Q4 2019 Earnings Call
Good morning, and welcome to the Operation fourth quarter 2019 earnings Conference call.
At this time, all participants have been placed and I listen only mode and the floral be open for questions. Following the presentation.
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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.
As a reminder, our earnings release financial and operating information in the presentation slides are available on our investor.
Patients web site.
A replay of transcript of this call will also be made available on our website.
Before we get started I like to draw your attention to our safe Harbor statement on slide two.
Information in this presentation contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties.
Actually the factors that may affect future results is contained in <unk> filings with the FCC, which are available on our website.
This presentation contains certain non-GAAP financial measures.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials posted on our website.
The quarterly growth rates disclosed in our presentation slides and during our formal remarks on a year over year basis, unless otherwise noted a sequential.
In addition to our comments today on February 13, horizon will be hosting an investor day in New York City and will be webcasting presentations by Han's it'll leadership team more information about the event will be posted on our IR website.
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 strategy.
Now, let's take a look at consolidated earnings for the fourth quarter and full year.
In the fourth quarter, we reported earnings of $1.23 cents per share, resulting in full year earnings of $4.65 per share on a GAAP basis.
Reported fourth quarter earnings include a net pre tax loss from special items of approximately $2.4 billion.
Including an early debt extinguishment charge of $2.1 billion, an impairment charge of $236 million, primarily related to the write down of goodwill within our media business and a net charge related to severance in annual mark to market for our pension and OPEB liabilities of $135 million.
In addition, we recorded a 2.2 billion dollar tax benefit related to the sale of preferred shares in a foreign affiliates.
The cash impact related to the tax benefit of this sale will be realized in 2020.
Excluding the effects of these special items adjusted earnings per share was a door 13 in the fourth quarter of 0.9% compared to a door 12, a year ago.
A year adjusted earnings per share was $4, an 81 cents up 2.1 per cent compared to $4.71 a year ago.
Let's now move to slide four and take a closer look at our fourth quarter earnings profile.
The impacts to earnings from the adoption of accounting standards HFC six so six for revenue recognition and ASV 842 for leases continued throughout 2019.
As we illustrated in previous quarters, we realized a lesser benefit from the adoption of A.S.C. six so six in 2019 compared to the prior year, primarily due to the deferral of commission expense.
The reduction of the benefit realized creates a year over year headwind to both reported earnings per share in adjusted earnings per share, which will continue throughout 2020.
The impact was three cents for the fourth quarter and 12 cents for the full year.
For 2020, we expect the headwinds from the deferral of commission expense to be approximately nine cents.
In addition to AMC six so six accounting standard AOCI 842 for leases, which was implemented at the beginning of 2019 results in a gross up on the balance sheet for all operating leases.
This new leasing standard affects our earnings per share primarily due to the expensing of certain upfront lease costs, creating a headwind of once it in the fourth quarter and five cents for the full year.
We do not expect a year over year impact from the lease standard in 2020.
Full year adjusted EPS growth of 2.1% illustrated on the earnings waterfall slide reflects strong underlying performance of the business, partially offset by the impacts of the deferral of commission expense and the adoption of the leasing standard.
Additional details of our quarterly performance will be covered by Matt later in this call.
With that I'll now turn the call over the Han's to take you through a recap of 2019 in a discussion of our strategic priorities for 2020. Thank you Brady and thank everyone for joining these fourth quarter earnings call.
Let me summarize quickly lifted beats everything went down in 2019, we chase building a great fundamental 20 to 20. The transformation was built on the network pearls. The changes ran changers go to market changes and of course, all the local new talent coming into our team on that.
We're doing doing 2019, we fortified on network wouldn't you all should take jokes.
The <unk> proposed changes with the voluntary program, we rebranded and pulled one brand for everything we're doing it to company. We made a new go to market, including New management teams that has been a big change any company that is so that is solely the fight our way old accessing the market an even better.
There's a way in 2020 . So all that's happening we continue to actually execute well on all day today be sneeze or Nick what continued to be the best in the market. We used a new confirmation from JD power a route metrics that again or network or 40 network is clearly the best anymore.
Good very happy what a team that they keep up that work. The other thing to do what had been very focused on is of course. The continued to lead the mall getting wireless aim for consumers and the here were seen Ronan Don and his team continue we do a good pace seems on limited it came out with new offerings seeing that.
Our cost have been getting Optionality optionality when it comes to the wireless offering but also on the cable side would be mix and match said we came out with noted this year, we're digging a little pocket cheapest will now have Neptune guest service. That's the strategy. We are redeemed the Apple music and then more lately of course, we included it wouldn't.
Sleepless both of them has been a win win for both our partners for our customers ample dry so dcs disrupted they want to have going forward on the Beast decide what was the d. The loss will be important partnership where we had the same model I'm thinking about the the partnership with for example, a Wi.
Yes, I must hold on to find the mobile age compute again, a told the new ways all the accessing a market that when not been into I'm speaking about fiveg will have their commitments 30 cities. We may 31, we said, we gonna launched five your home with the NR standard with did that and we said we will now launched a first five you more about edge.
We did that in Chicago in December so all in all an a. Jia, which so much execution on that same time to continue that she will do want to do and we round that up with our financials, India around operation metrics I'm really happy to report that we had the or best Yeah machines.
Turning to 13 when it comes to phone net adds a growth of 28% year over year and again that these how our team has been working within new mold that.
And on the financial side, we continue to see that we had a good wireless service revenue over the year with 3.2% for the full year, which is the highest since 2014 and when it comes daughter profitability.
He asked was up 2.1% within 2019 for the full year I would continue to create strong cash flow, which is of course, giving us the flexibility going forward to see that we can execute on our strategy.
Ultimately consumer group continued to have a very good year end to end to 19 would everything they're doing the Verizon Beasties group have of course, the head wins when it comes to this secular decline into wireline side as the same time as were investing more in that area. We're investing in proceeds this tools and structures.
Why is that the important is so important because DC is one of the greatest opportunity for growth for us when it comes to five <unk> and however, the market than I can tell you wouldn't want to 19 I made so many large corporations that we now can actually work with because our offering is so strong when it comes to fiber and five d., but we need to put that strong.
Sure in place whatever Isom Bces group in order for them to actually both execute on the revenue side, but the ones on the cost side and that's what really what were focused on ultimately I think we have a great did a very strong father strong fundamental going into two and it went down if you're thinking about the priorities would 2020 .
First of all continued to grow on the core business. I mean, we showed this year, we can continue to grow fourg and our core business as that will continue to do in 2020 as well, including building on that work to be the best and that we're getting these market.
Secondly is leveraging on new assets that were building. We're building on fiber were building, our five year and seeing that we get installed to leveraging that without customer and I think that this year. We continued to have a lot to focus on their five you'd been and what we're doing in Fiveg and we will come back to that later on how we see the five year mall.
Good when we will have an investor day late there in February so the third priority in 20 to 20 years around or financial Johnson, our discipline. There and then vision is to accelerate the growth in revenue and EPS in 20 to 20 and continues to create strong cash flow asked would they didn't want to 19, but it's also.
So does continue to have the disciplined and efficiency in our Capex and Opex spend that's very important middle DC is really driving us going forward being able to execute on our strategy and the full priorities around our customer Centricity and our purpose driven company bolt on him are important to engage with all our stakeholders.
<unk> if it's the society already I'm pleased to customers. So I'm not the you know genes in a company everyday he would drive looked around thinking about the customer given that optionality as we didn't want to 19, we will give us continue to do that I wanted to come to our responsibility to drive a response would be sneeze, we laid out a little things seemed Wendy.
19 will do want to do and combine all are all responsibility of our society with our strategy, we think that they strengthen us as a company to all our stakeholders and ultimately that will create even more value for all our stakeholders. So all in all I think we have a really good platform coming into a 20% 20.
We are excited for it and we hope that all of you were excited what 2020 as well so by that I hand, it over to Matt. Thank you. Hans you. Good morning, everyone. We will begin with a review with our consolidated operating and financial results.
And the fourth quarter consolidated operating revenue was $34.8 billion up 1.4%.
Service revenue remains the primary driver of growth driven by volumes and step ups in access partially offset by lower wireless equipment revenue and secular declines in revenue from our wireline products and services predominantly not business segment.
At the beginning of the Yeah, we provided consolidated revenue guidance of low single digit percentage revenue growth for 2019.
For the total revenue grew 0.8%, including a 3.1% decline in wireless equipment revenue.
Adjusted EBITDA was $11.1 billion as compared to 11.6 billion last year. The headwinds mentioned earlier from the deferral of commission expense and the lease accounting standard load EBITDA by $239 million, which is approximately a 70 basis point impact on EBITDA marching into.
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These results reflect continued strong margin performance in consumer despite a meaningful increasing volumes and secular weakness in the wireline portion of the business segment.
40, a consolidated adjusted EBITDA totaled $47.2 billion, an EBITDA margin was 35.8%.
Slightly lower than last year's marching to 36.2%.
Full year adjusted EBITDA included headwinds of approximately 70 basis points from the deferral of commission expense and the lease accounting standards, which overshadowed our improved operational performance in 2019.
Throughout business Excellence program, we have realize cumulative cash savings of $5.7 billion and are on track to achieve our goal to $10 billion of cumulative cash savings by 2020 want.
The voluntary separation program resulted in approximately $1.3 billion of expense savings this year, and we get a being at how full run rates of savings for the last two quarters of the.
Adjusted EPS for the fourth quarter was $1.13 opt to 0.9% from $1.12 a year ago. We achieved out 2019 go up low single digit growth by posting a full year adjusted EPS of $4. An 81 cents represents you get a yearly growth rates of 2.1% Inc.
Including the 17 cents headwind related to AMC six so six and 842, the Brady mentioned earlier.
Let's now turn to cash flow results on slide eight.
We had strong cash flows in 2019, which allowed us to continue our focus on investing and how that works increasing dividends for the 13th straight yeah and strengthened balance sheet.
The year over year, increasing CFO with huge operational improvements and lower discretionary employee benefit contributions, partially offset by higher cash tax payments and payments related to the voluntary separation program.
Capital expenditures for 2019 totaled $17.9 billion and well within our guided range of $17 billion to $18 billion.
Capital spending for the year was driven primarily by our fiber deployments in 60, plus markets outside of our iconic footprint and the build out to about Fiveg ultra wide band network.
Additionally, we continue to support growth in nature and video traffic on our industry, leading Fourg LTE network and the upgrade to our intelligent edge network architecture.
Free cash flow for the year was $17.8 billion ops, 0.7% year over year.
Our balance sheet continued to strengthen without net unsecured debt down $3.7 billion year over year.
Our net unsecured debt to adjusted EBITDA ratio rounds down to $2 zero times, but she's out targeted range of 1.75 to 2.0 times, we remain focused on reducing our unsecured debt portfolio into our targeted range, while continuing to actively manage our near term maturities optimize <unk>.
Uhhuh funding footprint and lower our cost of capital.
As part of this management on the balance sheet, we could talk seed liability management transactions in the quarter and throughout the year, which will reduce our interest expense going forward.
Now, let's review our operating segment results, starting with consumer on slide nine.
How consumer segment entered the fourth quarter was strong momentum the combination of the new mix and match pricing attractive device promotions Our award winning network and then you Disney plus partnership drove continued success in the fourth quarter amid a compact you did holiday season.
We're extremely pleased with the early uptake on Disney plus and the ability to partner with an iconic consumer brand and content company to bring even greater value to our unlimited customers.
As a result fourth quarter the phone gross adds were up 9.3% year over year I'm postpaid phone net adds with 588000 up 12.6% year over year.
Phone churn of 0.83% was up six basis points from a year ago, consistent with our expectations I'm, reflecting the elevated competitive activity across the industry.
A breakdown of our postpaid net additions is provided on this slide.
Total postpaid device Activations were flat from prior year at 9.5 million, including 7.9 million phones.
Our retail postpaid upgrade rate was 6.3% down from 6.6% a year ago, reflecting the continued elongation of the handset upgrade cycle.
Phos Internet net additions of 35000 were up sequentially and down year over year, our customers see value in a high quality broadband offerings had with multiple choices for video.
She is files TV, you TV and Disney plus.
Filed video net losses for the quarter totaled 51000.
Earlier this month, we launched mix and match your files, providing customers with choice transparency and the opportunity to only pay you for the services they want.
Now, let's move to slide 10 to discuss the consumer financial performance.
We continue to see growth in consumer operating revenues Sera updated service offerings in wireless and files, which were offset by modest declines you want us equipment revenue and ongoing declines in copper based wireline services.
Consumer operating revenues for the fourth quarter were $24.2 billion and for the full year with $91.1 billion, which were up 2.0% and 1.4% respectively.
We are utilizing tools, such as pricing and partnerships to add to our value proposition and drive further increases in wireless service revenue and offer.
Customers recognize the value of being connected to the best network in order to consume services are operate new devices.
As customers require additional data we seek to drive step ups to unlimited plans for me to plans step ups within on limited to hire to your plans and increasing connections per account.
Consumer wireless service revenue for the quarter was $13.4 billion at 1.9% increase.
$53.8 billion for the full year.
We expect to see further subscriber growth as we continue to effectively compete in the marketplace and from continued migration storm limited as approximately 50% if a customer base is still on me two data plans in the fourth quarter consumer wireless equipment revenue decreased 2.1% as pressure from promotion.
Offerings and low upgrade volumes more than offset the increase in front gross adds.
For the full year equipment revenue decreased 4.4% driven primarily by law upgrade volumes.
Consumer files revenue remains relatively flat due primarily to the demand for our broadband offerings offsetting the impact of reductions in video subscribers.
Consumer segment EBITDA margin was 39.9% in the quarter down 130 basis points from last year, including headwinds of approximately 80 basis points from the deferral of commission expense and the lease accounting standard.
For the full year EBITDA margins were 44.3%, including headwinds of approximately 85 basis points. The consumer segment demonstrated in 2019 that it can increase customer volumes, while continuing to produce strong margins.
Now, let's move to our business segments on slide 11.
Business wireless trends remained strong throughout the year.
Fourth quarter phone gross adds were up 10.5% from the prior year, primarily within small to medium business and public sector.
Contributing to postpaid phone net adds of 200 in 2000.
Which were up 54.2% from the prior year.
A break down about postpaid net additions is provided on this slide.
Our continued strong customer loyalty across the business segment led to phone churn of 1% in the quarter, which was up two basis points sequentially and down seven basis points over the prior year.
Total postpaid device activations in the quarter were up 7.1% over the prior year when our retail postpaid upgrade rate was 5% versus 5.3% in the prior year.
Let's now move to slide 12 to review the business financial performance.
Operating revenues for the business segments in the fourth quarter were up approximately 1% over the prior year.
While this revenue growth of 8.4% was partially offset by wireline product revenue declines.
Wireless service revenue grew 7% driven primarily by small to medium business customers.
From a customer group perspective, small and medium business revenue increased 7.9% over the prior year driven by wireless service revenue growth of more than 11% and double digit files growth, partially offset by ongoing declines in traditional data and voice services.
Global Enterprise revenues declined 1.6% driven by legacy wireline pricing pressure and technology shifts.
Public sector and other revenue decreased 1.6% as growth in wireless products and services was offset by wireline declines.
Wholesale revenues declined by 10.6% driven by price compression and volume declines in legacy wireline products, which we expect to continue business segment EBITDA margin was 20.7% in the quarter down 260 basis points from last year, including headwinds of approximately.
50 basis points from the deferral of commission expense and the lease accounting standard.
The reduction see margins year over year due to the growth in wireless activations reductions in wireline revenues and the investments, we're making in the business such as the launch of our business ready marketing campaign and the transformation, although I'll go to market processes.
Now, let's move on to slide 13 to discuss Horizon Media group.
Verizon Media group continued to make good progress in the quarter total revenue was $2.1 billion, which was essentially flat versus the prior year any meaningful improvement from the decline reported at the beginning of the.
While we have more what to do we have very pleased with the results and the foundation, we are building for future growth.
Steve advertising I know tem onsite platform continue to gain traction mitigating the ongoing declines in legacy desktop search revenue streams.
Let's now move to slide 14, which reconciles for reasons to those your results to our legacy Verizon one don't see or results.
As we close out 2019, we're providing a reconciliation to legacy want those your results for the last time.
The charts on this slide reconciled revenue and EBITDA from our consumer business segments back to wireless and wireline.
The top chart shows consumer revenues of $24.2 billion in the quarter.
After removing consumer wireline and adding back business won this we had total wireless revenues of $25.3 billion with EBITDA margin of 41.0%.
The bottom chart shows a similar reconciliation for business to wireline results.
Starting with business revenue of $8.1 billion underwriting a total wireline revenue was $7.1 billion in the quarter down 4.1% from the prior year.
EBITDA margins were 11.9% down from 17.6% last year.
The factors impact in wireline margins on Lonsky's assignments those highlighted in the business segment.
Most notably the ongoing pressure from legacy wireline product revenue declines and the investments to drive future growth.
You can find additional detail in our supplemental information included on our website.
Let's now move to slide 15 to discuss the wireless results.
Total wireless operating revenues increased 3.5% to $25.3 billion in the fourth quarter.
Driven by a 2.7% increase in service revenue and benefits from the time from Obama protection pricing action taken in the third quarter.
The fourth quarter performance was below our targeted range, primarily as a result of higher base optimization into new pricing plans, which we believe is stabilizing.
And the impact to increase gross ads on our promotional expense and is amortized through service revenue.
For the full year wireless service revenue grew 3.2%.
Driven by retail post paid off a growth of 2.5% and a 27.8% increase in phone net adds.
Total wireless EBITDA margin as a percentage of total revenue in the quarter was 41.0%. This includes headwinds of approximately 80 basis points, primarily from the deferral of commission expense and the lease accounting standards.
We are proud with this result, particularly given the strong volumes driven in the quarter.
Continuing the momentum from the third quarter phone gross adds were up 9.6% to 3.1 million.
Postpaid phone net adds to the quarter was 790000, which were up from 653000, a year ago, marking our highest fourth quarter phone at performance in the last six years.
Postpaid smartphone net additions in the core to a 969000 up 11% from the prior year.
Postpaid phone churn of 0.86% was up from 0.82% last year Autocam of retail postpaid churn of 1.13% was up five basis points year over year.
For the quarter, we increased customer net accounts by 30000.
Total postpaid device Activations were up 1.2%.
This was the result of a 6.0% increasing postpaid gross additions from the prior year to 5.1 billion offset by decreasing our retail postpaid upgrade rate to 6.0% from 6.3% a year ago.
Now, let's focus on our outlook for 2020 on slide 16.
We exited the year with great momentum reflected by strong wireless volumes in both our consumer and business segments, which together with our focus on execution positions us for accelerated growth in 2020 .
The 2020 , we expect low to mid single digit percentage growth in consolidated revenue compared to the prior year.
Included in this outlook, a continued growth and momentum in wireless service revenue trends within both the consumer and business segments, and an expected increasing equipment revenue as we expand the availability and reach about Fiveg network for the full year, we expect to see adjusted earnings growth of 2% to 4% driven.
Hi, recurring service and other revenue growth in both consumer and business as well as ongoing cost initiatives.
Adjusted earnings growth includes the impact to defer commission expense as well as investments within Verizon business group in product development.
Continued process improvement and you walk tools that would not only drive cost savings, but create incremental growth opportunities in areas such as Fiveg, one fiber and Mick we expect to see cost benefits at the squawk begin to materialize in the back into 2020 and increasing 2020 , Ron with revenue benefits.
So again 2020 too.
We're excited about the future opportunities in our business segment, and believe revenue and margins will expand in the future.
Below the line, we expect depreciation and amortization to be similar to 2019.
Interest expense is expected to decline due to lower debt balances and the impacts of our liability management last year.
We expect each quarter in 2020 to be below the fourth quarter 2019 expense level adjusted effective tax rate is guided between 23 and 25% in line.
The actual results from the prior two years.
We expect consolidated capital spending to be between 17, and $18 billion, including the expansion about Fiveg network in new and existing markets.
Additional fourg densification to stay ahead of demand.
And our ongoing fiber build.
Our capital spending guidance results in our capital intensity continuing within our normal range, although the timing will be higher earlier in the year than last year.
In summary, we expect to build on our strong financial performance and our position for accelerated growth in 2020 now, let's take a look a capital allocation.
Our capital allocation process is disciplined and focused priorities for the upcoming year remain investing in the business.
Continuing our commitment to the dividend.
And managing our balance sheet to achieve our targeted leverage range.
Without leverage near the high end of the target range and expectations to EBITDA growth and healthy free cash flow and 2020 .
We are pleased to add share repurchases as a fourth priority of our capital allocation policy.
Repurchases will begin after the other priorities have been met including investment in our Fiveg Rollouts.
Potential spectrum purchases.
And the increased investment in the business segment as highlighted earlier.
Earnings growth outlook for 2020 excludes the benefit from any potential share repurchases.
Summing up in 2019, we demonstrated that we can improve service revenue and grow the company from a position of strength.
We drove increased volumes throughout the year utilizing updated unlimited offerings effective promotional strategies and partnerships positioning the company for sustainable growth.
Fiveg built right strategy office, new opportunities to drive further growth as we continue to strengthen our network leadership.
Importantly, we achieved strong results, while expanding our industry, leading margins as adjusted for accounting impacts during a period in which additional competitors entered our industry.
Though we continue to face challenges within our legacy products and services, we are making strategic investments to drive growth in the coming years. In addition, we continue to make progress you know media group and we believe we have to necessary assets and appropriate strategy to drive further improvements.
Execution is a key focus within Verizon and we remain disciplined in our approach to capital allocation delivering on our commitment to strengthen our balance sheet.
In short.
We entered 2020 was strong momentum poised to deliver growth and innovation.
With that I'll turn the call over to Brady. So we can get to your questions.
Thanks, Matt Rad ready to take questions now.
Thank you we will 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 too.
One moment please for the first question.
Your first question comes from Brett Feldman of Goldman Sachs. Please go ahead Sir.
Thanks for taking the question.
The principal variance in your fourth quarter results versus ours, and I think most people's expectations was the higher level spending.
The business PML is it looks like is on the wireline PNM and during your remarks, you talked about a step up investments in the business services segment to drive growth into future. So I'm, assuming that we've already started to see that in the fourth quarter run rate I guess, what I was hoping to get more clarity on is what precisely are you spending that on I mean, if I annualize that uptick it's well in excess of 1 billion.
Dollars of incremental Opex, I think there's going to be a lot of interest and where you're spending it and how we should expect that pay off to flow through and then just the flip side of that is the annual EBITDA EPS guidance you gave for this year it looks pretty close to what most people are looking for including US. So there must be an offset and that would imply you're getting better operating leverage somewhere in your wireless business and so I was hoping you can.
Maybe just walk through where the cost performance of the margin improvement is coming from on wireless as you look into 2020. Thank you.
So brett against all done already so when it comes to the business group, you're right them and we had already impacting the fourth quarter, all nor investment that we're doing into business group, Matt mentioned some of them.
If I go deeper as we are now approaching the market with the full portfolio for our enterprise com customers small and medium customers, we need to get all our billing system, all our tools behind CRM etcetera actually working in that cost and my dimension and these hasn't been invested in before and we.
Need to invest there and that's why you see all seem to guide that you say yourself were saying basically on your line of expectation that means that.
At the and the idea we will see impact on those as well to investments and then they go into rollout. So part of these investments are of course Onetimers investments you are doing and then that would go away because we just need to seeks a couple of things in order to address the market into rightside that when the right way secondly, the secular decline in wireline business that these continuing so that.
That is says so little bit more sustainable.
That's why in the in the remarks on that we said the ones that that end to end the won lose even more impactful to cost reductions were doing and on the revenue impact was thought gradually coming 20 ones, but do you decide but all ignored we're very excited about the opportunities that Verizon business group have because that's why we started building that there.
And he intended in its network some add three four years ago in order to a two actually address these market in the best way and the traction we've seen what our customers really good but the on your first question. If there's some impact in the fourth quarter dancers, yes, not anything bad Yep. Good morning, Brett Thanks for the quest.
And so we certainly saw the uptick in spending is hollums discussed we feel very strongly about the opportunities in VPG, even more so today than we did when we announced a new operating structure.
But some parts of that.
That business haven't been a focus of our investment over the years. So we're excited about the a the future ahead there.
You mentioned, a a kind of annualized run rate a billion dollars and that's certainly not the number the we have in mind for that investment in 2020 saw thing that's a that's significantly overstating.
Whether 2020 number would be but if you. If you go back to the the comments earlier, we did say that we would expect.
See it impact on margins in 2020 inline with what we saw in the second half of 19.
I would expect will start to see the benefits of the transformation activities on the cost side of the business around the back end of the year really impacts in 2020 one in the most significant fashion a name getting into a into 22 would be on on the revenue side, but look we.
I think the underlying thing here is a the level of confidence that we have that over time by making these investments we can grow both revenue and margins within the business segments. So that's a that's what we're focused on you also asked about the total margin structure of the company if you've got this additional cost.
The the earnings guide, which suggests as some other things offset again, the other direction I think it starts with revenue.
When you continue to have strong service revenue growth.
In both consumer and business on the on the wireless side and and some of the other revenue lines that we mentioned that gives you a good starts employee for earnings growth. When you combine that with our ongoing cost activities and then even with the investment making him VPG I would expect to see upside.
To earnings through the year as a result to them.
Thank you.
Rather rate for the next question.
Thank you. The next question comes from John Hodulik of you'd be S. You May go ahead Sir.
Okay. Thanks, maybe from add on service revenue growth came in at a little bit lighter than we expected your here in the fourth quarter.
Can you give us a little more detail on sort of the drivers there, especially in light of the better than expected subs and it also looked like consumer wholesale wireless revenues were sort of flattish sequentially was there any kind of reset this quarter in the.
In the sort of wholesale rate, especially given the.
Growth in subscribers in some of your your.
Customers and then lastly, any commentary looking out to 20 on on service revenue growth.
Year over year, great. Thanks.
Thanks, John Outlooks are service revenue growth in the fourth quarter at 2.7% for wireless as a whole as you say was that a little below a the guide that we had a couple of a couple of reasons. So that's a both of them.
Actually speak to the value that we're creating a without customers. The first is we actually saw the the people who had the opportunity to optimize by moving to the new pricing structure that we launched in August actually moved a little faster.
When we initially anticipated and so we think thats actually now complete some behind us earlier than we than we expected a much see a little bit of an impact to the first half of a of 20, but certainly got more if it's a more of it behind us in 19 and then the other piece is a little.
Bit of accounting noise. This into service revenue line, a number of out part about handset costs from a promo standpoint.
Get capitalized and amortized against service revenue. So when you have the increasing volumes that we had in Threeq and Fourq you.
Well, we had gross adds were up.
Around 10% year over year to both quarters, what that means we'll start to see an increase in that that promo amortization coming to grant against the service revenue line that would be a little bit of a headwind in the first top of 2020 as well until that breaches kind of a plateau level in terms of the impact but certainly as.
Do you think about service revenue at the end of the year the trajectory when the business happened to the net add growth that we had we feel very strong about a another good year or service revenue ahead of us and as we mentioned net adds the highest number that we've had for six years. So the wireless business is performing well in both consumer.
And in business and we expect that to continue.
So I can you only abdomen ER to Matt.
Of course, these as part of our strategy I mean, it seems the loan sold on limited we have constantly store to develop our model to see that dog customer can enjoy a different type all the packages in the mix and match spots were also had a very clear scrappy to see that are our meat to customers can be able to adopt on limits.
That's what we made the moving into what goes down I mean, we see the payoffs here with the would a net adds we were off the have today 50 50 meet that on a non limited. So we see that the continuation no putting more valuing the packages and seeing that we can actually get the journey for our customer coming into Don limited.
Extremely good done and that's a that's a growth engine for us on the you won't see nothing to second quarter I just take an awful 19. So we have more to do here, but I think that the whole timo rone under and that's that they're thinking about these but was that don't forget the beast inside but timing that has done a really good you'll be wide as customers. That's why the so well, but really in color.
Just wanted to see what's what wed donning the in our offerings and how that has responded well with them all get so we're we're happy with the what thus we have seen in last time off you around and he was encouragement for 2020.
Thank you.
Brad rate for the next question.
Thank you. The next question comes from Philip Cusick of JP Morgan. Please go ahead.
Hi, guys. Thanks.
You you.
Part of a big Capex number at the end of year and guided to the similar 17 to 18 billion can you talk about any shifts within the capex priorities for 2020 versus 19.
In terms of either fiber versus wireless mix or any shift within the fiber build in terms of the types of of locations are deployments you plan to do and when should we think about you're starting to really monetize that fiber build thank you.
Thank you yeah I saw that we had a strong a capex coming into the fourth quarter to bonus I'm really happy about it you can see that our pace is coming up here.
Quite dramatic than what we're investing in right now.
And the interesting thing is of course that was scenes will launch the Verizon intended then Thats network web constantly found local efficiency in our in our Capex build and that of course, he's a AC giving us a possibilities to continue to do more and more so I think that our technology support but have no constraints Oh what.
They need to do implanted went the DC is what they allows for in order for us to continue to fortify our 40 network to continue with strong additions in the five year as well as continue with our fiber build and when it comes to them on insatiable into five we'd be level. It is starting to do that of course, because many of the fibers right now going to our.
Decides on air and because that's what the ultimate none of course is committed to meet the late they're not monetization for a small to medium businesses and enterprise spaces et cetera, but clearly we're already now seeing benefits all while doing that sold when going into.
The the 20 to 20 I think we'll have a very solid capital allocation for our Capex not then a team or would it technology man.
We are improving every year I will do these look and of course, it's a lot the reallocation inside that 17 to 18 and if we will go back three years. He's a dramatic change how we spend because of the new design on the network, but also the technology evolutions.
Yeah. Thanks.
On the the monetization of the fiber as Hans mentioned, it's a multi use network, but youre already starting to see the a the impact and I'll give an example, nothing.
So about network folks have mentioned this publicly in the past few months you got back to the first quarter of last year and.
The majority of our new cell sites were going up on a third party fiber you get into the fourth quarter of last year in the 60 plus markets that we're adding fiber. It's now a significant majority is going up on our own fiber. So that will have a significant beneficial significant benefit.
On a you think our expenses going forward and then as we continue to go will add other monetization opportunities over the course of the next couple of years. So I'd say, we're already starting to see the benefits of the a the five a built in a in our income statement.
Thanks, Matt.
Brad array for the next question.
Thank you. The next question comes from David Barden of Bank of America. Sir You May go ahead.
Hey, guys. Thanks for taking the questions I guess.
Okay.
Two questions if I could.
First just.
Back to kind of the back part of the year I think that there's a degree of anxiety about the level of competition that might emerge in the market around fiveg and around the possibility of Fiveg iPhone launch.
And how the various carriers are going to market and kind of position themselves.
As the network to go to for US. So if you could kind of give us a little.
Color on kind of how you see the second half of the you're playing out with this potential fiveg iPhone supercycle emerging.
And then the second would be.
I just want to have you guys maybe address there's.
An organization called open signal that.
Has shared some data with the with the sell side and others that kind of suggests that there's a handful of markets that horizons very stressed in terms of there.
Spectrum allocations and and.
Think that that's raised to kind of questions about what.
Present spectra strategy is a network management strategy is going to be as we kind of bump into some of these limitations of.
I want to have you guys address that if you could thanks.
Okay on the first the.
Question there.
Ron down already said it'd be any all the year that we want to have some 25, you devices coming out in the market. This year. So of course, we want to see more five devices coming out it's going to be more building the market's a in 2020 done a we had last year. So of course thesis here that the is going to be even more five you things are coming.
And at when it comes to any particular phones coming out the in the market.
We cannot really comment on it because that will lead to the company to do but in general of course, it D'souza markets would has a high degree allow us a that means that when if I could you phone will come out from the up that would've been important momentum consumers to look into what they think you said.
Good change.
Case, I think we're building a unique five de experience and we don't really need the way that nobody else is building and added a dedicated to do so I think that's really where difference. We commented we already have the best Fortinet. What gets you have seen in the latest.
JD power in Rootmetrics, we're going to continue to have that so we want to give the best experienced all customers.
And we and I'm confident that Oh, we're building the net book will make a big difference on that's why we also feel very confident the if we'd all these devices coming out including an eye. If the iPhone would come out that we will have a good chance to actually to grab more customers that want to be on our network.
When it comes to the spectrum and all of that I think that diamond I've talked about the so many times in 11.
One thing is of course that we first of all have all the assets to deploy dollars or five you strategy. When it comes to millimeter wave and using a dynamic spectrum shattering be able to the nation wide when our customers already so I think thats clear I think that another thing, but it's very clear that spectrum is not the only thing that is need.
To do a great network think about what and what I've seen I've worked with 400 carriers around the world in my life and it's a local carriers have a lot those spectrum. They don't have a great network him and they don't use it in right way I came to these company because these companies in based on the board how to deal with data everything from spectrum to how you densify.
Hi networks, and what type of soft tissue, but you put in and that's a long term planning out to do that right. Then I think I think thats, some there where you oh or people around those go wrong when they look at those because think about how we have been performing in many actually thought that we would never sustain an unlimited and to bonus.
The network, it's growing a we're getting more and more headroom mess with US we are continuing deploying our software and engineering capabilities, we're having to company. So again, we feel good about the position will have Oh of course, a us we'll know there might come out to see ban on we are of course encouraged about the fccs platinum's.
Doing that we think to see binding is an important spectrum for many reasons I mean first of all is one of the global spectrums that frequency will be globally. The roaming will be done on it and that's very important for you with market to get into that and it's very important for Verizon to get the into that so I think good but it's not hindering our as strategy right now to deploy.
All your great fiber network and be able to capture the multiple <unk>.
Thanks, I just had one on comment on that David on that piece I mean now our engineers took a look at that report yesterday and they said, there's so much missing in terms of their planning they have line of sight to meets our needs for many years to calm and so I think I would I'd put money on our end.
Generic team everyday of the weaken the.
There are a track record is second to none so.
We were very very confident that we have the spectrum, we need to continue to grow the business.
Awesome. Thanks, guys.
Brad rate for the next question.
Thank you. The next question comes from Simon Flannery of Morgan Stanley . Sir You May go ahead.
Great. Thank you good morning on spectrum, maybe you could just comment on CBR asked obviously, there is an auction coming up how do you see that fitting into your your plans and then on Fiveg home you haven't talked a whole lot about it.
With the CP coming is that still second half of the or what are your expectations for what we should see.
In 2020. Thank you. Thank you on this email address a US you know we have already started for quite a long time ago to do trial SNC, how it works and it works fine a we think it's a good addition to the portfolio.
And that in order to see that we'll get the good customer.
The customer expectations. So we think see various is important the spectrum, even though it it's a sort of more share than anything else, but it's going to be a definite is something we are using a as it comes out.
Secondly, when it comes with a five year home I mean, youre confirming actually.
The what do you have in front of loss, which then the next generation.
Sheep set that goes into the CP four or five year home a will come out to at least the plan right. Now is in third quarter, which means that commercial product is probably coming off a little bit late there because it takes some time from the shapes up to the device and by Dan. We will level course deployed is far more millimeter wave it across the concrete so we would be.
Hey, Bill to start launching many more markets when that happens so that will come back to lead to bid more about that when we have our investor day to 13 till February talk little bit more about it but that's it into Grand scheme. The plans were five you holeman, though that's no different from what we said the half year ago.
Okay. Thank you.
Brad rate for the next question.
Thank you. The next question comes from Craig Moffett of Moffett Nathanson, Sir you May go ahead.
Hi, good morning.
Can you share any early results I know, it's very early days, but up your mix and match video offer and it's hard to match that with your mix and match video offer for PHYOS.
The the customer it's a seemingly far better off to choose the you tube TV option to save a lot of money.
Is that does the intention and why not make the step to say that's our only video offer and you really focus the business on the Fios broadband connectivity, where it would seem you have a much better story to tell.
Thank you.
I think when it comes to the mix and match, what we want to give our customers optionality on top of the broadband if it's the fiber broadband or if it's the five you home rolled down we want to give them an optionality of course, one optionalities old ways to have our broadband and having over the top services.
Got it out the rest of course will get into meet mix and match <unk> Ultra knowledge right now to see that they used to write packet choose that issue that is more more feet good for them. So.
Still of course, it's not that again shoes, whatever schon. This is because the common packages, but the only or early indication it's of course that that customers.
US being on the trial for amount they clearly see what John this theyre using and whats packaged weekend suggest for them that he's going to be more optimized. So I think for US we are thinking about that customers and what the market is going and we want to give them the optionality, although actually having different ways. They can address the market when it comes today content concept.
Options on the I think eight said good for our customer experience, but it's always a good for our customers because ultimately can do it. So I just said, there's a little bit too early but I think that customer theyre very happy that we're giving them diesel optionality and I think DC. So of course, everybody, everyone see where the market is going meaning more and more over that.
Content is coming in and you won't you need just thought mixing and matching that and and here we have a great opportunity given our NAV to his service a strategy and we can work with all the type of Optionality in the content bulk of that is were not owning a nickel them.
Thank you.
Brad rate for the next question.
Thank you. The next question comes from Michael Rollins of Citi. Please go ahead Sir.
Hi, good morning. Thanks.
Well follow up question first with the revenue guidance range of low to mid single digits for 2020 can you frame the flex points as to what would drive revenue growth to the higher end to the weight of the range relative to the lower ended the range and then second.
With respect to the fiber expansion can you just also frame for US just the total amount of fiber you're trying to go after over a three to five year period to help us put into context, what the current.
Deployment activity means for the company's longer term goals. Thanks.
Thanks, Mike So let me start with the revenue guide and unpack that a little bit for you. So.
So as you think about how do you get from 0.8% this year to low to mid single digits next year.
If I go through the individual pieces, there obviously within consumer it's a continuation of.
Service revenue trajectory that you've seen so far the other revenue line as well and then within business again continuation of those service revenue trends are very very strong we don't see those slowing down anytime soon.
So that will be better a little bit of improvement on the wireline side within business, but nothing significant and then you even within a media you think about that being down 3%.
On a full year basis in 19, but getting back to about flat in the fourth quarter. So less of a headwind to revenue from a media in 20 the 19.
Within the total number of.
The a 0.8% last year.
Wireless equipment was negative 3.1%, we don't expect that number to be a negative in the in 2020 , but obviously that is the biggest wildcard within the the overall revenue guide as we think about it in terms of knowing exactly what we see.
Primarily in the second half of the years, you get into the holiday season, and iconic launches and the like so.
But we feel optimistic about the revenue growth going forward here, a pretty building on the momentum that we've built a across both consumer and.
Business over the course of the past couple of years and feel pretty good about that guide as a result.
On the fiber side, and then I think first of all 11, we said that in the US a couple of times. During 19 were thought to get on the level. All the so called activity per month think walked right now that we were planning from the beginning it took us some two years would get thought to that pace. The team is really good that it.
Right now and we we can we can get much more scale to be lifted rounded to the way. We're doing it remember also we always do to trade off between owning and leasing or sharing when someone a and that's a very bad prudent all are financially disciplined way of looking at the our deployment in many cases.
Yes, we see it the us owning it has really a a advantage for us because all the multi you saw network you know were doing sites all the time, we're going to create revenue.
For our business side. So we probably have a couple of years left on doing that but in general I feel good about the pace will have right now and the multi use sold to five but we have done and I think this is one of the most critical assets in a network today in today's world, especially as you build a Verizon dead ends edge network and a you won't.
Actually to start delivering to five you experience that we are expecting we need these fiber to be there. So.
Yeah, that's basically the way we all are we to fiber.
Thank you yeah, Thanks, Mike Brad rate for the next question.
Thank you. The next question comes from Tim Horan of Oppenheimer. Sir. Please go ahead.
Thanks, guys Fiveg I think coverage is going to be very important also and I think you using dynamic spectrum selection for that can you just talk about how thats going and the timing and then just kind of further on Fiveg, maybe just some color on what you're thinking how much. Further ahead you are than your peers and maybe lastly, any other use cases that you're seeing talk.
Either enterprise customers or or consumer customers for fiveg for both coverage and density. Thanks.
On the DSS and that dynamic spectrum sharing.
As you have seen some PR webdam, where I will read out got them these to work.
From a this off the point of view and the majority rule or or or based on these read before taking DSS. So what we have said, they're not going to I'm not going to give you an exact date, but I want to tell you we're going to be ready when we feel the market is red than our customers need to have that coverage and again remember we want to have the best network.
Performance Wise, we don't we don't want to deploy it because it's going five eat we want to see that were actually gave a superior performance all customers.
That's why we think that to meet the way what theyre doing dairy and extremely important because we talked about 10 to 28 at least more throughput then speed that will have on the fortinet to again, we still have the best when your network, So and I think that's where all the DSS and when we meet that a investor day, we want to talk little bit more about that technology et cetera.
You got the need to be more in depth on around that.
The defied the on the way we all are I think that you saw last year, a that we had a strong deployment coming in the during 19, but of course, we have even higher ambitions in in 20 I know, we will also come back into locally to beat the ball more about that but its goals in all three directional multipurpose network is for the mobility case for the.
Home case, and he's also fortified the mobile edge compute case, not forgetting not because all three of them or using our multi purpose network and when it comes to use cases I can.
I can do some of them but of course on them.
On the mobile edge compute we see a little though optimization in factories, and we see private and we see a private the fiber networks in order to keep the data and the security and the throughput in the facility. If that's a campus whatever that's use cases that come up very early on.
On the consumer side, I guess eight to sort of a big events coming up here on Sunday, it's called football.
American football.
And on that you're going to see quite a lot on five you experience. There. What you can do wouldn't really meet the waving to stage of how we can use broadcasting cameras. We had five D. A lot of new innovation, both for the consumer but also for the distribution on content.
Our spectrum positioning we basically are limited on the uplink when it comes to stadiums, we chase said the big blocker today in a stadium. So I think you want to see quite a lot. The next the I'd say as four or five days.
On consumer case, as a as well as we would continue to give you more insights to it that the next couple of weeks that women meeting.
In New York here.
Thank you Thanks, Tim Brad We've got time for one more question.
Thank you. The last question comes from Colby Sinuses of Cowen and company. Your line is open.
Great. Thank you I'm actually wanted to talk about the buyback I was wondering if you could talk about provide anymore color on the potential for timing.
You mentioned one of the sensitivities was a potential purchases of spectrum, obviously, we have the CBS auction.
I think in June and then see band whether its later this year maybe early next year.
Those events have to first take place and you have to have a better understanding of I'll tell you what you spent before.
You could actually start to do a buyback or could you actually end up doing it.
Before and then secondly, there's been a lot of debate around your current and being a relationship with various cable companies.
And some of your competitors, making some comments that they're going to try to go after that is there a specific date when that.
Contract expires or anything specific about 2020 that we should be thinking about that could.
Yeah be a catalyst if you will for them wanting to leave and how important is it to you to maintain that thank you.
Yeah, [laughter], Hey, Colby. Thanks for the question. So on the buyback look it's a it's it's great to be having this conversation where we're approaching our target leverage.
At a good conversations with the board for.
Quite a while now as we get closer to the target range. What comes next and so glad to announce that change in the capital allocation model of this morning.
But as you mentioned a there's a there's a couple of key variables as we think about capital allocation going forward here and a spectrum as large as one of those so I don't know if we need to actually get through the auctions, but having line of sight to exactly Wayne.
The auctions will be is kind of a key variables. So we're very supportive of the actions the FCC has taken.
To try to make as much a spectrum available and as we get a little more clarity hopefully in the near term future that will also impact how decision on timing of any buybacks, but as you as you think about buybacks. The that the reason why we're having that conversation is the strong cash flow.
That we saw last year last year, we were at a 35.7 billion of as CFO and even after you you are you back out Capex and the dividends 7.8 billion leftover.
And with an expectation of EPS growth.
Well working capital might be a little bit of a walcott, but I would expect to see that a free cash flow after dividend number be strong again, this year and expected to be higher on a year over year basis puts isn't a great position, where we can make some oh good decisions going forward here.
On them and no second them. That's why haven't you have to go service at a strategy. This is important relationships for us that's how we want to.
Get the monetization bet than anybody else on our capital investments and that's where our building a network we are managing a multitude of stakeholders.
And then they know Saar important it's an ongoing relationship and we really think it's important relationships. So that's a anybody any sort of a large enterprises, we need to see that we are both the agile on the technology side and having a good conversation with them, but it's no different from another enterprise you wouldn't have so uh huh.
It's a win win for both the loss and I hopefully they see equally good value, having a and they know until all the best network in the country or at the same time as we see a value and then it's why the so we would continue to be there and it's hard for me the cold month, what my competitors are saying about it I'm not sure what insights they have but the again we feel good about.
All relationship and we will continue to see that we are managing it does and the very important customer.
Hi, great will be very much.
That's all the time, we have today before I I'm in the call I'd like to turn it back to haunts for a couple of closing comments real quick Okay. I will be brief on this one I think we've talked about that all the relevant things focal Q4, 2019, and 2020 said, we have or a investor day coming up here in February so.
But all in all I reinforce that we need to look though transformation in 2000 to 19 that dead team and organization has really responded well to it that goes all the way from a network change to our organization change to our voluntary program branding and all of that will not at the same tower delivered a strong.
And result in I think well set us up ourself for actually continue a good role.
We have said that long term, we have we would like to have growth of GDP Blas I think the guide D series, a next generation compared to 19, which means that the confidence level is going up what you can do would that core assets will have and we still sort all have the told you were five you will come in which is more old 2020 won so we work with assets will have right.
Now what would be lower so a great foundation on Fiveg going forward for the year softer.
So all in all upping the whole team they executive team and the company feel excited it'll coming into 2020 .
And that's Hawaii sum it up thank you very much for being on these cool.
Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using for Rising Conference services you may now disconnect.