Q4 2020 Verizon Communications Inc. Earnings Call
And welcome to the Verizon fourth quarter, two barrels from 'twenty earnings Conference call.
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It is now my pleasure to turn on our call over to your host Mr. Brady Connor Senior Vice President Investor Relations.
Thanks, Brad Good morning, and welcome to our fourth quarter earnings Conference call. This is Brady Connor and I'm here with our chairman and Chief Executive Officer, Hans Vestberg and Madame.
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 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 discussion.
Discussions of factors that may affect future results is contained in Verizon <unk> filings with the S. E C, which are available on our website. This presentation contains certain non-GAAP financial measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials posted on our website.
The quarterly growth rates disclosed on our presentation slides and during our formal remarks are on a year over year basis, unless otherwise noted as sequential.
A minder, we're in the quiet period for spectrum auction one O. Seven so we will not be able to comment on our mid band spectrum holdings or strategy at this time.
Now, let's take a look at consolidated earnings for the fourth quarter and full year.
In the fourth quarter, we reported earnings of $1 11 per share, resulting in full year earnings of $4 30 per share on a GAAP basis reported fourth quarter earnings include a pretax loss from special items of approximately $523 million.
This includes a net charge of $404 million, primarily related to severance, including voluntary separations under our existing plans and the annual mark to market for our pension and OPEC liabilities as well as a net loss of $119 million primarily related to the disposition of the Huff post busy.
Excluding the effects of these special items adjusted earnings per share was $1.21 in the fourth quarter and $4 90 for the full year.
Now moving to slide four and take a closer look at our fourth quarter earnings profile.
The impact to earnings from the adoption of accounting standards ASC 606 for revenue recognition is illustrated for comparability purposes. It reflects a reduction in the benefit realized due to the deferral of commission expense versus the prior year.
We also continue to monitor the ongoing impacts of Covid on our business.
The year over year impacts of both ASC 606, and Covid were not significant in the fourth quarter.
The full year 2020 impacts from ASC, 606, and Covid, where nine cents and 21 cents, respectively on both a reported and adjusted earnings per share basis, we do not expect the adoption of ASC 606 to have a significant impact on the comparability of 2021 results to two.
24.
Full year adjusted EPS growth of 1.9% illustrated on the earnings waterfall slide reflects the strong underlying performance of the business.
With that on the I'll turn the call over to Hans to take you through a recap of 2020.
Thank you Brady and a happy new year to all of you first of all <unk> 'twenty 'twenty, what was a challenging year and I can only say that I'm super proud how are their eyes on responding to the changing environment during 2020.
And we supported our customers our employees and to society in a way that I've never seen before so all in all a great year at the same time, we executed well on our strategy and saw that day, we had really good financing performance as well when it comes to our 'twenty 'twenty. These strategic priorities, let me just walk through.
Through the execution of them first of all strengthen and grow the core business I'm really proud to announce that we continue to have the best network in the nation, we used to GAAP for the 15th time. The overall best network would route metrics well on all seven different categories that includes five D which is.
So important to us that we continue to have that lead I'm also happy to announce that we won't put a 26th consecutive time to J D. Powers Award. It tells a lot about our network and technology team how they have been building a network and how we continue to lead this market when it comes to the customer innovation you have seen us working with our customer.
Just to give them richer offering and also even better performance over the network. This year with Disney plus discovery plus also adding in the iPhone fives from Apple has of course supported low toy innovation that we're doing in the Verizon consumer group and we see a great.
The migration of our customers to unlimited and to the premium on limited.
Finally, you can see also that Verizon business group has a year on investments to see that we are putting a foundation to be even stronger for the future had good growth in the wireless and also in some areas like the public sector, a very good performance and also adding a lot on new customers on the enterprise side when it comes.
US leveraging the assets to drive new growth.
And as we did in the February 'twenty to 'twenty when it comes to five D. We're all met or exceeded I'm extremely happy with that wed now have 64 Ultra wideband cities were more than 10 cities on on our home <unk> Ultra Wideband, we'll have 10 mobile edge compute centers public with the muscle on all in all.
We deployed more than five times more ultra wideband side's doing 'twenty 'twenty and we launched the nationwide five D. That now is covering 230 million Pops are in 2007 hundred cities on.
On the financial side strong year ended where we had more than 2% growth in the wireless service revenue. We also have growth on our EPS in the fourth quarter over 7%, we had an operation cash flow full year or 41 8 billion you was low.
Which is a growth of 17% a very strong year that put us in a good position when we go into 'twenty 'twenty, one and finally, we have a really large focus on how to include all our four stakeholders in the work, we're doing and I'm really proud of the seat December eyes on that we are.
Launch during last year, which is a great way for us to see that the society aspect as part of our strategy where of course, our focus on being carbon neutral is very important and the second green bond that was launched at the second half of 'twenty 'twenty. So all in all I have to say it.
He was a very different here, but a great execution on where we hit all our strategic milestones at the same time as what Pete, but then supported all our stakeholders.
At the November sell side event I presented the five vectors of growth those are the vectors that is based on our strategy over net because of service.
Those are also the enablers for us to get to GDP plus.
We have great traction on them and we also have done quite a lot in 'twenty to 'twenty all the way from the five day adoption, but it customer differentiation that I talked a lot about the new markets that we're addressing deal pending the acquisition on Tracfone, what do we have other segments we are addressing.
Well as the next generation based on as the basis application based on our unique mobile edge compute offering that's what happened at Amazon also now with Microsoft and many other partners.
And finally, the network monetization with our partners, which are enjoying the best network that we have and we're building all in all this is built on the Verizon intelligent edge network that with all the lines on three years ago, and they're giving us the opportunity to have great execution in the in the future.
With that I will like to hand over to Matt to go through the financials in a little bit more detail.
Thank you Hans and good morning, everyone I would like to start by saying how proud I am with the Verizon team and the results we delivered in 2020.
In the fourth quarter consolidated operating revenue was $34 $7 billion down 0.2%.
Total wireless service revenue growth and strong results in Verizon Media group were offset by lower wireless equipment revenue and ongoing declines in legacy wireline products.
Adjusted EBITDA for the quarter was $11 $7 billion as compared to $11 1 billion last year.
Five 3% increase driven by service and other revenue growth and disciplined spending.
Full year consolidated adjusted EBITDA totaled $47 1 billion and adjusted EBITDA margin was 36, 7% 19.
90 basis points higher than last year, including headwinds of approximately 40 basis points from the deferral of commission expense.
Our continued focus on our business Excellence program has resulted in realized cumulative cash savings of $9 $5 billion and we are well positioned to achieve our $10 billion goal ahead of our year end 'twenty 'twenty one target.
Covid has brought about new ways of working and we believe some of these will be long term in nature. This will create additional savings opportunities beyond the current program.
As Brady mentioned adjusted EPS for the fourth quarter was $1 21 up seven 1% from $1 13, a year ago we.
We are pleased to report 1.9% growth for full year adjusted EPS at the high end of our revised guidance, demonstrating the strength and resilience of our business.
Let's now turn to cash flow results on slide eight.
Our cash generation with exceptionally strong in 2020, reflecting out subscription based business model and the quality of our customer base. This enabled us to continue to execute on our capital allocation model investing in that business, increasing our dividend for the 14th straight year and strengthening our balance sheet.
Cash flow from operating activities totaled $41 $8 billion for the year on increase of $6 billion from the prior year driven by continued performance and strength in the business lower tax payments due to a onetime cash tax benefit received earlier in the year and reductions in working capital primarily due to lower wireless volumes.
Capital spending in 'twenty 'twenty totaled $18 $2 billion as we continue to support traffic growth on our forging LTE network, while expanding the reach and capacity about five <unk> Ultra wideband network and launching on nationwide <unk> network.
As a result free cash flow for the year was $23 $6 billion up 32, 4% year over year.
Throughout the year, we opportunistically diversified out debt portfolio optimize our cost of borrowing and retained a higher level of cash as a result of the pandemic, we exited the quarter with net unsecured debts of $96 $3 billion.
Our net unsecured debt to adjusted EBITDA ratio was approximately 2.0 times versus our targeted range of $1 75 to two zero times, we remain committed to our capital allocation model.
Now, let's review our operating segment results, starting with consumer on slide nine.
Our competitive position is based on compelling unlimited plans that provide choice to consumers paired with the best devices on attractive promotions all built on the country's best network.
This quarter, we launched a nationwide five day service to coincide with the release of the iPhone 12 lineup, which fully supports our ultra wide band offering.
Enabling Verizon customers to utilize the full range of connectivity provided by this iconic device.
On the ships remain a critical component of our value proposition. We've recently added discovery to our list of existing successful partnerships, which includes Apple and Disney.
The early cohorts of Disney plus customers had come off of the initial free 12 month period more than two thirds have maintained their subscription either through their Verizon direct billing relationship or by opting into one of our newest mix and match plans with the Disney bundle included.
Volume activity in the quarter was tempered by consumer behavior, given rising COVID-19 cases, and elevated store closures that limited foot traffic. In addition to the retention offers in the market as a result, the poll of consumers switching carriers was lower than a year ago.
Fourth quarter phone gross adds were down approximately 24% year over year relatively consistent with declines experienced in the third quarter.
We are pleased with the quality of the additions we are attracting as over 90% of new accounts came in on an unlimited plan on over 55% of these accounts opted for premium unlimited service.
At quarter end over 60% of our base was on an unlimited plan with more than 20% to that base taken a premium plan.
Our customer retention remains high with phone churn of 0.76% for the quarter down seven basis points from a year ago contributing to postpaid phone net adds of 163000.
Disconnects related to customers now stay connected program totaled more than 135000 phones in the quarter.
I'll stay connected program continue to see great results with approximately 95% of customers, making a payment since entering the program and collection cure rates are in line with our expectations.
More than 50% of all customers from the program are current on their payments. The simple was the final months of service billings for the program and payment activity remained stable, though we will continue to closely monitor payment trends in 'twenty 'twenty one.
Turning to files, we continue to build on our strong third quarter with consumer fast Internet net additions of 92000 more than double the fourth quarter of 2019.
Total force Internet net additions of 95000 was the best fourth quarter, we've had since 2014 and reflected strong demand for our gigabit offering as consumers continue to work and learn from home cord cutting trends continued resulting in consumer fast video net losses for the quarter of 72000.
Yeah.
Now, let's move to slide 10 to discuss the consumer financial performance.
Consumer operating revenues for the fourth quarter of $23 $9 billion down 1.2%.
This was primarily driven by a three 8% decline in wireless equipment revenue due to softer volumes in the quarter.
For the full year total consumer revenue decreased two 8% to $88 $5 billion driven by the decline in wireless equipment revenue.
Consumer wireless service revenue for the quarter was $13 6 billion, a one 2% increase.
The results reflect the resilience of our business as we recovered from a two 7% decrease in the second quarter.
In the fourth quarter, we delivered all put growth of one 8% year over year, even as travel Pos and other usage fees remain at subdued levels demonstrating that our tiered approach to unlimited provides a strong foundation for delivering revenue growth.
For the full year consumer wireless service revenue was $53 6 billion relatively flat from 2019 levels.
Consumer Fios revenue totaled $2 $8 billion or two 5% decline from a year ago.
Customer credits related to regional sports networks negatively impacted force revenue by four 2% from the quarter and also reduced our content expense, we expect <unk> revenue to benefit as growth in the broadband base offsets the impact of the shift from the Triple play bundle the Standalone service.
Consumer segment EBITDA grew two 9% to $9.9 billion.
Margins were 41, 5% from the quarter up 160 basis points from last year, including headwinds of approximately 30 basis points from the deferral of commission expense.
For the full year EBITDA margins were 45, 5% an increase of 120 basis points from the prior year, including an impact of approximately 50 basis points from the deferral of commission expense.
Now, let's move to our business segment on slide 11.
Business wireless trends remained resilient throughout the year on the fourth quarter was no different public sector demand remains strong on the success of our distance learning program and support for increased needs of state and local government agencies.
Small and medium business trends improved sequentially, while we experienced modest pressures in enterprise.
Business segment phone gross adds for the quarter were down 11% from the prior year due to store closures and continued economic weakness.
Segment postpaid phone churn was 0.98% in the quarter, which was down two basis points over the prior year.
As a result postpaid phone net adds were 116000.
Let's now move to slide 12 to review the business financial performance.
Operating revenues for the business segment were $8 $1 billion in the fourth quarter down slightly year over year.
Full year operating revenues of $31 billion represented a decline of one 5% from the prior year.
Wireless service revenue in the quarter accelerated to 7.1% year over year from four 9% in the third quarter.
Which was more than offset by reductions in wireless equipment volumes and secular pressure on legacy wireline products.
Looking at wireless service revenue public sector had a particularly strong quarter and smaller medium business growth improve for the second straight quarter.
Although it was still below pre pandemic growth rates legs.
Legacy wireline product trends appear to be normalizing. After initially benefiting from the transition to a work from home economy. The growth in advanced Communications services continues to drive opportunities for the segment.
While we are pleased with the revenue performance of the business segment and exit 'twenty 'twenty with momentum there are uncertainties around how businesses will perform in 'twenty 'twenty, one given the challenges within the macro environment.
The elevated demand experienced in public sector and parts of enterprise throughout 'twenty 'twenty could potentially create headwinds to growth from the business segment, particularly in the back half of 'twenty 'twenty one.
Business segment EBITDA margin was 24, 6% from the quarter up 390 basis points from the year ago period, reflecting the strength in wireless service revenue and the benefits of our transformation initiatives, including back office digitalization and optimization.
Full year margins of 25, 4% were up slightly versus last year.
Now, let's move on to slide 13 to discuss Verizon Media group.
We are very pleased with Verizon Media group performance total revenue for the quarter was $2 3 billion up approximately 11% from a year ago. The first quarter of year over year, gross and C O who acquisition.
Growth in the quarter was fueled by strong advertising trends with demand side platform revenue growing 41% compared to the prior year.
Advertising strength came from political consumer products technology and retail among other verticals.
Fourth quarter also saw continued high consumer engagement in commerce as offline to online shopping behavior has continued through the holiday season on our owned and operated properties.
Particular male E Commerce revenue growth was seven times that of the prior year and we saw continued strength in financing news is daily active users grew 52% and 11% respectively.
Let's now move on to slide 14 for a quick look at overall wireless performance.
He metrics and financial day, two of the combined wireless products and services from the consumer and business segments are illustrated on this slide.
Total wireless service revenue was up 2.2% year over year in the fourth quarter and 0.7% for the full year.
Additional details are provided in the financial and operating information on the supplemental earnings release schedules on our website.
Now lets focus on our outlook for 'twenty 'twenty, one on slide 15.
We are excited to deliver 'twenty 'twenty, one expectations that include accelerating revenue and earnings growth driven by our five growth vectors as wireless service strengthens and five G continues to scale.
This year, we are providing an outlook for service and other revenue, which includes revenues from across all of our businesses, but excludes wireless equipment revenue given its variability, especially in the current environment.
But 'twenty 'twenty, one we expect service and other revenue growth of at least 2%.
Flight thing on acceleration of total wireless service and fast revenue growth as well as continued momentum in Verizon media, partially offset by ongoing legacy wireline product declines.
Included in this outlook is total wireless service revenue growth of at least 3% driven by our tiered unlimited plans, new customer contributions and ongoing strength in business.
For the full year, we expect to see adjusted earnings per share of $5 to $5.15 driven by recurring service and other revenue growth as well as ongoing cost initiatives.
We assume no significant year over year impact from below the line items based on the 'twenty 'twenty, one opening balance sheet.
Adjusted effective tax rate is expected to be in the range of 23% to 25%.
Our consolidated capital spend.
Full year 'twenty 'twenty, one is expected to be between 17.5 and $18 $5 billion consistent with the prior year and within our normal capital intensity range. Our focus of the year includes further expansion about five <unk> Ultra wideband network in new and existing markets Densification of our network to manage.
Future traffic demand and continued deployment of our fiber infrastructure.
Our cash flows in 'twenty 'twenty, one are expected to be driven by higher operating income offset by taxes and working capital.
We anticipate that our cash taxes in 'twenty 'twenty, one will be higher than in 2020, given expectations for higher pretax income this year and a one time $2 $2 billion cash tax benefit received from the second quarter of 2020.
Working capital was a tailwind in 2020 due to the lower equipment volumes, which we do not expect to repeat in 'twenty 'twenty one.
With that I will.
Turn the call back over to Hans to discuss out 'twenty 'twenty one priorities.
Thank you, Matt Let me review the 'twenty to 'twenty, one priorities based on the four pillars strategic priorities, starting with our core business on the as you heard Matt talking about accelerating the service revenue I'm pleased that we're guiding for a plus 3% wireless service revenue growth in 'twenty and 'twenty one.
On that's based on that we will continue to differentiate our value proposition for customers. We also will continue to invest in our whereas some business group to capture that potential we see in the business segment with a new platform that we're developing together with our customers when it comes to our five E on.
Investing our business, we have a big year in front of us in 'twenty to 'twenty, one and again, we go on at almost double the amount of our five <unk> Ultra wideband sites, we're going to have 14000, new sites coming in during 'twenty window on that will enable us to continue to increase with plus 26. These when it comes to fire.
And we're also going to add some plus 25 homes at this at the same time, focusing very much on the five day mobile edge compute with 10 more sites when it comes to the public side and then on the private side, we will scale that our network together with the demand that is calling on as we know already all.
On the pain with the Verizon intelligent edge network and the fiber that we are deploying when it comes to the financial Matt talked about that we continue to focus on the accelerating to earnings per share growth now weighted guidance of five to 515 earnings per share the year 'twenty to 'twenty so low.
Our balance sheet and we will be continued focus on the cash flow generation and finally, when it comes to our culture and our purpose. We have are very much focused on the customer century center on the brand strength that we have built in the market that will continue that's why unless we will have also there.
Seat December ice on total including on the overall strategy to see that we are managing all of the four stakeholders that it's making to success for Verizon in the future.
Very clear a year from execution, we have progress one more year on the Verizon to the adult we're on a great position I'm really excited to go into 'twenty to 'twenty one.
I'm pleased to announce that we will have on normal our investor day in the early part of 'twenty to 'twenty. One we will come back with the exact date in due time and by that I would like to hand over to Brady for Q&A.
Thanks Hans.
We're Brad we're now ready to take the 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 your name is required to introduce your question too.
To withdraw from request please press star two.
One moment for the first question.
[noise].
Your first question comes from Phil Cusick of J P. Morgan Your line is open.
Hey, guys. Thanks.
Two if I can first Hans can you talk about the strategy of revenue growth from here given the higher promotional environment is it important that you grow accounts or can you make the revenue growth on the existing base and clearly youre looking for customers to move up to premium on limited, whereas that mix now.
And then and then second where are we on the fiber build and how should that start to come through in revenue and expense management. This year. Thank you.
Thank you and let me start by the subscribers down on them and first of all we came into the third quarter of random than we have on the migration of customers, giving them a bet their network and a better experience on that is really how we are managing our base and we came with a good momentum.
Third quarter necessarily on the fourth quarter, we had a service revenue growing more than 2%. That's really sad also on the guidance.
It's so important for us because we have a model where our net addition, as part of our strategy, how we move them up on US that's not sad that we have now more than 60% from our customers on a limited but more importantly, if you look in the fourth quarter, 90% of the new net adds took on limit in and out of those 55.
On to premium and the premium is of course, where we are adding in the Fi D. Whereas in discovery plus decent plus the way that our AR. That's rolling on and his team has worked in with this migration path and we we believe and as you heard in the in the in the guidance that Matt talked about we believe.
That we can continue on that work are we there are organic service our wireless service revenue growth with the model. We now have and we have proven the model.
Let's also remember the pieces on your side has performed very well when it comes to the wireless a call on them and we are so strong with the public sector with the large enterprises are on the wireless side. So that is giving us a lot all the positive is from going into 'twenty 'twenty, one with the guy.
And when I have on continued.
Continued service revenue growth are on the wireless side on and we will constantly measure what actions, we're taking but we feel good about it when it comes to the fiber question on yeah. We continue to rollout fiber, we're probably in the three or four right now we I would say we are.
The majority or vast majority of all the five decides they have our own fiber well migrating all 440 sites also where.
We're it's a good return on investment are on fiber and all the time and we will also open up opportunities for resell to our two enterprise customers on wholesale so I think that day. We we are seeing that benefit already on the five you build because we're using our own fiber to get the full impact we also have a.
A couple of years left day in order to have it in all the areas that we all call them a far way on the fiber build and we will continue to do with what where it makes sense from a return on investment. So we feel really good about that and that's part of on Verizon intelligent edge network.
Thanks, Phil Brad away from the next question.
Thank you. The next question comes from Brett Feldman of Goldman Sachs. Your line is open.
Hi, Thanks for taking the question I think you called out in the release that Covid ended up being a two cent benefit in the quarter I imagine that was probably a mix of things that were good and bad I was hoping you maybe could give us a little bit of insight into that and then EPS guidance that you gave for this year what are you assuming about the COVID-19 impacts.
Over the course of this year and if you could give us any insight on how that breaks out and then also one last question on guidance does that factor in any potential future spectrum purchases or is it just reflect the portfolio section you have today. Thanks.
I can start with the with the last day question on on math can come back to the first so so when it comes to our guidance for EPS and in in the 'twenty to 'twenty. One of course, there are on certain deals on the pandemic and so on but the but.
But some things would know them on the roaming charges will continue to be a headwind.
We also think that as dependent on making the call them on an economic recoveries are is coming back probably last reported 21 public sector will not have an equally strong year rest of had in 2020.
We also believe that SMB will continue be subdued and how the challenge in 'twenty one.
And as we saw during the full year. The switcher pool has been a lower due to the traffic into stores et cetera. So that that's what factored in but on the other hand, we.
We have line of sight on what we're doing because we're executing on our strategy. When it comes from migration of our customers. What we're doing in Verizon business Group and also Verizon Media group, that's not sat them and they were now for the first time ever have a year on year growth without I remember, saying all in all that is giving us the confidence that a weekend.
We can live up to these guidance, but there are some uncertainties and there are some headwinds from COVID-19, but our we think that with those assumptions will have we can actually do this on D. C is a.
Teen you'd work with the EPS growth and acceleration that were talked about where so many years right now and we continue to show that we can do it with the assets will have on how we're executing that yeah. Thanks, Hans So Brad just you know in summary on the Covid assumption on the EPS guidance I think I'd say it was certainly some level of pressures.
We will continue to exist on the business throughout the year I'd say, it's a we're not overly pessimistic, but we're not overly optimistic either weeks, we assume some level of pressures that you saw from the second half of the year, our ability to still execute.
Within that type of environment in terms of the fourth quarters as you say there was actually the COVID-19 impact.
It was actually a two cent benefit on what you saw there was a there was a couple of one timers, but primarily it was a case of the revenue pressures, we saw declining versus what we'd seen into Q3 Q.
You think you media as an example, which had been significantly hit by Covid impacts are earlier in the pandemic, but certainly no impact and full Q as we recorded at 11% revenue growth that so those revenue are some of the revenue headwinds moderated in the fourth quarter the expense.
It's continued that's why you saw the the two cent net benefit which actually are completely offsets the two cent headwind from six O. Six. So if you kind of think about in the fourth quarter 606, and Covid, having no net impact on our results. Our net dollar 21 stands on it.
So in the 7% increase on a year over year basis.
Thank you.
Alright, Thanks, Brett Brad we're ready for the next question.
Thank you. Your next question comes from Simon Flannery of Morgan Stanley Sir Your line is open.
Good morning, Hans I Wonder if you could talk about five three monetization in 2021.
You mentioned the expansion of the network and the Ultra Wideband network out more fiber to your home locations more mobile edge compute. So can you just take us through both on the consumer side strictly 50 home and and on the B to B side, what we should be looking for and what youre kind of including in your forecast for 'twenty one.
Yeah, absolutely and all we are excited about the five D. In the 'twenty to 'twenty, one I mean on the mobility side, we're already seeing them on inflation happening I mean in the fourth quarter with so many customers, taking the premium and going from unlimited and that's sort of where we have our sweet spot with if I E and Oh of course.
With the Apple iPhone right now on five D that has now kicked off that so that that you will see through the year when it comes to our or our mobile at the case when it comes to fight the hold we had very solid progress in 'twenty to 'twenty came out with a new C. P. We added some 12 cities are now would find your home with you.
<unk> technology and are on our plan he's doing a 20 plus markets more in the 'twenty to 'twenty. One. So now we're starting to get a solid foundation a fortified your home and as you heard in my remarks, I mean, we're doubling the amount from sites almost in 'twenty 'twenty. One so we're now getting to it.
Very very solid positioning there, but I said before on on the Ultra Wideband B. We're building it mainly in the very dense urban areas and then in in stadiums et cetera in the beginning so we covered less on houses or residential in the beginning but as these continue right now we're capturing more and more so I'm I'm really.
Excited on what we always on all day to see piece really good. So am I on the self install is working well. So we're looking forward to seeing that happening all over the year more and more on the five year mobile edge compute.
We have a great from the low customers on the business side, and we are not expecting that will be a significant revenue in the Indian into 'twenty, one, but you're going to see a lot of customers signing up for the five day mobile edge compute both the private on the public in 'twenty and 'twenty one in order for us to have a very solid base going in 'twenty two.
So a lot of excitement around five D. I think would have built it absolutely right.
We have an opportunity in front of us that we have been working on for a couple of years right and also I'm happy with my sales team I'm happy with the technology team and we have a big year in front of us.
Great. Thank you yeah. Thanks, Simon Brad we're ready for the next question.
The next question is from John Hodulik of UBS, Sir Your line is open.
Great. Thanks, guys.
Three quick ones first.
In terms of the 3% plus service revenue growth can you give us a sense in terms of whether that's weighted more towards subs or are our ARPA improvement.
Obviously, you guys on your commentary you talked about some of that.
The headwinds to the sub growth I'm. Just wondering if you guys can think you can maintain sub growth as you as you look through the year. That's number one number two just any thoughts on the ability to continue to drive margin improvement in the business getting that considering you are close to achieving the $10 billion from savings and then lastly for me.
A follow up to <unk> question. The Capex guide that we've heard is that something that could be revived during the year if the circumstances change. Thanks.
Let me start on a on the 3% AR growth I think we have our strategy when it comes to how to grow it with the migration of customers on all of that and that's all weights and all are the team is validating how to make offerings and we should be more aggressive on hold but we always think about.
Do long term positive impact of our share holding financially and you havent seen on it's not working for the last two and a half years. Since we launched on limited we were doing the right things in order to make a long term impact to positively with shareholders on for our customers and so, especially on rolling on and a team that quite a lot in there.
Portfolio, but we have not proven that this model is working on when it comes to migration, while limited and with the best network and adding also new value added services everything from Disney plus.
This call replay on Apple music and it might be more coming up into India restaurants. So I'm confident that the guys have that in the portfolio and as you heard about the Disney plus you know, it's it's I think it's just unheard of how we can help direct to consumers I mean, two thirds are signing off on more than two thirds of signing up the continue the service after one year I don't.
I think that is something outstanding out on the on the beat though I would Matt will come back later on but I can't say that we continued with efficiency and it's the reason why we are giving a guidance that we will grow the EPS again on the the majority or all of it is basically above the line as Matt said. So this is the operation improvements.
And improvements as we are growing our top line again, we have proven the model the five vectors of growth and now we're in the middle of executing and final on Capex. This is what we need to do right. Now we are the technology team has all the means to have to execute on our strategy with assets will have to date are the only thing I can say you know as I said.
Sure 100 times before we will we will only increase capex. If we find something that is a really good return on investment are on and that will come back and talk about it right now we have everything that we need to execute the plans that we're having in front of us.
Yeah.
Hey, John So back to you a couple of questions around the guide as you think about the 3% service revenue, it's really a combination of our subs and off of homes are obviously talked through all of the all of the the things that will drive the office side of the equation, but.
But we certainly do expect subs growth account growth and net growth is important to our business as well we will do that in a disciplined way and we're not going to chase on profitable growth, but you should expect to see volume growth in the business as well as off of growth and then the margin improvement our.
Cost savings at with which you mentioned were close to the achieving the $10 billion program well ahead of the end of 2021 timeline that we put in place a but just because we hit that doesn't mean, we are doesn't mean, we'll stop there is a significant opportunities to continue to make our business more efficient.
The teams are very focused on those and our you know the 10 billion go won't change is going to slow us down at all from continuing continuing with that as you think about margin improvement Odyssey revenue will be a big driver of that.
And then you combine that with the cost savings. The one thing I would say is you know as we have an improvement in EBITDA margin dollars. If we have equipment revenue increase this year, which we would certainly be glad to see an indication of the overall economic activity picking up you'd see a an impact with that and the E.
EIT margin. So you could have EBIT dollars grow but margins not grow as much just because of the impact on the numerator and denominator are from the equipment revenue but.
We're certainly very much focused on the dollar side to that equation on excited with the guide we have for the year.
Thanks, Bob.
Thanks, John Hey, Brad we're ready for the next question.
Thank you. The next question comes from David Barden of Bank of America. Your line is open.
Hey, guys. Thanks, so much for taking the questions.
I guess the first question for you just on the strategy.
Side with the sale of the Huff post.
<unk> is is this the beginning of a dismantling with the Verizon media business is it is it on the block you know what is the game plan.
For that for that unit as we think you know longer term from Verizon and then I guess the second question would be from that.
On that you called out that the two H 'twenty, one might have some tough comps for the business.
On side of the business could you kind of elaborate a little bit on what that might be in and what the numbers might look like thank you.
Thank you.
On the Verizon Media group I, just want to remember you that.
We started this journey on worrying 20.
18, you know resetting to that overall strategy. The Verizon Media group, we started with that we started to take out cost we changed the product portfolio. We went into a very clear brand value trust on privacy.
The team has just done an outstanding job and they have been bringing these from a sort of a going down with a decreasing growth on 15% to 20% per quarter and now they're telling me round with the extremely short products, including also consolidate things on I'm not sure. If it was 10 or 15.
Indifferent I'll take that from the one I think it's a great where we're putting them in a in a position and that we're really happy to Whit. So I'm looking forward. How these guys will execute on them. We are now in a position where I wanted it to be.
And then David on your question on the V. B G volume. So certainly as you think about what.
What we've seen this year, especially in the public sector part of Verizon business group very very strong year. Obviously some of that is due to the circumstances that we've seen across the country. So you know I would actually be very happy if we saw some pressure on those volumes in the second half of the year that would mean oh good things.
What's happening elsewhere that would be a very supportive of our consumer business very supportive the virus MP businesses as well. So certainly it's part of some of the uncertainty that exists as we think about the year, but just wanted to call out. The fact that you know if we see the the improvements we expect.
We may see some impact there on the public sector side about the.
Verizon business group volumes, but as I say I think that would be more than offset by other parts of the business. So what you've seen and what we expect in 'twenty. One is a continuation of what you saw on 'twenty 'twenty.
As we have.
So many different parts of the business irrespective of how the macro environment plays out we can put together a very strong consolidated results.
Thanks, guys, Yeah, Thanks, Dave Brad right from the next question.
Thank you. The next question comes from Craig Moffett of Moffett Nathanson. Your line is open.
Yeah, Hi, I Wonder if we could just talk about the competitive environment in wireless for a moment on your your gross additions.
Remain, especially in consumer but across consumer and business weigh down on your churn rate remains very good and your RP.
<unk> show signs of improving yeah, that's it sort of a different story than what we've seen for the last few years, which is sort of speaks to perhaps a moderation of competitive intensity, but.
But clearly are a.
A weakening of your ability to acquire new subscribers I Wonder if you could just talk about that for a bit and and talk about how you see that evolving.
In the five G era, as we particularly now that more and more of the handsets that are being sold on <unk> handset.
I think first of all I think the competitive landscape is always there on and and competition is always weak, but I think that we used to have a little bit different strategy. I mean first of all quality net adds is for us very very important and that's you can see we are adding these very important net adds we want quality customers that likes are.
Net worth that likes her offerings and our experience and if you look on what we have done the last two and a half year with on migration story, that's exactly what went on and that's what you see an impact in the fourth quarter, we're growing our service revenue as well I said the guidance for next year. So we are confident with the strategy we have on that.
Not be the same strategy that the others have a that we can grow and that's part of the the five growth vectors will have to get to GDP, plus and with the guidance that might get with or we gave with the plus 3% on the on the wireless service revenue I think we have all the confidence in the model, we have and how will it work with but it at all.
Is it true that the switcher pool during 'twenty to 'twenty on the fourth quarter was lower due to COVID-19, the less traffic and all of that so but all in all we are very pleased with the high quality net additions that we are getting and that we can create growth with that on and continuous on not yeah. Thanks, Hans Chrysler outside.
The retention side of the business is performing very very well and we're doing that through the quality of the network the quality of the customer experience and not having to do anything additional AR to drive that are the type of retention numbers that you see so it's been a very strong story there.
And we would expect that to continue.
Thanks, and if I can just squeezing one more question if I could because I.
Sorry to change topics, but your video strategy seems to be now quite different in wireline and wireless and wireless you're you're clearly with Disney and discovery, you're sort of playing the switch.
Switzerland neutral arms dealer.
I wonder if if it.
Raises any questions about four or five hours.
Does it makes sense to stay in the video business as you currently have at where where you're still selling a direct package or would it make sense to move to a similar strategy for the wireline side, where you sort of offer more of third party Aggregators. If you will across your network.
Thank you Craig you know first of all you're absolutely right on on the on the wireless side on the D to C strategy is great. We have a platform that nobody else when it comes to distribution brand the network and we can cope with this we're not going to have 100 different type of offerings, but you know the discovery plaster decently plus they are sort of super a brands that we want to work with.
The music, we would look memorial day to see that there are keeping into our customer base are that they like it on and are willing bolt on upgrade and migrate. So we'll continue with that on the file side and of course, we will continue with the video right now, but you have seen on so also starting with mix and match starting to show up.
Because ultimately I want our customers have choices and I want them to choose if they want the D to C solution or if they want a linear or they want a over the top they should be able to shoot shoot it on and look at the numbers in the fourth quarter again, you know we continue to grow our file you'll see internet customers on our end.
The decline on the video customers. That's that's good for us I'm on a financially, but ultimately east east to meet our customers' needs and I think.
The whole setup that would eat them price on to the adult use case for us to do things that would never thought about before we have a consumer division thinking about how are we now delivering to consumers and that's what you see in the numbers. That's what you see in the numbers. That's why we have the same and Verizon business group that thinking totally different way have done before.
And we still have more to do with platforms and things to be even more scalable and be able to bring more to the bottom line, but I have to say I'm pleased and I hope that you guys would you see your piece as well I'm on the strategy is working we have the five vectors of growth, we're going into 'twenty, 'twenty, one where proof points on all those five including a JV.
Distracted you asked about.
Yeah, Thanks, Craig a broad array from the next question.
Thank you. The next question comes from Michael Rollins of Citi. Your line is open.
Thanks, and good morning on two questions if I could first.
If you look at the improvement in postpaid churn year over year can you unpack what portion of that might be coming from the pandemic and lower switcher pool versus what's coming from the Verizon initiatives on the network strategy.
Cheering and content bundling that youre doing or any other factors that you think may be improving retention and then secondly on.
On the wireline business is there at some point down the road a step function opportunity.
<unk> margins up, especially as you've continued to fiber is.
The local footprint. Thanks. Thank you I I always thought that I'm gonna, let not make some comments as well, but oh on the postpaid churn I think that the where you're having a great moment without cost of my day.
They they they love our network on the performance will have on the additions would do when we can find E on.
And finally, the ultra wideband <unk> at the same time, our offerings are so distinct and different than anybody else in the market, where they can go to the unlimited premium together with discovery Plaza, Disney plus or a Disney plus plus plus we have ESPN on Hulu included I think nobody else has those type of well.
Things in the market on the all our partners.
At least if you ask them I think you should are very happy and pleased on how we can deal with it we are happy with it both from a retention, but also on the bottom line side, we were making money on these which is the whole idea of we didn't have to go service that we're building on the Verizon intelligent edge network and on the on the on the wireline side.
I think the whole idea of the Verizon business group is really to see that we are working these three year over year. This is nothing that you're fixing in the month on a quarter or two this is things that we need to invest in our billing system and direct to consumer call centers everything being set up to believe deliver scalable platforms for a car.
Moving to business side that will over time improve our margins are in a in a in a in the Verizon business group on and I think that if you look at 2020 I mean, it was a good performance on them still doing investments in order to get to where we want to get over time, and then we add to that a new opportunities like a five day.
Mobile edge compute.
Matt Yeah. So just back on the postpaid churn Mike for a second the certainly there is a pandemic contribution but as Hans mentioned a lot of Verizon specific pieces too I would also point out that the fourth quarter true number included the impact of you think about the the.
The stay connected customers there was a delay in those customers going all the way through our collections process and so on and so you had a positive benefit from that in Q2, and three Q a little bit of a catch up in four Q, but even with that a very strong a true number and it was just based.
Off of the best network experience as you are as you saw confirmed again by root metrics yesterday, when you put that together with everything else, we do customers, who get on the Verizon network wants to stay on the Verizon network.
Thanks, Yeah, Thanks, Mike Hey, Brad we're ready from the next question.
Thank you. The next question comes from Doug Mitchelson of Credit Suisse. Your line is open.
Thank so much you know Hans I just wanted to I was hoping you reflect back on the arrival of five G. The United States and the prompt is like a lot of people thought the iPhone 12, five G and having all your balance and it would start.
Start a bit of a super cycle or not a bit of one but a super cycle for consumers adopting five G. United States. So I'm just curious how much of it are sort of not happening in that way is due to the pandemic and the lack of getting people to retail versus the lack of applications that would really just you know sort of.
Delight consumers in and get them to upgrade and how you think that's going to evolve over the next you know year or two or three is it going to be sort of a slow walk or is there something exciting around the quarter and then from Matt I'm, just curious beyond working capital any other free cash flow swing factors for 2021 and is there any way to size or quantify.
Working capital is kind of hard to tell looking historically, what normal might be thank you.
Talk about devices on what's happening with the upgrades and so on I mean remember also that the Apple fire phone came out and I would say late in the fourth quarter. That's when this all started at the same time as what had the pandemic still I would say we are very pleased with what I've seen without customer migrating to five you remember we had to.
Fair share or a big share of all that the uses in our AR in our base. So I think that this is a pretty normal maybe some little bit subdued, but he's very normal upgrade cycle that we'll see on and find you will just getting better and better I mean, that's what's happening I mean, we are fortifying our network, we're improving the performance.
Constantly I remember when I talk about ultra wideband, reaching maybe one gigabit per second and now we're up to four or five you know so there's so much more to do and the same goes for a nationwide improving all the time performance better. So I think that just coming together as the accessibility to phones are coming out are much more on on.
All the main brands had a five day phone and all of them with ultra wide band. So I think that we will see that continuing into 'twenty, one and 'twenty two but there are longer cycles, a day when it comes to customers migrating to new phone, they're very attached to it but I think this is no different than from what you cycle I think rationale.
And this is growing faster than the Ford you're cycling, it's just that our memories are so she'll what should we don't remember that but clearly this is equal to two better down there on what we saw on the Ford you cycle that happens from 10 years ago, which I referred to myself when I talk about my memory.
Nobody else [laughter].
Thanks, Hans so on the cash flow question, Doug. So when you talk about the swing factors obviously it starts with higher earnings for the year are above the line earnings.
B, obviously, the largest driver on the cash flow for 'twenty 'twenty, one in terms of things that potentially go the other way from a cash flow standpoint, we would expect obviously higher earnings will lead to higher cash taxes, but in addition to that we had the $2 2 billion.
One time cash tax benefit in the second quarter last year that obviously won't repeat so that will be a year over year difference in the cash flow and then working capital as you say the biggest thoughts on working capital is going to be in there. The receivable side are predominantly on the handsets, obviously as volumes go down.
On the amount of device payment contracts with customers, we're doing goes down as well so even if we don't see an uptick in volumes as she if they just flat year over year, you have the removal of that AR. That's a tailwind from last year. So all in all you're going to see.
The increase from higher earnings with some offsets from cash taxes on and hopefully on the equipment a receivable side are going to be the key factors in there.
Alright, Thank you Paul Yeah, Thanks, Doug Hey, Brad we're ready for the next question.
Thank you. The next question comes from Peter Zaffino of Bernstein. Your line is open.
Hey, good morning, I wondered if you could discuss the.
The service revenue outlook and specifically within consumer.
The incremental margin characteristics of the service revenue growth that you expect them how.
Do you expect that revenue to be any more or less profitable than our normal level of service revenue.
I think that's why I sort of outlined the guidance for <unk> 'twenty 'twenty. One we are looking for profitable growth and that is how Verizon has worked to as long as I recall no I haven't been hearing on my life, but we work with profitable growth and that's where you've seen the consumer group as well we are we will.
See that we have the basketball first of all our customers on that we will manage our EBITDA.
Our P&L at the same time on then we will be aggressive if it's needed to get long term effects that you can see from the guidance is a profitable growth, we're looking for where we should be able to both grow.
As well as making that the profitable growth on the.
That's in the guidance yeah. So Peter I think that's exactly it if you know the three plus percent. Our service revenue guide is going to drive Ah is driving the EPS growth. That's in the guide as well so suddenly is profitable growth in terms of comparing it to historical.
Incremental revenue I think there is obviously different components, all the time, but absolutely everything that we're doing to step customers up from a revenue standpoint also creates incremental lifetime value with those customers are so you should expect that to be a continuation of how we approach the marketplace.
We bring customers on and we do it in a way that creates a significant economic value for us over the long term as we provide best in class experiences for those customers nothing changes there on our mindset.
That's a great explanation. Thanks, yeah, Thanks, Peter Hey, Brad We've got time for one more question, let's do one more if we have somebody on the line.
Thank you Sir the last question comes from Colby <unk> of Cowen Your line is open.
Thank you I just want to circle back on Capex for a moment.
Messaging earlier in the year, what does that Capex in 2021 would.
It would be up and if you look at the street expectations.
Good day, where indeed expecting cash to be up in 'twenty, one versus 'twenty. So I'm, just trying to get a sense of what might have changed.
On the Capex guidance flat year over year on that.
Me on items proposing increasing the corporate tax rate to 28% I'm curious, how you think about that and whether that would have a huge impact on free cash flow on dividend coverage or do you think that there would be offsets that you'd be able to kind of absorbed.
Much of that increase and then just as a housekeeping is tracfone included in your 2000 and in 'twenty one guidance. Thank you.
Yes, so things called me and maybe I'll go in reverse order that we are.
While we expect Tracfone to close.
In the second half of the year. Our guidance is a you know it doesn't assume any significant impact on on the EPS during the year, but we'll update that if necessary during the year corporate taxes, our assumption as you heard from the guide 23% to 25% is where we've been the last few years you know obviously we.
We do our outlook based off of what is on the legislative books and so we do it based on what's that right now we look forward to seeing how the new administration works on a number of different issues and if that changes the way we look at the the business going forward, we'll obviously talk about that at the appropriate time.
But we're very confident in the business look we had the we had good dividend coverage. When we had a much higher tax rate are not too many years ago. So while we certainly believe that the current rate is up is be very helpful in job creation and economic growth creation a.
We certainly are very comfortable with how our business is set up as a the administration is looking at different things and in terms of Capex I think what youre seeing is a very efficient capital deployment model within the company.
That's why you see a guy does in line year over year as we continue to do all of the things that we've done whether that'd be on LTE. The five G. Build you heard Hans talk about our goals for the ultra wide band build this year continue into fiber build out and so I think the team has got a very good momentum.
And there are as they've got more into those things. The efficiencies continue that's why you see the guide where it is.
Okay. Thank you yeah, Thanks Colby let.
Let me hand, it back over to you, Brad and we'll close up the call.
Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using Verizon Conference services you may now disconnect.