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Verizon Communications Inc. (VZ) Goldman Sachs Communacopia & Technology Conference 2023 - (Transcript)

Verizon Communications Inc. (VZ)

Goldman Sachs Communacopia & Technology Conference 2023

Company Participants

Hans Vestberg - Chairman and Chief Executive Officer

Conference Call Participants

Brett Feldman - Goldman Sachs

Presentation

Brett Feldman

All right. Welcome, everyone, to Day Three of our Communacopia and Technology Conference. Very excited to kick off this day's sessions with Hans Vestberg, the CEO of Verizon. Hans, thank you so much for being back here.

Hans Vestberg

Thank you, Brett. Great to be here. Fantastic.

Brett Feldman

I think I'm supposed to remind you to your Safe Harbor.

Hans Vestberg

Yes, we have a Safe Harbor, whatever I might say, can be forward-looking. So be careful.

Brett Feldman

There was some news on the tape this morning. Why don't you fill and everybody who might have missed it?

Hans Vestberg

Yes, we did the press release very early this morning. And no I think it comes back to our capital allocation, where I get a lot of questions about it. We have a very clear capital allocation. I mean first of all we invest in our business. Secondly, we put our Board in a position so they can continue to increase our dividend. And thirdly, we pay down our debt. And when that's going to be finished, we have some thresholds for that and then we will start doing buybacks.

I think that what we announced this morning was that we announced the dividend going forward, which was the 17 years in a row that we increased our dividend. So we increased roughly 2% again. So I think that shows the commitment of our cash generation and the Board support for us to continue that journey.

And we had a great cash flow in the first half of this year where our payout ratio is coming down quite quickly right now. We were a little bit hike last year, but always below 100. So that has helped us a lot. So that was what we communicated this morning. So we actually had the Board meeting this morning before I came on this stage, right?

Brett Feldman

Great. We appreciate the news.

Hans Vestberg

Yes, of course. I do anything for you.

Question-and-Answer Session

Q - Brett Feldman

Well, let's talk about what you're going to do to keep the momentum going at Verizon. I want to start off with the Consumer segment. So you've implemented a number of changes over the past year in order to drive improved operating trends within that segment. So that's included putting new segment leaders in place. You've implemented a regional operating structure, and we've seen some new plans come out of Verizon as well. What gives you confidence that the steps that you've taken here has positioned that segment to return to sustained revenue and EBITDA growth?

Hans Vestberg

Yes, it's a good question. And I have to say, we have definitely seen this operational improvement since we made a lot of changes in the company. I mean I've said it publicly, and I say it again, we were not happy with our performance in the first half 2022. I stepped in myself and run Consumer for a while there. And then we did a bunch of changes, not only by -- with people, we also did with structure. And first of all, I'm extremely happy about how great bench of people we have because many of the position was filled within Kyle, that was our Head of Networks, became the Head of Business Group. Joe, that has worked there for a long time, Joe Russo became the new Head of Networks. Sampath that was running our Business group, he took over the Consumer group. So many great moves with extremely experienced telecom people. Then on the Consumer side, we had already decided somewhere in the third, fourth quarter, we need to be more segmented. We need to see that we actually are meeting our customers in the right place. We also understood that's a network of rolling out. We are now having a chance to be much more local in our -- both in our network deployment but also in our -- how we address the market locally. So we regionalize both the network organization. We regionalize the consumer organization. And then, of course, we have been doing for, I would say, six months consumer research, and then we launched myPlan in, I think it was May or something, time is flying here, which is a total new way for us to address our customers where you basically, the consumer can pick and choose the plan they want to have and the perks they want to have. The consumer research we had was very much about we want control. We want an efficient plan, but we want flexibility. And that's what we built into myPlan. And in the beginning, in myPlan, as you always do when you change the platform, somewhere in the May time frame. Of course, in the beginning, it was a little bit clunky, both for our organization and for our customers. But now we have a good momentum. I mean, customer likes it, our organization has far easier to articulate the value of our perks and the network plans. And as you might follow us, we had from the beginning, two unlimited plans. Now we have three. We added Unlimited Ultimate just a couple of days ago. And that's how you see us working, how we segment, having optionality for our customers. We have more and more perks that is coming in for the $10 with its value on the table, using our distribution channel. So a lot of things have been changed and also I have worked a lot with our distribution when it comes to our teams in our stores, associates, incentives. So we see it's actually working for us. I'm encouraged by what the team is doing. I mean, as I said a couple of times, I had a lot of great ideas what I want to do in Consumer. It's just that Sampath is doing it quicker and faster than I did. So very happy with the team, very happy how they came in.

Brett Feldman

And we saw evidence of that improved operational performance in the first half of the year. Your phone net adds were better year-on-year in the first half relative to the first half of last year, which is what you had targeted. Can you give us an update? Is that continuing into the third quarter? And I know the question everyone is asking is how long do you think it's going to take to start growing that base again?

Hans Vestberg

Yes. No, I think that on the wireless business, we have constant then now since three quarters improved sequentially. And our job is to continue to do that, and we have a good line of sight that we sequentially can do that. Our Business side has constantly had 100,000, 150,000 new net addition on wireless customers every quarter for, I think, four or five quarters right now. Very consistent, very strong, taking market share constantly. Our Consumer division has come from very negative in the second quarter last year. And then from there on, we are moving on. We still were negative in the second quarter. And the only thing we have said is we want the Consumer group to sequentially improve. And that's what we're targeting, but that we will have positive as a group in the quarter, that's, of course, we were really targeting because we have -- the Business segment that is doing well. So sequential improvements. We have good plans. We used to also have the Sunday Ticket, exclusive distribution wireless on Sunday Ticket together with YouTube TV, which, again, tells us that all these content aggregators, they love to work with us because of our distributions and how we're actually making money, both for them and for us.

Brett Feldman

All right. So let's move on to ARPA and ARPU. Over the past year or so, you've implemented a series of price increases that ended up being very effective tools for offsetting some of the inflationary cost pressures in the business. But also I think just to get some of the value captured for what the network was delivering. At this point, these rate adjustments have impacted a pretty significant chunk of your base. Inflationary pressures are easing. So a question we get is, what's Verizon's pricing strategy from here? How do you think about the drivers of ARPU and ARPA growth. And to what extent would that be an ability to keep moving price versus maybe moving people up the stack?...

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