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Verizon Communications Inc. (VZ)

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Verizon Communications, Inc. (VZ)

Q2 2017 Earnings Call

July 27, 2017 8:30 am ET

Executives

Michael T. Stefanski - Verizon Communications, Inc.

Matthew D. Ellis - Verizon Communications, Inc.

Analysts

Michael I. Rollins - Citi Research

Philip A. Cusick - JPMorgan Securities LLC

John C. Hodulik - UBS Securities LLC

David Barden - Bank of America Merrill Lynch

Brett Feldman - Goldman Sachs & Co.

Craig Eder Moffett - MoffettNathanson LLC

Michael L. McCormack - Jefferies LLC

Jennifer M. Fritzsche - Wells Fargo Securities LLC

Simon Flannery - Morgan Stanley & Co. LLC

Amir Rozwadowski - Barclays Capital, Inc.

Timothy Horan - Oppenheimer & Co., Inc.

Presentation

Operator

Good morning, and welcome to the Verizon second quarter 2017 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. 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. Michael Stefanski, Senior Vice President, Investor Relations.

Michael T. Stefanski - Verizon Communications, Inc.

Thanks, Eunice. Good morning, and welcome to our second quarter earnings conference call. This is Mike Stefanski, and I'm here with Matt Ellis, our Executive Vice President and Chief Financial Officer. As a reminder, our earnings release, financial and operating information, and the presentation slides are available on our Investor Relations website. A replay and a transcript of this call will also be made available on our website.

Before I get started, I would like to draw your attention to our Safe Harbor statement on slide 2. 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 website. This presentation contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials we have posted on our website. The quarterly growth rates disclosed in our presentation slides and during our formal remarks are on a year-over-year basis unless otherwise noted as sequential.

Before Matt goes through the results, I'd like to highlight a few items. For the second quarter of 2017, we reported earnings of $1.07 per share on a GAAP basis. These reported results include a few special items that I would like to highlight. Our reported earnings include a net pre-tax gain of about $1.8 billion. This net gain consists primarily of the sale of certain data centers to Equinix.

We also incurred pre-tax severance charges of $607 million and acquisition and integrated related charges of $152 million, primarily in connection with the closing of our acquisition of Yahoo's operating assets, which we previously disclosed. The net impact of these items after tax was approximately $458 million, or $0.11 per share. Excluding the effect of these special items, adjusted earnings per share was $0.96 in the second quarter, compared to $0.94 a year ago. As a reminder, last year's adjusted earnings per share included $0.07 from the impact of the work stoppage.

Also, our consolidated results for the second quarter included one month of data center operations that we sold to Equinix on May 1, 2017, and about two weeks of Yahoo operations. We have posted unaudited historical wireline segment results, which recast the segment for the impact of the sale to Equinix on our website.

With that, I'll now turn the call over to Matt.

Matthew D. Ellis - Verizon Communications, Inc.

Thanks, Mike. Good morning to everyone on the call, and thank you for joining us today. We had a strong quarter of execution. First, we invested in our 4G network leadership position, resulting in a sweep of third-party network performance surveys for the first half of 2017, while prepositioning for 5G services. Second, we delivered solid wireless operational performance and financial results in a competitive environment with an increase in both postpaid and prepaid accounts. Third, we successfully completed the acquisition of Yahoo's operating assets to scale our media business.

Network leadership is the central element of our strategy, and we are continually investing in our network to extend our leadership in 4G capacity growth with densification using small cells, which includes expanding our fiber capabilities. As we prepare for the network of the future, we announced the acquisition of Straight Path for $3.1 billion, which we expect will close by the end of first quarter 2018. Straight Path complements our spectrum portfolio and positions us to lead and further drive 5G technology and its ecosystem. We have begun the precommercial fixed wireless trials in eight out of the 11 markets and have our first batch of customers on this technology. As we have previously highlighted, we will have trial results later in the year, and I look forward to sharing them with you.

We had a strong quarter, adding and retaining wireless customers as the momentum from the launch of our unlimited plans was sustained throughout the quarter. We delivered a strong wireless operational performance that reflects customer demand for our high-quality network in a highly competitive market. Finally, we completed the acquisition of Yahoo's operating assets and immediately began executing on integration plans that we've been working on for over a year. We are confident in the execution of our strategy, which we expect to drive profitable growth, generate strong cash flows, and return long-term value to our shareholders.

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