Verizon Communications Inc. — FY2021 Form 10-K
Business context and reporting period. This is an annual report for the fiscal year ended December 31, 2021, not a standalone fourth-quarter report. Verizon provides wireless and wireline communications through Consumer and Business segments. It completed the sale of Verizon Media on September 1, 2021, and acquired prepaid provider Tracfone on November 23, 2021.
Financial performance and condition
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $133.6 billion | $128.3 billion |
| Operating income | $32.4 billion | $28.8 billion |
| Net income | $22.6 billion | $18.3 billion |
| Net income attributable to Verizon / diluted EPS | $22.1 billion / $5.32 | $17.8 billion / $4.30 |
| Operating cash flow | $39.5 billion | $41.8 billion |
| Capital expenditures | $20.3 billion | $18.2 billion |
| Free cash flow (company-defined, non-GAAP) | $19.3 billion | $23.6 billion |
| Adjusted EBITDA (company-defined, non-GAAP) | $48.4 billion | $47.1 billion |
| Total debt at year-end | $150.9 billion | $129.1 billion |
| Cash and cash equivalents at year-end | $2.9 billion | $22.2 billion |
- Revenue rose 4.1%; Consumer revenue increased 7.6% to $95.3 billion, while Business revenue was nearly flat at $31.0 billion (+0.3%). Consumer operating income grew 3.8%, but its operating margin declined to 31.4% from 32.6%. Business operating income fell 8.9%, and its margin declined to 11.1% from 12.2%.
- Consolidated operating margin was approximately 24.3% and net margin approximately 16.9%, calculated from reported amounts. Adjusted EBITDA increased 2.8%, while free cash flow fell about 18%, reflecting lower operating cash flow and higher capital spending.
- Current assets were $36.7 billion versus current liabilities of $47.2 billion. Verizon reported $9.4 billion of unused capacity on its revolving credit facility. Management said operating and available financing sources were sufficient for ongoing requirements over the next 12 months and beyond.
- Verizon paid $10.4 billion in dividends and increased its quarterly dividend 2.0% in 2021. It made no share repurchases during the year.
Material changes and unusual items
- Verizon spent approximately $45.9 billion on C-Band spectrum licenses and related costs in 2021; investing cash outflow increased to $67.2 billion. The spectrum began deployment in January 2022.
- Tracfone consideration included approximately $3.5 billion cash, 57.6 million Verizon shares valued at about $3.0 billion, and contingent consideration with an acquisition-date fair value of $542 million. Tracfone contributed approximately $680 million to Consumer revenue in the fourth quarter.
- The Verizon Media sale generated approximately $1.0 billion of pre-tax gain and $346 million of related costs. The divestiture also reduced the period of Media revenue included in 2021 results.
- Other income included a $2.4 billion pension and postretirement remeasurement gain; early debt redemption costs were $3.5 billion. These items materially affect comparisons of reported earnings. Verizon reported Consolidated EBITDA of $49.1 billion and adjusted EBITDA of $48.4 billion, versus $44.9 billion and $47.1 billion, respectively, in 2020.
Outlook, risks and contingencies
- For 2022, Verizon forecast capital spending of $16.5–$17.5 billion, plus an additional $5.0–$6.0 billion for C-Band deployment. The filing does not provide a clear numeric consolidated revenue or EPS guidance figure in the supplied text.
- Management expected Consumer wireless and Fios service revenue growth, additional fixed-wireless-access connections, and Business wireless growth, while traditional wireline services and Fios video remained under secular pressure. It cited cost-efficiency initiatives and expected strong operating and adjusted EBITDA margins, without giving numeric margin targets.
- Principal risks include intense price and network competition; execution, cost and performance risks in 5G/C-Band deployment; high indebtedness and refinancing costs; cyberattacks, outages and extreme weather; supplier and device-component constraints; regulatory and privacy changes; labor matters; litigation; and uncertain COVID-19 effects.
- Verizon disclosed approximately $29.8 billion of unconditional purchase obligations with terms over one year, $31.5 billion of operating lease obligations, and $150.2 billion of long-term debt principal commitments plus $78.0 billion of related interest payments. C-Band clearing and incentive payments were estimated at $7.7 billion, with timing and final amounts dependent on incumbent spectrum holders’ progress.
- The company said no currently pending legal or regulatory matter had a material accrual; it could not estimate possible losses above accruals, and a matter could materially affect results in a particular period. It also reported $3.1 billion of unrecognized tax benefits whose settlement timing was not reasonably estimable.
Most important facts for investors to verify
- How much of reported earnings growth reflects recurring operating performance versus pension remeasurement gains, debt extinguishment costs and divestiture gains or costs.
- Whether C-Band deployment and the additional $5.0–$6.0 billion of expected 2022 C-Band capital spending deliver the expected network coverage, customer growth and returns.
- Debt reduction capacity and dividend coverage given total debt growth, the sharp decline in cash, and lower free cash flow.
- Tracfone subscriber retention and integration progress, including contingent payments tied to performance targets.
- Consumer and Business churn, service-revenue trends, equipment margins, and continued declines in legacy wireline and video offerings.