Verizon Communications Inc Q2 FY23 Earnings Conference Call Insights

Key highlights from Verizon Communications Inc (VZ) Q2 FY23 Earnings Concall

Management Update:

• [00: 03:19] VZ said its consumer wireless strategy is paying off, with year-over-year growth in postpaid phone gross adds and a sequential improvement in postpaid churn.

• [00: 09:20] VZ is on track to achieve its forecasted $2-3 billion in annual savings by 2025.

• [00: 19:03] VZ is well-positioned with respect to its unsecured debt maturities with no remaining obligations for the rest of the year.

• [00: 19:29] The company expects higher interest expense to impact its full year EPS by $0.25-0.30.

Q&A Highlights:

• [00: 23:51] John Hodulik of UBS asked about the factors driving the 6% post-paid ARPA growth in the consumer segment and how sustainable this growth is going into 2H23. Hans CEO and Tony SVP replied that VZ is confident in its ability to continue to grow service revenue in 2H23, driven by a number of factors, including targeted pricing actions, the introduction of myPlan, and continued improvements in year-over-year consumer post-paid volumes.

• [00: 24:17] John Hodulik at UBS also asked for a more specific percentage for the low exposure of lead sheath cable in VZ’s 540,000 miles of copper network. Hans CEO and Tony SVP said that VZ is taking the lead sheath cable matter seriously and is conducting a thorough investigation. The company is working with internal and external experts to assess the potential exposure to lead and will keep investors updated as more information becomes available.

• [00: 28:16] Brett Feldman at Goldman Sachs enquired how VZ plans to get back to net growth in consumer post-paid phones.  Hans CEO answered that VZ is confident in its ability to achieve sequential growth in consumer post-paid phone net adds. The company has the right framework in place, including myPlan and regionalization, and is focused on executing with financial discipline.

• [00: 29:47] Brett Feldman at Goldman Sachs also enquired about the timeline for achieving sustainably positive net adds in consumer and if it is reasonable to expect it once C-bands are fully deployed. Tony Skiadas said that VZ is focused on driving profitable revenue growth by targeting volumes that will lead to YoY improvements in consumer net adds. It is too early to say if 3Q will be positive for consumer, but VZ is committed to achieving this goal.

• [00:30:33] Simon Flannery at Morgan Stanley queried how the second phase of C-band will impact VZ’s footprint and capacity, and how the company plans to address concerns about fixed wireless congestion. Hans Vestberg CEO replied that Verizon is ahead of schedule in deploying C-band spectrum, which will provide the company with more capacity and coverage. The company is also confident that it can manage capacity demands, as it is building a multipurpose network that can serve multiple applications.

• [00:31:03] Simon Flannery at Morgan Stanley also asked if VZ will consider share repurchases in the near future, given the recent stock price weakness and strong free cash flow generation. Tony Skiadas SVP said Verizon is generating strong cash flow, which will be used to pay down debt, invest in the business, and support a higher dividend payout ratio. The company will consider share repurchases once it reaches its target leverage ratio of 2.25.

• [00:33:49] Phil Cusick from JPMorgan enquired if VZ sees any reason why service revenue growth would decelerate from the current high levels, given the price increases and the impact of the new pricing structure. Tony Skiadas SVP answered that VZ expects sequential improvements in service revenue in 3Q, but prepaid revenue will likely remain at a similar level as 2Q due to a headwind of $125 million. The headwind is expected to ease up in 4Q.

• [00:33:57] Phil Cusick from JPMorgan also asked about the market opportunity for private wireless, and when VZ expects this segment to become a billion-dollar business. Hans Vestberg CEO said that private 5G networks are a valuable new business opportunity for VZ, as it offers enterprises and SMBs the capacity, speed, and security they need. VZ expects this segment to become a billion-dollar business over time.

• [00:40:26] David Barden with Bank of America asked for a clarification if VZ’s deal with the cable industry guarantees that the cable industry will make money regardless of data consumption, and whether the deal is permanent. Hans Vestberg CEO replied that VZ is not able to disclose details of its contracts with the cable industry, but is confident that it is making money on this business and that it is in the best interests of its stakeholders and shareholders.

• [00:42:41] Michael Rollins at Citi enquired if there are opportunities to reduce capex in 2024 by deploying mid-band spectrum more efficiently. Hans Vestberg CEO answered that VZ’s capex are expected to be around $17-17.5 billion in the BAU period, which will allow the company to deploy C-band spectrum and continue to invest in fiber.

• [00:45:00] Craig Moffett at MoffettNathanson asked about the future trajectory of fixed wireless, whether it will remain stable, and how this will affect the guidance by the end of 2025. Hans Vestberg CEO replied that VZ is currently adding broadband subscribers at a high rate through its FWA service. The company has deployed FWA in over 70 of the 402 C-band priority access areas, and it expects to add 4-5 million FWA subscribers by the end of 2023. VZ is also working to expand FWA to MDUs, which will further increase the addressable market for the service.

• [00:48:12] Brian Kraft of Deutsche Bank asked how will the remaining C-band deployments affect the fixed wireless opportunity in rural areas, and will this include areas that are currently not served by any other broadband provider. Hans Vestberg CEO answered that the remaining C-band deployments will expand VZ’s fixed wireless footprint into suburban and rural areas, where there are typically fewer broadband options available. This could create new opportunities for VZ to grow its fixed wireless subscriber base.