Verizon reports strong 2Q and first-half 2019 results

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As previously disclosed, beginning second quarter 2019, Verizon will report financial and operational results under its new reporting structure, Verizon 2.0. Under this structure, there are two reportable segments that the company operates and manages as strategic business units: Consumer and Business. Verizon previously reported results for its Wireless and Wireline segments. For comparison purposes, results for both the current and previous operating structures are presented below.

2Q 2019 highlights

Consolidated:

• 95 cents in earnings per share (EPS), compared with $1.00 in 2Q 2018; adjusted EPS (non-GAAP), excluding a special item, of $1.23, compared with $1.20 in 2Q 2018.

Consumer:

• Total revenue of $22.0 billion.
• 126,000 retail postpaid net additions, including 73,000 phone net additions and 209,000 postpaid smartphone net additions.
• Total retail postpaid churn of 0.97 percent, and retail postpaid phone churn of 0.72 percent.
• 28,000 Fios Internet net additions.

Business:

• Total revenue of $7.8 billion.
• 325,000 retail postpaid net additions, including 172,000 phone net additions.
• Retail postpaid churn of 1.21 percent, and retail postpaid phone churn of 0.97 percent.

Wireless (non-GAAP):

• Total revenue growth of 1.0 percent year over year to $22.7 billion, driven by a 3.1 percent increase in service revenue.
• 451,000 retail postpaid net additions, including 420,000 postpaid smartphone net additions, and 245,000 phone net additions, an increase from the 199,000 phone net additions in second-quarter 2018.
• Retail postpaid churn of 1.02 percent, and industry-leading retail postpaid phone churn of 0.76 percent.

Wireline (non-GAAP):

• Total revenue of $7.1 billion.
• 34,000 Fios Internet net additions; Fios total revenue growth of 1.9 percent year over year.

NEW YORK - Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported strong second-quarter 2019 results highlighted by an increase in net wireless customer additions, continued customer loyalty and industry-leading wireless products and services.

"Verizon finished strong in the first half of 2019 by delivering solid financial results while transforming the business under the new operating structure and advancing our leadership in 5G," said Chairman and CEO Hans Vestberg. "Verizon made history this quarter by becoming the first carrier in the world to launch 5G mobility. We are focused on optimizing our next-generation networks and enhancing the customer experience while we head into the second half of the year with great momentum."

For second-quarter 2019, Verizon reported EPS of 95 cents, compared with $1.00 in second-quarter 2018. On an adjusted basis (non-GAAP), second-quarter 2019 EPS, excluding a special item, was $1.23, compared with adjusted EPS of $1.20 in second-quarter 2018. Verizon’s second-quarter 2019 EPS included 28 cents in early debt redemption costs.

In second-quarter 2019, Verizon's results included the effects of a reduction in benefits from the adoption of a revenue recognition standard, primarily due to the deferral of commission expense, and the adoption of a lease accounting standard. The combined net impact was a 4 cent year-over-year headwind, which is included in the year-over-year increase in adjusted EPS.

Consolidated results

• Total consolidated operating revenues in second-quarter 2019 were $32.1 billion, down 0.4 percent from second-quarter 2018. Wireless service revenue growth was offset by lower wireless equipment revenue and wireline service revenue.
• Cash flow from operations totaled $15.8 billion in second-quarter 2019, a decline of approximately $600 million year over year. Operational improvements in Verizon's businesses were offset by higher cash taxes and cash payments related to the Voluntary Separation Program.
• First half 2019 capital expenditures totaled $8.0 billion. Verizon's capital expenditures continue to support the launch and build-out of its 5G Ultra Wideband network, the growth in data and video traffic on the company's 4G LTE network, the deployment of significant fiber in markets nationwide and the upgrade to Verizon's Intelligent Edge Network architecture.
• In 2018, Verizon announced a goal to achieve $10 billion in cumulative cash savings by 2021. This initiative has yielded $4.1 billion of cumulative cash savings since this program began. At the end of second-quarter 2019, Verizon completed the third and final phase of its Voluntary Separation Program and has realized approximately $480 million of expense savings year-to-date. The company expects additional incremental savings in third-quarter 2019, and is on track to achieve its cumulative cash savings goal.
• Net income was $4.1 billion in second-quarter 2019. EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) totaled approximately $10.8 billion. Consolidated operating income margin was 24.5 percent in second-quarter 2019, compared with 20.5 percent in second-quarter 2018. Consolidated EBITDA margin (non-GAAP) was 33.5 percent in second-quarter 2019, compared with 34.5 percent in second-quarter 2018. Adjusted EBITDA margin (non-GAAP) in second-quarter 2019 was 37.7 percent. Consolidated adjusted EBITDA (non-GAAP) in second-quarter 2019 was $12.1 billion, an increase of approximately $200 million year over year.

Consumer results

• Total Verizon Consumer revenues were $22.0 billion, flat year over year, reflecting continued strong growth in wireless service revenue and Fios service offerings, offset by declines in wireless equipment and legacy wireline services.
• Verizon Consumer Group reported 126,000 wireless retail postpaid net additions in second-quarter 2019, consisting of 73,000 phone net additions and tablet net losses of 134,000, offset by 187,000 other connected device net additions, primarily wearables. Postpaid smartphone net additions were 209,000, up 17 percent year over year, driven by a 5 percent year over year increase in phone gross additions.
• Consumer wireless service revenues increased 2.5 percent in second-quarter 2019, driven by customer step-ups to higher-priced plans and an increase in connections per account.
• Total retail postpaid churn was 0.97 percent in second-quarter 2019, and retail postpaid phone churn was 0.72 percent.
• In second-quarter 2019, Verizon Consumer Group reported 28,000 Fios Internet net additions and 52,000 Fios Video net losses, reflecting the ongoing shift from traditional linear video to over-the-top offerings. Fios revenues increased by 1.2 percent, primarily due to the demand for broadband offerings.
• Segment operating income was $7.3 billion, an increase of 3.9 percent year over year, and segment operating income margin was 33.4 percent. Segment EBITDA (non-GAAP) totaled $10.2 billion in second-quarter 2019, an increase of 1.6 percent year over year. Segment EBITDA margin (non-GAAP) was 46.5 percent, including approximately 100 basis points in headwinds from the deferral of commission expense and the lease accounting standard.

Business results

• Total Verizon Business revenues were $7.8 billion, down 1.1 percent year over year, as growth in wireless services and high quality fiber products was offset by declines in legacy products.
• Verizon Business Group reported 325,000 wireless retail postpaid net additions in second-quarter 2019, consisting of 172,000 phone net additions, 90,000 tablet net additions and 63,000 other connected device additions.
• Total retail postpaid churn was 1.21 percent in second-quarter 2019, and retail postpaid phone churn was 0.97 percent.
• Segment operating income was $1.1 billion, a decrease of 2.7 percent year over year, and segment operating income margin was 13.8 percent. Segment EBITDA (non-GAAP) totaled $2.1 billion in second-quarter 2019, a decrease of 2.0 percent year over year. Segment EBITDA margin (non-GAAP) was 27.3 percent, down 20 basis points year over year due to declines in legacy wireline product revenues.

Media results

• Total Verizon Media revenues in second-quarter 2019 were $1.8 billion, down 2.9 percent year over year. This is an improvement from first-quarter 2019, when total Verizon Media revenues were down 7.2 percent year over year. Gains in native and mobile advertising continue to be offset by declines in desktop advertising.

Outlook and guidance

As outlined in Verizon's first-quarter 2019 earnings release, the company expects the following:

• Low single-digit percentage growth in adjusted 2019 EPS, excluding the impact of the lease accounting standard.
• Low single-digit percentage growth in full-year consolidated revenues on a GAAP reported basis.
• Cash taxes to be $2 billion to $3 billion higher than in 2018 due to benefits that were realized in 2018 that are not expected to repeat in 2019.
• Capital spending for 2019 to be in the range of $17 billion to $18 billion, including the expanded commercial launch of 5G.   
• The company now expects the adjusted effective income tax rate (non-GAAP) for full-year 2019 to be at the lower end of its previously disclosed range of 24 percent to 26 percent.

NOTE: See the accompanying schedules and www.verizon.com/about/investors for reconciliations to generally accepted accounting principles (GAAP) for non-GAAP financial measures cited in this document.

Forward-looking statements

In this communication we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “expects,” “hopes” or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The following important factors, along with those discussed in our filings with the Securities and Exchange Commission (the “SEC”), could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: adverse conditions in the U.S. and international economies; the effects of competition in the markets in which we operate; material changes in technology or technology substitution; disruption of our key suppliers’ provisioning of products or services; changes in the regulatory environment in which we operate, including any increase in restrictions on our ability to operate our networks; breaches of network or information technology security, natural disasters, terrorist attacks or acts of war or significant litigation and any resulting financial impact not covered by insurance; our high level of indebtedness; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets affecting the cost, including interest rates, and/or availability of further financing; material adverse changes in labor matters, including labor negotiations, and any resulting financial and/or operational impact; significant increases in benefit plan costs or lower investment returns on plan assets; changes in tax laws or treaties, or in their interpretation; changes in accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; the inability to implement our business strategies; and the inability to realize the expected benefits of strategic transactions.