Strong wireless customer additions and cash flow highlight Verizon's 2Q and first-half 2020 results
24 Juillet 2020 - 01:30PM
Verizon Communications Inc. (NYSE, Nasdaq: VZ) reported
second-quarter results today highlighted by increased cash flow and
strong momentum heading into the second half of the year.
"Through extraordinary circumstances, Verizon delivered a strong
operational performance in the second quarter," said Chairman and
CEO Hans Vestberg. "We remain focused on our strategic direction as
a technology leader, quickly adapting to the new environment and
providing our customers with reliable and vital connections and
technology services, while working to keep our employees safe and
accelerating our 5G network deployment. We have embraced, engaged
in and responded to important social movements happening throughout
the world, and will continue to be at the forefront of initiatives
that move the world forward for everyone. We are proud of what we
have done, and continue to do, for our customers, shareholders,
employees, and society."
For second-quarter 2020, Verizon reported EPS of $1.13, compared
with $0.95 in second-quarter 2019. On an adjusted basis (non-GAAP),
second-quarter 2020 EPS, excluding special items, was $1.18,
compared with adjusted EPS of $1.23 in second-quarter 2019. The
company estimates that second-quarter 2020 EPS and adjusted EPS
included approximately 14 cents of COVID-19-related net impacts,
primarily driven by impacts to wireless service revenue and lower
advertising and search revenue from Verizon Media. The company
expects total wireless service revenue growth for third-quarter
2020 of -1 percent to flat year over year. The company also
recognized an aggregate tax benefit of $156 million in connection
with a series of legal entity restructurings related to an internal
reorganization, which resulted in an approximately 4 cent benefit
to second-quarter 2020 EPS and adjusted EPS.
Second-quarter 2020 EPS included a pre-tax loss from special
items of about $255 million, which consisted of a net pre-tax loss
of $102 million related to early debt redemption costs and a net
charge of $153 million related to a mark-to-market adjustment for
pension liabilities.
In second-quarter 2020, Verizon's results also included the
continued effects of a reduction in benefits from the adoption of a
revenue recognition standard, primarily due to the deferral of
commission expense. The net impact was 2 cents in second-quarter
2020.
Consolidated results
- Total consolidated operating revenues in second-quarter 2020
were $30.4 billion, down 5.1 percent from second-quarter 2019. This
decline was primarily the result of significant declines in
wireless equipment revenue in the Consumer and Business segments,
primarily due to limited in-store engagement and the impact of
COVID-19 on customer behavior.
- First-half 2020 cash flow from operations totaled $23.6
billion, an increase of $7.7 billion from first-half 2019. This
year over year growth was primarily driven by strong performance in
the business and non-recurring items and timing differences,
including approximately $2.0 billion in second-quarter 2020 tax
payments postponed to third-quarter 2020 due to COVID-19, the
receipt of the previously disclosed $2.2 billion cash tax benefit
related to preferred shares in a foreign affiliate sold in
fourth-quarter 2019, improvements in working capital due to lower
volumes, and payments related to the Voluntary Separation Program
in full-year 2019 that did not repeat this year.
- Capital expenditures in first-half 2020 were $9.9 billion.
Capital expenditures support the capacity for traffic growth across
Verizon's networks and the deployment of additional fiber and cell
sites to expand the company's 5G Ultra Wideband rollout.
- In 2018, Verizon announced a goal to achieve $10 billion in
cumulative cash savings by the end of 2021. This initiative has
yielded $7.2 billion of cumulative cash savings since the program
began and is on track to achieve its target. The company expects to
continue its focus on operational efficiencies even after the
current target is achieved. The current environment provides the
company with the opportunity to explore additional long-term
business transformation initiatives and related cost savings.
- The company ended first-half 2020 with free cash flow
(non-GAAP) of $13.7 billion, an increase of 74.1 percent year over
year.
- Verizon's total debt decreased by $4.9 billion in
second-quarter 2020, and its net debt (non-GAAP) decreased by $5.7
billion. The company's unsecured debt balance totaled $102.2
billion, and its net unsecured debt (non-GAAP) totaled $94.4
billion, resulting in a net unsecured debt to adjusted EBITDA ratio
(non-GAAP) of about 2.0 times, down slightly from first-quarter
2020.
Consumer results
- Total Verizon Consumer revenues were $21.1 billion, a decrease
of 4.0 percent year over year, primarily driven by a significant
decrease in wireless equipment revenue due to low activation
levels.
- Throughout second-quarter 2020, as COVID-19 restrictions began
to ease, Verizon gradually reopened some of its temporarily-closed
company-operated retail stores with enhanced safety precautions to
further employee and customer well-being, including limiting store
hours and introducing curbside pick-up and a new touch-less retail
approach. At the end of the quarter, more than 60 percent of its
company-operated retail stores were open. In second-quarter 2020,
Consumer reported 72,000 wireless retail postpaid net additions.
This consisted of 97,000 phone net additions and 97,000 tablet net
losses, offset by 72,000 other connected device net additions.
Postpaid smartphone net additions were 199,000.
- Consumer wireless service revenues were $13.1 billion in
second-quarter 2020, a 2.7 percent decrease year over year, and
include impacts related to reduced roaming, usage, and waived fees,
primarily due to COVID-19.
- Total retail postpaid churn was 0.69 percent in second-quarter
2020, and retail postpaid phone churn was 0.51 percent.
- Consumer reported 10,000 Fios Internet net additions as Fios
installations were limited during the quarter due to temporary
restrictions put in place on work inside customers' homes. Consumer
reported 81,000 Fios Video net losses in second-quarter 2020,
reflecting the ongoing shift from traditional linear video to
over-the-top offerings.
- In second-quarter 2020, segment operating income was $7.1
billion, a decrease of 3.7 percent year over year, and segment
operating income margin was 33.5 percent, an increase from 33.4
percent in second-quarter 2019. Segment EBITDA (non-GAAP) totaled
$9.9 billion in second-quarter 2020, a decrease of 3.0 percent year
over year. Segment EBITDA margin (non-GAAP) was 47.0 percent in
second-quarter 2020, up from 46.5 percent in second-quarter 2019,
and included approximately 40 basis points of headwind from the
deferral of commission expense.
Business results
- Total Verizon Business revenues were $7.5 billion, down 3.7
percent year over year. During the quarter, Business responded to
the challenges of COVID-19, handling increased traffic needs while
also meeting a surge in demand for connectivity and devices.
- Business reported 280,000 wireless retail postpaid net
additions in second-quarter 2020. This consisted of 76,000 phone
net additions, 61,000 tablet net additions, and 143,000 other
connected device additions.
- Total retail postpaid churn was 1.12 percent in second-quarter
2020, and retail postpaid phone churn was 0.90 percent.
- In second-quarter 2020, segment operating income was $946
million, a decrease of 11.7 percent year over year, and segment
operating income margin was 12.6 percent, compared with 13.8
percent in second-quarter 2019. Segment EBITDA (non-GAAP) totaled
$2.0 billion in second-quarter 2020, a decrease of 7.4 percent year
over year. Segment EBITDA margin (non-GAAP) was 26.2 percent, down
from 27.3 percent in second-quarter 2019, and included
approximately 20 basis points of headwind from the deferral of
commission expense.
Media results
- Total Verizon Media revenues were $1.4 billion, down 24.5
percent year over year, primarily as a result of COVID-19 related
impacts. Verizon Media has continued to drive increased customer
engagement on its owned and operated properties.
Outlook and guidance
The company continues to expect the following results for
full-year 2020, and notes that this guidance assumes no significant
deterioration to the macroeconomic environment or material changes
to the company's bad debt reserves:
- Adjusted EPS growth (non-GAAP) of -2 to 2 percent.
- Capital spending to be in the range of $17.5 billion to $18.5
billion.
- Adjusted effective income tax rate (non-GAAP) in the range of
23 percent to 25 percent.
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) was formed on
June 30, 2000 and is celebrating its 20th year as one of the
world’s leading providers of technology, communications,
information and entertainment products and services. Headquartered
in New York City and with a presence around the world, Verizon
generated revenues of $131.9 billion in 2019. The company offers
data, video and voice services and solutions on its award winning
networks and platforms, delivering on customers’ demand for
mobility, reliable network connectivity, security and control.
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Forward-looking statementsIn 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: cyber attacks impacting our networks or
systems and any resulting financial or reputational impact; natural
disasters, terrorist attacks or acts of war or significant
litigation and any resulting financial or reputational impact; the
impact of the global outbreak of COVID-19 on our operations, our
employees and the ways in which our customers use our networks and
other products and services; disruption of our key suppliers’ or
vendors' provisioning of products or services, including as a
result of the COVID-19 outbreak; material adverse changes in labor
matters and any resulting financial or operational impact; the
effects of competition in the markets in which we operate; failure
to take advantage of developments in technology and address changes
in consumer demand; performance issues or delays in the deployment
of our 5G network resulting in significant costs or a reduction in
the anticipated benefits of the enhancement to our networks; the
inability to implement our business strategy; adverse conditions in
the U.S. and international economies; changes in the regulatory
environment in which we operate, including any increase in
restrictions on our ability to operate our business; 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;
significant increases in benefit plan costs or lower investment
returns on plan assets; changes in tax laws or treaties, or in
their interpretation; and 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.
Media contacts:Kim
Ancin908.559.3227kimberly.ancin@verizon.com
Eric Wilkens908.559.3063eric.wilkens@verizon.com
Verizon Communications (NYSE:VZ)
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