Verizon Communications Inc. (NYSE:VZ) Q2 2024 Earnings Call Transcript

Verizon Communications Inc. (NYSE:VZ) Q2 2024 Earnings Call Transcript July 22, 2024

Verizon Communications Inc. reports earnings inline with expectations. Reported EPS is $1.15 EPS, expectations were $1.15.

Operator: Good morning and welcome to the Verizon Second Quarter 2024 Earnings Conference Call. At this time all participants have been placed in a listen-only mode, and the floor will be opened for questions following the presentation. [Operator Instructions] Today’s conference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to your host, Mr. Brady Connor, Senior Vice President, Investor Relations.

Brady Connor : Thanks, Brad. Good morning, everyone, and welcome to our Second 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 Skiadas. Before we begin, I’d like to draw your attention to our Safe Harbor statement, which can be found on Slide 2 of the presentation. Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Discussions 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.

Reconciliation 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 Invest Relations website a detailed review of our second quarter results. You’ll find additional details in the earnings materials on our website. With that, I’ll turn the call over to Hans.

Hans Vestberg : Thank you, Brady. Good morning and welcome to Verizon’s second quarter 2024 earnings call. This quarter marks the beginning of Verizon’s next chapter. We have launched a comprehensive brand refresh that goes far beyond the new logo. This transformation embodies our commitment to bringing choice, value, and control to our customers’ lives, reflecting our evolution and vision for the future of connectivity. We refreshed our brand as our strategy continues to deliver strong results. The three pillars of our performance, wireless service revenue growth, adjusted EBITDA, expansion and increased free cash flow remain solid, showing both sequential and year-over-year improvements. In the second quarter, we saw wireless service revenue climb 3.5% year-over-year, adjusted EBITDA rise by 2.8%, and free cash flow increased 3% compared to last year.

Our improving operations and results build on our first quarter momentum, keep us on track to meet our 2024 financial guidance and are paving the way for a sustained growth. Our progress comes from innovation that deeply resonates with customers, including the most personalized offerings in the industry. These initiatives align perfectly with our core strategy to strengthen and grow customer relationships while delivering the best return on invested capital. We launched myPlan in 2023 and it delighted our customers. In just over a year, over 30% of our subscribers are using it. That is an incredible adoption rate and now we’re bringing these features to Home Internet with myHome. We’re building and expanding on our strengths and successes and you can expect that to continue.

For businesses we launched Verizon Business Complete, the industry’s only end-to-end smartphone management system. We cover everything from selecting the first phone to upgrades with 24-hour service and same-day equipment replacement. These initiatives, combined with our strong network performance and extensive distribution, are reinforcing our leadership position and driving our industry forward. Turning to the second quarter. We had a strong operational performance across mobility, broadband and our network. Our overall execution in consumer mobility has been improving quarter-after-quarter since early last year and our momentum continues. Consumer postpaid phone gross adds are up 12% year-over-year, which is amazing. Total postpaid phone net adds of 148,000 is a big improvement year-over-year and sequentially, and we expect to have positive postpaid phone net adds in consumer for the year.

Choice is at the core of our approach, and we’re constantly working on new partnerships that give our customers more options and value. One example is our addition of YouTube Premium and Peacock subscriptions which makes us the only provider offering our customers savings on 10 of the top streaming services. These content partnerships give our customers compelling reasons to shop with us. We also had a very strong quarter for postpaid phone net adds in Verizon Business at 156,000. This is a sharp improvement from the first quarter and shows how important we are to small, mid-sized and large businesses. Our business customers continue to invest in mobility and we offer them the widest range of choices. In the consumer value market, we are applying the same customer-centric discipline and rigor as we do in the post-paid market and are seeing significant net add improvements excluding SafeLink.

We recently relaunched Total by Verizon as Total Wireless and enhanced our offerings with price guarantees, upgrade credits and other features. In broadband, we’re still taking share with 391,000 net adds in the second quarter. Fixed wireless access remains a key driver with higher net adds than in the first quarter. We continue to grow our broadband base ending the quarter with more than 11.5 million broadband subscribers. We’re also continuing to add business from large customers like government agencies. We’re very proud that we were awarded a new contract from the U.S. Department of the Navy to provide wireless devices and device management building on our previous work together. For first responders, Verizon frontline delivers mission-critical connectivity and advanced solution to more than 40,000 public safety agencies across the United States, serving them with everything from device and network management to digital transformation.

Verizon is there when people need us most from protecting the front-lines to natural disaster response. In fact, recent FCC data show us that overall our network outperformed our peers in areas affected by the Hurricane Beryl. I could not be proud of that. It’s one of the reasons we’re so committed to the network superiority and we’re continuing to expand C-Band in suburban and rural areas. Our initial C-Band markets outperform with better gross add growth, higher uptake of premium services, and lower churn. We now have nearly half of our network traffic running on ultra-wideband, up from 36% a year ago. That number will continue to grow as we expand C-band reach. We’re also working to enhance our network coverage by partnering with AST SpaceMobile to provide satellite to device connectivity using the 850 megahertz spectrum.

This will bring our network to unserved communities, as we target 100% coverage from coast to coast. Our portfolio of high performance spectrum, the capacity of our fiber and our ability to deploy and support mobile edge compute, make us as the backbone of the AI economy and the partner of choice for players in the space. We will power the best AI services for our customers. What set us apart with AI is our network’s mobile edge computing capabilities and deep fiber footprint. By processing data closer to the source, we enable real-time AI application that requires security, ultra-low latency, and high bandwidth. This is where our network shines, opening up possibilities that simply weren’t feasible before. We’re already seeing the benefits of AI in our operations.

For example, we use AI to route customer support calls to agents best-suited to help. We analyze more than 800 data points per call to save our customers time and spare them frustration. It takes the best network to power these applications and today RootMetrics awarded us an outright win for national overall wireless network performance. Verizon also won the most national, state, and metro awards, including outright wins for accessibility, data performance, and streaming video performance. This is a kind of superior network performance that our customers deserve and expect from us. I’m pleased with our first half-year performance on how well our team is executing our strategy. I always say there’s more work to do and there always is. We are seeing improving postpaid phone net adds in consumer, performing extremely well in business and taking share in broadband.

We are achieving growth in a disciplined, balanced way and have built great momentum heading into the second half of the year and into 2025. Now I would hand over the call to Tony for a deeper dive into our performance.

Tony Skiadas : Thanks Hans and good morning. Our second quarter results reflected accelerated growth in wireless service revenue and adjusted EBITDA, as we continue to generate strong free cash flow. These results were driven by strong operational execution in both consumer and business, which led to sequential net add improvements in postpaid phones, fixed wireless access, and prepaid excluding SafeLink. Within consumer, postpaid phone gross adds were approximately 1.8 million in the second quarter, a 12% year-over-year increase. This marks the sixth consecutive quarter with year-over-year growth. Excluding our second number offering, consumer post-paid phone gross adds grew 5% year-over-year. Consumer post-paid phone churn was 0.79% in the second quarter, up slightly from the prior year period.

This was in-line with our expectations as we recently implemented several price increases that are expected to generate well over $1 billion in annualized wireless service revenue. We believe the majority of the pricing churn is now behind us and we continue to expect full-year consumer postpaid phone churn to be flat or slightly better than last year. Consumer postpaid phone net losses were 8,000 for the second quarter, which marks a significant improvement both sequentially and year-over-year. For the full year, we expect to deliver positive consumer postpaid phone net adds without the contribution from our second number offering. Moving to prepaid, we continue to make progress with our core brands while navigating the conclusion of the ACP program.

Overall prepaid net losses were 624,000, including 410,000 losses related to the ACP shutdown, the vast majority of which are in our SafeLink brand. Excluding SafeLink, prepaid net losses were 12,000, a substantial improvement compared to the prior year period. Visible and total wireless continue to expand and perform well, while our operational execution with Straight Talk continues to improve. We exited the quarter with good momentum and prepaid, setting the stage for a stronger performance in the second half of 2024 and positioning us well for 2025. On the business side, postpaid phone net adds were 156,000 in the second quarter, the best performance in the last six quarters. We saw a strong sequential improvement of phone net adds across small and medium businesses, as well as enterprise and public sector customers.

Turning to broadband, our total broadband net additions were 391,000 for the quarter, representing the eighth consecutive quarter with over 375,000 broadband net adds. In fixed wireless access, we continue to focus on building a long-term sustainable business. Total fixed wireless net adds were 378,000 in the quarter, up sequentially. This brings our base above 3.8 million subscribers, up nearly 69% year-over-year. Consumer fixed wireless net adds were 218,000, a 15,000 sequential increase as we continue to see healthy demand for reliable broadband even in a seasonally softer quarter. Verizon business continued strong execution with 160,000 fixed wireless access net adds, a quarterly record. Demand for the service is strengthening as small businesses and enterprises continue to trust the reliability of the product and speed and ease of deployment.

Overall, Fios Internet net adds totaled 28,000 for the quarter. We are pleased with the continuous growth of Fios, even with the effects of the ACP shutdown and lower move activity. We ended the quarter with over 11.5 million broadband subscribers, a 17% increase from a year ago. Our broadband growth continues to significantly outpace that of the broader market, given our superior network experience and strong execution. Moving to the financials, we delivered another solid quarter and remain on track to meet our full year financial guidance. Consolidated revenue for the second quarter totaled $32.8 billion, a 0.6% increase year-over-year. That growth was driven by service and other revenue which grew 1.8% year-over-year, partially offset by declines in wireless equipment revenue, as total upgrades were down nearly 13% year-over-year.

Wireless service revenue totaled $19.8 billion, a sequential increase of more than $250 million, and year-over-year growth of 3.5% or $660 million. The increase was primarily driven by consumer wireless service revenue, which grew 3.7% year-over-year to $16.3 billion. Consumer postpaid ARPA grew 5% year-over-year, reflecting the benefits of pricing actions and fixed wireless growth. In addition, myPlan helps to drive ARPA growth through premium mix adoption and [Perk] (ph) revenue. As Hans said, we now have over 30% of our consumer phone lines on myPlan and expect this to expand meaningfully going forward. FWA revenue which is included in wireless service revenue was $514 million for the quarter, up more than $200 million versus the prior year period.

Launched at scale in 2021, our FWA business is expected to generate more than $2 billion in revenue this year with prospects for continued healthy growth. Prepaid revenue for the quarter declined $162 million versus the prior year period. The headwind to wireless service revenue growth from the ACP shutdown was approximately 30 basis points within the range we provided last quarter, and the margin impact was insignificant. With the majority of ACP disconnects now behind us and the momentum growing in our core prepaid brand, we are better positioned for the remainder of the year and heading into 2025. Consolidated adjusted EBITDA for the second quarter totaled $12.3 billion an increase of 2.8% year-over-year. The improved operating leverage reflects the lower upgrade activity and our disciplined approach to growth.

We are making progress in our ongoing cost efficiency program and recently introduced new measures to improve our operating efficiency, including a voluntary separation program announced in June. Adjusted EPS in the quarter was $1.15, down 5% compared to the prior year period. Growth in adjusted EBITDA was offset by below-the-line items, including higher interest expense, predominantly due to lower capitalized interest as we put more C-band spectrum into service. Cash flow from operating activities totaled $16.6 billion for the first half of the year compared to $18 billion in the prior year period. The results reflect higher cash taxes of approximately $1.7 billion, predominantly due to the unwind of bonus depreciation, as well as higher interest expense primarily driven by the decrease in capitalized interest.

Capital spending for the first half of the year totaled $8.1 billion. This was $2 billion less than the same period last year as we have returned to historical levels of capital intensity. The network build remains ahead of schedule with C-band deployed on nearly 60% of our planned sites. Our full year guidance for CapEx spending remains unchanged at a range of $17 billion to $17.5 billion. The net result of cash flow from operations and capital spending is free cash flow of $8.5 billion for the first half of 2024. This represents an increase of nearly 7% or approximately $550 million from the prior year period, despite higher cash taxes and interest expense. We expect to generate strong cash flow in the back half of the year that will support paying down debt.

Net unsecured debt at the end of the quarter was $122.8 billion, an improvement of $3.2 billion compared to the previous quarter and $3.7 billion lower year-over-year. Our net unsecured debt to a consolidated adjusted EBITDA ratio was 2.5 times, an improvement from 2.6 times last quarter. The strength of our results and momentum in our business put us in a great position to execute on our capital allocation priorities. In particular, we remain on track to further reduce the leverage on our balance sheet in the second half of the year. In summary with 2024, reaching its midpoint, the team’s strong execution and operating momentum is translating into results. We have good momentum in mobility as reflected by the strong gross add growth and continue to take share in broadband through fixed wireless access and Fios.

Importantly, we are accomplishing this with a disciplined approach, balancing growth and profitability providing the confidence to deliver on our 2024 financial guidance. With that, I will turn it back to Hans for his final remarks before opening the call to your questions.

Hans Vestberg: Thank you, Tony. Our focus for the second half of the year remains clear to drive growth in wireless service revenue, expand adjusted EBITDA and generate strong free cash flow. We are evolving our broadband strategy as we approach 4 million to 5 million fixed wireless access subscribers, and we’ll continue to scale the business along with the private networks while driving mobility growth. Our ongoing C-band expansion will be crucial in supporting these efforts, enhancing our network performance and opening new opportunities across markets. Our commitment to a differentiated customer experience and operational excellence remains firm. The success of myPlan and our brand refresh are proof of our ability to meet evolving customer needs.

We will build on these successes in the quarters ahead, as we work to deliver value to all of our stakeholders. We will continue to execute on our capital allocation priorities by investing in the business, supporting our dividend and paying down debt. As AI continues to reshape our industry, Verizon is well-positioned to enable and benefit from it. Our reliable, secure and powerful network will be at the forefront of AI and mobile edge compute applications. This is an exciting time for us at Verizon. Mobility, broadband and cloud, our essential services and their value has never been higher. We power and empower how people live, work and play. We are in a great business and there’s so much more to come. We have the right assets and the strategy in place for success this year and beyond.

I’m more excited than ever about what lies ahead of us. Now Brady, we are ready to take questions.

Brady Connor : Thanks Hans. Brad, we’re ready for the first question.

Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from John Hodulik of UBS. Your line is open, sir.

John Hodulik: Great. Thank you and good morning, guys. Two questions, if I can. First, on ACP, was there any impact on the broadband side in the quarter? And do you expect any lingering impact from ACP, either in prepaid or postpaid or broadband, as we look out into the second half? And then second on upgrades, obviously another strong quarter with record, I think, record low upgrades. Given the AI phones coming out in the second, third quarter, how do you expect that to trend? And what do you expect the impact to be on the financials of the wireless business as we look out into the second half?

Hans Vestberg: Thanks, John. On the ACP, Tony will give you the details. But yes, we had some impact on the prepaid brand as was expected, and also a little bit on Fios. Looking forward I see this is a great opportunity. I mean 21 million people having ACP and the importance of mobility and broadband today is so important. And our offerings, but all the way from broadband with Verizon forward, fixed wireless access, both very efficient and then on the prepaid brands. So I see that as an opportunity going forward, but some slight impact on volumes this quarter. On the upgrades, as you have seen the upgrades has been a little bit low for a while. It is two things. First of all, the quality of the phones has continued to go up.

But secondly, I think even more important is the discipline that we have shown over the years right now, I think for the last 1.5 years, how we do the promotions, how we look at the customer investment bucket and see that we are actually distributing our money. We are going to see what’s going to happen in this cycle. I don’t feel very worried about it. I feel that we are in a great position to handle it, and it’s all in our guide what we are expecting. So I don’t see any major things happening here. Tony?

Tony Skiadas: Yeah, thanks. Good morning John. In terms of ACP updates, let me give you a couple of things here. So as we said previously, the majority of the ACP exposure is in our prepaid business. And as we said last time, we had about 1.1 million prepaid subs that benefited from the ACP program. In the quarter — in the second quarter, we saw about 400,000 prepaid disconnects. This is the vast majority of what we expected. There is minimal impact on the postpaid side as I think was part of your question. We saw some pressure in Fios in terms of gross add opportunity. If we look ahead in the third quarter, we expect some disconnects in prepaid and a small number across other products. In terms of revenue, we also said that any impact that we would see we’d see on service revenue up to 50 basis points of headwind and we’re tracking inside of that number right now.

And even with the disconnects, the margin exposure from ACP was insignificant in the second quarter. So we will continue to keep everyone updated as we progress here.

John Hodulik: Perfect. Thanks, guys.

Brady Connor: Yeah, great. Thanks John. Brad we are ready for the next question.

Operator: The next question will come from Simon Flannery of Morgan Stanley. Your line is open sir.

Simon Flannery: Great. Thank you very much. On fixed wireless, you talked about the strong momentum. You obviously have a lot of C-band still to build out would expand your addressable market. I guess you’re going to hit the $4 million, the low end of your guide probably in the August timeframe. So help us think about what’s the potential beyond the $4 million to $5 million. And when you can give us more clarity on your opportunity there? I think you’ve talked before about plenty of excess capacity. And then there were media reports the other day about you looking potentially to monetize towers. Could you just talk about how you’re thinking about tower sales or other real estate, other asset monetization? Thank you.

Hans Vestberg: Thank you Simon. On fixed wireless access, you are rightfully say it. We have good momentum came into this quarter with 378,000 new net adds on fixed wireless access doing strong, both on consumer, as well as on a business. And we are now expanding our C-band to suburban and rural, which is another type of opportunity, less penetrated, but also more vastly distributed. So we are gearing for getting to our target between 4 million and 5 million fixed wireless access broadband customers. And as soon as we get there as I’ve said before, I will come back and see how we see the opportunity going forward. But clearly, we have a great network that can ingest more customers over time. But let me come back on the exact details of that when we reach the target.

On the towers, I mean, or any rumor I wouldn’t comment on any rumor. What you should know is that Tony and I are very committed to improve our cash flow, whatever we can see to see that we optimize our assets, we will do that but I have no comments or rumors in the market. But the focus on cash flow is extremely important because it goes straight into our capital priorities. That’s why we’ve been so focused on for the last couple of years, and we did yet again in this quarter, good progress on them.

Simon Flannery: Thanks, Hans.

Brady Connor: Yeah, great. Thanks, Simon. Brad, we are ready for the next question.

Operator: The next question comes from Jim Schneider of Goldman Sachs. Your line is open sir.

Jim Schneider: Good morning. Thanks for taking my questions. Two, if I may. First, on broadband. Could you comment on sort of the overall health of the broadband market that you are seeing? And then maybe any more quantitative guidance you can give us on the amount of headroom you see in your overall network capacity relative to fixed wireless subscribers? And then secondly, on the wireless side. In terms of the service revenue growth, what’s your level of confidence that you can drive more volume growth and still maintain the same level of pricing power over the next 12 months or so? And how do you expect that volume price split to work out for you over the next year or so?

Hans Vestberg: So on the broadband, I think again, we are between 375,000 to 400,000 net adds in broadband this quarter, been it for quite a while. So we see it as a very healthy. I think also we have a really good offering. And now with myHome that we just announced, I think we are going to be even stronger on it. So we see it healthy. Of course, Fios is by far the best fiber product in the market. And then fixed wireless access, the differentiation of the product, how we deploy it, how the customer provision it so different. And with all the streaming agreements we have right now, we can scale that horizontally to all our customers. So I see it is a very healthy business for us today. When it comes to our capacity on fixed wireless access — yet again, I mean as we said, less than — around 50% of all the traffic is now on C-band.

So we have a way to go and we have deployed only a portion. So as we deploy more, we of course open up more opportunities. Finally, and maybe Tony has some addition. On the volume growth, I’m excited of what we have done in the consumer side with myPlan, and all the new innovations were done with our customers, and we see it resonate with the market. And clearly, quarter-by-quarter, we have improved both our revenue but also operation volumes on postpaid. Prepaid you saw it yourself, a big step forward on prepaid this quarter. And then our business side, I mean Kyle and the team has been now for I’m not sure how many quarters been around 125, up to 150 net adds on wireless. So all-in-all, I see that with the offerings that we put into the market, the refresh of the brand that is supporting that we are in a good position going into the second half of this year.

Tony, any additions to that?

Tony Skiadas: Yeah. Thanks, Hans. So very comfortable with the revenue guide for the year. As Hans said, the performance and execution is very much on track, and we continue to find a better balance of P&Q. And you see the progress on volumes, as Hans said, B2 mobility and SWA. And maybe just a few additional points to consider. First we expect to see sequential growth in service revenue in the second half of the year. Also, I would say the year-over-year comps are a little more challenging in the second half as we lap the pricing changes from 2023. The wildcard obviously, is the promotional environment and the level of upgrades we’ll have to see where that goes. But having said all that, the assumptions that we have in the service revenue guide have not changed.

So overall, we feel good about our revenue performance and the momentum in the business, and we’re not going to guide on ’25 at this time, but I would tell you that those assumptions will carry forward as well.

Jim Schneider: Thanks.

Brady Connor: Brad, we are ready for the next question.

Operator: The next question comes from Sebastiano Petti of JPMorgan. Your line is open sir.

Sebastiano Petti: Hi, thanks for taking the question. Just wanted to follow up on the 2024 consumer postpaid phone expectations to report positive net adds for the year, excluding the second-line. If you could perhaps maybe help us think about the pace or expectations for the second-line contribution in the back half of the year? Obviously, a pretty healthy run rate here in the second quarter on a full quarterly basis relative to the first quarter. So just how should we think about that in terms of trying to unpack the underlying benefit relative to the second-line benefit? And then, Tony another quick question, just helpful color there on service revenue expectations, quarterly growth over the balance of the year. But can you perhaps help us think about margins?

Obviously, decent — nice growth here in the second quarter in business. How should we think about the contribution or perhaps from the HCL Tech Managed Services savings coming through? And I think you also mentioned there was a voluntary separation program in the market. I think we had seen headlines to that intra-quarter. How should we think about maybe the contributions from those two items impacting margin and maybe EBITDA growth expectations or how you’re thinking about the phasing of those in the back half. Thank you.

Hans Vestberg: Thank you. I’ll start and Tony will give you the details. As we said before, I mean the second-line offering is straight into our strategy. The strategy is to build the network ones and have as many profitable connections on top of it in order to get the best return on invested capital. And you can see that is really happening, and that’s been a very big focus for us. Tony will give you some more details on how it looks in the second half here. On the programs of cost, we put in last year a couple of really large programs all the way from agreement with HL together with large customer care changes. Many of those are now coming into the base, and that’s why you see the leverage. But we also have quite a lot of new things coming up.

And as you rightfully mentioned, we have a voluntary separation program that is ongoing right now. We also have all the efficiencies with AI that is coming through. And of course we continue with our disciplined approach on investments. So all-in-all, there is more things to come. And — but we have gotten leverage from some of the things we did last year, Tony.

Tony Skiadas: Thanks. Hi, Sebastiano. On the second number, just a few points, Hans touched on this upfront, but this is a great business. We are providing customers options and flexibility. It is a very profitable connection and we would do it every day of the week. In terms of the market for this, we’ll see how the TAM evolves. We shared the gross add impact you can assume some level of churn in the quarter. Looking ahead, we expect less of a contribution from second number in the back half of the year. It is high-margin business comparable to ARPU [add-a-line] (ph) offerings. The ARPU is very good and very comparable to add-a-line, without the device subsidy. And as we said in the prepared remarks, we expect to have positive phone net adds in consumer for the year without the contribution from second number.

And the results in the quarter reflect the strength of our core business. And then on your question on EBITDA and cost transformation, we’re very comfortable with the EBITDA guide. We made a lot of progress. You saw the 80 basis points of margin expansion in the quarter. And the program in terms of delivering cost transformation is on track. Hans talked about some of the work we are doing, and we did last year with customer care and with managed services. We have a lot of work going on right now between IT and real estate, and network decommissioning. In addition, Hans mentioned the voluntary separation program. And some of that savings will start manifesting in the back end of this year and into 2025. And then lastly AI is an enabler of efficiencies.

You can think about customer care, you can think about the personalization with myPlan. And we see efficiencies coming from there as well. But we’re very much on track. We are operating differently. And we feel good about the progress on cost actions that are driving the improvements in EBITDA that you see in the first half of the year.

Sebastiano Petti: Great. Thank you for the question.

Brady Connor : Yeah, thanks Sebastiano. Brad we are ready for the next question please.

Operator: The next question comes from Michael Rollins of Citi. Your line is open.

Michael Rollins: Thanks and good morning. I’m curious on the pricing front, where does in wireless postpaid the back book sit on average relative to your front book offers? And do you think the pricing environment in the postpaid wireless category can start to look more like fixed broadband or the video product categories where those products have tended to see some kind of pricing actions on a somewhat annual basis?

Hans Vestberg: Thank you Mike. I think in general, when we see the value accretion we have done recently, very much about new offerings to see that our customers are getting more value from the offerings we have. We have done some price adjustments historically. I think that Sampath in the consumer side has said that he would get better balance between volume and value increases. So that’s what you see right now. And then on the business side, we have constantly done a great job. I mean Kyle and his team has constantly continue with a really high market share, continue to gain in every area like government, large enterprise and SMBs. So in the quarter you saw that the offerings we’re doing with myHome and the additions on myPlan.

And of course, with also the new offerings in business, Business Complete which is a new way to serve our SMBs. All of them are accretive and value but also giving our customers better services. So that’s how we continue to work. And we are in sort of the third-phase of wireless where wireless is so important for our customers, and we see it also as an opportunity with the largest direct-to-consumer business in the country to actually add support with them with new services and layering on. Tony?

Tony Skiadas: Yes. Just a couple of other things to add. I mean as we said upfront, we said we need to find a better balance of P&Q in 2024, and we are doing that. We are very confident, Mike in our back book. We’ve been very consistent, as Hans said, about evaluating pricing opportunities, aligning the price with the value proposition for customers. We did take pricing actions in the first half of the year that provide a good tailwind to service revenue, and those pricing actions were contemplated in the guide, but it wouldn’t be appropriate to comment on what we might do in the future.

Michael Rollins: Yeah, thanks.

Brady Connor: Thanks Mike. Brad we are ready for the next question.

Operator: The next question comes from David Barden of Bank of America. Please go ahead with your question sir.

David Barden: Hi guys. Thanks so much. So Tony, yes, you guys had real demonstrable success on the P side of the equation and it helps to be the industry upward. Can we talk a little bit more about the Q — the account number that you reported this quarter, I think it’s the lowest that we’ve seen since the data I have going back from 2016. And so the way that the queue is growing is by kind of a shrinking number of accounts, but putting more and more into those accounts. I’m guessing the second-line strategy is one of those strategies. But can you talk a little bit about what kind of duration, durability this approach to growth has and — or do we need to see accounts grow in order to believe that Verizon is really on the right growth path? Thanks.

Hans Vestberg: Hi, David. Good morning. So look as we said before, finding the right balance of P&Q. And I think you’ve heard Sampath and I talk about something like 80-20 price-volume mix last year was more like 100, so clearly making progress on that. And keep in mind, we have a very high-quality customer base, and we see it in the results quarter-after-quarter. And I think you see the momentum in both gross adds and in net adds in the quarter, and it is very high-quality growth, both on the consumer and the business side. Business had a very strong quarter as well on volumes. And you also see the growth in fixed wireless access. We did 378,000 fixed wireless access net adds that continue to provide a tailwind to service revenue. So we are trying to find that right balance of P&Q, and I think the results reflect that.

David Barden: Great.

Brady Connor: Thanks Dave. Brad we are ready for the next question.

Operator: The next question comes from Peter Supino of Wolfe Research. Your line is open sir.

Peter Supino: Good morning. Thanks. A question about capital allocation. As we approach 2025 and your leverage target, I’m wondering how you would encourage us to think or how you do think about the possibility of building more fiber as opportunity costing that against share repurchases. I wonder how you think about the returns on each of those projects. And separately, to the extent that capital is scarce, is there an argument for maintaining leverage at a constant level and even more of above? Thank you.

Hans Vestberg: Hi, Peter. When it comes to our capital allocation priorities, they haven’t changed. I mean first of all, we put the money in the business. And this year, we have the guide between [$17 billion and $17.5 billion] (ph). So — but of course, if we see opportunities to gain more revenue and grow business, we will always look into the business side. Secondly, the dividend is very important. I mean we have now been growing our dividend for 17 consecutive quarters. And Tony and my job of — years, not quarters. And Tony and I are committed to continue to put the Board in a position to do that. And you see on our pay ratio, we’re well inside that ratio doing well. And then we’re paying down our debt. We paid down debt this quarter.

Second half, we’re going to continue with that. We will not consider any conversation about buybacks until we get to 225. And after that there is a lot of factors in the market, the priorities but also where is the interest rates, where is share price and all of that. So let us focus on the priority in the order we have said, and that’s how we are going to continue for the next foreseeable future.

Brady Connor: Thanks Peter. Brad, we are ready for the next question.

Operator: The next question comes from Craig Moffett of MoffettNathanson. Please go ahead with your question sir.

Craig Moffett: Thanks. I want to return to the upgrade cycle. Apple is obviously betting that they can drive a significant upgrade cycle with AI. I wonder if you could just talk about the percentage of phones in your base that are, I believe Apple’s requirement will be 8 gigabytes of RAM and — meaning it’s going to be the iPhone 15 Pro or Pro Max. What percentage of your phones are already of that level? And how many would presumably require upgrades? And then how you just — how do you think about how quickly that upgrade cycle comes and what that might mean in terms of the cost and margins for your wireless business?

Hans Vestberg: Thank you, Craig. I don’t have the exact number, but I know that we have a fair amount of new phones, of course in the base because with our high quality customer base on postpaid, many of our customers are already on later versions of the iPhones. Again looking into this cycle, I mean, — of course, we are going to see some excitement around AI. I don’t think that it is going to be any particular at this time. It will be over time, maybe. We have a very disciplined model when it comes to a approach expectations for promotion, et cetera. We will stick to that. we believe that we have such a great network, great offerings. So we can actually manage that, and we will continue to do so. And then talking about the AI.

I mean I think where I’m most excited is, of course that we have built sort of the Verizon Intelligent edge network which will be the platform for the GenAI economy because you are going to have to have a lot more compute storage at the edge of the network, and that’s how we built the network already 2018 with fiber to all our main hubs and between our main subcenters. And then on top of that, we have cooling and power at those edges. And I think as we go from the LLMs and we go into sort of doing commercial products for enterprises. Our network is set up for that. And so I’m very excited for that opportunity going forward together with private networks. So – there is a lot of things coming into GenAI devices, our efficiencies but also a business opportunity for us when it comes to AI.

Brady Connor : Great, thanks Craig. Brad, we are ready for the next question.

Operator: The next question comes from Frank Louthan of Raymond James. Your line is open sir.

Frank Louthan: Great. Thank you. To what extent do you think that fixed mobile conversion will be more of the norm in the US? And given your smaller wireline footprint, do you think you need to expand your fiber-to-the-home assets? Or how would you address that? And then want to clarify the target leverage you are looking for, is that 2.2 times total leverage or 2.2 times unsecured? Thanks.

Hans Vestberg: On the mobile convergence fixed mobile convergence, we see some uptick on that. As I said before, we will follow the customers. We have all these economics on wireless and on broadband. And we will see that if our customer wants to have a converged product, we will do that. I don’t believe in sort of discounting products to get there. But of course, our efficiency if one customer has both mobility and broadband from us, and we will see that we share that with our customers as an opportunity. So I don’t think we are going to see the European levels here because of the nature of the market. But as we move further into convergence, we will be very well positioned with the products we have. Tony, on the leverage?

Tony Skiadas: Yes. So Frank, on the leverage metric, the long-term goal is 1.75 to 2 on the unsecured. And then we said we would consider buybacks when we got to 2.25, again unsecured.

Frank Louthan: Okay, great. Thank you.

Brady Connor: Yeah, thanks Frank. We are ready for the next question.

Operator: The next question comes from Tim Horan of Oppenheimer. Your line is open sir.

Timothy Horan: Hi, guys. Focusing back on the network. I know the C-band initial deployments were just for a portion of the spectrum and they weren’t used in the full range of technologies. And I know you said 60%. Can you talk about — where are you with kind of upgrading to the entire C-band level of spectrum and to Massive MIMO and also then to stand-alone? And kind of related to this, I know you saw some major network improvements with the initial upgrades or build out to C-band. Can you talk about what you’re seeing when you go back with the second upgrade? And I have a follow-up on what you do with AI? Thank you.

Hans Vestberg: On the C-band, you are right. We almost have now 50% of our traffic on the C-band, but we still have some deployment to be done in suburban and rural. Many of those sites are prepared for it, so we are just rolling out as we speak right now. So we are going to see that continue. Joe and his team in technology, very much focused on customer satisfaction when it comes to the rollout and revenue generation right now. That’s the main focus we have at Verizon. And the same trend as we saw in the beginning where we have better upgrades, lower churn, whereas C-band and of course also getting fixed wireless access opportunity. The same goes for where we are enhancing or continuing to new areas. Secondly you asked about all the new features coming into 5G advance with SA, Massive MIMO, all of that is just expanding our capacity and bringing even more opportunities for us for revenue and seeing that we create the customer expectations on the best network in the nation.

So — and that’s just — we’re just in the beginning of that. So I’m very pleased with what I see. The team is running as fast as we can and we get good feedback on C-band. Tony?

Tony Skiadas: Yes. Thanks, Hans. So just a couple of other points. On C-band, we are seeing good improvements in churn 3 basis points. On gross adds, we see about 9 basis points gross add strength. And as we deploy suburban and rural gross adds are up threefold in those markets. And then premium mix continues to be stronger as well of about 10%. And we do have now at this point nearly 60% of our planned sites are now deployed with C-band. So really making really good progress.

Timothy Horan: And I’m assuming you need stand-alone to enable some of these AI/MEC applications you’re talking about, and I can be wrong about that, but any upgrade on the timing of when standalone gets deployed nationwide? And do you have any of these AI/MEC applications that are up and running now? Thanks.

Hans Vestberg: We can do mobile edge compute without SA. We have done that for five years. Then there are some efficiencies on especially private networks and deployment with SA. But again, you need a full ecosystem all the way from the devices and the network features and the core in order to do that. So it is a little bit of a holistic thinking again when we work it, but we can already deliver that right now. When it comes to GenAI in mobile edge compute, that — we don’t have that to our customers right now. But the conversation with many of both the cloud players as well as enterprises of doing that when they have commercial products, and not only training large language modules. And that’s how we designed our network. So that’s why I’m excited of it.

At the same time, we already have four GenAI products in the market that is deployed on 40,000 agents to all our stores, et cetera personalization, more efficiency for customer and employee experience. And we see a great opportunity for that. So there are multiple opportunities with AI for us and we have been on to it for a long time.

Timothy Horan: Great.

Brady Connor: Thanks Tim. Brad we are ready for the next question.

Operator: The next question comes from Walter Piecyk of LightShed. Your line is open sir.

Walter Piecyk: Thanks. Tony, I think in the prepared remarks, you referenced voluntary separation program in June. I wonder if you can give us a sense of — I mean I know you’ve done these in the past potential EBITDA benefit. And just remind us, does this result like in, I guess, onetime charges relative to the severance or the separation payments that are made and just kind of quantify that a bit, if you can?

Tony Skiadas: Sure. Hi Walt. So a couple of things. We announced the program in early June for a portion of our workforce. The process is not going to be fully completed until the back end of August. So I don’t have numbers at this point. It was contemplated in their full year guide. And we do expect to see savings towards the back end of 2024 and into 2025, and we’ll come back with disclosures on the program once it is finalized. We’ll file an 8-K similar to how we did it last time.

Walter Piecyk: Okay. And then Hans, it is not a reported number, but you can kind of calculate what wholesale revenue looks like and we know who the principal driver of that is. It seemed like that was kind of strong this quarter sequentially. I don’t know, if there is some seasonality there. I’m looking last year and the year before, it doesn’t seem like that. So is this a good thing or a bad thing, obviously, because it could imply stronger growth at a wholesale customer at the expense of your retail business. And just can you give us a sense in general of your outlook for that line. There has been some discussion and debate about how some terms can change or other offloading activities can occur for that customer. So just if you can comment on the quarter and just generally your outlook for wholesale in terms of a component of your sectors of growth, like how important is wholesale in terms of meeting the growth targets that you promised the Board?

Hans Vestberg: I don’t have any comments on the quarter on the numbers. We try to have our Chinese [Walls] (ph) here, so I don’t have it. But in general, we see these partnership has imported enterprise customers. And it goes back to the strategy we have, meaning we build the network once. And we have — want to have as many profitable connections on top of the network in order to get the best return on invested capital. So that’s where we are. And we have a good relationship with the [MVNO] (ph) customers, and we have many of them, and it will continue. Tony?

Tony Skiadas: Yes. Look, I mean the – it is very profitable business, as Hans said and is a great contribution to revenue and EBITDA consistent with the strategy to monetize the network, and we are very comfortable with the arrangements we have, but that’s as far as we can go.

Walter Piecyk: Can I just pivot and just — then just ask one related but kind of high level question. There has been some reports of T-Mobile doing some additional fiber asset joint partnerships. If the administration changes, maybe there’s opportunities for some additional vertical integration. But I guess the big question is, at least for me, how important is it in the long-term for you to have a vertical solution for customers, meaning that the consumer can buy their home broadband and their wireless services from you or — and if you’re not doing that obviously, outside of the Fios markets, is that a risk if others put together that vertical solution?

Hans Vestberg: We are well positioned in that area. And again if the market go convergence between mobility and broadband, we will be there to serve our customers either with Fios and fixed wireless access. And right now, that’s working really good for us. So we are happy with our assets we have and how we’re deploying them right now. We’re looking into how we can continue to meet our customer demands. And now we also launched, as you saw in the quarter on the consumer side, myHome where we have all the benefits we had from myPlan. We are moving over to myHome. I feel good about what our consumer division is doing on broadband and mobility at the moment with the product. We are Number One in the market, so we just need to continue to keep the lead and continue to keep innovating, and I feel good about the consumer team doing that.

Walter Piecyk: Thank you.

Brady Connor: Thanks Walt. Brad, we are ready for the next question.

Operator: The next question comes from Sam McHugh of BNP Paribas. Your line is open sir.

Sam McHugh: Good morning guys. Two quick questions. In the last few years, you’ve gone through quite a big reinvestment phase, I guess in the consumer division with the launch of myPlan, the refresh of the brand this quarter. As we look out kind of the next two or three years and take a big step back, should we think you are now at a place where EBITDA can sustainably grow ahead of service revenues? Yes, that’s question one. And the second part just a clarification. Tony, you mentioned something about 2H wireless service revenue trends versus the first half. If you wouldn’t mind just repeating it, that would be very helpful. Thank you.

Hans Vestberg: When it comes to continue to have leverage on our EBITDA together with our service revenue, I think it is clear for us that the KPIs that we are measured on as a management team and me, myself is on the growth on the service revenue, wireless service revenue expansion as well as EBITDA and cash flow. And that’s how we are working holistically. So yes, we — our goal is to see that we have the leverage on our service revenue growth right now. We have great products. We work with efficiency. There are of course, pressures in our business as and the business, but that’s what we strive for. But we don’t guide for ’25 or something like that at this moment, we will come back on that. But our work and our KPIs are set up for that. Tony?

Tony Skiadas: Thanks. Hi, Sam. So on the service revenue for the second half, what we said is we expect to see sequential growth in service revenue in the second half. And when we talked about the assumptions that we had in the guide, we said, look we had pricing actions that we’ve already taken and you see that well over $1 billion. We also said we have an improving volume profile in consumer and you see that progress. Fixed wireless access continues to scale. And we have over $500 million now in fixed wireless access revenue on a run rate of over $2 billion and that base of business continues to grow. We also said we had headwinds in prepaid, and that’s improving, and we will see that improving as time goes on and then from our amortization.

And the promo discipline continues to be encouraging, and we say we see a similar level year-over-year. So those assumptions haven’t changed and we feel really good about the performance on service revenue, and the momentum we have in the business heading into the second half.

Sam McHugh: Awesome thanks.

Brady Connor: Great. Thanks Sam. Brad, we have time for one last question, please.

Operator: Your last question will come from Bryan Kraft of Deutsche Bank. Your line is open sir.

Bryan Kraft: Thanks good morning. I have one for Tony and one for Hans. Tony, regarding free cash flow, it’s up, I think, about 12% year-over-year in the first half. do you anticipate being able to grow free cash flow this year? Or is the year-to-date growth we’ve seen more a function of favorable timing in the first half with higher CapEx and working capital usage coming in the second half? And then Hans, you had talked quite a bit about Verizon’s strong position for AI and enterprise. Is there anything you can share on what you’re seeing in 5G enterprise adoption and also on the sales pipeline activity that you are seeing? Thank you.

Hans Vestberg: I’ll start with the first one, and then I can hand it over to Tony on the cash flow. Yes, what we see is private networks continue to grow in volume and — which is a prelude, you start with the private network then you start adding on applications on it. And of course ultimately, you put in mobile edge compute. We have all that set up since 2018, 2019, and we start seeing more and more business case for logistics centers, for factories, et cetera where we can do it. And then GenAI will only sort of capitalize that and do it even faster. That is going to take some time because right now, many corporation enterprises are in the learning process, meaning they are training their data sets. So it is going to take some time. But I don’t think that anyone is even close to be as well-positioned as we are in GenAI and the [GenAI economy] (ph), both for taking advantage of it efficiency-wise, internally but definitely from a revenue point of view over time.

Tony Skiadas: Thanks. Hi Bryan. So on free cash flow, overall the cash generation of the business continues to be very strong. In the first half of the year, free cash flow was $8.5 billion, up 7% and we were able to grow cash flow in the second quarter, even with an incremental $1.7 billion in cash taxes. And as we said in April, we expect free cash flow to have a similar shape to last year and build throughout the year. And we still see the same puts and takes on free cash flow for the full year, as we described back in January. And within that framework, we see slightly more incremental pressure from cash taxes. And offsetting that is the lower upgrades, and we’ll have to see where that goes. But overall, the strong position and cash flow puts us in a position to pay down debt in the second half of 2024, and we are on track to do so.

Bryan Kraft: Thanks very much.

Brady Connor: Great. Brad that’s all the time we have for today.

Operator: This concludes the conference call for today. Thank you for your participation and for using Verizon Conference Services. You may now disconnect.