Verizon Communications Inc (VZ) — Q1 2024 Earnings Call Transcript

Thanks, Brad. Good morning, everyone, and welcome to our First Quarter Earnings Conference Call. I'm Brady Connor, and I'm joined by our Chairman and Chief Executive Officer, Hans Vestberg, as well as our Chief Financial Officer, Tony 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. Discussion of factors that may affect future results is contained in Verizon's filings with the SEC which are available on our investor relations website. This presentation contains certain non-GAAP financial measures. 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 investor relations website a detailed review of our first quarter results. You'll find additional details in the earnings materials on our website. With that, I'll turn the call over to Hans.

Thank you, Brady. Good morning, everyone, and welcome to our first quarter 2024 earnings call. I'm pleased to report that we have started the year with solid momentum, building on the progress we made throughout 2023. Our results this quarter further validate that our strategy is working and position us well for profitable growth this year. Our execution in the first quarter keeps us on track towards our full year 2024 guidance, as we continue to deliver against our key financial metrics. We grew Wireless Service revenue and adjusted EBITDA and generated solid free cash flow. Operational Excellence is our priority. Our team is delivering. We have the right strategy, and we're working to keep this progress up quarter-by-quarter. It has been a busy quarter across our business. We produced big moments at the Super Bowl. Published our first consumer connections report, achieved milestones in our C-band rollout, added new members to our leadership team, published our annual ESG report, accomplished many goals with Citizen Verizon, and completed a pension transaction that increases our financial flexibility. Verizon has a differentiated position in the industry. We have the highest-quality customer base in consumer and business, the largest adjusted EBITDA, and a great team that knows how to execute our strategy. Turning to our first quarter results, Wireless Service revenue growth climbed to 3.3%. Our revenue performance combined with our work on cost efficiency programs translated to a $12.1 billion adjusted EBITDA, that's a year-over-year growth of 1.4%. We generated $2.7 billion in free cash flow and we expect free cash flow to build throughout the year, similar to 2023. Our core products on mobility, broadband and private networks are at the center of people's lives and businesses. Connectivity is only becoming more vital with each passing day, and our investments in a world-class network ensure that our customers can depend on us to deliver the reliable, high-quality experience they deserve. Now, let me go into some specifics about this quarter. Our consumer team is executing extremely well. Despite taking further pricing action this quarter, our postpaid phone net adds performance improved year-over-year, evidence of how our differentiated value proposition is resonating with customers. Our net loss of 158,000 is more than 100,000 net adds better than our first quarter performance in 2023. This achievement was fueled by continued momentum in postpaid phone gross adds, which grew more than 5% year-over-year. We mitigated churn impacts from pricing actions through laser-focused retention efforts and the strength of our value proposition. These results represented Verizon Consumer Group's strongest first quarter postpaid phone net adds performance since 2018. Our targeted and segmented go-to-market approach, combined with myPlan and its exclusive perks, is clearly working. With myPlan, we are building a recurring revenue stream out of perks and services. These incentives, like our popular Netflix plus Max bundle, add value and deepen our customer relationships. We know our customers extremely well and tailor our offerings to their needs. We're bringing the same proven approach to our prepaid business. Within the quarter, we established our new value market leadership team, bringing in experts to execute our plans with speed and discipline. While there is still work to be done, we're seeing early signs of progress in Visible and Total By Verizon. In February, we stopped processing new affordable connectivity program activations, which caused headwinds for our SafeLink brand. The ACP may shut down, but Verizon is committed to providing households with access to high-quality connectivity and reliable home internet without data caps, and does not believe that income should be a barrier to access. Since 2020, we have offered high-speed home internet to qualifying customers for as low as $20 a month through our Verizon forward program and we have other plans to reach households who rely on ACP. For business mobility, postpaid phone net adds were 90,000. The team continues to put up subscriber growth as a market share leader in a competitive environment even while implementing pricing actions within the quarter. More businesses rely on Verizon than any other provider to deliver mission-critical support for their day-to-day operations. In total, first quarter post-paid phone net losses were 68,000, a 59,000 net loss improvement versus prior year. We're exiting the quarter with both consumer and business delivering their strongest performance in March, a good sign for the year ahead. Our broadband business continues to be a key growth engine, now serving more than 11 million subscribers. We have grown our base 18% over the last year and our network is a critical part of the infrastructure that homes and businesses rely on. Fixed wireless access has turned out to be a large and growing opportunity. This is now a meaningful piece of our business. We knew that fixed wireless access would be a hit with consumers who like its quality, reliability, and easy setup. Businesses are showing similar excitement as this was our biggest quarter-to-date for the net adds in business fixed wireless access with 151,000 setting our new high. Fios remains extremely popular, with one of the highest third-party net promoter scores in the industry. And as we already know, Fios is the best pure broadband offering in the country. Together, our total broadband portfolio delivered a strong quarter with 389,000 net adds. As with mobility, we saw good momentum with the broadband net adds as we exited the quarter and we expect that to continue. We also had a great quarter in private networks, signing transformative deals across industries. Xerox selected our Network and Service solution as its framework for modernizing its information technology system. We also signed a new private network deal with the global power solution leader, Cummins Inc. And iconic American sport leagues are turning to us for the networks that serve their fans, players, and coaches. We're on the field, on the aisles, and in the stands, and in the parking lots. During the quarter, we held a partner summit where we unveiled our sports and entertainment strategy. We are at the center of the cultural moments that matter the most to our customers, from concerts and performances to athletic achievements and competition. We're already in every National Football League stadium in the country. We're now expanding services with NFL teams, including the installation of a private 5G network at the L.A. Chargers Training facility. We also renewed our partnership as the official 5G network of the National Hockey League in the United States and are expanding services throughout its arenas. As you may have seen in our consumer connection report during the '23-'24 NFL season, the average fan used more data than the year before. These live moments matter to our customers and they want to share them by text, by phone, and by video. We are a vital part of their experiences. Our private networks business is growing and full of long-term contracts with the best partners around the world. All of this is supported by the infrastructure we have built and are building. We operate the nation's most reliable and robust network for all customers from households to global enterprises. Recently, we passed 250 million POPs covered with C-Band, achieving our target almost a year ahead of plan. The pace and quality of our build-out is spectacular. And most importantly, our customers love the C-Band experience. In the first 76 markets where we rolled out C-Band, we see a higher premium mix and reduced churn. Our strategy from the start was to build a network once, to meet the needs of the present, and to optimize it for the future, and we're doing just that. We have been working with AI for several years, and our powerful network positions Verizon to lead the AI revolution. In 2023, we released a set of responsible AI principles to guide our efforts to leverage new AI technologies in ways that positively impact our stakeholders and establish Verizon as a trusted brand and partner with respect to AI. Enabling AI at scale for improved customer service is key. We're also aggressively driving AI transformative potential with our businesses, something our network was built to support. We already had several generative AI projects going live. Our AI strategy focuses on three priorities. First, optimizing internal processes and operations through machine learning, such as creating efficiencies in fuel consumption. AI is already central to our cost transformation program and will become even more important over time. Secondly, enhancing product experiences with AI capabilities like the personalized plan recommendation on myPlan, which is producing good early results. And thirdly, establishing an AI-based revenue stream by commercializing our network's unique low latency, high bandwidth, and robust mobile edge compute capabilities. Generative AI workloads represent a great long-term opportunity for us. As we expand our network and increase our performance advantage, we're also making Verizon a more efficient organization. We are back to business-as-usual levels on CapEx spend, as we had promised. And we have struck a balance between profitable growth and free cash flow that supports both our dividend and a stronger balance sheet. This gives us greater flexibility to accelerate deleveraging throughout the second half of the year, bringing us closer to our long-term leverage targets. Our dividend is healthy and secure, and our free cash flow dividend payout ratio continues to improve. We are focused on putting our board in a position to continue to raise the dividend each year, building on our current industry record of 17 consecutive increases. Now let me turn the call over to Tony to discuss our financial and operational performance in more detail.

Thanks, Hans, and good morning. Our first quarter results demonstrate the strong execution of our team, building on the momentum from 2023 and delivering solid results in our three priorities of Wireless Service revenue, adjusted EBITDA, and free cash flow. We saw further improvements in postpaid phone net adds and another strong quarter of growth in our broadband subscriber base. We accomplished this while maintaining our promotional discipline as evidenced by our year-over-year adjusted EBITDA growth of 1.4% and more than 16% year-over-year free cash flow growth. Consumer post-paid phone net losses were 158,000 for the quarter, better versus the prior year by 105,000, driven by improvements in both gross adds and churn. As Hans mentioned, this represents our best first quarter performance in consumer post-paid phone net adds since 2018. We continue to see improved operational performance with consumer post-paid phone gross adds up more than 5% year-over-year. And as you heard from Hans, we exited the quarter with good momentum. The changes we made over the last few quarters, including launching a regional sales structure and updating our sales compensation plans, provide the right framework for our go-to-market approach. We believe these changes, combined with the continued success of myPlan and increased utilization of C-Band, will help us sustain our momentum. Consumer postpaid phone churn of 0.83% represents a 1 basis point improvement year-over-year. This result is a reflection of the strength of our value proposition, as well as our high-quality customer base. The first quarter post-paid phone net add improvement coincided with a further decline in upgrades, which were down nearly 21% year-over-year. We continue to see success with our disciplined and segmented approach to customer offers in alignment with our strategy. On the business side, we delivered 90,000 postpaid phone net adds. Business volume results were challenged early in the quarter as the team implemented pricing increases in January. However, we saw positive net add momentum built throughout the quarter and we exited the quarter well positioned to continue to build on operational improvements in both mobility and broadband. That sales performance helped Verizon business achieve fixed wireless access net adds of 151,000, their best quarterly result to date. We've been pleased with how businesses have adopted FWA, and we continue to see strong demand from small businesses and enterprises which are attracted to the ease of deployment, reliability, and the flexibility of the product. Fixed wireless net adds for consumer were 203,000, resulting in a consolidated total of 354,000. This reflects the attractiveness of FWA as an alternative to traditional cable broadband, even in the market that saw muted activity. We continue to be comfortable with this pace of growth, believing it provides the right combination of base growth, ARPU accretion, and the superior experience our customers expect on the Verizon network. And our third-party Net Promoter Scores for our FWA product continue to outpace traditional cable broadband offerings, as we remain focused on building a long-term sustainable business. Overall, broadband net adds were 389,000, including 53,000 Fios Internet net adds. We're pleased with how Fios continues to grow in the marketplace, even as move activity across the country remains lower than prior years. We finished the quarter with over 11.1 million broadband subscribers, including over 3.4 million on FWA. We've now added more than 3 million broadband subscribers in the last two years alone. On prepaid, starting this quarter, we are disclosing subscriber results with and without our SafeLink brand. This disclosure provides improved transparency into our prepaid results. As a reminder, SafeLink is our government subsidy program brand offering and holds the majority of our ACP customers. The actions we've taken to scale Visible and Total by Verizon, as well as address operational execution with Straight Talk, drove improvements in our prepaid performance. Prepaid net losses excluding SafeLink were better by 146,000 year-over-year. While we are pleased to see the improvements, we still have work to do to address challenges in the prepaid business. That includes navigating the uncertainty around ACP, and we recently announced plans to provide accessible, affordable, and reliable connectivity options for those who need it most. As a reminder, we have approximately 1.1 million prepaid ACP subscribers as of the end of the first quarter. We expect the elimination of the program to result in lower wireless service revenue but have minimal impact on our adjusted EBITDA. Moving to our financials, consolidated revenue for the quarter was $33 billion, up 0.2% year-over-year. The benefits of the pricing actions we took in the quarter, combined with improved operating metrics, offset the year-over-year decrease in wireless equipment revenue due to lower upgrades. Wireless service revenue growth was 3.3% for the first quarter. This represents a significant acceleration in our revenue growth as the full year 2023 growth rate, excluding the reallocation of certain revenues, was only 1.3%. Consumer led the way with wireless service revenue growth of 3.4%, driven by ARPA growth of 4.4%, and improved year-over-year postpaid phone net add performance. In addition to targeted pricing actions, ARPA continues to benefit from the further adoption of myPlan. myPlan has been instrumental in growing our premium mix, which now stands at 42% of our postpaid phone base. We're also starting to see a growing impact from perk revenue as we scale the number of subscriptions. With over 20% of the postpaid base on myPlan, we see further opportunities for ARPA accretion as we expect to double the number of customers on myPlan in our postpaid base by the end of this year. For the first time, we are disclosing fixed wireless access revenue within our externally released results. FWA revenue, which is included in wireless service revenue, was $452 million for the quarter, up nearly $200 million versus the prior year. Headwinds in prepaid revenue continue to partially offset the gains from ARPA performance in wireless service revenue. For the quarter, prepaid revenue declined $106 million versus the prior year. While this is an improvement over the prior quarter, it represented an approximately 60 basis point drag on total wireless service revenue growth. Consolidated adjusted EBITDA was approximately $12.1 billion for the quarter, an increase of 1.4% compared to the prior year driven by the growth in wireless service revenue, as well as the impact of lower upgrade volumes. With a full quarter's impact from our recent pricing actions, we anticipate the second quarter's adjusted EBITDA growth to accelerate year-over-year. Operating expenses, excluding depreciation and amortization and special items, were down 0.5% year-over-year. Lower cost of equipment and cost of services were partially offset by an increase in SG&A. Adjusted EPS in the quarter was $1.15, down 4.2% compared to the prior year as gains in adjusted EBITDA were more than offset by higher interest expense, predominantly due to the lower capitalized interest, now that a large portion of the C-band spectrum licenses have been placed into service. Free cash flow for the first quarter was $2.7 billion, up over 16% or nearly $400 million from the first quarter of 2023. On a full year basis, nothing has changed. With free cash flow, we still expect the same puts and takes we shared with you in January. As Hans said, we expect free cash flow to build throughout the year, similar to 2023. Cash flow from operating activities came in at $7.1 billion. Within the quarter, we saw year-over-year pressures from higher interest expense, primarily related to the reduction in capitalized interest. We also made a discretionary pension contribution of $365 million prior to the closing of the retiree pension annuity transaction that we previously disclosed. CapEx for the quarter was $4.4 billion compared to $6 billion in the prior year as a result of our return to BAU levels of spend and historical levels of capital intensity. Our full year guidance of $17 billion to $17.5 billion in CapEx spending remains unchanged. Net unsecured debt at the end of the quarter was $126 billion, a $3.7 billion improvement year-over-year, and a nearly $400 million improvement sequentially. During the quarter, we issued our sixth green bond for $1 billion with proceeds committed to fund additional renewable energy purchases. Net unsecured debt was also impacted by payments of approximately $270 million related to clearance of our C-band spectrum licenses, which are now substantially complete. While these payments do not affect our free cash flow, they are a use of cash. Our net unsecured debt to consolidated adjusted EBITDA ratio was 2.6 times in line with the previous quarter. Given the strength and momentum of our business, we continue to see a clear path to meaningfully delever the balance sheet in the second half of this year. In closing, I'm happy with our start to 2024, and our results from the first quarter set us up well to deliver on our financial guidance for the year. Our disciplined approach continues to put us in a strong position to execute on our capital allocation priorities. Our focus remains on driving operational improvements throughout the year. With that, I will now turn the call back to Hans for his closing thoughts before opening the call up for your questions.

Thank you, Tony. I'm proud of our team and pleased with our financial and operational performance in the first quarter. We exited the quarter with good momentum across the business positioning us well for the year ahead. We're scaling fixed wireless access and private networks while growing our core mobility business. Our disciplined, targeted, and segmented consumer strategy continues to prove itself. And we will apply the same level of energy and execution to the prepaid market. Network excellence drives our business forward and we will not let up on that. Our consistent network investment puts us in an unmatched position to deliver AI services at scale. Finally, our cash flow generation is solid. This shows that we are executing well against our financial objectives. Our cash flow strength allows us to deliver on our capital allocation priorities, including supporting our dividend and paying down our debt. With strong momentum already in the start of the second quarter, I'm confident in our ability to sustain progress towards unlocking Verizon's full potential for all stakeholders. Now, Brady, we are ready to take questions.

Thanks, Hans. Brad, we're ready for the first question.

Thank you very much and good morning. Hans, can we discuss the consumer aspect a bit? It was encouraging to see the churn number. Could you share your thoughts on the pricing impact? It appears that it affected the business more than the consumer segment. What are you observing regarding the overall growth in the wireless market? The industry seems to be expanding, and there have been some competitive moves from cable companies recently—can you comment on the overall environment and your ability to maintain this, along with the low upgrade rates? Also, Tony, regarding cash flow, I appreciate your insights on the pacing through the year. Could you elaborate on working capital and its effects this quarter? It seemed like there were some challenges from that impacting the quarterly numbers. Thank you.

Thank you, Simon. I’d like to discuss our consumer business. Early in the quarter, we experienced a slight slowdown in both consumer and business wireless operations. However, it’s evident that our products are appealing to customers. On the consumer front, myPlan is performing exceptionally well. As Tony mentioned in the prepared statements, we are seeing an increase in perks. Our premium offerings are also on the rise, which we clearly observe. Simultaneously, the team has focused on maintaining discipline in promotions and managing churn. We raised prices in the consumer segment without increasing churn, showcasing not only the quality of our product but also our effective use of AI tools to ensure customers receive value and that we're targeting the right customers. This financial discipline is reflected in our overall strategy. While promotions were lower again this quarter, it serves as a way to segment the market and ensure we have the right products. We’ve consistently stated that we anticipate positive net additions in the consumer sector this year, and Sampath's team is likely bringing even more innovations. With myPlan and additional perks, more is on the way this year. I'm genuinely excited about our progress in wireless. The competitive landscape remains familiar, but we are significantly outperforming, backed by our great products and talented team. We've made the necessary shifts in our operational model, which is showing results. We're also improving in the prepaid segment, though we acknowledge there's more work to be done. The team is dedicated and focused on execution, and I'm pleased with our current performance, though we will strive to push even harder going forward. Tony?

Yeah, sure. So good morning, Simon. So a couple of points on churn. So the results on C-band are significantly better. We see strong churn performance, higher premium mix, and also higher gross adds in C-band markets. And overall in 2024, it's reasonable to expect similar or lower churn in the consumer business compared to 2023. And then on your cash flow question, in the prepared remarks, we said that free cash flow would have a similar shape to last year and build throughout the year. We do expect free cash flow to be up meaningfully in the second quarter. We still see the same puts and takes on free cash flow for the full year as we described in January. So nothing's really changed there. On your question on the quarter, let me start with operating cash flow and unpack that for you. So we saw the discretionary pension contribution in the quarter, which was $365 million in connection with the pension annuitization transaction that we announced in early March. As we said previously, the lower capitalized interest from C-band now manifests itself in operating cash flow, and that was about $300 million higher year-over-year. And the third point I'd make is, we're funding the business for growth and very, very confident in our ability to execute. You saw that again. You saw the growth in the fourth quarter with strong gross adds and we followed that up with 5% gross add growth in the consumer business in the first quarter. And with that growth comes working capital timing that will settle in the second quarter. But overall we're very confident in the cash generation of the business and nonetheless we expect to generate strong free cash flow and we see no obstacles in paying down debt in a meaningful way in the second half of 2024.

Great. Thanks a lot, Tony.

Yeah, thanks, Brad. We're ready for the next question.

Great, thanks and good morning, guys. First, just a couple of quick follow-ups on Simon's question. For number one, the positive commentary you guys talked about with March, does that suggest you guys could be positive in terms of consumer phone adds in the second quarter. That's number one. Number two, the price increase seemed to be digested pretty well and you actually saw churn come down. Does that suggest you guys have more pricing power than you thought and we could see, and maybe not just for you but for the industry, and we could see more in the future that's number two. And then on ACP, I noticed you guys announced some new plans with free sort of low-end plans on the broadband side with free service for six months. You've talked about some of the headwinds as ACP goes away, but do you believe that there's an opportunity to potentially win some broadband subs as that plays out? Thanks.

Thank you, John. Regarding the first question about consumer net adds in the short term, I maintain my earlier stance. We expect consumer net adds to be positive in 2024. The team is performing well right now, showing an increase of 100,000 in net adds during the first quarter. I encourage them to keep executing. They have an excellent product that appeals to the market, and I am confident they will continue to do well. As for churn, it's important to note the current market environment, which includes inflation and higher interest rates. However, the product is in strong shape, as everyone relies on wireless and broadband, and that has significantly improved over the past couple of years. Our products are also well-targeted for various customer segments. Additionally, we are highly focused on managing churn. With Sampath's leadership and our AI tools, we effectively target the right customers at risk of churn. This approach has worked well even after a substantial price adjustment in the consumer group during the second quarter. The same applies to our business wireless segment. They experienced a slow start earlier in the year but showed a strong performance in the quarter, maintaining their status as the market leader in wireless and continuing to see positive growth, which I am pleased about. Regarding the ACP, I will let Tony provide further comments. I want to emphasize that we believe it is essential for everyone in these countries to have access to wireless and broadband as it is a critical service today. This belief underpins our existing low-income plans for Fios and our entire suite of prepaid products. Our segmentation model enables us to support customers irrespective of the ACP changes. Lastly, I want to reiterate that our high-quality customer base, which is among the best in the industry, is really benefiting in this environment with the products we offer. Tony?

Sure. Good morning, John. Regarding the ACP, we halted enrollments in February but are still accepting transfers until May. As previously mentioned, most of our exposure is within the prepaid sector, where we currently have 1.1 million prepaid subscribers participating in the ACP program. We've indicated that our guidance anticipates the ACP funding remaining stable. Any impact may affect service revenue by up to 50 basis points. The margin exposure from ACP is minimal and was insignificant in the first quarter. If the funding is not renewed in May as planned, we have strategies in place to tackle this, focusing on both retention and potential acquisition opportunities. We will keep everyone updated as more information becomes available.

Thanks guys.

Okay, thanks John. Brad, we're ready for the next question.

Thanks and good morning. I was curious if you could unpack a bit more of how you're thinking about the up-tiering opportunities within the post-paid phone base. And as you look at the Perks, is there a way that we should think about the revenue contribution from Perks and where that can go over time as an incremental way for Verizon to monetize the base?

Thank you, Mike. This is a long-term strategy for us. Firstly, we have a strong customer base, and we want to provide them with flexibility on the consumer side. We then introduce the Perks, which adds to the overall value for our customers, even as we move them up-tier. This transition has been very successful. As mentioned in our prepared remarks, nearly a quarter of our customers currently have myPlan, and we anticipate that number will increase to nearly half, a rapid adoption rate reflecting strong market resonance. We see opportunities for both up-tiering and adding services, contributing positively to our bottom line. Many of these offerings provide savings for our customers, which is fantastic. For instance, the Max-Netflix partnership is a significant saving and an excellent product. We are the only provider in the market offering such a wireless service, making it exclusive. This is the direction we are pursuing with Perks, which is quite distinct. While I wouldn't say shocked, I would be at least surprised if Sampath and the consumer team don’t continue to explore ways to enhance our customers' experiences with these offerings in the future. Tony?

Sure. And Mike, just a couple other points. So we did see 4.4% ARPA growth in the first quarter. And as Hans talked about in myPlan, the premium mix is very strong. It's 42% of the lines in the base. And the Perk attach rates have steadily increased and then will continue to increase. So we feel really good about that and the discipline we see on promotions as well and keeping the amortization pressure in check.

And one other if I could, operational efficiency. It sounds like a few times where they were talking about AI or just the broader focus on the operations, that this is an important priority for Verizon this year. Can you frame how much of the cost-cutting Verizon can deliver this year relative to the multi-year target that the company has established? And are there any milestones that we should be looking for that will signify some further progress on these initiatives?

Thank you. First of all, we're on track for our cost target that we have given to the market. To The Street. Secondly, many of the larger sort of transactions and platform transactions we started already last year, the outsourcing to ATL, the customer care changes we did, which are large transactions, without any interruptions for our customers who have done those, they are coming into the base in 2024, and of course full year '25. Then what I'm adding now is our opportunities in AI. Many of these things, of course, already thought about, but of course we see a great opportunity with AI to serve our customers better. We are already using, for example, personalization in myPlan with AI, and we are using it in our network when it comes to performance of the capacity deployment, as well as power consumption. So we are using AI and generative AI already now commercially. So this is not the playing ground for us. We just see more opportunities. On the flip side, of course, we also see revenues. Our network was built for AI. That was my thought when I built Verizon Intelligent Edge Network five years ago or six years ago, that we're going to have compute and storage at the Edge. AI is sort of built for that with the low latency we have on the 5G network. And as we are deploying our 5G right now, with mobile edge compute and AI, this is a great long-term opportunity for us using AI. So there are multiple places we see efficiencies, but also revenue opportunities with all the new technologies coming. Tony, anything else on the savings?

Yeah, Mike, just to add a couple of things. So obviously, as Hans said, we're on track with the savings program, and those savings were contemplated in the guide. We're not going to discuss specific cost targets, but as Hans mentioned, we're operating a lot differently, and we feel really good about the cost actions that we're taking and the progress that we're making that are driving the EBITDA improvements that you saw in the first quarter and that we expect throughout 2024.

Thank you.

Yeah, thanks, Mike. Brad, we're ready for the next question.

Thank you. Hans, I have an industry-related question for you. There are many assets available for sale, ranging from smaller to potentially larger ones. There's also been discussion about your possible interest in partnering with ESPN in some way. Can you share your thoughts on how you believe the industry structure is evolving? Do you think this will lead to some form of equilibrium, or do you see any opportunities to adjust your asset base in a different direction? Thank you.

Kannan, thank you for the question. First of all, I think I said it in the beginning of the year, we're getting into a phase of heavy investment, a lot of changes in our asset structure. We're coming into a phase where we have all the assets we need and we're executing on it. And you see the operational excellence coming out from it the last three quarters. I have a team that in many facets have actually changed quite a lot. We added two new team members this quarter. I feel really good where we stand with assets right now and how we're executing. And of course I can never say never to look into assets. That's my fiduciary responsibility. But I rather right now execute on what I have. And you see the performance when we have that with the C-band millimeter wave, the broadband growth we have, almost 400,000 again this quarter. So that's my main focus. When it comes to some of the other things, at the end you mentioned, I think we are using our base of distribution to actually work with all the streaming services. And we are uniquely positioned. We have the biggest distribution or direct-to-consumer in the market. We are taking leverage that for our customers and for our shareholders, but also seeing that we help some of these larger streaming services to see that they get better churn and of course better access to the best consumer base in the United States of America. So we will continue to do that and see that we're doing it in the right way. But again, I'm pleased with the asset base we have today.

Great.

Thanks, Kannan. Brad, we're ready for the next question.

Thank you for taking my questions. My first question is about the balance of revenue growth. I believe you mentioned that a 60-40 balance of pricing and volume is more typical, but over the past year, it leaned more towards pricing. I'm curious about the healthy 5% growth in gross additions compared to the recent decline in accounts. Can you discuss how you balance the relationship between accounts and new subscribers? My second question is more of a housekeeping one; you introduced a second add-on this past quarter, and there have been many questions about how that appears in your numbers. I suspect it doesn’t show up in the subscriber numbers. Could you clarify where we can find that in the data? Thank you.

Thank you, David. Our team is focused on increasing volume on the consumer side. On the business side, we've been consistently gaining customers each quarter. However, the consumer side faced some challenges in 2022. Since the second quarter of 2023, with our myPlan and other offerings, we've seen continuous improvement in how we serve our customers, which I am very pleased with. As Sampath mentioned, on the consumer side, the goal is to increase volume while maintaining value from our customers. This does not mean we are neglecting value; we are committed to enhancing that aspect as well. Additionally, the innovation our team is currently pursuing is aligned with our strategy. We aim to maximize profitable connections on our network to achieve the best return on invested capital in the industry. This aligns perfectly with our goals, and I welcome the ongoing innovation from my team. Tony?

Yes, on the second number, it is included in the line counts. One thing to note is that it provides customers with flexibility, allowing them to add or remove it as they wish. Adoption so far has been positive, though it represented a small percentage of phone gross adds for consumers this quarter. We see a limited market for this offering. As Hans mentioned, it contributes to ARPA and revenue, and it is a high-margin business. There are no additional devices or increased data usage, and the quarterly results demonstrate the strength of our core business. As Hans stated, we would take this profitable connection at any time.

And it goes back to the three things that I talked about that we are measured on from our shareholders, from our board, and how I measure my management team. It's service revenue growth, it's EBITDA and cash flow expansion. That's what we're measuring. Then it's 100 different measurements inside there. But those three are what we're incentivized on, and that's how we run our business.

Got it. And just to be totally clear, Tony, so of the five-point something gross add growth year-over-year in the quarter, maybe 1% or 2% of that was the second number add-ons, which might not continue because there's a finite market for that.

We said it was a very low single-digit percentage of phone gross adds, yes.

All right, Brad, we're ready for the next question.

Hi, thank you for the question. I would like to get an update on the overall consumer broadband landscape, particularly regarding consumer fixed wireless. We've noticed a slight slowdown in net adds year-on-year. As you mentioned, the current environment is somewhat challenging. Are you experiencing increased competition, especially with the ramp-up of AT&T Internet Air, even though T-Mobile has indicated a potential slowdown? That information would be helpful. Additionally, Hans, I wanted to hear your thoughts on 5G use cases. You've highlighted private networks several times in your prepared remarks. How do you view the revenue opportunities in this area, especially in relation to MEC and AI? Thank you.

Thank you, Sebastiano. When we discuss broadband, Fios remains an outstanding product, the best fiber offering available for both businesses and consumers. Our performance fluctuates slightly based on mover markets, but we see consistent growth in that area and are very satisfied with the product. Regarding fixed wireless access, we are experiencing excellent net promoter scores, ease of installation, and overall product quality, which contribute positively. With the rollout of our C-band, we will have new opportunities. On the consumer side, we recognize clear use cases, and on the business side, we are identifying new applications that weren't previously evident. This ranges from coffee shops replacing cable with fixed wireless access to large enterprises adopting it for various uses. We had an exceptional quarter in fixed wireless access for the business segment. We are targeting around 400 net adds each quarter, aligning our capital and resources accordingly. We also noted a slower broadband market at the beginning of the year, but exit rates improved by the end of the quarter. Overall, it looks positive. As for 5G use cases, we are increasingly focusing on private networks, which, although they currently represent a smaller value, will grow. Developing our base of private networks and managed spectrum for enterprises will create significant opportunities for our sales team in mobile edge compute. Our mobile edge compute network, built with AI, is already operational at many of our sites nationwide to support necessary compute and storage. In the long term, we are committed to being a lasting presence in the telecom industry, and this is indeed a solid investment. No one else has constructed a network with our capabilities in AI network compute and storage at the edge on the wireless network.

Thanks, Sebastiano. Brad we are ready for the next question.

Thanks, guys. Tony, how sustainable do you think the 4% ARPA growth is? It seems like you have a lot of levers to pull here, and it sounds like you're feeling a little bit more optimistic about that metric longer-term. And can you be just a little bit more specific in how much debt you kind of plan on paying down per year, maybe second half of this year or next year? Thank you.

Sure. So on the ARPA growth, again you see the progress on gross adds and you saw the 5% growth on gross adds. You see the progress with myPlan and the continued premium mix has been very, very strong on myPlan, and that's continued. We see a further runway for growth, and you saw it in the first quarter. And as we said in the prepared remarks, we'll see a full quarter's effect of the pricing changes that we announced in the consumer business. And that launched in March. You'll see a full quarter's effect in the second quarter. So we feel very good about the progress on ARPA and that the team is making. And then on your second question, I'm sorry?

How much debt do you think you can pay down per year? And regarding ARPA, is this sustainable over a multi-year period? Thanks.

Yeah, we're not going to give multiyear targets here, but we like the shape of the growth right now. We said we were on track with our service revenue growth through the year and the team is very focused on us. We said we were going to be phone net add positive in consumer and that's on track as well. And on the debt, so look, we're not going to give any targets on paying down debt. Our focus is on continuing to generate strong free cash flow to pay down debt in a meaningful way. In the second half of the year, we're on track to do that. We have $3.6 billion of unsecured maturities due this year. About half of that was addressed in the first quarter. And you should expect us to be opportunistic as the year goes on.

Yeah, thanks, Tim. Brad, We're ready for the next question.

Hi, good morning. Thank you. Let's talk about something a little longer-term, which is spectrum and capacity. Your CapEx has been now trending down as you've largely gotten through the 5G build. I'm just wondering how we should think about your spectrum needs going forward and what your appetite would be for additional spectrum if some were to come available from DISH Network or if you think about US Cellular, and how you think about that in the context of the spectrum screens at the FCC, which don't really leave much room for incumbent players to add. Do you think those are a real impediment or do you think that those would likely be adjusted when the time comes?

Thank you, Craig. That's a great question. Currently, the FCC has no spectrum available for auction and hasn't received approval to do so, which presents a constraint. We might consider the secondary market for spectrum, but we feel confident as we've only deployed a portion of our available C-band spectrum. Many of our sites have either 60 megahertz or at most 80 megahertz deployed, while we possess 161 megahertz nationwide, giving us a substantial amount of spectrum left. It's important to note that our decision with the board was to acquire spectrum for the long term rather than just for the next couple of quarters, so we feel optimistic about our position. As for any opportunistic spectrum that may arise, it's difficult to predict, especially with potential regulatory changes regarding screens and such. However, I believe we are in a strong position with our millimeter wave, C-band, and low-band assets as we continue to build our network. We are aware that acquiring opportunistic spectrum could be costly, considering customer interactions as certain spectrum may not be supported by existing devices, requiring new radios and software. Therefore, careful planning is essential to ensure we have the right spectrum reaching the customer. Overall, we are pleased with our current standing and will keep an eye on future developments in the spectrum market.

Hans, you have fluctuated over time between a preference for network densification or acquiring more spectrum. Do you currently have a viewpoint on where it is most beneficial to increase capacity? Should that now be through network densification rather than gaining more spectrum or the other way around?

A little bit early to say, and ultimately it's actually a call or return on investment that we do daily here. Should we put up a new tower? Should we densify? Should we put up new elements? Or should we add more spectrum? That's a regional, almost on ZIP code level that the team is going through this. So every time you see spectrum coming out in the secondhand market historically, you make a calculation. We feel good about the position we have again here with all the spectrum we have to make those choices internally rather than betting on external assets coming in. We don't need that. We have everything in-house right now for quite a while.

Thanks Craig. Brad, we are ready for the next question.

Great. Thanks for taking my questions. You provided some great color on ACP. I think you said it could be a 50 basis point hit. I'm just curious if we can drill down there. Is that more of an ARPU hit with these new plans that are coming out, or is it more on the disconnect side? Second question is just on fiber-to-the-home and the open access models that we're seeing. We've seen some news flow with Tillman and Intrepid, et cetera, on open access and maybe even T-Mobile. And just trying to gauge your appetite to ride some of these open access CapEx light models if they come to fruition. Thanks.

I can address the second question first. Since we haven't pursued any open access deals so far, it's clear that the demand has not been significant. However, we will evaluate any opportunities that may strengthen our service delivery to customers. In the current environment, with the high cost of capital, we have not found a favorable return on investment. We maintain a financially prudent approach. Keep in mind that we have fixed wireless access and Fios, which gives us unique economics for everything we do. This is why our return on investment is the highest in the industry, and our EBITDA is also the highest. We will remain disciplined moving forward. While I am open to exploring other models, there have not yet been any that have appealed to me, our team, or our shareholders.

And then Greg, on your question on ACPs, so as we said, it was up to a potential 50 basis points of headwind in service revenue. And that's a combination of ARPU and churn and it's lower ARPU. And we also said the margin exposure from ACP is also very, very small.

Okay, thanks Greg. Brad, we are ready for the next question.

Hi, good morning. I had two if I could. First, could you provide an update on your efforts to pursue BEAD funding? Are you seeing any progress at the state level in establishing the rules? And based on what you are seeing there, are you more encouraged or discouraged by what you're seeing? And then separately, I was wondering if you could just provide any color on the company's performance in the first quarter within the larger metro markets relative to smaller mid-size markets and consumer. Thank you.

Thank you. On the BEAD funding, yeah, I think that has been widely reported in the press. It is of course a complicated process to get the BEAD money out, etc. So we bid where we see it makes sense with return on investment and the subsidy is coming in there. There are some other broadband money coming into the market from the previous funds which we're winning. We just had some quite large wins here recently in Pennsylvania. So we're using it but we do it when it makes sense from a profitable point of view. But again, it's probably going to take some time when we see this money rolling out. Second question is for you.

Yes, it was the question on the C-band market. In the early markets, the performance is much better. As we mentioned earlier, the churn is significantly improved, showing a 4 basis point decrease. The premium mix has also seen substantial improvement, and we are observing a notable increase in gross add performance as well. We are truly pleased with how the C-band is performing.

Thank you very much.

Yeah, thanks, Bryan. Brad, we have time for one more question, please.

Hi, good morning everybody. I wondered if you could talk about SG&A growth. It was up 11% in business and 4% in consumer. It was nicely offset by cost relief from lower upgrades. I'm just wondering if you're spending back some of that upside on SG&A and how we might think about modeling operating leverage and specifically SG&A going forward. And then if anybody would be willing to provide an update on your project of deploying millimeter wave spectrum in support of the FWA business to multi-dwelling units. Is that working the way you hope? And if so, could that provide upside to your long-term broadband growth targets? Thanks.

Thank you. On the SG&A, we're very focused on seeing that we continue to get full leverage on the growth that we have right now. So the team is really focused on taking out costs. And I said, we are on track with that. We have a lot of initiatives ongoing. Tony will give you some more puts and takes on the SG&A in the quarter. On the millimeter wave MDU solution, that is progressing. We have said it will come in the second half, in the latter part of this year, in commercial. But we're piloting it right now and it's performing really well. So we feel really good about it. And it will over time, of course, add opportunity for us on MDUs that we haven't served with fixed wireless access so far. So it will be an addition over time. Tony?

Yeah, Peter, on your question on SG&A, some of that in the quarter is a function of the upfront work on transformation initiatives that will abate as the year progresses. And we also see pressure, year-over-year pressure on the handset insurance claims and we expect that to level off in the second quarter. We expect to see further operating leverage in the second half of the year.

Thank you very much.

Great, thanks, Brad. That's all the time we have.