REG-VerizonCommunication: 3rd Quarter Results <Origin Href="QuoteRef">VZ.N</Origin> - Part 1
20/10/2015 12:30
Verizon reports 3Q earnings growth driven by customer demand for wireless and
fios services
NEW YORK, Oct. 20, 2015 --
3Q 2015 highlights
Consolidated
* 99 cents in earnings per share (EPS) and $1.04 in adjusted EPS (non-GAAP),
compared with 89 cents per share in 3Q 2014.
* $28.4 billion year to date in cash flow from operations.
Wireless
* 1.3 million net retail postpaid connections added in the quarter; low
retail postpaid churn of 0.93 percent; 110.8 million total retail
connections; 105.0 million total retail postpaid connections.
* 5.4 percent year-over-year increase in total revenues; 33.3 percent
operating income margin.
Wireline
* 114,000 fios internet and 42,000 fios video net additions.
Fueled by wireless and fios connections growth and continued customer loyalty,
Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported third-quarter
2015 earnings of 99 cents per share, or $1.04 per share on an adjusted basis
(non-GAAP).
This compares with EPS of 89 cents in third-quarter 2014. Third-quarter 2015
earnings included a 5 cent per share non-cash charge due to a re-measurement
triggered by a pension settlement accounting threshold.
"Verizon continues to grow earnings by delivering network reliability and
superior value that continues to attract new customers," said Chairman and CEO
Lowell McAdam. "Verizon Wireless posted another quarter of quality connections
growth - even better than in the second quarter - while maintaining high
customer loyalty and profitability. Meanwhile, fios customer growth also
improved from the previous quarter. We expect future revenue growth from mobile
over-the-top video, including digital advertising, and the Internet of Things."
Verizon's acquisition of AOL Inc. in June is playing a key role in this future
growth strategy. In September Verizon launched go90™, a differentiated,
mobile-first social entertainment platform.
In the first nine months of 2015, Verizon invested approximately $22 billion in
spectrum licenses and capital for future network capacity, in addition to the
$4 billion AOL acquisition. Over that same time, the company maintained its
leverage ratio and returned more than $11 billion to shareholders in the form
of dividends and share repurchases. Verizon's Board of Directors increased
dividends for the ninth consecutive year in September.
Consolidated results
* Total operating revenues in third-quarter 2015 were $33.2 billion, a 5.0
percent increase compared with third-quarter 2014. Current-quarter revenues
include results from AOL. The comparable year-over-year growth rate
excluding AOL (non-GAAP) would have been 3.1 percent.
* Year-to-date consolidated revenue growth was 3.3 percent, after adjusting
for the inclusion of AOL in the third quarter and the sale of the public
sector business in 2014 (non-GAAP). On this same basis, Verizon continues
to expect consolidated revenue growth of at least 3 percent for full-year
2015.
* New revenue streams from the Internet of Things (IoT) totaled approximately
$175 million in third-quarter 2015 and about $495 million year to date. In
August Verizon launched hum™, a telematics service that creates a smart,
connected driving experience with an addressable market of 150 million
vehicles in the U.S.
* Cash flow from operating activities increased to $28.4 billion at the end
of third-quarter 2015, compared with $23.2 billion at the end of
third-quarter 2014. This year's cash flow included a non-recurring $2.4
billion related to the monetization of tower assets in the first quarter.
* Excluding the tower transaction, free cash flow (non-GAAP, cash flow from
operations less capital expenditures) totaled $13.5 billion at the end of
third-quarter 2015. Verizon continues to expect full-year 2015 capital
expenditures to range between $17.5 billion and $18.0 billion.
Verizon Wireless delivers profitable, quality growth
In third-quarter 2015, Verizon Wireless continued to deliver profitable,
quality postpaid connections growth and low churn, which demonstrates high
customer loyalty.
Wireless financial highlights
* Total revenues were $23.0 billion in third-quarter 2015, up 5.4 percent
year over year. Service revenues totaled $17.6 billion, down 4.1 percent
year over year. Over the same period, equipment revenues increased to $4.3
billion, up from $2.5 billion, as more customers chose to buy new devices
with installment pricing.
* Service revenues plus installment billings increased 1.2 percent year over
year. The percentage of phone activations on installment plans grew to
about 58 percent in third-quarter 2015, compared with 49 percent in
second-quarter 2015 and only 12 percent in third-quarter 2014. Verizon
expects the percentage of phone activations on installment plans to
increase to about 70 percent in fourth-quarter 2015.
* In third-quarter 2015, wireless operating income margin was 33.3 percent,
up from 31.9 percent in third-quarter 2014. Segment EBITDA margin on
service revenues (non-GAAP, earnings before interest taxes, depreciation
and amortization, divided by service revenues) was 56.4 percent, compared
with 49.5 percent in third-quarter 2014. Segment EBITDA margin on total
revenues (non-GAAP) was 43.2 percent, compared with 41.6 percent in
third-quarter 2014.
Wireless operational highlights
* Verizon Wireless reported 1.3 million retail postpaid net additions in
third-quarter 2015, with improvements from second-quarter 2015 in the
number of 4G smartphone and total postpaid phone net adds. These net
additions do not include any wholesale or IoT connections.
* Verizon added 889,000 4G smartphones to its postpaid customer base in
third-quarter 2015. Postpaid phone net adds totaled 430,000 as net
smartphone adds of 694,000 were partially offset by a net decline of basic
phones. Tablet net adds totaled 818,000 in the quarter, and net prepaid
devices declined by 80,000.
* During the third quarter, 5.6 million phones were activated on device
installment plans. Verizon has about 19 million device payment phone
connections in total, representing approximately 22 percent of its postpaid
phone base. Overall, more than 30 percent of Verizon's postpaid phone
customers are on unsubsidized service pricing.
* At the end of third-quarter 2015, the company had 110.8 million retail
connections, a 4.3 percent year-over-year increase, and 105.0 million
retail postpaid connections, a 4.9 percent year-over-year increase.
* 4G devices now constitute more than 76 percent of the retail postpaid
connections base, with the LTE network handling approximately 89 percent of
total wireless data traffic in third-quarter 2015 - an increase of about 75
percent in network data megabytes in the past year.
* About 7 percent of Verizon's retail postpaid base upgraded to a new device
in third-quarter 2015. In the past year, the number of 4G smartphones in
Verizon's customer base has increased by about 34 percent, to 64.6 million.
The company continues to see opportunities to upgrade its postpaid
connections base of about 15 million basic phones and nearly 7 million 3G
smartphones to 4G devices.
* Customer retention remained high, with retail postpaid churn at 0.93
percent in third-quarter 2015, a year-over-year improvement of 7 basis
points.
* Wireless capital investment totaled $2.9 billion in third-quarter 2015 and
$8.5 billion year to date, up 8.4 percent from a year ago, as Verizon
continues to optimize its network. Densification plans, which include
deployment of small cells, DAS (distributed antenna system) nodes and
in-building solutions, are improving capacity in the near-term as Verizon
prepositions its network for 5G.
Fios continues to drive wireline consumer revenue growth
In the wireline segment, Verizon's results were highlighted by continued
revenue and customer growth for fios fiber-optic-based services.
Wireline financial highlights
* In third-quarter 2015, consumer revenues were $4.0 billion, an increase of
2.8 percent compared with third-quarter 2014. Fios revenues represented 79
percent of the total.
* Total fios revenues grew 7.5 percent, to $3.4 billion, comparing
third-quarter 2015 with third-quarter 2014.
* Wireline operating income margin was 6.2 percent in third-quarter 2015, up
from 2.3 percent in third-quarter 2014. Segment EBITDA margin (non-GAAP)
was 23.5 percent in third-quarter 2015, compared with 23.0 percent in
third-quarter 2014.
Wireline operational highlights
* In third-quarter 2015, Verizon added 114,000 net new fios internet
connections and 42,000 net new fios video connections. Both are increases
from second-quarter 2015. Verizon had totals of 6.9 million fios internet
and 5.8 million fios video connections at the end of the third quarter,
representing year-over-year increases of 7.2 percent and 5.0 percent,
respectively.
* Fios internet penetration (subscribers as a percentage of potential
subscribers) was 41.7 percent at the end of third-quarter 2015, compared
with 40.6 percent at the end of third-quarter 2014. In the same periods,
fios video penetration was 35.6 percent, compared with 35.5 percent.
* By the end of third-quarter 2015, two-thirds of consumer fios internet
customers subscribed to Quantum, which provides speeds ranging from 50 to
500 megabits per second. The highest rate of growth is in the
75-megabit-per-second tier, to which one-fourth of Quantum customers
subscribe.
* Verizon Enterprise Solutions helped clients around the globe drive growth
and business performance, manage risk and improve the customer experience
in the third quarter. The company deployed innovative enterprise-grade
network, cloud, security, IoT, mobility and other business solutions for
some of the world's leading brands, including Ciena, Darden Restaurants and
Waste Management; energy and utility clients Valero, E.ON, National Grid
and Hawaiian Electric Industries; insurance clients Ageas and ACE Group;
manufacturing and building clients Terex Corporation, Diebold,
Incorporated, and Gilbane Building Company; healthcare clients Eli Lilly
and Company, and Visiting Nurse Service of New York; and government and
non-profit clients U.S. Army Reserve Command and the National Sheriffs'
Association.
Wireline results include operations being sold to Frontier Communications Corp.
in the non-contiguous states of California, Florida and Texas, as Verizon seeks
to focus wireline efforts on the East Coast. Verizon's consolidated balance
sheet reflects these operations as assets held for sale until the transaction's
closing, expected at the end of first-quarter 2016.
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) employs a diverse workforce of
177,900 and generated more than $127 billion in 2014 revenues. Verizon Wireless
operates America's most reliable wireless network, with 110.8 million retail
connections nationwide. Headquartered in New York, Verizon also provides
communications and entertainment services over America's most advanced
fiber-optic network, and delivers integrated business solutions to customers
worldwide. For more information, visit www.verizon.com/news/.
VERIZON'S ONLINE NEWS CENTER: Verizon news releases, executive speeches and
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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," "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. 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; and the inability to
implement our business strategies.
Verizon Communications Inc.
Condensed Consolidated Statements of Income
(dollars in millions, except per share amounts)
3 Mos. Ended 3 Mos. Ended 9 Mos. Ended 9 Mos. Ended
Unaudited 9/30/15 9/30/14 % Change 9/30/15 9/30/14 % Change
Operating Revenues
Service revenues and other $ 28,866 $ 29,107 (0.8) $ 85,840 $ 87,152 (1.5)
Wireless equipment revenues 4,292 2,479 73.1 11,526 6,735 71.1
Total Operating Revenues 33,158 31,586 5.0 97,366 93,887 3.7
Operating Expenses
Cost of services 7,589 7,046 7.7 21,571 21,230 1.6
Wireless cost of equipment 5,716 5,206 9.8 16,279 14,298 13.9
Selling, general and administrative expense 8,309 8,277 0.4 24,222 24,159 0.3
Depreciation and amortization expense 4,009 4,167 (3.8) 11,978 12,465 (3.9)
Total Operating Expenses 25,623 24,696 3.8 74,050 72,152 2.6
Operating Income 7,535 6,890 9.4 23,316 21,735 7.3
Equity in earnings (losses) of unconsolidated (18) (48) (62.5) (70) 1,811 *
businesses
Other income and (expense), net 51 71 (28.2) 158 (757) *
Interest expense (1,202) (1,255) (4.2) (3,742) (3,633) 3.0
Income Before Provision for Income Taxes 6,366 5,658 12.5 19,662 19,156 2.6
Provision for income taxes (2,195) (1,864) 17.8 (6,800) (5,052) 34.6
Net Income $ 4,171 $ 3,794 9.9 $ 12,862 $ 14,104 (8.8)
Net income attributable to noncontrolling interests $ $ 34.3 $ 374 $ 2,248 (83.4)
133 99
Net income attributable to Verizon 4,038 3,695 9.3 12,488 11,856 5.3
Net Income $ 4,171 $ 9.9 $ 12,862 $ 14,104 (8.8)
3,794
Basic Earnings per Common Share
Net income attributable to Verizon $ $ 11.2 $ 3.05 $ 3.03 0.7
.99 .89
Weighted average number of common shares (in millions) 4,072 4,152 4,089 3,912
Diluted Earnings per Common Share (1)
Net income attributable to Verizon $ $ 11.2 $ 3.05 $ 3.03 0.7
.99 .89
Weighted average number of common
shares-assuming dilution (in millions) 4,078 4,159 4,095 3,919
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.
Certain reclassifications have been made, where appropriate, to reflect
comparable operating results.
* Not meaningful
Verizon Communications Inc.
Condensed Consolidated Balance Sheets
(dollars in millions)
Unaudited 9/30/15 12/31/14 $ Change
Assets
Current assets
Cash and cash equivalents $ 3,875 $ 10,598 $ (6,723)
Short-term investments 306 555 (249)
Accounts receivable, net 13,105 13,993 (888)
Inventories 1,319 1,153 166
Assets held for sale 895 552 343
Prepaid expenses and other 2,268 2,772 (504)
Total current assets 21,768 29,623 (7,855)
Plant, property and equipment 216,674 230,508 (13,834)
Less accumulated depreciation 134,112 140,561 (6,449)
82,562 89,947 (7,385)
Investments in unconsolidated businesses 779 802 (23)
Wireless licenses 86,331 75,341 10,990
Goodwill 25,124 24,639 485
Other intangible assets, net 8,322 5,728 2,594
Non-current assets held for sale 10,117 - 10,117
Deposit for wireless licenses - 921 (921)
Other assets 7,070 5,707 1,363
Total Assets $ 242,073 $ 232,708 $ 9,365
Liabilities and Equity
Current liabilities
Debt maturing within one year $ 7,264 $ 2,735 $ 4,529
Accounts payable and accrued liabilities 17,721 16,680 1,041
Liabilities related to assets held for sale 461 - 461
Other 9,046 8,649 397
Total current liabilities 34,492 28,064 6,428
Long-term debt 105,060 110,536 (5,476)
Employee benefit obligations 32,962 33,280 (318)
Deferred income taxes 42,896 41,578 1,318
Non-current liabilities related to assets held for sale 940 - 940
Other liabilities 11,181 5,574 5,607
Equity
Common stock 424 424 -
Contributed capital 11,184 11,155 29
Reinvested earnings 8,156 2,447 5,709
Accumulated other comprehensive income 600 1,111 (511)
Common stock in treasury, at cost (7,604) (3,263) (4,341)
Deferred compensation - employee
stock ownership plans and other 378 424 (46)
Noncontrolling interests 1,404 1,378 26
Total equity 14,542 13,676 866
Total Liabilities and Equity $ 242,073 $ 232,708 $ 9,365
Verizon - Selected Financial and Operating Statistics
Unaudited 9/30/15 12/31/14
Total debt (in millions) $ 112,324 $ 113,271
Net debt (in millions) $ 108,449 $ 102,673
Net debt / Adjusted EBITDA(1) 2.4x 2.4x
Common shares outstanding end of period (in millions) 4,069 4,155
Total employees 177,900 177,300
Quarterly cash dividends declared per common share $ 0.565 $ 0.550
Footnotes:
(1) Adjusted EBITDA excludes the effects of non-operational items.
The unaudited condensed consolidated balance sheets are based on preliminary
information.
Verizon Communications Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in millions)
9 Mos. Ended 9 Mos. Ended
Unaudited 9/30/15 9/30/14 $ Change
Cash Flows from Operating Activities
Net Income $ 12,862 $ 14,104 $ (1,242)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense 11,978 12,465 (487)
Employee retirement benefits 1,184 843 341
Deferred income taxes 890 914 (24)
Provision for uncollectible accounts 1,136 684 452
Equity in earnings (losses) of unconsolidated businesses, net of dividends 98 (1,785) 1,883
received
Changes in current assets and liabilities, net of effects from
acquisition/disposition of businesses 1,443 (816) 2,259
Other, net (1,165) (3,252) 2,087
Net cash provided by operating activities 28,426 23,157 5,269
Cash Flows from Investing Activities
Capital expenditures (including capitalized software) (12,540) (12,624) 84
Acquisitions of investments and businesses, net of cash acquired (3,205) (180) (3,025)
Acquisitions of wireless licenses (9,811) (343) (9,468)
Proceeds from dispositions of wireless licenses - 2,367 (2,367)
Proceeds from dispositions of businesses - 120 (120)
Other, net 960 230 730
Net cash used in investing activities (24,596) (10,430) (14,166)
Cash Flows from Financing Activities
Proceeds from long-term borrowings 6,497 21,575 (15,078)
Repayments of long-term borrowings and capital lease obligations (7,168) (12,594) 5,426
Decrease in short-term obligations, excluding current maturities (305) (426) 121
Dividends paid (6,373) (5,653) (720)
Proceeds from sale of common stock 31 34 (3)
Purchase of common stock for treasury (5,134) - (5,134)
Acquisition of noncontrolling interest - (58,886) 58,886
Other, net 1,899 (3,087) 4,986
Net cash used in financing activities (10,553) (59,037) 48,484
Decrease in cash and cash equivalents (6,723) (46,310) 39,587
Cash and cash equivalents, beginning of period 10,598 53,528 (42,930)
Cash and cash equivalents, end of period $ 3,875 $ 7,218 $ (3,343)
Footnotes:
Certain reclassifications of prior period amounts have been made, where
appropriate, to reflect comparable operating results.
Verizon Communications Inc.
Wireless - Selected Financial Results
(dollars in millions)
3 Mos. Ended 3 Mos. Ended 9 Mos. Ended 9 Mos. Ended
Unaudited 9/30/15 9/30/14 % Change 9/30/15 9/30/14 % Change
Operating Revenues
Service $ 17,598 $ 18,356 (4.1) $ 53,201 $ 54,421 (2.2)
Equipment 4,292 2,480 73.1 11,526 6,737 71.1
Other 1,115 999 11.6 3,219 3,039 5.9
Total Operating Revenues 23,005 21,835 5.4 67,946 64,197 5.8
Operating Expenses
Cost of services 2,010 1,837 9.4 5,809 5,343 8.7
Cost of equipment 5,716 5,206 9.8 16,279 14,298 13.9
Selling, general and administrative expense 5,351 5,698 (6.1) 16,009 16,991 (5.8)
Depreciation and amortization expense 2,260 2,139 5.7 6,675 6,307 5.8
Total Operating Expenses 15,337 14,880 3.1 44,772 42,939 4.3
Operating Income $ 7,668 $ 6,955 10.3 $ 23,174 $ 21,258 9.0
Operating Income Margin 33.3% 31.9% 34.1% 33.1%
Segment EBITDA $ 9,928 $ 9,094 9.2 $ 29,849 $ 27,565 8.3
Segment EBITDA Margin 43.2% 41.6% 43.9% 42.9%
Segment EBITDA Service Margin 56.4% 49.5% 56.1% 50.7%
Footnotes:
The segment financial results and metrics above are adjusted to exclude
the effects of non-operational items, as the Company's
chief operating decision maker excludes these items in assessing business
unit performance.
Intersegment transactions have not been eliminated.
Certain reclassifications have been made, where appropriate, to reflect
comparable operating results.
Verizon Communications Inc.
Wireless - Selected Operating Statistics
Unaudited 9/30/15 9/30/14 % Change
Connections ('000)
Retail postpaid 105,023 100,103 4.9
Retail prepaid 5,737 6,053 (5.2)
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