Sign in

    Verizon Communications Inc (VZ)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$41.40Open (Apr 22, 2024)
    Post-Earnings Price$41.40Open (Apr 22, 2024)
    Price Change
    $0.00(0.00%)

    What went well

    • Verizon anticipates positive net additions in the Consumer segment in 2024, demonstrating growth potential with products resonating well and churn remaining low despite price increases.
    • In early C-band markets, Verizon is experiencing significantly better performance, including 4 basis points lower churn, higher premium mix, and increased gross adds, highlighting the value of their network investments.
    • Fixed Wireless Access (FWA) services are performing well, with high customer satisfaction and expanding use cases in both Consumer and Business segments, indicating strong growth opportunities in the broadband market.

    What went wrong

    • Verizon's operating expenses are increasing, with SG&A growth of 11% in Business and 4% in Consumer, which could pressure margins going forward.
    • The potential loss of Affordable Connectivity Program (ACP) funding may result in up to a 50 basis point headwind on service revenue, impacting 1.1 million prepaid subscribers.
    • Delays and complexities in obtaining BEAD funding might hinder Verizon's broadband expansion plans, as the process is expected to take time and is described as complicated.

    Q&A Summary

    1. Free Cash Flow and Debt Reduction Plans
      Q: How will free cash flow shape up and impact debt paydown?
      A: Free cash flow is expected to build throughout the year, with a meaningful increase in the second quarter. The company is confident in generating strong free cash flow and sees no obstacles in paying down debt in a meaningful way in the second half of 2024. There are $3.6 billion of unsecured maturities due this year, with about half addressed in the first quarter.

    2. Consumer Wireless Net Adds and Churn
      Q: Can you sustain positive Consumer net adds and manage churn?
      A: Consumer net adds are expected to be positive in 2024. MyPlan is performing well, with increased purchases and a higher premium mix. Despite price increases, churn remained low due to disciplined churn management and the quality of the product.

    3. ARPA Growth and Up-Tiering
      Q: How sustainable is ARPA growth and up-tiering opportunities?
      A: ARPA grew by 4.4% in the first quarter. The premium mix is strong at 42% of lines in the base, and perk attach rates are steadily increasing. There is further runway for growth, supported by the strength of myPlan and disciplined promotions.

    4. Impact of ACP Funding Ending
      Q: What is the impact if ACP funding ends?
      A: If ACP funding ends, there could be up to 50 basis points of headwind on service revenue. The majority of exposure is in the prepaid business, with 1.1 million prepaid subscribers in the ACP program. The margin exposure is very small, and plans are in place to address retention and acquisition opportunities.

    5. Spectrum Position and Needs
      Q: How do you view your spectrum needs and capacity?
      A: The company feels good about its spectrum position, having deployed only a portion of its 161 MHz of C-band spectrum nationwide. Any opportunistic spectrum acquisitions will be carefully considered, but there is no immediate need for additional spectrum.

    6. Cost-Cutting and Operational Efficiencies
      Q: What progress is being made on cost-cutting initiatives?
      A: The company is on track with its cost targets and is operating differently to achieve efficiencies. AI and automation are being utilized to serve customers better and drive EBITDA improvements. Upfront work on transformation initiatives is expected to abate as the year progresses.

    7. Fixed Wireless Access Growth and Competition
      Q: How is Fixed Wireless Access performing amid competition?
      A: Fixed Wireless Access continues to have a high Net Promoter Score and quality. Net additions are around 400,000 per quarter, aligned with deployment capacity. The company is seeing growth opportunities in both Consumer and Business segments.

    8. BEAD Funding and Broadband Expansion
      Q: What's the update on pursuing BEAD funding for broadband?
      A: The process for BEAD funding is complicated, but the company bids where it makes sense for return on investment. There have been wins in other broadband funding programs, such as recent awards in Pennsylvania.

    9. Second Number Add-ons Impact
      Q: How significant is the second number add-on offering?
      A: Adoption has been good but represents a very low single-digit percentage of phone gross adds. The market for this feature is limited, but it is ARPA and revenue accretive with high margins.

    10. Open Access Fiber Models
      Q: What's your stance on open access fiber models?
      A: Currently, there is no significant interest due to lack of appealing return on investment. The company evaluates opportunities but has not found models that make financial sense.

    11. Private Networks and 5G Use Cases
      Q: How are private networks and 5G use cases developing?
      A: There is growth in private networks, with numerous deployments, though individual values are still small. The company sees long-term opportunities combining private networks with mobile edge compute and AI.

    12. SG&A Growth and Operating Leverage
      Q: How should we think about SG&A growth and operating leverage?
      A: SG&A growth in the quarter was due to upfront work on transformation initiatives, which will subside as the year progresses. The company expects further operating leverage in the second half of the year.

    13. Industry Structure and Potential M&A
      Q: Do you see opportunities or need for industry consolidation?
      A: The company is focused on executing with existing assets and is pleased with its current asset base. While always evaluating options, there is no immediate need or interest in pursuing acquisitions.

    Related Publications