Q4 2022 Verizon Communications Inc Earnings 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 fourth quarter earnings Conference call I'm, Brady Connor and I'm joined by our Chairman and Chief Executive Officer, Hans Vestberg, and Matt Ellis, Our Chief Financial Officer.
Before we begin I'd like to draw your attention to our safe Harbor statement, which can be found on slide two of the presentation.
Information in this presentation contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties discussion.
A discussion 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.
Earlier. This morning, we posted to our Investor Relations website, a detailed review of our fourth quarter and full year results. I Hope you all had a chance to read the material I'm going to briefly discuss the financial highlights before turning the call over to Hans to lead a discussion on our strategy guidance and forward looking view of the business.
Slide three shows a summary of our results consolidated total operating revenue was $35 $3 billion in the fourth quarter up three 5% year over year wireless.
Wireless service revenue grew five 9% year over year in the fourth quarter benefiting from unlimited plan migrations, our best fourth quarter total postpaid net additions in seven years.
The actions that we began implementing in June of 'twenty, 'twenty, two and a full quarter contribution from Tracfone.
Consolidated adjusted EBITDA was $11 $7 billion for the fourth quarter down 0.2% year over year wireless service revenue growth was offset by higher promotional expense declines in our high margin legacy wireline business and inflationary cost pressures.
Adjusted earnings per share in the fourth quarter was $1.19 a decrease of 10, 5% compared to the similar period in 2021, driven by higher interest expense depreciation and lower pension related income.
Finally, we delivered $14 $1 billion of free cash flow for the full year 2022, and exited the year with a net unsecured debt to adjusted EBITDA ratio of two seven times.
With that I'll now turn the call over to Hans.
Thank you Brady and good morning, everyone on today's earnings call I will focus on our strategy to guide us expectation for the business and why I'm. So excited about the opportunities for the year ahead, let me start by saying that we deliver against all of our revised financial targets provided in July including eight 6% wireless service revenue.
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$47 9 billion of adjusted EBIDTA and adjusted earnings per share of $5.18 I'm pleased that the momentum built during the third quarter continued into the fourth quarter last quarter. We said the expectation of a positive consumer phone net adds in the fourth quarter and we deliver.
But against that expectation, although we have more work to do I'm encouraged by the improvements and expect to build on the momentum in 'twenty to 'twenty three the improvement in the consumer performance was complemented by yet another strong mobile quarter in Verizon business group as well as continued success in fixed wireless access.
With net adds up sequentially in both consumer and business together way to files resolved. We added 416000 broadband subscribers in the quarter or best told through broadband performance in over a decade and approximately one 3 million total broadband net adds for the year.
Regarding our guidance.
We have positioned ourselves to improve on our performance in 2023.
And expect to build a good underlying operational momentum, although that would be offset by the impacts of the noncash factors such as promo amortization in our revenue growth and adjusted it beat though.
Additionally, we're seeing some impact of high interest rates at the same time, we expect our capital spending to reduce significantly in 2010 Threep as we've reached the end of our incremental C band spending which will be a tailwind for free cash flow.
We are striving to make further improvements and take even more actions that will ultimately lead to better performance than the guidance we have outlined today.
Discuss the guidance in more detail later in the call.
The industry and Theres 23 with continued macroeconomic uncertainty.
<unk> inflation and interest rates impact the broader economy still demand for our services remains strong given the growing importance of mobility and broadband to both consumers and businesses.
The culmination of our network reliability diverse portfolio of products and services and the industry's strongest customer base provides us the flexibility to meet the changing customer needs even in difficult economic environment.
We measure our success in maximizing value across stakeholders by our ability to grow service revenue EBITDA and cash flow.
Taking these three metrics together is how we hold ourselves accountable, we're well positioned to improve our performance and accelerated growth on a go forward basis with network quality as the foundation for our strategy and growth we.
We expect the wireless mobility, a nationwide broadband would be the most significant contribute there still varietals growth for the next several years in 'twenty 'twenty. Two we made important progress in each of these businesses our growth in these areas would be driven by extending our network advantage using our C band spectrum.
Which we expect will strengthen our network leadership in the coming years, we're taking a balanced approach on how we run our business.
I think the right customers and generating ongoing profit from them is how we maximize value.
We remain focused on our cost reduction and efficiency actions, while also maximizing our return on invested capital via better monetizing our assets to put us on track to improve free cash flow going forward.
We're proud of being the strongest in the industry in terms of generating cash and want to pursue that while also continuing to strengthen our balance sheet, we're executing with discipline and will continue driving our strategy, which produces sustainable long term growth and profitability.
As connectivity plays an increasingly important role for consumers and businesses. It is a call. It all the connectivity that matters. The most not all networks are at detected and built the same nor have the same quality. We have seen these differences in the past and expect that <unk>.
We'd be no different.
Our engineers have the best track record for designing and building networks that produce the best experience. Our network will continue to evolve with a relentless commitment to quality and reliability.
Then capacity when needed and feeling service gaps where they exist even as capital intensity declines in the coming years.
And the shift to five <unk> were being rapidly building up our C band spectrum with the most aggressive deployment plan in our company's history.
We're tracking to 200 million Pops this quarter and are well ahead of schedule to reach our 250 million pulp targeted by year end 'twenty to 'twenty four.
C band propagation is very similar to that of AWS and Pcs spectrum, which covers more than 300 million Pops today.
This gives us a clear path to scale C band quickly and efficiently, including in at 330 markets, where we expect to gain complete access to the C band spectrum later this year.
Due to the timing of spectrum availability, our deployment strategy to target the highest use rare earths first what it capability to deliver the most is seeing which experienced in places where the majority of our customers consume mobile services.
The additional spectrum is cleared we would have access to many new markets as with prior generations of wireless technology customers in all areas can expect to receive the best network experience.
And where we have built out the C band, we're only getting started early deployments have limited to 60 megahertz or hundred megahertz in some early clearance market consumer performance in this market has been encouraging.
Evidenced by better retention more favorable gross add trends in higher premium uptake. In addition, the majority of our consumer fixed wireless net adds are on C band with the final tranche of spectrum expected to be available in late 'twenty to 'twenty three we can deploy an average of 161 megahertz and.
The 200 megahertz in certain markets across the entire Continental U S. When we turn on the full breadth or spectrum, we expect peak download speeds to reach 2.4 gigabytes per second up from the 900 Megabits per second and we see with 60 megahertz deployed all while supporting far more users.
And applications at the same time, we're also deploying our five year Standalone core so by the end of the year you should see your network with incredible speeds, both downlink and uplink and position delivered five new capabilities, such as network slicing voice over five <unk> and Knorr among others.
We believe our network will allow us to maintain our premium position with our wireless mobility customers and provide reliable fixed wireless access services to consumers and businesses across the country.
This is an example of how we can monetize our multipurpose network by scaling separate revenue stream on the same infrastructure to enhance our return on investment we're adding for more capacity to our network than the peak usage increase we're expecting in fixed wireless markets. We continue to expect that we'll have four to 5 million fixed what.
Ascribes about a <unk> 25, and those subscribers would it be enabled by our current build and capital patents.
Our mobility and broadband plans are supported by our deep fiber position and ongoing fiber investments approximately 50% of our sites are now served by our own fiber up from 45% last year. We believe we are the only provider serving the level of its widest network with its own fiber D supports.
<unk> quality of services and end to end owners' economics that means better reliability and higher margins.
Look for us to continue to expand the percentage of sites on our own fiber. We also expanded our fiber footprint by over 550000 locations in 'twenty to 'twenty two.
Standing or fires open up ourselves to more than 70 million location. You can expect continued fiber expansion in the years ahead in summary network quality is the foundation of our strategy and growth and all of the moves we're making are focused on ensuring we continue our network leadership in the future.
As I mentioned earlier, but rise all success should be measured against three important metrics.
Service revenue EBITDA and free cash flow left.
Let me now cover each of these in detail and tell you why I'm, so confident in our ability to deliver against all three of these benchmarks.
We expect that our network differentiation will be the cornerstone of our service revenue growth and that they will allow us to continue to attract the highest quality customer base in the industry and maintain our market leading share of the beat to be market. Our fixed wireless access is also expected to contribute more meaningfully to <unk>.
Service revenue as we enter the year growing rapidly with a base of more than one 4 million subscribers.
Turning to us to demonstrate to us that we need to be even more agile and responsive in the consumer market. This is one of the reasons I assumed leadership of the business late last year, we're moving into 'twenty, two and three with momentum and expectation for improved performance based on recent actions and planning initiatives.
After integrating track one of the last year, we're now a full complement of offerings from entry level prepaid all the way up the premium unlimited postpaid plans for the first time in our history. This will enable us to better attract new customers, while also retaining customers through their mobile journey.
Do you have already seen us take more segmented approach to the market through the wells come on limited and one unlimited plans in postpaid and the launch of total by Verizon in prepaid we're already seeing the benefits from these actions in 'twenty three our plants will continue to evolve as we look for the best ways to Kate.
To our customers whether through network experience content or other product offerings, each new offering gipson at all but you want to engage with prospective customers and ensure they received a plan that best fits their needs were.
We remain disciplined around our core pricing and continued to perform well with our premium customers on retention and step up activity as we move into 'twenty, two and three we're taking a more localized approach with our network and go to market strategy, providing greater autonomy to the teams on the Frontlines and speeding up the pace of decision.
Making.
This will allow us to compete more effectively across geographies, particularly where dynamics may differ by individual market. Finally, we continue to revise our sales compensation structure, ensuring we have the right incentives in place to drive sales growth the customers will have and continue to attack.
<unk> represent the highest quality customer base in the industry.
Based on our customer payment patterns, which are at or better than pre pandemic levels and the low delinquency rates in our sick viewers rise device payment plan portfolios. We continue to see only a limited impact from the macroeconomic environment on our customers.
We're watching this closely we have a lot of confidence in their really cilliers of our customer base.
Scaling our new businesses, such as private five year networks and edge computing will also be a strategic focus in 2023, our funnel is strong and we're making the appropriate investments to ensure such services provide a meaningful contribution to fuel the growth in the years ahead, which differentiate us in the industry.
You can expect Verizon to compete but I want to underline again that we will not sacrifice financially for volumes. We continue to focus on improving our cost of acquisition and retention and believe current promotion incentives are not sustainable for the industry in the long run although we have participate to some extent in this dynamic expect us to pursue more way.
To move away from the aggressive handset subsidies with office like well come unlimited plan, which offers attractive headline pricing for customers, while reducing device subsidies, we manage the business for profitability and such actions to drive healthy lifetime value for the business.
Moving to business wireline, we're taking several actions to reduce the financial impact of the unit and are scaling back on pursuing low margin revenue in order to again drive improved profitability.
While this may result in missing out some revenue it is right move and one that will lead to higher margin and cash flow over time at the same time, we're focused on further improving the cost structure through greater efficiencies.
You may recall that we embarked on a new cost cutting initiative late last year a component of this initiative is the formation of a variety of global services. This organization is accelerating efforts to drive cross functional efficiencies, enabling us to reinvest savings in network superiority and cut.
Customer growth, while contributing to long term profitability.
Additional opportunity existing sourcing sales and marketing and corporate system among others. The heavy lifting is now under way as we execute against our goal to deliver $2 billion to $3 billion of run rate savings by 2025.
Sorry to beat the strategy is clear grow profitable volumes in both consumer and business based on our increasingly differentiated network and manage our expenses. The way you would expect us to do.
By growing service revenue in beta we believe that we will be able to provide our shareholders with increasingly healthy free cash flow, which will support the strength of our balance sheet and fund our dividend growth.
Current streak of raising the dividend 16 years in a row is unmatched in the industry and we intend to be able to continue that trend because our mobility and fixed wireless access products leverages. The same infrastructure, they provide a capital efficient path to future cash flow growth.
We believe that we will become increasingly efficient with our capital using less capital to generate every dollar revenue for years to come that will enable us to produce expanding cash flow that we can both reinvest in our business and return to our shareholders.
And as you know we're doing all of this as our capital spending budget is expected to decline from $23 1 billion in 'twenty one too. So on the 19 billion at the midpoint of our guidance range. This year, a reduction of nearly 20% year over year in 'twenty 'twenty four we expect our capex to be around.
117 billion, which we expect to represent the lowest capital intensity in over a decade and among the lowest in the industry. We expect we will deliver a best in class network experience, while reducing our 'twenty one two capex because everybody's.
By more than 5 billion over the next couple of years with that I turn it over to Matt to discuss guidance.
Thank you Hans and good morning.
I want to spend some time walking you through our 2023 guidance, while also commenting on our longer term outlook.
Our 'twenty to 'twenty three guidance reflects momentum we have exiting 2022.
Which we expect to drive wireless service revenue growth.
For 2023 we expect total wireless service revenues to grow between two five and four 5% driven by increased penetration of premium unlimited plans scaling of fixed wireless continued growth in products and services, such as content and device protection plans and the full year impact of our pricing actions take.
In 2022.
As noted in our earnings materials, our wireless service revenue growth outlook includes an approximately 190 basis point benefit from a large allocation about administrative and telco recovery fees, which partially recover network operating costs to wireless service revenue from other revenue.
In addition, we expect promo amortization to be approximately $1 billion higher than last year.
We expect adjusted EBITDA to be within a range of 47.0 billion to $48 $5 billion.
This outlook reflects expected higher wireless service revenue offset by wireline and other revenue declines and higher marketing and network operating expenses.
Full year adjusted earnings per share is expected to be $4.55 to $4.85.
Noted on our third quarter earnings call high interest rates are expected to result in approximately 25 to 30 cents of interest expense pressure in 2023, due to higher floating rate debt costs and higher securitization costs for our growing device payment portfolio.
We continue to believe we have the right debt structure for the long term and have managed our balance sheet appropriately by keeping short term maturities to a minimum and this higher interest rate environment.
Higher rates of pension and OPEC. In addition to the lower pension asset base, resulting from negative returns. In 2022 are also expected to impact our adjusted EPS by approximately 12 to 15 cents compared to 2022.
This flow through other income and expense in our income statement Phi.
Finally, we expect approximately three to five cents of impact from higher depreciation expense, primarily driven by the C band equipment being put into service across 22 and into 'twenty three.
Our adjusted effective income tax rate is expected to be in the range of $22, 5% to 24.0% based on current legislation.
<unk> spending for the full year is expected to be between 18 in the quarter and $19 a quarter billion dollars incur.
Including the final approximately $175 billion of the incremental $10 billion of C band related capital spending and we continue to expect total capital spending to be approximately $17 billion in 'twenty 'twenty four.
The reduction from the $23 1 billion in Capex in 2022 is expected to drive higher free cash flow in 2023, despite increases in cash interest and cash taxes.
As previously discussed we will complete our accelerated $10 billion of C. Band program. This year, after which O C band capital expenditures will be parts about business as usual capital program.
Looking beyond 2023, given our exit rate from 2022, we don't expect to hit the long range outlook as we projected at the Investor day last year. However.
However, due to the way, we have positioned down network and service offerings coming into 'twenty. Two 'twenty three we do expect to increasing growth in revenue and cash flow in subsequent years.
I will now turn it back over to Hans.
Thank you, Matt Let me summarize the Verizon opportunity in a few key points.
We're making the necessary improvements to drive better performance.
I have the best network, and it's only getting better even as capital intensity improves.
We are the largest it beat the base in the industry and a clear path to free cash flow expansion and finally.
One of the most attractive dividends in the market and we intend to be able to continue the trend of growing the dividend each year.
By that I hand, it over to Brady to start the Q&A.
Thanks, Hans Brad we're ready to take questions.
Thank you.
We will now begin the question and answer session. If he would like to ask a question. Please press star one please on mute your phone and record your name clearly when prompted.
<unk> is required to introduce her question.
To withdraw your request please press star two.
One moment please for our first question.
Your first question comes from Simon Flannery of Morgan Stanley . Your line is open Sir.
Thanks, a lot and good morning, I had a couple of questions on the guidance. The first one is how.
How are you thinking about your confidence and the visibility of this guy that's as compared to a year ago, obviously, we'd have to war and stuff like that but I think that the reductions in guidance, obviously were a concern for investors. So as you went through this process was to deliberate conservatism that you were trying to bake in to make sure that you could hit and I think counts.
You might've mentioned exceed the guidance.
<unk> steps, so that kind of setup will be great and then I guess for Matt I mean, you called out some of the pressures on the bottom line, but you had a 30 cent range on your EPS Guide I think it was 15 cents a year ago and it sounded like on the items you gave the range wasn't that why it's so perhaps you can just give us some color on you know what what caused you to be as wide.
Here on the EPS. Thank you.
Thank you Simon I can start and then when it comes to the guidance I mean are we of course, it's a little bit uncertain as we said coming into the year, but we're laser focused on the service growth and on the beat that expansion and hence also the Casper expansion. That's how we're running our business and that's how we take decisions and as I said.
I mean, our job is of course to see that we are meeting or exceeding the guidance. We gave me and out in and that's how we're going to work all year and our teams are set up to work like that we were in the beginning of the air. So are we going to see how that turns out, but clearly where I was.
Super laser focused in the whole company, all we're executing right now and how it hangs together and as I said before we have now all the assets are all the way from the network to our to the prepaid to postpaid all that from US is a lot of execution in a competitive market, but we definitely believe we can compete.
Well in that market.
Thanks, Tom Good morning, Simon So because you think about the guide for the year, obviously, there's a number of items in there.
As I think about the range are you know we can get to the top end of the range there with a strong execution.
Activity around the cost programs scaling that flywheel moving faster than our base assumption.
Just if we see more volumes come through the business there obviously the low end.
We will reflect them.
The promo environment, the overall competitive environment, and then we'll see a items like inflation and so on and so the range of the EPS Guide I think very similar to the EBITDA guide that we've given and I think it reflects as we come into this year when you think about.
So much of the the unknown will play out here in the macro environment.
And the competitive environment, we feel is the right range to have for 2023, San said, there's a lot of things for us to stay focused on and make sure we produce the best results possible.
Thank you.
Thanks, Simon Brad we're ready for the next question.
The next question comes from John Hodulik of UBS. Your line is open Sir.
Great. Thanks, guys.
Can we talk about consumer margins within the guidance.
They were down about 400 basis, almost 400 basis points in 'twenty, two and Matt. How did you guys gave some good color on the puts and takes around promotions around rising global services, and I think I guess higher marketing and network operation cost but.
I guess any other puts and takes to call out and as we look into 'twenty three as part of the guidance should we expect the consumer margins that sort of flattened here and do you guys have visibility that as you guys.
A lot of these initiatives take hold that we can start to see some improving margins on the consumer side. Thanks.
Thank you and Oh can start I mean of course, we're doing quite a lot in the consumer segment right now or all the way from addressing areas, where we have softness in our portfolio with the well count for example.
In order to create growth, but also regionalize our business are both on the network side and the AR and the consumer side in order to take quicker decision, but also that the network is so strong in in local markets. When we're building all of the C. But we wont take advantage of that and as we said before.
The chance to well, we don't have a shot as we we see the the coordination between our C band deployment then.
And step ups and of course, it's a fixed wireless access in the majority of them are fixed fixed wireless access Cosmo coming on C band right now so that's why and finally, we have also worked with it spending the consumer investment I call. It all the way what we're doing above the line on promo what we're doing below the line on retention and how much we're doing media, we're doing that much more.
Agile I think that will help us to manage and continue our our clear path and a clear target of growing our top line and expanding our already thought that's our job. But then there are some headwinds that my math has talked about but obviously the underlying should be improving with the cost cuts and the way we're working in the consumer group.
Matt Yeah. Thanks, Hans <unk> morning, John So if you think about the the year over year reduction in 'twenty to remember at the start of the year.
We said that we expected about a 200 basis point impact because of the inclusion of Tracfone in.
In the business for.
For the year, obviously accretive in absolute terms, but from a margin standpoint, we did expect to see that so then obviously, there's some other items in there.
We've talked a little bit about the inflation impact last year, obviously, the competitive environment in the promo a piece in there as well. So you know there'll be some things that we have the opportunity to improve on this year's synergies from within Tracfone as we move more customers move into our own network will will be an upside.
But then as we mentioned in the prepared remarks, obviously, the promo amortization expected to be up on a year over year basis as the delay between being at these higher levels from a cash basis, and then you know that flowing through on an accounting basis. So.
So when you net those things out.
<unk> something initially on a probably a similar type of level in 'twenty three 'twenty two with some opportunities to push that as we go forward into subsequent years.
Great. Thanks, guys.
Yeah, Thanks, John Brad we're ready for the next question.
Thank you. The next question comes from Brett Feldman of Goldman Sachs. Your line is open Sir.
Thanks, and I'm actually going to stick with consumer and I was hoping we could get a little more insight into two different tools, you're using to go to market. The first is broke them unlimited you've been advertising it quite a bit and you've mentioned it a couple of times. During your prepared remarks, I'm wondering to what extent are you finding that welcome unlimited is indeed, a popular plan with new consumers versus the <unk>.
And to which it's driving wireless shoppers into your channels, where you're actually more frequently converting them into a higher tiered plans. That's the first question and then it seems like you have been reluctant to make greater use of device promos, obviously, you're using them to some extent last year. How are you thinking about the role of device promos as you go to market. This.
This year and you look to sort of sustain these positive consumer phone net adds thank you.
Thanks. Thanks.
The the welcome unlimited is working exactly as we wanted them and it creates the store traffic, we bring our customers in and we see that it cost them against the plans. They won't Oh, we have a we have not seen any any any any step downs over or that is coming from that we're more seeing an opportunity for our <unk>.
Customers will have a conversation with them and of course remember that's a bring your own device is for four lines and that's the way web and Lillian will learn a lot from the the first welcome we started with somewhere in the third quarter I remember, we're beginning in the.
Second our when we saw a little bit and that was an area, where we were so that's why we we clearly saw that customers were going to others. This we now have the vote and then they come to us and if you then add that you'll see our premium unlimited continued to do well, we went up to 45% actually from 41%.
Third quarter I think so we've added 4% more on unlimited freedom and so that is working for US we just need a agile snake low to see which segment and then b.
<unk> aggressive in this segment, we need and that in the segment.
Forming welling will let them continue to perform well and when it comes to device promos Ah Yeah. We we we all understand that as part of the competition and in part of the market, we will be important in that as well, but we will continue to be cautious and see that we're actually using their wives for almost in the right moment for the right customers and are you. So what's last year coming in and out.
So we're a little bit more aggressive than others, we were actually at least aggressive and I think that's how we will continue this year, depending on where the market is going but what you can expect from us in the consumer unit needs to be agile take quick decisions and see if they're working that will continue if theyre not working we're pulling them. That's why I'm into this basically everyday myself now.
And I think this is a proven that we get the momentum with the team and the team is actually executing well we have more to do I'm, an Ah Ah I always say that I mean, it's going to take long time before I feel that 100% satisfied or happy but definitely it's a work to do here, but I've seen the good momentum.
Thank you.
Yeah, Thanks, Brett Brad right for the next question.
The next question comes from Phil Cusick of J P. Morgan Your line is open.
Hi, guys. Thank you.
Sticking with wireless service revenue when I pull out the definition change from other service revenue, you're guiding to roughly 1% to 2% wireless service revenue growth and 23, which is a big deceleration from almost 6% this quarter.
How should we think about this in regards to phone adds in <unk>.
And the impact of promotions on service revenue can you just put the pieces together for us.
And do you expect that revenue will stay positive each quarter of this year, we're actually flips to negative at some point.
And just on top of that typically we see things much slower in terms of subscribers from <unk>, while I don't expect you to guidance subscribers do you think we'll see sort of typical seasonality.
This quarter or do you anticipate sort.
The better performance. Thank you very much.
Again, you can start and then Matt can break down the numbers you are talking about them and yes.
We on the on the premium segment there is a seasonality in the first quarter and I don't think that's going to be different. This year. However, our work is to keep up the momentum that what happened in the fourth quarter into this year, where we had good store traffic year quarter over quarter and also a high conversion rate, but it also means that we need bad y'all and see what's happening in the market.
It would be the only two.
Two to do any guidance or something like that which we're not doing a on net adds but clearly there is going to be seasonality, but it will have good momentum and we're going to continue to execute and be very close to the market, but that fell so kind of unpacking some of the.
Piece parts of your question there so seasonality absolutely we expect that to look reasonably as you would expect throughout the year from an overall standpoint in terms of the service revenue guide.
Your math is correct. When you think about the fourth quarter, you said close to 6% remember that included a full quarter of owning tracking for Q. This year for us is.
Only part of for Q last year. So you know as we get into 'twenty. Three finally on a year over year basis to talk about stuff on an apples to apples basis or not with them without M&A items, which is nice. So you know once you remove that very similar in terms of the piece parts within wireless service revenue guide I think about.
You got the positive impacts of the price ups. Obviously, we had six months' impact last year of approximately you get a full year impact. This year also the benefit of the F. W. A momentum we have and having a $1 4 million subscribers in the base at the start of this year that we're building throughout the year, but that's offset by the program.
As Asian, which as I've mentioned in the upfront comments or will be higher in the income statement year over year with the timing of the recognition is that and then also the impacts of the volumes last year offsetting.
Offsetting some of the the ARPA benefit we had so you know the the task for the team going forward is to continue the momentum.
We started to see in the second half of last year as Hans mentioned and that will put us in a position to continue to push.
Service revenue in the positive direction going forward.
Thanks, guys.
Yeah, Thanks, Phil Brad we're ready to take the next question.
Thank you. The next question is from David Barden of Bank of America. Your line is open.
Hey, guys. Good morning, Thanks for taking the questions.
The first one maybe Matt could we refresh the free cash flow.
Outlook for 2023.
I think the midpoint.
<unk> was 21 billion for 2023 from last year's Analyst Day, I think if we look at the EBITDA guidance, which is roughly flat your interest expense guidance, which is up 1 billion. The capex, which is down 4 billion.
It feels like it should be roughly 17 billion unless there's other things in taxes and working capital related to some of these promotions. So if you could kind of refresh that a little bit that'd be awesome and then hum.
You called out three things as it relates to the C band deployment and and you know this has been a big success for Verizon is getting this bill done I think that some people have been asking themselves like where the return is.
Is from all the money that's been spent and you highlighted higher retention better gross ads.
And higher premiums.
Premium take rate are there numbers that you can put around that that we could grab onto and say oh when in 2024, Verizon doubled their footprint in C band with.
With the new spectrum getting cleared we can put a number on that and say Oh. This is gonna be the return surprising gets from from this bill. Thank you so much.
Why don't you start math and I take the second question on the C band Yeah. So on the free cash flow. David you know obviously last year. We we we said that we expect you you had the right number of expectation.
Where we see a free cash flow might be for 'twenty three as I think about what we see the business today versus where it was a year ago couple of factors that are different you know capex very much in line with where we thought it would be at this point seems did a great job last year deploying C band and obviously, we spent most of the two.
Billions, so you get a nice year over year benefit offsetting that.
Cash taxes will be higher this year as we had less benefit from a higher capex number and also bonus depreciation dropping down that was in our expectation last year interest rates were obviously very different than we expected last year you'd touched on those and then the jump off point from the EBITA in the Biz.
This.
The end of 'twenty two to.
23.
Lower then we hope to be at the Investor day, a year ago. So you've got the right moving parts. There, we're not guiding specifically to a cash flow number we historically haven't but you got the right moving pieces in there so.
So net net the the capex reduction year over year. It gives us a good tailwind to think about cash flow for this year.
So with that I'll hand, you talked about the C. Band question, Yeah in Israel of course, a focus for us to continue to grow that the cash cost what I said, so many times. So we will continue on that one when it comes to the C. Band first of all we have said from the beginning to the C band acquisition with it is a multi decade spectrum is going to eat so much and there's so many.
Yes and of course that was a deliberate decision because we believe we're going to be in wireless business.
The old the old Horizons, a history. So that's very important however, when it comes to see impacts and I think I mentioned some of them. If you think about fixed wireless access the majority of all new customers are coming on the C band right now that's a clear indication without the C band, we couldn't grow the broadband right now we need the history high one.
4 billion net adds in the year, Oh broadband subscribers. So of course, the Lotto contributed to C band. So that's a clear metrics that the other metrics. Your hobbies of course unlimited premium where we say that actually we're performing very well, where we have deployed the C band in order to get the customer to step up and step up it's a very important and we are in a multiyear.
Scripps M business.
We are in a subscription business and the more you can see that you are upgrading the price the pea on that quantity is enormously important for long term value for our customers both of them. The third one that is coming in and I mentioned also when I. When I open. This of course private fiber networks mobile edge compute all that.
He is of course going to be very much supported by.
The C band is one that will come back and start reporting on that when we feel that that is a coming into the play from a more significant portion, but mobility and remember also that the wireless business side of the business is actually growing because of the reliability of our network and the resilience of our network, which is how are empty.
Customers are buying from.
From us when it comes to wireless business. So I think there are many metrics that you can see already now that is really the connected has he been there and I just wanted to remind you it's almost left.
It's one year since we got since we launch the C band is only one year and we are we going to cross 200 million Pops, who have never been so fast in the in the entire history of the company and we're well ahead of the plan to hit the 250 million pulp said that we said at the Investor day by handled 24, So I think that D C.
It's really a game changer in the market and we see performance why we outperformed the most resilient <unk> network in the nation.
You're starting you're starting with 600 megahertz and as you heard me talking with 116 average is going to be 200 later on it. It is a game changer and we can already see it right now and we see already metrics right now that is proving it.
Thanks, John Thank you.
Thanks, Dave Brad ready for the next question the.
The next question comes from Craig Moffett of Moffett Nathan Your line is open.
I'm, sorry, Michael Rollins of Citibank Your line is open.
Hi, good morning.
Two questions if I could the first one as you mentioned earlier in the discussion.
That you pulled back from some of those longer term targets that you had.
You know previously added the three plus percent service revenue another growth for this year and four plus percent for next year can.
Can you unpack the categories that are at or above the plan from a few years ago and then the areas of shortfall.
And if those areas do you view those as temporary or more permanent changes in the opportunity for Verizon.
Thanks.
Okay I can start on that first of all we are.
We're more confident than ever that we have the right strategy and we have the five vectors of growth are all of them or are going along some are actually exceeding our expectations and some are little bit slower and some have a little bit different jump off points, that's where we are but theres no difference, how we see the market and how we believe we can compete.
In all the five vectors of growth that we outlined in last time, it's more of a push in time than something else because of this year or D. C. R. 22, I guess I should say had some jumbo.
That is not really helping us, but all in all the whole strategy, where we're going I have a lot of coal and financing that team. The team has a lot of confidence that we're executing we're eliminating are the things that has been distracting off all the rates when Verizon media group et cetera that will have some headwinds that we constantly work with as well that we don't talk so much about.
On the wireline side I talked about that today, I mean, everything from a cost out but not only that we're going to be even more prudent what type of business, we're taking which will reduce our top line, but it will improve our profitability and cash flow. So you're going to see her taking many actions to see that we are delivering on the plans and the long term plans, but there are some.
Shifting it Matt Yeah. Thanks, Hans So Mike as you think about the conversation we had last year and we talked about the long term outlook. We provided the piece parts, maybe if I go through.
Some of those.
And where we are you know some of them were absolutely where we expected to be think about nationwide broadband with the the year, we had on <unk>, but also files and the expectation to continue to.
To see very good progress there that's very much in line with the expectations. We outlined a year ago also a business segment, our mobility results with six consecutive quarters above 150000 net adds very much in line with the expectations that we had.
At the Investor Day, a couple of areas, where we are behind our votes.
She is our expectation at that point in time, Firstly, you can see one of them the.
<unk> mobile edge compute and <unk> private networks, you're you're talking about it.
Technology adoption, there on a new technology that adoption curve.
A little slower than maybe we would like but as you heard from Hans in the prepared remarks, it's filling up with starting to see some momentum there. So still feel good about the the opportunity there, but the pace of the adoption curve a little different than our than we are we hoped it might be but the upside there.
Still looks very good and then of course, the other one consumer mobility.
At this time, a year ago, we had a higher expectations for 'twenty two than where we ended up obviously a lot of that variance occurred in the first part of the year and you saw the actions taken but if you think about the piece parts of the the long term outlook that we described a year ago and then how those.
Laid out in the past 12 months hopefully that gives you a little more color in terms of where things are moving along pretty much in line, where we also saw some areas where we've had to.
We have opportunity to see further.
Improvement as we go forward.
Thanks, Greg.
Yeah, Thanks, Mike Brown right for the next question.
Thank you. The next question comes from Craig Moffett of Moffett Nathan Your line is open.
Yes, Hi, sorry hope you can hear me.
So Hans I Wonder if you could just talk a bit about your bundling strategy, particularly on the consumer side.
With both the strength now in fixed wireless, but also Bios.
Is it your view that that going forward, the consumer is going to by wireless and wireline.
Wireline or fixed assets together or is that more of a sort of a financial.
Bundling strategy, rather than a real product bundling strategy.
Hey, great.
I think it's a really good question of course, where I've seen a this is a very strong.
Consumer movement in Europe that is a to a high degree have convergence.
In the U S, where I would say much lower but clearly it is something that our customers are or asking for so he's actually consumer feedback and I spent a lot of time in the stores meeting a lot of our consumers and they see a clear advantage to have the same provider on the broadband as on the on the wire.
Yes.
Yeah, I don't think we will get in 'twenty European levels, but clearly this is a moment then.
And they're super good at a position here, where the owner's economics on our broadband and on our wireless nationwide both of them and that's of course, a we're going to meet the customers here. If the customer I think that is what they need we're going to offer it and that's why we have these bundles in the market.
1000 separate we can do that that's why the wearable and there's economics on both of them, but the I think that trend will continue given the the consumer research we're doing into consumers about talking too that there's something that exactly and it's not the only consumer do you need to think about small and medium business as well make it convenient from them both having the wireless end up.
All of them because in the SMB today, and you know we spend we probably so I'm hopeful the smbs in the country F&B today need a digital.
Front door, and then being mobile first so this is a really good for us and if you look at our numbers. This year on bolt on fixed wireless access and mobility in the basal segment. Our F&B has been very important for us. So yes, I think there's something in there definitely and as our consumer desire and we're going to meet their desire as we as we continue.
And are there big differences between the way you think about it in <unk> versus non <unk> markets.
No it's not that different when we see it in the same way a if the customer no of course, we're much more mature historically in the <unk> footprint on the other side when we do fixed wireless access is a much more natural discussion with the customer I said, we have it from the beginning so I would say that we probably.
Ah.
A big opportunity on the final segment to have our customers both on the on the fixed on the mobile on the fixed wireless access I think that there you start actually on a strong position when you start offering fixed wireless access in many of the customers. So don't come in I did or a cable provider and have our wireless and that's how they move over to us.
Got it.
Alright, thank you.
Yeah, Thanks, Craig Yeah, Brad ready for the next question.
Thank you. The next question comes from Canon Bank protests worth of Barclays. Your line is open.
Thank you.
It's like when do you think about the.
The balance between.
Unit growth versus pricing, obviously, you guys have made a deliberate choice not to cheat unit growth.
Yeah.
Could you help us think through.
Or do you think about this longer term.
Because once you see market share it obviously, it can be pretty expensive to get it back.
And so when you think about this balance between pricing and unit growth.
Hum.
How important is unit growth not just for short term you know as we look at 2023, but also longer term.
Basically in when it comes to postpaid.
Thank you.
Thank you.
Good question I think that that's your hurdles at least I mean, we think that the profitable growth is the is the most important both to have the right customers are retained with Austin and the ones. We're getting so that that's an overarching measurement are we need to have then of course, it's always going to be a new customers are in.
Portland for a base Ah, but remember also these market right now if you talk about the premium segment. There of course, a certain amount of switchers in the market and then there is a certain amount of people going from pre to postpaid that is no.
Fusion of new customers.
Customers are seeing that in the system.
They're coming from two sources and you need to think about how you do that and I think we have a great opportunity right now with the Tracfone brands will have to see.
Total wireless are to see that we are taking care of that pre to post migration, which may have not been possible before we still have some work with the ITC tax and all of that but clearly today, we are running on both sides and on the switchable. Yeah. There were going to be a theme that we're prudent and disciplined but we will go for the U S.
Units, we think got it right so, but it's a subscription model long term that is even more important to increase the P. Sometimes then increasing to queue. Because this is long term that you stay with the customers to get the long term by our value from them, but it's a balance of it all the time and that will continue to have.
Alright, thank you.
Great. Thanks, Scott.
Brad ready for the next question.
The next question comes from Doug Mitchelson of Credit Suisse. Your line is open.
Oh, thanks, so much you talked about.
Organization being up $1 billion for phone subsidies to catch up with cash spending embedded in all your guidance is cash spending at peak levels is there a <unk>.
Gulfport still to go higher I know it depends on the competitive environment that it could eventually prove but are we at peak levels. It's just a question of amortization catching up.
And.
I'm curious when you think about the service revenue guide for wireless.
You know are there any price increases are anticipated that guide and kind of what level of price increase I know, it's a sensitive topic, but just curious.
How we should think about that revenue growth. Thank you.
I think you know if we talked about the price increases.
To come back to what I said before I mean, we will be surgical segmented in our approach there are certain segments, we need to be more aggressive on there might be areas, where we see opportunities for price increases there are no major price increases included at this moment, we need to see what the market is going and also very close to live and so going.
But you know we will always look at that but there's nothing right now that we're out in our towns.
But yeah on the the promotion piece you got the the understanding of the accounting treatment versus the cash that the dog and certainly our assumption is that the marketplace will continue to be competitive, but we're not going to go into this.
3% details of Watson our.
The guy that we but we do assume that we'll continue to see competitive level in line with the past couple.
A couple of years and then as Hans said, we'll continue to look for ways to put.
Plans in the market place and reduce the level of subsidy out there as well and we'll continue to push for those opportunities.
Great. Thank you.
Yeah, Thanks, Doug Brad ready for the next question.
The next question comes from Tim Horan of Oppenheimer. Your line is open Sir thanks.
Thanks, guys, Matt can you talk about your goals for free cash flow and I'm, specifically, how much do you think you can reduce the debt by per year.
Kind of going forward at this point.
And then secondly can you talk about the gating factor for fixed wireless growth. It seems like you're implying with your 25 guidance that this is kind of a good run rate, but yet your speeds are going to be increasing threefold and coverage.
So you get a massive amount of capacity kind of going out there, but do you think this is a good run rate for fixed wireless or can accelerate things.
I just thought we'd fix was access first of all.
We used three threat that we're just at the Investor day, four to 5 million subscribers on fixed wireless access our job is always to.
Try to beat that but that was worth reiterating that we are well ahead on that plan and then the second is of course, when Comstock capacity, we are definitely capacity, but that in much more Ah and again, we have a multi usage of our network that has been sort of the basis for this meaning the same radio base station.
<unk> are serving mobility fixed wireless access and mobile edge compute.
Not doing separate in the distant future.
Way above the four and five we can always come in to a sort of a decisions of splitting cells. You know when we get more fixed wireless access, but that's very far away from now we have ample capacity for the guide and much more than that so and of course, our team is doing everything you'll see that we can continue to.
Exceed our targets.
It came on the on the free cash flow question. So absolutely one of our goals is to continue to grow cash flow. Hans mentioned that you should measure us on revenue growth EBITDA growth and cash flow growth and that cash flow growth is something we expect.
To be able to continue to generate going forward, obviously the capital reduction.
From the high points in 'twenty to to the guide we gave for this year and then and even lower in mountain next year will be a positive towards that as we continue to obviously make.
Make progress on the income statement as well you should see that contribute there as well so that puts us in a position where we can start to see accelerated levels of debt reduction versus what you've seen in the past year or so so that's a the targets. We have ahead of us and look forward to.
Discussing progress against that as we go forward here.
Yeah.
Yeah, great. Thanks, Tim Brad We've got time for one more question.
Thank you. The final question for today will come from Bryan Kraft of Deutsche Bank. Your line is open.
Hi, Good morning, I wanted to ask you about business postpaid phone net adds they seem to be a bit lighter this quarter than they've been in the past four or five quarters and I'm. Just wondering if you're seeing trends there salt and due to macroeconomic factors such as corporate staff reductions or where it's competitive reasons or is it any slow.
Down in the secular trend towards company issued devices and then related to that.
Can you talk about what youre, assuming in the guidance at a high level for the macroeconomic environment. For example are you assuming the soft landing scenario with small macro impact.
Or are you baking in a more protracted downturn.
And the guidance. Thank you.
Thank you.
Yeah. So this is a multifaceted question on the on the fourth quarter of course.
Business to business side, Smbs continue a very strong and as I said, they they need to store a.
Digging their storefront and our mobile first strategy in today's world of the Covid. So I think that's where have been performing very well on that.
On the enterprise side, it's a little bit different but we see that bring your own device is going down and if you see more companies, saying that they want the company phone, which is of course, helping us here, so and that we got that trend. We have seen for a couple of quarters. So I think both of them are pretty solid on.
On the consumer side as I said, we are we.
We had a positive net adds we had the world's fastest had before a little bit spillover from the churn from the price increase at the beginning of the quarter and then there where it's actually a fewer days of sales in the fourth quarter.
Enormous what are so I don't think there are any new things more than what I said customers were a little bit later in the holiday season to do that had the higher intent when it comes to consumers, but it was nothing macro economical different then I talked about mirth and I talked about the bad debt and the delinquency being like.
Pre COVID-19 or equal or better than pre COVID-19. So no. There's nothing there we are of course watching it but so far we continue to progress well.
Yep.
Just to add on a couple of points. So you know as you think about the V. B G. Net adds you're always going to see a little bit of volatility.
Volatility up and down from one quarter to the next just because of the the size of some of the transactions that so all in all the jobs numbers continue to be good business numbers. Good obviously, there's been some high profile.
Layoff announcements, but overall job numbers are good and you see that show up in the overall.
And the overall numbers that we produced throughout the year and look forward to continuing to have best in class market share within the V for.
<unk> business groups spaces, because Ford in terms of the the macroeconomic assumptions in the the guide I.
I wouldn't say, we have anything too dissimilar to what you've heard from a number of other people during earning season, but one of the things I come back to is the resiliency of our customer base we've been through.
Different types of economic environments in the past, we know customers pay their phone bills.
Before they pay all the bills and other outgoings would fully expect that to continue.
And so we're obviously watching the macroeconomic.
Environment, but as Hans said the payment patterns continue to be very strong.
And we'll stay close to that but so far so good.
Great. Thank you thanks, Brian .
Yeah, Brad that's all the time, we have today.
Yeah.
Ladies and gentlemen, this does conclude the conference for today. Thank you for your participation and for using Verizon Conference services you may now disconnect.