01—Abstract
Summary
Summary of the 10-K filed February 21, 2020. Cited figures are marked; the original filing is the authoritative source.
Verizon's FY2019 10-K shows a company whose top line grew modestly while its bottom line was dominated by one-time items.
Consolidated revenue rose 0.8% to $131.9 billiona, driven by Consumer (up 1.4% to $91.1 billion), while Business was roughly flat (down 0.3% to $31.4 billion) and Verizon Media continued to shrink (revenue of $7.5 billion, down 3.0%). Reported operating income jumped to $30.4 billion from $22.3 billion, but this comparison is distorted by 2018's $4.6 billion Media goodwill impairment and $2.2 billion of severance charges. Net income attributable to Verizon rose to $19.3 billion (diluted EPS $4.65) from $15.5 billion, helped by a roughly $2.2 billion non-recurring tax benefit from disposing of a minority preferred-stock interest in a foreign affiliate, partly offset by $3.6 billion of early debt redemption costs.
The cash-flow and balance-sheet picture is more mixed. Operating cash flow was $35.7 billionb and capital expenditures were $17.9 billion, leaving free cash flow of $17.8 billion against $10.0 billion of dividends. Total debt fell to about $111.5 billion, and management reported a 4.8% effective interest rate and no change in credit ratings.
Verizon's use of asset-backed device-payment receivables financing grew, with $12.4 billionc of ABS debt outstanding. Management guided 2020 capex to $17.0–18.0 billion and expects overall Business revenue growth, while a new $10 billion share buyback authorization (up to 100 million shares) was approved in February 2020.
For investors, the key points are the underlying consumer wireless strength (postpaid phone net adds of 737 thousand, with rising ARPA), continued secular pressure in legacy wireline and Media, the heavy 5G investment cycle, and the large unfunded-benefit and debt obligations that constrain flexibility. Reported 2019 earnings should be read alongside the special items that inflated them.
02—Key points
Key Highlights
- Consolidated revenue grew 0.8% to $131.9B, led by Consumer (+1.4% to $91.1B); Business was down 0.3% and Verizon Media fell 3.0% to $7.5B.
- Operating income rose to $30.4B from $22.3B, but 2018 included a $4.6B Media goodwill impairment, so the year-over-year improvement is largely non-recurring.
- Net income attributable to Verizon was $19.3B (diluted EPS $4.65), boosted by a ~$2.2B tax benefit from disposing of a preferred-stock minority interest and reduced by $3.6B of early debt redemption costs.
- Free cash flow was $17.8B (operating cash flow $35.7B less capex $17.9B), covering $10.0B of dividends; the quarterly dividend was raised 2.1% to $0.615, the 13th consecutive annual increase.
- Total debt declined to $111.5B at a 4.8% effective rate, with $12.4B of asset-backed device-receivable debt and $9.4B of undrawn revolver capacity.
- Consumer wireless remained the core growth engine: 0.7% growth in postpaid connections, 2.3% ARPA growth, and 737K postpaid phone net adds, while Fios video connections declined 5.1%.
- A new share buyback of up to 100 million shares was authorized in February 2020, though none had been repurchased in 2018 or 2019. 2020 capex is guided to $17.0–18.0B, including 5G build-out.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 21, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $131.87B$130.86B | +0.8% |
| SG&A Expenses | $29.90B$31.08B | −3.8% |
| Operating Expenses | $101.49B$108.58B | −6.5% |
| Operating Income | $30.38B$22.28B | +36.4% |
| Interest Expense | $4.73B$4.83B | −2.1% |
| Net Income | $19.27B$15.53B | +24.1% |
| EPS (Basic) | $4.66$3.76 | +23.9% |
| EPS (Diluted) | $4.65$3.76 | +23.7% |
| Shares Outstanding (Basic) | 4.14B4.13B | +0.2% |
| Shares Outstanding (Diluted) | 4.14B4.13B | +0.2% |
05—Questions
Frequently Asked Questions
Why did reported operating income rise so sharply in 2019?
Most of the increase reflects 2018 charges that did not recur. 2018 included a $4.6 billion Media goodwill impairment and about $2.2 billion of severance charges (largely the Voluntary Separation Program). 2019 had a much smaller $186 million impairment and $204 million of severance. Excluding these, operating performance improved more modestly, and Consolidated Adjusted EBITDA was actually slightly lower at $47.2B versus $47.4B.
Is Verizon's 2019 net income a fair guide to its earnings power?
Not entirely. Net income included a roughly $2.2 billion non-recurring tax benefit from disposing of a preferred-stock minority interest in a foreign affiliate, which lowered the effective tax rate to 13.0%. It was partly offset by $3.6 billion of early debt redemption costs recorded in other expense. Investors should look at adjusted EBITDA and free cash flow alongside GAAP earnings.
How healthy is Verizon's balance sheet and dividend coverage?
Total debt fell to $111.5B and the company reported no change in credit ratings and compliance with all debt covenants. Free cash flow of $17.8B covered the $10.0B dividend with room to spare, though the payout still absorbs most discretionary cash after capex. Leverage remains high, and the balance sheet carries large pension ($1.8B unfunded) and retiree healthcare (~$14.9B net obligations) liabilities that could require future cash.
What are the main risks to the business outlook?
Key risks include intense wireless competition (AT&T, T-Mobile, cable MVNOs), continued decline in legacy voice, DSL and linear video, and pressure on Verizon Media's advertising business, which led to repeated goodwill impairments. Execution risk on the 5G deployment, supply-chain disruption (including the coronavirus), cyber attacks, and potential regulatory changes such as net neutrality and privacy laws are also flagged.
06—Continue