Q3 2020 Verizon Communications Inc. Earnings Call
Good morning, and welcome to the Horizon third quarter 2020 earnings conference call at this.
At this time, all participants have been placed to my listen only mode and the floor will be open for questions. Following the presentation too.
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It is now my pleasure to turn the call over to your host Mr. Brady Collins Senior Vice President Investor Relations.
Thanks, Brad Good morning, and welcome to our third quarter earnings Conference call. This is Brady corridor and I'm here with our chairman and Chief Executive Officer on Belzberg, Amat Ellis, our Chief Financial Officer as a reminder, our earnings release financial and operating information and the presentation slides are available on our Investor Relations website.
A replay and transcript of this call will also be made available on our website before.
Before we get started I'd 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.
Discussions of factors that may affect future results is contained in <unk> filings with the FCC, which are available on our website <unk>.
This presentation contains 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 <unk>.
Quarterly growth rates disclosed in our presentation slides and during our formal remarks are on a year over year basis, unless otherwise noted as sequential.
As a reminder, we've entered the quiet period for spectrum auction windows seven so we will not be able to comment on our current mid band spectrum holdings or strategy. Additionally.
Additionally, please remember to join US on November 11 for our fall sell side meeting from 430 P.M. to six PM Eastern standard time, we will be screaming, that's a bit like via Blue jeans for every one that can attend virtually you can find details on our investor Relations website.
Now, let's take a look at consolidated earnings for the third quarter.
In the third quarter, we reported earnings of one dollar and five cents per share on a GAAP basis right.
Reported results included net pre tax charge of approximately $1.1 billion related to a mark to market adjustment for our pension liabilities.
Excluding the effect of this special item adjusted earnings per share was $1.25 cents in the third quarter compared to $1.25 a year ago.
Let's now move to slide four and take a closer look at our third quarter earnings profile.
Consistent with the approach we have shown for several quarters, we have illustrated the ongoing impacts to earnings from the adoption of accounting standard S. C. Six those six for revenue recognition in 2018, we expect 2020 to be the final year that the adoption of this standard will have a material year over year impact on our income statement.
We realized a lesser benefit from the adoption of ASV fix so six during the third quarter compared to the prior year, primarily due to the deferral of commission expense.
A reduction to the benefit realized creates a year over year headwind to both reported and adjusted earnings per share, which will continue throughout 2020.
The impact was two cents for the quarter and seven 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.
Now I will go through the cobot impacts that we experienced across the business in more detail overall, we estimate that there was a five cents headwind included in that are reported and adjusted EPS from cobot during the quarter.
While adjusted EPS was flat in the third quarter, including the impact of Covidien A.S.C. six so six we continue to see underlying growth in our operations with that.
With that I'll now turn the call over to Hans.
Thank you <unk> and thanks for everyone joining <unk> third quarter earnings release from Rice on I would like to start reflect over the currency situation, where hub of course I've mentioned several times before wearing multiple crisis is the pandemic is continuing the economical downturn and the race an injustice, we as a corporation.
I continue and we don't three pronged governance to see that we're managing these seem to best way of course, our team is very focused on the crisis will depend they make and having a team working on that but the majority of my executive team are working with pieces as you should see that we continue to move this company forward and finally, we'll also working a lot with new.
But you'll notice that the rise from this crisis is to see that we are actually coming all did a stronger company, an extra serving our customers and even the way.
I would like to say a couple of things so where we are in all this when it comes to our response would be says practice is thought to it he called it 19, we have all the time and put our focus on our employees safe then have that they've been so important for us in the third quarter, we have seen our retail stores coming back to full operations.
Course, when new procedures and processes. We've also seen our engineers being back in full force in the field to it making installations and you're going to see that later on that's why they are really great quarter. One comes to file you will see installations on <unk>.
On the racial injustice on what we're doing here, we just want to highlight one important thing this quarter, we published our Twentytwenty diversity representation and report we disclosed on different levels and deepened units, where we stand on one the core values, which is diversity and inclusion I want to highlight the work there.
Treasury Department eat into third quarter. They issue. The second 1 billion Green Bond, which was led by minority owned on the right is to continue our work with the climate change and seeing that we do our contribution and finally, we will also decided during the quarter to provide our employees with paid time off for EM.
I used to vote in these times, which are unprecedented moving.
Moving on to where we are and I talked a lot about that is we came into this quarter and the second half of 20 to 20 <unk> de supports the two year old execution and I cannot say anything in it that our team has been executing Yost if fantastically and you were talking about our network as a service drafted in the network starting with the Fourg network.
What can we say I'm at a team continues to take all the awards from the root metrics, where we named the best over all mobile network and on JD powers were awarded 20 to 50 consecutive time, the best network quality. So that team is continued to augment and improve our fourg network at the same time we.
And then in the <unk> and as you know and we gain some 34 megahertz covering 140 million older population and all in all that that's going to help us to augment the capacity in the network, especially on Fourg.
Another area, which were very proud of the team has done in the quarter is of course continue their relentless execution on our phase you find your network and then we launched a five year nationwide last week and I've said to the whole year that we're going to launch the network when it comes to actually make sense and it made sense last week.
When the iPhone 12 was launched in the market. So now we have a nationwide covering more than 200 million older population or the United States more than 1800 seats. These when it comes to our five year nationwide based on the DSS technology, We also continue or.
Or a a expansion on the ultra wideband and we took a leap rolled when 19 more cities and were now 55 C piece, where mobility, but 43 stage guns and seven airports you just continue to augment our ultra wide band network, which he is just giving a huge new experience when it comes.
Two capabilities when it comes to speed latency and of course throughput. We also in this quarter. The one some homes he piece when it comes to five your whole more we added to so we have no eight five your home safety is when it comes to fix was axis and finally, one of the core assets for our natural gas services.
Of course, our fiber and the fiber richness of our network is a core element in device and the intelligent edge network were on plan for that in these times is just a great work what the team has done all the way from the Fortinet work to define the networks and the one five o'day executing tremendously on or call me.
That's for the full year.
All that network to service that that he is based on us being able to.
Being able to monetize on top of that network and a a couple of very important events this quarter.
I believe to be the off there is of course everything else I'll put up monetization starting with the five D adoption on the ecosystem that we're creating a where of course extremely pleased with the launch of all day five iPhone. The iPhone well that came out in four different mode does all the we'd also wide band that these of course at the end.
Yes, it and how important dog the wide bodies for an unprecedented or unparalleled experience on five d., bringing out older currencies or capabilities that we've talked about before or.
Also this quarter, we added now the Highpower as CP for a five year old, which weve been talking on for quite a while so now we're on the right track for that that's well continue to be able to monetize on fiveg fixed wireless access which is one of the new and different services. We believe is going to be important five D and.
Finally, the five U mobile age compute which is the third base. This case will have on the same infrastructure. We have now five mobile age compute centers together with Amazon. We also announced that Microsoft is now joining us on the mobile edge compute that's why we're focused on the private side all defied the mobile edge compute so we are actually.
Gathering some of the most important partners in the ecosystem to see that we can actually monetize a DC or investment went on the internet through good service. We're also having them in the network continued to lead our mix and match on US we earlier reported that rolling on and his team has done a mix and match creep.
We don't see are all very important in times. When there are so many choices, we give our customers. The choice is the peak their offerings and the their way old dealing and getting services from very soon.
I find it on that area our collaboration within the company is very strong and as you saw during the iPhone launch a we launched with the NFL that's Super Apple. It is Super Stadium up which was created by our Verizon Media group, which is basically a seven concurrent video streams at the same time that it can enjoy either end.
Stadium, which you cannot be today or at home. If you have if I'd also wideband. Once again, we are Paul <unk> much wider ecosystem into delivering new services.
We're strengthening the core as well we had a a couple of new things first of all we are now going into the L.D. home Internet, where covering hundred eightnine markets in in full date States. This is a one way for us to continue to use our ore grade network to offering new types of services in the quarter, We also announced the or.
Ambition to acquire Tracfone that is adding new opportunities for us in the value segment to support that segment of customers. Finally on the Beast. It's the Beast. This applications, we chase the growth on top of the five your mobile edge compute we're now have five mobile edge compute centers that I said, we are committed to do.
By year end and we'll both have now Amazon and Microsoft as partners to build that finally, we have seen great opportunities based on our investment in Universal communication services, where we have added to our blue jeans acquisition, especially in health and education and as you're going to hear from that late.
We're on we have a great growth in our public sector.
Much based on that I'm really proud of my team that they can deliver these strong financial performance in the third quarter in these unprecedented times as well as with the strong execution all of our platforms and our strategy on the consumer side, we added some hundred 42000, new post.
Eight full net ads and continue with a very high low you do for our customer with a very low shouldn't Evans.
As I alluded to earlier, we're also very proud of what we achieved in the PHYOS ended told <unk>. We added 144000, new Internet net additions that's a five year high we choose to use a great work of our Fi iOS, we the mix and match as well as their offering and the call it the web and piles of cash.
Yes, there were some pent up demand, but all in all it's always a show that the support from our customers for a PHYOS offering on the Beast. Aside we continue to do well on the wireless side both on the wireless gross adds and net adds we have steel in the business side their secular decline.
In wireline, where the good profitability in the quarter, even though we continue to invest and we're not done with the investment we had talked about in the fourth quarter last year that is so important for us to see that we are really supporting our customers. When it comes to new digitalization and new offerings, but the all in all good work by obese This group.
Finally, the media group had a sequential improvements they were down 7% in growth in the quarter and they had a very good improvements during the quarter. When it comes to a growth trajectory. Finally, they have continued to add a multiple new opportunities, especially around to own and operate did where we are.
Good growth in the monthly active users if that these in new store in finance and we clearly see that dollar content isn't really aspiring ah and doing well with our customers in those areas and finally or take especially the the mone platform. He said, adding quite a lot of new customers in.
These times, which also shows approval all the transformation that we have done in the media group. So.
So looking at the financials, we had a growth in our service revenue wireless service revenue in the third quarter, we did see a 3%. We're clearly I mean better focus on that one and it exceeded it needs to be at all so what we said when we concluded the second quarter. We also had an improvement and growth on our adjusted EBITDA.
The margin 100 basis points and that includes of course, the coal that impact. So we clearly see that they even though we haven't done a decline due to hardware we are managing our personnel in a good way in all our units the cash flow continues to be strong we ads continue to add.
Cash flow in the quarter, a even though we have the dividend and some outlays for some acquisitions. All spectrum. Finally, we are doing a paucity of update on the EPS guidance that Matt will talk about later on so we feel good about going into the fourth quarter would have very solid third quarter when comps of financial and makes it.
You shouldn't and how we're dealing with a different crisis is that is happening around those here in the U.S. and the rest of the world. So I will then hand, it over to Matt to go into more details on the financials.
Thank you <unk> and good morning, everyone.
As Weve now completed the second full quarter and a global pandemic I'm encouraged by the strength and resilience of the horizon team out business and our customers are.
Our employees continue to deliver on our commitment to our customers and our communities in the face of uncertain and evolving conditions there.
This quarter highlights. Another example of our ability to execute and drive results with adjusted earnings per share of $1.25 included an estimated net impact due to cope with it of approximately five cents in.
In the third quarter consolidated operating revenues were $31.5 billion down 4.1% revenue declines were primarily driven by significantly lower wireless equipment revenue, which was down approximately 20% due to lower customer activity and the timing of certain device launches we have.
We are pleased that total wireless service revenue outperformed our expectations are returning to year over year growth in the third quarter driven by improvements in usage and fee revenues and step ups to premium tiers of unlimited.
In addition, horizon media group's revenue trajectory improved significantly during the quarter driven by advertising, which returned to year over year growth in the third quarter.
Adjusted EBITDA in the third quarter was $11.9 billion down slightly from $12.0 billion in the prior year driven entirely by headwinds from the deferral of commission expense.
Third quarter, adjusted EBITDA margin expanded to 37.6% versus 36.6% in third quarter 2019, including headwinds of approximately 40 basis points from the commission expense to far out.
Our business Excellence program continues to drive significant benefits as a key component of horizon's resilience and agility.
We have realized $8.3 billion of cumulative cash savings to date and remain on track to achieve our goal of $10 billion by the end of Twentytwenty one even.
Even after we achieve our targeted operational efficiencies will be an ongoing focus across the business to identify additional long term transformation initiatives and deliver the related cost savings.
Let's now turn to our segment results starting with consumer group on slide nine.
Our consumer team continued reopening our retail stores throughout the quarter, while maintaining vigilance for the safety of both our employees and customers.
We began the third quarter with nearly two thirds of every retail stores open although with limited hours and gradually reopened across our entire footprint with normal operating EPS by Labor day.
Consumer foot traffic is not yet a pre coated levels as we have implemented social distancing practices such as touched this retail appointment scheduling and curbside pickup we remain committed to providing our customers with the experience they expect while focusing on their safety for the quarter, we added 17000.
Just paid customer accounts.
Compared to a loss of 26000 in the prior year. We are pleased with the early traction we are seeing from menu mix and match plans as the best in class value offering, which now includes an expanded bundles from Disney in the top tiers of our unlimited plans are.
Our enhanced unlimited lineup is driving elevated step ups and we now have approximately 60% of our customer accounts on unlimited plans with over a quarter of those on premium tiers.
Customer retention remains very high and is a function of reduced customer activity levels across the industry as well as a testament to the Verizon network performance and ever improving customer experience post.
Postpaid phone churn of 0.63% was an improvement of 16 basis points from a year ago, we can.
We continue to see strong customer collections based on the demand for our services and the quality of our customer base. Our stay connected payment plan that allows keep Americans connected customers to pay off the service balance over six months has been well received including consumer and business customers. We have approximately 1.2 million.
In accounts on these payment plans with over 90% and having made a payment and the majority with current balances.
Based on our early activity, we expect in voluntary churn in the fourth quarter to be modestly higher than typical levels, but from a basket for the full year compared to 2019, we will continue to work with these customers to keep them connected during these tough economic times.
Well postpaid phone gross adds were down approximately 22% primarily due to lower store traffic and changes in timing of phone launches are low churn drove postpaid phone net adds of 142000 for the quarter as compared to 239000 in the prior year the.
The retail postpaid upgrade rate remained low at 4.2% and contributed to the decline in wireless equipment revenue.
In addition to the strength in postpaid wireless prepaid net adds of 77000 Bucks out best performance in several years, we look forward to the completion of the Tracfone transaction to further enhance our position in the segment, where we have been historically underrepresented.
In consumer files Internet net additions of 139000 were up significantly both sequentially and year over year.
Total fires Internet net adds across the company were 144000, which is our highest total since the fourth quarter of 2014 the dumb.
The demand confirms our customers appreciation for our new mix and match offerings and the quality of our product when reliable Internet service is more important than ever.
How fast team did an excellent job working through the installation backlog from Twoq and we are nearing normal pipeline levels, often limiting operations in twoq for precautionary safety purposes.
She's Matthias video net losses of 61000 improved slightly as live sports content has picked up the core cutting remains the key driver video Disconnections.
Now, let's move to slide 10 to discuss the consumer financial performance.
Consumer operating revenues were down 4.3%, primarily driven by a significant decrease in wireless equipment revenue due to reduced customer activity. This decrease was offset partly by gross or 3.1% in other revenue and wireless service revenue was stronger than expected.
Wireless service revenue improved sequentially and was down 0.7% year over year compared to negative 2.7% in the second quarter as customer activity started to recover the.
The pace of step ups to premium tiers of unlimited has increased during the quarter and drove underlying growth in service revenue through higher recurring access charges you.
Usage in fee revenue improved sequentially throughout the quarter, but international travel pass remains at low levels altogether usage fees and travel pass revenues accounted for approximately 180 basis points of year over year pressure in the quarter.
Consumer EBITDA margin was 47.4%, which was up approximately 210 basis points from the prior year. Despite approximately 60 basis points of headwinds from the deferral of Commission expense now, let's move to slide 11 to review the business group results.
Our business segment continues to be resilient as our customers appreciate the quality of our best in class network and product offerings to meet.
The mountain the public sector remains especially strong as our team has done an excellent job, providing critical solutions to customers across state and local government agencies and to education provides us there.
Despite ongoing wireless volume pressure in small and medium business and enterprise postpaid churn remains in line with 2019, and we have seen a steady increase in customer activity since the second quarter.
Total business postpaid phone gross adds were down approximately 8% from the prior year postpaid phone net adds of 141000 was down from 206000 prior year, but was almost doubled sequentially as our customer activity continues to return towards pre coated levels.
Business segment postpaid phone churn of 0.96% in the courts to improve slightly from prior year, driven by favorable retention trends in public sector, and small and medium business. So.
Suspend activity continues to be favorable as the majority of our suspended accounts have shifted to active status. How business segment customer base has remained resilient, but macroeconomic conditions will continue to play a factor in the fourth quarter and into Twentytwenty one that's.
Let's now move to slide 12 to review the business financial performance.
Total operating revenues for the business segment were down 1.7% from the prior year.
Wireless revenue was down slightly due to declines in equipment revenue, partially offset by service revenue growth of 4.9% as compared to 3.1% in second quarter.
This was primarily driven by public sector, and small and medium business and included approximately 280 basis points of headwinds predominantly from lower roaming and usage revenues in the quarter.
Operating revenues were also impacted by ongoing legacy wireline declines however demand for advanced communication services continues to drive underlying opportunities for the segment.
Business EBITDA margin in the quarter was flat year over year at 25.2% now.
Now, let's move on to slide 13 to discuss Horizon Media group.
Trends, resulting from the pandemic continued to impact both search and advertising. However, we are pleased with the sequential improvement from the second quarter total.
Total revenue for the quarter was $1.7 billion down approximately 7% compared to last year better than our expected range and up 21% sequentially.
Year over year trends continued the improvement that began late in the second quarter as September revenues were down only 2.4% compared to 19% down in June.
We continue to drive increased customer engagement on our owned and operated properties with strength in both finance and news as monthly active users grew 22% and 13% respectively.
For the quarter, we saw ongoing strength and that demand side platform, adding more than a third clients accounts compared to the prior year period.
Verizon media expanded our partnerships and increased our commitment to build advertising inventory in new and emerging formats and launched live events with watch together and Yahoo Sports playoff all of these platforms will benefit from Fiveg and our robust partnership with the NFL to innovate life events together.
Let's now move to slide 14 for a quick look at the overall wireless performance.
Slide 14 shows the key metrics and financial data of the combined wireless products and services from the consumer business segments for the third quarter.
Total wireless service revenue was up 0.3% from the prior year, including the headwinds mentioned in both the consumer and business segments, a significant improvement from the 1.7% decline in the second quarter.
Additional details are provided in the financial and operating information and the supplemental earnings release schedules on our website.
Now, let's review, our cash flow and balance sheet for the quarter on slide 15.
Year to date cash flow from operating activities totaled $32.5 billion, an increase of $5.7 billion from the prior year. The growth was driven by continued performance and strength of the business a nonrecurring tax item in the second quarter.
Improvements in working capital, primarily due to lower volumes.
Payments related to the voluntary separation plan in 2019 that did not repeat this year.
As a reminder, we paid three of the four quarterly federal tax payments in the quarter, including two payments that were deferred from the second quarter.
Year to date capital spending was $14.2 billion up $1.8 billion from the prior year.
Our capital expenditures continue to support the growth in traffic on our industry, leading Fourg LTE network. The launch and continued buildout about fiveg ultra wideband and nationwide networks the.
The upgrade to our intelligent edge network architecture, and significant fiber deployment and 60 plus markets outside of Iraq footprint.
The net results of cash flow from operations and capital spending is year to date free cash flow of $18.3 billion, a $3.9 billion a year over year increase. Additionally, we invested $1.9 billion. The Crs spectrum to further enhance our network strategy we can.
We continue to strengthen our balance sheet and opportunistically diversify our debt portfolio to optimize our cost of borrowing ending the quarter with net unsecured debt of $96.5 billion down year over year by $1.3 billion. Okay.
Our cash position remains strong, finishing the quarter with $9.0 billion.
In September we completed our second Green bond issuance with proceeds of $1 billion, primarily in support of our goals to source, 50% of our electricity consumption from renewable energy by 2025, M.B. carbon neutral in our operations by 2035.
The issuance also supported diversity and inclusion in the underwriting syndicate strengthening our long standing partnership with minority owned financial firms on capital markets transactions.
Net unsecured debt to adjusted EBITDA ratio at the end of the quarter was 2.1 times versus our targeted range of 1.75 to 2.0 times we've.
We remain focused on achieving this talking over time, while maintaining a strong financial position to give us flexibility to invest in the business.
Let's move on to slide 16 for an update on guidance for the remainder of the year.
Onto that I'm very pleased with the performance of our team in the third quarter building on the momentum we've seen over the past several quarters in the face of an uncertain operating environment, we are seeing steady improvement across our business while.
Wireless service revenue in consumer and business is recovering faster than we initially anticipated.
And we expect total wireless service revenue to grow by at least 2% in the fourth quarter compared to the prior year.
We previously guided to full year adjusted EPS of negative two to positive 2% change from 2019.
Given the three quarters of resilient earnings and the trends we see in to the fourth quarter, we expect 2020 adjusted EPS to be accretive and are revising our guidance upward to zero to 2% growth for the full year. This is.
This includes the previously discussed accounting headwinds the impacts from coated and new device launches in the fourth quarter.
We are extremely proud to the Verizon team that puts us on track to deliver earnings growth in the year with truly unprecedented challenges.
There is no change to our guidance for other income statement items, including depreciation and amortization interest expense and the adjusted effective tax rate.
We expect our full year capex to be at the upper end of our 17.5 to 18.5 billion dollar guidance. The supply for network equipment is strong and we continue to deploy fiber and small cells at a tremendous pace in order to enhance our network leadership position and achieve our goals with Twentytwenty.
Outperformance this year through three quarters is showing the strength of a great team a resilient business and a sound strategy.
Focus on our core competencies and the strength of our balance sheet has given us the ability to invest in the business and support all of our stakeholders in times of uncertainty with that.
With that I'll turn it over to Hans to discuss our priorities for the remainder of the year.
Thank you, Matt Let me quickly summarize where we are I think we are in a moment, where we are executing against our strategy in a really good way and we are creating new opportunities for our growth that we're aspiring for and let me start with Fiveg. There's so many things went down the last two to three months on into this quarter that is really paving the way.
Wave for our best a network and for our customers to enjoy these tremendous opportunity to be on Fiveg well.
When it comes to strengthening our core new partners are important break we'll see stuff, but also looking into new segments. You heard me talking about the five new mobile ads compute that we continue with but also a ambition to acquiring tracfone to to see that our network is obviously is really the fundamental strategy that weekend.
Monetize on top of and seeing that we continued to be the leader in this market. Finally, new revenue models. Many of them were being discussed, but clearly we see a new opportunity to be especially in the Beast. It's group, we'd find the mobile edge compute also based on what's happening with health care and education, and we are taking care of some of them already.
But more opportunities coming with partners that we have announced this quarter, but also important as into the future. So all in all a very good quarter I think we're in a very strong position to continue into fourth quarter I mean to Twentytwenty. One s., we're executing on our strategy with that I hand, it back to Brady pretty QNX.
Thanks, Hans Brad we're ready to take your questions.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one please on mute your phone and record your name clearly when prompted her name is required to introduce your question.
To withdraw your request please press star two one more.
One moment please for the first question.
Your first question comes from Brett Feldman of Goldman Sachs.
Please go ahead with your question Yeah. Thanks for taking the question you know I'm sure you're not surprised but the principal topic of conversation with investors over the past week has been the iPhone 12 promo that you rolled out and that your peers have rolled out and if we look at the way your restructured its effectively a subsidy and so the question. We've been getting is what got you comfortable with.
Nature of that subsidy design, what positive impact are you expecting to see on your operating performance as a result of the promo when are we going to see it as as investors and analysts and is there anything about the initial acceptance of the promo that is giving you a sense that it's working or that you need to adjust thank you.
Thank you and let me start by saying that we feel really good about our position on first of all that we do with the network will have the offering that we are doing a <unk> based on the mix and match, but also the offering youre alluding to.
And then of course the position that we have when it comes to the iPhone 12, where we have all tell wide body in all of them. So I think well operate the repositioning strength, we feel really good about our offerings. We also feel good about the response among its very early I cannot say so much about the preorders remember its only two phones that has improved.
Order right now it is coming to on their I phones. The sequel November when it comes to preorders, but we're happy with the preorder so far on that unless you have seen a firm that talking about the guidance. We feel it was a good about the quarter and how are we going to handle these on as you as you know I mean this is not the first time, we're into a cycle of I phones and Oh.
Guys. They know how to deal with these and they're very financially prudent and seeing that long term and medium term. This is going to be very positive for for our customers and our shareholders. So we feel really good about it that that things homes and Brent. Thanks for the question. So as I look at the promos, we have around the I phone right now the overall cost structure is in very different from what we've had pre.
Obviously some of the details are obviously changed from a from promo to promo, but this construct is very similar to what we've what we've done for the past few years really since we paid an unlimited world. So we're certainly expecting to see a good customer take rates, we expect that to drive step ups as we get more customers and unlimited antics.
Back to you know we are very focused on driving value accretive growth across the customer base and developing long term relationships with our customers and the promos. We put in place right now are very consistent with that methodology that we've had for many years now and just.
And just one quick follow up question I don't know if you've made a decision on this yet or not but for how long do you expect this payment offer to be in the market.
I will we'll have to wait and see how the market develops over the fourth quarter I would tell you what though I'm very excited when you when you think about having the best network both for GE and building the best Fiveg Network you added with the best device portfolio, you had that in with the the best value proposition with what you've done with what we've done with mix and match $3.
Zero that is a an incredible combination and so there's a number of leave is available to us, but I I tell you what Brett I'm very happy sitting here today hold the cards in my hand that we have and look forward to how the marketplace will develop in the fourth quarter.
Thank you.
Thanks, Brett Hey, Brad we're ready for the next question. Please.
Thank you. The next question comes from Phil Cusick of JP Morgan You May go ahead with your question.
Hi, guys. Thanks for.
First a follow up on on Bretts can you give us some idea of what has to happen to hit the high end or low end of the fourth quarter earnings Guide I think a lot of people are pretty impressive.
Hi, end and and I imagine that that would have to be a lot less competition than we're seeing in the market today.
But I appreciate your thoughts and second on customer payment trends, you're the first major service provider provider to report can you give us more details on that keep America connected recovery trends in consumer and business payments are those on time and you forecasted churn should pick up in the fourth quarter can you help us quantify that at all thank you.
Yeah. Thanks, Phil So starting with the first question on on the the fourth quarter range. So when you look at that already thinking about the the momentum coming out of the third quarter and the momentum that built in the third quarter with customer volumes improving as we are really focused on service revenue back to growth.
Stat Pops driving that the the move to $3 zero until you within the the service revenue growth of 0.3% and improved throughout the quarter. The number was better in orcas in July and it was better in September than it was in <unk>. So good momentum coming into the fourth quarter. The best files gross number that we've had and.
Almost six years or so a lot of power.
So a lot of positives across the across the company as we come into full Q and then as you come into the quarter not just the iPhone launch with Fiveg nationwide a lot of exciting things going on so when you look at the year to date EPS number were up a penny on a year to date basis, and so we feel very comfortable with them.
Meant that we have coming into the quarter that we will ultimately have accrete to EPS for the year as a whole or even with the impacts of cobiz in there and the accounting headwinds you heard from Brady.
And everything else. So it gives us a really good place to finish the year and jump off into Twentytwenty, one on the customer payment trend side again, very very pleased with what we've seen from customers on but the stay connected program that we put to keep American connected customers into at the beginning.
Three Q payments have been in line with what we expected we have a very experienced collections process. We have the best quality base of customers in the industry and you see that come through in the churn results as we get into the fourth quarter, you'll start to see you know the small percentage of those customers that are still struggling with the pace.
Once we get all the way through the collections process and a very modest uptick in involuntary churn, but I still expect involuntary churn to be below last year on a full year basis, which speaks to the testament to workout team does and the quality of the customers that we have.
Thanks, Matt Yeah, Thanks, Phil Brad rate for the next question.
Thank you. The next question comes from David Barden of Bank of America. You May go ahead.
Hey, guys. Thanks for taking the questions.
We talk a little bit about you know from the millimeter wave.
Network perspective.
Two aspects to that business one being the most.
The mobile network connectivity you talked about the.
The pooling about five times more small cells in 2020 as you do is you deployed in 2018, but I think that people don't have a sense as to kind of Oh footprint. So we're a number has that you can put around that and thinking into 2021 is you know the iPhone fiveg becomes a thing.
You can you can you quantify and elaborate a little bit about what the goals are for that mobile ultra wide band network and then second.
As you've kind of gotten out to eight cities with the.
Fiveg home can you kind of put a number around what is that addressable market look like today.
And what is the goal for that to look like in 2021. Thank you.
Thank you very much let me start on first of all and our strategy has been consistent over years on and when it comes to all its a wide band on the deployment has also been very consistent then remember when it comes it also was on east coast, an unparalleled experience I'm on a you might have seen that the yesterday, we actually made tests that we've come up to five gig right.
Now so the TCOS, giving some totally different experience and that was the whole idea when we start to eat we wanted to build something enormous a transformative and that's what we've done and that the of course, he's playing into the whole rollout, though the iPhone 12, as well that is all the capabilities on the wide body when comes to all rolled out them and last week.
We added 19, Ctcs and then the majority of the Cts wed already launched almost doubled in size. So the food. So we are in an enormously big rollout on Alt a wide ban on US we said five times more and base station DCIO compared to 19 I will give you one number I'm in the last two months, we deployed more radio base station they would need.
An entire twentynine team, that's the pace will drop too. So we are footprints users growing under even though there is no people or a spectator stadiums, we just super App would NFL. What we're doing is of course, we have five dean just agents and we can't predict that out. So you actually use or you can get that experience by not being.
In the stadium wins have been screened so I see we are continuing to do a transformative things on the whole ecosystem is around those as you have seen where there's not a lot of five to different sites with a a muscle and on the old commercially on the mobile edge compute were building a local great opportunities and transformative business.
Transformations, we did so we're really excited about that and then we can see the the consumers are excited about that as well, but we are augmenting everyday and I am extremely happy with how our ER net technology team are deploying these together with the fiber we're doing at the same time, so you will see more and more where youre augmenting.
I'll go wide my network in us.
Need to also state that remember, we also launched our nation wide five D.
Covering more than 200 million people, which is on par or better than our Ford you, which is clearly the best seemed a nation NASA said, we I'm not sure how many times I've won the Ruth made matrix A.J.D. power and now we're adding that nationwide. So we feel really good about our situation when it comes to the network and what we can give to our.
Customers on to find your home Youre right were now on an eight in Cds. We have we're also augmenting of course those cities with a with the with all the wideband and we have two more Cts before year end, what I said before I mean, there's no reason why and new CP that will have mobility and will not be a five year home seat.
Well and now with the CP that we came out we did early in the in the fourth quarter. We also have a very compelling offering very transformative we do self install what do you see that is much more powerful than in previous ones a much easier to detect and all of that so we feel good about that that doesnt.
Change what I've said before when it comes to our revenue traction every four or five d. under different business cases will have multi well. This shows that we are really an execution mode right now in bringing monetization on top or I'll find the investment that we have been onto for the last three four years or as long as I remember because I haven't been able to an off year, because we have all the time.
Being on these strategies, so I'm very pleased with they said third quarter, we have more to do in the fourth quarter, but a lot of things are coming in place for US right now to really talk about the tragedy.
Thanks, Yeah, Thanks, Dave Brown Ray for the next question. Please.
Thank you. The next question comes from John Hodulik of EWP, Yes, Sir you May go ahead.
Great. Thanks, guys I I think I got three three quick ones.
First the strong service.
Revenue growth guidance for the fourth quarter whats driving what appears to be accelerating migration to.
To those higher tiered unlimited plans that's number one number two.
Given the earnings guidance.
You know in the fact that year to date you have some slight earnings growth. It would appear that you're not expecting much dilution in the fourth quarter from from the from what we're seeing on the iPhone.
And I guess, you know given that promotions out there does that mean that you don't expect a meaningful increase in overall volumes in the fourth quarter. This year as we look to versus last last fourth quarter and then lastly follow to David's question on the on the millimeter wave obviously the inclusion in the iPhone would seem to be up.
A big positive for you guys from a competitive standpoint.
And is there any is there any opportunity to go faster with that Fiveg deployment I know you're doing five times. The small cells that you did last year, but it would seem to be a nice competitive.
Sort of advantage for you guys to get that out there as soon as possible. How much is just wondering from a capex standpoint is it does it make sense to go to put the pedal to the metal. Thanks. Thank you. Let me start you're hearing a little bit on service revenue and then millimeter wave and I know, we'll have to hand, it over to Matt. So on the service revenue I just want to reiterate this practice whoever has now seen said.
We launched on limited and the work that Roland on it and team are doing as well as time me when it comes to our mix and match et cetera. This has been a journey, where we or differentiate all customer experience towards annual or competitors. I mean first of all we can mix and match number two we have offerings with partners that no one.
SAB everything from DC plans to to swap and music. We have just put that told you a different way of dealing without Kaufman that you see to pay off the remembering that.
Fourth quarter, and a third quarter last year, we were in a fantastic react too on the service revenue that we will know what's happening to pandemic and then now we are showing that were back and as Matt said on the service revenue we had that their factory in the month of August and in July and in September. So the guys are doing a great job I will leave it back to two months later on for this.
Service revenue Coleman's, but that's how I feel about that how good. These guys are doing these on the merely meet the way yeah. I agree with you. We are used to create competitive advantage with the old millimeter wave and the Alt a wide band and you can see that all departments were lining up or really excited about they'd be its optimal or if its a wide wide range, which is the biggest gaming.
The word that we'd be excuse me would not all of that is happening at the moment I'm pushing to Ti the everyday to go faster now we have also on constrained supply Yemen, we didnt have that last year. When we were so early on these and some might not remember that the conviction on the word more satisfied we five you would.
Thought to be deploying and Twentytwenty, we have commercial networks by 55 seat is when nationwide and we would have pushed the envelope of technology would echoes ecosystem scenes 2015 to be where we are today, but don't worry.
Pushing and I'm going to push us well and we are managing this within our capex as well. So the team is doing well were giving the all the resources they need because we understand what the competitive advantage, we are creating that yep. Thanks Hamzah John on the on the surface revenue grows so certainly the migrations to unlimited upon.
Out of it but if you if you look at the the improvement quarter over quarter I don't know, there's a lot of focus on the consumer side, but I'd be remiss not to to.
<unk> pointed out the improvement on the business side as well business service revenue increased from 3.1% growth in in Twoq, 2% to 4.9% in Threeq, you largely in public sector and small medium business and as good as our market share is in consumer achievement answer in the business segment. So that continues to be a driver.
Service revenue, but within the consumer side, certainly continued migrations to unlimited and as we continue to add value to the proposition, which you saw us do with mix and match $3 zero, we continue to see more customers migrate <unk> not just migrating over but more customers are migrating over to the operative.
As of on limited as well, we see more of our new accounts, taking on limited than we've ever seen and we think there's continued opportunities within the base to to migrate people from stepped them up for the smoke good trajectory on service revenue and headroom for even more to come.
On the EPS guide a you're right. We are we feel good about where it will be in the fourth quarter here and you see that in the guide.
And as you think about the iPhone promos and while certainly we think those of value creative for US I'd also draw your attention to especially on the consumer side, how the accounting on those promos on the 66 accounting standard the a large part of those promo costs will be amortized over the next two and a half usable.
So rather than a hitting the income statement upfront so from a fall Q standpoint, the iPhone promos are more of a working capital issue than they already got an EPS issue, but as we think about the the forward view, that's all fully baked in and feel very good about where we should be in the current quarter.
The jump off point into 21, and even with an increase in volumes coming through year over year, we expect to be accretive on EPS for the full year.
Great. Thanks, guys, yes, Thanks, John Ray for the next question. Please.
Thank you. The next question comes from Simon Flannery of Morgan Stanley. Sir You May go ahead. Thanks, a lot good morning.
Strong numbers on the firehouse Internet side, perhaps you could just unpack a how much of this is the the delays from the installation backlog from Q2, and what sort of the underlying trend both on.
Ads going into Q4, and also work on ARPU, what sort of speed tiers that you're seeing or people upgrading within the file space. There and then maybe how much you could just speak to the broader economy. There is concerns that as some of the fiscal stimulus and so we'll see more small business.
Those years et cetera, what are you hearing from Ceos and others as you engage with them. Thanks.
Hi, Simon Thanks for the question I'll take the the files from <unk>. So a lot of great effort by the teams during the quarter and what you really have is a a a fantastic product.
And you know a fantastic team putting out there and you see the results of 144000 net adds on internet in the quarter was out past in almost six years, a there was a little bit of impact from a working through the backlog from Q2, but I can tell you even without that backlog impact we would have been significantly north of 100000. So.
It's a well that was a factor it wasn't the driving factor the driving factor is the quality of the product which customers.
Value now more than ever and combined with the mix and match a product that we brought up the pricing proposition that we brought into files from wireless in the early part of this year and when you brought those things together, we're seeing great results. So strong demand has continued into October.
And I would expect we will see normal level of seasonality in Fourq, you, where we see a little bit of a drop off in overall industry volumes and a and you get towards the holiday season, but great to see us taking share again in the defiles Weld and again, it's just a combination of both.
Both are the great products and you put it together with the mix and match construct and is really resonating in the marketplace. So and then I think we still have room to grow there with a good amount of customers to what the opportunity to step up to a gigabit speeds.
On the broader economic calling them and I can only say two things I mean first of all and and public sector <unk> customers on the large enterprise customers in general very high activities. There of course certain large enterprises that are believed to be subdued because there are industries that are having a very tough times like.
The airline industry and a two week to release more transportable, so, but all knob. There is I would say that EBITDA level is higher than ever many or taking advantage of the utilization and actually changing the way you are working on these is playing straight into our strategy that we have been deploying for years, both weed that technology, but also we did go tomorrow.
But we do sign two years ago, a one off year ago, and finally, I think the small and medium Bces, that's where we see the challenged because we still have companies that have closed down and are waiting to see if they're going to get back it's not getting worse.
But but we still have that concern for small and medium pieces is that hard to say so when I talk around with my my colleagues in the industry to CEO. They see the same lead to beat we don't know where this morning pieces will go off that EPS. It depends on how long is it going on because downturn would be but we haven't seen a worsening at least and late you sold that's where we are.
Thank you yeah. Thanks, Simon Bradway from next question.
Thank you. The next question comes from Craig Moffett of Moffett Nathanson, Sir you May go ahead.
Hi, Thanks.
I wanted to ask a question about gross additions if I could.
18 TV promotion.
Seems to be quite different than yours, and T. Mobiles and that is very much focused on on retention and.
Not just given that gross adds are already down so.
Sharply in the cable industry is taking a good chunk of gross add growth. How do you think about gross additions going.
Going into the fourth quarter and into 2021.
Is there is there the potential that the market is sort of starved of growth here and that it forces a more competitive stance or a more aggressive stance from from.
From you in particular, but for the industry overall.
Craig Thanks for the question I think the only thing I can say today I feel very good about our expectation for gross additions coming into the fourth quarter, we caught a the right combination of the best network. The great handsets out that the right customer propositions I think we'll do very well from a gross addition standpoint here in Fourq you.
Thanks, Matt and if I could just ask a follow up about the cable industry.
I just you the cable industry is now having has its own fiveg promotions, how do we think about fiveg under the the cable contract.
Contract that you have with the cable industry.
Fair to assume that you reopened to the contract for special pricing.
Given that at least I think most people's understanding is that the original contract was priced on a on a per game basis of some kind and that that would be hard to do in millimeter wave given the kinds of volumes that somebody could run out hey, Craig a I first of all that as we all know that the law geminos.
These concrete said together with us and we are very happy with that that they are very good customers thoughts we have a good relationship with them and they they have been taking some share and a again, it's playing straight theme. So distracted we designed well two years ago. The network of service to actually monetize the network and the capital spend better than anybody else in this market.
I'm, just happy to see that whats happening I kind of go into any contract or other things, we're doing but again we are happy.
I guess they were happy as well so that's how it works.
Yeah. Thanks.
Thanks, Craig.
Right, we're ready for the next question.
Thank you. The next question comes from Michael Rollins of Citi. Your line is open.
Thanks, and good morning.
Hi, first could you just break out the five and koby dilution where that would appear.
Would appear in the income statement during the quarter second.
Secondly, as you described the cost cutting program is starting to get to the home stretch towards that $10 billion target by the end of 21, where the remaining savings come from in terms of the business activity and you didnt expenses opportunity for savings or Capex savings opportunity.
Then just finally on a more broad based and so just wondering if you can give us an update on how you see the importance of content bundles in your wireless rate plan and if there's any further developments on the aspirations. The management team has described too low.
Leveraged the consumer base from more bundling opportunity in the future. Thanks.
Yeah, Hi, Mike So as you think about the five cencosud impact in the quarter down significantly from second quarter, obviously 14 cents down to down to five cents and we saw.
An improvement both on the wireless fees, especially on the usage side and also the media revenues, but within the five cents. The biggest item right now, but its a contribution to that is travel travel pass and roaming revenues and most of the five cents impact is in the service revenue line in the income statement, we think that.
Number would be a little less than that in Fourq, you and continue to decline as we go forward, but obviously travel pass will be a will be an ongoing headwind for some time here as you think about the cost cutting you said were in the home stretch I'm not a I'm not sure I agree with that statement with certainty close to the 10 billion talky, but as I said in my prepared remarks.
Alex we we're not stopping there and I see tremendous opportunities for us across the business continue to improve the efficiency of our processes and operations and some of the changes that we've made during the course of the pandemic of of Oney shown us additional opportunities that are ahead of us so well get to that.
10 billion and then we'll just keep on going and then finally the importance of the content bundles. You mentioned you know the teams are always looking to the right way to bring the best value proposition to our customers and we're in a unique position given the size of our customer base and the quality of our customer base. We are very much the partner of choice.
For a lot of content providers, we're very happy to have bring the Disney bundle into the Threed zero construct and if we see other ways to bring value to our customers in a way that it was that brings value to us. We'll certainly continue to look for those were very happy with the the price.
Using constructs and the overall value proposition, we have in the marketplace today.
Great. Thanks, Mike Brad.
The next question.
Thank you. The next question comes from Doug Mitchelson of Credit Suisse. Your line is open all that.
Oh, thanks, so much I think the I phone questions or take and so on so my question is.
It's kind of a funny when outpatient argue youve had a singular focus on wireless and five g.'s since you've taken over so low interest rate environment unprecedented bond market capitals cheap.
Tensely focus on wireless leadership, so how long is your investment horizon. If you see a great investment opportunity, maybe a large and onetime opportunity does it have to cover what is now a bit lower cost of capital in three years seven years 10 years, how do you think about investing in terms of timeframe on that Matt sort of paired with that same question on the balance sheet you mentioned the.
Idea of of getting to your target leverage overtime and again the debt markets are so attractive right now I would think that would give you more balance sheet flexibility and elongate the timeframe by which you might need to hit that target range. How do you want investors to think about what over time means that a year three years. Thanks.
On the first question first of all I'm happy that we have answered all the iPhone question, because that's an important piece for us because it was such an important event for us last week. So so thank you for that on the horizon on on the investment there of course different depending whether investing so it's hard to just make an answer but clearly we are trying to monetize next week.
We can on all the investments we are doing and that's why we talking so much about the monetization right now as we have done quite a lot in the network all the way from the Verizon intended and that its network and we'd all defied yen. All defied you use cases that we outlined three bces cases are now up running commercially so now its up to our sales team to.
OSAT dominates the role nominees Tommy its gurode that three Ceos is that now needs to get out when its and spoke to a sale on it because Kyle which is surrounding the technology has bumped. These network up to something that we've never seen before so that that's how I see it so it's really execute right now.
Hi, Doug on the balance sheet flexibility I mean, we are our capital allocation model continues to be what we're aiming towards and we're very happy with the progress. We've made on the balance sheet that gives us the flexibility and the agility to pursue opportunities as they come up as you've seen that even in the course of this year weve done with Blue jeans with.
With Tracfone uncertainty with the spectrum transactions that have taken place already this year. So that that will continue to be our focus to have that to that target and we'll get there as quick as we as we can but no change to how were thinking about capital allocation. If you wouldn't mind me sort of adding a follow up to that Hans.
When should investors expect to see a material level of Fiveg revenue given all your efforts on that front is there sort of a timeframe or a year. We should think about what we're going to go a hot there. It is as we outlined I think already 2018.
When it comes to find your whole men will be lifted and we would start seeing some dean and Twentytwenty, one and on the five year mobile edge computing. It's what went to 22, that's what they said already I think at the Investor Day, a twin date, Dean or 17, so we speak to that that we execute donate them. These team. They are a phenomenal group of execute there's hardly or embrace them.
Thanks, so much yeah, thanks, Doug a broad array for the next question.
Thank you. The next question comes from Canada to catch fire.
From Barclays. Your line is open.
Thank you, but couple if I could the first is hundreds I mean.
Hi, Anthony on on track one could you just contextualize the objective or why the change your card and prepaid would you expect the prepared <unk> exhibit is there more to a commentary on the macro environment and activation levels in the industry or is it more from the perspective of what ignition pipeline.
You know.
Neither dealers accrete that financially, but strategically whats the broader goals.
That you're hoping to solve for that and secondly, I guess, there's been a lot of headline last couple of days that owned a you know the Google payment to cat ears, and the amount the meaningful enough finished your margins for the most part. So if you could just help us understand you know Uh huh.
How big revenue streams.
Application providers, Iran, where that shows up.
In Europe, you know that might be helpful. Thanks, Okay on their tracfone, Oh extra ti to get them to scores going back to the network of service on scene that we monetize the network and the best way and and of course the value segment is a growing segment that is also giving us growth. So we are happy on to all the main objectives here one is of course to monetize.
Our network better than anybody else in this market and the capital invested and secondly, they it'd be part of the growth and seeing that we are actually playing in all different segments of the market.
When it comes to wireless so that they'll be active on as you might know the majority of these customers on tracfone, they're already on our network. So that's without the synergies from it but clearly that's it that's how we see it but we need to close it first we said that in the second half old times as I do on so it's a wide by a while until we get there. So we will.
Definitely give you more updates on that as we go and Matt Yeah going on there's a there's a certain amount of revenue that we get from application providers, but it's not a material part of the overall revenue stream.
Yeah. Thanks, a we can't go more than that I'm proud to ray for the <unk>. We have one last question, we're going to go to a one more and then we're done for the day.
Thank you your last question will come from Tim Horan of Oppenheimer. Sir Your line is open.
Thanks, Doug can you give us some color on how many six wireless subs. You think you can have a longer term and what.
When do we kind of ramp up to full.
Ability to add customers on a monthly basis, what do you think that run rate would look like.
Thank you on the fixed wireless access customers I said, we are now two offerings in the markets. We have won which is fourg on.
Then of course, we'll have defied you, which is a big big push for US. We have said we want to address 30 million households are overdue five to eight years, that's where we well to advancing on and hopefully will not hopefully our ambition is to take a a fair market share of that loan. That's what I've done would have high it was sold that's what we're pushing for and our team is all.
Always good to do better than that expectation. So of course, we are pushing them hard on us we are releasing more and more a sites on a more and more oh.
Homes for sale are we going to start reporting it.
And how important is the new equipment, how much better is that how easy is it to solve this a step change a I would say, it's clearly a step change when it comes to both the selfie installed but also how much more we can cover a week, that's a CP because he's he's bringing so.
So much moral does seeking that combat remember the first ever had was basically a smartphone chipset seeping into C. B. That's what you had so basically why the smartphone being to see B D. Seascape did for being a a a indoor or outdoor CB on us we have reported before we have a lot of indoor installations right now because this is working very well.
So it is a step Jay Seo and mainly because we cannot rest sold many more households from one radio base station that that's the importance of it.
Thank you yeah. Thanks, Tim that's all the time, we have today, a everybody be safe and have a great week.
Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using pricing Conference services you may now disconnect.