centric. There's always some degree of investment to create that growth. How do we think about the level of spending you're gonna have to incur to make sure you can keep this momentum going thank you.
Thank you very much.
I think thats when we this is part of the overall strategy as well blind the beginning of the year.
We have a great network, we have a distribution and of course the brand we when it comes a decent last weekend Park and we didn't bet partners and it's actually when we know and actually they are gaining a lot of reporting with us as we are gaining a little does well and I think Dcs a differentiation, we can provide talk customers and given inflexibility denzel and so I think.
First of all not assuming that these are heavy investment, it's actually and we need to will aspect I think that's very important then when it comes to our move on mix and match only Nick Walker that has been portal then they remain good planning very at DCP in Wales, viewing things, where we actually ramping and doing.
Pathway for our customers to commitment on the mid day, moving up and unlimited, where ultimately when fiveg comps, we want to have you'd be they could this.
New coverage they can move up to that higher level. So it's all a plan, but we're also said all the time, we see opportunities on Fourg sweat meant we know that way of outlined a great opportunity don't fivea with four different business cases, but hey, we can execute on the will to have owned assets allows a day and we're very happy that without being.
He said and we we believe we use our strength right now to really see that we are.
Using the market opportunities that we see and I think that to the whole team has been executing very well this quarter and that's what you see on and we have also down another type of partnership and that's part of our network into service strategy that we outlined in the beginning on the year. So I.
I think when you see that we we see a possibility for continued growth the even when the Fourg, Iran. Nothing Thats important yeah, and ratify would decide on a couple of points you mentioned, that's having a growth posture, we've really been leaning forward for over a couple of years now from when we launch on limited we'd be continue into.
Update how consumer offerings, our customer offerings you see those resonate is built on the backbone of having the best network experience. So this is an ongoing process are you seeing from us over the past couple of years and you should expect us to stay on the front foot going forward in terms of you mentioned the investment in growth.
If you look at the won his numbers as a whole so as you say very strong growth, but when you adjust out for the accounting our EBITDA margin was inline with last year. So it's a great performance from the team that we can focus on growth and a continued to put a report strong margin. So it's a it's well balance there as well.
Thank you.
Thanks, Brad Brad we're ready for the next question.
Your next question comes from Phil Cusick Jpmorgan you May go ahead with your question.
Hey, guys. Thanks.
How effective were the new plans and driving more subs.
I heard you mentioned still 50% or so.
Appreciate the commentary on service revenue for Q, what does that tell us about unlimited take rates and moving up or down to years. Thanks.
And in yen Renesas and for US it's in the he said way for seeing that our custom and get the best value. They can mix and match I think doesn't resonate when do we didn't marketplace that you can do it I think that as Matt said were being on the four fold since on the median come out in new ways sold both offering but also.
Giving you why the breadth of opportunities for our wireless customers. So I think that's what we've seen on and as you heard from Matt that means says we can mean would be good momentum into fourth quarter and are in wireless service revenue and is now in increasing our or guide.
For the fourth quarter, but remember also as both consumer and we're doing very well on the on the Beast New side. That's what I think the time into team are doing a great. What your loan on wireless and then if you see the numbers. We continue to do a really solid work across the board here yeah, yeah into a follow on from that point do you think about the 400.
44000 phone net adds we hadn't the quota we had more than 200000 in each of the consumer and business segments. So that why this growth is very well balanced across the totality without customer portfolio, which is very good to see you mentioned the the unlimited percentage probably a couple of quarters, we were saying, we're still less than 50%.
This quarter at approximately 50% the new plans give people a.
I didn't move toward limited a great opportunity to do so was seen them do that there's still plenty of space more customers to come they fill in the as you see the the service revenue guide for the quota and obviously when do you have increased in a net adds a that gives us greater confidence about service revenues, we look into the future.
Thanks, guys.
Thanks, Phil Hey, Brad we're ready for the next one.
Thank you. The next question comes from David Barden of Bank of America. Your line is open.
Thanks for taking the questions I guess.
A couple of format on the financials I think Matt we saw a kind of spike in wireless cost to service in the quarter or kind of anomaly I think relative to history that if we could have been in wireless margins kind of in a lot better.
If you could kind of address that spike helpful. And then similarly on the I'm on the flip side on wireline kind of almost two percentage point sequential step down in wireline margins. I know you mentioned that we've hit the full run rate from the voluntary departure plan.
Which I thought would have would kind of supported that they can you kind of walk us through what happened in the wireline margins I too. Thanks, Yeah.
Thanks, David for the question, Sean on the wireless cost of service side I mentioned that the the phone net adds split was a fairly even between consumer and business.
Business had a more than 10% increase in phone gross adds and as you a as you're aware our a lot about business customers is still on a a a subsidy model rather than device payment model. So I think you see the impact of that but as I said earlier, we had great growth.
In the quarter in wireless and overall margins were in line with a year ago. So we're very happy with the balance of that performance between between.
Between growth and the margins on the wireline side.
Obviously, we are we still have work to do there as you as you look at wireline certainly we are we see the continued effect is the the revenue declines in legacy products. That's not new we've had that for a number of course is and we expect that's obviously going to continue the key for us in wireline is to develop products and services.
Is that well offset those legacy products and services and by bringing a the business segment together, well, we're bringing both wireless and wireline products to our business customers Holistically. This puts us in a better position to really be that partner of choice for our business customers as we move into a fiveg well so as we.
We develop those products and services, we look forward to seeing what comes.
From those segments as we go forward.
I can only add onto Wirelines high there and the whole the transformation, we're doing with the new segments.
Yes of course should paving the way for actually thinking about the customer these customer extremely important what did you can try as digital transformation when it comes to private private fiveg networks to mobile edge computing the future. So the customer relationship is very important there and secondly, as some that say the investment that we're doing in the network right now would moment age comp.
With wood fiber in all of that that's of course things that are one offset that all the time, it's not in any immediate because we'll have a secular decline on the product portfolio, which is known them, but we constantly work with with the Frontend loaded done nothing that putting together with web non these really really good them and I have together with time into team BC did I would say the majority.
All the launch a fortune 50 companies in these contra right now and talking about our offerings and what we can do for them in the future I think weather really good stock there, but it will take some time, so I I think he's a very very important assets and that will have then we need to work would it that's why we taking all the cost of all the time.
It will not be an immediate to recovery and we will but I think web plans for the future do really do these whether or not.
I see so much encouraging signs a use lately on how we work with diesel.
Yeah, that's moving forward why not.
Alright. Thanks, Thanks, Thanks, David.
Hey, Brad we're ready for the next question. Please.
Thank you. Your next question comes from John Public Yes. Your line is open.
Great. Thanks, guys. Two questions first anything you guys can tell us about the financial impact to that to the Disney partnership.
And then more specifically.
What kind of lift or you guys, saying from it from an ARPU standpoint, as you as you guys get.
Sort of a non unlimited customers move it up Upto unlimited and then second.
We talk about use of cash as you guys get to your leverage targets it looks like you're going to get below or at or below two times sometime early next year.
How do you prioritize or returns of cash to shareholders versus sort of other needs.
Like spectrum for instance, and and is there a chance that we could see buybacks come back into the cards next year. Thanks.
Thank you if we start with the DC plus agreement I think first of what we learned a lot from.
Our exclusive agreement without the music both how we we do these hasn't been waiting for both the departure enough and remember we are I wouldn't say fairly picky, but we do these diebold all bought a cheap we do we did bass brand with great products. This same go up a decent decent because remember we are offering a local to these companies as what I mean, we we offer a base.
So the distribution that no one else house and U.S concrete definitely the best.
Customer base at the same down demand network. So I think is a much more when the wind up you might believe as I hear your questions coming out I think that we are offering something fantastic for them at the same time as you went pointed out we have a shannon's right now to move our customers in our value chain whole lot limited again give.
Given that we are adding these type of thing. So I think we have a good metrics we have a good experience from the up a new seek that we'll now take to the streaming.
And we going to have a win win it's going to be afraid to forward Disney is gonna be going for us I think that's what will happen on the cap that allocation I've been some outside the <unk> first of all we he missed on our business our capex whatever tuck ins, we need that's really a number one priority right now.
Secondly, we are putting our board into good position to continue to increase the dividend 13 years in a row Oh the dividend increase we want to have them in that and then of course, we continued to do our commitment which was to get back to work for either ISO pre Vodafone Ah.
Right things on the pretty well enough on the measurement. So we're doing now that's we execute on today and and the yes, we're getting very close a and we will give the adult all the old but units for the board to in the next step to think about to what they want to do one that's what to map and I'm doing it on the older threshold team, which I think is doing an excellent Joel so.
That's where we all read the capital allocation.
Yeah, I'll, just add a couple of things of that Hans and Oh.
I would say you, while we're not going to provide any more details.
About specifically, where we'll be next year, you should not expect us to one time to go outside the bottom end to that right below the 1.75 and you should not expect us to was.
Bill the significant cash balance on the balance sheet right.
Okay, great. Thanks, guys.
Yep, Thanks, John Hey, Brad we're ready for the next question.
Thank you. The next question comes from Simon Flannery of Morgan Stanley . Please go ahead, what your question.
Great. Thank you very much good morning, Hans I wanted to talk on Fiveg, a little bit you rolled out so the new standards based Fiveg home in Chicago can you just give us a little bit of color about what different stopped makes an how aggressively going to lean into this in terms of new markets and households until you got the next generation with the new chipsets and then related to that you've got an.
Number of Fiveg ultra wide band devices in your onsite mix, obviously, we're waiting for the I phone, but how do you see that those devices penetrating your subscriber base over the last few months kind of and water see pipeline look for it for new devices or would that capability over the next few months. Thanks.
Thank you very much when it comes at a five year home that to be that we launched now with the NRC found that was an important thing for us because remember we launch unforeseen these with our proprietary software Nawab it's on the global standards. So far so that's an important event for us and a second important event, though these launches that we are.
Now having to satisfy adult remember the Northstar, how we want to do these sold differently. So yes, you're right. We we are launching these and it's a local new experience that were giving talk on consumers, but also that we are now taking us we have been working seems to only launched when the first four cities.
As you rightly point out than I've said several times, that's why the that Ah that there is coming in next generation Shipset a in the second half full 2020 . That's a really when we think we want to have a a more mass seem deployment folded and onto than we are deploying in the medium to meet waving the of the.
Slide back in so many seat the so when we get that to more the next generation CB them based on the next generation sheep said, we're going to being a very good position in the second half to two actually come out to meet much wider. So Dcs you at the next step for us to get all the insights will be living experience or Oracle.
Consumers. So we can really taking big step when they come to the next generation Shipset. When it comes to smartphones actually ride quota is sad we have launched a all the iconic is five you phone. So far this year, we see a an exciting the exciting take up on that because many many of our Coca Cola.
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Taking a phones uneven need to have not launched ulccs and they are preparing so we are paving the way for him because many of these phones are always extremely good for do you phones on that as soon as we come within five years without CP. They will also have not so that we see on us or Brian again, so that is leaning on the mice organization has had a basic the old phones coming off.
I see it wouldn't be five UK capability. So we would have a range of phones coming out next year. It's one that brand that we would all nowhere and we haven't talked about them not yet they even need to talk loved one day, whatever five useful and but all the others. We basically have their phones coming out so I feel good about it.
Performance has gone up dramatically I mean, if I look at the galaxy coming off the Samsung Galaxy, which one of the first phones, where in the beginning with tuned up to five 600 Megabits per second which we thought it was great you know.
That's doing two gig right now constantly in the in the onto a wide band. So if we see it wasn't clear improvement on the on the software tuning between the network in the onset sound and that's we deploy more and more we use getting better met their and giving a bit them better experience where our customers.
Great. Thank you.
Thanks, Simon Hey, Brad we're ready for the next question.
Thank you. Your next question comes from Michael Rollins of City you May go ahead, but your question.
Thanks, how do you see the pricing model evolving with five key terms the opportunity charge by radio speed.
That is by the current model, which is a mitigate for gigabytes or certain quantum of.
Good bye.
Thanks.
Thank you.
Well of course, then as we get them to five de you'll get a fair amount the new potential ways. Some charging I still think that our molded PORON limits. The these really bolt, helping us and all our consumers to go.
To actually move up in the into value chain from getting into that and let's say that the lower.
T are rolled on limited to coming up today, so to the high yet he said wide range and of course, the high you see including five need today, where waving that but all the time with the we see that if you're going to get that you'd be give this a short gold coverage and capacity.
And that will give us an opportunity at the same time was thought.
Our flexibility in our business model, having Apple music have NDC blocks, and what I'm not going the same time. So I think that we have a little too we've seen the portfolio to continue to drive these forward and I think that Oh, that's I always say I have a local confidence into consumer team and they have come together today.
You'll see Kelly every eight new potential someone remember we have five you homecoming, where five you mobilely that same time theres a lot of things that can be down for us to continue to these journey and I don't think that well know the proof point on the whole new structure. He is of course rules and the decent tough it's not only for mobility each for our fights customers and these four or five.
Your home customer then suddenly we think about consumer is a food segment, which I think you what's the whole idea with the new structure web.
Thanks.
Yeah. Thanks, Bye, Hey, Brad we're ready for the next question.
Thank you. The next question comes from Tim Horan Oppenheimer. Your line is open.
Thanks, Tom can you give us maybe some more thoughts what you think people are going to do with gigabit speeds and since the megabit when we rolled out Fourg, we had a lot and you know new innovative kind of applications. You know just any thoughts on that as you're talking to fortune 500 companies and are there ways for you maybe to participate in some of the revenue from some of these new applications with lower also.
Maybe lower latency, just any more thoughts what you've seen and use cases.
Yeah, I think that the extent question I'm going to first <unk>, which is a a told the new business more minutes five year old that's a that's a totally new way, how we use the technology, which we have never been able to do before because standalone peaks wise access could never be sustainable financially in these cases. These then of course.
Do you think about the eight currency is coming out from five to eat I think that our conversation with a large enterprises today. He is a lot about the latency and the moment age compute because suddenly you can transform your you already knew in fact 3 million when remote fixed by having a low latency you don't need a wired.
Threep sold them their future. It didn't factor will have five d., we see awards so.
Much bigger Fivea private networks, where you get secure worry too much higher because he is going to be your network you define your network, you're having compute and storage for your enterprise does he told the new way, you'll charging and actually interacting with our customer sometimes just wanted to be a software in between that come from a software company. So we need to work.
With that must watch so and I said earlier.
Earlier this quarter, we want to launch our first five you Mobilev compute center. So we are on the path of doing these which are actually we are will add a more opportunity that under consumer side, which usually the question, Unfortunately, which I know AMD, we'd because I see some in other opportunities a is of course, AOR VR and we see.
Now that quite a lot the money coming into the venture side. When it comes to five innovation and I think that that's moving into 2000 and when do we want to see much more we have our Fiveg challenge, which we had now which we announced at CES, where we had an auto companies for peace based wasn't going to do with five deep age range from every.
Thing what they can do would find you I think we're at the moment will Fourg button weighty began when 40 came I didn't know what type of application a new service companies would show up I think these is far bigger notwithstanding for him from them right now and we have much more insights to me that's what.
Thank you.
Thanks, Tim Hey, Brad we're ready for the next question.
Thank you. The next question comes from Colby Sinusoidal of Cowen and company. Your line is open.
Great two questions. If I may at number one can you talk about the revenue impact of the step up in the insurance fee on a fully and a full year basis and the amount.
Expect to reinvest in things like promos in marketing and things like Disney plus so you can get a better sense the net benefit.
To the company and then secondly on given the slower deployment for small cells not fiber, but for small cells that being seen really across the industry are you considering shifting more of your investment dollars back to the macro network as we shifted into 2020. Thanks.
I guess thought would the second question I'm not sure way to say a slow with the definition well just small cell. It's a number one number with.
I'm not sure there's a good definitional data of course, we even the we deployed.
All the old urban the satisfied not in my book not actually some of what does that is so I don't think you were referring to also when you talk about less deployment because we are in the midst of our five you deployment right now which is very focused on the dense urban basis, where there's not macro say, it's more just as.
Well do a defined as a small cell.
Our everything from MC gross though and medium size highbridge to doing the macros on the but in our case, it's not that were slowing down anything here.
Yes, so a cold the on the the question on the revenue impact of the step up in our insurance product total move our protection from a geography standpoint, that's in the that's in the other revenue line. So.
That the contribution from that step up.
It is not in the service revenue line, but as you say its you saw a good increase in that line into quarter. We continue to add value to our customers is an example of how we think about the consumer offering holistically whether that be the core.
Service and the having <unk> on the best network, whether it be bringing value like we have the issue for us with Apple music and now with Disney plus and how we bring other services such as total Mopar protection cloud storage et cetera et cetera. So we continue to look for those opportunities to add value for our customers.
And as we do that you see the impact on revenue and.
And you see the impact on volume so coming out of the third quarter very strong volumes, great momentum coming out of the quota and we've seen that to continue strong momentum hearing or here in October as we start the fourth quarter and head into the holiday season. So all of those things that we're doing around the customer proposition a rule.
The driving a lot of positive trajectory for the business right now we have good line of sight for that continuing as we go forward.
Alright, Thanks, Colby Hey, Brad we're ready for another question.
Thank you. The next question comes from Doug Mitchelson of Credit Suisse. Your line is open.
Mr. Mitchell said, please check the mute button on your phone.
Hi, there so 40, plus your national partner for Disney and and the impact for both use highly dependent upon getting Verizon customers a sign up and use the plus what would you consider a good conversion rate for unlimited customers as you plus customers and should we benchmark.
The Apple music usage in any sort of go to market strategy commentary around that would be interesting, but also your proving that you can partner with great content.
And I do you know I'm interested in your comments on the benefit of owning media and in particular, the rising media group. Thanks, So much.
Thank you very much no I think that they sell it to be different of course, a up and music from decent lastly, given that the decent thought too. So of course, a heavy streaming enough for me was it gets a fairly light all deal. So of course. It's also went to think about the conversion rate do you need also noticed that you need to be on limited when you come up.
These small non and moving up in unlimited. So so of course, it might be little bit lower promotional right, but I see a theme thing that our team knows these where and when right now we do to coal marketing, it's a great for our customers eat create the loyalty, but not only that we give something more for our customers. So I think that we have a good we're not giving.
The way the conversion rates right now and I think that's been put more pressure on decent enough. So I think that said that said, but I think we're having good grip on it when come to our Mike or our view on on me on comp and nothing Thats first of all when it comes so stream calmed down to lean near continent. All of that I think that we are we like.
The more than we have web local flexibility, we partner with advanced we offer our asset so you're going to see us doing nothing to write basis, but any help there are some media group fits very well into our because what we see they are doing is of course, all wouldn't told a total Yahoo finance, you whose boards winter.
They meant the whole news all of that it's all would've hoped services, where we get engagement, we learn how companies working and of course that we'll have more advertising platform. Then that this gifting then own and operate their coal done that it drives the flywheel or advertising platform. So it all things.
And I'm not you we also need glad that the local that content definitely not we're trialing out for Fiveg east coming from our part of a rise of media group because while the first is the Phygen labs will actually inside rice and media group with them to be innovating on the next generation cone down without animation, then a whole Ramsey.
Whatever you can think about so we havent gold says synergy between rise in media group and I know network based these would you say is extremely crucial for our success going forward. Thanks. So much yeah. Thanks, Doug Hey, Brad we have time for one more question. Please.
Thank you. Your last question comes from Mike Mccormack of Guggenheim Partners. Sir Your line is open.
Hey, Thanks, guys How's maybe just a quick comment on the wireless side, obviously very strong phone adds in the quarter just from a competitive landscape or you're seeing a share taking opportunity here with I guess potentially spread the T mobile analytical distracted, but obviously quite busy.
And how that situation might change as you go through 2020, and then secondly, I guess for has also on the wireline side are there any opportunities to carve out some of those assets that we've been talking with us for years, but anything you can see out there that might make sense and then maybe just one last one for Matt on the legacy pricing pressure within wireline.
Exactly you're saying that maybe just elaborate on what you're seeing as far as a pricing pressures go. Thanks.
And so when it comes to the then why does that we think it first of all we think that third quarter was very similar in meeting the competitive good the competitive landscape in the third quarter was very seem went into the second quarter I'm in the works on the call iconic launches there. So first of all of it decent competitor market, we need to remember that is just that we.
Youre, having a we're on the four four foot the right now as a as Matt said, we have a good chance to continue to add to monetize on that then I think we have a good the compelling network and the customer offerings. I think that's what is important for US Oh of course, as I've said before and the landscape wins.
Any change in the future here when it comes the competition at our strategy will change how we are executing right now would be to same we will continue to go hard on our network seen that the the customer centric organization that hobbies really making the right decision for our customer creating the problem that they want so I think that.
That's what we want to do and are.
We want to have the flexibility to see market opportunity set with so on the third quarter. We move we'll know a I, we're preparing our structure auto products in our organization move for doing that.
Yeah, Mike on the on the wireline side the legacy pricing pressures that you question about I mean, obviously was seeing the the pressure both from volume and pricing standpoint, it's not really dissimilar to what we've seen in the past few courses, but that's going to continue as customers continue to want to transition to five but they services that's why.
We have been doing Marina rolling out more fiber as you know not long fiber initiative that can you give us more opportunities to sell into those customers as they move off of legacy products and how fiber build has continued to gain momentum increased at a little bit in third quarter of over 1500 route miles and.
Month on average in the causes so we're getting to a good momentum there and that will open up additional opportunities for us as a as we going forward to replace those legacy volumes. It met any comment just on the wireline assets anything out there that might be interesting.
No I think we've done a good job over the years and when you look at the assets. We have now a they they fit within the portfolio. Obviously, if anything comes up with we continue to look but nothing major that we see immediately in front of is the great. Thank you guys got yeah. Thanks, Matt.
Hey look that's a that's all the time we have for questions today before we end the call I want to hand, it back over to Hans for a few closing comments.
Quick summary on an as I said in the beginning on I'm satisfied the audit team executing on strengthening.
And this quarter, we continue to execute well know network Fourg Inphi Neon and then one fiber ask Matt talked about and our customer centric model is starting to paying off big time, when the concerted offerings in the market both horizon Bces group Rice and media group I'm rising consumer group.
Do you continue to see us hammering on the leadership in five years very important for us a an also headwind or but also progressing this quarter, especially now 50 markets up 13, NFL stadiums a couple of arena that holds both hockey and basketball is why the so and find the home coming also and continue to.
Progress there were more to do in the fourth quarter, which is an exciting.
And then of course, we continue with the discipline in the financing environment that were already none the executing a very carefully but also taking opportunities what we've seen them in the marketplace sold one in a world I'm pleased to the quarter and we were happy with the momentum that we are great thing going into the fourth Walker. So thank you very much for.
For being on the call today.
Thanks, everyone. Thank you.
Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using for Rice and conference services you may now disconnect.