Verizon Communications Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. Verizon provides wireless and wireline communications through Consumer and Business segments.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating revenue | $32.9B | $31.5B | $99.5B | $93.6B |
| Operating income | $8.9B | $7.7B | $24.8B | $21.6B |
| Net income attributable to Verizon | $6.4B | $4.4B | $17.5B | $13.2B |
| Diluted EPS | $1.55 | $1.05 | $4.21 | $3.19 |
Revenue rose 4.3% in Q3 and 6.4% for the nine-month period. Operating margins, calculated from reported figures, were approximately 27.1% versus 24.3% in Q3 and 24.9% versus 23.1% year to date. Revenue growth included higher wireless equipment sales, which were accompanied by higher equipment costs.
- Cash flow: Nine-month operating cash flow was $31.2B, down from $32.5B. Capital expenditures were $13.9B; reported free cash flow, a non-GAAP measure, was $17.3B versus $18.3B. Free cash flow excludes items such as spectrum purchases, acquisitions and finance-lease payments.
- Debt and liquidity: Total debt was approximately $151.0B at September 30, compared with $129.1B at December 31, 2020. Cash and cash equivalents were $9.9B, down from $22.2B; total current assets were $40.3B and current liabilities $41.4B. Verizon reported compliance with debt covenants.
- Dividends: $7.8B was paid during the first nine months. No common shares were repurchased during Q3.
Segment results and changes
- Consumer: Revenue increased 7.3% in Q3 and 7.7% year to date. Wireless service revenue and Fios internet growth contributed; Q3 postpaid phone net additions were 267,000. Consumer operating income rose 2.1% in Q3, while its operating margin declined to 32.5% from 34.2%, reflecting expense growth, including equipment costs.
- Business: Revenue declined 0.8% in Q3 but increased 1.4% year to date. Traditional voice/data and wholesale revenues continued to face secular declines. Business operating income fell 4.0% in Q3 and 6.4% year to date; its Q3 operating margin was 11.5% versus 11.9%.
- Comparability and special items: Verizon completed the sale of Verizon Media on September 1. The transaction produced a reported $706M net gain after associated costs; it also reduced Q3 year-over-year corporate revenue comparisons. A $1.2B pension remeasurement gain for the first nine months and $1.1B of early debt-redemption costs also affected results. In 2020, results included a $1.2B spectrum-license loss, among other items.
Outlook, risks and contingencies
- Management expected 2021 capital expenditures of $17.5B–$18.5B, excluding C-Band deployment spending. C-Band spending was expected to total approximately $10B over three years, including $2B–$3B in 2021. The filing does not provide a clear numerical earnings or revenue guidance range.
- Verizon paid $45.5B for C-Band licenses and estimated an additional $7.7B for incumbent clearing costs and incentives, with payments expected through 2024 and clearing required by December 2025. Timing and amounts may vary with incumbent clearing progress.
- The TracFone acquisition, for approximately $3.1B cash and $3.1B in Verizon stock, plus up to $650M of contingent consideration, remained subject to approvals and was expected to close in Q4 2021.
- Management cited ongoing uncertainty from COVID-19 and the Delta variant, competition, execution and timing risks in 5G deployment, cyber threats, supplier disruptions, high indebtedness, interest-rate and credit-market conditions, and benefit-plan and regulatory risks.
- Legal and regulatory matters were ongoing; the company said it could not estimate potential losses above accrued amounts. It did not expect ultimate resolution to materially affect financial condition, though an individual period’s results could be affected. Tax liabilities for unrecognized benefits were $2.7B, and could change significantly over the next 12 months.
Important facts for investors to verify
- How much reported earnings growth reflects recurring operations versus the Verizon Media sale and pension remeasurement items.
- Progress, clearing obligations and deployment timing for C-Band, and total cash requirements beyond the stated capital-expenditure range.
- Debt reduction capacity after spectrum spending, including cash generation, dividend commitments and upcoming maturities.
- Consumer retention and margin trends, and whether Business revenue declines in legacy services continue.
- Completion and integration of the TracFone acquisition, including regulatory conditions and contingent payments.