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Press Release -- April 19th, 2012
Source: Verizon
Tags:

Verizon Reports Double-Digit Earnings Growth and Increased Operating Cash Flow in First-Quarter 2012

Verizon Wireless Increases Service Revenues by 7.7 Percent, Expands Margins; Demand Remains Strong for FiOS and Strategic Services

NEW YORK, April 19, 2012 /PRNewswire/ --

1Q 2012 HIGHLIGHTS

Consolidated

  • 59 cents in diluted earnings per share (EPS), compared with 51 cents per share in 1Q 2011 – a 15.7 percent increase.
  • $6.0 billion in cash flow from operating activities, up $922 million compared with 1Q 2011.
  • 4.6 percent year-over-year quarterly revenue growth.

Wireless

  • 7.7 percent year-over-year increase in service revenues in 1Q 2012; 8.9 percent year-over-year increase in retail service revenues; highest growth rate in three years; data revenues up 21.1 percent; 28.6 percent operating income margin and 46.3 percent Segment EBITDA margin on service revenues (non-GAAP).
  • 734,000 retail net customer additions, excluding acquisitions and adjustments, includes 501,000 retail postpaid net customer additions; continued low retail postpaid churn of 0.96 percent.
  • 93.0 million total retail customers; 88.0 million total retail postpaid customers.

Wireline

  • 193,000 FiOS Internet and 180,000 FiOS Video net additions, with increased sales penetration for both products; net increase of 104,000 broadband connections from 4Q 2011; FiOS Internet customers now total more than 5 million.
  • 8.1 percent year-over-year increase in consumer ARPU; 63 percent of consumer revenues generated by FiOS.
  • 11.6 percent increase in strategic services revenues, representing 51 percent of global enterprise revenues.

Verizon Communications Inc. (NYSE, NASDAQ: VZ) today reported double-digit percentage growth in year-over-year quarterly earnings results and increased cash flow in first-quarter 2012.  Verizon Wireless posted another quarter of profitable revenue growth, while Verizon's Wireline segment posted another quarter of customer and revenue gains for FiOS fiber-optic services, and increased sales of strategic business services.

Verizon reported 59 cents in EPS in first-quarter 2012, an increase of 15.7 percent compared with first-quarter 2011 earnings of 51 cents per share.  There were no adjustments in either period.

'On Track to Continue to Deliver Strong Results'

"Verizon delivered double-digit earnings growth and strong cash flow this quarter," said Lowell McAdam, Verizon chairman and CEO.  "We built momentum coming out of 2011, and our results show that we continue to execute in the key growth areas of our business.  Verizon Wireless produced both great growth and great margins, and we produced another strong quarter of FiOS growth.  We are confident we will improve Wireline margins for the full year.  Our repositioning of Verizon Enterprise Solutions has better aligned our strengths in high-growth markets, and we expect our enterprise business to contribute even more to overall Wireline revenue growth and profitability over time."

He added: "We remain confident in our ability to take advantage of the growth opportunities we see, and we are focused on driving operating efficiencies.  We are on track with our plans and expect to continue to deliver strong results."

Strong Cash Flows, Increased Capital Efficiency

In first-quarter 2012, Verizon's total operating revenues were $28.2 billion on a consolidated basis, an increase of 4.6 percent compared with first-quarter 2011.

Consolidated operating income was $5.2 billion in first-quarter 2012, compared with $4.5 billion in first-quarter 2011.  Consolidated EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) totaled $9.2 billion in first-quarter 2012, compared with $8.5 billion in first-quarter 2011.

Cash flow from operating activities totaled $6.0 billion in first-quarter 2012, an increase of $922 million compared with first-quarter 2011.  Capital expenditures totaled $3.6 billion in first-quarter 2012, a decrease of $798 million compared with first-quarter 2011, as Verizon improved its capital-to-revenue efficiency.  Free cash flow (non-GAAP, cash flow from operations less capex) was $2.4 billion in first-quarter 2012, compared with $672 million in first-quarter 2011.  Verizon expects increasing free cash flow levels through 2012.

Verizon Wireless Delivers Strong Financial, Operational Results

In first-quarter 2012, Verizon Wireless delivered strong growth in revenues and retail customers; increased retail postpaid ARPU (average monthly service revenue per user) and smartphone penetration; and delivered a strong EBITDA margin.

Wireless Financial Highlights

  • Service revenues in the quarter totaled $15.4 billion, up 7.7 percent year over year.  Retail service revenues grew 8.9 percent year over year, to $14.9 billion, an increase of 110 basis points over fourth-quarter 2011 and the highest growth rate in three years.
  • Data revenues were $6.6 billion, up $1.1 billion – or 21.1 percent – year over year, and represent 42.9 percent of all service revenues.  Total revenues were $18.3 billion, up 8.2 percent year over year.
  • Retail postpaid ARPU grew 3.6 percent over first-quarter 2011, to $55.43.  Retail postpaid data ARPU increased to $23.80, up 16.0 percent year over year.  Retail service ARPU grew 3.4 percent, to $53.66.
  • Wireless operating income margin was 28.6 percent.  Segment EBITDA margin on service revenues (non-GAAP) was 46.3 percent.

Wireless Operational Highlights

  • Verizon Wireless added 734,000 retail net customers in the first quarter, including 501,000 retail postpaid net customers.  These additions exclude acquisitions and adjustments.
  • At the end of the first quarter, the company had 93.0 million retail customers, a 5.2 percent increase year over year, including 88.0 million retail postpaid customers.
  • At the end of the first quarter, nearly 47 percent of Verizon Wireless' retail postpaid customer phone base were smartphones, up from 43.5 percent at the end of fourth-quarter 2011.
  • Retail postpaid churn was 0.96 percent, an improvement of 5 basis points year over year. Total retail churn was 1.24 percent, an improvement of 9 basis points year over year.
  • Verizon Wireless continued to roll out its 4G LTE mobile broadband network, the largest such network in the U.S.  As of today, Verizon Wireless 4G LTE service is available to more than 200 million people in 230 markets across the U.S. – more than two-thirds of the population.
  • Verizon Wireless introduced five new 4G LTE devices in the first quarter 2012:  the Droid 4 and Droid Razr Maxx by Motorola, the Spectrum and Lucid by LG, and the Samsung Galaxy Tab 7.7.  In addition, the Apple iPad with Wi-Fi + 4G became available from Verizon Wireless in mid-March.

FiOS Continues to Add Customers, Increase Sales Penetration

In first-quarter 2012 in the Wireline segment, continued strong demand for FiOS services led to revenue growth generated by U.S. consumer wireline customers and continued gains in FiOS sales penetration.  Globally, continued strong sales of strategic services helped mitigate lower revenues resulting from Verizon's targeted efforts to eliminate products that do not meet the company's profitability requirements, and continued secular pressures in wholesale.

Wireline Financial Highlights

  • First-quarter 2012 operating revenues were $9.9 billion, a decline of 2.0 percent compared with first-quarter 2011.  Wireline operating income margin was 1.6 percent, compared with 2.8 percent in first-quarter 2011, and Segment EBITDA margin (non-GAAP) was 22.6 percent, compared with 23.6 percent in first-quarter 2011.
  • Consumer revenues grew 1.7 percent compared with first-quarter 2011.  Consumer ARPU for wireline services was $97.88 in first-quarter 2012, up 8.1 percent compared with first-quarter 2011.  ARPU for FiOS customers continued to total more than $148 in first-quarter 2012.  FiOS services to consumer retail customers represented 63 percent of consumer wireline revenues in first-quarter 2012.
  • Global enterprise revenues totaled $3.9 billion in the quarter, up 0.9 percent compared with first-quarter 2011.  Sales of strategic services – including Terremark cloud services, security and IT solutions, and strategic networking – increased 11.6 percent compared with first-quarter 2011 and represented 51 percent of global enterprise revenues in first-quarter 2012.

Wireline Operational Highlights

  • Verizon added 193,000 net new FiOS Internet connections and 180,000 net new FiOS Video connections in first-quarter 2012.  Verizon had a total of 5.0 million FiOS Internet and 4.4 million FiOS Video connections at the end of the quarter.
  • FiOS penetration (subscribers as a percentage of potential subscribers) continued to increase.  FiOS Internet penetration was 36.4 percent at the end of first-quarter 2012, compared with 33.1 percent at the end of first-quarter 2011.  In the same periods, FiOS Video penetration was 32.3 percent, compared with 29.1 percent.
  • Broadband connections totaled 8.8 million at the end of first-quarter 2012, a 3.3 percent year-over-year increase.  The net increase of 104,000 broadband connections from fourth-quarter 2011 was the highest quarterly net-add total since second-quarter 2009.
  • Verizon continued to expand its next-generation 100 gigabit-per-second network, enabling several more network routes in the U.S. and two additional routes in Europe.
  • The company also took advantage of the fully activated Europe India Gateway submarine cable system. The 15,000 kilometer high-bandwidth optical system, with a design capacity of 3.84 terabits per second, provides much needed diversity for future Internet, e-commerce, data, video and voice services from the United Kingdom to India.

Strategic Agreements Unveiled for Global Sales

Verizon Enterprise Solutions, a sales and marketing organization that harnesses all of Verizon's cloud, mobility and technology solutions for business and government customers globally, unveiled strategic agreements in first-quarter 2012 to develop offerings in mobile health, electronic health records management and secure e-prescribing.

The organization also announced a digital-signage solution for retail customers, powered by Verizon's 4G LTE network and infrastructure; unveiled new telematics solutions for the automotive and transportation industries; and rolled out a cross-platform open video communications capability.

NOTE: See the accompanying schedules and www.verizon.com/investor  for reconciliations to generally accepted accounting principles (GAAP) for non-GAAP financial measures cited in this document.

Verizon Communications Inc. (NYSE, NASDAQ: VZ), headquartered in New York, is a global leader in delivering broadband and other wireless and wireline communications services to consumer, business, government and wholesale customers.  Verizon Wireless operates America's most reliable wireless network, with 93 million retail customers nationwide.  Verizon also provides converged communications, information and entertainment services over America's most advanced fiber-optic network, and delivers integrated business solutions to customers in more than 150 countries, including all of the Fortune 500.  A Dow 30 company with $111 billion in 2011 revenues, Verizon employs a diverse workforce of nearly 192,000.  For more information, visit www.verizon.com.

VERIZON'S ONLINE NEWS CENTER: Verizon news releases, executive speeches and biographies, media contacts, high-quality video and images, and other information are available at Verizon's News Center on the World Wide Web at www.verizon.com/news.  To receive news releases by email, visit the News Center and register for customized automatic delivery of Verizon news releases.

NOTE: This presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. 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 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; competition in our markets; material adverse changes in labor matters, including labor negotiations or additional organizing activity, and any resulting financial and/or operational impact; material changes in available technology; any disruption of our key suppliers' provisioning of products or services; significant increases in benefit plan costs or lower investment returns on plan assets; breaches of network or information technology security, natural disasters or terrorist attacks or existing or future litigation and any resulting financial impact not covered by insurance; technology substitution; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets impacting the cost, including interest rates, and/or availability of financing; any changes in the regulatory environments in which we operate, including any increase in restrictions on our ability to operate our networks; the timing, scope and financial impact of our deployment of broadband technology; changes in our 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; our ability to complete acquisitions and dispositions; and the inability to implement our business strategies.

Verizon Communications Inc.
Condensed Consolidated Statements of Income
 

(dollars in millions, except per share amounts)

 3 Mos. Ended  3 Mos. Ended
Unaudited  3/31/12  3/31/11  % Change
Operating Revenues $        28,242 $        26,990 4.6
Operating Expenses
Cost of services and sales 11,319 11,229 0.8
Selling, general and administrative expense 7,700 7,284 5.7
Depreciation and amortization expense 4,028 4,024 0.1
Total Operating Expenses 23,047 22,537 2.3
Operating Income 5,195 4,453 16.7
Equity in earnings of unconsolidated businesses 103 101 2.0
Other income and (expense), net 19 36 (47.2)
Interest expense (685) (709) (3.4)
Income Before Provisionfor Income Taxes 4,632 3,881 19.4
Provisionfor income taxes (726) (617) 17.7
Net Income $           3,906 $           3,264 19.7
Net income attributable to noncontrolling interest $           2,220 $           1,825 21.6
Net incomeattributable to Verizon 1,686 1,439 17.2
Net Income $           3,906 $           3,264 19.7
Basic Earnings per Common Share
Net income attributable to Verizon $               .59 $               .51 15.7
Weighted average number of common shares (in millions) 2,842 2,830
Diluted Earningsper Common Share (1)
Net income attributable to Verizon $               .59 $               .51 15.7
Weighted average number of common
shares-assuming dilution (in millions) 2,849 2,834
Footnotes:
(1) Diluted Earnings per Common Share includes the dilutive effect of shares issuable under our stock-based compensation plans, which represents the only potential dilution.
Certain reclassifications have been made, where appropriate, to reflect comparable operating results.
Verizon Communications Inc.
Condensed Consolidated Balance Sheets
(dollars in millions)
Unaudited  3/31/12  12/31/11  $ Change
Assets
Current assets
Cash and cash equivalents $               5,909 $             13,362 $         (7,453)
Short-term investments 623 592 31
Accounts receivable, net 11,234 11,776 (542)
Inventories 1,063 940 123
Prepaid expenses and other 4,683 4,269 414
Total current assets 23,512 30,939 (7,427)
Plant, property and equipment 218,250 215,626 2,624
Less accumulated depreciation 130,064 127,192 2,872
88,186 88,434 (248)
Investments in unconsolidated businesses 3,566 3,448 118
Wireless licenses 73,294 73,250 44
Goodwill 23,465 23,357 108
Other intangible assets, net 5,744 5,878 (134)
Other assets 5,154 5,155 (1)
Total Assets $           222,921 $           230,461 $         (7,540)
Liabilities and Equity
Current liabilities
Debt maturing within one year $               3,121 $               4,849 $         (1,728)
Accounts payable and accrued liabilities 13,231 14,689 (1,458)
Other 6,561 11,223 (4,662)
Total current liabilities 22,913 30,761 (7,848)
Long-term debt  48,476 50,303 (1,827)
Employee benefit obligations 32,164 32,957 (793)
Deferred income taxes 25,610 25,060 550
Other liabilities 5,337 5,472 (135)
Equity
Common stock 297 297 -
Contributed capital 37,926 37,919 7
Reinvested earnings 1,444 1,179 265
Accumulated other comprehensive income 1,398 1,269 129
Common stock in treasury, at cost (4,735) (5,002) 267
Deferred compensation - employee
stock ownership plans and other 341 308 33
Noncontrolling interest 51,750 49,938 1,812
Total equity 88,421 85,908 2,513
Total Liabilities and Equity $           222,921 $           230,461 $         (7,540)
Verizon - Selected Financial and Operating Statistics
Unaudited  3/31/12  12/31/11
Total debt (in millions) $             51,597 $             55,152
Net debt (in millions) $             45,688 $             41,790
Net debt / Adjusted EBITDA (1) 1.3x 1.2x
Common shares outstanding end of period (in millions) 2,841 2,834
Total employees 191,800 193,900
Quarterly cash dividends declared per common share $                  0.50 $                  0.50
Footnotes:
(1)  Adjusted EBITDA excludes the effects of non-operational items.
 

The unaudited condensed consolidated balance sheets are based on preliminary information.

Verizon Communications Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in millions)
 3 Mos. Ended  3 Mos. Ended
Unaudited  3/31/12  3/31/11  $ Change
Cash Flows From Operating Activities
Net Income $           3,906 $           3,264 $            642
Adjustments to reconcile net income to net cash provided by
    operating activities:
Depreciation and amortization expense 4,028 4,024 4
Employee retirement benefits 375 373 2
Deferred income taxes 656 790 (134)
Provision for uncollectible accounts 278 270 8
Equity in earnings of unconsolidated businesses, net of dividends received (89) (86) (3)
Changes in current assets and liabilities, net of
    effects from acquisition/disposition of businesses (1,580) (2,070) 490
Other, net (1,617) (1,530) (87)
Net cash provided by operating activities 5,957 5,035 922
Cash Flows From Investing Activities
Capital expenditures (including capitalized software) (3,565) (4,363) 798
Acquisitions of licenses, investments and businesses, net of cash acquired (165) (104) (61)
Net change in short-term investments 16 24 (8)
Other, net 41 68 (27)
Net cash used in investing activities (3,673) (4,375) 702
Cash Flows From Financing Activities
Proceeds from long-term borrowings - 6,440 (6,440)
Repayments of long-term borrowings and capital
lease obligations
(1,828) (552) (1,276)
Increase (decrease) in short-term obligations, excluding
current maturities
(1,734) 2,384 (4,118)
Dividends paid (1,291) (1,379) 88
Proceeds from sale of common stock 69 70 (1)
Special distribution to noncontrolling interest (4,500) - (4,500)
Other, net (453) (284) (169)
Net cash provided by (used in) financing activities (9,737) 6,679 (16,416)
Increase (decrease) in cash and cash equivalents (7,453) 7,339 (14,792)
Cash and cash equivalents, beginning of period 13,362 6,668 6,694
Cash and cash equivalents, end of period $           5,909 $        14,007 $       (8,098)
Verizon Communications Inc.
Verizon Wireless – Selected Financial Results
(dollars in millions)
 3 Mos. Ended  3 Mos. Ended
Unaudited 3/31/12 3/31/11  % Change
Operating Revenues
Retail service $           14,886 $           13,674 8.9
Other service 524 637 (17.7)
Service 15,410 14,311 7.7
Equipment 1,838 1,689 8.8
Other 1,025 881 16.3
Total Operating Revenues 18,273 16,881 8.2
Operating Expenses
Cost of services and sales 5,910 5,880 0.5
Selling, general and administrative expense 5,228 4,751 10.0
Depreciation and amortization expense 1,918 1,899 1.0
Total Operating Expenses 13,056 12,530 4.2
Operating Income $             5,217 $             4,351 19.9
Operating Income Margin 28.6% 25.8%
Segment EBITDA $             7,135 $             6,250 14.2
Segment EBITDA Service Margin 46.3% 43.7%
Footnotes:
The segment financial results and metrics above are adjusted to exclude the effects of non-operational items, as the Company's chief operating decision maker excludes these items in assessing business unit performance.
Intersegment transactions have not been eliminated.
Certain reclassifications have been made, where appropriate, to reflect comparable operating results.
Verizon Communications Inc.
Verizon Wireless – Selected Operating Statistics
Unaudited 3/31/12 3/31/11  % Change
Connections ('000)
Retail postpaid 87,963 84,031 4.7
Retail prepaid 5,025 4,383 14.6
Retail 92,988 88,414 5.2
 3 Mos. Ended  3 Mos. Ended
Unaudited 3/31/12 3/31/11  % Change
Net Add Detail (1) ('000)
Retail postpaid 501 906 (44.7)
Retail prepaid 233 (27)  *
Retail 734 879 (16.5)
Churn Detail
Retail postpaid 0.96% 1.01%
Retail 1.24% 1.33%
Revenue and ARPU Statistics
Total data revenues (in millions) $             6,608 $             5,458 21.1
Retail postpaid data ARPU $             23.80 $             20.51 16.0
Total data as a % of service revenues 42.9% 38.1%
Retail service ARPU $             53.66 $             51.88 3.4
Retail postpaid ARPU $             55.43 $             53.52 3.6
Retail Postpaid Connection Statistics
Total Smartphone postpaid % of phones sold 72.4% 60.0%
Total Smartphone postpaid phone base 46.8% 32.2%
Total Internet postpaid base 8.3% 7.3%
Other Operating Statistics
Capital expenditures (in millions) $             1,885 $             2,735 (31.1)
Footnotes:
(1)   Connection net additions exclude acquisitions and adjustments.
 

The segment financial results and metrics above are adjusted to exclude the effects of non-operational items, as the

Company's chief operating decision maker excludes these items in assessing business unit performance.

 

Intersegment transactions have not been eliminated.

 

Certain reclassifications have been made, where appropriate, to reflect comparable operating results.

*      Not meaningful
Verizon Communications Inc.
Wireline – Selected Financial Results
(dollars in millions)
 3 Mos. Ended  3 Mos. Ended
Unaudited 3/31/12 3/31/11  % Change
Operating Revenues
Consumer retail $             3,441 $             3,383 1.7
Small business 662 695 (4.7)
Mass Markets 4,103 4,078 0.6
Strategic services 1,969 1,765 11.6
Core 1,883 2,051 (8.2)
Global Enterprise 3,852 3,816 0.9
Global Wholesale 1,861 2,042 (8.9)
Other 129 211 (38.9)
Total Operating Revenues 9,945 10,147 (2.0)
Operating Expenses
Cost of services and sales 5,572 5,462 2.0
Selling, general and administrative expense 2,126 2,290 (7.2)
Depreciation and amortization expense 2,090 2,107 (0.8)
Total Operating Expenses 9,788 9,859 (0.7)
Operating Income $                157 $                288 (45.5)
Operating Income Margin 1.6% 2.8%
Segment EBITDA $             2,247 $             2,395 (6.2)
Segment EBITDA Margin 22.6% 23.6%
Footnotes:
The segment financial results and metrics above are adjusted to exclude the effects of non-operational items, as the Company's chief operating decision maker excludes these items in assessing business unit performance.
Intersegment transactions have not been eliminated.
Certain reclassifications have been made, where appropriate, to reflect comparable operating results.
Verizon Communications Inc.
Wireline – Selected Operating Statistics
Unaudited  3/31/12  3/31/11  % Change
Connections ('000)
 

FiOS Video Subscribers

4,353 3,664 18.8
 

FiOS Internet Subscribers

5,010 4,289 16.8
 

FiOS Digital Voice residence connections

2,298 977 *
FiOS Digital connections 11,661 8,930 30.6
 

HSI and other

3,764 4,201 (10.4)
Total Broadband connections 8,774 8,490 3.3
 

Primary residence switched access connections

9,344 11,359 (17.7)
Primary residence connections 11,642 12,336 (5.6)
Total retail residence voice connections 12,421 13,327 (6.8)
Total voice connections 23,700 25,454 (6.9)
 3 Mos. Ended  3 Mos. Ended
Unaudited 3/31/12  3/31/11  % Change
Net Add Detail ('000)
 

FiOS Video Subscribers

180 192 (6.3)
 

FiOS Internet Subscribers

193 207 (6.8)
 

FiOS Digital Voice residence connections

414 160 *
FiOS Digital connections 787 559 40.8
 

HSI and other

(89) (109) (18.3)
Total Broadband connections 104 98 6.1
 

Primary residence switched access connections

(562) (398) 41.2
Primary residence connections (148) (238) (37.8)
Total retail residence voice connections (205) (289) (29.1)
Total voice connections (437) (547) (20.1)
Revenue and ARPU Statistics
Consumer ARPU $             97.88 $             90.55 8.1
FiOS revenues (in millions) $             2,288 $             1,941 17.9
Strategic services as a % of total Enterprise revenues 51.1% 46.3%
Other Operating Statistics
Capital expenditures (in millions) $             1,537 $             1,465 4.9
Wireline employees ('000) 90.8 92.0
FiOS Video Open for Sale ('000) 13,460 12,585
FiOS Video penetration 32.3% 29.1%
FiOS Internet Open for Sale ('000) 13,780 12,962
FiOS Internet penetration 36.4% 33.1%
Footnotes:
 

The segment financial results and metrics above are adjusted to exclude the effects of non-operational items, as the
Company's chief operating decision maker excludes these items in assessing business unit performance.

 

Intersegment transactions have not been eliminated.

 

Certain reclassifications have been made, where appropriate, to reflect comparable operating results.

*    Not meaningful

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