Verizon Communications Inc (VZ) — Q2 2024 Earnings Call Transcript

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 Investor 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.

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 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 solutions 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 Hurricane Beryl. I could not be prouder of that. It's one of the reasons we're so committed to 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 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 sets 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 applications that require 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 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.

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 in 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 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.

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.

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

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?

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 have been a little bit low for a while. There are 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, in 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?

Thanks, good morning, John. Regarding ACP updates, I want to share a few points. As previously mentioned, most of our ACP exposure is within the prepaid sector. We had approximately 1.1 million prepaid subscribers benefiting from the ACP program. In the second quarter, we experienced around 400,000 prepaid disconnects, which aligns closely with our expectations. There has been minimal impact on the postpaid side, which I believe was part of your inquiry. We did notice some pressure on Fios regarding gross add opportunities. Looking forward to the third quarter, we anticipate some disconnects in prepaid and a small number in other products. Concerning revenue, we mentioned that the impact on service revenue could reach up to 50 basis points of headwind, and we are currently tracking within that range. Despite the disconnects, the margin impact from ACP in the second quarter was negligible. We will continue to provide updates as we move forward.

Perfect. Thanks, guys.

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

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.

Thank you, Simon. On fixed wireless access, you are rightfully saying it. We have good momentum coming 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 on 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.

Thanks, Hans.

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

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?

In broadband, we anticipate adding between 375,000 to 400,000 subscribers this quarter, which has been consistent for some time. We view this as a very positive sign for our business. Additionally, with the recent launch of myHome, we believe our offerings will strengthen even further. We're confident that our broadband business is in a healthy state. Regarding fixed wireless access, we continue to have significant capacity, with less than 50% of all traffic currently on C-band. There is still work to be done, as we've only deployed a portion of our resources, which will create more opportunities as we expand. On the consumer side, I'm very pleased with our advancements through myPlan and our ongoing innovations, which are clearly resonating with customers. Our revenue and operational volumes in the postpaid sector have shown improvement quarter after quarter. We've also made notable progress in prepaid this quarter. For our business segment, Kyle and his team have consistently added around 125 to 150 wireless subscribers over the past several quarters. Overall, with our strong market offerings and brand refresh, I believe we are well-positioned as we move into the latter half of this year. Tony, do you have anything to add?

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 price and quantity. 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.

Thanks.

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

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, 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.

Thank you. I'll begin and then Tony will provide the details. As we've mentioned previously, our second-line offering aligns directly with our strategy. This strategy involves establishing the network once and adding as many profitable connections as possible to optimize our return on invested capital. It's evident that this is indeed taking place, and it's been a major focus for us. Tony will share more about its outlook in the second half. Regarding cost programs, we implemented several large initiatives last year, including our agreement with HCL and significant changes in customer care. Many of these are now being integrated into our operations, which is why you see the leverage. Additionally, we have several new initiatives in the pipeline. As you mentioned, we currently have a voluntary separation program underway. We are also benefiting from efficiency improvements through AI, while maintaining our disciplined investment approach. Overall, we have more developments on the horizon, and we are already experiencing leverage from some of last year's initiatives, Tony.

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 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.

Great. Thank you for the question.

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

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?

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 have constantly continued 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 for them with new services and layering on. Tony?

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 price and quantity 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.

Yeah, thanks.

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

Hi everyone. Thank you very much. Tony, you've achieved significant success on the P side, which is beneficial in an upward market. Can we discuss the account numbers you reported this quarter? It seems to be the lowest we've seen since at least 2016. The way that the queue is developing involves a decreasing number of accounts but an increase in the amounts being put into those accounts. I presume the second-line strategy is part of this plan. Could you elaborate on the sustainability and longevity of this growth approach? Should we expect account growth to truly believe that Verizon is on the right trajectory? Thank you.

Hi, David. Good morning. So look, as we said before, finding the right balance of price and quantity. 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. 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 price and quantity, and I think the results reflect that.

Great.

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

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.

Hi, Peter. Our capital allocation priorities remain unchanged. Firstly, we're investing in the business, and this year we have a target between $17 billion and $17.5 billion. However, if we identify opportunities to increase revenue and expand our business, we will definitely explore those options. Secondly, maintaining our dividend is crucial; we have increased it for 17 consecutive quarters. Tony and I are focused on long-term goals, not just quarterly results, and we are committed to enabling the Board to sustain that growth. As for our pay ratio, we are performing well within it, and we are actively reducing our debt, having made progress this quarter, which we will continue in the second half of the year. We won't discuss buybacks until we reach a leverage of 2.25. After that, many factors will influence our decisions, including market conditions, priorities, interest rates, and share price. Therefore, we will stay focused on our stated priorities as we move forward into the foreseeable future.

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

Thanks. I want to return to the upgrade cycle. Apple is clearly betting on the ability to drive a significant upgrade cycle with AI. Could you discuss the percentage of phones in your base that meet Apple's requirement of 8GB of RAM, which would be the iPhone 15 Pro or Pro Max? What percentage of your phones already meet that requirement, and how many would likely need upgrades? Additionally, how do you view the pace of that upgrade cycle and what it could imply for the costs and margins of your wireless business?

Thank you, Craig. I don't have the exact number, but we have a significant number of new phones in our base, particularly among our high-quality postpaid customer base, many of whom are already using newer iPhone models. Looking at this cycle, while we expect some excitement around AI, I don't anticipate it being particularly significant at this time; it may develop over time. We maintain a disciplined model regarding our promotion expectations, and we will adhere to that. We believe in our strong network and excellent offerings, which allows us to manage this effectively. I'm particularly excited about the Verizon Intelligent Edge Network, which will serve as the foundation for the GenAI economy. This infrastructure requires increased compute and storage capabilities at the network's edge, and we have been preparing for this since 2018 by equipping our main hubs and subcenters with fiber. Additionally, we have installed cooling and power systems at these edges. As we transition from large language models to creating commercial products for enterprises, our network is well-positioned for this demand. I'm very optimistic about this opportunity along with the development of private networks. A lot is emerging in the GenAI space, not only in terms of efficiencies but also as a business opportunity for us.

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

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.

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?

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.

Okay, great. Thank you.

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

Hi, everyone. I want to focus on the network. I understand that the initial deployments of C-band were limited to a portion of the spectrum and didn't cover the full range of technologies. You mentioned 60%. Can you provide an update on the progress towards upgrading to the complete C-band spectrum, implementing Massive MIMO, and moving to stand-alone? Additionally, I know you experienced significant network improvements with the initial C-band upgrades. Can you share what you're observing after the second upgrade? I also have a follow-up question regarding your use of AI. Thank you.

Regarding the C-band, you're correct. Currently, nearly 50% of our traffic operates on the C-band, but there is still deployment needed in suburban and rural areas. Many of those sites are ready, and we are actively rolling out the service. This progress will continue. Joe and his technology team are highly focused on ensuring customer satisfaction during this rollout and in generating revenue. That is our primary focus at Verizon. We are experiencing trends similar to what we observed initially, including improved upgrades and reduced churn, along with opportunities from fixed wireless access as we expand into new regions. Additionally, you inquired about the new features being introduced with 5G advance, such as standalone, Massive MIMO, and others. These enhancements are increasing our capacity and creating further revenue opportunities while meeting customer expectations for the best network in the country. We are just at the beginning of this journey, and I am very satisfied with our progress. The team is working diligently, and we are receiving positive feedback regarding the C-band. Tony?

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.

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.

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, 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 models. And that's how we designed our network. So that's why I'm excited about it. At the same time, we already have four GenAI products in the market that are deployed on 40,000 agents to all our stores, etc. 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.

Great.

Thanks, Tony. In your prepared remarks, you mentioned the voluntary separation program from June. Could you provide some insight into the potential EBITDA benefit? Also, can you clarify whether this leads to one-time charges related to severance or separation payments and provide some quantification on that?

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.

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?

I don't have any comments on the quarter on the numbers. We try to have our Chinese walls here, so I don't have it. But in general, we see these partnerships are important enterprise customers. And it goes back to the strategy we have, meaning we build the network once. And we 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 customers, and we have many of them, and it will continue. Tony?

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.

Can I pivot to ask a related but high-level question? There have been reports of T-Mobile forming additional joint partnerships for fiber assets. If the administration changes, there may be opportunities for further vertical integration. The main question for me is how important it is in the long term for you to provide a vertical solution for customers, meaning that consumers can purchase both their home broadband and wireless services from you. If you're not pursuing that, especially outside of the Fios markets, could that be a risk if others combine those services?

We are well positioned in that area. And again if the market goes 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. 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.

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

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.

To maintain leverage on our EBITDA alongside our service revenue, it's clear that the key performance indicators we focus on as a management team revolve around the growth of service revenue, particularly wireless service revenue expansion, as well as EBITDA and cash flow. We're taking a comprehensive approach to our strategies. Our aim is to see a strong relationship between our service revenue growth and our overall performance. We have excellent products and operate efficiently, even though there are challenges in the business. However, we're committed to achieving these objectives. At this time, we are not providing guidance for 2025, but we will address that in the future. Our efforts and key metrics are designed to support these goals. Tony?

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.

Awesome thanks.

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

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.

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 continuing to grow in volume, 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 cases for logistics centers, for factories, etc. 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, both for taking advantage of it efficiency-wise, internally but definitely from a revenue point of view over time.

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.

Thanks very much.

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