Verizon Reports High-Quality Customer Additions in 4Q, Caps Year in Position to Drive Continued Profitable Growth
4Q 2014 HIGHLIGHTS
(PDF of Financial Tables)
- A loss of 54 cents per share, compared with earnings per share (EPS) of $1.76 in 4Q 2013, including significant non-operational items in both quarters, primarily related to the annual actuarial valuation of benefit plans and mark-to-market pension adjustments.
- 71 cents in adjusted EPS (non-GAAP), a 7.6 percent increase compared with adjusted EPS of 66 cents per share in 4Q 2013.
- 2.1 million net retail connections; 2.0 million net retail postpaid connections, including net additions of 672,000 postpaid phones; retail postpaid churn of 1.14 percent; 108.2 million total retail connections and 102.1 million total retail postpaid connections.
- 11.0 percent increase in total operating revenues in 4Q 2014, bringing full-year total revenues to $87.6 billion, up 8.2 percent compared with full-year 2013.
- 23.5 percent operating income margin and 42.0 percent segment EBITDA margin on service revenues (non-GAAP) in 4Q; 30.5 percent and 48.5 percent, respectively, for the full year.
- 4.1 percent year-over-year quarterly increase in consumer revenues, the 10th consecutive quarter of more than 4 percent growth.
- 11.6 percent year-over-year quarterly increase in FiOS revenues; 145,000 FiOS Internet and 116,000 FiOS Video net additions; 59,000 increase in net broadband connections.
NEW YORK – Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported a healthy quarter of high-quality wireless connections growth, and customer and revenue growth for fiber-optic broadband services.
Chairman and CEO Lowell McAdam said: “Verizon posted another year of consistently high operating and financial performance in 2014, with strong cash generation and the return of $7.8 billion to our shareowners. I am confident that Verizon’s assets and market momentum position us to continue to drive profitable growth in 2015.”
Due to the impact of non-operational items, Verizon reported a loss of 54 cents per share in fourth-quarter 2014, compared with a gain of $1.76 in EPS in fourth-quarter 2013.
On an adjusted basis (non-GAAP), Verizon reported a gain of 71 cents per share in fourth-quarter 2014, a 7.6 percent increase compared with adjusted earnings of 66 cents per share in fourth-quarter 2013.
Fourth-quarter 2014 charges totaled $1.25 per share: $1.12 per share related to the company’s year-end mark-to-market adjustment for pension and Other Post-Employment Benefits liabilities, as well as severance costs; and 13 cents per share related to the early retirement of debt and other costs.
Fourth-quarter 2013 charges included a non-operational gain of $1.29 per share related to the annual actuarial valuation of benefit plans and mark-to-market pension adjustments. This was partially offset by non-operational charges of 19 cents per share for transaction costs related to the acquisition of Vodafone Group PLC’s indirect 45 percent interest in Verizon Wireless (completed in February 2014).
For the full year, Verizon reported $2.42 in EPS in 2014, compared with $4.00 in 2013. On an adjusted basis (non-GAAP), Verizon reported $3.35 in EPS in 2014, an increase of 18.0 percent compared with $2.84 in adjusted EPS in 2013.
Following are highlights of fourth-quarter and full-year 2014 consolidated results and outlook items for 2015:
- Total operating revenues in fourth-quarter 2014 were $33.2 billion, a 6.8 percent increase compared with fourth-quarter 2013. Full-year 2014 operating revenues were $127.1 billion, up 5.4 percent or $6.5 billion, compared with full-year 2013.
- Excluding 2013 revenues of the public sector business Verizon divested at the beginning of third-quarter 2014, the comparable revenue growth rates (non-GAAP) would have been 7.3 percent for fourth-quarter 2014 and 5.7 percent for the full year.
- New revenue streams from the Internet of Things and telematics totaled approximately $585 million in 2014, with an annual growth rate of more than 45 percent. The company recently launched Verizon Vehicle, a connected-vehicle service for consumers, with an addressable market of more than 200 million vehicles.
- In 2014, cash flows from operations totaled $30.6 billion, and free cash flow (non-GAAP, cash from operations less capital expenditures) totaled $13.4 billion. Capital expenditures totaled $17.2 billion for 2014, up 3.5 percent year over year.
For 2015, Verizon expects:
- Consolidated revenue growth of at least 4 percent.
- Sustained profitability with a consolidated adjusted EBITDA margin at a level consistent with full-year 2014 performance.
- Strong free cash flow generation with consolidated capital spending of between $17.5 billion and $18.0 billion.
- A minimum pension-funding requirement of approximately $700 million.
- An increase in total cash income taxes, with an expected effective tax rate for book purposes in the range of 34 to 36 percent.
Verizon Wireless Delivers Another Quarter of Strong Connections Growth
In fourth-quarter 2014, Verizon activated an unprecedented number of new wireless devices, driven by demand from the company’s high-quality retail postpaid customer base. Verizon Wireless delivered strong growth in retail postpaid net connections, a high number of tablet additions and an increase in smartphone penetration.
Wireless Financial Highlights
- Total revenues were $23.4 billion in fourth-quarter 2014, up 11.0 percent year over year. Service revenues in the quarter totaled $18.2 billion, up 2.8 percent year over year. Retail service revenues grew 2.6 percent year over year, to $17.4 billion.
- Verizon Wireless full-year total revenues were $87.6 billion, an increase of 8.2 percent compared with full-year 2013 revenues of $81.0 billion.
- Verizon Edge installment billings totaled $443 million in fourth-quarter 2014 and $976 million for the full year. Service revenues plus Edge installment billings grew 5.2 percent in fourth-quarter 2014 and 6.6 percent for the full year compared with 2013.
- Retail postpaid ARPA (average revenue per account) increased 1.0 percent over fourth-quarter 2013 to $158.82 per month, and 3.9 percent over the full year. Adding Edge installment billings, these growth rates increase to 3.5 percent for the quarter and 5.3 percent for the full year.
- In fourth-quarter 2014, wireless operating income margin was 23.5 percent and segment EBITDA margin on service revenues (non-GAAP, based on earnings before interest, taxes, depreciation and amortization) was 42.0 percent. This compares with 29.5 percent and 47.0 percent, respectively, in fourth-quarter 2013.
- For full-year 2014, wireless operating income margin was 30.5 percent and segment EBITDA margin on service revenues was 48.5 percent, compared with 32.1 percent and 49.5 percent, respectively, in 2013.
Wireless Operational Highlights
- Verizon Wireless added 2.1 million retail net connections, including 2.0 million retail postpaid connections, in the fourth quarter. These additions exclude acquisitions and adjustments.
- At the end of the year, the company had 108.2 million retail connections. This includes 102.1 million retail postpaid connections, a 5.5 percent increase year over year.
- Verizon Wireless had 35.6 million retail postpaid accounts at the end of the fourth quarter, up 1.5 percent compared with fourth-quarter 2013, and 2.87 connections per account, up 4.0 percent year over year.
- During fourth-quarter 2014, retail postpaid device activations were up nearly 34 percent over the same period in 2013. About three-quarters of phone activations in the quarter were customer upgrades. Approximately 9.8 percent of the retail postpaid base upgraded devices, and 93 percent of these upgrades were 4G smartphones.
- The company added a net of 672,000 postpaid phones, as 4G smartphone additions of 1.5 million were offset by net declines in basic and 3G smartphones. In terms of Internet devices, the company added 1.4 million new 4G LTE tablets.
- At the end of 2014, smartphones accounted for 78.6 percent of the Verizon Wireless retail postpaid customer phone base, up from 70.0 percent at the end of 2013.
- Retail postpaid churn was 1.14 percent in the fourth quarter, an increase of 14 basis points sequentially and 18 basis points year over year. Retail churn was 1.39 percent in the fourth quarter, up 10 basis points sequentially and 12 basis points year over year.
- In the fourth quarter, Verizon Wireless added new devices to its lineup, including: DROID Turbo by Motorola; Sony Xperia Z3v; iPad Air 2 with Wi-Fi + Cellular and iPad mini 3 with Wi-Fi + Cellular; the LG G Pad 7.0 LTE and 10.1 LTE; the Ellipsis Jetpack; and the connected wearable devices GizmoPal by LG and Samsung Gear S.
Wireline Consumer Revenue Growth Remains Strong
Verizon’s wireline segment reported continued strong results for consumer services, where year-over-year quarterly revenues now have grown by more than 4 percent for 10 consecutive quarters.
Wireline Financial Highlights
- Total revenues were $9.6 billion in fourth-quarter 2014, down 1.6 percent year over year. Consumer revenues were $4.0 billion, up 4.1 percent compared with fourth-quarter 2013, with FiOS revenues representing 77 percent of the total.
- Total FiOS revenues grew 11.6 percent, to $3.3 billion, comparing fourth-quarter 2014 with fourth-quarter 2013. For the full year, FiOS revenues totaled $12.7 billion in 2014, up 13.6 percent compared with $11.2 billion in 2013.
- Wireline operating income margin was 4.4 percent in fourth-quarter 2014, up from 1.2 percent in fourth-quarter 2013. Segment EBITDA margin (non-GAAP) was 23.9 percent in fourth-quarter 2014, compared with 22.5 percent in fourth-quarter 2013. For the full year, wireline operating income margin expanded to 2.7 percent and segment EBITDA margin expanded to 23.2 percent, compared with 0.9 percent and 22.4 percent, respectively, in 2013.
- Sales of strategic services to enterprise customers increased 1.5 percent, to $2.1 billion, compared with fourth-quarter 2013. Strategic services include private IP, Ethernet, data center, cloud, security and managed services.
Wireline Operational Highlights
- In fourth-quarter 2014, Verizon added 145,000 net new FiOS Internet connections and 116,000 net new FiOS Video connections. Verizon had totals of 6.6 million FiOS Internet and 5.6 million FiOS Video connections at year-end 2014, representing year-over-year increases of 9.0 percent and 7.4 percent, respectively.
- FiOS Internet penetration (subscribers as a percentage of potential subscribers) was 41.1 percent at the end of 2014, compared with 39.5 percent at the end of 2013. In the same periods, FiOS Video penetration was 35.8 percent, compared with 35.0 percent. The FiOS network passed more than 19.8 million premises by year-end 2014.
- By year-end 2014, 59 percent of consumer FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50 to 500 megabits per second, up from 57 percent at the end of third-quarter 2014.
- In November, the company began selling the FiOS Quantum Gateway Router, capable of delivering speeds up to 800 megabits per second over Wi-Fi. The device separates high-bandwidth activities (HD video streaming and online gaming) from regular data consumption (Web browsing and email). It will receive seamless updates regularly to provide increased functionality, such as guest Wi-Fi and enhanced parental controls.
- Broadband connections totaled 9.2 million at year-end 2014, a 2.1 percent year-over-year increase. Net broadband connections increased by 59,000 in fourth-quarter 2014 and 190,000 for the full year, as FiOS Internet net additions more than offset declines in DSL-based High Speed Internet connections.
- Verizon has been replacing high-maintenance portions of its residential copper network with fiber optics to provide customers with a more resilient infrastructure, which improves customer satisfaction and reduces repair costs. In fourth-quarter 2014, Verizon migrated an additional 52,000 customers who had been using copper connections, bringing the full-year total to around 255,000. Verizon has converted more than 800,000 customers to fiber since starting this initiative in 2011.
- In the fourth quarter, Verizon Enterprise Solutions began deploying innovative enterprise-grade network, cloud, security, mobility and other business solutions for some of the world’s strongest brands, including Allstate, Benihana, JetBlue, Kronos Incorporated, Marriott International, Pitney Bowes, Spirax Sarco, Warner Bros. Entertainment Inc. and WoundMatrix, and critical public sector organizations such as Boston City Public Schools, Centers for Medicare and Medicaid Services, Defense Information Systems Agency, GOV.UK and the U.S. General Services Administration.
NOTE: See the accompanying schedules and www.verizon.com/about/investors/quarterly-reports for reconciliations to generally accepted accounting principles (GAAP) for non-GAAP financial measures cited in this document.
In this communication we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes” or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors, along with those discussed in our filings with the Securities and Exchange Commission (the “SEC”), could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: adverse conditions in the U.S. and international economies; the effects of competition in the markets in which we operate; material changes in technology or technology substitution; disruption of our key suppliers’ provisioning of products or services; changes in the regulatory environment in which we operate, including any increase in restrictions on our ability to operate our networks; breaches of network or information technology security, natural disasters, terrorist attacks or acts of war or significant litigation and any resulting financial impact not covered by insurance; our high level of indebtedness; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets affecting the cost, including interest rates, and/or availability of further financing; material adverse changes in labor matters, including labor negotiations, and any resulting financial and/or operational impact; significant increases in benefit plan costs or lower investment returns on plan assets; changes in tax laws or treaties, or in their interpretation; changes in accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; and the inability to implement our business strategies.
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