Q1 2022 Verizon Communications Inc. Earnings Call
Good morning, and welcome to the Horizon first quarter 2022 earnings Conference call.
At this time, all participants have been placed in a listen only mode and the for the open up for questions. Following the presentation.
I ask a question press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself an impressive start to today's conference is being recorded if you have any objections you may disconnect. At this time. It is now my pleasure to turn over the call to your host Mr. Brady Connor Senior Vice President Investor Relations.
Angela Good morning, and welcome to our first quarter earnings Conference call. This is Brady Connor and I'm here with our chairman and Chief Executive Officer, Hans Vestberg, and Matt 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 of factors that may occur.
Future results is contained in verizon's filings with the SEC, 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 now lets take a look at consolidated earnings for the first quarter in the first quarter, we reported earnings of $1.09 per share on a GAAP basis.
<unk> first quarter earnings include a pretax loss from special items of approximately $1.5 billion. This includes a pre tax loss of approximately $1.2 billion from early debt redemption costs. In addition, the impact of amortization of intangible assets related to Tracfone and other acquisitions was 238 million.
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Excluding the effects of these special items adjusted earnings per share was $1.35 in the first quarter.
With that I'll now turn the call over to Hans to take us through a recap of the first quarter.
Thank you Brady and good morning, and thanks for joining US what is the earnings call. It was great to see so many of you at our Investor day earlier in March during the first quarter. The team stayed focused and continued to execute on our network as a service strategy. These threat to their underpins our five acres of growth and a diverse path.
So revenue growth, that's set to support and sets us up for today and tomorrow.
I'm pleased with the progress we've made across all five vectors during the first quarter, we continued to make headway towards our long term targets and delivered a solid start to the year, even in the face of competitive and macroeconomic pressures mats will go deeper on these topics later on.
With that let's get into the results at the high level, our first quarter. Adjusted EPS result of adult thirty-five proves our ability to execute and deliver profitability. This demonstrates our unique position of having both a focused strategy and strong execution capabilities to meet the needs of our four stakeholders.
In the growing E economy, it all starts with our network expansion and execution.
You've heard me say, many many times mobility broadband and cloud at a central pieces of the 21st century infrastructure. We're already taking advantage of this infrastructure and capitalizing on our addressable market that is growing as consumers and businesses adopt five E.
We saw this growth in our wireless sales, our customer loyalty and the rapid expansion of our fixed wireless business in this quarter.
Across the business, our wireless Activations were up 11% year over year, and we delivered our best Q1 phone net add performance since 2018.
Additionally, our fixed wireless started the benefit from the launch of C band during the quarter, helping to amplify our national broadband strategy and deliver our highest broadband net adds in over a decade.
We continue to deploy C band rapidly, enabling more and more of our customers to enjoy our ultra wideband experience, while also accelerating and amplifying our five E revenue opportunities.
Eric Pillar, you know network expansion and he's our C band Buildout, which combined with our continued millimeter wave rollout further establish and strengthens our network leadership with root metrics ranking us again as the most reliable <unk> network in the United States and we have just started with the C band.
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The Super Bowl, we demonstrated the power of <unk> to deliver new in stadium and home experiences for example, fast streaming the half time show had access to multiple camera angles overall network to fully immersed in the entertainment experience only something that can be done we'd find the altra.
This is just a taste of the new customer experience, we and our partners are beginning to build on five year old trial. This is all based on our strong belief in giving our customers maximum optionality like mix and match multi cloud partners that allow our business customers choice for digital transformation on the mobile edge.
It's always on premium experience with Verizon up and choices of streaming services with exclusive deals only owned the ISO just this week, we announced HBO Max we built loss play platform.
Empowering our customers to choose the services they need and we're delivering on it.
The assembly and focus is reflected in our first quarter results as we saw continued momentum with step ups and elevated device upgrades from our customers.
As we previously mentioned that technology Omega transferred Ashish, how it would work and leave 'twenty to 'twenty two is a year for Verizon as a scale execution.
The World continues to transition to a increased connectivity and telecommunication industries role in building our future has never been more vital.
Through our key investments across our portfolio of assets, we will continue to build on our unique competitive position in the industry and drive growth across all of our five Victor's.
As I said before five adoption is already much faster than what we saw when we changed from $3 40, a year. After 40 launched less than 10% of the user had a compatible device.
After the launch of five new dynamic spectrum sharing about 24% of our customers were on five new devices. Five D device penetration is significant and we expect it will reach 60% of our wireless consumers by the end of 'twenty to 'twenty three up from 40% at the end of the first quarter. Let me now talk about the momentum.
In our business group Verizon business group continues to have a very strong momentum in wireless I'm proud to report a time and her team delivered the best quarter in phone net adds since we formed Verizon business group and they are just getting started.
It's a rapidly building our five <unk> mobile edge compute and private fiber networks. Verizon was first in the industry to offer make services. This quarter, we partner with Cisco to deliver the low latency connectivity necessary for autonomous vehicles.
Partner of choice across all categories were also made our first five year agreement with a premium global automaker and we will bring five E connectivity to the next generation of all the models, starting with or 'twenty 'twenty four vehicles. This Iot momentum expansion across all our verticals with another.
<unk> net add performance. This quarter. We're also seeing very promising progress in our private funds and network capabilities offering small mid market and large enterprise clients turnkey plug and play services I'm also pleased to share that our C band lunch and aggressive execution generate a nationwide customer enthused.
He asked them for our broadband offerings.
Total new broadband customers were the highest in over a decade with two one and 2000 9000 net adds driven by a strong increase of 194000 fixed wireless access net ads and this is not the one off you can see from the current broadband trends that the demand for fixed wireless is extremely high.
And growing in the consumer business, we grew postpaid average revenue per account by two 6% and so users upgrades a new five year packages ARPA growth is a major part of the strategy that we presented at Investor day in the value market that Tracfone integration continues to unlock and addressable.
Human market that we have only just scratched the surface. So we now have the ability to service customers in all segments, regardless of the macroeconomic outlook.
And I am very encouraged by this opportunity and see tremendous value in the customer base Eduardo and his team have cultivated Andre tracfone umbrella that migration of Tracfone subscribers from other networks continues. According to plan. In addition to the result, and finally mobility nationwide broadband Mec and this is a beast.
Based on the value segment, we also see ongoing momentum in the fifth vector network monetization with growth in volumes driving incremental revenues of course all of this opportunity is built on top of the best network in the industry and the deployment of our five day, all thought wideband technology, Thailand team.
Now have more than 35000 millimeter wave sites on air and approximately 113 million Pops covered at quarter end, we'd C band.
As deployment continues and device penetration ramps traffic on the ultra wideband is increasing rapidly at the end of the first quarter, 14% of all traffic in urban areas was on five year old trial. The results of our combined millimeter wave and mid band spectrum, we saw a 35% increase in millimeter wave.
Between Q4, 2021 in Q1 2022 C band traffic grew hungry or 55% from the end of February to the end of March where C. Band is deployed 30% of our wireless traffic uses that spectrum wherever she this network evolution in the face of ongoing supply chain disruption.
As I mentioned in previous quarters, our supply chain management is world class and we have planned and executed extremely well to anticipate and meet the needs of our customers. We continue to work with our partners with a focus on our deployment targets we remain diligent in.
Managing a complex global supply chain and count on our expertise to help us deal with the unexpected as you come to expect from our technology team progress is being made throughout our network.
In March we announced a major milestone in the advancement of RFID network as we worked with two satellite companies to secure early clearing of an additional hundreds of megahertz of C band spectrum in 30 additional markets.
Filling out our C band services on the spectrum would expand our fight the market by 40 million potential customers a full year ahead of schedule.
We expect to reach at least 175 million Pops by the end of 'twenty to 'twenty two on C band.
Early spectrum clearance gives us a speed to market and accelerates the return on capital for our network investments having early access. So these 30 major markets will support our entire business it adds consumers and business to our addressable market and we know from experience that we see customer interest.
For fixed wireless access as soon as it is available on network expansion in order to support our mission of digital inclusion, which is key to how we serve our four stakeholders and execute our strategy. According to responsible business practices.
Let me spend a minute on our progress in this area today, we released our detailed environmental social and governance report for 2021 and we are proud of our progress.
The report covers our ESG strategy in detail and reflects how responsible business practices drive our business. During the first quarter, we completed allocating proceeds from our third green bond offering and issued our fourth 1 billion dollar Green bond, which is expected to be allocated towards renewable.
Energy, we're also continuing to pursue our long term carbon footprint goals as described in previous quarters and in our ESG report third parties have taken notice we continue to be recognized for our sustainability efforts during the quarter MSCI raised our ESG rating to double E. R.
Highest rating to date and sustain Olympics ranked us strong in ESG risk management and low in overall ESG risk, putting us above our U S. Telecom competitors, that's always what it means to be responsible business depends on global conditions I am proud of variety shows.
Relief efforts to support Ukraine, including extending free calling to from Ukraine since the start of the war taken.
Taken together the riser remains well positioned to compete this year, our first quarter performance puts it on track for this pivotal investment year, and we remain well positioned to achieve our long term growth targets now I will hand, the call over to Matt to address our results in detail as well as some updates on the 'twenty 'twenty to do guidance.
Thank you Hans and good morning, everyone.
At our Investor Day last month, we talked about 2022 is a critical year for scaling the business and making investments that position Verizon for the long term and this quarter, we made progress along that path.
At that event, we said, we expect to generate an incremental $14 billion of service and other revenue from the business by 2025, and we expect to get that through leveraging our unique collection of assets against the five growth factors.
We expect over 75% of our growth over the next four years will come from five to your mobility and nationwide broadband and outperformance in the first quarter gives us confidence in our growth prospects.
Our consumer and business units will measure success in mobility by how we perform in the areas of ARPA.
Unlimited penetration and subscribers and accounts.
We've talked about our plans for increasing the value of our existing base of wireless customers through step ups to higher value data plans.
First quarter saw us achieve an increase in consumer postpaid ARPA of two 6% year over year positioning us for high quality revenue and earnings growth going forward.
64% of new accounts selected premium unlimited and together with continued step up momentum drove our premium penetration up to 36% with respect to subscribers in new accounts for the first quarter, we reported postpaid phone net losses of 36000, which represents an improvement of 142000 or <unk>.
2% from a year ago.
And our best first quarter performance since 2018.
The performance is driven by our business team, which contributed a record 256000 phone net adds the highest from the units since Verizon two don't see our reporting began.
These results were driven by strength in the three wireless customer groups as SMB enterprise and public sector. Each delivered double digit phone gross that growth and extended the momentum built in the second half of last year.
We expect this strong performance to continue as we approach something closer to a pre pandemic environment.
On the consumer side phone net losses were 292000 in the quarter.
While churn was steady we saw a decline in phone gross adds of 2% from the prior year.
This gross at trend was more pronounced in March and it's continuing into April .
We will continue to take appropriate measures to be competitive in the market. We are pleased with the quality of the business that we are writing and are confident in the value of the postpaid phone gross adds were attracting a retail postpaid accounts at the end of Q1 across consumer and business are up 40000 from last year consumer and business segment.
And the nationwide broke down in fact, it was strong and demonstrates the opportunity to scale. This business we.
We measure our success against suspected by households, and businesses covered by broadband and the total subscribers on our networks.
As Hans mentioned the early clearance spectrum announcement is a major milestone for Verizon.
Our network team is now able to deploy the spectrum, a full year's sooner than expected unlocking another $40 million of addressable population.
We feel confident that our C band network will cover at least 175 million Pops by the end of this year and will cover 50 million households, and 14 million businesses with fixed wireless access by the end of 2025.
The addressable opportunity expansion continues and files as well with 115000 incremental open for sale in the quarter. We have seen strong uptake in our broadband offers and we expect increasing momentum as more and more people get access to a five <unk> ultra wideband and file service throughout the year.
We had 194000 and fixed wireless access net adds across the portfolio, which is two and a half times out for Q 'twenty. One performance consumers continue to see the benefit of the speed reliability and simplicity of installation of the <unk> product and businesses continue to recognize the F. W. E T.
B a primary broadband access solution for all of their needs.
The total propane we registered 229000 net ads, representing our highest net adds in over a decade.
Fast Internet contributed 60000 net adds within the quarter driven by record low levels of churn.
Now, let's move on to the Mac compete to be solutions sector Tami and the team continue to make great progress in this space within I would tell you. The team delivered another strong quarter of connection growth, we're seeing success across our verticals working with our customers to deliver the solutions that they need as we mentioned during our Investor day, we anticipate that connections will continue to grow at.
A double digit pace.
With our investments in key partnerships, we continue to expand the ecosystem for Mac as well as advance out deployments in private wireless and private Mac.
Our market differentiation is unmatched in terms of scale and capabilities and we are well positioned to accelerate our long term revenue growth within this space.
Now, let's talk about the value market.
Q1 marks the first full quarter of Tracfone included in our consumer results. Our integration of Tracfone is going as planned and we are pleased with the progress we are making we measure our success and the value market based on prepaid offer prepaid subscribers and prepaid revenue.
Prepaid up here in the quarter was $30.89 across all of our prepaid brands.
This decline in part because tracfone ARPA is lower than our legacy Verizon prepaid offer.
Additionally, we saw quarter over quarter precious specifically in the Tracfone brands in part due to the transition from the emergency broadband benefit program to the affordable connectivity program, which negatively impacted up whose benefits dropped from $50 to $30.
Going forward, we expect prepaid offer to stabilize and subsequently grow as we execute on our strategy to bring additional value to this space, while we experienced certain device inventory pressure throughout the quarter, especially in January the team finished strong and delivered first quarter volumes in tracfone that compare favorably to prior years.
Excluding 2021 activity, which benefited from stimulus programs.
How tracfone brands had net prepaid losses of 77000, while total Verizon prepaid net losses in the quarter were 80000.
Next let's move to the consolidated financial results on Slide 14 on a consolidated basis for Isa delivered strong wireless service revenue growth in a highly competitive environment in the first quarter.
Total wireless service revenue growth was nine 5%, reflecting the first full quarter of Tracfone ownership as well as continued execution of our network as a service strategy and contributions from our five vectors of growth.
Service and other revenue was down two 5% in the quarter as the revenues lost from Verizon media more than offset net incremental revenue from tracfone.
Excluding the impact of the sale of Horizon media.
Service and other revenue was up four 2% from the prior year adjusted EBITA was $12.0 billion for the quarter down year over year by one 1% due in part to elevated marketing expenses, we introduced out five ultra campaign at the beginning of the year to support our C band launch and F. W. Ay expansion.
Combined with lower spending on the first quarter of 2021 driven by Covid related impacts on our operations marketing expenses represented a year over year drag on first quarter EBITDA growth.
Other items impacting Q1, EBITDA, including the disposition of Horizon media, which had EBITDA levels above those of Tracfone I did in the quarter.
Especially considering the investment was starting to put into the Tracfone brands.
We expect marketing expenses to return to more normal levels in Q2, and we will begin to lap the prior year ramp up in tower expenses, which also represented a year over year pressure in Q1.
It's Brady and Hans highlighted adjusted EPS for the first quarter was $1.35 relatively in line with prior year.
The bottom line performance shows the strength of our core business to deliver profitability, even in a period of significant investment as well as other headwinds.
Now, let's take a look at our consumer financial results in Q1 total consumer revenue for the quarter grew 10, 9% year over year, driven by the first full quarter attract phone inclusion higher equipment revenue and strong KOL wireless service revenue growth.
Wireless service revenue was up 11, 2% year over year. These.
These results were driven by the inclusion of Tracfone as well as our increase in postpaid ARPA, which was driven by the strong step up momentum I discussed earlier and growth within our non connectivity products and services.
Moving to file services, we continue to see volume and rate gains with broadband offsetting pressures from video and voice as total revenue grew one 8% consumer EBITA was $10 $5 billion up year over year by 1.0%.
This growth is a result of the inclusion of Tracfone as well as offer and customer volume gains partially offset by the items mentioned earlier, such as higher marketing expenses investments in Tracfone and higher bad debt driven mainly by higher sales volumes in the quarter.
Similarly, the highest sales activity resulted in elevated equipment revenue pressuring EBITDA margins, which were 41, 4% in the quarter.
Margins were additionally, pressured by the inclusion of the results of Tracfone, which is a business that has historically operated with margins below the legacy consumer business.
Now, let's take a closer look at the business financial results on Slide 16, the Verizon business group continues to see strong wireless sales and service momentum within the business space alongside the ongoing wireline service declines.
Wireless service revenue growth of two 1% was led by momentum in our SMB group, which continues to see strong post pandemic recovery.
The rate of growth is an improvement from last quarters, one, 5% and with wonky last year represents the peak the distance learning devices, we expect business wireless service revenue growth to expand over the rest of the 2022 .
Business EBITDA was $1 $7 billion for the quarter down nine 3% from the prior year.
The decline in EBITDA was driven in part by the ongoing reduction in high margin wireline revenue.
Additionally, we experienced elevated levels of subsidy related to the strong wireless Q1 sales volume, which were up 20% year over year.
EBITDA margin was 22, 5% similarly impacted by wireline service trends in wireless sales volumes, let's move to slide 17, the cash flow summary.
Cash flow from operating activities for the quarter totaled $6 $8 billion compared with $9 $7 billion from the prior year.
The reduction was primarily due to working capital impacts as the increasing activation volumes to more normal levels impacted receivables and inventory increase as part of our supply chain management in the current environment.
Capital spending for the first quarter totaled $5 $8 billion, an increase of $1 $3 billion compared to last year, driven by C band spending of $1 $5 billion.
The continued build out of one fiber and our investment to support growth of traffic on our <unk> LTE network, while expanding the reach and capacity of about five <unk> Ultra wideband network greatly extends our opportunity to effectively compete in all of our businesses. The net result of cash flow from operations and capital spending is free cash flow for the quarter.
To of $1.0 billion.
We exited the quarter with $135 $6 billion of net unsecured debt an increase of $1.9 billion sequentially as we issued our fourth green bond.
With the net proceeds expected to be allocated to renewable energy.
In addition, we completed a number of other transactions during the quarter the proceeds of which we used as consideration in an over $5 billion tender offer to retire some higher cost long term debt.
We ended the quarter with a net unsecured debt to adjusted EBITDA ratio of approximately two eight times flat on a sequential basis as expected lastly, let's move to guidance for the remainder of the year I want to provide some additional detail around our view of the macro environment in which we operate and give context around our guidance for 2022.
We saw inflationary pressures building towards the end of the first quarter and expect those to continue given the current environment.
The major areas of exposure for us of energy related costs for our network operations and transportation as well as labor related costs, including both our direct workforce and third parties. While these items have not had a significant impact on our overall results to date they represent a meaningful portion about direct cost structure and have the potential to do.
Five additional expense pressures throughout the rest of the year. We also believe that the inflation we have seen throughout the economy may also both the consumer and business landscape in which we compete it is too early to predict how this change landscape may impact our near term results or how long it will last but we are confident that the strategy. We have put in place will allow us to achieve our long term growth.
Plants.
There's also been a significant increase in treasury yields recently, but as a reminder, the vast majority of our debt approximately 75% to 80% is fixed rate.
The team has kept near term maturities in next 12 to 24 months at manageable levels, which also helps minimize near term interest rate exposure.
If the present forecast of fed rate hikes are accurate, we anticipate an incremental cash interest impact for the year above our earlier expectations of $150 million to $200 million based on our current expectations. We are updating our guidance for the year on the revenue side, we now anticipate service and other revenue to be approximately flat to two.
'twenty one.
Significant items affecting our service and other revenue include USF rate reductions, which are pressuring year over year revenue by several hundred million dollars and softness in wireline sales.
We are keeping the guidance ranges of wireless service revenue adjusted EBITDA and adjusted EPS.
Based upon our expectations around service and other revenue as well as the macroeconomic pressures, we now expect to come in towards the low end of our prior guidance ranges for these items.
The Capex, we are reiterating our prior guidance of 16, and a half to 17 and a half billion for business as usual capital and $5 billion to $6 billion of C band related spending we.
We will continue to invest in the business and remain confident in the long term growth opportunities discussed during our Investor day.
With that I'll turn it over to Hans to close out our 2022 priorities.
Thank you, Matt or priority for 'twenty. One two is to continue to execute on our network as a service strategy and to drive growth across all of our five vectors.
This is a critical year for scaling on our strategic investment as we work to capture all of the promise. That's five youll first both from a customer experience perspective and for our future revenue growth.
Made good progress in this quarter and continue to execute on our long term plans are.
Our core business and our strategy showed strength and we have a solid momentum going into the second quarter all built on our strong confidence in our strategy.
We're ready to take your questions back to you Brady.
Thanks, Hans Angela we're ready for questions.
Thank you we will now begin the question and answers.
To ask a question.
One please on mute your phone to record your name clearly.
Your name is required.
But jogging request.
Maam. Please for the first question.
And it comes from John .
Of UBS. Please go ahead with your question.
Great. Thanks.
I guess two quick follow ups.
Did you guys provided first of all on the E B B reimbursements.
It is the impact of <unk> that we saw the five dollar change does that fully reflect the changes in reimbursement and that was there any impact.
From a from a customer standpoint.
And then on consumer margins are there.
Down 400 basis points.
Is that you know can you separate out the impact from Tracfone had and sort of the underlying trends in what was driving that and just your outlook for how.
How that should trend through the year.
Hey, John .
Good morning, Thanks for the questions on the the E. B b on the E b be messaging that certainly we're seeing that change in the programs as we go forward here, but no major impact on customer volumes related to that I think your your bigger question on the Verizon consumer group and the margins we saw in the call.
So a couple of a couple of major things and there's certainly some some one time increases in cost as we look at the quarter.
We were very very strong on our marketing spend this quarter with the launch of C. Band you price plans launch a fixed wireless on C band as well and everything around that so that's in the quarter. We would expect that to be returned to more normal levels as we head here into the second quarter and going forward.
And then of course, you saw the volumes up year over year that has some impact in there and then track I mentioned in my prepared remarks. So that has an impact initially that's gonna be in the one to 200 basis point range impact as you bring track into the overall D. C G mix.
Then as we work through the integration and bring all of the customers are in track onto our network that impact will lessen as.
As we complete the integration over the next 12 months to 24 months. So you know a combination of things in there, but certainly would expect to see a little bit of a slight uptick as we head into the rest of the year here on the consumer margin.
Got it great. Thanks, Sean.
Angela we're ready for the next question.
Our next question comes from Brett Feldman from Goldman Sachs. Please go ahead with your question.
Yeah, and thank you for taking the question. So during your prepared remarks, I think you'd noted that postpaid phone gross adds has started to soften towards the end of the quarter and that had continued into Q Q I was hoping you could let us know what insights <unk> gained into what's behind that in other words to what extent do you think it has to do with lower market volumes.
Perhaps shifting in porting ratios and some of the steps that you're going to be implementing to sort of stabilize that and then just on the cash flow match to what extent was the higher working capital use in the first quarter really a timing issue, obviously pre buying inventory to manage the supply chain seems like a timing factor, but I guess with regards to.
Just the elevated volumes do you expect it ultimately have that offset either by selling off the receivables are just you know collecting the payments or or was any of that actually associated with maybe a little bit more of a device promotion profile in the first quarter. Thank you.
I thought Brett and I am not.
Fortinet around there I mean first of all I mean, if you look at the quarter. We had a very good wireless net adds quarter of course, because if you look on the combination of our business side was very strong consumer also had a good quarter, but a little bit slow and as we said in the prepared remarks or in March. However, if you think about it.
It's it's logic eliminate competition is higher as we have seen now for a while because we're coming into the second phase of Oh, the five D era and the acquisition of all five you're calling customers are sort of an important piece in the market and what we see is of course, a really good traction braskem and assuring levels are are still very low.
Well, we're doing upgrades and a step up so all the time, so and that's our focus then of course as we always say, we will look into the market and we will take measured actions. If it's needed that's what I've done all the time and being very financially disciplined women coming into the market with new offerings and see if there's something we need to do but.
Right now if he'd really good where we are we're actually without lunch hour and I'll throw it in the beginning of the year. It's really kept it made us in a totally different situation because our network is just fantastic and that's where do we see from our customers both on fixed wireless access and both on consumer and business and this was the whole strategy we laid.
Then when we met in our in the beginning of March when it comes to our our overall long term strategy. So no I'm pleased with I see that there's going to there'd be competitive market, but that's how it is you know and and I think it's very logical partly we are sort of coming out with social and offerings mix and match and all of that so the market responding to it so.
Yeah I I.
Feel good about the strategy.
Yeah and Brett your question on cash flows you are in your question you used to phrase it a timing factor in here and I think absolutely. That's part of what we're seeing so couple of things on the receivables side are we the last couple of years, we actually had some tail winds associated.
With some of the impacts of the lower volumes that came through as we went through the the pandemic and now we're seeing are those those volumes returned to more normal levels, which creates a temporary headwind, but it's really just getting back to where we where do you think about device payment levels. Those are certainly up year over year as we set out.
<unk> were up in the quarter, 11%, therefore, we'd have more device loans on the balance sheet, but he's really getting back to those pre pandemic levels rather than anything else. We saw a actual benefit in core customer payments that help the year ago number with all the subsidy money out there that was a onetime benefit that we're lapping.
Payments continue to be incredibly strong so very pleased with that and then the inventory side as we've managed through.
Some of the disruptions that we've seen there are we've taken advantage of the balance sheet strength, we have to.
Run at a higher than normal inventory levels, but obviously I would be looking to have us return to more normal levels on that Oh over time here. So I expect those to be just timing factors. As you said in your question and continues to be very competent and the overall strength of the cash flows of this business produces.
Can I say a quick follow up question on the they're building up the inventory levels I guess I just assumed that that was mobile devices. I'm curious if that's correct and then just in general how much extra lead time that you've given yourself based on the current inventory levels versus what you would typically manage towards yeah, that's a little bit of an increase in that it is.
Largely what you see in the inventory side of the balance sheet, there coming from handsets and so on so there is a little bit more a cushion in there in the system. So to speak which we think is appropriate given the environment that everyone's operating in.
But you know it's.
It's certainly something that we have Oh, we think gives us a good position in the marketplace and is our supply chains become more predictable we can going forward, we'll adjust that accordingly.
Thank you great. Thanks, Brett Angela we're ready for the next question.
Our next question comes from Phil Cusick of Jpmorgan. Please go ahead, what's your question.
Hey, sorry, I want to follow up on on the last question around the wireless industry in gross adds softness in March and April so you've ramped up your your wireless promotions for consumer which looks more like addressing a churn issue, which you know I don't think that's what you were calling out do you think that softer gross ads is a share issue or is that an industry.
Slowdown issue.
And then second sort of related how does that impact your thoughts on inflation and it sounds like AT&T is trying to signal prices higher how do you think about the potential of this industry to be to be raising prices at the margin for consumers. If we do see inflation starting to creep up thank you.
Ah Thanks, Phil I'll start with the overall macro and maybe Matt will fill in a little bit about the gross adds.
The question you had.
On the inflation I mean, as Matt said in your prepared remarks some of them are.
Havent seen so much impact so far of it but of course. This is a high in 40 year someone inflation. So we were planning for all scenarios. We are planning to be prepared for what is take so that.
That will of course include the and different type of all cost adjustments, but also looking into what you can do with pricing, but again, we don't know how this will impact us, but clearly a decent level.
Inflation, where I've never seen before in the wireless industry. So of course that also the measurements that needs to be thought through in a good way and way of doing that and we have already plans ready for it. So we're going to see what's going to happen, but clearly we are in a moment in the economy. We really don't know how this is going to impact finally about the level of sort of.
Of course very high when it comes to inflation, but that felt so your question around just what we're seeing there look I would tell you that there is nothing that we see in the data that suggests any change in in share out. There certainly believe there has been a bit of a downtick in overall foot traffic not just in our stores, but up and down.
On the high Street, but our share continues to be where we would expect it to be our churn continues to be very strong and that's always a good indicator, where if if we are competing effectively and clearly with the churn at these levels versus historical levels, we feel very good about that so oh overall content.
And to get our fair share and we expect to continue to do so.
Great. Thanks, guys. Thanks, Bill Angelo ready for the next question.
The next question comes from Simon Flannery.
Now from Morgan Stanley . Please go ahead, what's your question.
Alright. Thank you very much I wonder if you could talk about fixed wireless <unk> earlier in the quarter you talked about doubling your Q4 numbers and you came in well ahead of that I think you talked about wherever you open it up there's some strong demand so perhaps just give us some color as well.
Yeah, it's been accelerating through the quarter. So is this a good jumping off point for Q2 for the rest of the year and maybe just address you still got that $25 price point out how are we thinking about you know how long that lasts and so you know what the what the footprint is today and what it's going to be once you light up some of those more markets by the end of the year. Thanks.
No no. This is of course, one of the five vectors of growth that we are very focused on and they clearly see the momentum growing for us even since we met in the beginning of March So clearly as we turn on more and more.
Households, and businesses are for sale are we have a good sell through in the quarter was of course, good for us and we're coming in with the momentum into the next quarter is really good.
Then of course, that's what I'm, saying, where we're now deploying sort of the C band in urban and suburban millimeter wave is in urban L. D. C. In rural So that's how it's really now are also where the customers are coming on to but clearly I see bunnies, he's coming quicker in there and we're going to have even more opportunities and as you heard me, saying in my prepared.
We now also have an additional 30 markets that we will have early clearing on on this year, which gives us even more.
Frequency is 100 megahertz. So this is adding all this momentum we have and remember we have been working on this for a while we know how to do it all the way from being in the sort.
So the provision you know the network capacity management billing and propositions and that comes with it pricing. That's what I think will have a good pricing at the moment with a with a combined offering and also their standalone offering and we see that's making a good sort of wave in the market and as always we will always looking into what is that right.
Price bonds, where do we get the right type of value and we're giving our customers I think we're giving them a great value and that's what we see in the numbers. So yeah, we have a great momentum coming out from the quarter going into this quarter and we will continue to hammer. This as we're having all the five vectors of growth constantly you'll see that we are reaching our long term ambitions.
We outlined at the beginning of this or be at the beginning of March I think that goes.
Our Investor day. It was some time ago, yes. So just a couple of things to add on that so it's a Simon as you think about the volumes we had in the first quarter remember that's not a full quarter of C. Band that came on in Middle of January and of course, you have that time period, where the our sales teams are building up the sales motion of selling a new product. So it was.
Suddenly think.
That we could continue to see a good numbers there are as we go through the rest of the year and we're just getting started with what you saw the 194000 in the first quarter and from a pricing standpoint, as Hans said its a you should think about it that that price point you mentioned is for a customer who's also taken wireless products from us as well.
On a standalone basis as higher price, but we'll continue to look at the the pricing proposition and to maximize.
Both the value for customers, but also the opportunity for us as well.
Thank you yeah. Thanks, Simon Angela rate for the next question.
The next question comes from David Barden.
Bank of America, you May.
Go ahead with your question.
Hey, guys. Thank you so much for taking the questions I guess my first question would be.
With respect to fixed wireless access if we look at your numbers and the numbers that T. Mobile's pre announced it feels like fixed wireless access is going to be more than half.
The normal.
Broadband net adds in a quarter in a normal year.
And that has to be putting some pressure on on the cable industry to respond.
Unless there's a reason or an escape valve that exists because of.
Maybe the affordability connectivity program or something so I was wondering if you could kind of talk a little bit about.
How you think the wireline broadband dynamic is going to evolve with cable and how they respond potentially.
In the wireless market in the second.
Would be a question if I could maybe fun.
There was a time when when Verizon has the best network in charge the highest prices and took the most market share in these kinds of calls we would talk about whether you know the question was really whether we wanted to give a little margin or take a little market share.
You know you guys are now share donor.
Every quarter and and we're celebrating how many phones, we have and how much C band we're deploying.
But it's not obvious that that's translating into something tangible that investors can can celebrate in terms of financial reward. So can we talk a little bit about that too.
Yeah, if we start with the fixed wireless access I mean.
I can talk for ourselves when I'm not sure what the response the response will be from someone but this is a high quality product that you just sold the Oh the fixed wireless access is very similar to our Fi Youll see was there. So this is a primary usage and in the in them.
My order Jim all the cases when it comes to our fixed wireless access. So this is a high quality product that definitely theyre going to compete very well in the market and are in our case, that's what I said before this means that we are nationwide without broadband as we're expanding our C band.
And you can address more and more households are that doesn't mean that we also focus on our fiber footprint because that's it's a very strong product in the ILEC what happened and you saw this quarter again, we're doing well in and continue to grow our files and this year, we're going to have more open for sale on the fires. So for US. It's we create optionality is supposed to be only great.
High quality products that we believe that the customer wants and then that we are supporting so that's why I feel good about the whole national broadband strategy that we laid out in the in the previous in the first quarter. So I'm I'm I'm really pleased with that.
The second question I think that when we look at R. R.
Our business and I think we've talked very well about it at our Investor day, our focus is to do all the time grow this business with 4% and and that we do with different levers and of course based on the best network in the nation no doubt about that and in our network is just improving and where have you started.
Our C band So we're super excited over the network will have and then on top of that of course, a different type of investments we have done in order to grow and to go to 4% and that's I think a shareholder should be excited over and that's what you see in this quarter as well, we actually execute on those levers and we are ahead of plan on certain older.
Actors are which is great to see and that will translate both the top line and the bottom line as we outlined in our in our Investor day. So that's how I see it and we will continue to see that we are a premium brand, but remember nowadays we can actually play in all fields on the wireless all the way from the sort of the prepaid.
To the high end premium and then meet any type of conditions in the market with a portfolio, which is a enormous strengths and on top of that we have a scalable economy on all our offerings because we all know network built on network and all of that so I feel really good way, but what I have to say on the way, we're going and where.
Going to compete well.
Just so I can tell you that where we feel good about it Matt.
I'll just add one comment onto hunches last piece there.
Well, certainly we always want to find a higher gear and never happy with <unk>.
All the things we can do better next year.
The phone it adds was 142000 bathroom warm Q this year than last year. So you see us continuing to make progress there.
Alright. Thank you so much Angela we're ready for the next question.
The next question comes from Michael Rollins of Citi. Please go ahead with your question.
Thanks, and good morning.
Two questions first I'm, just curious if you're seeing different performance of gross adds.
And it upgrades.
And right plan mix when you look at your C band market.
And your non see the end markets and maybe you can unpack some of that.
The difference if there is any.
And then secondly, just going back to some of the comments around guidance and you mentioned some of the possible sensitivity to the operating environment, but I was curious if you could be more specific you know when you described lower end of the ranges for our wireless service revenue growth EBITDA and EPS.
Lee.
In each of those.
Updated.
Levels of guidance commentary.
Thanks.
I can start with the C band.
For obvious reasons, we see.
There are more excitement in the markets, where we have to turn on the C band and also some more upgrades, but remember where you are in the beginning the Odyssey, but then we started we did in the are in the midst basically all of the of the quarter. So we are doing in the beginning but clearly were not customers and consumers see C band to an all day.
I see an enormous performance on the network and that's easiest to make a big difference over time, so far and maybe not so much about the clearly the excitement is out there.
On the the guidance, Mike So as you think through it and in terms of the lower into the range on wireless service revenue.
Part of that is obviously as we see the the nature of the competitive environment, but it's also the volumes that you see us delivering and some of the impacts of that so excited by an 11% increase in activations year over year that showed strong interest from our customers but.
But that of course does mean that we see the the amortization impact from promo come through the wireless service revenue and so we'll see that impact there that of course.
We will also impact the EBITDA guidance, but the EBITDA guidance also has our.
Our views on inflation as well as we think about the year as a whole and certainly those views have evolved over the past 90 days for everyone as well and then so obviously EBITDA impacts the EPS guidance and the EPS also has the interest expense that I commented on in my prepared remarks that you know.
It's probably a you know the low single digit impact Oh for on an EPS basis that we'll see come through as a result of a higher fed hikes in a property in People's plans at the start to the year. So a number of factors impacting each of those items, we still feel very confident in the the results.
The business will produce this year and the momentum that we're building in the year across the grocery bags is to deliver the long term aspiration that we all have.
Thanks, that's helpful. Yeah, Thanks, Mike Angela ready for the next question.
Next question comes from Craig Moffett of Moffett Nathanson. Please go ahead, what's your question.
Yes, so if I think about the wireless business is kind of the the.
Traditional P times Q.
We're.
At the moment, you're you're not growing.
It's either subscribers or ARPA in the traditional sense for phone.
How much is your guidance dependent on revenue growth outside of that P times Q I'm thinking in particular about private networks and mobile edge compute you've talked a lot about the new <unk> revenue streams and how.
How much are we actually going to see that in in the current year and and how much does it contribute to your forecast.
Yeah. Thanks, Craig So as you think about it so.
When you look at the P times Q that you mentioned, we can offer up to 6% on the postpaid side. So certainly see a continuation of executing on the strategy, we've talked about of staffing customers up getting more customers on our premium plans. The team continues to do a good job there and you see that in the office side you also see.
As we mentioned an increase in the number of accounts on wireless year over year 40000 more accounts. This year than this time a year ago. So the P times Q that works, but this comes back to what we talked about at the Investor day, having five axes of growth and really what we talked about that it's just one of them. In addition to that all of us.
We've got fixed wireless access kicking in now 194000 net adds in the first quarter over 400000 in the base that's exactly in line with what we said you should see with increasing the base this year and therefore that having a more meaningful impact on revenue in 'twenty three but we're building.
That base now in line with what we said and then you laid out the things like Mac and obviously on the not just within the B to B space mobile edge compute but also as we get into the five G world the scope of opportunity for Iot and machine to machine continues to increase and we talked about the we talked about the.
The momentum we have there and that's just really getting started on the prepaid side, we continue to.
See the integration of Tracfone come in as expected and we expect that to add value as we go forward here and then we continue to see growth in our net what monetization vector too. So we still feel very confident that we have the ability to grow across more vectors and other people that starts with mobility.
And it extends into the other one but absolutely I think you will see growth across all of those arms.
No I think that is.
Adding on the mobile edge compute and we talked a little bit in the prepared remarks, but clearly we see the market now with the whole ecosystem coming in there and we are to pioneer and leader in the market definitely have more engagement ever had before and people being a little bit the private networks and the beginning part of your private networks and then you build on the mobile age.
Compute on that so no I think I see these as a traditional b to b, a and not only that it's definitely clearly a way for us to build new relationship with our enterprise customers, but I said before this year. We are building that funnel, we're making it and of course when come to meaningful revenue, but higher Ah that's <unk>.
Be more next year or so but clearly this year, we're going to talk a lot about and show you. What we're doing the solutions. We have I remember also we have the smallest solution for smbs when it comes to private five year networks. We see so many use cases and I remember all is built on how we built the network from the beginning we were basically from the data center.
The edge of the network have one unified network, which is fiber eyes and then at the edge of the network. We can do different solutions for different type of customer groups. This is going to pay off big time in the next five to 10 years.
Really good about how we have built a network and seeing also the importance of mobility broadband and cloud in our society and for business as some people.
I think we're so well placed in this area. So I feel good about it.
Thanks, Greg. Thank you Yep, Hey, Angelo ready for the next question.
The next question comes from Doug Mitchelson of Credit Suisse. Please go ahead with your question.
I don't think so much I'm just curious on the long term ambition to build at C band It you'll phase one and phase two is pretty clear through 230 million Pops as theyre attractive returns building out C. P. M. Beyond that is there a phase III and whats the timeframe for that are you know just trying to get a line of sight on the long term cap.
[laughter] intensity. Thank you.
Yes. It is a more [laughter] more ambitious to continue when it comes to capital intensity I think we outlined out very clearly that we will have the peak year now than were coming down and then in 'twenty. Four 'twenty five we will have to be are you that these are below 12%, which is of course over a decade the lowest one.
But that is coming from the investment levels, what we have done and prepared to network in there of course, we had the beer you expansion on C band. So that's clear and already right now as you know we have moved up to now we will have been doing at least 175 million.
Chicago D C L a and then.
Then of course that means also that other pieces of the network will come earlier and topping that way so far we're only using 60.
60 megahertz now, we're adding 100 megahertz in the next 30 markets, but remember in averaged 861 megahertz nationwide and in many and mostly in the rural areas. So what about the 200 megahertz. So of course, we invest in in this spectrum in order to be extremely competitive and do things that nobody else can do so.
We're going to continue to do it but that doesn't change the profile that Matt and I laid out when it comes to capital intensity. That's included but clearly we're going to take advantage of the investments we have done and the sooner we do it the better it is yeah.
Yeah, So Doug just add onto that a little bit if you think about network usage customers demand on the network continues to grow year over year, that's true across every geography. So.
You should expect no difference in how we think about C band rollout to get five G. Ultra wideband to all of our customers. The same way, we do with LTE rollout a decade ago and as you saw with the LTE roll out as we got out of the initial launch areas to more nationwide, we did that within our overall capex.
Hello, and that's what we've described it you should expect from US as we do the same thing with a C band and get the <unk> experience to all of our customers are as soon as possible here.
Alright. Thank you yeah, great. Thanks, Doug Angela we've got time for one more question can we do the last question. Please.
Yes. Your last question comes from Bryan Kraft with Deutsche.
Which bank. Please go ahead with your question.
Hi, good morning.
I guess first I wanted to ask you if you've seen any change in the composition of your postpaid gross add mix over the past few quarters in terms of different segments of the market both in consumer and business in that.
More recently you talked about the softness in March and April are there any pockets of strength or weakness that you would call out underneath of that overall pressure you've been seeing in March and April or is it is it pretty broad based.
And then separately I just wanted to ask you a follow up on on fires I think you've guided to a 550000 increase in fire as premises passed this year are you, giving any consideration to accelerating that pace over the next few years, given what seem to be improving economics for fiber broadband across the industry or do you think that fixed wireless is just a.
A better way to approach the vast majority of your ILEC footprint that hasn't been upgraded to bias. Thanks.
I can start with the second one because I remember it and that would come to the to the to the to the wireless customers. So on the fires here Youre right 550000 open for sale. This year, which is an increase from 2021 and we will continue to look for opportunities to expand as our customers are loving the product. So there no.
Limitation on that that's of course, the focus is in the ILEC ER when were doing the expansion outside that way, we predominant though working with fixed wireless access. So ultimate maybe we want to give high quality products on broadband that can be used for everything you need in a home or in the business and that's what we are catering.
Either to fixed wireless access on fire. So we're going to continue to see if we accelerate depending on customer demands, but clearly as we're increasing fives or <unk>. This year compared to last year, we see that happening in our capture rates on virus is of course, a magnificent. It's great. You know, we're really strongly when it comes to the wireless customers or not.
Yes.
100% remember the questions I'm actually probably support met them there, but one thing that we need to remember the strength of SMB. For example that we haven't had enough for many quarters and that is a clearly a segment that is doing one well in wireless than on the same time as Matthew said, we see our customers continue to do upgrades and step ups that is.
Part of our strategy and that we're seeing in our base constantly so I don't think that there's a big difference from previous quarters, what I've seen before but I'm not sure maybe math, you'll have something more on that yeah. So on the the comments about March and April volumes. Those are predominantly on the consumer side nothing a particular in terms of breaking the consumer a part there in terms of the Patil.
Other areas, but as Hans said the V. P. G site and Verizon business group continues to do.
You know very strong performance across small business enterprise public sector double digit growth in gross adds across each of those parts of Tommy's business in the first quarter and that was really fairly even throughout the quarter. So we saw a little lower foot traffic on the consumer side, but.
But the business side continues to.
To perform at a very even level throughout the quarter and as we head into Q2 here.
Got it. Thank you that's very helpful. Thanks, Brian Angela ready to finish the call. Thank you.
Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation for using Verizon Conference Service you may now disconnect.