REG-VerizonCommunication: Half-yearly Report <Origin Href="QuoteRef">VZ.N</Origin> - Part 1
21/07/2015 12:30
Verizon Delivers Double-Digit Adjusted Earnings Growth and Strong Cash Flows in
Second Quarter
NEW YORK, July 21, 2015 --
2Q 2015 HIGHLIGHTS
Consolidated
* $1.04 in earnings per share (EPS), compared with $1.01 per share and 91
cents in adjusted EPS (non-GAAP) in 2Q 2014.
Wireless
* 1.1 million net retail postpaid connections added in the quarter; retail
postpaid churn of 0.90 percent, the lowest in three years; 109.5 million
total retail connections; 103.7 million total retail postpaid connections.
* 5.3 percent year-over-year increase in total revenues; 34.0 percent
operating income margin.
* 56.1 percent segment EBITDA margin on service revenues (non-GAAP), and 43.9
percent segment EBITDA margin on total revenues (non-GAAP).
Wireline
* 10.0 percent year-over-year increase in FiOS revenues; 72,000 FiOS Internet
and 26,000 FiOS Video net additions.
* 4.5 percent year-over-year increase in consumer revenues.
Reporting second-quarter 2015 results today, Verizon Communications Inc. (NYSE,
Nasdaq: VZ) announced double-digit percentage growth in year-over-year
quarterly earnings on an adjusted basis (non-GAAP) and continued strong cash
flows.
"Verizon has delivered another quarter of strong financial and operational
results, based on consistent network reliability and superior value that
continues to attract new customers," said Chairman and CEO Lowell McAdam. "In
the second quarter, we again balanced quality Verizon Wireless connections
growth with low churn and profitability, and we announced and completed our
acquisition of AOL. We're now poised to offer customers exciting new
over-the-top (OTT) mobile video services, and we look forward to a very
positive second half of 2015."
The company reported $1.04 in EPS in second-quarter 2015, compared with $1.01
per share in second-quarter 2014.
There were no non-operational adjustments to second-quarter 2015 per-share
results; second-quarter-2014 results included a 10-cent-per-share
non-operational gain related to the sale of spectrum licenses.
Second-quarter 2015 earnings of $1.04 per share compares with 91 cents per
share in adjusted EPS (non-GAAP) in second-quarter 2014 - an increase of 14.3
percent.
Consolidated Revenue Growth, Strong Cash Flow
On a consolidated basis, Verizon generated top-line revenue growth driven by
wireless and FiOS, with emerging revenue streams from the Internet of Things
(IoT) and telematics, and continued strong cash flow.
Consolidated Highlights
* Total operating revenues in second-quarter 2015 were $32.2 billion, a 2.4
percent increase compared with second-quarter 2014. Excluding
second-quarter 2014 revenues from a business that has since been sold, the
comparable year-over-year growth rate (non-GAAP) would have been 2.8
percent.
* New revenue streams from IoT and telematics totaled approximately $165
million in second-quarter 2015 and about $320 million year to date.
* Cash flow from operating activities increased to $18.9 billion in
first-half 2015, compared with $14.8 billion in first-half 2014. This
year's cash flow has included a non-recurring $2.4 billion related to the
monetization of tower assets in the first quarter.
* Excluding the tower-transaction impact, free cash flow (non-GAAP, cash flow
from operations less capital expenditures) totaled $8.4 billion in
first-half 2015. Verizon continues to expect full-year 2015 capital
expenditures to range between $17.5 billion and $18.0 billion.
In second-quarter 2015, Verizon announced and completed the acquisition of AOL
Inc. to further drive the company's expansion into digital media, including its
OTT mobile video strategy. This acquisition closed June 23, and Verizon's
balance sheet at the end of the quarter includes the assets and liabilities of
AOL. Verizon's second-quarter income statement does not reflect any results
from AOL operations since these were immaterial for the last seven days of the
quarter. AOL financial results will be fully included in Verizon's
third-quarter 2015 results.
Verizon's $5 billion accelerated share repurchase program was completed in
early June, resulting in an overall reduction of 101.6 million shares.
Verizon CFO Fran Shammo said, "We are committed to building the business for
future growth. In the first half of this year, we invested approximately $18
billion in spectrum licenses and capital for future network capacity. We also
invested more than $4 billion to acquire new capabilities with the AOL
transaction, which supports our longer-term video strategy. In addition, we
returned more than $9 billion to our shareholders in the form of dividends and
share repurchases. Meanwhile, we've kept our leverage ratio essentially
unchanged, and we remain on track with our deleveraging plan."
Regarding consolidated revenue outlook, Verizon expects a higher year-over-year
growth rate in third-quarter 2015 than in second-quarter 2015. For the full
year, the company estimates consolidated revenue growth of at least 3.0
percent. These growth estimates exclude revenue from AOL.
Verizon Wireless Delivers Quality Customer Growth and Profitability
In second-quarter 2015, Verizon Wireless continued to deliver quality
connections growth, low churn and strong profitability.
Wireless Financial Highlights
* Total revenues were $22.6 billion in second-quarter 2015, up 5.3 percent
year over year. Service revenues totaled $17.7 billion, down 2.2 percent
year over year, while equipment revenues increased to $3.9 billion in
second-quarter 2015 from $2.4 billion in second-quarter 2014 as more
customers chose to buy new devices with installment pricing.
* Service revenues plus installment billings increased 2.3 percent year over
year. The percentage of phone activations on installment plans was about 49
percent in second-quarter 2015, compared with 39 percent in first-quarter
2015 and only 18 percent in second-quarter 2014. Verizon expects the
percentage of phone activations on installment plans to continue to
increase and will likely be around 60 percent in third-quarter 2015.
* In second-quarter 2015, wireless operating income margin was 34.0 percent,
up from 32.5 percent in second-quarter 2014. Segment EBITDA margin on
service revenues was 56.1 percent, compared with 50.3 percent in
second-quarter 2014. Segment EBITDA margin on total revenues was 43.9
percent, compared with 42.3 percent in second-quarter 2014.
Wireless Operational Highlights
* Verizon Wireless had 1.1 million retail postpaid net additions in
second-quarter 2015, nearly twice the net additions in first-quarter 2015.
At the end of second-quarter 2015, the company had 109.5 million retail
connections, a 4.7 percent year-over-year increase, and 103.7 million
retail postpaid connections, a 5.2 percent year-over-year increase. These
totals do not include wholesale or IoT connections.
* The quality of the net additions remained strong: Verizon added 842,000 4G
smartphones to its postpaid customer base in second-quarter 2015. Postpaid
phone net adds totaled 321,000 as net smartphone adds of 588,000 were
partially offset by a net decline of 266,000 basic phones. Tablet net adds
totaled 852,000 in the quarter, and net prepaid devices declined by
126,000.
* 4G devices now constitute approximately 73 percent of the retail postpaid
connections base, with the LTE network handling about 87 percent of total
wireless data traffic in second-quarter 2015. Overall traffic on LTE has
essentially doubled in the past year.
* About 7.2 percent of Verizon's retail postpaid base upgraded to a new
device in second-quarter 2015. In the past year, the number of 4G
smartphones in Verizon's customer base has increased by 17.8 million, to
61.6 million, an increase of about 40 percent. The company continues to see
opportunities to upgrade its base of about 16 million basic phone and 9
million 3G smartphone customers to 4G devices.
* At 0.90 percent in second-quarter 2015, retail postpaid churn improved both
sequentially and year over year. Low churn is an indicator of high customer
loyalty, and this was Verizon's lowest churn rate in three years.
* Verizon's network densification plans are on schedule. These plans include
deployment of small cells, DAS (distributed antenna system) nodes and
in-building solutions.
Wireline Consumer Revenue Growth Driven by FiOS
In the wireline segment, Verizon reported continued strong revenue growth for
consumer services.
Wireline Financial Highlights
* In second-quarter 2015, consumer revenues were $4.0 billion, an increase of
4.5 percent compared with second-quarter 2014. Consumer revenues have now
grown by at least 4 percent for 12 consecutive quarters, with FiOS revenues
representing 79 percent of the total.
* Total FiOS revenues grew 10.0 percent, to $3.4 billion, comparing
second-quarter 2015 with second-quarter 2014.
* Wireline operating income margin was 5.3 percent in second-quarter 2015, up
from 2.6 percent in second-quarter 2014. Segment EBITDA margin (non-GAAP)
was 23.5 percent in second-quarter 2015, compared with 23.4 percent in
second-quarter 2014.
Wireline Operational Highlights
* In second-quarter 2015, Verizon added 72,000 net new FiOS Internet
connections and 26,000 net new FiOS Video connections. Verizon had totals
of 6.8 million FiOS Internet and 5.8 million FiOS Video connections at the
end of the second quarter, representing year-over-year increases of 8.1
percent and 6.4 percent, respectively.
* FiOS Internet penetration (subscribers as a percentage of potential
subscribers) was 41.4 percent at the end of second-quarter 2015, compared
with 40.1 percent at the end of second-quarter 2014. In the same periods,
FiOS Video penetration was 35.7 percent, compared with 35.3 percent.
* Verizon saw higher-than-anticipated demand for its new Custom TV packages,
with more than one-third of FiOS Video gross customer additions opting for
Custom TV and migration demand from existing customers. While Custom TV
adoption has an initial negative impact on revenue growth, it is expected
to improve profitability.
* By the end of second-quarter 2015, 64 percent of consumer FiOS Internet
customers subscribed to FiOS 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 23 percent of FiOS customers
subscribe.
* Evolving its wireline network, Verizon continues to replace portions of its
residential copper network with fiber optics to provide customers with a
more reliable and resilient infrastructure. In second-quarter 2015, Verizon
migrated 51,000 customers who had been using copper connections, toward a
full-year goal of 200,000.
* Verizon Enterprise Solutions helped clients around the globe manage risk,
improve customer experience, and drive growth and business performance in
the second 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 Scripps Networks Interactive,
Lear Corporation, CDK Global, Inc., Aurubis and Allstate; energy clients
Marathon Petroleum Corporation, Peninsula Lighting Company and PSE&G;
healthcare clients Bright! Now Dental, Inovalon and Moda Health; and public
sector clients U.S. Department of the Interior and the State of California.
Wireline results include operations being sold to Frontier Communications Corp.
in the non-contiguous states of California, Florida and Texas. This is part of
Verizon's network evolution, to better enable the company to focus wireline
efforts on the East Coast. Verizon's consolidated balance sheet will reflect
these operations as assets held for sale until the transaction's closing,
targeted for first-half 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), headquartered in New York, is a
global leader in delivering the promise of the digital world. Verizon Wireless
operates America's most reliable wireless network, with 109.5 million retail
connections nationwide. Verizon also provides converged communications,
information and entertainment services over America's most advanced fiber-optic
network, and delivers integrated business solutions to customers worldwide. A
Fortune 15 company with more than $127 billion in 2014 revenues, Verizon
employs a diverse workforce of 178,500. For more information, visit
www.verizon.com/news/.
VERIZON'S ONLINE NEWS CENTER: Verizon news releases, executive speeches and
biographies, media contacts and other information are available at Verizon's
online News Center at www.verizon.com/news/. The news releases are 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," "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 6 Mos. Ended 6 Mos. Ended
Unaudited 6/30/15 6/30/14 % Change 6/30/15 6/30/14 % Change
Operating Revenues
Service revenues and other $ 28,363 $ 29,096 (2.5) $ 56,974 $ 58,045 (1.8)
Wireless equipment revenues 3,861 2,387 61.8 7,234 4,256 70.0
Total Operating Revenues 32,224 31,483 2.4 64,208 62,301 3.1
Operating Expenses
Cost of services 6,994 7,094 (1.4) 13,982 14,184 (1.4)
Wireless cost of equipment 5,455 4,993 9.3 10,563 9,092 16.2
Selling, general and administrative expense 7,974 7,550 5.6 15,913 15,882 0.2
Depreciation and amortization expense 3,980 4,161 (4.3) 7,969 8,298 (4.0)
Total Operating Expenses 24,403 23,798 2.5 48,427 47,456 2.0
Operating Income 7,821 7,685 1.8 15,781 14,845 6.3
Equity in earnings (losses) of unconsolidated businesses (18) (43) (58.1) (52) 1,859 *
Other income and (expense), net 32 66 (51.5) 107 (828) *
Interest expense (1,208) (1,164) 3.8 (2,540) (2,378) 6.8
Income Before Provision for Income Taxes 6,627 6,544 1.3 13,296 13,498 (1.5)
Provision for income taxes (2,274) (2,220) 2.4 (4,605) (3,188) 44.4
Net Income $ 4,353 $ 4,324 0.7 $ 8,691 $ 10,310 (15.7)
Net income attributable to noncontrolling interests $ 122 $ 110 10.9 $ 241 $ 2,149 (88.8)
Net income attributable to Verizon 4,231 4,214 0.4 8,450 8,161 3.5
Net Income $ 4,353 $ 4,324 0.7 $ 8,691 $ 10,310 (15.7)
Basic Earnings per Common Share
Net income attributable to Verizon $ 1.04 $ 1.02 2.0 $ 2.06 $ 2.15 (4.2)
Weighted average number of common shares (in millions) 4,079 4,147 4,097 3,789
Diluted Earnings per Common Share (1)
Net income attributable to Verizon $ 1.04 $ 1.01 3.0 $ 2.06 $ 2.15 (4.2)
Weighted average number of common
shares-assuming dilution (in millions) 4,085 4,153 4,103 3,795
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 6/30/15 12/31/14 $ Change
Assets
Current assets
Cash and cash equivalents $ 3,008 $ 10,598 $ (7,590)
Short-term investments 309 555 (246)
Accounts receivable, net 13,444 13,993 (549)
Inventories 1,149 1,153 (4)
Assets held for sale 774 552 222
Prepaid expenses and other 2,818 2,772 46
Total current assets 21,502 29,623 (8,121)
Plant, property and equipment 213,661 230,508 (16,847)
Less accumulated depreciation 131,129 140,561 (9,432)
82,532 89,947 (7,415)
Investments in unconsolidated businesses 794 802 (8)
Wireless licenses 86,321 75,341 10,980
Goodwill 25,429 24,639 790
Other intangible assets, net 7,983 5,728 2,255
Non-current assets held for sale 9,647 - 9,647
Deposit for wireless licenses - 921 (921)
Other assets 6,545 5,707 838
Total Assets $ 240,753 $ 232,708 $ 8,045
Liabilities and Equity
Current liabilities
Debt maturing within one year $ 4,206 $ 2,735 $ 1,471
Accounts payable and accrued liabilities 16,953 16,680 273
Liabilities related to assets held for sale 457 - 457
Other 9,029 8,649 380
Total current liabilities 30,645 28,064 2,581
Long-term debt 109,465 110,536 (1,071)
Employee benefit obligations 32,711 33,280 (569)
Deferred income taxes 42,945 41,578 1,367
Non-current liabilities related to assets held for sale 942 - 942
Other liabilities 11,171 5,574 5,597
Equity
Common stock 424 424 -
Contributed capital 11,167 11,155 12
Reinvested earnings 6,418 2,447 3,971
Accumulated other comprehensive income 821 1,111 (290)
Common stock in treasury, at cost (7,741) (3,263) (4,478)
Deferred compensation - employee
stock ownership plans and other 326 424 (98)
Noncontrolling interests 1,459 1,378 81
Total equity 12,874 13,676 (802)
Total Liabilities and Equity $ 240,753 $ 232,708 $ 8,045
Verizon - Selected Financial and Operating Statistics
Unaudited 6/30/15 12/31/14
Total debt (in millions) $ 113,671 $ 113,271
Net debt (in millions) $ 110,663 $ 102,673
Net debt / Adjusted EBITDA(1) 2.5x 2.4x
Common shares outstanding end of period (in millions) 4,066 4,155
Total employees 178,500 177,300
Quarterly cash dividends declared per common share $ 0.550 $ 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)
6 Mos. Ended 6 Mos. Ended
Unaudited 6/30/15 6/30/14 $ Change
Cash Flows from Operating Activities
Net Income $ 8,691 $ 10,310 $ (1,619)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense 7,969 8,298 (329)
Employee retirement benefits 561 562 (1)
Deferred income taxes 826 253 573
Provision for uncollectible accounts 744 473 271
Equity in earnings (losses) of unconsolidated businesses, net of dividends 72 (1,841) 1,913
received
Changes in current assets and liabilities, net of effects from
acquisition/disposition of businesses 416 (847) 1,263
Other, net (373) (2,404) 2,031
Net cash provided by operating activities 18,906 14,804 4,102
Cash Flows from Investing Activities
Capital expenditures (including capitalized software) (8,153) (8,494) 341
Acquisitions of investments and businesses, net of cash acquired (3,225) (179) (3,046)
Acquisitions of wireless licenses (9,677) (271) (9,406)
Proceeds from dispositions of wireless licenses - 2,367 (2,367)
Other, net 884 231 653
Net cash used in investing activities (20,171) (6,346) (13,825)
Cash Flows from Financing Activities
Proceeds from long-term borrowings 6,497 20,245 (13,748)
Repayments of long-term borrowings and capital lease obligations (5,797) (11,317) 5,520
Increase (decrease) in short-term obligations, excluding current maturities (106) 279 (385)
Dividends paid (4,266) (3,583) (683)
Proceeds from sale of common stock - 34 (34)
Purchase of common stock for treasury (5,074) - (5,074)
Acquisition of noncontrolling interest - (58,886) 58,886
Other, net 2,421 (2,982) 5,403
Net cash used in financing activities (6,325) (56,210) 49,885
Decrease in cash and cash equivalents (7,590) (47,752) 40,162
Cash and cash equivalents, beginning of period 10,598 53,528 (42,930)
Cash and cash equivalents, end of period $ 3,008 $ 5,776 $ (2,768)
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 6 Mos. Ended 6 Mos. Ended
Unaudited 6/30/15 6/30/14 % Change 6/30/15 6/30/14 % Change
Operating Revenues
Service $ 17,689 $ 18,078 (2.2) $ 35,603 $ 36,065 (1.3)
Equipment 3,861 2,387 61.8 7,234 4,257 69.9
Other 1,063 1,018 4.4 2,104 2,040 3.1
Total Operating Revenues 22,613 21,483 5.3 44,941 42,362 6.1
Operating Expenses
Cost of services 1,948 1,749 11.4 3,799 3,506 8.4
Cost of equipment 5,455 4,993 9.3 10,563 9,092 16.2
Selling, general and administrative expense 5,289 5,649 (6.4) 10,658 11,293 (5.6)
Depreciation and amortization expense 2,225 2,107 5.6 4,415 4,168 5.9
Total Operating Expenses 14,917 14,498 2.9 29,435 28,059 4.9
Operating Income $ 7,696 $ 6,985 10.2 $ 15,506 $ 14,303 8.4
Operating Income Margin 34.0% 32.5% 34.5% 33.8%
Segment EBITDA $ 9,921 $ 9,092 9.1 $ 19,921 $ 18,471 7.9
Segment EBITDA Margin 43.9% 42.3% 44.3% 43.6%
Segment EBITDA Service Margin 56.1% 50.3% 56.0% 51.2%
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 6/30/15 6/30/14 % Change
Connections ('000)
Retail postpaid 103,731 98,593 5.2
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