10-QPeriod: Q3 FY2015

VERIZON COMMUNICATIONS INC Quarterly Report for Q3 Ended Sep 30, 2015

Filed October 27, 2015For Securities:VZ

Summary

Verizon Communications Inc. (VZ) reported strong third-quarter 2015 results, demonstrating resilience and strategic growth. Total operating revenues increased to $33.2 billion, up 5.0% year-over-year, driven by robust performance in the Wireless segment, particularly from increased wireless equipment revenues due to the growing adoption of device payment programs. The Wireline segment saw a slight revenue decline, but growth in Fios services provided some offset. Net income attributable to Verizon rose to $4.0 billion ($0.99 per diluted share) from $3.7 billion ($0.89 per diluted share) in the prior year's third quarter. The company also executed significant strategic transactions during the period, including the acquisition of AOL Inc. for $3.7 billion to bolster digital media and advertising capabilities, and the purchase of significant AWS-3 spectrum licenses for $10.4 billion to strengthen its wireless network. Despite these investments and ongoing capital expenditures, Verizon generated substantial free cash flow, indicating strong operational performance and financial discipline.

Financial Highlights

52 data points
Beta

Revenue

$33.16B

82.8% Gross Margin

Net Income

$4.04B

12.2% Net Margin

EPS (Diluted)

$0.99

Total Assets

$242.07B

Cash & Equivalents

$3.88B

Free Cash Flow

$9.52B

Financial Statements
Beta
Revenue$33.16B
Cost of Revenue$5.72B
Gross Profit$27.44B
SG&A Expenses$8.31B
Operating Expenses$25.62B
Operating Income$7.54B
Interest Expense$1.20B
Net Income$4.04B
EPS (Basic)$0.99
EPS (Diluted)$0.99
Shares Outstanding (Basic)4.07B
Shares Outstanding (Diluted)4.08B

Key Highlights

  • 1Total operating revenues for Q3 2015 increased by 5.0% to $33.2 billion, driven by a 5.4% increase in Wireless revenues.
  • 2Wireless equipment revenues saw a significant jump of 73.1% due to the increasing popularity of device payment programs.
  • 3Net income attributable to Verizon increased to $4.0 billion, with diluted EPS rising to $0.99 from $0.89 in the prior year.
  • 4The company completed the acquisition of AOL Inc. for $3.7 billion, aiming to expand its digital content and advertising platform.
  • 5Verizon invested $10.4 billion in AWS-3 spectrum licenses to enhance its wireless network capabilities.
  • 6Free cash flow for the nine months ended September 30, 2015, increased by 50.8% to $15.9 billion, demonstrating strong cash generation.

Frequently Asked Questions

The increasing adoption of device payment programs (like Verizon's device payment program) caused a shift in revenue recognition from service revenue to equipment revenue. This means more revenue is recognized at the time of device sale, leading to higher equipment revenue and lower service revenue in the short term, though the overall profitability remains intact.

Verizon acquired AOL Inc. for $3.7 billion to enhance its digital media and advertising capabilities. They also purchased significant AWS-3 spectrum licenses for $10.4 billion to bolster its wireless network. On the divestiture side, Verizon was in the process of selling its local exchange business and related landline activities in California, Florida, and Texas to Frontier Communications for approximately $10.5 billion, with an expected closing in early 2016.

The Wireline segment experienced a revenue decline of 2.3% year-over-year, primarily due to lower revenues in Global Enterprise. However, the Mass Markets segment, driven by the expansion of Fios services (internet, video, and voice), showed revenue growth, offsetting some of the overall decline.

Verizon aims to maintain a healthy mix of fixed and variable rate debt to optimize borrowing costs and mitigate risk. During the nine months ended September 30, 2015, total debt decreased slightly. The company utilized strong operating cash flows to fund operations, investments, dividends, and share repurchases, while also managing its debt through repayments and borrowings.