Verizon Communications Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY 2022. The filing was signed February 9, 2024. Verizon provides wireless and wireline communications through Consumer and Business segments.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Revenue | $134.0 billion | $136.8 billion | Down 2.1% |
| Operating income | $22.9 billion | $30.5 billion | Down 24.9% |
| Net income attributable to Verizon | $11.6 billion | $21.3 billion | Down 45.4% |
| Diluted EPS | $2.75 | $5.06 | Down 45.7% |
| Operating cash flow | $37.5 billion | $37.1 billion | Up $334 million |
| Capital expenditures, including capitalized software | $18.8 billion | $23.1 billion | Down $4.3 billion |
| Free cash flow (non-GAAP) | $18.7 billion | $14.1 billion | Up $4.7 billion |
| Total debt at year-end | $150.7 billion | $150.6 billion | Broadly unchanged |
Revenue declined mainly because of lower wireless equipment sales. Service revenue rose modestly, while total operating expenses increased 4.4%, including a $5.8 billion Business goodwill impairment. The impairment was non-cash and non-deductible for tax purposes; it was the principal unusual item behind the sharp decline in reported operating income and earnings. Adjusted EBITDA, a non-GAAP measure, was $47.8 billion, versus $47.9 billion in 2022.
Consumer revenue was $101.6 billion, down 1.8%; segment operating income was $29.0 billion, up 0.6%, and operating margin was 28.5%, versus 27.9%. Business revenue was $30.1 billion, down 3.1%; segment operating income fell 21.5% to $2.1 billion, and operating margin declined to 6.9% from 8.5%. Business results reflect ongoing wireline declines and the impairment charge is recorded outside segment results.
Year-end cash and cash equivalents were $2.1 billion, with $9.5 billion of unused capacity under the revolving credit facility. Debt maturing within one year was $13.0 billion on the balance sheet; contractual disclosures identify approximately $12.3 billion of long-term debt principal due in 2024. Interest expense rose 52.9% to $5.5 billion, and the effective interest rate on debt increased to 4.9% from 3.7%. Verizon paid $11.0 billion in dividends and raised its quarterly dividend 1.9% to $0.665 per share in the third quarter. No shares were repurchased under the authorized buyback program.
Material changes and operating trends
- Wireless service revenue grew in both segments. Consumer postpaid ARPA rose 5.1% to $132.36; Consumer postpaid net additions increased to 2.044 million from 965,000.
- Consumer total broadband connections increased 1.156 million to 9.056 million, including fixed wireless access growth; Fios video connections continued to decline. Consumer prepaid connections also fell.
- Business postpaid net additions slowed to 1.242 million from 1.640 million, while postpaid churn rose to 1.48% from 1.38%. Business broadband connections grew to 1.661 million.
- The $5.8 billion Business goodwill impairment followed lower projected cash flows, including secular declines in wireline services and products and competitive and macroeconomic pressures. Business goodwill ended the year at $1.7 billion.
- Lower device upgrade volumes reduced equipment revenue and costs. Selling, general and administrative expense increased, reflecting higher credit-loss provisions, severance, asset rationalization, insurance claims and advertising costs.
- Capital expenditures fell after completion of the accelerated $10 billion C-Band deployment program in the first half of 2023. C-Band coverage reached approximately 242 million people by year-end; Verizon obtained full access to the spectrum in August 2023.
Outlook, risks and contingencies
Verizon expects 2024 capital requirements of $17.0 billion to $17.5 billion. Management describes future service revenue opportunities from pricing actions, higher-value plans, postpaid and fixed wireless access connections, and broadband demand. It expects continued pressure on legacy wireline services. The filing does not provide a clear numerical full-year 2024 revenue, earnings or cash-flow guidance figure in the supplied text.
Management says operating cash flow should benefit from service revenue growth and lower capital spending, and that operating cash and available financing are sufficient for requirements over the next 12 months and beyond. This outlook depends on execution and market conditions. Key risks include intense wireless competition and promotions, slower industry customer growth, inflation and interest rates, high debt and refinancing costs, 5G deployment and spectrum needs, cybersecurity incidents, network disruption and supplier constraints, and changing privacy, broadband and other regulation.
Lead-sheathed copper cable allegations have prompted regulatory inquiries and lawsuits. Verizon says related costs and potential liabilities cannot currently be reasonably estimated and could be material; insurance may not cover them fully. The company also faces patent and other litigation, tax audits and other regulatory proceedings. It states that no current pending matter has a material accrual, while a given period’s results could nevertheless be materially affected. The filing reports effective internal controls and unqualified audit opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether Business revenue and cash-flow trends stabilize, and whether further goodwill impairment becomes necessary if forecasts weaken.
- Whether Consumer service growth and broadband additions can offset lower equipment sales, prepaid losses and video declines.
- Progress against the $17.0–$17.5 billion 2024 capital program and the expected cash-flow benefit from reduced capital spending.
- Debt maturities, interest costs, refinancing access and dividend funding relative to operating cash flow and investment needs.
- Developments in lead-cable litigation and regulatory inquiries, as well as the scale and timing of any resulting costs or liabilities.