Verizon ends 2020 with strong earnings and cash flow

Verizon Communications Inc. (NYSE, Nasdaq: VZ) closed 2020 with fourth-quarter results highlighted by increased cash flow, wireless service revenue growth, and the launch of 5G nationwide.

Verizon finished the fourth quarter with strong financial performance,” said Verizon Chairman and CEO Hans Vestberg. “2020 was marked by transformational change, including the launch of our 5G nationwide network. We witnessed a mass shift toward virtual collaboration, touchless retail and delivery, remote work, distance learning, and telemedicine. We continued to execute our multi-use network strategy; we were recognized by RootMetrics as the best overall wireless provider, undefeated in all categories; and we continue to be the partner of choice for the world’s most innovative brands. Today, we are excited to lead technological advances beyond mobile devices, and create new opportunities for growth across multiple industries.”

For fourth-quarter 2020, Verizon reported EPS of $1.11, compared with $1.23 in fourth-quarter 2019. On an adjusted basis (non-GAAP), fourth-quarter 2020 EPS, excluding special items, was $1.21, compared with adjusted EPS of $1.13 in fourth-quarter 2019.

Fourth-quarter 2020 EPS included a pre-tax loss from special items of about $523 million, which consisted of a net charge of $404 million primarily related to severance, including voluntary separations under existing plans and the annual mark-to-market for pension and OPEB (other post-employment benefits) liabilities, and a net loss of $119 million primarily related to the disposition of the HuffPost business.

In fourth-quarter 2020, Verizon’s results also included the continued effects of a reduction in benefit from the adoption of a revenue recognition standard, primarily due to the deferral of commission expense. The net impact was 2 cents in fourth-quarter 2020 and 9 cents for the full year. The company estimates that the net impact from COVID-19 was a 2 cent benefit in fourth-quarter 2020 and a 21 cent headwind for the full year.

For full-year 2020, Verizon reported $4.30 in EPS, compared with $4.65 in full-year 2019. On an adjusted basis (non-GAAP), excluding special items, 2020 EPS was $4.90, compared with 2019 EPS of $4.81.

Consolidated results

• Total consolidated operating revenues in fourth-quarter 2020 were $34.7 billion, down 0.2 percent from fourth-quarter 2019. Total wireless service revenue growth and strong results in Verizon Media were offset by lower wireless equipment revenue and ongoing declines in legacy wireline products. Full-year 2020 consolidated operating revenues were $128.3 billion, down 2.7 percent year over year.
• Cash flow from operations totaled $41.8 billion in 2020, a 16.8 percent increase year over year. This growth was a result of the continued performance and strength of the business, lower tax payments due to a one-time cash tax benefit received earlier in the year, and reductions in working capital primarily due to lower wireless volumes.
• Full-year 2020 capital expenditures were $18.2 billion. Capital expenditures continue to support the growth in traffic on the company’s 4G LTE network and the continued build-out of the company’s 5G Ultra Wideband and nationwide networks.
• In 2018, Verizon announced a goal to achieve $10 billion in cumulative cash savings by the end of 2021. This initiative has yielded $9.5 billion of cumulative cash savings since the program began and is on track to achieve its target by the end of 2021.
• The company ended 2020 with free cash flow (non-GAAP) of $23.6 billion, a 32.4 percent increase year over year.
• Verizon’s unsecured debt balance increased year over year by $19.3 billion to $118.5 billion in 2020, and the company’s net unsecured debt (non-GAAP) decreased by $239 million year over year to $96.3 billion. Verizon’s net income in fourth-quarter 2020 was $4.7 billion, and its adjusted EBITDA (non-GAAP) was $11.7 billion. Verizon’s net unsecured debt to adjusted EBITDA ratio (non-GAAP) was 2.0 times versus its targeted range of 1.75 to 2.0 times. The company remains committed to its capital allocation model.

Consumer results

• Total Verizon Consumer revenues were $23.9 billion, a decrease of 1.2 percent year over year, primarily driven by a decline in wireless equipment revenue due to softer volumes in the quarter. For full-year 2020, total Consumer revenues were $88.5 billion, a decrease of 2.8 percent from full-year 2019, driven by a decline in wireless equipment revenue.
• In fourth-quarter 2020, Consumer reported 357,000 wireless retail postpaid net additions.This consisted of 163,000 phone net additions and 81,000 tablet net losses, offset by 275,000 other connected device net additions. Postpaid smartphone net additions were 284,000.
• Consumer wireless service revenues were $13.6 billion in fourth-quarter 2020, a 1.2 percent increase year over year. Full-year 2020 Consumer wireless service revenues were $53.6 billion, a 0.3 percent decrease from full-year 2019.
• Total retail postpaid churn was 0.96 percent in fourth-quarter 2020, and retail postpaid phone churn was 0.76 percent.
• Consumer reported 92,000 Fios Internet net additions in fourth-quarter 2020, an increase from 35,000 Fios Internet net additions in fourth-quarter 2019. Consumer and Business reported 95,000 total Fios Internet net additions in fourth-quarter 2020, the most fourth-quarter total Fios Internet net additions since 2014. Consumer reported 72,000 Fios Video net losses in fourth-quarter 2020, reflecting the ongoing shift from traditional linear video to over-the-top offerings.
• In fourth-quarter 2020, Consumer segment operating income was $7.1 billion, an increase of 2.7 percent year over year, and segment operating income margin was 29.6 percent, an increase from 28.4 percent in fourth-quarter 2019. Full-year 2020 segment operating income margin was 32.6 percent, compared with 31.8 percent in full-year 2019. Segment EBITDA (non-GAAP) totaled $9.9 billion in fourth-quarter 2020, an increase from $9.7 billion in fourth-quarter 2019. Segment EBITDA margin (non-GAAP) was 41.5 percent in fourth-quarter 2020, an increase from 39.9 percent in fourth-quarter 2019, and included approximately 30 basis points of headwind from the deferral of commission expense. For the full year, segment EBITDA margin (non-GAAP) was 45.5 percent in 2020, compared with 44.3 percent in 2019.

Business results

• Total Verizon Business revenues were $8.1 billion, down 0.3 percent year over year. Wireless service revenue growth was offset by reductions in wireless equipment volumes and secular pressure on legacy wireline products. For full-year 2020, total Verizon Business revenues were $31.0 billion, a decrease of 1.5 percent from full-year 2019.
• Business reported 346,000 wireless retail postpaid net additions in fourth-quarter 2020. This consisted of 116,000 phone net additions, 116,000 tablet net additions, and 114,000 other connected device additions.
• Business wireless service revenues were $3.1 billion in fourth-quarter 2020, a 7.1 percent increase year over year. Full-year 2020 Business wireless service revenues were $11.8 billion, a 5.5 percent increase from full-year 2019.
• Total retail postpaid churn was 1.19 percent in fourth-quarter 2020, and retail postpaid phone churn was 0.98 percent.
• In fourth-quarter 2020, Business segment operating income was $950 million, an increase of 42.6 percent year over year, and segment operating income margin was 11.8 percent, an increase from 8.3 percent in fourth-quarter 2019. Full-year 2020 segment operating income margin was 12.2 percent, compared with 12.0 percent in full-year 2019. Segment EBITDA (non-GAAP) totaled $2.0 billion in fourth-quarter 2020, an increase from $1.7 billion in fourth-quarter 2019. Segment EBITDA margin (non-GAAP) was 24.6 percent, an increase from 20.7 percent in fourth-quarter 2019. For the full year, segment EBITDA margin (non-GAAP) was 25.4 percent in 2020, compared with 25.0 percent in 2019.
  CT Bureau