Verizon Communications Inc. (NYSE:VZ) Q1 2024 Earnings Call Transcript

Verizon Communications Inc. (NYSE:VZ) Q1 2024 Earnings Call Transcript April 22, 2024

Verizon Communications Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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

Brady Connor : Thanks, Brad. Good morning, everyone, and welcome to our 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.

Hans Vestberg : 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 a 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 a 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 and 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 promoters scored 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 culture moments that matter the most to our customers, from concerts and performance 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 position 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 a 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 centered 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 level 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. Tony.

Tony Skiadas : 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.

Hans Vestberg : 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] (ph) 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.

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

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question will come from Simon Flannery of Morgan Stanley. Sir, please go ahead.

Simon Flannery: Great. Thank you very much and good morning. Hans, maybe we can talk about the consumer a little bit. It was good to see the churn number. Perhaps you’d just talk a little bit about the impact of the pricing there. It seems like it had a drag on business but less of a drag on consumer. And just — what are you seeing overall in the wireless market growth, it seems like the industry is continuing to grow, there’s been some competitive moves by some of the cable companies recently, maybe just comment on the overall environment out there and your ability to sustain this, as well as the low upgrade rates. And then just a quick one, Tony, for you on cash flow. Thank you for the comments around the pacing through the year. Could you just talk about working capital and the impact this quarter? It seemed like there were some drags from that on the quarterly number. Thanks.

Hans Vestberg : Thank you, Simon. Let me start with the consumer business. As we saw in the quarter, it was a little bit slow in the beginning of the quarter both for consumer and for business when it comes to wireless. But then I think we clearly see that our products are resonating with the customers. And on the consumer side, myPlan is really doing well. And as Tony said in the prepared remarks, the Perks is now coming up. Our premium is also increasing. So clearly, we see that. At the same time, the team has spent a lot of time to be disciplined both with promotions and churn management. And you saw we had the price up in the quarter on consumer that was pretty wide. But our team actually kept the churn down on the consumer side.

I mean, it shows first of all how great our product is, but also see how well we’re using the AI tools and all of that to see that our customers are getting the value and we are actually directing the money to the right customers. That’s what you see coming out in the financial discipline in everything we’re doing. Yeah, the promotions were lower again this quarter. But again, it’s a way for us to segment the market to see that we have the right products. And that’s what I’ve seen for quite a while right now on the consumer side. And what I said also is that — we have said several times right now, we expect consumer to be positive net add this year. So they are doing it. And [Sampath] (ph) team probably have even more innovations coming. And when myPlan was one, the Perks and other, they have more things to come during the year.

So I’m really excited about what we’re doing on the wireless side. And of course competition is the same. There’s nothing new, but it’s the same as we’ve seen for quite a while. But we just performed way better. We have the right product, we have the right people, we have made the right changes in operation model and that’s what we’re seeing right now. And now we move all that into prepaid and you saw that we’re also doing prepaid better but still we have more to be done. The team has their heads down, very focused on execution. Very pleased with what they’ve seen so far. That doesn’t mean we’re not going to push even harder going forward. Tony?

Tony Skiadas : Yeah, sure. So good morning, Simon. So a couple of points on churn. So the results on C-band are significantly better. We see, you know, strong churn performance, higher premium mix, and also higher gross adds in C-band markets. And, you know, 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 let me unpack that for you. So we saw the discretionary pension contribution in the quarter. That 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, you know, we’re funding the business for growth and very, very confident in our ability to execute and 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.

Simon Flannery: Great. Thanks a lot of Tony.

Brady Connor: Yeah, thanks Brad. We’re ready for the next question.

Operator: The next question comes from John Hodulik of UBS. Your line is open, sir.

John Hodulik: 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 2, 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.

Hans Vestberg : Thank you, John. On the first question there on consumer net adds in the short-term, I stay on my previous comment. Consumer net adds should be positive in 2024. The team is of course doing quite good right now. Actually 100,000 better in the first quarter here on net adds. Let them continue to execute. They have a great product that resonates with the market. And they will continue to execute well on that. On the churn side, I think first of all, I mean, if you look at the market, of course we see both inflation and — a higher interest rate. But think about the product, first of all, so good right now. Everybody needs wireless and broadband. And I think that — that has improved quite dramatically over the last couple of years.

Secondly, our products right now are so well segmented for different segments, for different groups. And thirdly, we’re laser focused – on churn management. The team with Sampath, the AI tools we have, so we actually spend on the right customers when we see they have a churn. So all that came together despite that we had a price adjustment that was large in the consumer group in the second quarter. The same goes for our business wireless. They performed well in the quarter. They had a little bit slow in the beginning of the year, but ramped really nicely also in the quarter. And again, they are market share leader on the wireless and they continue to be positive. So I’m pleased with that. On the ACP, I will let Tony comment on it. The only thing I want to say, I think — we think it’s important that everyone in these countries should be able to have wireless and broadband because it’s such an essential service today.

So that’s why we historically already have plans on Fios that are for low income families, but also the whole prepaid family of products we have is also addressing that. Again, going back to — being able to support that regardless if it’s the recent ACP or not, but our segmentation model. And lastly, I think on the churn, our high quality customers, which is best in industry, that is really playing out in this environment with the products we have. Tony?

Tony Skiadas: Sure. And John, good morning. So in terms of ACP, we stopped enrollments in February and still accepting transfers through May. As we said previously and — in the prepared remarks, the majority of the exposure is in the prepaid business, and we have 1.1 million prepaid subs that are in the ACP program. We’ve said previously that the guidance assumed that the ACP funding stays intact. The impact or any impact would be seen on service revenue up to potential 50 basis points of headwind. And the margin exposure from ACP is actually very small. It was insignificant in the first quarter. And if nothing changes and the funding goes away in May, as is planned, then we have plans in place to address it, both from retention and potential acquisition opportunities as well. And obviously we’ll continue to help everybody — update everybody as we know more.

John Hodulik: Thanks guys.

Brady Connor: Okay thanks John. Brad, we’re ready for the next question.

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

Michael Rollins: 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?

Hans Vestberg : Hey, thanks Mike. Yeah, This is a long-term strategy of us. First of all, we have a great base of customers. We want to give them the flexibility on the consumer side. Then we add in the Perks. Of course, all that plays into value play for our customers, even though we up tier our customers. And that has gone very well. We said in the prepared remarks that almost a quarter of our customers have myPlan right now and we are expecting it to go to almost or go to half of the base, which is never had a product moving that fast because it resonates with the market. In there — we have opportunities for both up-tiering and then adding services, all incremental for our bottom-line and accretive. And many of these offerings are savings for our customers which is just great.

The Max-Netflix is for example a great saving, great product. We are the only one in the market that can do that on wireless. It’s exclusive. And that’s the type of things we do on Perks, very different rather. I wouldn’t say shocked, but I would be at least surprised if Sampath and the consumer team doesn’t continue to think how they can enlighten our customers even more with these type of things going forward. Tony.

Tony Skiadas: 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.

Michael Rollins: 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?

Hans Vestberg : 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 the 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?

Tony Skiadas: 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.

Michael Rollins: Thank you.

Brady Connor: Yeah, thanks Mike. Brad, we’re ready for the next question.

Operator: The next question comes from Kannan Venkateshwar of Barclays. Your line is open, sir.

Kannan Venkateshwar: Thank you. Hans, maybe one industry question for you. There’s obviously a lot of assets up for sale, some smaller ones, some potentially bigger ones. There’s also been talk about your potential interest in maybe partnering with ESPN in some form. Could you talk about how you see the industry structure evolving from here? Do you see this as some kind of equilibrium? Or is there any need for — or an opportunity from your perspective in terms of balancing your asset base in a slightly different direction. Thanks.

Hans Vestberg : 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 the 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 operation 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.

Kannan Venkateshwar: Great.

Brady Connor: Thanks, Kannan. Brad, we’re ready for the next question.

Operator: The next question comes from David Barden of Bank of America. Your line is open, sir.

David Barden: Hey, guys. Thanks for taking the questions. I guess my first one was just about the kind of the balance of revenue growth. I think that you guys talked about kind of a 60-40 balance of pricing and volumes is more normal. And over the last year it was more skewed to pricing. I was wondering if you could kind of talk about the relatively healthy 5% growth in gross adds versus what we’re watching this quarter happened which is a decline in accounts. Could you talk a little bit about how you balance the relationship between accounts and gross new subscribers? And then the second question is just more of a housekeeping question which is you guys introduced the second number add-on this past quarter. There’s been a lot of questions about where does that show up in the numbers. I’m guessing not in the sub-numbers. It’s probably — could you kind of elaborate about — where we find that in the numbers? Thank you so much.