Verizon Reports Double-Digit Earnings Growth and Increased Operating Cash Flow in First-Quarter 2012
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1Q 2012 HIGHLIGHTS
- 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.
- 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.
- 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.
NEW YORK - 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.
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.