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3Q 2008 HIGHLIGHTS
- 59 cents in diluted EPS and 66 cents in adjusted EPS (non-GAAP), compared with 3Q 2007 diluted EPS of 44 cents reported and 63 cents adjusted.
- $24.8 billion in quarterly revenues - adjusted growth of 5.4 percent (non-GAAP).
- 1.5 million organic net customer additions, all retail (non-wholesale); 2.1 million total retail net additions including customers from acquisitions.
- 70.8 million total customers; 68.8 million retail customers, up 11.3 percent.
- Industry-leading low churn - 1.33 percent total churn and 1.03 percent retail post-paid churn.
- 12.5 percent increase in total revenues; data revenues up 42.5 percent; 44.2 percent EBITDA margin on service revenues (non-GAAP).
- 233,000 net new FiOS TV customers and 225,000 net new FiOS Internet customers.
- 12.8 percent increase in consumer ARPU in legacy telecom markets; 45.3 percent growth in consumer broadband and video revenues.
- 15.4 percent increase in Verizon Business strategic services revenues.
- 8th consecutive quarter of year-over-year pro-forma Verizon Business revenue growth.
Note: Comparisons are year over year unless otherwise noted. 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 news release. Discontinued operations relate to the disposition of Telecomunicaciones de Puerto Rico, Inc. that was completed on March 30, 2007. Reclassifications of prior-period amounts have been made, where appropriate, to reflect comparable operating results for the spinoff of the Wireline segment's non-strategic local exchange and related business assets in Maine, New Hampshire and Vermont in the first quarter of 2008.
NEW YORK - Verizon Communications Inc. (NYSE:VZ) today reported strong results in the third quarter 2008, supported by Verizon Wireless' continued strong performance, accelerating numbers of new FiOS customers, and continued increased sales of strategic business services.
Verizon reported 59 cents in diluted earnings per share (EPS) in the third quarter 2008, compared with 44 cents per share in the third quarter 2007.
On an adjusted basis (non-GAAP), third-quarter 2008 earnings were 66 cents per share, compared with 63 cents per share in the third quarter 2007.
Continued Growth in 3Q
"Verizon again reported solid revenue, earnings and cash flow growth this quarter," said Chairman and CEO Ivan Seidenberg. "The strategic investments we made over the past few years continue to drive growth in wireless, enterprise, broadband and video.
"Although the capital markets and economy may present challenges, we will continue to execute on our business plan and invest for future growth," he said. "We increased the dividend 7 percent this quarter, reflecting confidence in continued growth opportunities. Verizon has a great set of assets and an employee team focused on creating value for our customers and shareholders."
Strong Revenues and Cash Flows
Verizon's total operating revenues grew 4.1 percent to $24.8 billion in the third quarter 2008, from $23.8 billion in the third quarter 2007. This is an increase of 5.4 percent when adjusted for the spinoff of non-strategic local exchange and related Wireline business assets earlier this year (non-GAAP). Total operating expenses increased 5.2 percent to $20.6 billion, or 5.4 percent on an adjusted basis, comparing third-quarter 2008 with third-quarter 2007.
Cash flows from continuing operations were $19.1 billion through the first nine months of 2008, up 5.9 percent compared with the same period last year. Capital expenditures were $12.6 billion through the first nine months of 2008, down more than $200 million over the same period last year. Verizon is on track to deliver lower overall capital spending in 2008, compared with 2007. Total debt was $44.8 billion, compared with $43.1 billion at the end of the second quarter 2008.
Details of 3Q Adjustments
Adjusted earnings in the third quarter 2008 excluded $164 million after-tax, or 6 cents per share, for severance, pension and benefit charges recognized primarily as a result of workforce reductions; and $32 million after-tax, or 1 cent per share, for merger integration costs. Adjusted earnings in the third quarter 2007 excluded charges of 19 cents per share in special items: 16 cents per share for international taxes, 2 cents per share for costs related to the spinoff of non-strategic Wireline assets and 1 cent per share for merger integration costs.
Wireless Continues Strong and Steady Growth
Verizon Wireless continued its uninterrupted record of industry-leading customer loyalty and profitability. In the third quarter:
- Wireless retail gross customer additions were strong, up 5.3 percent over the prior year.
- Organic growth (growth from sources other than acquisitions) was 1.5 million retail net customer additions, essentially all post-paid.
- Total growth was 2.1 million retail net additions. This included 630,000 retail customers from the Rural Cellular Corp. acquisition, and Verizon expects to have a net loss of approximately 120,000 of these customers under an exchange agreement with another carrier. Verizon Wireless had 70.8 million total customers at the end of the quarter.
- The company continues to have a high-quality customer base, with 68.8 million retail wireless customers - the most of any wireless brand in the U.S.
- Verizon Wireless had industry-leading (lowest) total churn for the 16th consecutive quarter, at 1.33 percent. Among the company's retail post-paid customers, churn was even lower at 1.03 percent.
- Verizon Wireless continued its double-digit revenue growth, with total revenues of $12.7 billion, up 12.5 percent year over year. Service revenues were $10.9 billion, up 12.2 percent year over year, driven by customer growth and demand for data services.
- This revenue growth was driven by ARPU (average monthly revenue per customer), which increased year over year for the 10th consecutive quarter. Total service ARPU of $52.18 was up 0.9 percent year over year, reflecting strong growth in total data ARPU, which was up 28.3 percent.
- Wireless operating income margin was 27.3 percent, up 20 basis points year over year.
- EBITDA margin on service revenues (non-GAAP) was 44.2 percent. (EBITDA is earnings before interest, taxes, depreciation and amortization.)
FiOS Customer Growth Accelerates
Verizon Wireline reported accelerated growth of FiOS sales and continued increased sales of enterprise strategic services. In the third quarter (with prior-period comparisons adjusted to reflect the impact of the spinoff of non-strategic Wireline assets):
- Verizon added 233,000 net new FiOS TV customers, compared with 176,000 in the second quarter 2008. The company has 1.6 million FiOS TV customers, compared with more than 700,000 FiOS TV customers at the end of third-quarter 2007.
- Verizon added 225,000 net new FiOS Internet customers, compared with 187,000 in the second quarter 2008. The company has 2.2 million FiOS Internet customers, compared with 1.3 million FiOS Internet customers at the end of third-quarter 2007.
- FiOS Internet sales penetration (sales as a percentage of potential customers) increased to 24.2 percent, compared with 20.0 percent in last year's third quarter. FiOS Internet is available for sale to nearly 9.1 million premises.
- FiOS TV sales penetration increased to 19.7 percent, compared with 15.2 percent in last year's third quarter. Verizon made FiOS TV service available for sale to a record 1.2 million additional premises in the quarter, bringing the total to 8.2 million.
- Broadband and video revenues from consumer customers totaled $1.1 billion in the third quarter, representing year-over-year growth of 45.3 percent.
- Growing revenue from broadband and video services drove consumer ARPU in legacy Verizon wireline markets (which excludes consumer markets served by the former MCI) to $66.67, a 12.8 percent increase compared with last year's third quarter.
- Verizon Business had total revenues of $5.4 billion, or growth of 1.2 percent compared with last year's third quarter. This was Verizon Business' eighth consecutive quarter of year-over-year pro-forma revenue growth (non-GAAP, calculated as if Verizon and MCI had merged on Jan. 1, 2005).
- Sales of strategic services - such as IP (Internet protocol), managed services, Ethernet and optical ring services - continued to drive growth at Verizon Business. These services generated $1.6 billion in revenue, up 15.4 percent from third-quarter 2007.
- Verizon Wireless completed its purchase of Rural Cellular on Aug. 7, 2008. The acquisition will expand the company's network coverage to many rural markets around the country.
- At the end of the third quarter, 97 percent of the company's base was retail (post-pay and pre-pay) and 93 percent was retail post-pay.
- Verizon Wireless continued to lead the industry in cost efficiency. Cash expense per customer per month (non-GAAP) was $29.12 in the third quarter 2008, an increase of 1.7 percent over the third quarter 2007 and 3.9 percent from the second quarter 2008.
- Data revenues grew 42.5 percent over the prior year, to $2.8 billion. The company had 52.6 million retail data customers in September (approximately three-quarters of its retail base), a 25.3 percent increase over the prior year.
- The company continued to extend the reach of its nationwide wireless broadband network to make the nation's largest and most reliable 3G (third-generation) network available to a greater number of Americans - more than 260 million at the end of the third quarter. More than 60 percent of the company's retail customers - 43.2 million - had 3G broadband-capable devices at the end of the quarter.
- To offer customers both the reliability of Verizon Wireless' 3G network and the full power of a revolutionary touch-screen, multimedia smartphone, Verizon Wireless announced the BlackBerry Storm will be available later this fall. Designed for both consumers and business customers, the BlackBerry Storm offers the dependability of the BlackBerry platform; global connectivity; and premium services and features, such as Web browsing, music and video, turn-by-turn satellite navigation, messaging, and social networking. The Blackberry Storm will be sold exclusively by Verizon Wireless in the U.S. and by Vodafone in Europe, India, Australia and New Zealand.
- Since the end of the second quarter, the company introduced two new rugged phones - the G'zOne Boulder and the Motorola Adventure V750. These are designed to withstand extreme conditions and provide access to Verizon Wireless' Push to Talk service - a fast, two-way communication that instantly connects customers to co-workers and leverages the high speeds of the company's EV-DO (Rev.A) network. Other devices included new multimedia handsets by LG - the Dare and the Chocolate 3 - and the Samsung Knack for customers who want simple features and functionality.
- During the quarter, Verizon Wireless customers sent or received more than 80 billion text messages and nearly 1.5 billion picture/video messages. Customers also completed 43 million music and video downloads.
- Through a five-year agreement announced earlier this year, Qwest Communications began selling Verizon Wireless products and services to residential and business customers in its residential service area.
- Wireline total operating revenues were $12.2 billion, a 1.7 percent decrease compared with the third quarter 2007. Wireline total operating expenses decreased 1.1 percent over the same period.
- Verizon's broadband fiber-to-the-premises network passed 11.9 million premises throughout the company's wireline service territory by the end of the quarter.
- Total broadband connections were 8.5 million, a net increase of 129,000 over the second quarter 2008. This includes a decrease of 96,000 DSL-based Verizon High Speed Internet connections, which was more than offset by the increase in FiOS Internet customers. The 8.5 million is a 9.1 percent year-over-year increase.
- Broadband and TV products now account for 29.1 percent of consumer ARPU in legacy markets, compared with 27.6 percent in the second quarter 2008. The ARPU among FiOS customers continues to be more than $130 per month.
- Wireline data revenues - which now represent 42.9 percent of total Wireline revenues - were $5.2 billion, an increase of 14.6 percent compared with the third quarter 2007. This includes revenues from consumer broadband services, wholesale data transport and Verizon Business data services.
- Verizon Business, which delivers integrated global communications and IT solutions to large-business and government customers, announced significant capability enhancements. These included professional services aimed at gaining flexibility, cost control and savings from virtualized environments; an expanded suite of unified communications tools in conjunction with Cisco; a new managed wireless local area network-access offering; a new Network Access Control security service; a consolidated Global Billing Report; an enhanced interface for connecting with more than 70,000 Verizon Wi-Fi hot spots worldwide; and an extension of the company's enterprise mobility access services to Latin America.
- Verizon Business continued to expand its global network reach and capabilities, announcing during the quarter that the first phase of the Trans-Pacific Express submarine cable system directly connecting Mainland China, the U.S., South Korea and Taiwan is ready for service. The company also began a significant expansion of its operations in India, activating Private IP nodes in five major business centers following receipt of international and national long-distance licenses earlier this year.
- Additional global network enhancements included installing 27 additional Private IP edge switches globally for a total of 621 edge switches in 158 markets; completing the first phase of the company's U.S. optical mesh network; expanding its mesh network in the Asia-Pacific region to Taiwan, Hong Kong and Korea; and deploying an additional 1,348 ultra long haul route-miles in the U.S.
- New commercial customer agreements included CA Inc., First Data, H&R Block, Husqvarna and Kuwait Petroleum International Ltd. Verizon Business also signed new contracts with several U.S. government agencies.
Verizon Communications Inc. (NYSE:VZ), headquartered in New York, is a leader in delivering broadband and other wireline and wireless communication innovations to mass market, business, government and wholesale customers. Verizon Wireless operates America's most reliable wireless network, serving nearly 71 million customers nationwide. Verizon's Wireline operations include Verizon Business, which delivers innovative and seamless business solutions to customers around the world, and Verizon Telecom, which brings customers the benefits of converged communications, information and entertainment services over the nation's most advanced fiber-optic network. A Dow 30 company, Verizon employs a diverse workforce of more than 228,000 and last year generated consolidated operating revenues of $93.5 billion. For more information, visit www.verizon.com.
NOTE: This news 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, including disruption of our suppliers' provisioning of critical products or services; the impact of natural or man-made disasters or 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; 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; the timing, scope and financial impact of our deployment of fiber-to-the-premises broadband technology; the ability of Verizon Wireless to continue to obtain sufficient spectrum resources; 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; and the ability to complete acquisitions and dispositions.