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Verizon reports strong 1Q operational performance, while raising earnings guidance for full-year 2019

Verizon reports strong 1Q operational performance, while raising earnings guidance for full-year 2019

1Q 2019 highlights

Consolidated:

  • $1.22 in earnings per share (EPS), compared with $1.11 in 1Q 2018; adjusted EPS (non-GAAP) of $1.20, excluding a special item, compared with $1.17 in 1Q 2018.
  • Total consolidated revenue growth of 1.1 percent year over year, to $32.1 billion.

Wireless:

  • 61,000 retail postpaid net additions, including 174,000 postpaid smartphone net additions.
  • Retail postpaid churn of 1.12 percent, and retail postpaid phone churn of 0.84 percent.
  • Service revenue growth of 4.4 percent year over year.
  • Total revenue growth of 3.7 percent year over year to $22.7 billion.

Wireline:

  • 52,000 Fios Internet net additions; Fios total revenue growth of 3.6 percent year over year.

NEW YORK, April 23, 2019 (GLOBE NEWSWIRE) -- As the 5G mobility era begins, Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported first-quarter 2019 results highlighted by continued wireless service revenue growth and strong earnings per share.

“Verizon began 2019 by extending our leadership position in 4G, driving innovation in 5G and expanding our high-valued customer relationships,” said Chairman and CEO Hans Vestberg. “2019 is shaping up to be an exciting year for Verizon. We are leading the world in the development of new technologies with the launch of our 5G Ultra Wideband network. Our ambition remains unchanged to provide the most advanced next-generation networks in the world.”

For first-quarter 2019, Verizon reported EPS of $1.22, compared with $1.11 in first-quarter 2018. On an adjusted basis (non-GAAP), first-quarter 2019 EPS was $1.20, excluding a special item, compared with adjusted EPS of $1.17 in first-quarter 2018. Verizon’s first-quarter 2019 EPS included a 2 cent benefit due to a pension re-measurement triggered by the company's Voluntary Separation Program.

In first-quarter 2019, Verizon faced headwinds as a result of a reduction in benefits from the adoption of a revenue recognition standard, primarily due to the deferral of commission expense, and the adoption of a lease accounting standard. The combined impact was a 4 cent year-over-year headwind to EPS.

Consolidated results

Total consolidated operating revenues in first-quarter 2019 were $32.1 billion, up 1.1 percent from first-quarter 2018, primarily driven by strong wireless service revenue growth.

Cash flow from operations totaled $7.1 billion in first-quarter 2019, an increase of approximately $400 million year over year. This increase was driven by the continued momentum in Verizon's operating businesses and lower discretionary employee benefits contributions, partially offset by the first -- and largest -- of three payments related to the Voluntary Separation Program.

First-quarter 2019 capital expenditures totaled $4.3 billion. Verizon's capital expenditures continue to support the launch and continued build-out of its 5G Ultra Wideband network, the growth in data and video traffic on the company's 4G LTE network, the deployment of significant fiber in markets nationwide and the upgrade to Verizon's Intelligent Edge Network.

In 2018, Verizon announced a goal to achieve $10 billion in cumulative cash savings by 2021. This initiative has yielded approximately $3.0 billion of cumulative cash savings since this program began. By the end of first-quarter 2019, Verizon completed the first two phases of its Voluntary Separation Program and realized approximately $180 million of expense savings. These savings are expected to contribute to the company's cumulative cash savings goal.

For first-quarter 2019, Verizon Media revenues were $1.8 billion, down 7.2 percent year over year. Declines in desktop advertising continue to more than offset growth in mobile and native advertising.

Net income was $5.2 billion in first-quarter 2019. EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) totaled approximately $12.2 billion. Consolidated operating income margin was 24.0 percent. Consolidated EBITDA margin (non-GAAP) was 38.1 percent in first-quarter 2019, compared with 36.4 percent in first-quarter 2018. Adjusted EBITDA margin (non-GAAP) in first-quarter 2019 was 37.2 percent.

Wireless results

  • Verizon reported 61,000 retail postpaid net additions in first-quarter 2019, consisting of 44,000 phone net losses and tablet net losses of 156,000, offset by 261,000 other connected device net additions, primarily wearables. Postpaid smartphone net additions were 174,000.

  • Total revenues were $22.7 billion, an increase of 3.7 percent year over year, primarily driven by continued strong service revenue performance.

  • Service revenues increased 4.4 percent in first-quarter 2019, driven by customer step-ups to higher-priced plans, contributions from strong retail postpaid net additions in fourth-quarter 2018 and an increase in connections per account.

  • Total retail postpaid churn was 1.12 percent in first-quarter 2019, and retail postpaid phone churn was 0.84 percent.

  • Segment operating income was $8.5 billion, an increase of 5.2 percent year over year. Segment EBITDA (non-GAAP) totaled $10.8 billion in first-quarter 2019, an increase of 2.7 percent year over year. Segment EBITDA margin (non-GAAP) was 47.4 percent, including approximately 85 basis points in headwinds primarily from the deferral of commission expense and the new lease accounting standard.

Wireline results

  • Total wireline revenues decreased 3.9 percent year over year in first-quarter 2019 to $7.3 billion, as growth in high-quality fiber products was offset by pricing pressures on legacy products and technology shifts.

  • Total Fios revenues grew 3.6 percent year over year to $3.1 billion. In first-quarter 2019, Verizon added a net of 52,000 Fios Internet connections and lost a net of 53,000 Fios Video connections, continuing to reflect the shift from traditional linear video to over-the-top offerings.

  • Wireline operating loss was $88 million in first-quarter 2019, and segment operating loss margin was 1.2 percent. Segment EBITDA (non-GAAP) was $1.5 billion in first-quarter 2019. Segment EBITDA margin (non-GAAP) was 20.3 percent in first-quarter 2019, compared with 21.2 percent in first-quarter 2018.

Outlook and guidance

Based on the strength of the operational trends in the underlying business, Verizon is raising earnings guidance for full-year 2019:

  • The company expects low single-digit percentage growth in adjusted EPS, excluding the impact of the new lease accounting standard. This is an increase from prior guidance for 2019 adjusted EPS to be similar to 2018, excluding the impact of the new lease accounting standard.

Verizon also expects the following:

  • Low single-digit percentage growth in full-year consolidated revenues on a GAAP reported basis.

  • The effective tax rate for full-year 2019 to be in the range of 24 percent to 26 percent.

  • Cash taxes to be $2 billion to $3 billion higher than in 2018 due to benefits that were realized in 2018 that are not expected to repeat in 2019.

  • Capital spending for 2019 to be in the range of $17 billion to $18 billion, including the expanded commercial launch of 5G.

NOTE: See the accompanying schedules and www.verizon.com/about/investors for reconciliations to generally accepted accounting principles (GAAP) for non-GAAP financial measures cited in this document.

Verizon Communications Inc. (NYSE, Nasdaq: VZ), headquartered in New York City, generated revenues of $130.9 billion in 2018. The company operates America’s most reliable wireless network and the nation’s premier all-fiber network, and delivers integrated solutions to businesses worldwide. With brands like Yahoo, TechCrunch and HuffPost, the company’s media group helps consumers stay informed and entertained, communicate and transact, while creating new ways for advertisers and partners to connect. Verizon’s corporate responsibility prioritizes the environmental, social and governance issues most relevant to its business and impact to society.

VERIZON’S ONLINE MEDIA CENTER: News releases, stories, media contacts and other resources are available at www.verizon.com/about/news/. News releases are also available through an RSS feed. To subscribe, visit www.verizon.com/about/rss-feeds/.

Forward-looking statements
In this communication we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “expects,” “hopes” or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The following important factors, along with those discussed in our filings with the Securities and Exchange Commission (the “SEC”), could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: adverse conditions in the U.S. and international economies; the effects of competition in the markets in which we operate; material changes in technology or technology substitution; disruption of our key suppliers’ provisioning of products or services; changes in the regulatory environment in which we operate, including any increase in restrictions on our ability to operate our networks; breaches of network or information technology security, natural disasters, terrorist attacks or acts of war or significant litigation and any resulting financial impact not covered by insurance; our high level of indebtedness; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets affecting the cost, including interest rates, and/or availability of further financing; material adverse changes in labor matters, including labor negotiations, and any resulting financial and/or operational impact; significant increases in benefit plan costs or lower investment returns on plan assets; changes in tax laws or treaties, or in their interpretation; changes in accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; the inability to implement our business strategies; and the inability to realize the expected benefits of strategic transactions.

Verizon Communications Inc.        
Condensed Consolidated Statements of Income  
     
       
    (dollars in millions, except per share amounts)    
           
    3 Mos. Ended   3 Mos. Ended      
Unaudited 3/31/19   3/31/18   % Change    
           
Operating Revenues        
Service revenues and other $   27,197   $   26,732    1.7    
Wireless equipment revenues    4,931      5,040    (2.2 )  
Total Operating Revenues    32,128      31,772    1.1    
           
Operating Expenses        
Cost of services    7,792      7,946    (1.9 )  
Wireless cost of equipment    5,198      5,309    (2.1 )  
Selling, general and administrative expense    7,198      6,844    5.2    
Depreciation and amortization expense    4,231      4,324    (2.2 )  
Total Operating Expenses    24,419      24,423    —    
           
Operating Income    7,709      7,349    4.9    
Equity in losses of unconsolidated businesses    (6 )    (19 )  (68.4 )  
Other income (expense), net    295      (75 ) *    
Interest expense    (1,210 )    (1,201 )  0.7    
Income Before Provision For Income Taxes    6,788      6,054    12.1    
Provision for income taxes    (1,628 )    (1,388 )  17.3    
Net Income $   5,160   $   4,666    10.6    
           
Net income attributable to noncontrolling interests $   128   $   121    5.8    
Net income attributable to Verizon    5,032      4,545    10.7    
Net Income $   5,160   $   4,666    10.6    
           
Basic Earnings Per Common Share        
Net income attributable to Verizon $   1.22   $   1.11    9.9    
         
Weighted average number of common shares (in millions)    4,138      4,104      
         
Diluted Earnings Per Common Share (1)        
Net income attributable to Verizon $   1.22   $   1.11    9.9    
         
Weighted average number of common        
  shares-assuming dilution (in millions)    4,140      4,107      
           
           
Footnotes:        
(1 ) Diluted Earnings per Common Share includes the dilutive effect of shares issuable under our stock-based compensation plans, which represents the only potential dilution.    
           
* Not meaningful        
           

 

Verizon Communications Inc.      
Condensed Consolidated Balance Sheets      
               
               
    (dollars in millions)    
               
Unaudited 3/31/19     12/31/18     $ Change    
               
Assets            
Current assets            
Cash and cash equivalents $   2,322     $   2,745     $   (423 )  
Accounts receivable, net    24,469        25,102        (633 )  
Inventories    1,417        1,336        81    
Prepaid expenses and other    5,189        5,453        (264 )  
Total current assets    33,397        34,636        (1,239 )  
Property, plant and equipment    254,457        252,835        1,622    
Less accumulated depreciation    166,608        163,549        3,059    
Property, plant and equipment, net    87,849        89,286        (1,437 )  
Investments in unconsolidated businesses    674        671        3    
Wireless licenses    94,237        94,130        107    
Goodwill    24,635        24,614        21    
Other intangible assets, net    9,608        9,775        (167 )  
Operating lease right-of-use assets    23,105        —        23,105    
Other assets    10,442        11,717        (1,275 )  
Total assets $   283,947     $   264,829     $   19,118    
               
Liabilities and Equity            
Current liabilities            
Debt maturing within one year $   8,614     $   7,190     $   1,424    
Accounts payable and accrued liabilities    18,664        22,501        (3,837 )  
Current operating lease liabilities    2,997        —        2,997    
Other current liabilities    8,332        8,239        93    
Total current liabilities    38,607        37,930        677    
Long-term debt    105,045        105,873        (828 )  
Employee benefit obligations    17,888        18,599        (711 )  
Deferred income taxes    34,344        33,795        549    
Non-current operating lease liabilities    18,971        —        18,971    
Other liabilities    11,632        13,922        (2,290 )  
Total long-term liabilities    187,880        172,189        15,691    
               
Equity            
Common stock    429        429        —    
Additional paid in capital    13,418        13,437        (19 )  
Retained earnings    46,493        43,542        2,951    
Accumulated other comprehensive income    2,216        2,370        (154 )  
Common stock in treasury, at cost    (6,825 )      (6,986 )      161    
Deferred compensation – employee stock ownership plans and other    125        353        (228 )  
Noncontrolling interests    1,604        1,565        39    
Total equity    57,460        54,710        2,750    
Total liabilities and equity $   283,947     $   264,829     $   19,118    
               
               
Verizon - Selected Financial and Operating Statistics      
               
Unaudited 3/31/19     12/31/18        
               
Total debt (in millions) $   113,659     $   113,063        
Net debt (in millions) $   111,337     $   110,318        
Net unsecured debt (in millions) $   100,951     $   100,242        
Net debt / Consolidated Adjusted EBITDA(1) 2.3x   2.3x      
Net unsecured debt / Consolidated Adjusted EBITDA(1) 2.1x   2.1x      
Common shares outstanding end of period (in millions)    4,136        4,132        
Total employees (‘000)    139.4        144.5        
Quarterly cash dividends declared per common share $   0.6025     $   0.6025        
               
Footnotes:            
(1)  Consolidated adjusted EBITDA excludes the effects of non-operational items and special items.  
               


Verizon Communications Inc.            
Condensed Consolidated Statements of Cash Flows      
               
           
    (dollars in millions)    
               
    3 Mos. Ended     3 Mos. Ended        
Unaudited 3/31/19     3/31/18     $ Change    
               
Cash Flows from Operating Activities            
Net Income $   5,160     $   4,666     $   494    
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization expense    4,231        4,324        (93 )  
Employee retirement benefits    (195 )      (151 )      (44 )  
Deferred income taxes    459        702        (243 )  
Provision for uncollectible accounts    319        239        80    
Equity in losses of unconsolidated businesses, net of dividends received    21        30        (9 )  
Changes in current assets and liabilities, net of effects from acquisition/disposition of businesses    (2,702 )      (2,033 )      (669 )  
Discretionary employee benefits contributions    (300 )      (1,000 )      700    
Other, net    88        (129 )      217    
Net cash provided by operating activities    7,081        6,648        433    
               
Cash Flows from Investing Activities            
Capital expenditures (including capitalized software)    (4,268 )      (4,552 )      284    
Acquisitions of businesses, net of cash acquired    (25 )      (32 )      7    
Acquisitions of wireless licenses    (104 )      (970 )      866    
Other, net    (406 )      269        (675 )  
Net cash used in investing activities    (4,803 )      (5,285 )      482    
               
Cash Flows from Financing Activities            
Proceeds from long-term borrowings    2,131        1,956        175    
Proceeds from asset-backed long-term borrowings    1,117        1,178        (61 )  
Repayments of long-term borrowings and finance lease obligations    (2,963 )      (2,984 )      21    
Repayments of asset-backed long-term borrowings    (813 )      —        (813 )  
Dividends paid    (2,489 )      (2,407 )      (82 )  
Other, net    360        941        (581 )  
Net cash used in financing activities    (2,657 )      (1,316 )      (1,341 )  
               
Increase (decrease) in cash, cash equivalents and restricted cash    (379 )      47        (426 )  
Cash, cash equivalents and restricted cash, beginning of period    3,916        2,888        1,028    
Cash, cash equivalents and restricted cash, end of period $   3,537     $   2,935     $   602    
               

 

Verizon Communications Inc.        
Wireless - Selected Financial Results        
           
         
         
      (dollars in millions)    
           
    3 Mos. Ended   3 Mos. Ended      
Unaudited 3/31/19   3/31/18   % Change    
           
Operating Revenues        
Service $   16,072   $   15,402    4.4    
Equipment    4,931      5,040    (2.2 )  
Other    1,697      1,458    16.4    
Total Operating Revenues    22,700      21,900    3.7    
           
Operating Expenses        
Cost of services    2,456      2,215    10.9    
Cost of equipment    5,198      5,309    (2.1 )  
Selling, general and administrative expense    4,281      3,899    9.8    
Depreciation and amortization expense    2,299      2,428    (5.3 )  
Total Operating Expenses    14,234      13,851    2.8    
           
Operating Income $   8,466   $   8,049    5.2    
Operating Income Margin   37.3 %   36.8 %    
           
Segment EBITDA $   10,765   $   10,477    2.7    
Segment EBITDA Margin   47.4 %   47.8 %    
           
           
Footnotes:        
  The segment financial results and metrics above are adjusted to exclude the effects of special items, as the Company’s chief operating decision maker excludes these items in assessing business unit performance.  
           
  Intersegment transactions have not been eliminated.        
           

 

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Verizon Communications Inc.        
Wireless - Selected Operating Statistics      
           
         
         
           
Unaudited 3/31/19   3/31/18   % Change    
           
Connections (‘000)        
Retail postpaid     113,407       111,114    2.1    
Retail prepaid     4,479       5,068    (11.6 )  
Total retail     117,886       116,182    1.5    
           
           
    3 Mos. Ended   3 Mos. Ended      
Unaudited 3/31/19   3/31/18   % Change    
           
Net Add Detail (‘000) (1)        
Retail postpaid    61      260    (76.5 )  
Retail prepaid    (176 )    (335 )  47.5    
Total retail    (115 )    (75 )  (53.3 )