10-QPeriod: Q1 FY2014

VERIZON COMMUNICATIONS INC Quarterly Report for Q1 Ended Mar 31, 2014

Filed April 29, 2014For Securities:VZ

Summary

Verizon Communications Inc. reported solid financial results for the first quarter of 2014, highlighted by significant revenue growth driven by its Wireless segment. The company's strategic focus on higher-margin services like wireless data and strategic wireline services is evident in its performance. A major event during the quarter was the completion of the acquisition of Vodafone's 45% stake in Verizon Wireless, consolidating full ownership. This transaction significantly impacted the balance sheet, increasing long-term debt but also providing full access to the cash flows of the wireless business. Despite increased interest expenses due to new debt, Verizon maintained strong operating income and EBITDA, demonstrating operational efficiency. The company also continued its capital investments in network expansion and modernization, particularly in its 4G LTE network, positioning itself for future growth in an evolving technological landscape.

Financial Highlights

50 data points
Beta

Revenue

$30.82B

63.7% Gross Margin

Net Income

$3.95B

12.8% Net Margin

EPS (Diluted)

$1.15

Total Assets

$221.56B

Cash & Equivalents

$2.91B

Free Cash Flow

$7.14B

Financial Statements
Beta
Revenue$30.82B
Cost of Revenue$11.19B
Gross Profit$19.63B
SG&A Expenses$8.33B
Operating Expenses$23.66B
Operating Income$7.16B
Interest Expense$1.21B
Net Income$3.95B
EPS (Basic)$1.15
EPS (Diluted)$1.15
Shares Outstanding (Basic)3.42B
Shares Outstanding (Diluted)3.43B

Key Highlights

  • 1Total operating revenues increased by 4.8% to $30.8 billion compared to the prior year, driven by a 6.9% increase in Wireless segment revenues.
  • 2Completed the acquisition of Vodafone's 45% interest in Verizon Wireless for approximately $130 billion, now holding 100% ownership.
  • 3Net income attributable to Verizon shareholders significantly increased to $3.95 billion from $1.95 billion in the prior year, with diluted EPS rising to $1.15 from $0.68.
  • 4Operating income grew by 15.0% to $7.16 billion, reflecting strong performance across segments, particularly Wireless.
  • 5Long-term debt increased substantially to $107.6 billion from $89.7 billion, primarily due to financing for the Vodafone acquisition.
  • 6Capital expenditures were $4.15 billion, up from $3.60 billion, reflecting ongoing investment in network capacity and modernization.
  • 7The company recorded significant early debt redemption costs of $0.9 billion during the quarter.

Frequently Asked Questions

The acquisition of Vodafone's 45% stake in Verizon Wireless was a significant event, completed in February 2014. It resulted in Verizon gaining full ownership of its wireless business. Financially, this led to a substantial increase in long-term debt ($107.6 billion at March 31, 2014) to fund the $130 billion purchase price, which included cash, stock, and assumed liabilities. While it increased interest expenses, it also gave Verizon full access to the cash flows of its highly profitable wireless segment.

Verizon reported consolidated revenues of $30.8 billion, an increase of 4.8% year-over-year. The Wireless segment was the primary driver of this growth, with revenues up 6.9% to $20.9 billion, fueled by strong service revenue growth and increased adoption of 4G LTE smartphones and tablets via their 'More Everything' plans. The Wireline segment saw a slight decline of 0.4% in revenues, primarily due to decreases in Global Enterprise and Global Wholesale, partially offset by growth in Consumer retail driven by FiOS services.

Verizon significantly increased its long-term debt to $107.6 billion due to financing the acquisition of Vodafone's stake in Verizon Wireless. During the quarter, the company also actively managed its debt by issuing new notes totaling $4.5 billion and engaging in tender offers to repurchase approximately $4.1 billion of existing debt, incurring $0.9 billion in early redemption costs. Despite the higher debt levels, Verizon reiterated its compliance with all debt covenants.

Verizon continues to make substantial capital investments to support future growth. Capital expenditures for the quarter were $4.15 billion, an increase from the prior year, primarily directed towards enhancing the capacity and density of its 4G LTE network. The company is also investing in its wireline infrastructure, particularly its FiOS network, and strategic services like cloud computing, positioning itself to capitalize on trends in data, video, and advanced business services.