Verizon Communications Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless stated otherwise. Verizon provides wireless and wireline communications, broadband, and related services through its Consumer and Business segments. Financial statements are unaudited.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Operating revenue | $32.981 billion | $32.912 billion | +0.2% |
| Operating income | $7.521 billion | $7.584 billion | −0.8% |
| Net income attributable to Verizon | $4.602 billion | $4.909 billion | −6.3% |
| Diluted EPS | $1.09 | $1.17 | −$0.08 |
| Operating cash flow | $7.084 billion | $8.289 billion | −$1.205 billion |
| Capital expenditures, including capitalized software | $4.376 billion | $5.958 billion | −$1.582 billion |
| Free cash flow (non-GAAP) | $2.708 billion | $2.331 billion | +$377 million |
- Operating margin was approximately 22.8%, versus 23.0%; net margin attributable to Verizon was approximately 14.0%, versus 14.9%.
- Revenue mix shifted toward services: service revenue and other rose 1.7% to $27.620 billion, while wireless equipment revenue fell 6.9% to $5.361 billion.
- Consumer revenue grew 0.8% to $25.057 billion and segment operating income rose 3.8% to $7.372 billion. Business revenue declined 1.6% to $7.376 billion, while segment operating income fell 27.6% to $399 million.
- Consumer wireless service revenue increased 3.4%, supported by pricing actions, fixed wireless access (FWA) growth, and MyPlan subscriptions. Consumer postpaid ARPA rose 4.4% to $135.75. Consumer postpaid net additions were 75,000, down from 321,000; total broadband net additions were 239,000.
- Business wireless service revenue grew 2.7%, but Enterprise and Public Sector revenue declined 5.3%, principally from wireline weakness. Business segment operating margin fell to 5.4% from 7.4%.
- At March 31, cash and cash equivalents were $2.365 billion; restricted cash was $1.543 billion. Total debt was approximately $151.7 billion, including $23.3 billion of secured asset-backed debt. Debt maturing within one year was $15.594 billion; long-term debt was $136.104 billion. The revolving credit facility had $11.956 billion of unused capacity.
- Dividends paid were $2.796 billion. The quarterly dividend declared was $0.665 per share. Verizon did not repurchase shares during the quarter.
Material changes and unusual items
- Operating cash flow declined 14.5%, reflecting higher interest expense, a $365 million discretionary pension contribution, and working-capital timing. Free cash flow nevertheless increased because capital expenditures were lower, largely following completion of the accelerated C-Band deployment program in the first half of 2023.
- Interest expense increased 35.5% to $1.635 billion. The effective interest rate on debt rose to 5.0% from 4.6%; reduced capitalized interest as C-Band spectrum entered service also increased reported interest expense.
- Selling, general and administrative expense rose 8.5%, including higher personnel and device-insurance costs and a $106 million charge for a legacy Costa Rica directory-contract litigation matter. The filing reports $110 million of net debt-extinguishment gains in other income.
- Verizon completed a pension annuitization transaction covering approximately $5.9 billion of benefit liabilities for about 56,000 retirees. It recorded a $200 million settlement gain, partly offset by a $127 million remeasurement loss, for a net pre-tax remeasurement gain of $73 million.
- Total debt increased from approximately $150.7 billion at year-end 2023 to $151.7 billion. The company issued debt, repaid and repurchased notes, and ended the quarter with $2.4 billion of commercial paper outstanding. It reports compliance with debt covenants.
Outlook, commentary, and risks
- Management expects 2024 capital expenditures of $17.0 billion to $17.5 billion, focused on wireless networks, fiber, and other technology. No full-year earnings or revenue guidance is stated in the supplied filing text.
- Management says funding needs over the next 12 months and beyond can be met through operating cash generation and, as needed, external financing. It expects capital spending to be financed primarily from internally generated funds.
- Verizon expects approximately $100 million of remaining C-Band clearing-cost and incentive payments in 2024; timing and amount may vary with claims processing. It states no qualified pension contributions are required through year-end 2024, subject to market conditions.
- Key disclosed risks include competition and pricing, execution and monetization of 5G deployment, high indebtedness and financing costs, economic and interest-rate conditions, cyberattacks, network disruption and extreme weather, regulatory changes, litigation, and pension investment performance.
- Approximately 30 federal patent-infringement actions are pending; a small number could go to trial within 12 months. The company says currently pending legal and regulatory matters are not expected to materially affect financial condition, though a given period’s results could be affected. It cannot estimate a reasonably possible loss range beyond recorded accruals. Unrecognized tax benefits were $2.7 billion; the amount could change significantly in the next 12 months, with no range provided.
- Disclosure controls were assessed as effective at March 31, 2024; the filing reports no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether service-revenue growth, pricing actions, and FWA additions can offset weaker equipment sales and Consumer prepaid subscriber declines.
- Whether Business segment revenue and profitability stabilize, particularly in Enterprise and Public Sector wireline services and costs.
- Execution against the $17.0–$17.5 billion capital-spending outlook and the effect of C-Band deployment on future operating costs and returns.
- Debt maturities, refinancing costs, interest-rate sensitivity, asset-backed financing, and the ability to sustain dividends while maintaining leverage.
- Future operating cash flow and free cash flow, including working-capital movements, pension funding, and collateral requirements on derivatives.
- Developments in patent litigation, the Costa Rica legacy legal matter, tax audits, and remaining C-Band obligations.