Q2 2020 Verizon Communications Inc. Earnings Call
Good morning, and welcome to the Verizon second quarter 2020 earnings Conference call. At this time, all participants have in place and I listen only mode and the floor be open for questions. Following the presentation.
Ask a question I started money attached jumped how if at any point. Your question has been answered you maybe move yourself passing start to today's conference is being recorded if you have any objections you may disconnect. At this time. It is now my pleasure to try to all the call to your host Mr. Brady Connor Senior Vice President Investor Relations.
Good morning, welcome to our second quarter earnings Conference call. This is Brady Cotter.
Our chairman and Chief Executive Officer, Hans Vestberg, and that our Chief Financial Officer as a reminder, our earnings release financial and operating information and the presentation slides are available at our Investor Relations website.
A replay of transcript of this call will also be made available on our website.
For your story I like to draw your attention to our safe Harbor statement on flight to.
Information in this presentation contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties discussion of factors that may affect future results is contained in horizons filings with the FCC, which are available on our website. This presentation contains certain non-GAAP financial measure.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials posted on our website quarterly growth rates disclosed in our presentation slides and through our formal remarks about a year over year basis.
As noted a sequential.
Now, let's take a look at consolidated earnings for the second quarter.
In the second quarter, we reported earnings of $1.13 cents per share on a GAAP basis.
As a result included a pretax loss from special items of approximately $255 million, including a net pre tax walk $102 million related to early debt redemption costs.
Net charge of $153 million related to a mark to market adjustment for our pension liability.
Excluding the effects of these special items adjusted earnings per share was $1.18 since the second quarter compared to $1.23 a year ago.
Let's now move to slide four and take a closer look at our second quarter earnings profile.
Consistent with the approach we have shown for several quarters. We've illustrated the ongoing impact to earnings from the adoption of accounting standard S. C. Six so six revenue recognition in 2018.
As a reminder, we expect 2020 to be the final year that'd be adoption of this standard will have a material year over year impact on our income statement.
As we illustrated in previous quarters, we realize the lesser benefit from the adoption of these big so six during the second quarter 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 and adjusted earnings per share, which will continue throughout 2000.
The impact was two cents for the quarter and five cents year to date for full year 2020, we continue to expect the headwinds from the deferral of commission expense to be approximately nine cents.
That will go through the cobot impacts that we experienced throughout the quarter in detail in his section overall, we estimate that there was a 14 cents headwind included in the reported and adjusted Yeah from Koga during the quarter. In addition, we recognized an aggregate tax benefit of $156 million in connection with a series of legal entity.
Restructuring related to an internal reorganization, which resulted in a benefit of approximately four cents within our reported and adjusted EPS.
So adjusted EPS was down 4.1% in the second quarter as the result of the impact of co bid and ask the six so six we continue to see underlying growth in our operations with that I'll now turn the call over to hog.
Thank you Brady and thank everyone for joining these earnings call.
Well I sat in the <unk>, often in first quarter, well or in precedent in times when mountain bike crisis is business that we need to run at the same time I can only say, it's all of you I'm extremely proud of how the rights on and our employees has responded to all of it.
Think of these corporate as a quarter, where this they called it capitalist stats you know the rice on really bad fruit.
Reported many schools in my life. These core carries comes together, we didn't good support Doran lease a great support our customers when it comes down net work and our flexibility and be contribution to our society. The when it comes to how we see and supporting to the citing in these tough times.
But also they read gold and silver lead financial results for our shareholders. That's a really good.
I am doing all these second quarter oldest first off all the dairy unprecedented yes.
We have continued to ask the leadership team to work in a three pronged glove and that's part of our team is working when it daily crises just see that's we're doing the right thing and we did right priorities in these upon them make economic downturn rationing Yahoo is that its own going into concrete.
Second is of course lucky because as you shut and seeing that we continue to lead and they leave the results for all our stakeholders and finally in a third prong used to work with both thought opportunities created from these condemn make economic downturn. So we come out even stronger as a company.
Off their dcs coming out to a new nor about.
Right.
And our underlying faceted priorities has not changed and doing it on the heavy reconfirmed that we are on the right as we don't that's going to service and I'll go to market nailed. It seems that we outlined in the Verizon chewed adult or really playing in fight the role for us being able to the Liam Burke tool our stakeholders.
They should talk customers in times like these one of the transformations. Most of course to have been purpose driven company, where I am pleased our daily engaged and excited a lot of future, but those are seen definitely doing the right thing for us to side, if I look back on the first off and looking back on our response to that.
Oh, good 19, I think well down very when we have decided to prioritize that health and safety or at least not only that we have also starting to return to old piece with very safe protocols to see that our employees actually can work, even though is if they want to do but if you like.
No gets out in front line, which never knows and never work from home Dan continuously innovate denominated debt curbside delivery in our stores. So it was seen in books et cetera, and that's not when later on talking about we've seen a great uptake on those innovations when we look into the last it bought them on the second quarter.
Even them talk about two and racially yes, it's a that wed seeming to conquer the last couple of months I'm also proud for how we have green brought that together with our team to discuss stay is having a conversation in the company, but also with our partners and externally no I can't say, where I've done enough.
We just need to continue to do that at the same time, we have donated money for some of the most important foundation that can support that transformation. Finally, I'm also proud that we have packaged all our activities that we are doing it for us soldiers. They called there's it what we call defeat December Reissa.
I went well on that today, but is an important piece all our older illustrate.
In addition to serving our employees on society well of course also been very focused on execute on a core business on a core strategies.
We continue to develop our platform for a net Savage I'm extremely pleased to report that once again.
Time, we aren't we named award for the Best MTV networks from the JD power.
The same engineers in Verifone is continues to amaze me and they wouldn't continue to do so into future remember in February and we made some bold statements about our deployment by D. In Twentytwenty all away from the moment edge compute five homes. It is five times more small to satisfy the.
And some 68 days on the five yards, how wide band as well as a nationwide coverage on slide we would DSS I'm happy to report were on track one that any in some cases, even had talked about we have continued to deploy or technology or test when DSS is going very well.
And that's when we had low on some of the 60 markets when it comes to mobility.
No not gets on the five year old however, you're going to see that into second half for this year. We have a result on new things happening and building on that foundation, all little debt stack and he and the strategic priorities that Verizon has outlined the last couple of years.
Now looking into it in different segments on the first the most talking rice and consumer group in the second quarter continued to gain improvements led company customer loyalty not only in next month, but also by creating new services, we sold them coming up whatever Iceland credit card in the second quarter and they can.
Teen used to gain a lot of account based on their mix and match and the way we have developed the ladder, we deepened our limited old friends.
It was rolling on and his team has done and you're going to see the financials and operation numbers that the even with a challenge as well.
Performed very well if you look at the Horizon business group, that's already made little bit transformation on Ive to say the way. They are now dealing when customers are bearing alone approved they are progressing well when it transformation and I'm also happy they bought acquisition when did the into second quarter old do genes are performing well and the growth both.
On his usage and new customers are continuing going very well and that was also happened last week to announce a non sports and she will act as one of the largest carriers into word to use bluejeans for their corporate customers anymore.
Finally on the right some decent group five your mobile edge compute.
PCL ourself brochu capacity and we are incentives were going to have Pam five year moment edge compute sites. These he had deployed and now we're supposed to start gearing up our partners. We have no idea I will also talked about if they P. S to own very important application providers, that's going to take all of our deploy.
He meant that we're collaborating with right now so were creating.
Excitement around a five year mobile edge compute and a lot more to come into second all finance Rice and media group of course being impacted by the advertising market coming down we see them coming back believed to be in June, but anyhow, they have done or so quite a lot. The work to see that we continue to trade.
<unk> monthly active users on our own they don't break the properties and they also made the agreement with Walmart twitchy sale or someone on the largest companies on us to see that they are using Yahoo, mainly as a grocery and chasing platform finally, our financial team on their mats.
As continued do good work on balance sheet.
Coming out from the quarter with elevated liquidity, but not only that well continue to work well, although net debt and we haven't reached credit metrics levels similar to pre Vodafone level. So that's really good work, but if you if I look into the financials or the second quarter and lastly, we covered up.
Good morning, I only want to say that we had very good quarter. We we've been shown reseal. Yes of course, there are challenges in certain customer groups like were ice and media group that small and medium businesses like many others had actually been performing when we also need to remember in the quarter, we I've had the.
Well our stores open one comes to consumers.
When less and lead meet the so called defending hours et cetera. However, if you see and then momentum with great and on the consumer side. We added 26000 consumer postpaid accounts this quarter, which is I would say good work compared to what we lost one year ago into second.
We also are on the historical lows on Ashar I know, one and all that is giving us a good the deep dive in that and rising consumer group. Finally, I was just on the highlight the very strong cash flow of course, we have some extraordinary attacks.
There, but in general it was a strong cash flow quarter, and that's not really talked about you laid down we have not decrease our bad debt reserves in the second quarter and he will also alluded to and we had good metrics when it comes to what's happening you when compared to the rest of the quarter. So what I know what I think.
We executed well and for all our for stakeholders in this quarter and by that I handed over to map to go to their financials in more detail.
Thank you Hans and good morning, everyone.
Let me Echo a handset the second quarter two is unlike any other we have seen and I'm extremely proud about chain and outperformance. There is almost demonstrate the resiliency of our business and the agility of our employees to not only adapt to rapidly changing conditions, but to delay the for our customers and communities well.
They're producing strong financial results.
Due to the strength for that business model, we delivered $1.18 well adjusted earnings per share. This includes an estimated net impact due to cultivate of approximately 14 cents, primarily driven by impacts to wireless service revenue.
Advertising in search revenues from Verizon Media group.
Well the company's performance year to date has been strong there's still a high degree of uncertainty regarding when and how quickly the economy will recover.
We are confident we're implementing the rights approach to meet demand as consumer and business activity increases.
Let's begin with a review of our consolidated operating financial results on slide seven.
And the second quarter consolidated operating revenues were $30.4 billion down 5.1%.
Results reflected significant declines in wireless equipment revenue, which was down approximately 20% in the second quarter, primarily due to limited in store engagement and the impact of co they don't customer behavior.
As we highlighted in the previous earnings cool consolidate your wireless service revenue was impacted by the commitments by rise in May two way said some fees and provide additional data for our customers as one of the significant changes in customer roaming activity during the quarter.
In addition, we experienced low advertising in such revenues within Verizon Media group as customers scaled back their advertising campaigns.
Including the impact from coated adjusted EBITDA was $11.5 billion as compared to $12.1 billion into probably get this is primarily the result of the wireless service revenue impacts low appetite so trip.
Second quarter, adjusted EBITDA margin was 37.9% as compared to 37.7% into prior year and includes headwinds of approximately 30 basis points from the third of commission expense. The Brady discussed earlier throughout business Excellence program, we have realized cumulative cash savings is set.
$1.2 billion and remain on track to achieve our goal of $10 billion, a cumulative cash savings by the end to Twentytwenty. One we will continue our focus on operational efficiencies even after the current talking to cheat. The current environment provides us with the opportunity to explore additional longer term business transformation finished.
Yes, I'm related cost savings.
Let's now turn test segment results, starting with consumer group on slide eight.
How can shimon same quickly pivoted to adapt to the new environment in mid March we temporarily closed the majority of company operated retail stores and transition most of our employees to work from home, including Telesales and customer service Rose, we optimized sales channels to drive more activity through online and through telesales well.
Introducing touches retail and cut five take up to streamline the customer experience as we reopened our retail stores.
People out depending on connectivity now more than ever and they need reliability and quality of service and because of that we're seeing them increasingly choose horizon.
For the quarter, we increased postpaid customer accounts by 26000 as compared to a loss is 34000 to the prior year, highlighting the momentum and the business in value of the Verizon customer experience.
We have seen activity levels increased during the quarter with an expansion of overall volumes in May and June customer retention is at an all time high and it's both a function of customer activity as well as a testament to the Verizon network performance and customer experience.
As a result postpaid phone net adds were 97000 for the quarter.
As compared to 73000 into probably yeah, well fund gross adds were down approximately 26%.
We experienced function is there a 25, lumpiness and and improvements at 21 basis points from a year ago.
Our retail postpaid upgrade rate remained low at 3.9% during the quarter contribution to the decline in wireless equipment revenue via the Internet net additions of 10000 were down sequentially and year over year as far as installations were limited during the quarter due to temporary restrictions put in place of work inside customers.
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Our team responded with innovative solutions in developing self install capabilities and beginning in June we resumed technician in home visits across our footprint.
Bias video net losses were consistent with previous quarters as cord cutting trends continued.
Now, let's move to slide nine to discuss the consumer financial performance.
Consumer operating revenues were down 4%, primarily driven by significant decrease in wireless equipment revenue due to low activation levels.
This decrease was offset partly by growth of 15% in other revenue primarily driven by recurring services such as device protection.
Wireless service revenue was down 2.7%, primarily driven by declines in roaming usage and way sees that accounted for approximately 320 basis points are pressured the quarter.
Consumer EBITDA margin was 47.0%, which was up 50 basis points in the prior year and includes approximately 40 basis points at headwind from a deferral of commission expense.
Since benefited from lower equipment volumes in the quarter, though as a reminder to lower equipment revenue has a limited impact on consumer EBITDA dollars as a segment primarily operates on a device payment model.
Now, let's move to slide 10 to review the business group results.
Reliable and secure connectivity has never been more critical as companies continue to adapt to new ways to support their employees, while simultaneously driving that businesses forward.
During the quarter, how business team responded to the challenges of coated handling increased traffic needs. While also making a surge in demand connectivity end devices, particularly from public sector and enterprise clients.
While the modest demand remained high throughout the quarter in public sector, we experienced offsetting pressures in both small to medium business as well as global enterprise.
As a result segment phone gross adds were down approximately 17% from the prior year contribution to postpaid phone net adds of 76000 down from 171000 in the year ago period.
Business segment phone churn of 0.90% because it was down seven basis points year over year, driven by strength in public sector.
Let's now move to slide 11 to review the business financial performance.
Total operating revenues for the business segment were down 3.7% the prior year.
Modest revenue was down year over year due to declines in wireless equipment revenue offset by 3.1% growth in wireless service revenue, primarily driven by small and medium businesses as well as public sector customers Wireless service revenue growth included approximately 400 basis points of headwinds from lower roaming and usage.
Revenues in the quarter, which are likely to continue in the third quarter.
Suspended lines as a percentage of that they should come up the highs we saw early in the quarter, but remain above pre coated levels.
The likelihood of these lines. It started to ACA status is primarily a function of macroeconomic conditions and we will be a significant factor in upcoming wireless service revenue growth rates.
Operating revenues were also impacted by legacy wireline declines however, global enterprise wireline revenue was nearly flat into quarter, a significant improvement primarily resulting from strong demand for advanced communication services during the endemic.
Business EBITDA margin in the quarter was 26.2% as compared to 27.3%, which included approximately 20 basis points and headwind from the deferral of commission expense.
Now, let's move onto slide 12 to discuss Horizon Media group.
As expected.
The economic environments around coated had a meaningful impact on both such an advertising performance in the core.
Oh from revenues $1.4 billion down 24.5% compared to last year, primarily as a result to coated related impact we continue to drive increased customer engagement on our own and operate the properties and so a monthly active users up approximately 4% with strength in both Yahoo Finance a news.
Which are up 45% and 25% respectively.
For the quarter, we added a third more client accounts on our demand five platform compared to the prior year.
On slide key partnerships with leading content and E commerce companies.
As a culmination of the strong momentum Verizon media want add weak readers' choice best a tech partner awards for all four nominated categories.
He has paid SSP as network video and AD network mobile.
Let's now move to slide 13 for a quick look at their wallets performance.
Slide 13 shows the key metrics in financial data, the combined wireless products and services consumer and business segments for the second quarter total wireless service revenue was down 1.7% over the prior year, including the headwinds mentioned it both consumer and business segments.
Oh gross adds were down 23.3%.
So net adds 173000 as compared to 244000 inappropriate.
Well I mean should was there a 0.58% down 18 basis points in the prior year.
Additional details it provides it into financial and operating information about supplemental earnings release schedules on our website.
Now, let's review, our cash flow and balance sheet for the quarter on slide four tape.
He is a day cash flow from operating activities totaled $23.6 billion, an increase of $7.7 billion from the prior yet.
The year over year growth was driven by strong performance in the business as well as nonrecurring items and timing differences.
These items include the coated related postponements of approximately $2.0 billion, a second quarterly tax payments to July 15th the receipts at the previously disclosed 2.2 billion dollar cash tax benefit related to preferred shares in a foreign affiliates. So during the fourth quarter of last year improvements in working capital primarily due to.
Lower volumes and payments related to the voluntary separation plan in 2019 that did not repeat this year.
Capital spending for the first off of the totaled $9.9 billion, which was up approximately $1.9 billion year over year.
At the beginning of the year, we indicated that we expected capital spending to be more front end loaded and we see that's NFS off results.
Our capital expenditures further support capacity the traffic growth across our networks, while we continue to deploy more fiber and additional cell sites to expand our five GE rollout.
We maintain our fully at Twentytwenty Capex guidance was $17.5 billion to $18.5 billion. The net result, the cash from operations and capital spending is free cash flow for the first half of the or $13.7 billion a year over year increase of 74%.
Despite the pandemic our balance sheet was further strengthened in the quarter, we continue to operate with elevated liquidity levels, which we believe it appropriate in this environment.
During the quarter, we further loan maturities through year end twentytwenty to by $3.8 billion, we'd liability management transactions, which also improved overall portfolio borrowing costs. We now have no unsecured bond maturities for the remainder of this year and less than a billion and twentytwenty lump.
Overall net debt for the quarter decreased sequentially by $5.7 billion.
Unsecured debt totaled $94.4 billion or the cost, resulting in a net unsecured debt to adjusted EBITDA ratio of about 2.0 times down slightly from last quarter.
We are at the high end about targeted range at 1.75 times to 2.0 times, we continue to manage our balance sheet under our capital allocation policy.
Our estimates at the leverage ratio standard and Poors uses for they credit rating analysis is now less than their boundary for an a minus rating.
Therefore, we have now met our commitment to return to our pre Vodafone credit raising profile.
Let's move on to slide 15 to take a deeper look at the trends we have seen exiting the second quarter.
This slide highlights select key metrics that year over year results for both the bulk water in the month of Jude.
Our various customer groups experienced a wide range of trenching customer demand during the quarter and exited appeared with different trajectory.
As restrictions began to east during the second quarter, we gradually started reopening our company operated stores with limited hours in our new touch this retail approach to further employee and customer safety.
At quarter end more than 60% to best stores were opened up from roughly 30% in April and we expect to be closed to fully opened by the end of July conditions permitting.
As a result, we exited the core to a significantly better levels, a consumer activity and at the beginning of the quarter consumer postpaid wireless gross adds declined approximately 21% in June material improvement over the decline seen in April and June upgrades were relatively flat versus the prior year, given pent up to.
Amount.
The availability of mode, five J devices, and a new lower priced iPhone.
Despite the increase gross add activity churn remain historically low in June.
And files, we transition from an initial period and nonperforming installations to the introduction of files in a box in late April.
Having technicians resume entering customer homes in the beginning of June.
And we have constructively working to bring our installation pipeline normal levels. This activity led to a significant improvement in five to Internet gross adds in June which has carried into July.
In our business group, we've separated results for the different customer groups they experienced different trends.
We continue to see significant precious and small to medium business June gross that declines of approximately 23% for small to medium business were in line with the impacts experience at the onset of the pandemic well function with marginally higher similar to consumer upgrade activity was more robust in June while we are encouraged by the June trends.
We may see ongoing impacts to this cohort.
In April we highlighted the surge in demand connectivity within our public sector, and such and global enterprise customers as we exited the quarter. We continue to see robust demand for both phones and connected devices within the public sector and global enterprise, we experienced a year over year reduction in wireless volumes beginning in mid April.
But actually the quota with improvements in gross add activity, we remain committed to set and then each of these important customers, including all those on the front line as they continue to adapt to new ways of doing business.
Throughout the quarter, we made a number of voluntary commitments, most notably participating in the Fccs keep Americans connected pledge to ease the impact from consumers and small businesses by waving. Various these agreed not to disconnect eligible customers to non payment and providing increased data to meet at customers among other initiatives.
The effect of these commitments along with reduction can really make it out the usage based activity resulted in headwinds on total wireless service revenue into quota that were in line with the expectation shed on half those quotes around in school.
Ongoing impacts the customer behavior from the pandemic main that usage base revenue, including roaming revenue and travel past is likely to be suppressed for some time.
We expect total wireless service revenue in the third quarter to increase sequentially. After the year over year growth rate to improve from the second quarter and be within a range of negative 1% to flat.
We are encouraged by the payment trends of can she mentioned small businesses that opted into the keep Americans connected pledge, where the majority of these accounts, making some payments while onto the pledge and motor one third of such accounts current at the end of the page.
This time, we have taken no additional bad debt reserve, we continue to monitor payment trends and we'll reassess is needed we're working with affected customers and have a long and successful track record in this area. These customers value that communication services that are vital to their everyday lives we value. The longevity of these relationships so that is.
And we have in road, many impact the customers and a repayment program beginning in July providing extended time supposed to said this end device payments. We believe the vast majority of these accounts can be cute overtime.
Well heavily dependent on the macroeconomic environment.
As previously mentioned declines in horizon media revenue, but consistent with the anticipated range provided in April well the trends improved in June.
With down approximately 19% as compared to the prior year.
Advertising is rebounding softer than such restrained now owned and operated properties. Given this trajectory we anticipated the revenue decline percentage and provides a media will be in the teams in the third quarter.
Now, let's go to slide 16 to discuss our guidance and outlook for Twentytwenty.
We're very pleased with the momentum we show building throughout the course, but would also note that a fair amount of uncertainty remains in the operating environment, particularly as many states now confront rising koby cases, and some are reimposing restrictions.
The second quarter demonstrated our ability to produce strong earnings even in a challenging operating environment. We are maintaining the outlook provided in April for adjusted EPA has to be within a range of negative 2% to positive 2% for the full year. It is important to note that I've guidance assumes no significant deterioration the macroeconomic environment.
All material changes to our bad debt reserves.
Cadence or other income statement items, including depreciation and amortization interest expense and the adjusted effective tax rate remain unchanged from our initial outlook.
As mentioned previously we're maintaining our full year Capex guidance is $17.5 billion to $18.5 billion.
At the beginning of the year being communicated expectations, a capex to be frontend loaded and Twentytwenty and that is exactly what we have seen.
We continue to have good access to the supply chain for equipment I'm related items and remain confident we can achieve out build out plans to the yeah.
In summary, I am proud of this team's performance from the second quarter adapting to unprecedented circumstances, while continuing to make strides moving out business forward.
Balance sheet remains strong and provides us competence to continue to invest in the business. While also supporting all of that stake holders with that I'll play over the Hong will discuss our priorities for the remainder of the thank you, Matt and let me summarize elite Beach, where I think we stand when we're now and during the second off or.
On that Twentytwenty first of all I think we our amsthree when strong fundamentals were on the network that is performing very well I talked about a JD power and L.D. network is really performing well were answering your second part all the twentytwenty weighted gold mines that we've done a lot, though key strategic partnership.
As well as activities are Fiveg are of course, all their sense coming into the second off.
That's already been building aswell buildings, so much in the first of all the way we have been dealing with dependent make and allow the crisis will continue of course in has taken off and I think we're coming in with a good foundation with a strong brand, but also strong ambrisentan and Oh, we are actually dealing with the situation and that.
I've had before not desperate pad the balance sheet for us to be strong when it comes to going into the second half and if I look into the second off all that Twentytwenty where of course exciting for scaling if I need to nationwide scaling the ultra wide band to over 60 seats. This.
Scaling that five year old to more than 10 seats. This and of course talk to monetizing that that's going to be a key focus more executive team as well as capturing all the opportunities and especially only five yume openedge compute well and pieces of business applications and the way you are working with our partners.
As well as their partners that we have acquired like new jeans, finally, well once I have an auto customer information when comscore mix and match as well as how we are seeing that customer accounts for loss on the journey all away from the need to plan up good on limited, Brad and that's where our previously that way.
Rolled on end of Rice and consumer group has been working in the second quarter. We had continued to gain success with our on limited how our customers are moving together with us off the ladder.
Those are continuing to expanding into new customer groups, we had a decent yahoo, all by and others and we're working to see that we are addressing the foreign markets. We don't but you need these regardless how their second all will look like in Twentytwenty. So on an overall I think we're in a very good position.
For executing and leveraging all the things were now I pad the loss 18 month, so by that let me take it back to radiant for is starting to Q.
Yeah, Thank ponds and I'm just a quick note before we get into Q1 I just want to remind everybody. We're in a quiet period for Crs given the auction in the anti collusion. So the comments, we make around spectrum will be very limited [noise].
That Angela let's get started and take the first question.
Thank you.
We will now begin a question answer session she'd like to ask a question. Please press star one please on mute your phone record your name clearly when prompted your name is required to introduce your question to withdraw your question. Please.
Please press star one.
Hi, mom athletes that the first question.
Your first question comes from Simon Flannery of Morgan Stanley.
Please go ahead, but your question.
Thank you very much good morning.
Thanks for all the color on the trends in June very helpful. I Wonder if you could unpack the 14 cents of cobot impacts.
How much of that is sort of particular to Q2 with to keep America connector plan and you know what elements. You do you think will continue on into Q3 and and beyond and related to the outlook. You did talk about some of the SMB pressures, but generally global enterprise wireline revenues were holding up given presumably some increased demand for capacity.
That's right, but how are you seeing we're seeing stories about I too, but just getting caught are you seeing any signs that we may see more pressure on that side and the second half the year. Thanks.
Yes, I kind of thought and not not met when it when shipping I can say that into quarter. Simon. We we have met so many enterprise customers and yes now of course, some that are more he's now there's a that of course are very core Sunday August, but the majority holder large enterprises they feel.
DCC at times, a day that I. This is the time to actually and use the momentum to be more gets old using capability as all the way for on that asking them to it and videoconferencing to five you mobile edge computes I actually see a a very good momentum with these type of customers.
Yes, one going to keep him there before Matt comes in and comment to covert 19 impact so Matt.
Thank you onsite. Thank you Simon the question.
14 cents at Empire from Covidien, They had the cost Oh, the vast majority of that is driven by revenue both a service revenue within the a the wireless side to the business.
Predominately and consumer, but some and and a in business and then also the impact in varies a media group. So the service revenue. Obviously, there was a couple of major components to that one is the actions. We took we've talked about the keep Americans connected pledge, but also the increases to work.
Customer data plans, those who onto an unlimited had that you're in the cost of the quarter as well and then you had the impact from customer behavior, primarily around roadmap and so when if you think about coming into this quarter as we said we expect.
Service revenue to be a better in Threeq you than it was too cute getting closer to flat on a year over year basis, but she is the negative 1.7% that's gonna come from the growing day. They account scrubbing. The the net adds that we had coming through but also because we don't have all of those things are taking.
Place in the a in the third quota that at the moment that we had into Q, but we do expect customer behavior to continue to reflect a what's going on so we you know we certainly don't expect roaming.
Revenues to be at the levels they would've been a without cove. It that will continue and then you mentioned on the a and on the business side, especially within asset base that say a customer group, we're paying close attention to in terms of how they a they they navigate this obviously very difficult environment working very closely with.
Ah, but certainly the that they could be some pressure that but all in old you know the pressures that we saw in the quarter from coded were as expected and are you know so we'll have some of those as we continue into Q3 and see some improvements in other areas as well.
So it'll be below 14 cents, but at a little Sylvia.
And bearing in parents as well.
Well, we'll wait and see how the a the environment plays out here, but said the weekend.
Oh, you know some other things, we'd expect to be a little bit better as we mentioned on for Ais a media group. They went negative 25% in revenue in Q2, we said, we expect that to be in a change in Threeq. You that you gave less of an impact there service revenue is hopefully to see a a lower impact, but we'll see how the quota plays out obviously.
Over the past 30 days or so we've added a level of on said each of the forward view.
With everything that number of koby cases around the country or so we'll see how the quarter plays out yet.
Great. Thanks the car.
Yes. Thanks, Simon is already for the next question.
Thank you. Our next question comes from David Barden of Bank of America Merrill Lynch. Please go ahead with your question.
Hey, guys. Thanks, much for taking my question I guess I want to follow up on that answer Matt Obviously, a topline we're seeing.
Some sequential improvement.
The question I think that people have is as we start to see the equipment revenue velocity equipment volume velocity improved.
In third quarter are we going to see an equal or potentially even offsetting effect on margins.
As we tend to look ahead and I guess that the second question I'd have would be just kind of kinda zooming out a little bit and thinking about the fiveg millimeter wave. Obviously, the critique has been that familiar wave availability <unk> is not that rate.
Is there anyway that you guys can kinda offer some kind of metric or some kind of keep your eye on obviously millimeter wave availability in the markets, where you put it out so we can kind of measure it's a great. Thank you.
Yeah, Hi, David Let me just thought on the millimeter wave a a discussion about that so as I said, we are on plan to deploy more than five times more millimeter wave a base station this year compared to last year, so that footprint will be much broader and we would be <unk>.
And those who is going to much more copper done they were last year, So and we're just noting that them and usually all known Nevada frequent basis, how that is growing a 15, we have launched fairly few markets. There first off and when it comes but as each day. So you should expect quite a lot of noise from us into taking off and we're really.
Excited about that but you also need to think about our model will also include a nationwide. So think about our model being a million eat away they need to transform at the no. One is even close to the word then we will have the national coverage on top of that and then need to.
Well the best Fortinet book into work and then I don't think that thought customary would've been disappointed with that weve beaten things that are transforming that are so different than the others. So and I wouldn't be excited when a second year. If I would view Evan. This is time when its crohns time for rice on wed be near well be talking about these one off here I think our customers maybe very exciting.
And second.
Matt.
So David your question around equipment volume Secondly, we saw in June an improvement tend to volumes a across both consumer and business on the wireless side I, but I don't expect that have a material impact or on the volumes in the.
The quarter versus the second quarter, and you know, it's largely because of the way the a we do the accounting now being on the device payment plan.
Modeling. So you have a you'd have to get that increase in equipment revenue. You. Why you also get kind of very similar increase in a on the expense side and even any higher commissions and so on under six so six now get a recognized over the expected life for that customer. So the increase in volume size should not be.
Causing a.
A a a significant change in animal and the margin a hit to the margin that as you phrased into question one area, where the volumes do maybe have an s. So EBITDA impact is in a especially enterprise and public sector, where are you still have some of those.
Sales on a subsidy model, but overall the vast majority of while this business is now on on the device payment and then you could have much close a matching up the revenues and the expenses, so I'm not expecting to see a significant headwind to the EBIT dollar in Threeq you as volumes picked up.
Great. Thanks, much guys.
Yeah. Thanks, Thanks, Dave has already for the next question.
Thank you. My next question comes from Brett Feldman of Goldman Sachs. Please go ahead with your question.
Yeah. Thanks for taking the question and I said, we could just follow up again on the outlook for improving wireless service revenue growth in this third quarter. It sounds like from your comments, you're not expecting any further pressures from season usage based revenues and so I was hoping you could talk about what's going on with the Knicks and in our pile level are you seeing customer.
Continuing upgrade into unlimited plans or has that slowed and really what's your outlook for what that pace of upgrading is gonna be and then you did talk about the effort you making to help customers you've had payment issues can you give us any update on the number of accounts who are in some type of payment program and I think the d. The thing most people really interested in is how many customers has been.
He stopped making payment at this point in time and what are your assumptions about how you're going to manage that these in the third quarter as you structure that outlook. Thank you.
It's.
Matt I think you were on mute all right. There we go to a analytical and Rob I forgot to come off mute.
Brad as you were thinking the question as you as you think around service revenue.
It starts with having more customers as they come into the so called in the second quarter. I mean, you saw the hundred 73000 to ads in the in the quarter and especially the 97000 in consumer adding account. So you know that obviously, you're going to help us sequentially a with building those customers you mentioned some of the feasible.
See how those play out that said late you know that will be a factor or the the usage or from a roaming standpoint, we don't expect to see that gets sequentially better as a as a large part about roaming revenue is a international and we don't expect either business all personal traveled to.
At the levels. This year it was last year for for some time I'm. So all of those things will play in two bus service revenue being up sequentially, but it gets it stops from increasing the base about customers as we've done for a long time now and that will continue to be the largest dry, but we still have the ability to to upgrade costs.
MS trial limited we made further progress on doing that during the course of the quarter.
And now well over 50% of era that based on on limited, there's still opportunity to step more customers out there that we go forward.
Pivoting to your questions around a customer payments and where we are with.
They keep Americans connected pledge, obviously that pledge ended as of June Thirtyth, a we ended at around one of the half a million accounts. It was right in line with our expectations or 90 days ago I'll tell you. What's most encouraging though is what we're seeing in terms of payment patterns from the customers. We have approximately a third of the custom as a current as of the end.
As of June I said in the comments at the vast majority of made some payments during that time period mean as more than 80% suppose customers, how those wireless customers, who took the place happy making payments. So I am very very encouraged and what we've seen.
My expectation is the vast majority of these customers will be customers are asking from that.
Great. Thank you for that.
Thanks, Brett it's already for the next question.
Thank you. Our next question comes from Phil Cusick of JP Morgan. Please go ahead, but your question.
Thanks, guys first following up on that last comment that.
So you have you contacted every one at this point as you've gone through July.
And I think I believe you're on sort of a 60 day cut off cycle. At this point. So you wouldn't know by September 1st give or take who pledges is going to come out or not and then for Han's can you talk about about sort of capex priorities and maybe how things might shift over the next year.
I'm, assuming you get more mid band spectrum, I know you can't talk too much about spectrum, but how may capital spending shift there. Thank you.
Hey, Phil Thank you for the questions I'll go first on the.
The follow up question that homes can get onto Capex. So is is what we did at the end of the a the quarter for those customers, who werent current as I mentioned, a more than the third to them what car. So yeah. We saw that customers want to continue to pay for the service they get from us.
We have a well established process for customers, who late pay 'em. We do this every day, we've done it for years, but what we did for these customers and to keep Merck and connected pledge, we wrote them into a program that so whatever balance they had a builds up at the end of the pledge and put it to be paid off over Oh for it for a month or so.
Apply that to the makes you said because of the billing cycle and so all we won't get to see where they are here for another few weeks, we're watching that closely but as I mentioned weve seen obviously, an intent for these customers who continue to pay we have a great track record of working with customers and when they they have deferred.
Oh personal circumstances are helping them get back current overtime, and allowing them to remote customers and I expect nothing different with this group of customers in this situation.
Thank you and are about the Capex I mean, I'm just looking back at three years I'd be never I saw a even though the overall absolute number. Okay. Thanks has been very stable, what if insight into its dramatically changed all the time, because we together with our engineering team is all the time doing the right priorities given.
That's that's why them and you think it at one year ago. I mean, we didn't talk Buddy is that but of course, our he was working to prepare older network. So we can actually deploy DSS and all the rate base stations Wow. So we constantly are a handled the game thinking where what is needed to be preparing for the network or nothing but right now or.
<unk> remarks about the commitments Bob talk customers when it comes to Fiveg, but the what sort of keeping the best that become for what do you that's where we're having an down to do that fly beverage that those are the priorities. Then it will continue so that done any speculation on a future spectrum or something that's the need to be toward its a hot right now, but I can tell you my teammates.
All the way practically thinking about how to do deals that well continue to be the best in in America. I mean, there's no debates about that then and I have a high confidence that they would continue to do so when it comes to our capex allocation as well.
Thanks, Yes.
Yeah, I think though okay, Andrew I think we're ready for the next question.
Thank you. The next question comes from John I think of <unk>. Please go ahead, what's your question.
Great. Thanks, guys, maybe question about about wireless competition, obviously T mobile.
Did just did some some refreshing of their low in pricing or do they see this is sort of something new or or aggressive or is it just sort of regular course of business and then as we look out into the second half and obviously, we the industry's been talking about Fiveg for awhile.
We sort of had some pent up demand given the low upgrades do you guys see the five.
Much of the Oh, Gee, I phone, which looks like it's been kicked out into the fourth quarter as as a as a sort of a big event for the industry had one were similar to what happened with the L. T iPhone or an opportunity for horizon to take care. Thanks.
Thank you John on and first of all of it.
Whereas as prepared as what can be Anna we are prepared ourselves with our our mall does when it comes a mix and match on the consumer side, we have taken out cost we have the best network I see I feel very good about say competition on the day, we have always had competition. There's nothing you and so I think they're rolling on it and the team to go down.
From anywhere.
Yes. Your question is are they choose a I think good there that went for pad and I said I'm really excited by the second half and what we're doing right now and were prepared for it and that when it comes to five new phones them, well, Matt, but I kind of comment on that but of course, it's it's a big it ends whenever it comes because they get with market as a very high.
Penetration on iOS, and then of course that customers are reluctant to change between the different operating systems. So that's why a five year from that from I believe isn't very important events.
Especially if you have built network like us where you each sold transformative.
So many customers would be able to feed that transformation I'm that's different in use each all deemed angle the network compared to some other networks that will not be different. So I'm excited I think Romani super excited for going into second all found and compete done that we've been prepared for these four for years, so and we have been.
Doing it for years.
Yeah. Thanks.
Yeah, Thanks, John Angela rate for the next question.
Your next question comes from Michael Rollins Citi. Please go ahead with your question.
Hi, good morning, and thanks, two if I could you know first as you've done more with service bundling with things like <unk> plus can you share some of the results of customers entering into those bundles and how it's affecting the economics of your customers and set.
Yes, I'd go back to.
When you talked about Fiveg in the past outlines in timeframe.
When you thought there'd be material financial contributions to the consumer and business segments.
And as we're getting closer.
To those points in time as Tracy can give us an update on where that stands and maybe some examples of the ways that you're anticipating getting that monetizations each in the consumer and business segments. Thanks.
Thank you Mike.
Good question.
On the first one on the on the on the bombed before doing I think the key differentiators for US where we had been able to do partnership with a great brands or that will have on up and combining that with envestnet moved a bit ran a I know distribution and that I said several times before our metrics as Bruce.
And to be far better than we even initially thought meaning how many is taking to freeman from the beginning and how many work on bookings are paying customer, but not only that and you tend to a difference when you start comparing to competition. What do you get when you work with Verizon you'll get the not on advanced network you'd get some of the best service is a that door.
Rounding at the moment and I think that's unique for us and that's why you. If you look at Tushar numbers, well record low ever nothing that hangs together for us and we would continue to do so but were very picky, who we already do where she was saying it has to be the right. Brad it has to be addressing our food or pull a customer base that they really appreciate it.
So again.
There are rising consumer group, where their lead overall not an all his deep they are working when you David and I would say we hadn't many as services that will join us because that seem to model panning out a in a very good fashion and that's something that youre mentioning obesity, plus or Apple music, both but I'm not I would say.
I mean being very successfully for both parties and that's how we see it and well defined deep.
When it comes talk on me man some of what we outlined when comps or revenues. We have no change. Those those are the same we are where we were gearing for a so called that consume a part of it hold men mobility a in the implanted wonka seats on the revenues from it there or and then.
And in the 22 from the Bhagyam Openedge compute.
You're going to see much more sort of at milestones right now of customers decide and older early indicators hold that were at hand, the internet and that's what we're trying to provide you with do you see that now we are.
Preparing for that announcement I need to think about them Openedge compute some of your last week, when our partnership with IBM and with S.A.P., that's going to be part of the five you moment edge compute the in order to serve our customers. So you're going to see that the hardware how were doing so don't laying out the early indicators on that path to rent.
We knew that we have the allied multi internally athletic started.
Thank you.
Yeah, great. Thanks, Mike Operator, we're ready for the next question.
Thank you. My next question comes from Craig Moffett Moffettnathanson. Please go ahead with your question.
Thank you I I want to stay with the same theme at the last few questions, where we talk about Fiveg, you've talked a lot about mobile edge compute but I wonder if you could just sort of.
Two things first drill down a little bit into the actual use cases, four or five T that that you're seeing from here.
Particularly business customers that are that you think are starting to materialize and then just yeah I Wonder if you could just talk about the health of ER.
Customers and and I I think in particular about municipalities and cities and towns for where some of those applications where budgets are now very very perilous, but even large enterprises, where they're seeing big downturns because of the recession and how much that really.
Effects on the they likely uptake of Fiveg in terms of timelines.
Thank you Greg.
And then just thought that there at the last question I come back that out there when received the customers I think that first of all when comes to our governmental business. She has seen that that has been really going well for the last few quarters here independent make a manual these are they.
Municipalities of course and need to go to new mall del Sol delivering services to their and to the students or to the through their community at large and that's why we have seen them and we also announced yesterday a center the different the states that are now using our services for a remote.
Turning for example, so there we see that there's a craving for actually go to dig into the space and that's the only way and that's not a a onetime paid for me I think you said the new normal we want to see that going over so I I I'm really encouraged about that and our and our strength working with these customers. Then of course, there are some at both customers emanate user whatsoever.
This week, we we wait together with the defense Department on all doing five you tested that so there was a bolt and ball, but also so there I feel really good weather really good built to markets were great network. So which is the main thing here then on the enterprise side, you're absolutely right he or she you divide them and of course that that.
Travel enterprises, the airlines are companies the restaurant.
Large enterprises, they of course, or Inferno, and actually trying to reduce the cost as much as possible, but on the underhand, you'll have the launch enterprise that actually see the change and see no opportunity right now to transform I, probably do five to seven large enterprises executive meetings per week right now these costs.
And how to do the digitalization obese and the prices.
And in many of them are accelerating to bounce rolled and Dan delaying them. Then of course, we know they're not I mean part structure is already in place will be sent the price. So really take time to do it and this can be asked the van videoconferencing fiber or whatever it's like more things myself today.
Then you come to the foggy mobilize compute.
I think that they use cases, we see today, it's very much a real time decision, making if that's a big distribution center, that's going to have five enabled the distribution center to actually take meantime decisions or if it's a a big manufacturing sound that's going to use five yume openedge comps.
Like why is connecting toward the robotics, where many of those cases.
And then that you want to see a cases, where socal <unk> value team devices with five he will actually enabling new whale delivering a service and finally at the whole dealer in a or for a large enterprises, where you need a low latency on the campus or on the on that.
Oh aimed to it in the manufacturing or whatever it might be a dose or on the only cases many of them right. Now are based on low latency, we see its creepy to secure it because the date that can then be contained when the when the company, meaning they can actually pro says and.
Well the processing and storage at the edge, which means they can't keep the die based on what himself. So those two came to be they sort of first thought I think in the next we're going to see enormous band with all the old enterprise that needs to descend a little date dumped edge in order to take decisions, but so far latency.
And secure working that's hard to find the mobile edge compute as an Orissa working out and we basically have two three or two I would say power industry verticals that are lead customer for us and we work with them to do that this new shows and sometimes by the third party US we don't have well application also that.
So we're working right now and I'm encouraged and of course as I said before acceleration as being seen because oh legalization and talk to place offsets that if needed going forward.
Great.
Thanks.
Thanks, Craig.
Operating rate for the next question.
Thank you. My next question comes from Mike Mccormack <unk>. Please go ahead, what's your question.
Hey, Thanks, guys Uh Huh, maybe just a quick comment again on the enterprise side. So it sounds like you're not seeing any sort of delayed decision, making contracts that have been a process are still going through.
And then secondly, when your competitors just talking about five GE has a home broadband replacement not really being such a great replacing any thoughts around that and then I guess does that change any of your view on the importance of bias going forward. Thanks.
On enterprise I'm going to some extent you are right because certain customers or delaying and not doing decisions. Those are usually in industries that has huge impact from cobot 90.
But that's a three because they are but we work with them any I'll because ultimately they're gonna be our customers. When these come out and those industries withdrawal rate show. It you know we were resilient, which support our customers seem in gold at bedtime and that our business a little bit is actually working is good and bad funds, which is really really good assets.
That's a working at their comments on five year old from people that are not you doing it of course I kind of even comment on that we feel really good about our model. That's the way I said before.
And minimum on 10 five you owns it if we're going to have the CP. We did much better shapes that that's on plan for this Oh, a second halt so again, we feel good about that our learnings or deep well be looking at coverage or throughputs, ER and all of that and this elphinstone, which.
I have been talking about a one off yeah, which excites me that oh customer should be able to receive the.
The then the gear to <unk>.
On the between stores themselves in a initial what timeframe, it's not the that's come down but at times that I have the ambition I wanted to be below one hour, but the we welcome as far away from the eight hours, we started with compared to a a fiber installations, where do you need do.
You need to first and put it on the agenda wait for a couple of weeks then you have to come there and install it and it takes a hours to do that it needed to told the different way. It's transformative. Other said we are being unified you didnt transform it they've not feels the need to all my 40.
Great. Thanks, Thanks, Mike and Hey, a special shout out to make today that I heard it birthday, So happy birthday, Mike [laughter]. Thank you.
Hey, Andrew Operator next question.
Thank you. Our next question comes from Peter Subpoena of Bernstein. Please go ahead, what's your question.
Hey, Thank you unfolds the home wondering as you look out at the arrival of the high powered CB I wish I think comes in Q4.
The key unanswered questions are for you.
In terms of performance in unit economics that would allow you to speak a bit more clearly about expectations and I'm curious, whether you think it can scale and 2021. Thanks.
[noise] I think we're announcing the majority of the questions a when it comes to a weekend scale ER and ER.
They're all the way things on where where a four from them technology, where first in the we're doing this and there's no one even close of thinking it like this so of course there are challenges.
We have to make thinking a team we see down once a month the whole executive team reviewing all of these with our engineers to be better all the way from the installation to the marketing. So I feel that we had a good number of course, that's been things outstanding and we can do better over time, but I think wanting to go days or two to.
To relaunch when the more powerful C. D is coming that vessel, but I'm not sure to enable us to wane to 20 to 21 would that they're on the founding all weekend and scaling them and wherever it was stated I think one thing that's what I've learned but once the waste that's of course, if they fly is access when thinking about consumers.
Well, there's an opportunity to give you when you see these or says the fixed wireless access opportunity for small and medium be so that's accurate that the definitely just thought working on a later on.
Yeah, Hey, Peter as Matt just a couple of follow said one remember.
You're driving these revenues off of the same network that you did you getting fiveg mobility or revenues on so this is the first time, we've had that opportunity to drive multiple revenue streams offer the same in basketball with them, but yeah. So as we roll out the network will have the opportunity to add more I'm already marketshare and.
Yeah. So we're very excited about that as we happen to 21 with the progress we're making this year.
Yeah.
Thanks, Peter Hey, a Angela we have time for one more question, what's the one more from the audience here.
Thank you I last question comes from Tobey sinus out of Cowen. Please go ahead, what's your question.
Great. Thank you had two for Matt if I can.
One just given the various moving parts as it relates to free cash flow and something that bigger benefit you saw in the second quarter that were onetime I was wondering if you can give some color on what free cash flow could look like for the back half of the year more simplistic, we whether or not you expect the caslen 2020 to be above or below that of 2009.
Okay, and then secondly, as it relates to the upcoming seed and auction, which I know you're not going to talk too much about but.
When you think about how you're going to finance that do you think at that point, you'll have enough as it relates to cash on hand and room within your debt financing to eight for what you off me spend at auction, where do you think that it could be a point, where you might have to attach at least temporarily your level of investment just to ensure that you're able to you.
The most out of that option that you want to thank you.
Thanks, Toby so they can work goes to the last question, where I was certainly excited about said the opportunities that come up with the save that auction a one of the great things about having a golf the balance sheet in a position that we have as it gives us the opportunities to take advantage of.
It seems like that when they come along and no side I don't think that as I look at the balance sheet and I look at the ocean a that that that will provide any inhibitors to us either in terms of we do a notional highway in past and the rest of the is it.
In terms of the free cash flow for Oh, the second quarter as you say a couple of items in there a we had the a the tax benefit from the item that we recognized in fourth quarter last year. We also had a timing difference of about $2 billion moving or just the regular cash payments from a second quarter two last week.
Ah, but all in all that kind of cash flow will continue to be strong because we have a obviously we have a strong business through the recurring revenue stream that will continue into the second half of the working capital provided a benefit in the first half with a lower volumes, we'll see how that plays out in the second half of the.
I think that will be I wanted to keep determinants of Oh cash flow looks for the full year on a year over year basis. So, let's see how it plays out but I I certainly expect free cash flows continue to be strong for the business.
Okay. Thank you.
Great. Thanks, Colby and with that I think we're going to wrap up the call and I just want to make sure everybody state and thank you for everything today and Angela back over to you.
Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation I use embracing conferencing services you may now disconnect.
[noise].