Verizon Communications Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Verizon provides wireless and wireline communications services through its Consumer and Business segments.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Consolidated revenue | $136.8 billion | $133.6 billion | +2.4% |
| Operating income | $30.5 billion | $32.4 billion | -6.1% |
| Net income attributable to Verizon | $21.3 billion | $22.1 billion | -3.7% |
| Diluted earnings per share | $5.06 | $5.32 | -4.9% |
| Net cash from operating activities | $37.1 billion | $39.5 billion | Down $2.4 billion |
| Capital expenditures, including capitalized software | $23.1 billion | $20.3 billion | Up $2.8 billion |
| Free cash flow (non-GAAP) | $14.1 billion | $19.3 billion | Down $5.2 billion |
| Total debt | $150.6 billion | $150.9 billion | Down $0.2 billion |
Consolidated operating margin was approximately 22.3%, compared with 24.3% in 2021. Consolidated Adjusted EBITDA, a non-GAAP measure, was $47.9 billion versus $48.4 billion. The effective income tax rate was 23.1% in both years.
At year-end, cash and cash equivalents were $2.6 billion and restricted cash was $1.5 billion. Debt maturing within one year was $10.0 billion on the balance sheet; the filing separately lists $9.3 billion of long-term debt principal expected to come due within the next 12 months. Verizon reported $9.4 billion of unused capacity under its $9.5 billion revolving credit facility and stated its funding sources were sufficient for ongoing requirements over the next 12 months and beyond.
Segments and material changes
- Consumer: Revenue rose 8.6% to $103.5 billion, substantially reflecting TracFone, acquired in November 2021, as well as higher service and equipment revenue. Segment operating income fell 3.7% to $28.8 billion; operating margin declined to 27.9% from 31.4%. Total broadband connections increased 13.0% to 7.9 million, while total wireless retail connections declined 0.8% to 114.5 million. Postpaid phone net additions were negative 655,000, and postpaid phone churn increased to 0.81% from 0.71%.
- Business: Revenue was essentially flat at $31.1 billion. Segment operating income declined 23.5% to $2.6 billion, and operating margin decreased to 8.5% from 11.1%. Small and Medium Business revenue grew 7.1%, while Global Enterprise, Public Sector and Wholesale revenues declined.
- Consolidated revenue growth was partly offset by the absence of Verizon Media, sold in September 2021; its 2021 revenue was approximately $5.3 billion. TracFone’s inclusion increased 2022 Consumer revenues and expenses, limiting direct year-over-year comparability.
- Wireless equipment costs rose 21.7% companywide, due to TracFone, higher device volumes and a shift toward higher-priced devices. Selling, general and administrative expenses rose 5.2%, including higher credit-loss provisions.
Outlook, risks and unusual items
- Management expects Consumer wireless service revenue to continue growing in 2023, supported by higher-priced plans, fixed wireless access (FWA) connections and prior pricing actions. It expects growth in Business wireless revenue and Fios broadband, while legacy wireline services remain under secular pressure.
- 2023 capital spending is expected to be $18.25–$19.25 billion, including the final $1.75 billion of incremental C-Band deployment spending. Management expects cash generation to benefit from lower capital expenditures as the dedicated C-Band program winds down, along with cost-efficiency initiatives. The filing does not provide a clear quantified 2023 earnings or free-cash-flow forecast.
- Management attributed lower 2022 earnings and reduced growth expectations and guidance to inflation, higher energy, transportation and labor costs, rising interest expense, and intense competition. It expects inflationary and competitive pressures to continue into 2023.
- 2022 results included a $1.7 billion pretax pension and postretirement remeasurement credit, largely driven by higher discount rates; $1.2 billion of early debt redemption costs; and $304 million of severance charges. These items affect interpretation of reported earnings and comparisons.
- Verizon’s Business reporting unit had goodwill fair value only about 8% above carrying value in its October 2022 test. No impairment was recorded, but management cited increasing risk of a future impairment if performance or assumptions deteriorate. Wireless licenses had a carrying value of $149.8 billion and passed the 2022 qualitative impairment assessment.
- Principal risks include intense price and promotional competition, 5G deployment and execution, high indebtedness and interest-rate exposure, inflation and economic weakness, cybersecurity incidents, outages or natural disasters, supplier disruption, regulatory changes, litigation, and pension and benefit-plan assumptions. C-Band clearing payments remaining at year-end were estimated at $4.8 billion, with timing and final amounts dependent on spectrum clearance.
- Legal and regulatory matters are ongoing; Verizon said it did not expect their ultimate resolution to materially affect financial condition, though a matter could materially affect results in a particular period. The filing identifies approximately 25 federal patent-infringement actions. No material legal proceeding requiring disclosure under Item 3 was identified.
Investor verification priorities
- Separate organic operating trends from TracFone acquisition effects and the Verizon Media divestiture when assessing revenue and expense growth.
- Track Consumer postpaid phone net additions, churn, prepaid trends and FWA growth, and Business segment margins and legacy-revenue declines.
- Review cash conversion and the drivers of lower operating cash flow and free cash flow, especially device-payment receivables and elevated capital spending.
- Assess debt maturities, refinancing costs, asset-backed financing and the effect of rates on floating-rate debt; a 100-basis-point rate change was estimated to affect annual interest expense by about $420 million.
- Monitor C-Band deployment, remaining clearance obligations and the pace of capital spending reductions, alongside the 2023 capital-spending range.
- Evaluate the sensitivity of the Business goodwill valuation to operating performance and assumptions, and the unusual pension remeasurement credit’s effect on reported earnings.