Q2 2022 Verizon Communications Inc. Earnings Call
Good morning, and welcome to the Verizon second quarter 2022 earnings Conference call.
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It is now my pleasure to turn the call over to your host Mr. Brady Connor Senior Vice President Investor Relations. Thanks, Brad Good morning, and welcome to our second 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 contain.
Statements about expected future events and financial results that are forward looking and subject to risks and uncertainties.
Discussions of factors that may affect future results is contained in 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, let's take a look at consolidated earnings for the second quarter in the second quarter, We reported earnings of $1.24 per share on a GAAP basis reported second quarter earnings include a pre tax loss from special items of approximately $435 million, including a net pretax charge of approximately $198 million.
Related to a mark to market adjustment for our pension liabilities. In addition, the impact of amortization of intangible assets related to Tracfone and other acquisitions was $237 million. Excluding the effects of these special items adjusted earnings per share was $1.31 in the second quarter.
With that I'll now turn the call over to Hans to take us through a recap of the second quarter.
Hi, everyone and thank you for joining us today, our second quarter was not that good but all met therefore, where Verizon has been or where it is going well we are not satisfied with our performance. We know what the issues are and we're already executing to re accelerate in the second half.
As I said in our first quarter earnings call and reiterated it seems we're seeing weaker consumer wireless volumes.
The inflationary environment is clearly impacting consumer behavior, and we also saw intensified competition for consumer attention.
The result was a significant impact on our gross ads.
Based on our performance this quarter and then that is of the landscape, we're updating our financial guidance by lowering our expectation for service and other revenue adjusted EBITDA and adjusted earnings per share that would provide more detail in a few minutes.
As you know we have already responded last week when the ones are well come unlimited plan for consumer wireless that would meet the needs of budget conscious consumers without providing device subsidies.
In addition to these new blocks, we took pricing actions in both of our business units to meet the gate inflationary pressures.
In consumer we also adjusted prices for some legacy meet the glass increasing revenue per plan, while motivating step ups to unlimited offerings. All of these actions position us for improved performance in the second half of 'twenty and into 'twenty two 'twenty three.
More than ever our leadership team is focused on executing our strategy through operational and customer focused solutions.
I'm, calling for that as well.
The right strategy in place, we will continue to refine our approach at the consumer market evolves.
Looking further into our business, we continue to see momentum that gave us confidence in our ability to improve performance over the long term.
Consumer group, we have consistently pursued a disciplined scrapped it won't bring high quality services at a competitive prices. We know the economic pressures that our customers are facing and are carefully bringing you all first to meet their needs.
I am personally working with the consumer group, so defined our disciplined approach to the market. While also looking closely at how we operate and do business.
It reflected in the plans and promotions we introduced in May June and July mix.
Mix and match continues to drive premium plan adoption with 7% to 8% of our consumer base on unlimited plans and 39% on premium on limited we have seen a healthy step drops for five consecutive quarters, which continues to drive ARPA growth and there's room for more.
While consumer bodies are becoming strained we continue to find ways of delivering new value added services, while recognizing that the handset subsidy as we're seeing in our industry are not sustainable long term.
New wells come on Unlimited plan is a great example of this we have tailored offers a full range of consumer segments from premium to value across postpaid and prepaid to meet all consumer needs in these challenging market conditions in the prepaid value segment, our integration on track when it is on schedule and provides us with another suite of.
Offerings to bring consumers onto our network.
Our fixed wireless access solution continues to bring us new connections across consumer and business, we increased fixed wireless net adds by 32% over the first Walker driven by a 50% increase from our consumer group.
In our business group, we again delivered excellent wireless volumes with 430000 net debt, including 227000 postpaid phone net adds in the quarter. This marks our third consecutive quarter exceeding 200000 wireless phone net adds in the global enterprise market. This disease.
Government agencies and other institutions continue to recognize the power of Verizon's network and the importance of digitalization. This week. We're now in over 400 million dollar project with Spi. So I have to Bureau meet this global bandwidth demands we would provide direct access to our development team and will advise all system at all.
Like cloud computing did you Wanna imaging translation and data applications.
We also offer private five year solutions to optimize complex organization. We recently partnered with the Virginia International terminal. So build the private part of the network across they'd see books campus.
That's what gets scaled with the replace Wi Fi with more secure connectivity, we're seeing new opportunities and increased demand for these networks solutions from enterprise and other organizations Verizon is uniquely positioned to take advantage of the moment that provide the highest quality private networks. These private networks are the gateway to mobile edge compute.
Which can deliver game changing customer outcomes, including revenue growth, new customer experience and cost savings during the second quarter, we expanded our mec ecosystem by bringing your AWS wavelength sells well Nashville, and Tampa and now reached 19 metro areas.
This means that 75% of the U S population is now within hungry and 50 miles older iphones Fived your edge.
In partnership with tourists, we supported the launch of the 10000 square foot innovation and Technology Center in Charlotte North Carolina as a founding member of the innovators in residence program. We will have created a global hub for the development of five D and Mec application in the financial services segment.
And we'll continue to create growth opportunities for us across a range of industries as a market leader in five year private that Brooks and in mobile edge compute the momentum in a variety of business is the fifth thing standoff of group CEO , Tom arrogant, who is an amazing 35 year career at Verizon We promoted Sam that's a very.
Those business CEO on July 1st signs that brings over two decades of experience in digital networks critical infrastructure protection and a deep understanding on how networks play a role in enterprise growth and global security. He has been part of the Verizon team for more than eight years, and I know that he's the right leader to take right.
These forward.
Power Oh networks gives us the flexibility to meet the needs of our customers across consumer and business. The continued speed the expansion of our network and capabilities to create agility and optionality within our larger strategy well.
We ended the quarter with hungry and 35 million Pops covered by C band and remain on track to reach at least 175 million Pops by the end of the year.
They are really clear that we're not in March we're expanding services to an additional 30 markets and have started deploying 100 megahertz of C band spectrum in many markets across the U S. Almost doubling the spectrum available for five D. We're seeing that phenomenal performance we expected.
Netbook usage is growing quickly with C band uses up 233% seems to handle the first Walker and millimeter wave traffic up 49% year to date were C band is deployed it because for more than a third of our wireless traffic on average.
Consumers all once they keep their devices they need to use five G. Currently 47% of our consumer base has a five your phone and we expect that number to reach nearly 60% by year round.
Our already best why doesn't that were contingent on recognition of importance, but format and dependability.
J D power and gave us the highest number of awards for quality, but it's one of the ninth time in a row and root metrics recognized for having the best overall network performance in the country for the eighth time in nine years Tony.
Turning to the second half of the year, we will continue to listen to our customers and give them reasons to sign up stay and upgrade with US. These bonds will want to add that on top of our yearly business transformation, a multiyear program to enhance our efficiency measures and actually the cost benefits delivered this will ensure that our balance sheet remains strong put them off.
Get ahead, we around the rise with a goal of growing our business and controlling costs, we would never shy away from investing a portion of our cost savings in our growth initiatives. We are confident in our ability to deliver both efficiency and growth.
<unk> long term value for our shareholders.
Before I turn it over to Matt to give you more details on our results and our outlook for the second half of the year I want to mention that we reached a tentative deal with our unions to extend our collective bargaining agreements. This extension will provide us with labor stability to focus on our customers and opportunities to grow our business over the next four years by that.
I'll hand, it over to Matt.
Thank you Hans and good morning, everyone as Hans said this was a challenging quarter and that was.
Did not meet the expectations, we have set for ourselves we have implemented multiple actions to better position for ryzen for the future at.
At the same time, we expect the market environment to continue to be very competitive for the remainder of 2022.
Before discussing our expectations for the remainder of the year, let's walk through our results from the second quarter, beginning with an overview about postpaid mobility results on slide seven our runway for mobility growth is predicated on driving out cost to the base. It's a higher value data plans and we continue to make good progress in the second quarter premium penetration with.
Our consumer facing increased to 13, 9% at quarter end.
57% of new accounts in the quarter select two premium unlimited had step ups within our existing base remained healthy.
This activity helped drive a two 4% year over year increase it could sheba postpaid ARPA.
Our recent administrate, you've seen an increase in economic adjustment charge began to show up on customers bills in the last few days of the second quarter, we expect close to a full quarters benefit to revenue at all if the trends in the third quarter.
Allow me to price changes will be phased in throughout the third quarter, which will provide an additional uplift we reported postpaid phone net adds of 12000 in the second quarter as strong business results more than offset softer consumer performance business delivered 227000 postpaid phone net adds in the quarter, we continued to see strong.
Demand across all lines of the business group as phone gross adds were up nearly 30% from the same period, a year ago, and we expect a strong performance to continue on the consumer side postpaid phone net losses with 215000 in the quarter and spend for two main drivers first <unk> increased by 10 basis point.
Compared to the same period last year.
Higher involuntary churn contributed roughly half of the increase due to the exploration of state consumer protection policies unless stimulus funding.
This was coupled with an 11% decline in phone gross adds from the prior year driven by the competitive offerings in the marketplace as Hans indicated we recently introduced the won't complain in order to drive demand for more price conscious consumers, particularly gonna say makes spending adjustments due to the effects of higher inflation.
This new plan is well positioned to attract new customers, especially for those who bring their own device. It is our most basic unlimited offering with no device promotions or many of the other features available it makes them much unlimited plans.
We reserved our most generous acquisition and retention offers for consumers willing to select out premium unlimited plans and we believe that opportunities exist to purchase of these high value customers upgrade activity remained elevated throughout the quarter, reflecting the loyalty within our core customer base, while also serving to drive.
Quite to a pretty name adoption as a result, total postpaid phone activations across consumer and business were up 8% from the same period last year.
Now discuss broke out performance on slide eight.
During the second quarter, we continued to scale the ground nationwide broke that opportunity with additional expansion of fixed wireless households, and businesses covered in addition, we expanded availability to an additional 150000 hubs during the quarter and are on track to achieve our target of 550000 incremental.
Homes open for sale and 2022 total broadband net adds with 268000 in the quarter an increase of 39000 sequentially in what is traditionally a seasonally softer quarter.
Fixed wireless momentum accelerated as we added 256000 subscribers in the quarter up from 194000 in wound care.
Fixed wireless net adds have increased every month throughout 2022, and we expect to continue that trend in the third quarter. We also added 36000 and spas Internet net adds during the second quarter.
[noise] wildfire Internet remains well below pre pandemic levels, we all seeing softer gross adds due to lower than expected switching activity for moves and fewer new home purchases. We recently introduced file snakes at match three don't see Euro go to lives out files as fixed wireless pricing, that's it positions us to grow.
Oh Joy account penetration now, let's talk about the soggy market on slide nine.
Our integration of Tracfone is on track and the team remains focused on enhancing the customer value proposition and delivering cost synergies through migrating off net customers onto the Verizon network, how tracfone, Brian said net prepaid losses of 227000 in the second quarter and total Verizon prepaid net losses were.
229000, and these results exclude the base adjustment of 402000 related to a competitor <unk> shut down our <unk>.
Prepaid volumes were impacted by aggressive postpaid promotions as we make progress on our Tracfone integration initiatives, we will be better positioned to serve those customers wanted to migrate to postpaid offerings. Our business case had anticipated subscriber losses. During the early phase of the integration period, which we expect to continue into the second half of the year.
However, should customer preferences shift to the value market I'd make recessionary concerns we would expect to see some benefits pre paid off who was $31.26 in the quarter.
Additionally, on a sequential basis and we expect it to remain stable going forward now, let's move to the consolidated financial results on slide 10 on a consolidated basis total revenue was relatively flat year over year wireless service revenue growth and higher wireless equipment revenue were offset primarily by wireline declines.
And the net impact of last year's M&A activity.
Total wireless service revenue growth was nine 1%, primarily driven by our ownership of Tracfone.
The progress on our premium unlimited strategy and strong business volumes.
Service and other revenue was down three 9% this quarter as the revenues lost from Verizon media more than offset net incremental revenue from tracfone.
Adjusted EBITDA was $11.9 billion for the quarter down two 6% year over year due to the divestiture of horizon media.
Higher device subsidies and promotional spending associated with the increased wireless activations.
Wireline revenue declines and inflationary cost pressures.
Regarding inflation, we have seen the pressures within our cost structure, most notably on labor costs utilities, and transportation and logistics expenses.
Expect these pressures to accelerates in the second half of the year and have an impact on profitability and earnings.
Brady and Hans highlighted adjusted EPS for the second quarter was a dollar thoughts you walk down five 8% from the prior year.
This primarily reflects the impact of our adjusted EBITDA results and higher D&A related to our C band rollout.
Now, let's take a look at our second quarter couldn't see about financial results.
Total consumer revenue for the quarter grew nine 1% year over year.
And by the inclusion of Tracfone Hi.
Higher equipment revenue and core wireless service revenue growth wireless service revenue was up 10, 5% year over year also driven by the inclusion of Tracfone and postpaid ARPA growth.
Total styles revenue was flat versus the same period a year ago.
Net growth was offset by video and voice declines.
Consumer EBITDA was $10 $4 billion down 0.3 per cent compared to the same period last year.
The higher contribution of on Tracfone, which more than offset primarily by higher promotional activity.
Consumer EBITDA margin was 45% in the quarter.
Now, let's take a close look at the business financial results on slide 12.
The business segments wireless results remained strong into Q, while wireline service declines continued amid a softening economy and ongoing secular headwinds wireless service revenue growth of three points Europe ascent was up from two 1% last quarter.
A medium business continued its strong momentum accelerating growth for the second consecutive quarter, while global enterprise had its best performance since the first quarter of 2020 business wireline declines are elevated this quarter in part due to foreign currency and federal USF, which together impacted growth by more than 300 basis.
Points year over year.
The secular pressures from technology migration continue to weigh on legacy voice and data services and we expect this trend to continue business EBITDA was $1 $7 billion for the quarter down six 5% from the prior year.
Turning to wireline revenue declines, we experienced elevated device subsidies related to the 15% year over year increase in wireless activations in the quarter EBITDA margin was 22, 9% in the second quarter moving on to slide 13 under cash flow summary.
Cash flow from operating activities for the first half of 2022 totaled $17 $7 billion compared with $24 billion in the prior year period. The reduction was primarily due to working capital impacts from higher device Activations and increased inventory levels I, just talked about supply chain management in the current environment.
Capital spending for the first half of the year totaled $10 $5 billion, an increase of $1 $8 billion compared to last year, driven by C band spending of $2 $8 billion. The net result of cash flow from operations and capital spending is free cash flow of $7 $2 billion for the first half of the year we ask.
Did the quarter with $136 billion of net unsecured debt.
A sequential improvement of $5 billion.
Resulting in a net unsecured debt to adjusted EBITDA ratio of two seven times.
In a period of rising interest rates, our balance sheet is in a strong position with less than $2 billion of unsecured bonds maturing in the next 18 months lastly, let's move to an update on guidance for the remainder of the year.
Based on our current expectations, we are updating our guidance for the year.
We now expect wireless service revenue growth to be in the range of eight to half the dine in the half the step down from the prior 9% to 10% range. The pricing actions already implemented are expected to contribute approximately $1 billion in the second half of 2022 how.
However, this benefit is expected to be offset by the accounting impact of promotional activity.
The impact of lower net adds as a result of the reduction in wireless service revenue expectations and anticipated ongoing wildlife pressures, we now expect service and other revenue growth to be in the range of minus 1% to flat we are lowering our adjusted EBITDA growth expectations for the full year to a range of minus one 5% to flat.
Well this is a prior range of 2% to 3%.
This revised outlook accounts at the higher levels of Activations different by a promotional activity.
Inflation driven cost that we discussed previously the.
The reduction in wireless service revenue.
In business wireline revenue headwinds.
Our guidance assumes consumer EBITDA margin in <unk> should be similar to the margins seen in the first half with typical seasonality in fourth Q.
This EBITDA margins in the second half of 2022 are expected to be in line with those reported in the first half with yet.
Italy, we are lowering our full year adjusted EPS guidance to a range of $5 10 to 525 buses. The prior 540 to $5 55 rig pace.
This view reflects the reduction in adjusted EBITDA as well as incremental cash interest expense such as our expectations at the beginning of the year of about $300 million for the full year compared with the $150 million to $200 million, we estimated last quarter due to updated market expectations for additional fed fund rate increases.
The Capex, we are reiterating our prior guidance of 16, five to $17 $5 billion to business as usual capital.
That's $5 billion to $6 billion of C band related spending Inc.
In closing we are confident in our strategy I believe that our assets position us well to generate long term shareholder value.
I will now turn the call back to homes for concluding comments before we open up to questions. Thank you.
Thank you Matt in summary, we view this quarter and second half challenges as short term, we have a strong and resilient business model that is well suited to deliver favorable financial results even in uncertain economic times in this environment, we remain disciplined and focused on delivering long term chaperone.
The value through improved revenue and profitability with healthy cash generation that supports our network investments and dividend policy as well as our strong balance sheet. We also have the best team in the industry and I know they are ready to deliver the actions we have taken in our consumer business creates an opportunity to solidify.
Human performance those actions include new postpaid plans and our continued integration of Tracfone picks.
Fixed wireless access for both consumer and business has proven to be a powerful connectivity solutions, we expect our nationwide broadband presence and our fixed wireless subscriber base to grow well into the future will continue to drive business via subscription and expand our ecosystem taken.
Taken together and combined with our accelerated efficiency work our actions during the quarter advanced our competitive challenges.
Continue to listen to our customers and thoughtfully respond in the marketplace.
Second quarter initiatives are designed to strengthen our network as a service Rhapsody, which uses the power of our network to drive results from our five vectors of growth.
Thank you Paul and we're ready to take your questions relate it back to you.
Thanks, Hans Brad we're ready for questions.
Thank you we will now begin the question and answer session.
We'd 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 her question.
To withdraw your request. Please press star two one moment for the first question.
Your first question comes from Brett Feldman of Goldman Sachs. Please go ahead Sir.
Thanks, two questions. If you don't mind, you know yesterday AT&T decided that they were seeing a delay in the collections of payments specifically from their consumer customer base. So I was curious have you seen any stretching out of dsos or bad debt expense and really whats embedded in your outlook, especially if you're anticipating that the macro remains a bit tough.
Or and then the second question is you outlined some of the steps you've taken them from a price plan standpoint to sort of that better position. Your consumer wireless business is there anything else. You think you need to do at this point or is it mostly execution driven and all in do you think the steps you've taken so far are sufficient to get.
Back to positive consumer postpaid phone net adds in the third quarter or at some point in the second half of the year. Thank you.
Thank you Brett I can start with the second part with as you said I mean, we have taken to.
Several actions in the quarter.
But all the way from the new unlimited plan with the bring your own device and no subsidy and then of course, we want to have done more increases are on the pricing actions. We have taken so we're taking that but we constantly evaluate if we need to do something more but we will be very cornerstones about a M D.
Simply need them in the market because I don't think that is sustainable long term to continue with the subsidized model. So we would policy and then parse out of course, it's a holiday seasons of course that would be there. So we would work with not one but clearly that's what we do but remember also if we look at it are a value or a premium segment D. CS in the high end.
We're doing really well we have high quality coastal customers you see the step ups continue so what we are addressing right now is the metered and nowhere in unlimited, which are more price conscious right now and that's what we're addressing with it so we have more surgical than yours.
Making any any blanket decisions here. So that's very good and on top of that we feel good about tracfone of course, if there if the market would turn even worse I mean, we have tracked phones and then we can play in all segments and meet all the demands from different customers, but clearly we are staying extremely close with mapped and I am a known and her team we work weekly to see when a mark.
It is growing if we need to adjust but we will always think about how we have our financial discipline on how we preserve cash because we always need to think a two times before we're bringing customers we want high quality customers, Matt maybe you can comment on the on the customer base.
Yeah. Thanks Hamzah. Thanks for the question Brett So it actually building on your last comment that Hans about high quality customers.
Brett that shows up in the payment patterns, we're seeing we haven't seen any noticeable change in the in the payment patterns from customers continues to be very good very much in line with what we would see.
Pre COVID-19 in fact slightly better than that time period, and when you look at the quality of the business. We're writing the the FICO scores in our D. P. P portfolio that have never been higher so at this point in time, we're continuing to see that.
Type a strong payment patterns that you would expect from a high quality customer base that we have.
Thank you Yep, great. Thanks, Brett Brad we're ready for the next question.
Thank you. The next question is from Simon Flannery of Morgan Stanley . Your line is open Sir.
Great. Thank you. Good morning are you you noted a few times some of the pricing actions that you've recently taken both the price increases but also the recent unlimited while come off are at $30 could you give us a little bit early reads in the market place your ability for customers to digest. These price increases maybe moved to other plans as well as any increments.
Traffic that you're seeing from the new unlimited plans are those customers taking that offer or is this really driving door swings to maybe trade up to one of the higher offers as well and then secondly last quarter. You you did talk about store traffic deteriorating.
In the later part of the quarter around the war etcetera, it'd be great to get a sense of how store traffics trended through <unk> and into Q3 is it pretty consistent with those levels. You saw has it deteriorated further thank you.
On the prices, let me start and then there are of course, the pricing actions. We took when we price increases on the on the metered plan and and adjustments that we will see coming into play in the second half of this year. So that that we will of course I think some of it might be.
So I'm kind of consumers that are of course conscious that will do disconnect and that's where that's where I'm calculating weighed on the well count them limited, which is a it's a segment that is segmentation of the unlimited market is a little bit too early to say Ah, it's only being in the markets, where I think seven or eight days. So it's a little bit, though I would say, we think we're addressing a markets.
A part of the market where are we we had some outflows in the second quarter and we have taken that action aggressively would these plan, but clearly we also see opportunities for for having step ups are in that plan, that's well for them from our customers are not anything yet more.
No I'll, just one thing I'd add to <unk> response Simon.
Suddenly we are expect to see significant benefit in the second half of the year from the actions we've taken I mentioned that in my.
In my comments, so, it's probably about $1 billion of incremental revenue sequentially in the second half buses.
But since the.
That's just the first half I would expect and we have assumed you know in our forward view that we'll see a small bubble in shut in here in the in the.
Third quarter as a result of customers as they get those price increases all major plants or whatever else, but apart from that we expect to see significant benefits from the actions we've taken.
And maybe I'm, sorry, I didn't answer on their store traffic there I realize that so as we said in our in the first quarter into the second quarter.
Had a little bit less though traffic in our sourcing.
April and May and a latter part of March we saw some pick up are in June , but still a little bit below earlier trends about.
That might be used to the market and how it's working right now so but other than that nothing special.
Great. Thanks, Yeah. Thanks, Simon Brad we're ready for the next question.
The next question is from Phil Cusick of J P. Morgan Your line is open.
Okay.
I guess.
First a follow up if I can and I don't.
I don't mean this to sound disrespectful, but on one hand, you're raising prices with fees.
On the other hand, you're bringing in lower price discounted offers and I know, you're offering loyalty credits to customers, who call and complain about pricing and it seems like you're out of the market.
Do you think that your network is going to return to its dominance and you can sort of get through this period.
Or do you think you need to really readdress your competitive position in order to maintain share.
I'm, sorry to return to something you've talked about a few times already but.
I'm really having a hard time with it thank you.
Thank you Phil first of all we feel really good about our network and they call it towards the network, it's actually better than ever and as you hear us talking as well.
You're seeing I mean, so the seaborne rollout.
Which is extremely.
Strong and the performance we see you on it then we will use the or passing over hundred 30.
Plus million Pops on it by year round at least 75, so we're going to have many more customers getting the benefit on the C. Band. So no. We feel good about all of them and you saw the root metrics you saw the both on the J D power as well.
Having also has the best network. So we don't feel that there's a difference what we're doing right now I think that's what you have to be clear very clear feel we're segmenting the market. So where are we now have the welcome plant. That's a segment of the unlimited and meet the plan on the high end, we have as Matt said, we're really good sort of loyalty with.
These step ups exactly as we outlined in our plan that's what we're seeing the continuous and that's why we saw the ARPA increasing this quarter. Obviously it continues to step up so I think I'm not the only thing I'm confident our strategy is working well used to addressing a segment in these in these economic times. So I feel really good about those wrapped it in how we do it.
We will continue to be very focused on the cash flow and I'm getting the right type of customers because we believe high quality customers are important and that then it means loyalty. It means also a very good base to build on so we feel good about this wrapped it I understand your question, but I feel really good about it Matt and at the end.
Yeah, maybe the only other thing I'd add on is Phil one of the things we've done.
During the current quarter, we mentioned our.
Last time that we have reached an agreement with some of the satellite companies to get early clearing all outside that initial 46 C bad markets and in those markets without touching on 60 megahertz, but 100 megahertz of C band.
And the difference in the speeds.
We're seeing with 100 megahertz versus 60 is exactly in line with what we'd expect but it tells us that we have a path to a very very strong network performance, we really like what we're seeing on C band today, but when we get the full amount deployed is could it be an uptick even further so we absolutely believe that a.
Network critical strategy will.
It will allow us to continue to perform very well.
That's helpful. Thanks, guys. Thanks, Phil Brad.
We're ready for the next question.
The next question is from John Hodulik of UBS. Your line is open.
Hi, This is back to you for John can you talk a little bit about how you expect fixed wireless trends to trend from here is there an opportunity to expand maybe the addressable market that you built C band for there and maybe an update on what percent of that fixed wireless space is needed to horizon. Thank you.
Hey, Great question No first of all we feel really good about our five vectors of growth and in one of the victims of course will have national broadband. We this was exactly what we envisioned when we rolled out the Verizon intelligent edge network in 2017 that we can have multiple opportunities to address a market and peaks while its activities.
Is it yours humming for OSM and 32% growth sounds growth are in the consumer group. This is all about us deploying the network of course will have millimeter wave I'm gonna have fuji in the fixed wireless access, but the C band Boultbee gave a cough, reaching an enormous good a performance that's well so absolutely rule out and hit the Morehouse.
So we're gonna but.
But we can grow even faster so our expectation that's in my East of course that we would continue to have that opportunity to grow right now from the base will have that as we're opening most households, but remember from your opening of households, who have sold the true et cetera, it's a little bit time lag because the direct marketing and all of that these he says he's working through but we feel really good about that.
We feel also good about the fires, even though it was a little bit less than or net adds on files because less movements I guess in this environment nothing strange, but really good performance on files when it comes to our network.
In our customer base and assurance so.
All in all the National broadband is playing really good for us and this will just drive to do from the beginning I have high expectation map. This high expectation on just well our teams are executing from the network to our commercials Matt.
Hey, Paul So you just won't megawatt data point for you on fixed wireless about 30% of our SWA ads are what we would call new new to Verizon.
We didn't have an existing relationship with them. So obviously, we liked the ability of of taken an existing Verizon customer and adding a service, but what did you bring a completely new customer on the platform that so that's pretty exciting as well so.
Hopefully that helps your question.
Great. Thanks.
Thanks, a lot to you Brad we're ready for the next question.
Thank you. The next question is from David Barden of Bank of America. Your line is open.
Hey, guys. Thanks for taking the question I guess my first one Matt.
Thrown out a couple of numbers $1 billion of top line incremental benefit from pricing plans, maybe 300 million of incremental interest from presumably floating rate debt.
We talked about some of the other numbers you've talked about we throw out some math around inflation and the impact it could have on the $20 billion of expenses that that's exposed to inflation.
What's the inflation headwind dollar number that you're budgeting for and then when we talked about this you know equipment.
Equipment.
And supply chain working capital headwind, you know what kind of dollar number or are we talking about there and then Hans Yeah. I think you mentioned in passing to the C. B agreement.
The agreement in principle that you signed I think last week.
It seems like a potentially dangerous time with the inflation that we have around us right now to be kind of walking into multiyear.
Collective bargaining agreements could you talk about why this is happening and why you feel comfortable doing it now thanks.
Yeah.
<unk> yeah.
So thank you for the thank you for the question. So look as you think about the guide.
At the EBITDA level as you say.
There's about $1 billion of revenue sequential uptick.
But then the offsets to that you've got the promotional spend.
That is you're running at a higher level than we thought at the beginning of the year based off what we're seeing in the marketplace and we're making the assumption that we're going to see that type of level for the balance of the year. That's baked in there of the reduction in EBITDA growth.
From the 2% to 3% down to the minus one and a half to flat 75 to 100 basis points of that is coming from inflation on our assumption of that for the.
The full year versus our original plans for the year on the working capital side, you've got a couple of things playing in that one.
One is.
Over the last couple of years, we've had some artificial working capital headwinds caused by Covid as volumes came down.
Transactional volumes came down like gave us.
It's a blow up.
M D. P. P balances there was a favorite to working capital. We now of course see volumes, increasing again, and so you've got that reverting to more normal levels on top of which moved into a 36 month D. P. P will increase the amount of <unk>.
Outstanding balances, especially with what we saw pre COVID-19. So we'll walk through a large chunk of that this year and I would expect to see less of a working capital headwind. After this year, but that's certainly in the you'll see that in the free cash flow right now, but feel very good about the cash flow generation about the business.
Going forward well.
To achieve as we work through this current period.
That's all I had over to you for the Union question, Yeah. Thank you and and maybe also comment on the supply chain because there's a lot of discussion around that and I have to say that our Verizon has done a great job on our supply chain around.
The whole supply chain and secure them and you can see that in our rollout I'll see you about millimeter wave and everything else, we're doing and the network that way.
Where you had them earlier plans and that's of course on how we execute what our supply chain I am I don't really want to know when it comes to the to the unions I mean, we have reached as I said in my in my remarks, we have reached a tentative agreement on the bargaining agreement with them and we have a great partnership with the Union. So we think Disney.
Portland, one you ought to see that we secured the workloads will have in the future and see that we continue to have a great working relationship with the union. So.
That's where that's why we have this tentative agreement.
Right. Thanks, Dave.
Brad we're ready for the next question.
The next question is from Michael Rollins of Citigroup. Your line is open.
Thanks, and good morning.
The strength of your business.
Wireless segment.
Painters are also talking about stronger business wireless performing I was just curious if theres something larger but within this segment in terms of behavior and the way things are.
Buying wireless.
Weighted to that is that possibly coming out of what was traditionally the consumer market. So is there some kind of shift that's also happening underneath the industry in terms of.
Where sales are coming in Q and then just one other.
I'm just thinking about what you talk about in terms of the change in guidance for revenue and EBITDA for this year and I'm curious how this informs our multi your outlook that the company previously established in the relationship you're seeing longer term.
Between the performance of revenue and profitability.
Thank you Oh on the business Y O Y less you haven't seen us now for seven quarters, having a really good run on it.
Our conclusion and our confidence level is high that are mission critical networks is so important for our customers and that's why we see such a good traction on it.
M.
I think it's normally there are probably some leakage here between consumer to small and medium, but it's also from small to medium that will consume the small and medium. So that I don't think there's anything different than what I've seen before but there's always some type of movements in between so we we we feel really good about our R O.
M D C is a wireless and a and how they're performing and how our customers likes our network.
On the second question as I said also before I mean, we think it's a short term challenging times right now long term, where we were confident that this is a great market. We have a great assets and we can execute on our plans. So I'm I'm whatever way I've done the last five years here with the network.
With our divestments and acquisitions, we're position ourselves for a really good longtime tragedy in a market where mobility broadband and cloud are the most important digital assets for consumers and businesses and I couldn't greensville havent at the position that we have today. So am I I'm confident about the long term or.
Yes.
That's and again.
Yeah, Oh, it's maybe just a couple of things.
Mike So if you think back pre COVID-19.
Rising business group had very strong performance, obviously COVID-19 was very disruptive to the business segment.
You've seen the recovery in that adds over the over the past year and I'll be very strong and you're seeing that show up in the service revenue growth up to 3% this quarter up sequentially two quarters in a row now and we do expect that to continue.
At a strong pace as Hans said, we're not going to comment on multi here.
Look at this point, but certainly feel like the actions that we're taking.
<unk> taken.
And we will continue to work hard and put us on a path to EBITDA.
EBITDA growth as we are as we go forward here. So look forward to obviously updating you on that as we get into next year.
One just quick follow up if I could.
With culling through the pandemic and kind of where we are today, there's a bigger a work from home and hybrid working buyer is.
Is that in bolting and companies to kind of shift from what felt like for years. They were trying to get at is like buying devices and services for their employees and is that in.
Emboldening them now because of the different work environment actually.
By wireless communications on behalf of their employees differently than maybe two or three years ago.
Thanks, I think I actually see both I mean, we see it we saw it trend over the year. So bring your own device from enterprises, what's actually in order to secure a more a seamless experience for enterprise customers, we see more we see more customers actually going back and actually supplying to our devices more cosmic.
It's a little bit depending on what type of business or into I have to say, but but we see a little bit of a trend going the other direction right now thinking about building private five year networks are where you want them to everybody to have a seamless wireless five D wireless experience inside an office and then going out on the street than having Verizon.
Commercial network, then then you'll need to deploy a handset that is actually coming from the company in order to manage it. So we see actually both so I don't think it's an accentuated trend are at least that I can tell it from taking the question on the 11th well. The other thing I just wanted to give you another data point that's.
Well I mean, I remember I talked a lot about the hands handoffs in the networks. During Covid. It was sometimes down 60% in New York City that people didn't move we are back to the hands of that mean handovers. That's even it seems like people are moving equally much right now we're doing a pre COVID-19 a it's of course a different bucket.
On the high level, when we look into network handle handovers are back to normal and I actually even a little bit more that can of course depends on how much more equipment. We have deployed in two years, but that's what we see.
Yeah.
Thanks, Mike.
Brad we're ready for the next question.
Thank you. The next question comes from Craig Moffett of Moffett Nathanson. Your line is open.
Hi, Thank you.
Hum.
I wonder as we think about growth maybe we revisit some of the comments you've made over the past couple of years about five G.
As the market has evolved.
What is your latest thinking about the opportunity both for the industry and for horizon, specifically as it relates to some of the new revenue opportunities that seemed so promising a couple of years back like mobile edge compute private networks and that sort of thing is there is it right that I think there is.
Hey.
Broad sense, among investors that that sort of the bloom is off the rose a bit for for those opportunities and they may not be as big and as attractive as as we once would've hoped.
So Craig if you take the three three different business models, we deployed in the network for a four or five D. I'm in fixed wireless access if I take that first that definitely is happening all the way that the everybody was questioning if we fixed wireless access is something you can do we feel really good about the capacity in the network is.
Is there there's no problem and as Matt said, where we have deployed 60 megahertz of C band, where having an average 160 <unk>. So we have so much more to go so that one is definitely happening on the mobility foggy mobility. Yeah short term is a little bit more challenging I think that comes from both economic and let's see.
And in the market long term I see the same as what I said before the step ups and going to higher plans is a great opportunity for us and as you saw in this quarter. Our ARPA went up our high high end customers continue to do step up so both of those are happening and 47% of our customers have to find your phone and by year round, but it would probably be near at.
60%. So I think those are happy when they come to the mobile edge computing and Iot. We also have a really good trend on that has people to leap to be right now and starting with private private <unk> networks, and then it rolls over to mobile edge compute with when you're bringing the cloud experience you need. So you saw that during the quarter, we announced several private foggy networks.
We see more and more customer feeling that that's a good replacement for them in order to have a secure high capacity network instead of having a Wi Fi in many cases and the reason why it's happening right. Now is now devices devices are coming out in the next couple of years, we're going to see so many more devices than not talking.
Only about smartphones, so I feel that at the same opportunity that we've talked about all the time given the economic environment. It might be always some changes to it but long term I see no different suite and that's how we build the network and we are the world leader in mobile edge compute them private five year networks, we feel that that that's the sweet spot.
For us we've been all the time in very early with the other five do you use cases, as well and feel really good way more or so.
And I understand your question, Craig, but not a in general I'm confident that we're all in this is a great opportunity for the market right.
Right. Okay. Thank you yeah. Thanks, Craig.
Ready for the next question.
The next question is from Conan Renter Cashmore Your line is open.
Thank you.
So maybe a couple of them first from a price increase perspective, you know when we look at what you've done at the bigger part of the beat.
Our being the pricing piece density.
Despite that and the group.
Revenue the service revenue growth guidance is down and EBITDA growth, but maybe it does so in terms of.
We need to lean on.
Because I guess.
In order to grow margins beyond that so if you could just help us understand what those numbers are.
To me is the macro in land and start getting because I mean, how do you keep your margins.
In depth.
And then secondly, there seems to be an enormous amount of handset inventory that they doubled the last two or three quarters when your balance sheet.
Would be great. If you could help us understand what the objective that is then that we should expect some kind of a clearing event.
Hum.
Yeah. Thank you calling on are first of all when it comes to the margin I mean, there are many levers to round here of course wellness of course continue to see that we have good opportunity to grow and remember we have probably back to some growth and some of them might be more impacted if the economic environment is turning worse, but many of them actually are playing well in the hands.
In a market like that like fixed wireless access like our value value brand with Tracfone and all of that so again I feel that we have opportunity to expand by having those are performing if it's going to be tougher on some others and then of course cost I mean, we always work with Costa and as Matt has outlined several times and we work with cost efficiency.
Programs Coincidently and now, we're adding our efficiency programs or enhancing what we have in order to.
Be prepared for a tougher times and being able to invest in our market. So I think we have all the things that we shouldn't have and I am confident that we have a toolbox a that we're working with the team is ease on it every day and we will continue to be on it it decent environment, that's a little bit complicated I think Britney.
And the company at the moment, but I always feel like we know what we're doing here. We are confident about our strategy. We're confident about our cash generation and we're confident that we will be financial discipline through this time.
Yeah.
Yeah Hans.
Nothing really to add on the on the margin side. There are obviously a number of paths forward for us and we will we have high expectations for the results will produce on the inventory part of your question. We took the decision that.
I think it was obviously a a a smart way of approaching the market to say there was more uncertainty around supply chain, but is that the availability of the the physical item and also the supply chain's ability to deliver that item from factory to us.
<unk> sport fashion and so we built some.
<unk> built some cushion into our supply chain model and you see that in the inventory levels. There is certainly scope for us as.
As we feel more comfortable about the predictability.
Predictability, because the supply chain to return inventory levels.
Closer to historical levels. Once you account for the difference in rates with the price of the product because suddenly.
Absolutely I would expect to see inventory levels.
The opportunity to reduce.
Thanks.
Brad we're ready for the next question.
Thank you. The next question comes from Frank Louthan of Raymond James Your line is open.
Great. Thank you can you talk to us a little bit about the business market with government and you know any any changes you're seeing there and then.
At what point can we expect to see the consumer subs get back to two something approaching a more positive growth with your with your current promotion strategy is that something more out in that into next year, I mean, I understand that the confidence in the network and so forth, but you know at some point, we'd like to see that kind of show up in the subs, what what can where can we expect that.
To start to turn.
Yeah. Thank you Frank let me start would it be.
The governmental business on and and of course and government to be since they need longer contracts of course, they come up for renovation now and then I think what we see much more easily digitalization happened in that segment as well equally much of it you would enterprises and much more about our I'll say.
Supplying whole a whole business mold, those with digitalization and applications and support them with the with the way some working so that we can go down as we announced yesterday one of them would agree with one a governmental agency definitely included that so we see the government is going the same way.
So is that enterprise market going with digitalization, which includes applications wireless technology fiber technology in order to see that their employees and their services have the latest technologies and that's I think we're playing well into given to.
The network will have and the confidence that our everybody having on networks for them I think that's a really what's happening.
On the consumer side.
Yes. So look obviously, we are the team continues to work through.
The competitive marketplace as I mentioned earlier I do expect to see a thoughtful and a little bit of a bubble and shut in the third quarter here because of some customer reaction to the pricing actions. We've taken we would expect to compete effectively during the holiday season.
We get into a.
New device launches and then in the fourth quarter.
So I would expect us to to start to show up with a obviously different numbers of that time of the year and then we'll continue to work to be as competitive on a disciplined fashion in the market as we need to date.
Alright, great. Thank you yeah. Thanks Frank.
We have time for one last question.
Thank you. Your final question will come from Doug Mitchelson of Credit Suisse. Your line is open Sir.
Oh, thanks, so much Hans I think your commentary on handset subsidies is about as strong as we've heard from you.
Customers do you believe then that streaming gives you a bunch better mileage for your promo dollar than handset subsidies or should we expect you to reconsider excuse me and subsidies as well and I'm just thinking with your new plan on the more price conscious consumer side.
Is it just price that's going to swing those customers over to a Verizon or is other factors like a value offering with bundled five G home or or streaming subsidies something that might work just as well obviously the value customers you now have broadband and probably up to treatment at home as a as well just curious I can think about evolving the are price sensitive.
Offering thanks.
Thank you first of all on the on the different type of value services, we're having the high end or in the premium segment, because these new Clos or Oh, there. We think that's very important still land and we we see a customer really liking it and we have been in the forefront of this industry with these type of X.
Lucy deals with the most prominent brands you can ever think about we will continue to do that for our high end customers and that has really turned out well for us and our partners are and in during the second half of this year as well as we announced that they met the day. We also want to launch the <unk> play, which is a platform for these.
Digital subscription aggregation, where our customers are you'll have seen basically I wouldn't say to everyone. Because there's many in the market, but the majority of the important brands has signed up with also and we will continue to leverage both social networking service, but also distribution as a service.
Our customers and for us in order to have the best return on investment. So we feel good about that and as you see in the market place them in a digital subscription services. It's just pumping up the direct to consumer all over the place nowhere better to work with the then working with Verizon on that has the biggest direct to consumer distribution in the market.
And we have a lot of inbounds, we're going to do it right, we want to see that our customers and our shareholders are benefiting from it.
When it comes to the question about a subsidy and all of that then and segmentation and that's it clearly articulate what we tried to that'd be surgical in or are you know changes bolt on prices and on a step ups and all of that and right now the team are working diligently it has to be done.
On the segment.
That is hitting a low end unlimited on metered plan, we're going to see and have opportunities there to bundling and other things are we're already working with our fixed wireless access offering for our customers are that are wireless customers would go to a very good value proposition. So we will continue without them see if there are other things we need to bundling, but right.
Now we have a I think a very strong positioning and we're taking aggressive actions in the quarter are some confidence that we will continue to see improvements here all the time.
Alright. Thank you yeah. Thanks, Doug Brad that's all the questions we have for today.
Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using for Ryzen Conference services you may now disconnect.
Yeah.