Q1 2024 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.
Everyone and welcome to our first quarter earnings Conference call I'm, Brady Connor and I'm joined by our Chairman and Chief Executive Officer, Hans Vestberg as well as our Chief Financial Officer Tony.
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 and.
Information in this presentation contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties discussion of factors that may affect future results is contained in verizon's filings with the SEC, which are available on our Investor Relations 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 first quarter results, you'll find additional details in the earnings materials on our website with that I'll turn the call over to Hans.
Good morning, everyone and when it comes to our first quarter 2024 earnings call.
I'm pleased to report that we have started the year with solid momentum building on the progress we made throughout 'twenty to 'twenty three.
Our results this quarter further validate that our strategy is working and position us well for profitable growth this year.
Our execution in the first quarter keeps on track towards our full year 'twenty 'twenty four guidance as we continued to deliver against our key financial metrics. We grew wireless service revenue and adjusted EBITDA and generated solid free cash flow.
Operation Excellence ESR priority. Our team is delivering we have the right strategy and we're working to keep these progress up quarter by quarter. It has been a busy quarter across our business.
Produce big moments at the Super Bowl published our first consumer connections report achieved milestones in our C band rollout added new members to our leadership team published our annual ESG report accomplish many goals, we'd see to summarize them and completed a pension transaction.
That increases our financial flexibility.
Verizon has a differentiated position in the industry, we have the highest quality costume base in consumer and business the largest adjusted to beat them and a great team that knows how to execute our strategy.
Turning to our first quarter results wireless service revenue growth climbed to three 3% of revenue performance combined with our work on cost efficiency programs translate into a 12.1 billion adjusted it beat though that's a year over year growth of one 4%.
We generated $2 7 billion in free cash flow and we expect free cash flow to build throughout the year similar to 'twenty to 'twenty, three or a core product mobility broadband and private networks or at the center of People's lives MPC says connectivity is only becoming more.
Vital with each passing day in all of our investments and World class network ensure that our customers can depend on us to deliver the reliable high quality experience they deserve.
Now let me go into some specifics about these quarter, our consumer team is executing extremely well despite.
Despite taking further pricing action this quarter, our postpaid phone net adds performance improved year over year evidence of how our differentiated value proposition is resonating with customers.
Net loss of 158000 is more than hundred thousand net ads better than our first quarter performance in 'twenty to 'twenty three.
These achievements was fueled by continued momentum in postpaid phone gross adds which grew more than 5% year over year, we meet the gate the churn impact from pricing actions through laser focused retention efforts and the strength of our value proposition. These results represented Verizon consumer groups.
Strong as first quarter postpaid phone net adds performance seems 28 team are targeted and segmented go to market approach combined with my plan and its exclusive perks is clearly working.
With my plan, we're building a recurring revenue stream of the perks and services.
These incentives like our popular Netflix plus bundle.
And deepen our customer relationships, we know our customers extremely well and tailor our offerings to their needs.
We're bringing the same proven approach to our prepaid business within the quarter, we established a new value market leadership team, bringing experts to execute our plans with speed and discipline. While there is still work to be done we're seeing early signs of progress invisible and total.
By Verizon.
In February we stopped processing, new affordable connectivity program, Activations, which caused headwinds for our Safelane crown. The ACP may shut down, but Verizon is committed to providing households, with access to high quality connectivity a reliable home internet.
With all data caps and does not believe that income should be a barrier to access seems to one that's one thing we are all for the high speed home Internet two qualifying customers for as low as $20 a month through our Verizon on forward program and we have other plans to reach households, who rely on AC.
Pete.
For business mobility postpaid phone net adds were 90000. The team continues to put up subscriber growth at the market share leader in a competitive environment, even while implementing pricing actions within the quarter.
More businesses rely on Verizon then.
Their provider to lever mission critical support for their day to day operation.
In total <unk>.
First quarter postpaid phone net losses were six 8050, 9000 net loss improvement versus prior year, we're exiting the quarter with both consumer and business delivering their strongest performance in March a good sign for the year at.
Our broadband business continues to be a key growth engine now serving more than 11 million subscribers, we have grown our base, 18% over the last year and our network is a critical part of the infrastructure that's homes and pieces is rely on.
Fixed wireless access that's turned out to be large and growing opportunity. This is now a meaningful piece of our business. We knew that fixed wireless access would be a hit with consumers, who like its quality reliability and easy setup.
These are showing similar excitement as this was our biggest quarter to date for the net adds in BC is fixed wireless access weighed 151000, setting our new height.
<unk> remains extremely popular with one of the highest third part in net promoter scores in the industry and that's what we already know.
This is the best pure broadband offering in the country.
Our total broadband portfolio delivered a strong quarter with 389000 net adds as with mobility. We saw good momentum with the broadband net adds as we exited the quarter and we expect that to continue.
It was a great quarter in private networks, signing transformative deals across industries syrup selected our network as a service solution as its framework for modernizing ESG information technology system were also signed a new private network deal with a global power solution leader comments, Inc.
Iconic American sports leagues are turning to us for their networks that serve their fans players and coaches were on the field on the ice and in the stands and in the parking lots during the quarter, we held a partner summit, where we unveiled our sports and entertainment strategy.
We are at the center of the cultural moments that matter most to our customers from concerts and performance so athletic achievements and competition.
We're already in the National Football League Stadium in the country, we're now expanding services with NFL teams, including the installation of a private fund their networks at the AA Chargers training facility.
We also renewed our partnership as the official five network all the natural and hopefully in the United States and are expanding services dropped it's arenas.
As you may have seen in our consumer connection report during the 'twenty three 'twenty four NFL season, the average fan use more data than the year before these lie moments message to our customers and they want to share them by tick by phone and by video.
We are a vital part of their experiences our private networks business is growing and full of long term contracts with the best partners around the world.
All of this is supported by the infrastructure. We have built and are building. We are operate the nation's most reliable and robust network for all customers from households to global enterprises reasonably we pass through on a 50 million Pops covered we'd see about achieving our target almost a year ahead of plan.
The pace and quality of our Buildout is spectacular and most importantly, our customers love the C band experience in the first 76 markets, where we rolled out to Ya man, we see a higher premium mix and reduce churn our strategy from the start was to build a network wants to meet the needs of the present.
And to optimize it for the future and we're doing just that.
We have been working with for several years and our powerful network position Verizon to lead the AI Revolution in 'twenty three we released our SAP the responsible AI principles to guide our efforts to leverage new AI technologies in ways that positively impact our stakeholders and established Verizon.
As a trusted brand important with respect to AI.
Labeling AI at scale for improved customer service is a key we're also aggressively driving AI transformative potential with our businesses something our network was built to support we're already had several you generate the AI projects going live on our strategy to focus on three priorities first.
Optimizing internal processes and operation through machine learning, such as creating efficiencies in fuel consumption.
It's already kind of to talk cost transformation program that will become even more important overtime, secondly, and housing product experiences with AI capabilities like the personalized plan recommendation on my plan, which is producing good early results and thirdly, establishing an AI based.
Our revenue stream by commercializing our network's unique low latency high bandwidth a robust mobile edge compute capabilities generate the AI workloads represent a great long term opportunity for us.
As we expand our network and increase our performance advantage. We're also making Verizon in a more efficient organization, we're back to visa as usual level on Capex spend that's what I had.
And we have struck a balance between profitable growth and free cash flow that supports both our dividend and a stronger balance sheet. This gives us greater flexibility to accelerate deleveraging throughout the second half of the year, bringing us closer to our long term leverage targets are deeper than is healthy and secure.
And our free cash flow dividend payout ratio continues to improve we're focused on putting our board in a position to continue to raise the dividend each year building on our current industry record of 17 consecutive increases now let me turn the call over to Tony to discuss our financial and operational.
Four months in more detail Tony Thanks, Hans and good morning, our first quarter results demonstrate the strong execution of our team building on the momentum from 2023 and delivering solid results in our three priorities of wireless service revenue adjusted EBITDA and free cash flow.
We saw further improvements in postpaid phone net adds and another strong quarter of growth in our broadband subscriber base.
We accomplished this while maintaining our promotional discipline as evidenced by our year over year, adjusted EBITDA growth of one 4% and more than 16% year over year free cash flow growth.
<unk> postpaid phone net losses were 158000 for the quarter better versus the prior year by 105000, driven by improvements in both gross adds and churn.
As Hans mentioned this represents our best first quarter performance and consumer postpaid phone net adds since 2018, we continue to see improved operational performance with consumer postpaid phone gross adds up more than 5% year over year and as you heard from Hans we exited the quarter with good momentum the changes we've made over the last few quarters include.
Launching a regional sales structure and updating our sales compensation plans provide the right framework for our go to market approach.
We believe these changes combined with the continued success of my plan and increased utilization of C band will help us sustain our momentum.
Sumer postpaid phone churn of zero down eight 3% represents a one basis point improvement year over year. This result is a reflection of the strength of our value proposition as well as our high quality customer base. The first quarter postpaid phone net add improvement coincide with a further decline in upgrades, which were down nearly 21%.
Year over year.
We continue to see success with our disciplined and segmented approach to customer offers and alignment with our strategy on.
On the business side, we delivered 90000 postpaid phone net ads. This is volume results were challenged early in the quarter as the team implemented pricing increases in January however.
However, we saw positive net add momentum build throughout the quarter and we exited the quarter well positioned to continue to build on operational improvements in both mobility and broadband that sales performance helped Verizon business achieve fixed wireless access net adds of 151000 their best quarterly result to date.
We've been pleased with how our businesses have adopted SWA and we continue to see strong demand from small businesses and enterprises, which are attractive to the ease of deployment reliability and the flexibility of the product.
Fixed wireless net adds for consumer with 203000, resulting in a consolidated total of 354000. This reflects the attractiveness of that step away as an alternative to traditional cable broadband even in the market. That's a muted activity. We continue to be comfortable with this pace of growth, believing it provides the right combination of base growth are.
<unk> accretion and the superior experience our customers expect on the Verizon network and our third party net promoter scores for F. W. A product continue to outpace traditional cable broadband offerings as we remain focused on building a long term sustainable business.
Overall broadband net adds were 389000, including 53000 files Internet net adds.
We're pleased with how files continues to grow in the marketplace, even as move activity across the country remains lower than prior years.
We finished the quarter with over $11 1 million broadband subscribers, including over $3 4 million on F. W. A week.
We've now added more than 3 million broadband subscribers in the last two years alone on.
On prepaid starting this quarter, we are disclosing subscriber results with and without our safe link brand.
This disclosure provides improved transparency into our prepaid results.
As a reminder, they think it's a government subsidy program brand offering and holds the majority of our ACP customers.
The actions, we've taken to scale visible and total by Verizon as well as address operational execution with straight talk drove improvements in our prepaid performance.
Prepaid net losses, excluding safe link were better by 146000 year over year.
While we are pleased to see the improvements we still have work to do to address challenges in the prepaid business.
That includes navigating the uncertainty around ACP, and we recently announced plans to provide accessible affordable and reliable connectivity options for those who need it most.
As a reminder, we have approximately $1 1 million prepaid ACP subscribers as of the end of the first quarter. We expect the elimination of the program to result in lower wireless service revenue, but had minimal impact on our adjusted EBITDA moving to our financials consolidated revenue for the quarter was 33 billion up zero down 2% year.
Over a year the benefits of the pricing actions, we took in the quarter combined with improved operating metrics offset the year over year decrease in wireless equipment revenue due to lower upgrades wireless.
Wireless service revenue growth was three 3% for the first quarter. This represents a significant acceleration in our revenue growth as the full year 2023 growth rate, excluding the reallocation of certain revenues was the only 1.3% consumer led the way with wireless service revenue growth of three 4% driven by ARPA growth.
A four 4% and improved year over year postpaid phone net add performance.
In addition to targeted pricing actions ARPA continues to benefit from the further adoption of my plan.
My plan, who has been instrumental in growing our premium mix, which now stands at 42% of our postpaid phone base.
We're also starting to see a growing impact from park revenue as we scale the number of subscriptions.
With over 20% of the postpaid base on my plan, we see further opportunities for accretion as we expect to double the number of customers that my plan in our postpaid base by the end of this year for.
For the first time, we are disclosing fixed wireless access revenue within our externally released results.
<unk> revenue, which is included in wireless service revenue was $452 million for the quarter up nearly $200 million versus the prior year.
Headwinds in prepaid revenue continue to partially offset the gains from ARPA performance in wireless service revenue.
For the quarter prepaid revenue declined $106 million versus the prior year. While this is an improvement over the prior quarter. It represented an approximately 60 basis point drag on total wireless service revenue growth consolidated adjusted EBITDA was approximately $12 1 billion for the quarter, an increase of one 4% compared to the prior year.
Driven by the growth in wireless service revenue as well as the impact of lower upgrade volumes with a full quarter's impact from our recent pricing actions, we anticipate the second quarter's adjusted EBITDA growth to accelerate year over year.
Operating expenses, excluding depreciation amortization and special items were down 0.5% year over year lower cost of equipment and cost of services were partially offset by an increase in SG&A adjusted EPS in the quarter was $1 15 down four 2% compared to the prior year as gains in adjusted EBITDA were more than.
Offset by higher interest expense predominantly due to the lower capitalized interest now that a large portion of the C band spectrum licenses had been placed into service free cash flow for the first quarter was $2 $7 billion up over 16% or nearly $400 million from the first quarter 2023.
On a full year basis, nothing has changed with free cash flow. We still expect the same puts and takes we shared with you in January as Hans said, we expect free cash flow build throughout the year similar to 2023.
Cash flow from operating activities came in at $7 $1 billion within the quarter, we saw year over year pressures from higher interest expense primarily related to the reduction in capitalized interest.
Also made a discretionary pension contribution of $365 million prior to the closing of the retiree pension annuity transaction that we previously disclosed.
Capex for the quarter was $4 $4 billion compared to $6 billion in the prior year as a result of a return to be a new levels of spend and historical levels of capital intensity.
Our full year guidance of 17% to $17 5 billion in Capex spending remains unchanged.
Net unsecured debt at the end of the quarter was $126 billion of $3 7 billion dollar improvement year over year, and a nearly $400 million improvements sequentially.
During the quarter, we issued our sixth Green bond for $1 billion with proceeds committed to fund additional renewable energy purchases.
Net unsecured debt was also impacted by payments of approximately $270 million related to clearance of our C band spectrum licenses, which are now substantially complete.
While these payments do not affect our free cash flow they our use of cash.
Our net unsecured debt to consolidated adjusted EBITDA ratio was 2.6 times in line with the previous quarter, given the strength and momentum of our business. We continue to see a clear path to meaningfully delever the balance sheet in the second half of this year in closing I'm happy with our start to 2024 and our results from the first quarter status.
Well to deliver on our financial guidance for the year.
Our disciplined approach continues to put us in a strong position to execute on our capital allocation priorities. Our focus remains on driving operational improvements throughout the year.
With that I will now turn the call back to Hans for his closing thoughts before opening the call up for your questions. Thank.
Thank you Tony I'm proud of our team and I'm pleased with our financial and operational performance in the first quarter.
We exited the quarter with good momentum across the business positioning us well for the year at.
We're scaling fixed wireless access in private networks, while growing our core mobility business or.
Our disciplined targeted and segmented consumer strategy continues to prove itself and we will apply the same level of energy and execution to the prepaid market network excellence drives our business forward and we will not let up on that are consistent network investment puts us in Oh.
Mashed position to deliver AI services at scale.
Finally, our cash flow generation is solid this shows that we are executing well against our financial objectives or cash flow strength allows us to deliver on our capital allocation priorities, including supporting our dividend and paying down our debt.
With strong momentum already in the start of the second quarter I'm confident in our ability to sustained progress towards unlocking Verizon its full potential for all stakeholders.
We're ready to take questions.
Thanks, Hans Brad we're ready for the first question.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one please on mute your phone and record your name clearly when prompted your name is required to introduce your question too much.
Charles Your request please press star two.
Your first question will come from Simon Flannery of Morgan Stanley. Sir. Please go ahead.
Thank you very much and good morning, Hans maybe you can talk about the consumer a little bit. It was good to see the churn number perhaps you could just talk a little bit about the impact of the pricing there. It seemed like it had a drag on the business, but less of a drag on consumer and just what are you seeing overall in the.
Wireless market growth it seems like the industry is continuing to grow theres been some competitive moves by some of the cable companies recently, maybe just comment on the overall environment out there and your ability to sustain this as well as the low upgrade rates and then just a quick one Tony for you on cash. So thank you for the comments around the pacing through the year could you just talk about working capital.
And the impact this quarter it seemed like there were some some drags from bad on the quarterly number. Thanks.
Yes I'm on.
Let me start with the consumer business.
As we saw in the quarter, we it was a little bit slow in the beginning of the quarter, both for consumer and for business. When it comes to wireless, but then I think we clearly see that our products are resonating with the with our customers and on the consumer side. My plan is really doing well and as Tony said in the prepared remarks, I mean, the perks is now.
<unk> up our or our premium is also increasing so clearly we see that at the same time. The team has spent a lot of time to be disciplined both with promotions and show under management and you saw we had the price up in the quarter on consumer that was pretty wide, but our team actually kept the churn down and then the consumers.
I'm Gonna need chose first of all how grateful products is but it was such a see how well what you were seeing the AI tools and all of that to see that our customers.
Are getting the value and we are actually directly in the montney to the right customers. That's what you see coming out in the financial discipline in everything we're doing on the promotions was lower again this quarter, but again, it's a way for us to segment the market to see that we have the right products and that's where I've seen for quite a while right now.
The consumer side than what I said, the world stays that way.
What I've said several times, so I thought we we expect consumer to be positive net adds this year. So they are doing it than SAP and team probably have even more innovations coming and when my plan was one the perks and out there they have more things to come during the year. Some I'm really excited about what we're doing on the on the on.
The wireless side and then of course competition is the same that's nothing new but it's the same with that's what I've seen for quite a while but we use performed way better than we had the right product with the right people wherever I made the right changes in operation model and that's what you're seeing right now and now we move all that seemed to prepay and you saw that we're also doing prepaid bet, there, but still have more to.
Where we the team has their heads down very focused on execution very pleased what I've seen so far that doesn't mean, we're not going to push even harder going forward Tony Yeah sure. So good morning, Simon So a couple of other points on the insurance. So the results on C band are significantly better we see strong churn performance.
So higher premium mix and also a higher gross adds in C band markets and you know overall in 'twenty 'twenty four it's reasonable to expect similar or lower churn in the consumer business and compare it to 2023.
And then on your on your cash flow question in the prepared remarks, we said that our free cash flow would have a similar shape to last year and and build throughout the year, we do expect free cash flow to be up meaningfully.
In the second quarter, we still see the same puts and takes on free cash flow for the full year. As we described in January so nothing's really changed there on your question on the quarter, Let me start with operating cash flow, let me unpack that for you. So we saw the discretionary pension contribution in the quarter was 365 million in connection with the peg.
In an organization transaction that we announced in early March as we said previously the lower capitalized interest from C band now manifesting.
First itself in an operating cash flow and that was about $300 million higher year over year and the third point I'd make is you know we're funding the business for growth and very very confident in our ability to execute and you saw that again you saw the growth in the fourth quarter with strong gross adds and we followed that up with 5% gross add growth in the <unk>.
Sumer business in the first quarter and with that growth comes working capital timing that will settle in the second quarter, but overall, we're very confident in the cash generation of the business and Nonetheless, we expect to generate strong free cash flow and we see no obstacles and paying down debt in a meaningful way in the second half of 2024.
Great. Thanks, a lot of time.
Yeah. Thanks, Brad we're ready for the next question.
Our next question comes from John Hodulik of UBS. Your line is open Sir.
Great. Thanks. Good morning, guys first just a couple of quick follow up on Simon's question.
Number one the positive commentary you guys talked about.
March does that suggest you guys could be positive in terms of consumer phone adds in the second quarter. That's number one number.
Number two.
The price increase you seem to be digested pretty well and you actually saw churn come down does that suggest you guys have more pricing power than you thought and we could see.
Not just for you, but for the industry and we could see more in the future that it's up to them.
And then.
On ACP I noticed you guys announced some new plans with with free sort of low end plans on the broadband side with free service for six months.
Talked about some of the headwinds as ACP goes away, but do you believe that there's an opportunity to potentially win some broadband subs is that that plays out. Thanks.
Thank you John well. The first question there are consumer net adds in the short term I E.
I stay on my previous call meant consumer net adds should be positive in 'twenty that went before the team is of course doing quite good right now and we actually have 100000 better than the first quarter here and that that so let them continue to execute today. They have a great product that resonates with the market.
And are they they will continue to execute well on that on the churn side I think first of all I mean.
If you look at the market of course, we see.
Both the inflation on AR and am.
High interest rates and see it but.
About the product first of all so good right now I mean, everybody needs wireless and broadband and I think that that has.
<unk> quite dramatically over the last couple of years secondly, our products right now so well segmented for different segments with different groups and thirdly, we're laser focused to shorten management I mean, the team with SAP at the.
The AI tools, what have you. So we actually spend on the right customers. When we seem to have shown so all that came together despite that we had to a price adjustment that was large in the consumer group in the second quarter. The same goes for business wireless they performed well in the corporate that a little bit slow in the beginning of the.
Here, but rather really nicely also in the quarter and again they are a market share leader and on the wireless under continued to two continued to be positive. So.
I'm pleased with that on the ACP I will let Tony comment on that the only thing I would just say I think.
We think it's important that everyone. In these countries should be able to have wireless and broadband because it is such an essential service today. So that's why we historically already had plans on files that are for low income families. But also the whole prepaid family or products. What have you. So also addressing.
Again going back to being able to.
Support that regardless, if it's there the recent ACP or not but our segmentation models and lastly, I think on the children are high quality customers.
<unk>, which is best in the industry that is really playing out in this environment with the products, we'll have Tony sure and John Good morning. So in terms of ACP, we stopped enrollment in February and it's still accepting transfers through may as we said previously and then in the prepared remarks. The majority of the exposure is in the prepaid business and we have $1 1 million.
Prepaid subs that are in the ACP program. We've said previously that the guidance assume that the ACP funding stays intact, the impact or any impact would be seen on on service revenue up a potential 50 basis points of headwind.
And the the margin exposure from ACP is actually very small it was insignificant.
In the first quarter and if nothing changes in the funding goes away in May as planned and we have plans in place to address it both from retention and potential acquisition opportunities as well and obviously, we will continue to help everybody update everybody as we know more.
Great. Thanks, guys.
Yeah, Thanks, John Brad we're ready for the next question.
The next question comes from Michael Rollins of Citigroup. Your line is open Sir.
Thanks, and good morning, I'm, just curious if you could unpack a bit more of how we're thinking about up hearing opportunity within the postpaid phone base.
And as you look at the hubs.
We're away that.
We should think about the revenue contribution from perched.
That can go over time incremental way.
Rising to monetize space.
Hey, Thanks, Mike Yeah D. C said, our long term strategy of us at first of all we have a great base of customers, we want to give them the flexibility on the consumer side.
Then we add in the perks of course, all of that plays into a value play for our customers to even though we're up tier our customers and that has gone very well I mean, we said in our prepared remarks that almost a quarter of what customers have my plan right now and we are expecting it to go to almost or go to off of the base.
Which isn't never had the product moving that fast because it resonates with the market in there we have opportunities for both up hearing and then adding so its all incremental for our bottom line and accretive so and many of these offerings are savings for our customer which is just great I mean.
The Max Netflix is for example is a great saving great product. We are the only one in a market that can do that the wireless it's exclusive and that's the type of things would do on perks very different rather I would be I wouldn't say shop, but I wouldn't be at least surprised.
Some patterns of consumer team doesn't continue to think how they can enlighten our customers even more with these type of things going forward.
Tony sure So and Mike just a couple of other points. So we did see 4.4% ARPA growth in the first quarter and as Hans talked about it in my plan you know the premium mix is very strong it's 42% of the lines in the base and the park attach rates have steadily increased and then we will continue to increase so we feel really good about that.
The discipline, we see on promotions as well and keeping the amortization the pressure on check.
And one other point on operational efficiency. It sounds like a few times, where there was talking about AI or just a broader focus.
On the operations.
Important priority for Verizon this year can you frame how much of the cost cutting.
Who can deliver this year relative to the multiyear target.
<unk> was established.
Are there any milestones that we should be looking for that all signifies. Some further progress on these initiatives that go first of all we are on track for our cost targets that we have given to the market through the streets.
Secondly, many of the larger total transactions and platform transaction, we started already last year, the outsourcing to H L that customer cash changes with did which all Lord transaction without any interruptions for our customers who have done those they are coming into the base in 2020 four and of course full year 'twenty five.
Then I think now it's our opportunity in AI. Many of these things of course already talked about but of course, we see a great opportunity to serve our customers better we're already using for example, personalization in my plan with AI and with you using it in our in our network when it comes to.
Four months all of the capacity deployment that as well as our power consumption. So we are using AI and generate data AI already now commercially. So what this is not the playing ground for us and where you see more opportunity on the flip side of course I want to see revenues our network was built for AI.
That was my thoughts when I build Verizon intelligent edge network five years ago six years ago that we're gonna have compute and storage at the edge AI is sort of built for that with a low latency will have on the five year natural gas we are deploying our five you're right now with the mobile edge compute and AI. This is a great long.
Thermal bitumen process using AI, so the multi with places we see efficiencies, but also revenue opportunities with all the new technologies coming Tony anything else on the savings yeah.
Mike just to add a couple of things. So obviously as Hans said, we're on track with the with the savings program and those savings are were contemplated in the guide we're not going to discuss specific cost targets, but as Hans mentioned, we're operating a lot differently than when we feel that group.
Really good about the cost actions that were taken and the progress that we're making that are driving the EBIT improvements that you saw in the first quarter and that we expect throughout 2024.
Yeah, Thanks, Mike Brad we're ready for the next question.
The next question comes from Kannan Venkat test wire of Barclays. Your line is open Sir.
Thank you.
Maybe one quick question for you.
Gives me a lot of assets up for sale.
Some smaller ones and potentially bigger ones. There's also been talk about your potential interest in partnering with ESPN in some form could you talk about how you see the industry structure evolving.
Here you see this.
Kind of equilibrium.
Is there any need for it.
Or an opportunity from your perspective.
In terms of balancing it out.
Thanks.
Got it and thank you for the question first of all I think I've said it in the in the beginning of the year, we're getting into phase of their heavy investment a lot of changes in our asset structure, where coming into face when they have all the assets, we need and we're executing on it and you'll see the operation excellence coming out from it last three quarters I have a team that in then.
Fastest have actually changed quite a lot about the two new team members. This quarter I feel really good where we stand with assets right now and how we are executing on our and of course I can never say never to looking past that that's my fiduciary responsibility, but I, rather right not execute them want to have and you see the performance one way.
That's where the C band millimeter wave the broadband growth will have almost 400000 again this quarter. So that's my main focus when it comes to some.
Some of the other things that you mentioned I think we are using our base of distribution to actually work with all the streaming services and we are unique.
The position, we have the biggest distribution with direct to consumer in the market. We are taking leverage that for our customers and for our shareholders. But also seeing that will help some of these larger streaming services to see that they get the beneficiary and of course better access to the best consumer base in the United States of America. So we would.
Continue to do that and see that we're doing it in right way, but again I'm pleased with the asset base, we have today.
Okay great.
Yeah. Thanks.
Brad we're ready for the next question.
The next question comes from David Barden of Bank of America. Your line is open Sir.
Hey, guys. Thanks for taking the question.
I guess.
My first one was just about the kind of the balance of revenue growth I think that you guys have.
<unk> talked about.
Over the last year, it was more skewed to pricing.
I was worried if you could kind of talk about the.
The relatively healthy 5% growth in gross adds versus what we're watching this quarter happened, which is a decline in accounts could you talk a little bit about how you balance the relationship between accounts and in gross new subscribers.
And then the second question.
It's just more of a housekeeping question, which is you guys introduced the second number add on.
This past quarter, there's been a lot of questions about where does that show up in the numbers.
Not in the sub numbers, probably but could you kind of elaborate where we find that in the numbers. Thank you so much.
Thank you David.
First of all our team is very focused to continue to get a little bit more of a.
Volume in the consumer side remember that on the wireless on the business side, we're already in there and we are taking customers every quarter, we have done it for not sure how many quarters. So it's a little bit different dynamic on the service on the consumer side, we actually had a little bit more challenge in 'twenty, two I think scenes second quarter to 23 without my plan and the offerings you.
See you constant improvement, how we are actually addressing our customers I'm really pleased with that but we have said or Samsung has had on the consumer side. He want to have more on the volume side, then only on the value side from customers, but that doesn't mean that we will we will continue to get more value with our customers on what we're doing.
On the second line the only thing I want to say there I mean first of all the innovation. The team is doing right now is based on our strategy with builder network once and we want as many profitable connections on the network in order to have the lowest return on where the best return on invested capital in the industry.
Just playing straight into that narrative and these of course are accretive and we would take the second line in any given time. So again, you'll show the innovation and I'm prepared to see or I'm ready to see even more innovation from my team going forward Tony Yeah. It's a day by the second number. It is included in the line counts I mean, the one thing we would say is it gives customers flexibility.
Billety Ah they can add and remove it as as desired the adoption. So far has been good just a few points on that it was very low single digit percent percentage of phone gross adds in the quarter for consumer and we believe Theres a limited market for this is Han said, its ARPA and revenue accretive in its high margin business, There's no increase.
Rental device, there's no incremental data usage.
And the results in the quarter reflect the strength of our core business. So we at SAP.
I'd say, we would take this profitable connection any day of the week and it goes back to the.
The think the three things that I talked about that we are measured on for my shareholders from our board and how I measure My management team is the service revenue growth you said beef Lancaster expansion. That's what we're marching on that then is hundreds of different measurements inside there, but those three are what we're incentivised zone and that's how we run our business.
Got it and just just to be totally clear Tony.
So of the five point something gross add growth year over year in the quarter, maybe one or 2% of that was the second number add ons, which might not continue because there's a finite market for that we said it was a very low single digit percentage of phone gross adds yes perfect.
Perfect. Okay. Thank you.
Alright, Brad we're ready for the next question.
The next question comes from Sebastiani Petty of Jpmorgan. Your line is open Sir.
Hi, Thanks for taking the question just wondering if you can give us an update on what youre seeing in the overall consumer broadband and particularly within consumer fixed wireless.
Net adds did slow a little bit sequentially year on year, obviously, the backdrop, you've called out move environment.
Little bit challenge are you seeing any incremental competition as AT&T internet are perhaps ramps up.
Maybe T. Mo is talking about is a little bit of a slow down there that would be helpful and then.
Also touching upon.
Hum.
I'm thinking about it.
Your thoughts on it.
Five two use cases, I think emphasize private networks, a few times within the prepared remarks.
Thinking about the development of the revenue opportunity here, maybe relative to how you're thinking about back as well you kind of touched on that how AI plays into it. Thank you.
Thank you Sebastiano, Yeah, I'll do it talk about the broadband are first of all I think fires continue to be the seller products as best a fiber product in the market both for businesses and for consumer you'll see US continue it's a little bit up and down depending on mover markets and all of that but we are very consistent loan growth in that area.
We're pleased with that product on the fixed wireless access we continue to see very very good net promoter score the easiness, we'll be installing at a the greatness of the product the quality of the product all that plays in so I'll, you'll see that when we rollout our C band, we get new opportunities on the consumer side.
That's what we saw of course, that's an obvious use case on the business side, we're seeing new use cases that we didn't see before him and all the way from coffee shops, replacing cable why we'd fixed wireless access to large enterprises actually replacing with the peak side effects as well for four different use cases. So as you saw we had to.
Super quarter in in fix was taxes seem to be societies quarter, but again, we are dimensions are set up to be around 400 net adds quarter by quarter. That's how Joe the handle network is deploying the capital the resources. So we can handle it. So we again pleased with that we said that also was a little.
With slower broadband market in the beginning of the year, the exit rates or better at the end of the quarter. So all in all good on the five use cases, yeah, notwithstanding talking more and more about private network because the number of them or many down the value of them are still fairly small one but you know when we build that base of private net.
Managed spectrum for enterprises.
That's all the time, it's going to be a great opportunity for our enterprise sales force of adding that do the mobile edge compute and as I said AI is like that's how we built our mobile edge compute network and we already have mobile edge computing many of our sites across the country in order to be able to meet that compute and storage.
So over time long term and we are a long term company, we're going to be around for many many years speaking telecoms. These jobs with the right investment nobody else has built a network as we have done when it comes to.
A network compute storage at the edge on the wireless network.
Thanks about Seattle, Brad we're ready for the next question.
The next question comes from Tim Horan of Oppenheimer. Your line is open.
Thanks, guys, Tony how sustainable do you think the 4% ARPA growth is it seems like you have a lot a lot of levers to pull here and it sounds like you're feeling a little bit more optimistic about that metric longer term and can you be just a little bit more specific in how much debt you you kind of plan on paying down.
<unk> you know maybe second half of this year or next year. Thank you.
Sure. So on the ARPA growth again, you see the progress on gross adds and you saw the 5% growth on gross adds do you see the progress with my plan and the continued premium mix has been very very strong on my plan. So and that's continued so we see a further runway for growth and you saw it in the first quarter and as we said in the press.
Their remarks will see a full quarters effect of the pricing changes that we announced are in the consumer business and that launched in March and you'll see a full quarters effect in the second quarter. So we feel very good about the progress on ARPA and that the team is is making and then on your second question I'm sorry.
How much debt you think you can pay down per year and I just on the ARPA of I guess the question is this is this sustainable over a multiyear period, yeah, we're not going to give multiyear targets here, but you know we we like the shape of the growth right. Now we said we're on track with our service revenue growth through the year and the team is very focused on as we said we were gonna be a phone net add.
Positive and consumer and that's a and that's on track as well.
And then I understand yeah and on the debt. So look we're you know we're not going to give any targets on paying down debt. Our focus is on continuing to generate strong free cash flow to pay down debt in a meaningful way in the second half of the air and we're on track to do that we had we had $3 6 billion of unsecured maturities are due this year.
Half of that was addressed in the first quarter and you should expect us to be opportunistic as the year goes on.
Yeah, Thanks, Tim Brad ready for the next question.
The next question comes from Craig Moffett of Moffett Nathanson Your line is open.
Hi, good morning, Thank you.
Let's talk about something a little longer term, which is spectrum and capacity are your your capex has been now trending down as you.
Largely gotten through the five G build I'm just wondering how we should think about.
Your spectrum needs going forward and what your appetite would be for additional spectrum.
If something were to come available from dish network or.
If you think about U S cellular and how you think about that in the context of the spectrum screens at the FCC, which don't really leave much room for incumbent players to add do you think that those are a real impediment or do you think that those would likely be adjusted when the time comes.
Thank you Craig Great question, I mean first of all as we all know right now they have to see it doesn't have enough spectrum to auction out there they don't even have a.
Of an approval to do it so that that sort of constrained. It then it could of course be a secondhand market spectrum, we feel good about Huawei.
We have only deployed them a piece of our C band. So far so we have quite a lot left you know many of the sites have 60 megahertz or maybe.
80 <unk> hundred.
161 megahertz nationwide. So we have quite a lot left Oh spectrum and remember that was the decision I together with the board took we bought spectrum for decades not for the next two quarters or so or something like that so we feel really good about it than any opportunistic spectrum coming up.
It's hard to predict and even on whatever regulation is going to be around screens and that's I don't know the only thing I know ive CP on the better position than ever since with a millimeter wave might C band My low band and how I build a network and sometimes it's.
Denise to expect that we're going to cost me a lot both from my customer interaction because some spectrum you know you stopped in the devices.
I need new radios.
And he was software so you need to think when you reengineer. The networks would seem that you have the right spectrum and all the way out to the customer and I think that no one even close to our team all or radio planning doing that but all in all we feel good about where we're at today, let's see what's going to happen in the market.
Youll see saw back over time between a preference between network densification or more spectrum is there a.
Sort of house view at the moment for where you think it's it's most attractive to add capacity would it now be through network, densification, rather than spectrum or or vice versa. So let me turn it to say yet.
Ultimately, it's actually a call a return on investment that we do daily here should we put up in Utah, where should we densify should put up new element, though should we add more spectrum. That's a that's a read you know what most of the ZIP code level that the team is going through these so we every time you see spectrum coming out in the second half.
Market historically, you'll make a calculation we feel good about the position we'll have again here with all of the spectrum you have to make those choices internally rather than betting on external assets coming in we don't need that we have everything in house right now four four for quite a while.
Okay. Thank you. Thank you Greg.
Brad ready for next question.
The next question comes from Greg Williams of TD Cowen Your line is open.
Great. Thanks for taking my question you provided some great color on ACP I think he said it could be a 50 basis point hit I'm. Just curious if we can drill down and there was that is that more of an art.
These new plans that are coming out or is it more on the on the disconnect side.
Second question is just on fiber to the home and the open access model is that we're seeing as you've seen some news flow with tilman Intrepid et cetera on open access and maybe even T. Mobile I'm just trying to gauge your appetite to write some of these open access Capex light models, if they come to fruition.
I can take the first question second question first yes, we haven't done any open access easier to you you can see that the appetite hasn't been that big and how we're going to evaluate any type of opportunities that can fortify how we deliver to our customers. So far in this environment, our extreme with the very high capital cost et cetera.
It hasn't we haven't found a good return on investment on it and again, we are very financially prudent I remember we have fixed wireless access.
We we sort of have owner's economics on basically everything we're doing that's why our return on investment is the highest in the industry and <unk> takes the highest we would go to continue to be disciplined in that that doesn't mean I'm not going to look into all the models, but right now there has not been any.
Modern stuff.
Peony to Oh me and the team and for our shareholders.
And then Greg on your on your question on ACP. So as we said AR was up up to a potential 50 basis points of headwind in our in service revenue and that's a combination of <unk> and churn and its lower our pool and we also said the margin exposure from ACP is also very very small.
Yeah.
Got it. Thank you yeah, Thanks, Craig Brad right for the next question.
Question comes from Bryan Kraft of Deutsche Bank. Your line is open.
Hi, Good morning, I had two if I could first could you provide an update on your efforts to pursue bead funding are you seeing any progress at the state level and establishing the Bulls and.
Based on what you are seeing there are you more encouraged or discouraged by what you're seeing.
And then.
Separately I was wondering if you could just provide any color on the company's performance in the first quarter was in the larger metro markets relative to smaller and mid sized markets and consumer. Thank you.
On the funding.
Yeah, It's yeah, I think that that's been widely reported in the press. It is of course, a complicated process to get the bead money out et cetera. So we we'd be where we see it makes sense with return on investment and the subsidy is coming in there.
There are some other broadband money coming into the market from the previous.
Funds, which were winning a we just had some quite large weightings here recently in Pennsylvania. So we're using it but we do it when it makes sense.
From a profitable point of view.
But again, it's probably going to take some time when we see these montney rolling out.
Second the second question is for you yeah. So on the I don't even remember it.
Question on the C band market. Okay. So on the C band market is in the early markets. The performance is much better as we said earlier the churn is much better for basis points better than churn. The premium mix is also a lot better and we see a meaningful increase in gross add performance as well. So we're really really pleased with the with the.
Performance in a N C band.
Yeah.
Great. Okay. Thank you very much yeah, thanks, Brian Brown.
Brad we have time for one more question. Please.
Your last question will come from Peter Zaffino of Wolfe Research. Your line is open Sir.
Hi, Good morning, everybody I Wonder if you could talk about SG&A growth it was up 11% in business and 4% in consumer.
It was mostly offset by cost relief from lower upgrades I'm, just wondering if you're spending back some of that upside on SG&A and how we might think about modeling operating leverage and specifically SG&A going forward and then if anybody would be willing to provide an update on your projected.
Deploying millimeter wave spectrum in support of the SWA business to multi dwelling units.
Is that working the way you hope and if so could provide upside to your long term broadband growth targets.
On the SG&A, we're very focused on seeing that we continue to get full leverage on the growth that we have right. Now. So the team is really focused on taking out cost and I said, we are on track with that we have a lot of initiatives ongoing Ah Tony will give you some more puts and takes on the SG&A in the quarter on the millimeter.
Wave M. D. U solution that is progressing we have said it will come in the second half latter part of this year in the commercial but we're piloting is right now and it's performing really well. So we feel really good about it and it will over time of course add opportunity for us long term deals that were having surgery to fixed wireless access.
So far so it will be in addition, all the time.
Yeah, Peter on your question on SG&A some of that in the quarter as a function of the upfront work on the transformation initiatives that will abate as the year progresses, and we also see pressure year over year pressure on the handset insurance claims and we expect that to level off.
In the second quarter, and we expect to see further operating leverage in the second half of the year.
Thank you very much.
Great. Thanks, Brad that's all the time we have.
Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation and for using Verizon Conferencing services you may now disconnect.