Q2 2019 Earnings Call
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Second quarter conference call.
Mike Viola head of Investor Relations for 18, and joining me on the call today is Randall Stephenson Eightys, Chairman and CEO and John Stephens 18, Chief Financial Officer.
Randy will provide an update of our key 2019 initiatives.
And John will cover our operating results and then we'll follow that up with a Q and a session.
Before we begin I want to call your attention to our safe Harbor statement, which says that some of our comments today, maybe forward looking as such they are subject to risks and uncertainties results may differ materially and additional information is available on the Investor Relations website.
I also want to remind you that we are in the quiet period for the FCC spectrum auction, while three so we can address any questions about that today as always our earnings materials are available on the Investor Relations page of the TNT web site.
That includes our news release Investor briefing 8-K associated schedules et cetera.
And one more item the before I turn it over to Randall we've scheduled our Warner Media day for the afternoon of October 29.
At Warner Brothers Studios in Burbank, California.
We will discuss more details on the new streaming service HBIO, Max and more details will come but go ahead and Mark your calendars.
And so with that I'd like to turn the call over to Randall Stephenson.
Thanks, Mike Good morning.
The headlines for the second quarter and the first half of the year is we're hitting each of our commitments. We made for 2019 and you can see those on slide three.
I'll start with our de leveraging plans, which are right on track.
Since we closed the merger last June net debt is down $18 billion.
We expect to further reduce net debt about another $12 billion in the second half of the year.
And that should get us to a two and a half times net debt to adjusted EBITDA range by year end.
And to the extent that we can over achieve on that objective you could expect we'll take a hard look at allocating capital to share buybacks in the back half of the year.
Wireless is about half of our overall EBITDA and it continues to fire on all cylinders.
Last quarter, we grew revenues EBITDA and phone subscribers, both postpaid and prepaid.
Wireless service revenues were up 2.4% in the second quarter and we're continuing to see the payoff in our investments with a world class network.
Our wireless network has been named the fastest the best and the most reliable by independent testing services.
First net continues to be the driver of our network performance as well as our Fiveg leadership and at the end of the quarter. We were about 60% complete with our first net coverage ahead of plan and we are now targeting 70% completion by year end.
And our first net build is accelerating our fiveg deployment.
As we deploy onest net we're installing hardware that can be upgraded to fiveg with a simple software release.
As a result, we're on track for nationwide Fiveg coverage by the first half of 2020.
Turning to order media there was another strong quarter merger synergies remain on track and we had solid operating income growth across all three business units. This was a record year of 191 Primetime Emmy nominations for order media and HBIO alone scored 137 nominations that was the most in its history.
So what was the result of all of this we had very strong HBIO digital subscriber growth in the quarter and we're set up really well for the second half of the year.
Bottom line HBIO stepped up investment in content is working.
And this will be critical as we launch HBIO Max next spring and as Mike mentioned, we look forward to sharing more about HBIO Max in October .
Our entertainment group continues to make solid progress we didnt just stabilize EBITDA, we actually grew it by 1.1% in the quarter.
Later this summer, we'll beta launch TNT TV in a few markets Thats, our live TV service over broadband we have some really high expectations for this product and we're going to learn from the pilot and then we'll expand to more cities as we go through the year.
IP broadband revenue growth remains strong we continue to see solid growth in our ATM t. fiber product.
That product now reaches about 14 million customer locations or $22 million. When you include businesses.
So all in all solid steady progress against the commitments, we made coming into the year and I'm feeling even more confident that were going to meet or exceed each of those commitments for the full year.
In fact this morning, we've raised our free cash flow guidance for 2019 to the $28 billion range, that's up $2 billion and we reaffirmed all of our other guidance for the year.
So now for more detail on the quarter I am going to turn this over to John who will take you through the results. So John Thank you Randall and good morning, everyone.
Let me begin with our financial summary on slide five.
As Randall mentioned, we're on track with all our financial targets.
And in many areas or ahead of plan.
Adjusted EPS was 89 cents in the quarter.
Including a two cents impact from a higher effective tax rate.
We continue to expect low single digit growth for the full year as we are set up for a solid second half of the year performance.
We grew revenue both on a reported and pro forma basis in the quarter. In fact, all segments are growing on a constant currency basis.
Adjusted operating margin was up 90 basis points with the addition of order media strong growth in mobility and continued improvement in our entertainment group.
Our cash flows were very strong in the quarter, let's look at this on slide six.
Cash from operations came in strong at 14.3 billion, that's up 40% and free cash flow was a record $8.8 billion.
The addition of Warner Media operations made in fact as did adding their receivables to our securitization efforts.
The securitization lifted free cash flow by $2.6 billion.
Our ability to generate cash continues to be impressive over the last 12 months, we generated $29 billion in free cash flow or about $4 a share.
With the benefit of our securitization efforts, we have confidence to raise our free cash flow guidance for the full year to the $28 billion range.
Our strong cash position.
Also allows us to continue to invest at industry leading levels.
Capex was $5.5 billion and total capital investment was $6.5 billion. When you include the billion dollars of payments for prior vendor financing activity.
And we reduced net debt by $6.8 billion in the quarter.
Let me speak more to de leveraging on slide seven.
We paid off 18 billion in debt since we closed the merger.
And we ended the quarter with our adjusted net debt to EBITDA ratio at just under two that seven times.
This is down from three times leverage ratio when we close the deal.
We're squarely on track to hit our year end target of being in the two dot five times range.
Year to date, we have reduced net debt by nearly $9 billion that includes about $7 billion from free cash flow and nearly 4 billion in asset Monetizations offset by about 2 billion of vendor payments and other purchases and assets.
And these sales have come from assets that contribute no EBITDA.
Looking at the remainder of the year, we're confident that we'll hit our year end leverage target.
To the extent, we can over achieving that target you can expect we'll take a hard look at allocating capital to share buybacks.
In the back half of the year.
Let's now look at our segment operating results starting with our communications segment on slide eight.
The story of our communications segment. This quarter is stable revenues growing EBITDA and expanding margins.
Mobility continues to build momentum and deliver solid results across the board with revenue EBITDA and margin growth.
While adding phone subscribers.
Our entertainment that is delivering EBITDA growth.
And business wireline revenue trends improved in the quarter, thanks to strength in strategic and managed services and about a $125 million from IP licensing.
But even without those licensing proceeds.
Business wireline revenue trends or the best that we've seen in years.
And when you factor in strong business wireless performance, our business solutions revenue grew 2.3%.
On the cost side the team is doing great work and controlling content promotions and other operating costs.
Solid cost management was evident throughout the business, especially in our entertainment and business wireline units.
Let me give you some more details starting with mobility on slide nine.
Our mobility business continues to perform very well service revenues grew by 2.4%.
EBITDA growth was even higher at 3.1% and EBITDA margins expanded by 80 basis points.
The service margins of 56.1%.
We had a strong quarter with 355000 phone net adds including 72000 postpaid and 283000 prepaid.
And we added 388000 smartphones in the quarter further strengthening our customer base.
Postpaid phone churn was up slightly the 0.86% but was down sequentially.
And at the same time, our prepaid business, especially cricket continues to perform at strong consistent levels.
Prepaid revenues were up nearly 10%, we had our 18th consecutive quarter of phone growth.
And churn hit an all time low at both cricket and 18 Tiet prepaid.
With the network leadership and Firstnet expansion that Randall talked about earlier, we're confident that our wireless business will get even stronger as we evolve to fiveg.
In short our network investments, particularly our spectrum deployment are paying off.
And we're not done yet.
Now, let's go onto our entertainment group results on Slide 10.
Our focus on long term customer value continues to impact our entertainment group.
EBITDA grew both year over year and sequentially. This was the second straight quarter EBITDA growth year to date EBITDA is up about 4%.
Expense reduction.
Outpaced revenue declines setting the stage for EBITDA growth.
Broadband revenue growth helped us as well as continued growth in video ARPU is.
The number of premium TV customers on a two year price lock.
Declined by more than 600000 in the quarter.
Video subscriber numbers were in line with what we said to expect for the quarter premium declined 770000, and Directv down declined 168000.
And as Randall mentioned earlier later this summer we will begin piloting.
TNT TV.
Our thin client broadband TV product.
We passed an important milestone with our fiber deployment, reaching 14 million customer locations.
And satisfying our fiber build commitments.
This will be an important driver of growth going forward.
In fact, we had more than 300018 tech fiber net adds in the quarter and IP broadband revenue grew by 6.5%.
We expect 18 tech fiber penetration to grow as the service matures.
Bottom line, we remain comfortable that we will meet or exceed our entertainment group EBITDA target for the full year and lay the groundwork for continued stability beyond 2019.
Let's move to water medias results, which are on slide 11.
Warner Media continues to be free cash flow accretive.
Our expense management with merger merger related synergies are on track.
We expect to hit a 700 million dollar run rate by the end of this year.
And HBIO Max is slated to launch next spring.
Overall water media had another strong quarter with 5.5% revenue growth and solid operating income growth.
HDL revenues grew thanks to strong content sales.
Driven by home Entertainment and international licensing.
Turner revenues were up about 2% on subscription revenue growth.
And this includes the advertising impact of not having the and see a men's final four championship this year.
It will be back on Turner next year.
And Warner Brothers theatrical revenues increased due to home entertainment gains and a highly successful release of Mortal Kombat 11, which drove game revenues.
With that Mike, we're now ready to take questions.
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Maybe just a brief moment for our first question.
Looks like first we have the line of John Hodulik of yes.
Your line is great.
Great. Thank you.
Maybe some questions on the entertainment segment.
And specifically on the video subs.
John said about you've got about another million subs left on the promotions when when did those promotions expire.
And and maybe if you could comment a little bit on the on the programming disputes you're having with CBS nexstar.
One.
Does this is expectations for for a resolution there driving some of the belief and continued growth in EBITDA in that segment and then how do you expect that to impact the sub trends as we look into the second half of the year. Thanks.
Hi, John It's Randall I'll take.
So the.
Carriage disputes that are going on with CBS and Nexstar first and I'll hand, it to John not Im just kind of reconcile the the subscriber numbers for you.
As everybody probably knows CBS has pulled their signal off Directv as has nexstar.
And there are two very different situations on CBS , it's kind of interesting situation. The bid ask candidly is not that wide.
But it's kind of an interesting dynamic with them, we we said.
I'd now as a reasonable fair offer over five days ago, and it's been crickets. We haven't heard anything have you had a response to the offer when you're as close as we are we find it a little interesting that.
So we're still sitting here dark and not having interaction with CBS .
Im guessing there probably distracted with other negotiations right now, but I don't know.
Nexstars, it's a it's a very different.
Situation.
Next our as you know basically either there.
Product is broadcast of the four big broadcast stations.
Free over the year content I might point out then they are opening bid.
In the negotiations with a 100% increase.
And.
And not only was it a 100% increase but the assets that they are trying to acquire that they don't yet own yet they were asking for a rather significant increase on assets. They don't own. So it's it began with kind of a non starter.
They pulled their signal and gone dark.
Now the spread is there they are asking for a 50% increase on broadcast channels that again, our free over the air and so that one may take longer.
We will just have to be a resolute on this one we're just not going to impose okay. Those kind of price increases on our customers.
And interestingly enough.
Unlike other times, where we have gone through these these type of blackouts for companies have pulled their signal our customers in a world of streaming or finding other ways to access this content and so there is other technologies. These technologies could even flow right into the programming guide in our Directv lineup. So customers are at a pretty significant re finding other ways of getting to that content. So that when that when could take awhile CBS I am optimistic that hopefully, we just going back to the table to get this closed.
So John taking taking that forward, we've got about a million customers left as I mentioned on these price locks.
And those price life expire in the fourth quarter.
Pretty much Ratably I'd say.
Throughout the second half the year, but.
In November as they close out or we expect to have through the process.
By the end of this year.
So we'd expect to continue to see.
Some of the impacts of.
Getting to this value based long term customer value approach that we've taken on those customers and continue to see some of the same trends we've seen. Additionally.
We have as you see in the EBITDA growth and the performance of the business being really.
Solid certainly stable, but solid in my mind.
You can see that we believe that this value of customer long term value customer approach is working so on the intake side, we're going to continue to follow that and that will also continue to lead us to some.
Working through the rest of this year, but that being said we're encouraged about our early insights into 18 TV. We're encouraged about the ability to get it out into beta learn from it and then taken forward. The rest this year. So when I look at 2020, and we've we've been through the two year price box, we've been through a full year of adding long term value based customers and we have the potential to use 18 TV we have.
More optimistic expectations for 2020 and that gives us the basis to believe that our margins will continue to be stable next year no. Just most importantly, what John just went through.
Is as we come out of the back end of 2019 and the customer bases as a.
Is cleaned up we will have a customer base that is going to be perfectly suited for HBIO, Max and we we really had.
A really strong second quarter with HBIO.
And.
I got to tell you what we saw on HBIO and the second quarter, particularly on the digital.
Subscriptions that were added we are gaining more and more confidence that this direct TV base as we come out of 2019 is going to be ideally suited for driving HBIO Wakefield Max penetration as we launch that next year.
Thanks.
Thanks for the question John we'll take the next question operator.
Next in queue, we'll go to the line of Phil Cusick with Jpmorgan. Your line is open.
Hi, guys. Thanks following up there.
You've given through the second quarter, some thoughts about typical seasonality in video losses in Twoq versus one Q and it came through around that 100 that.
How do you think about typical video losses in in Threeq versus Twoq and should we expect a continued sort of subdued level of promotion and video until you get to the.
A wider 18 TTB launch.
Yes, I think you should expect as you'd call is subdued or what we'll call. It the long term value focused.
Promotional activity I think Thats Thats right you should expect that.
We have some normal.
Summer activity with video I wouldn't expect that to change.
What I would tell you though is.
The balancing of that with.
The same number of customers going or the amount of customers getting off these to your price locks.
Putting that together, what I'm trying to say as we'd expect this level of.
Our losses to continue we're not predicting what they are but we need to get through this million customer base and some of the other.
If you will less the value conscious focus promotions that we've done in prior years, we need to get through those I'll take us through the end of the year to do that.
The positive side of that is I don't know what 18 TV is going to do for US I think it's going to be a focus of real results in 2020, because we're going to roll it out.
Later, this quarter and then well tested.
But but you can be assured we're going to continue to focus on this long term value of the customer.
And next in queue, we have the line of Simon Flannery of Morgan Stanley .
Your line is open.
Great. Thank you very much turning to the balance sheet on the buybacks can you help us think about.
Youre, how youre going to balance buybacks versus continued leveraging once you get to the two dot five where do you where would you like to end up on the balance sheet and how are you going to divide your free cash flow between the two and then if you could update us on the six to 8 billion of net asset sales or you've obviously sold almost 4 billion already but where do you see that trending at this point. Thanks.
So let me take the asset sales first feel really good about where we're at the.
And I would bucket I put him in two buckets. One is the straight asset sale through at Hudson yards and that was the $4 billion, but we've also done a whole collection of.
Other working capital impacts just like the water meters Securitizations, a whole collection of that kind of activity. So we feel really good where we're at with regard to the.
Asset sales.
Well.
I think it's public knowledge and we're out there selling our.
The collection of about 1300 use cell towers that we still have we still own well a whole collection over a thousand cell towers to Mexico, we probably have 250 parcels of real estate.
With a couple of hundred million dollars under contract.
We we have an equity investment in a company called cm in their independent board is reviewing their strategic all their alternatives. So we've got a whole collection of things that's not all of them, but we've got a whole collection of things that give us confidence in meeting that six to eight range.
And hopefully doing very well with regard to that six to eight target and I'll remind you that that's on a net basis too. So we're expecting to cover the investment we made in millimeter wave.
This year in the 24 auction.
So the six day target is going to include.
Being able to pay for that with the proceeds.
We've just got a lot opportunities we feel good about it and I'll leave that at that with regard to the balance sheet.
I think you can think about as we've talked about after.
The fourth year after the close the deal we'd look to be.
I'd expect we'd be somewhere around the two dot old range or below that gives us great flexibility.
To pay down.
Debt and take advantage of what now is a higher cash cost of equity capital.
The cash cost of our debt capital. So when you look at it on a very.
Methodical basis right now the cash flows of the overall operation on a after dividend basis can be enhanced.
By shifting some of your focus from.
Debt repayment to buyback, but I want to make sure. We stay focused on the fact that we're going to achieve we expect to achieve our guidance.
And we'll get there and that is our focus and our primary focus right now.
To get to make sure we looked at we're well on track we feel good I think you can you can tell that just by the fact that we just raised our guidance on free cash flow, but thats, how we think about it.
Hey, So these are historically low interest rate environment and operating at this level spin.
You know something we very reasonably do very adequately do feel very comfortable about.
Thanks, Dan.
And next up in Q in the line of David Barden Bank of America Merrill Lynch. Your line is open.
Hey, guys. Thanks for taking the questions I guess.
The first one would be.
It's been a while since the business wireline side surprised to the upside.
And I think that you guys have been trying to kind of maintain it but is there something structural or competitively that that has evolved it.
Might be this might be the first data point in a trend or is it more of an anomaly.
And then the second question John Stephens.
Would be on the cash flow guide could you kind of parse down the increase in the free cash flow guidance is it related to lower Capex as you shift capex to vendor financing or is it related to the working capital benefits from the Warner media asset sale or or other things kind of that are going to come through the year. It just be helpful to kind of get a picture of that thanks.
So that could then let me take that free cash flow on first and quite frankly, we're at the 26 billion range felt very good about that within 2.6 million securitization that we knew we told you about and quite frankly.
Some would suggest that raising the guidance to 28 could have been raised me at a higher number of the 20 billion range.
But quite frankly, we're going to continue to invest in the network. Our Firstnet team. Our network team has put in for say quite frankly ahead of schedule.
We're being really efficient, but if they need more capital I want to have the flexibility to do that and still meet what we're.
What our Guidances.
If we can get.
Software releases out quicker with regard to Fiveg and put those in place I want to I want to retain the flexibility to do that quite frankly.
The guy the raising guidance is something that's.
Very reasonable to achieve.
I feel good about it.
And yet pertains flexibility for us so I understand the reason for your question, but we have retained some flexibility in this to make sure that if we can continue to build at this.
60%, achieving a level that we're at nine months ahead of schedule.
If we can keep doing this and the impacts on that overall wireless business are really showing up at lower charted customers Weve had a million customers voice customers in the last year that 355000, just in the last quarter. So feel really good about what influence on what to be ready to support those really quality efforts that that aspect of it on the on the B to B front, David This is Randall.
Yes look us business is pretty healthy UES business is doing very very strong and we're now into since tax reform I think like our six quarter.
Really healthy.
Fixed.
Fixed investment for business apps and that tracks really really well with what we do.
And and it's been a little soft in the last quarter or two with the China trade discussions the administration doesn't like to.
For us to talk about that but look business has pulled into best with the last quarter. So as a result of the trade uncertainty, but with all that said, it's been six quarters of pretty robust increase in business fixed investment and that tracks very well with us second is.
Pricing has been pretty rational in this industry and.
Especially as we've worked awful lot of those old legacy products, where your head is incredible pricing pressure were now in the market and what's growing are the new IP type services and the pricing there in the marketplace has has been pretty reasonable and stable and the new products that are doing well you saw special services, we call them, but I think those were up 6% plus for the quarter, which is a really nice healthy growth rate for those and then we had some IP sales in the quarter and.
That profit up a little bit so, but even without that the trends are really really strong here. We feel good we feel about it as positive on this segment as we have in quite some time and as businesses keep investing will continue to be really bullish on this segment and the IP sales by the way.
I mean, I know those are come in big blocks that they are not one time. We've had these in the past had a couple in this quarter and we will have probably I suspect more in the future that's become a nice little opportunity for US and then we haven't even talked about the Microsoft in the IBM deals that were announced just recently and those are not inconsequential deals those have a multifaceted implications and predominantly those deals.
Addressed a particular area the biggest cost item on on ATM TNL, our we call. It the factory costs, but it's the network and the cost of the big Iron costs and as you have seen over the last few years, we have very consistently with all the activity in the network going on we have very consistently driven those cost levels down on an absolute basis, eight 910% year over year very consistently.
We're kind of getting to a place where it's hard to continue getting those type of productivity increases what we're doing with both IB IBM and Microsoft is leveraging their capabilities in large scale cloud deployments and they're taking over a lot of applications for 80 anti moving those to the cloud and what is going to do is allow us to continue at this type of cost reduction curves on the on the network and I T side of the house and continue that momentum there in addition.
We are securing.
Revenue opportunities with each of those companies and to actually have go to market strategies that will allow us to to continue to keep the momentum you're seeing on the wireline revenue side. So all in all I would tell you. We are we're relatively bullish on the b to b side of the house and hopeful that with we continue to have economic growth. The trade situation does it become a distraction for businesses that we can continue and improve on this.
Thanks, Dave take the next question.
Next up we have the line of Brett Feldman Goldman Sachs. Your line is open.
Thanks for taking the question for the last few quarters, we've seen a steady execution in the wireless business and thats been without being fully deployed on firstnet without without really having had a chance to do a lot yet with fiveg, but over the next year. Both those initiatives are going to be much more significantly deployed can you talk a little bit about how you think about your go to market in mobility and whether you think over the next few quarters. There is an opportunity to maybe step on the gas a bit more thanks.
Yes, Thanks, Brett this Randall again.
Yes look the wireless side of the house we.
We're feeling more and more confident everyday as we execute through the network strategy in the Firstnet strategy and and as you think about growth in the future you hit on the key elements first that is just in its infancy and we have a few hundred thousand subscribers that have moved to first net the first responder community is a rather large market and it's a market where we come into it with very small share so our opportunity to grow share as we build out. This first responder network is quite significant and you're starting to see that play itself out, but just as importantly is as we build out the first net network, we're moving into markets, where we have had a.
Pretty thin presence in the past and these are rural communities and as we move into these communities. We are standing up brand new distribution in many communities and everybody on this call. His bottle this business for a while knows what the what the penetration numbers look like when a new entrant comes into a community. The first share market share goes quick that comes to your quick and we're starting to see that as we stand up distribution in new communities and we're at the very front end to this as well as we told you we're 60% built out on our coverage we have 40% more to go.
So there's there's a lot of opportunity left here and then the piece that's not inconsequential effect is probably the most important of all of this.
Is it ATM team now has claimed the network quality mantle.
Network quality is ours, and we feel very strongly about this and as I told you that we have been rated the best the fastest and the most reliable network by by people, who do this for a living on an independent basis and as a marketing position. That's a great place to be and we're starting to see the impacts of this and key segment customer churn, we're starting to see it in terms of gross add capability and just having a strong network quality brand and message in the marketplace by itself is a growth strategy.
And so bottom line, we're feeling pretty bullish about the wireless business right now.
John would you add anything Brad we think of the first responder community is 3 million potential to participate very little of that we're growing it quickly now.
But we also the secondary first responders the guys to go in and restore power and restore hospitals and work in that in that in that environment that don't necessarily aware firefighter hats or police badges. That's another 8 million or brings that total almost or excuse me that adds about 11 million to it. So that brings that community totaled about 40 million. That's a huge huge that's the opportunity. We view and then you think about them having multiple devices.
Whether it be a tablet or phone and then you think about them having family members. So it really is a very large scale, we're making great progress in getting authorized with agencies and adding customers, adding customers that were previously served by somebody else.
But we're also very as Randall said this this network is outstanding and its going to serve our existing customer base and so it's going to give us this opportunity quite frankly to lower churn to give better quality service to this existing 80 million customers. We phone customers. We have today thats a real benefit that I have a difficult time, putting a price tag on are giving predictions for but I know, it's a real benefit.
For us and for the shows for the customers. So we feel really good about that and that leaves us Justin very smooth transition.
Into.
Fiveg Fiveg evolution is going on now to Fiveg, plus with our millimeter wave in our art.
Over 20 markets that we're in today and with the Fiveg in the core network, where we will have national nationwide coverage next year.
We expect by the middle of the year. So we really are leading in Fiveg. We really are and first that is enabling this and it's going to have a lot of benefits to us. So you can you can understand why we do feel good I do feel good about what the team is doing and how they're performing and optimistic about meeting targets going forward last thing I'll say is the account inside of a you get 70% is complete by the end of this year and then and our network guys have surprised me on the positive side before we're going to have a lot of the capex behind us.
On the build side and the remaining piece would be software upgrades. So we feel really good about the financial aspects.
Of this process also.
Thanks, Thanks, Brett well take the next question.
Will come from the line of Mike Mccormack of Guggenheim. Your line is open.
Hey, guys. Thanks rental obviously, a lot of news out there and it seems like the landscape is about to change I guess fairly dramatically.
In the wireless business, just sort of thinking what what are your thoughts over the next three or four years as you see potentially new entrants coming in how does that.
Change the strategy going forward.
Our next guest secondly on the business wireline side, just to circle back on that seems like it sounds like you guys really much more on retention efforts around that is there something there with regard to share loss being stems thats also having a positive impact. Thanks.
Oh Im sorry bike that last question about to say it again business wireline where it is.
In wireline side. It seems like we've been hearing that you guys have been doing a much better job and retaining customers and obviously saw share to competitors I just want to see if there is any commentary on that.
Yes, that's and it happens to be accurate.
We have done a very good job is.
As new big deals come up.
Retaining those and as I told you the pricing has been.
Fairly rational in the marketplace and so yes, we really have had.
Not only on a retention basis, but also on an acquisition basis picking up new logos, we picked up a number of new logos in the last year or so.
And so that business again, I'll just settle dwell on it continues to surprise us in terms of how its doing and and I'd love to say, it's all 100% great execution, but all of that was just good economic health and American business is quite healthy right now.
In terms of industry structure.
So theres a lot of noise out there right now and industry structure and.
The news this morning that maybe T mobiles and close to having a deal with the DJ I just there's a there's so many it's around industry structure and who's going to be in the market and who is not it's actually hard to.
To respond to it but to answer your question directly.
If Charlie Ergen has wireless assets and distribution or dish dirt sprint T mobile happens or doesn't happen candidly. It does it change anything we're going to do for the next three years.
Our strategy is pretty well baked in I think the strategy is resilient as it relates to changes in industry structure. It's a strategy from a wireless standpoint that is first and foremost centered around firstnet.
Getting the first net capability deployed built standing up new distribution tapping that new market and just continuing to drive network quality and then obviously the fiveg deployment is high high priority also been pairing that with a unique content and HBIO Max it's not even here, yet, but HBIO Max will be a key part of this wireless strategy as we get into next year.
And pairing a very unique premium video content with with our wireless and our.
TV and broadband business, so whether anything happens with that or not it doesn't change our strategy now the.
The status of these deals its obviously one that we're watching very closely but there are so many gifts around does the steel industry structure change or not.
And.
The interesting part is.
It's set up where the DJ is probably not going to be the last say on this deal and I've not seen this happen.
And in M&A before where the state agencies have positioned themselves.
Where they will be the last say on any deal that gets done and they're kind of in a position where they're going to be grading video Jays work as we go through this and so thinking about state agencies.
And then the rumors and so forth in the marketplace.
What what level of comfort they'll take that the anti trust concerns and fix is Charlie ergen coming into wireless business thats been decades in the making so it'll be interesting to see how they react to that so a lot of things up in the air It's hard to say, which way. This thing goes but at the end of the day it doesn't change anything we're doing.
Thanks, Thanks, Mike we'll take the next question please.
Next up we have the line of Michael Rollins of Citi. Your line is open.
Thanks, and good morning, as you consider balancing revenue performance and profitability can you discuss the role that content Exclusivities will play in the future for 18 key in two respects.
First on the content in sports rights like NFL Sunday ticket.
Got you distribute through Directv and then second separately, how you think about monetizing the content library in Warner media on an exclusive basis, whether it's through.
HBIO Max or other distributors like Netflix thanks.
Sure Hi, Mike.
Yes so.
Start with the NFL Sunday ticket exclusivity, that's something that serve Directv well for for many years.
However, unfortunately right now that content is tied to our satellite product and so.
You know it serves a good value as we come into the fall and that will be an important retention tool, but in terms of an opportunity to grow our business with that.
When it's when it's anchored to a satellite product is kind of hard to utilize it so.
Hopefully over time, we can can address that and move it onto our other platforms and I think it would be a really important piece of growing our other platforms as you think about in BA.
Major League baseball lot of the content that is.
Content rights that are held by the Turner.
Companies, whether it be TNT or.
TBS and the NVCA final four and playoffs fit that as well those are obviously really important variables and they've been very very important and making turner very unique content.
As we market it to other distributors, but also.
As we begin to put that content on our HBIO Max platform and I.
This will be at the early stages of HBIO, Max but you should assume that ultimately HBIO Max we'll have live elements.
And those live elements, both the unique live sports premium sports the ones. We just went through and be a major league baseball.
And see a basketball those are going to be really really important element for HBIO Max the same with news and you can go through the areas of news that we think are very very important and will do quite well as an element of HBIO Max so.
Exclusive content has been important for as long as the TV business has been around we don't see that changing and you should assume that we will take advantage of opportunities both within Turner and don't forget Bleacher report, we have some great exclusive live content and Bleacher report.
From in BA to soccer European soccer, and so forth so lot opportunities to take advantage of the unique content deals that we have within Warner media.
Thanks, Mike Thanks, Mike.
Great next question.
Next up we have the line of cannot Venkateshwar of Barclays. Your line is open.
Thank you.
If I may on the entertainment business.
If you just look at the performance this particular quarter, despite losing subs you of course did well on revenues and EBITDA.
I don't have that expectation then so I guess, it's getting to a point, where the yield is better than the sub losses overall.
And then when you look at some of these new product launches as you know the same client device going forward and even Directv now.
How are you thinking about what's the part of the reason behind it is it more to manage Sac how does it more for growth and.
Video growth from a subscriber perspective really important going forward are.
Should be just as you on that because the focus is margins and growth.
Margins and top line stability.
The focus we want to be on price and costs.
Yes, hi can on this is Randall again, you've nailed the equation I mean, that's exactly what the equation is it's.
One has to ask how is it that subscribers can decline like this and margins expand and it says a lot about the customers that are staying on the network that they they tend to be very high value customers tend to be very valuable customers as you think about where we're going.
As a as a company and in that is distributing unique content through as many distribution points as possible.
And so.
As you think about the product portfolio going forward, which is what you have teed up.
It's interesting the Directv product is going to have a really long life and then they're going to be segments of the market for.
A long time that Thats, how youll address those segments of the market. This thin client product that we're bringing to market. It literally takes the customer acquisition costs and cuts it in half.
And the beauty of that is that you can begin to address a fundamental problem with the current linear TV business and that is the price points with content costs, just continuing to grow and you heard me talk about nexstar, winning 100% increase on.
On their broadcast rights and so forth.
We got to find a way to get the cost curve down on this product. So we can keep people into the product for a longer term basis. So as you drive customer acquisition costs in half on ATM TTB, the new product were bringing to market.
Then you can bring the price points down and hold margins and still have the same value equation from a customer standpoint, so directv good product to be there for long time ATM TV you should assume this will be the workforce over the next couple of years and we will put our shoulder in our muscle behind ATM Ptv get a lower price point shore up this customer base over the next couple of years and then the part that shouldn't be missed and.
We haven't given any subscriber numbers on HBIO digital because we just had game of Thrones and we added a lot of digital subscribers and.
We will as we get to the Warner Media day, we'll give some some visibility into those but until we kind of know what the churn characteristics of a product like this looks like we're going to be a little guarded about getting subscribers.
Here's what we do know and that is HBIO addition, stop carrying HBIO.
And year over year were actually up HBO subscribers that tells you how strong the digital subscriber performance of this thing was in churn is hanging in there pretty strong in the third quarter because as game of Thrones went off.
They feel folks we gave them a more capital to invest in content. So incomes. The new season of Big Little lies is performed very well Chernobyl was a blow out success. After big Little lies ended last Sunday now we have succession coming online the new season to various coming into play and and this thing is just feeling pretty good and so as you think about a video portfolio Directv ATM, TV, HBIO, which we're getting more and more conviction that HBIO Max is going to be meaningful you can imagine that those are the places we're going to put our shoulder and our muscle as we move forward and the implications of that to profitability. We think are pretty important and and so we'll give more visibility on the water media day in October .
But bottom line.
We like how the video portfolio is shaping up here and you can kind of listened to that.
That discussion and then begin to appreciate where you would expect our marketing and customer acquisition muscle to go.
Well in rental by coding and one thing to all that investment around talking about all these new shows the showing up first of all you've seen the 3% revenue increase of HBIO ties exactly to what Randall said, how are you doing that without strong digital performance, but certainly all these new shows that he's talking about we've made those content investments. We've continued to invest in content just like capex throughout the year and that is that is already included in those free cash flow numbers that we've shown.
Through this year and include our guidance. So we are making decisions to continue to invest we're doing that today you are seeing the the build on fiveg today, you're seeing this investment in content today.
And with all of that we're still coming back to this kind of $4 a share free cash flow.
Not only for the trailing 12 months, but for this year. So I say this we are investing in the business, particularly in the comments around the main on on water media and HBIO and those types, but also across the board. It's just really important to keep that in mind that we're still generating just tremendous cash flows not only in total but on a per share basis.
Thanks, Thats going on.
Justin we'll take one last question please.
Sure. Our last question will come from the line of Tim Horan.
Oppenheimer Your line is open.
Thanks, guys, Randy can you dive into the Fiveg strategy, a little bit more.
It does feel like now you could be a few years I had to your peers on it seems like a great opportunity to gain share maybe grow ARPU is here, but are you going to be able to pay for the fiveg software as soon as the first not build upon by the by the end of next year and.
Can you talk about maybe what the go to market strategy will look like will you look to gain share more so or will it be to grow ARPU and.
Just practically speaking from a customer perspective, how much more speed or network capacity or latency will they really see off the bat and starting in 2021. Thanks.
Yes, Hi, Tim you bet.
We.
We are pretty consistent in talking about the advantages of firstnet and that it's allowing us to to deploy this fiveg hardware with one touch on the sell side. So we climbed a cell site and we're doing a number of things we are turning up the first net.
Hardware and the first that spectrum and then returning up all this other latent spectrum that we own as we climbed the tower and putting the fiveg hardware in place.
And we.
We put the beta Alpha tag on the phone for Fiveg evolution, and I know some of our competitors didnt like that but is proving to be exactly what we told the market that it would be you turn up all this spectrum you put the new technology in place and there is a speed enhancements and we are unquestionably.
The fastest network in the market just because of that capacity Sir.
And we are literally in the process of by end of 2019 will have increased the total capacity. This network John had a slide on this by 50%.
They are just inherent performance improvements from that alone that were seeing and our customers are experiencing in our churn is reflecting this now fiveg to your question.
Well the software be ready.
By midyear next year.
As Weve turned all put all this hardware in place we will have a nationwide footprint of Fiveg. So yes. The software will be turned up in by mid year, we will have a nationwide footprint of fiveg.
We are also in the process of market by market, turning up our millimeter wave spectrum fiveg into that spectrum band.
And as you know when you put fiveg into that millimeter wave band. That's when you get these radical speed lists and Thats. When you start to get the gig type speeds and and we have it up in areas here in Dallas for example, and I have a Samsung phone that I carry around and I routinely when I do speed tests here in Dallas it over a gig speeds get two gig on some occasions, and so youre going to have some radically step up in speed performance as as we deploy this and the millimeter wave on top of.
Our lower band band spectrum, we turned it up over the course of next year.
The really high performance millimeter wave spectrum is going to come market by market.
And it will take a while to deploy the really high speed spectrum as we turn it up Tim.
You should expect our focus will be a little different than some of our competitors. It is a business driven focus at the go down.
And we think it's really important because we can deploy this technology if somebody needs a connected factory or connected plant. We're doing this in Austin now you will see us do that if somebody needs a Wi Fi replacements for their business operations, we can deploy and we can replace said if somebody has io t. applications. We can begin to deploy this enrolled these services out.
Kind of commensurate with the network deployment. So it will be business driven at first as we get broad coverage of the millimeter wave and this is really important as our customers began to get handsets into their hands that can use this technology, which right now.
It's pretty limited number of handsets, but as we exit next year, there will be a significant there'll be in the dozen more handsets for that people can use. This technology. Then you will see us frac ratchet up the marketing and the promotion, we don't want to get too aggressive with the consumer right now and there aren't in handsets in the marketplace and there is a significant coverage that will happen as we go through the course of next year and we do agree with you.
That we have a we have an advantage here we have a deployment advantage and we think we'll have nationwide.
This this broad fiveg deployment mid year, and that's going to be important for our customers.
Okay. Thank you and thank him and let me, let me wrap up and then and then hand it over for Randall for some opening comment for some closing comments.
But specifically on the quarter.
We had solid revenue growth.
And we met our service revenue growth in mobility.
Quality EBITDA growth solid EPS.
Strong free cash flows and continued investment in both content and network that are showing up in our results. So we feel like it was a very good.
Quarter, and we are very and we remain optimistic going forward.
Our ability to generate cash and manage our balance sheet is.
Without question and we feel very good about it and let me turn it over to you I don't have much to add I would just point out all of the commitments. We gave to you last year at the end of the year. We are hitting every one of those and we are checking the box on each of them I am gaining greater and greater confidence we will hit each of those as we go through the course of this year the debt.
We will have in a very reasonable place as we exit this year I'll be.
I fully expect that we will be buying some stock back as we go through this year and the cash flows continue to produce and look I hope youre seeing in Warner Media why we thought this asset was so important for us to own. This is a great business great talent, great people running it HBO is firing on all cylinders Warner brothers is doing terrific and all this is coming together to give us great confidence that HBIO Max is going to be something special in the marketplace and we'll get more to that more of that to you in October we look forward to seeing everybody. There. Thank you for joining the call and look forward to seeing you.
Okay. So on everyone.
Ladies and gentlemen, still connected that does conclude the presentation for this morning.
Again, we thank you very much for all of your participation and for using our conferencing system with event management.
At this time you may now disconnect.