Verizon sees strong free cash flow growth in 2023 on 5G momentum

Verizon Communications Inc. reported third-quarter results today and raised its free cash flow guidance for the year. The company’s performance was highlighted by continued wireless service revenue growth, total broadband net additions, and improving profitability.

“We continued to make steady progress in the third quarter with a clear focus on growing wireless service revenue, delivering healthy consolidated adjusted EBITDA and increasing free cash flow,” said Verizon Chairman and CEO Hans Vestberg. “Our financial discipline, combined with our healthy balance sheet, enabled us to increase our dividend for the 17th consecutive year, which is the longest current streak of dividend increases in the U.S. telecom industry.”

For third-quarter 2023, Verizon reported EPS of $1.13, compared with $1.17 in third-quarter 2022. On an adjusted basis1, excluding special items, EPS was $1.22 in third-quarter 2023, compared with adjusted EPS1 of $1.32 in third-quarter 2022.

Third-quarter 2023 earnings reflected a pre-tax loss from special items of approximately $579 million. This included the impacts of amortization of intangible assets related to TracFone and other acquisitions of $224 million, a pre-tax non-strategic business shutdown charge of $179 million related to the shutdown of the BlueJeans business offering and pre-tax business transformation costs of $176 million.

Consolidated results

• Total consolidated operating revenue in third-quarter 2023 of $33.3 billion, a decrease of 2.6 percent from third-quarter 2022. This decline was primarily due to reduced wireless equipment revenue and lower postpaid upgrade activity.
• Total wireless service revenue2 in third-quarter 2023 increased 2.9 percent year over year and 1.1 percent from second-quarter 2023.
• This increase was driven by targeted pricing actions implemented in recent quarters, the larger allocation of administrative and telco recovery fees from other revenue into wireless service revenue, and growth from fixed wireless offerings.
• Net income of $4.9 billion, a decrease of 2.8 percent compared to third-quarter 2022, and consolidated adjusted EBITDA1 of $12.2 billion, an increase of 0.2 percent year over year.
• Year-to-date cash flow from operations totaled $28.8 billion, an increase from $28.2 billion in 2022. This increase is related to continued working capital improvements associated with fewer upgrades and lower inventory levels, partially offset by higher interest payments.
• Capital expenditures year-to-date were $14.2 billion.
• Free cash flow1 year-to-date was $14.6 billion, an increase from $12.4 billion in 2022.
• Verizon’s unsecured debt as of the end of third-quarter 2023 decreased by $4.9 billion sequentially to $126.4 billion. The company’s net unsecured debt1 balance improved sequentially by $4.3 billion to $122.2 billion. At the end of third-quarter 2023, Verizon’s ratio of unsecured debt to net income (LTM) was approximately 5.9 times, and its net unsecured debt to adjusted EBITDA ratio1 was approximately 2.6 times.

Verizon Consumer results

• Total Verizon Consumer revenue was $25.3 billion, a decrease of 2.3 percent year over year. Growth in service and other revenue was offset by wireless equipment revenue declines.
• Wireless service revenue increased 2.9 percent year over year. This increase was driven by growth in retail postpaid Average Revenue
• Per Account (ARPA), partially offset by a decline in retail postpaid phone connections and prepaid connections.
• Consumer wireless retail postpaid churn was 1.04 percent in third-quarter 2023, and wireless retail postpaid phone churn was 0.85 percent.
• In third-quarter 2023, Consumer reported 51,000 wireless retail postpaid phone net losses, representing an improvement of 85,000 from second-quarter 2023 and 138,000 from third-quarter 2022. Consumer postpaid phone gross additions increased 2.3 percent year over year in third-quarter 2023, continuing the momentum that began in second-half 2022.
• Consumer reported 207,000 wireless retail prepaid net losses in third-quarter 2023.
• Consumer reported 251,000 fixed wireless net additions and 69,000 Fios Internet net additions in third-quarter 2023. Consumer Fios revenue was $2.9 billion in third-quarter 2023, a decrease of 0.2 percent year over year.
• In third-quarter 2023, Consumer operating income was $7.5 billion, an increase of 2.7 percent year over year, and segment operating income margin was 29.9 percent, an increase from 28.4 percent in third-quarter 2022. Segment EBITDA1 in third-quarter 2023 was $10.8 billion, an increase of 2.2 percent year over year. This improvement can be attributed to wireless service revenue growth and lower upgrade volumes. Segment EBITDA margin1 was 42.8 percent, an increase from 40.9 percent in third-quarter 2022.

Verizon Business results

• Total Verizon Business revenue was $7.5 billion in third-quarter 2023, a decrease of 4.0 percent year over year. Lower wireline revenue and lower wireless equipment revenue was partially offset by higher wireless service revenue.
• Business wireless service revenue was $3.4 billion, an increase of 2.9 percent year over year. This growth was driven by continued strong net additions and pricing actions implemented in recent quarters.
• Business reported 330,000 wireless retail postpaid net additions in third-quarter 2023, including 151,000 postpaid phone net additions. This was the ninth consecutive quarter that Business reported more than 125,000 postpaid phone net additions. Business continues to grow volumes and expand its relationships with customers strengthening its position as a wireless market share leader.
• Business wireless retail postpaid churn was 1.47 percent in third-quarter 2023, and wireless retail postpaid phone churn was 1.14 percent.
• Business reported 133,000 fixed wireless net additions in third-quarter 2023.
• In third-quarter 2023, Verizon Business operating income was $539 million, a decrease of 22.8 percent year over year, and segment operating income margin was 7.2 percent, a decrease from 8.9 percent in third-quarter 2022. Segment EBITDA1 was $1.7 billion in third-quarter 2023, a decrease of 6.2 percent year over year, driven by continued declines in high margin wireline revenues. Segment
• EBITDA margin1 was 22.1 percent in third-quarter 2023, a decrease from 22.7 percent in third-quarter 2022.

CT Bureau