Verizon Communications Reports 6% Second-Quarter Revenue Growth, Led by Wireless Revenue Growth of 25%

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  • Total Company: 6.0 percent growth in operating revenues; 64 cents in diluted earnings per share; consolidated operating income margin (operating income divided by operating revenues) of 20.9 percent

  • Free Cash Flow (non-GAAP, cash from operating activities less capital expenditures and dividends): $1.6 billion in the quarter, up 25.2 percent

  • Wireless: industry-record 1.5 million total net customer additions, 40.4 million total customers; 25.0 percent growth in total revenues; company-record margins, up 570 basis points; company record-low churn (customer turnover) of 1.45 percent per month

  • Broadband DSL (digital subscriber lines): 280,000 net additions in the quarter, contributing to 5.7 percent growth in total data revenues; more than 1 million net additions over the past year, for a total of more than 2.9 million lines

  • Long-Distance: 14.7 percent growth in revenues

Notes: Growth percentages cited above compare second-quarter 2004 with second-quarter 2003. See the schedules accompanying this news release and for reconciliations to generally accepted accounting principles (GAAP) for the non-GAAP financial measures mentioned in this announcement.

NEW YORK - Verizon Communications Inc. (NYSE:VZ) today reported second-quarter 2004 earnings of $1.8 billion, or 64 cents per diluted share. The results were driven by top-line consolidated revenue growth of 6.0 percent compared with second-quarter 2003 and 25.0 percent revenue growth for Verizon Wireless over the same period.

Consolidated operating revenues were $17.8 billion in the second quarter 2004, compared with $16.8 billion in the second quarter 2003. Growth businesses, such as wireless, data and broadband, accounted for 52 percent of Verizon's second-quarter 2004 revenues, compared with 46 percent of the company's second-quarter revenues last year.

Wireless total revenues were $6.8 billion in the second quarter 2004, compared with $5.5 billion in the second quarter 2003. This was the eighth consecutive quarter of double-digit, year-over-year wireless revenue increases.

Domestic Telecom operating revenues were $9.6 billion in the second quarter 2004, a 2.9 percent decrease compared with the second quarter 2003 and a slight increase compared with the first quarter 2004. Second-quarter results included an increase of 14.7 percent in revenues from all long-distance services, which were $1.0 billion compared with $0.9 billion in the second quarter 2003, and an increase of 5.7 percent in total data revenues, which were $1.9 billion compared with $1.8 billion in the second quarter 2003.

'Sustainable Growth'

"We were on the mark for the first half of 2004, and we are steadily building momentum for sustainable growth into the future," said Ivan Seidenberg, Verizon chairman and CEO.

"Verizon Wireless again extended its industry leadership with another outstanding quarter of profitable growth, including industry-record net customer additions. We also made headway in offsetting an anticipated decline in traditional wireline revenues with new revenues from broadband DSL, long-distance, data and Enterprise services. Our investments in these areas are paying off, as we continue to transform our revenue mix.

"Our results show that we have been executing on our plans. Cash-generation and our balance sheet remain strong, margins remain solid, and we have remained focused on customer service, product and technology innovation, and productivity improvements."

Wireless Leadership

Verizon Wireless' revenue increase of $1.37 billion was the second consecutive quarter of $1 billion-plus year-over-year quarterly revenue increases. The company added 1.5 million net new customers, the largest quarterly customer increase in the history of the company, which was formed in April 2000. Total customers grew 16.8 percent year-over-year to 40.4 million.

Average monthly service revenue per customer was at an all-time high for the company, while cash expense per customer was at an all-time low. The company continued to outperform the wireless sector, delivering record customer and revenue growth, profitability and efficiency.

Solid Margins

Verizon's consolidated operating income margin rose to 20.9 percent in the second quarter 2004, compared with 16.2 percent in the second quarter 2003. When adjusted to exclude the special and non-recurring items described later in this release as well as, for purposes of this calculation, net pension and OPEB (other post-retirement benefit) expenses or credits, Verizon's consolidated operating income margin would have been 22.1 percent in the second quarter 2004 and 21.1 percent in the second quarter 2003 (non-GAAP measures).

Verizon Wireless' operating income margin rose to 23.6 percent in the second quarter 2004, compared with 17.9 percent in the second quarter 2003.

Domestic Telecom's operating income margin was 14.8 percent in the second quarter 2004, compared with 19.6 percent in the second quarter 2003. When adjusted to exclude the items mentioned above, Domestic Telecom's operating income margin would have been 17.1 percent in the second quarter 2004 and 18.5 percent in the second quarter 2003 (non-GAAP measures).

Consistent with past practice, Verizon believes that excluding the impact of net pension and OPEB expenses or credits enhances comparability and provides a better picture of operating cost management.

Strong Cash Flows, Reduced Debt

Free cash flow was $1.6 billion for the second quarter of 2004, increasing from $1.3 billion in the second quarter of 2003. Free cash flow for the first half of 2004 was $1.9 billion, compared with $3.6 billion through the first half of 2003. In the first quarter of 2004, Verizon recorded severance payments associated with a 21,000-employee voluntary separation program, and throughout the first half of 2004 the company has invested more capital to fund wireless broadband and other growth initiatives.

Total debt at the end of the second quarter 2004 was $41.9 billion, compared with $45.4 billion at year-end 2003.

Expense Items

Reported operating expenses increased 0.1 percent compared with the second quarter 2003, to $14.1 billion in the second quarter 2004.

Adjusted for special and non-recurring items, operating expenses were $14.2 billion in the second quarter 2004, up 7.3 percent from the second quarter 2003. This increase was driven primarily by the impact of net OPEB costs and by costs associated with Verizon's growth businesses. Expenses in the second quarter of 2003 included a $72 million net pension and OPEB expense credit, while in the second quarter of 2004 expenses were increased by $268 million for these items.

In Domestic Telecom, wage and salary expenses decreased by more than $200 million year-over-year due to last year's voluntary separation program. These savings were used to fund increases in sales and marketing expenses and other operating costs in the growth areas of the wireline segment.

Special Items

Second-quarter 2004 reported earnings as well as earnings before special and non-recurring items were 64 cents per share. During the quarter, charges of 4 cents per share related to operating asset losses, pension settlements and the early retirement of debt offset an expense credit of 4 cents per share resulting from the favorable resolution of pre-bankruptcy amounts due from MCI.

By comparison, reported second-quarter 2003 earnings were 12 cents per share. Before non-recurring charges of $1.6 billion -- primarily related to the sale of Verizon's interest in Mexican wireless carrier Grupo Iusacell; severance, pension and other benefits costs; and other costs, including lease impairments and the early retirement of debt -- second-quarter 2003 earnings were 69 cents per share.

Business Segment Highlights

Following are second-quarter 2004 highlights from Verizon's four business segments.

Domestic Telecom:

  • Verizon's total of more than 2.9 million DSL lines at the end of the quarter represents a 52.5 percent year-over-year growth rate. DSL revenues contributed to Verizon's total data revenue increase of 5.7 percent over last year's second quarter. DSL and long-distance lines are not included in the company's total of 54.4 million switched access lines in service as of the end of the second quarter.

  • Revenues for all long-distance services, including traditional intra-region toll services, increased 14.7 percent compared with second quarter 2003, to $1.0 billion in the quarter.

  • Taking into account the retroactive long-distance line adjustment that Verizon announced earlier this month, the company had 16.8 million long-distance lines in service as of the end of the quarter, a 21.4 percent year-over-year increase on a comparable basis.

  • Approximately 50 percent of Verizon residential customers have purchased local services in combination with either Verizon long-distance or Verizon DSL, or both.

  • The average revenue per month per Verizon residential wireline customer increased nearly 6 percent in the second quarter 2004, compared with the second quarter 2003.
  • Approximately 3.8 million Verizon Freedom packages were in service to residential and business customers as of the end of the quarter. Verizon Freedom plans help retain and win back customers by offering local services with various combinations of long-distance, wireless and Internet access, available on one bill.

  • Domestic Telecom's cash expenses, excluding net pension and OPEB expenses, were $5.8 billion in the second quarter 2004, a 0.2 percent decrease from the second quarter 2003.

  • Verizon's Enterprise Solutions Group continued expanding its successful Enterprise Advance initiative, achieving more than 650 sales in the second quarter. Enterprise Advance is Verizon's initiative to connect and extend its local networks and services to the national large-business market. As part of this initiative, two new national services were launched in the quarter, national IP Virtual Private Network Services and National Transparent Local Area Network Services.


  • Verizon Wireless' 40.4 million customer count at the end of the quarter was up 16.8 percent year-over-year and included 38.7 million retail customers. Retail gross additions increased 7.7 percent over the second quarter 2003. Retail net additions increased 20.4 percent to 1.46 million customers -- a quarterly record -- of the company's 1.53 million total net additions.

  • Average monthly churn, a key gauge of customer satisfaction, reached a record-low of 1.45 percent. Churn among retail post-pay customers, who constitute 92 percent of the company's base, was a record-low 1.2 percent. This record churn performance was achieved in the same quarter that wireless local number portability was expanded beyond the top 100 markets to the entire country.

  • Average monthly service revenue per customer increased 3.2 percent year-over-year to $50.80. Service revenue for the quarter was $6.0 billion, up 20.6 percent. The company does not include taxes and regulatory fees in service revenue.

  • Continuing its industry-leading cost management, the company's cash expense per customer decreased 7.4 percent over the prior-year second quarter to a record low. This is the fourth consecutive quarter in which cash expense per customer has declined over the preceding sequential quarter, a particularly significant achievement given the high volume of new customers in those quarters.

  • Verizon Wireless' EBITDA margin was at a company-record 45.0 percent for the second quarter 2004. (EBITDA -- or earnings before interest, taxes, depreciation and amortization -- is a non-GAAP measure determined by adding depreciation and amortization to operating income; EBITDA margin is calculated by dividing EBITDA by Verizon Wireless' service revenues.) Operating income margin of 23.6 percent was the highest quarterly margin since the company was formed. Quarterly operating income grew 64.6 percent year-over-year to $1.6 billion.

  • During the quarter, business and consumer demand for data services continued strong with data services contributing 4.2 percent, or $255 million, of second-quarter total service revenue, up from 3.6 percent in the first quarter 2004 and 1.7 percent in the second quarter 2003.

  • The company has committed to having BroadbandAccess, the only wireless wide-area broadband service in the nation, in one-third of its network by year-end. In the second quarter, the company continued to expand its roster of data offerings. For the Enterprise customer, the company launched VZ AccessManager to customize and simplify remote access to Verizon Wireless' high-speed NationalAccess and BroadbandAccess from laptops and PDAs. The company launched MobileWeb 2.0, an enhanced portal to news, tools and content, and the LG 7000 handset with video messaging, and also expanded its International Text messaging to 28 countries.

  • For the quarter, there were 2.3 billion text messages, 21 million picture messages and 23.4 million Get It Now downloads of games and exclusive content. The company offers more than 500 downloadable applications.

  • The company announced it will purchase from NextWave Telecom a 10 MHz license for the New York metropolitan area, and 62 Qwest Communications licenses in the West and Midwest, primarily to increase network capacity to meet growing demand for voice and data services in markets the company already serves. The purchases are expected to close in the fourth quarter of 2004 or early 2005.

  • Verizon Wireless continued to lead the industry in customer satisfaction, according to the latest American Customer Satisfaction Index, a uniform and independent measure of household consumption experience, produced through a partnership of the University of Michigan Business School, the American Society for Quality and the international consulting firm CFI Group.

Information Services:

  • Verizon Information Services (VIS) revenue of $986 million decreased 6.0 percent for the second quarter 2004 compared with the second quarter 2003, primarily due to reduced domestic print advertising revenue and the elimination of revenue from the 2003 sale of European operations. Excluding these European operations in 2003, this decline would have been 2.6 percent.

  • VIS' domestic online directory and search service,, continues to achieve strong growth as demonstrated by a 14.5 percent increase in revenue and a 44 percent increase in searches over the second quarter 2003.

  • In the second quarter, VIS continued its market expansion strategy by introducing print directories in Miami and West Palm Beach, Fla.


  • Second-quarter revenues were $506 million compared with $509 million in the second quarter 2003. Revenues reflect operational growth in the Dominican Republic as well as a favorable adjustment to carrier access revenues in Puerto Rico, largely offset by deteriorating foreign exchange rates in the Dominican Republic.

  • Second-quarter segment income of $287 million represented a decrease of 8.6 percent from the second quarter 2003. This primarily resulted from deteriorating foreign exchange rates in the Dominican Republic and lower asset sales, offset by operational growth at both Verizon Dominicana and Vodafone Omnitel, Verizon's equity investment in Italy, as well as favorable revenue and expense adjustments realized in Puerto Rico compared with the prior-year quarter.

  • Verizon's 23.1 percent investment in Vodafone Omnitel is a significant contributor to segment results, based on strong operational performance and favorable foreign currency exchange rates.

A Dow 30 company, Verizon Communications (NYSE:VZ) is one of the world's leading providers of communications services, with approximately $68 billion in annual revenues. Verizon companies are the largest providers of wireline and wireless communications in the United States. Verizon is also the largest directory publisher in the world, as measured by directory titles and circulation. Verizon's international presence includes wireline and wireless communications operations and investments, primarily in the Americas and Europe. For more information, visit


NOTE: This press release 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: materially adverse changes in economic and industry conditions and labor matters, including workforce levels and labor negotiations, and any resulting financial and/or operational impact, in the markets served by us or by companies in which we have substantial investments; material changes in available technology; technology substitution; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations; the final results of federal and state regulatory proceedings concerning our provision of retail and wholesale services and judicial review of those results; the effects of competition in our markets; our ability to satisfy regulatory merger conditions; the ability of Verizon Wireless to continue to obtain sufficient spectrum resources; and 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.

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