Verizon Reports First-Quarter Revenue Growth of 3.9%, Including Industry-Leading Wireless Revenue Growth of $1.1 Billion
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- Verizon Wireless: Industry-leading first-quarter record of 1.4 million total net customer additions (1.2 million retail net additions), up 66.5 percent from last year's quarter; customers total nearly 39 million; lowest churn in industry; record-high revenue growth of 21.2 percent and operating income margin of 19.5 percent
- Broadband DSL (digital subscriber lines): Company-record 345,000 net additions; nearly 2.7 million total lines
- Long-Distance: 13.3 percent growth in revenues; 1.0 million net lines added in quarter; 17.6 million total lines
- Total Company: 3.9 percent growth in operating revenues; 43 cents in fully diluted earnings per share, or 58 cents per share before special items (non-GAAP measure); operating income margin of 14.6 percent, or adjusted operating income margin of 20.4 percent excluding pension/other post-retirement benefit (OPEB) expense (non-GAAP measure)
- Total Debt: $44.5 billion; $8.8 billion reduction over 12 months
Notes: Growth percentages cited above compare first-quarter 2004 with first-quarter 2003. See the schedules accompanying this news release and www.verizon.com/investor for reconciliations to generally accepted accounting principles (GAAP) for the non-GAAP financial measures mentioned in this announcement.
NEW YORK - Driven by its highest year-over-year revenue growth in three years, Verizon Communications Inc. (NYSE:VZ) today reported first-quarter 2004 earnings per share of 43 cents, or 58 cents per share before special and non-recurring items.
For the quarter, Verizon's reported earnings were $1.2 billion. Earnings for the quarter were $1.6 billion before a net of 15 cents per share in special and non-recurring items, primarily for previously announced pension settlements associated with a voluntary separation plan under which more than 21,000 employees left the payroll in the fourth quarter 2003.
Consolidated operating revenues increased 3.9 percent in the first quarter 2004 to $17.1 billion, compared with $16.5 billion in the first quarter 2003. This was Verizon's highest reported quarterly growth rate since the first quarter 2001.
Verizon Wireless was the main driver of this increase, posting total revenue growth of 21.2 percent, to $6.2 billion in the first quarter 2004, up $1.1 billion compared with $5.1 billion in the first quarter 2003.
Domestic Telecom revenues decreased 3.3 percent to $9.6 billion in the first quarter 2004, compared with the first quarter 2003. Verizon's overall top-line growth was supported by increases in wireline long-distance and broadband. Long-distance revenues increased 13.3 percent, from $0.9 billion in first-quarter 2003 to $1.0 billion in first-quarter 2004, as Verizon added a net of 1.0 million long-distance lines in the quarter, for a total of 17.6 million long-distance lines. In the first quarter, Verizon also added a company-record net of 345,000 DSL lines, for a total of 2.7 million DSL lines.
"This is a strong start to the year. In the first quarter, Verizon extended its leadership position by accelerating organic growth, while maintaining solid margins," said Ivan Seidenberg, Verizon chairman and CEO. "While Domestic Telecom revenues were down, we recognize that this is part of the evolution of our business model, and we are on track with where we want to be. It's significant that new growth businesses, such as wireless, data, long-distance and broadband, now account for more than half of our revenues."
"When we set our 2004 expectations, we asked investors to measure us on results from our long-term investments in technologies that support higher-growth revenue streams," Seidenberg added. "Today, we see those results in Verizon Wireless' outstanding operational and financial performance, in new growth in broadband customers, and in revenues from long-distance, our large-business Enterprise segment, and other new and bundled services."
Margins Increase Sequentially
Verizon Wireless' operating income margin rose sequentially, from 18.5 percent in the fourth quarter 2003 to 19.5 percent in the first quarter 2004.
Domestic Telecom's operating income margin rose from 15.4 percent in the fourth quarter 2003 to 15.5 percent in the first quarter 2004. Excluding net pension and OPEB expenses of $1 million in the fourth quarter 2003 and $214 million in the first quarter 2004, Domestic Telecom's operating income margin would have increased from 15.4 percent to 17.7 percent sequentially (non-GAAP measures).
On a consolidated basis, operating income margin also rose sequentially. Verizon reported a negative operating income margin in the fourth quarter 2003, compared with 14.6 percent in the current quarter.
Verizon's operating income margin -- adjusted to exclude special and non-recurring items as well as, for purposes of this calculation, net pension and OPEB expenses of $22 million in the fourth quarter 2003 and $275 million in the current quarter -- rose from 18.3 percent to 20.4 percent over the same period. Consistent with past practice, Verizon believes that excluding these effects enhances comparability and provides a better picture of operating cost management.
Leading the Wireless Sector
For the seventh consecutive quarter, Verizon Wireless delivered double-digit, year-over-year revenue increases. Service revenues, the largest component of total revenues, grew 18.0 percent to $5.5 billion, from $4.7 billion in the first quarter 2003.
Verizon Wireless added 1.4 million net customers in the first quarter, its highest first-quarter increase. Customers totaled 38.9 million at the end of the quarter, a 16.8 percent increase over the previous year's first quarter. Overall in the first quarter, Verizon Wireless continued to outperform the industry and its own consistently strong preceding quarters, delivering record revenue growth, profitability, efficiency and low churn.
Reported operating expenses increased to $14.6 billion in the first quarter 2004, compared with $12.8 billion in the first quarter 2003. This year's quarterly expenses included $728 million ($446 million after-tax) for the pension settlements cited above.
Verizon had previously estimated settlements related to the voluntary separation plan to total $0.7 billion to $0.9 billion, after taxes, mostly in the first quarter of 2004 although continuing throughout the year. Due to favorable offsets such as an improved return on pension plan assets and lower than expected lump-sum payouts, the company now expects total after-tax charges associated with the voluntary separation plan may be less than the lower end of this range.
Operating expenses, adjusted for special and non-recurring items, were $13.9 billion in the first quarter 2004, up 8.8 percent from the first quarter 2003. This increase was driven primarily by the previously announced impact of OPEB costs, net of reduced pension income, as well as by costs associated with Verizon Wireless, DSL and other growth businesses. In the first quarter 2003, expenses included an $80 million net pension and OPEB expense credit while, as noted above, in the first quarter 2004 expenses increased by $275 million for these items.
Continued Debt Reduction and Special Items
Total debt at the end of the first quarter was $44.5 billion, a reduction of more than $0.9 billion since year-end 2003 and a reduction of $8.8 billion compared with first-quarter 2003.
First-quarter 2004 reported earnings of 43 cents per share include net charges of 15 cents per share. This includes a charge of $446 million, or 16 cents per share, for pension settlements, and a 1-cent-per-share charge for the early retirement of debt. Partially offsetting these charges is a non-recurring gain of 2 cents per share related to the sale during the quarter of stock received in connection with the sale of access lines in 2000.
First-quarter 2003 earnings included a non-recurring gain of $503 million, or 18 cents per share, related to accounting changes. Before special and non-recurring items, earnings were 58 cents per share in the first quarter 2004, compared with 69 cents per share in the first quarter 2003.
Business Segment Highlights
Following are first-quarter 2004 highlights from Verizon's four business segments.
- Verizon's total of 2.7 million DSL lines at the end of the first quarter represents a 46 percent year-over-year growth rate. In the quarter, the company continued to see declines in acquisition costs.
- Approximately 45 percent of Verizon's local wireline customers have chosen Verizon as their long-distance carrier.
- Approximately 51 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 more than 5 percent in the first quarter 2004, compared with the first quarter 2003.
- Total revenues for high-capacity and data services were $1.9 billion in the first quarter 2004, a 2.9 percent increase compared with $1.8 billion in the first quarter 2003.
- The company continued to roll out Verizon Freedom plans, which help retain and win back customers by offering local services with various combinations of long-distance, wireless and Internet access in a discounted bundle available on one bill. At the end of the first quarter 2004, 3.6 million Verizon Freedom packages were in service to business and residential customers, an increase of 490,000 in the quarter.
- Domestic Telecom's cash expenses, excluding net pension and OPEB expenses, were reduced from $6.1 billion in the fourth quarter 2003 to $5.7 billion in the first quarter 2004. The business unit saw more than a $200 million decrease year-over-year in wage and salary expenses, attributable to last year's voluntary separation plan. In addition, cost-effective e-commerce channels operated at company-record levels, with Verizon.com registering 328,000 wireline product sales in the first quarter 2004.
- In the first quarter, Verizon's Enterprise Solutions Group continued to increase the company's presence in the large-business market, offering advanced local and long-distance data services to Enterprise customers. The quarter included nearly 500 Enterprise Advance sales. Enterprise Advance is Verizon's initiative to connect and extend its local networks and services to the national large-business market.
- Enterprise Solutions Group sold services valued at more than $100 million over 11 years to the State of Maryland in the first quarter and also recently closed its first sale of multiprotocol label switching (MPLS) service to NJEDge, a consortium of New Jersey colleges and universities. MPLS enables customers to use existing communications systems to take advantage of the most advanced services without having to purchase new equipment.
- Verizon Wireless' retail customer base grew 15.8 percent year-over-year and represented 37.2 million of the company's 38.9 million total customers at the end of the quarter. Retail gross additions were up 8.6 percent over the first quarter 2003. Retail net additions were up 58.9 percent to 1.2 million -- a first-quarter record -- of the company's 1.4 million total net additions.
- Customer loyalty reached an all-time high, with record-low total churn of 1.60 percent for the first quarter 2004. Churn in the retail post-pay segment, which is 91 percent of the company's base, was 1.35 percent, about flat with the previous quarter. This excellent net add and churn performance was achieved in the first full quarter that local number portability has been in effect.
- Average monthly service revenue per customer was $48, up 1.8 percent from the first quarter 2003. Service revenue for the quarter was $5.5 billion, up 18.0 percent. The company does not include taxes and regulatory fees in service revenue.
- Continuing its industry-leading low-cost structure, cash expense per customer decreased 2.9 percent over the prior-year first quarter. This is the third 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' operating income margin of 19.5 percent for the first quarter surpassed all quarters since the company was formed in April 2000. Quarterly operating income grew 37.5 percent year-over-year to $1.2 billion.
- Verizon Wireless moved forward with national deployment of its third-generation EV-DO network, the nation's first wide-area broadband wireless network from a major carrier. In announcing multi-million dollar agreements with Lucent Technologies and Nortel Networks to provide the wireless infrastructure for this technology over the next two years, the company committed to expanding its BroadbandAccess service to cover one-third of its network by the end of this year.
- Data services contributed more than 3.6 percent of first-quarter total service revenue, up from 3.2 percent in the fourth quarter 2003 and 1.5 percent in the first quarter 2003.
- Both business and consumer demand was strong for the company's suite of data services -- from high-speed 1X NationalAccess for laptops and PDAs, to text messaging, to Get It NowSM downloadable games and exclusive content, to picture messaging. For the quarter there were 2.1 billion text messages, 19 million Get It NowSM downloads and 21 million picture messages.
- Verizon Information Services (VIS) revenue of $999 million decreased 2.2 percent for the first quarter 2004 compared with the first quarter 2003, primarily due to reduced domestic print advertising revenue and the elimination of revenue from the 2003 sale of European operations.
- VIS' domestic Internet directory, SuperPages.comTM, continues to achieve strong growth as demonstrated by a 19 percent increase in revenue and a 69 percent increase in searches over the first quarter 2003.
- First-quarter revenues were $468 million compared with $517 million in the first quarter 2003. This 9.5 percent decline primarily resulted from deteriorating foreign exchange rates in the Dominican Republic.
- First-quarter segment income of $281 million represented an increase of 5.6 percent over the first quarter 2003, despite challenging economic conditions in Latin America. A large portion of the increase was driven by equity in earnings of unconsolidated businesses, which included strong operational performance at both Vodafone Omnitel and CANTV, Verizon's equity investments in Italy and Venezuela.
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 www.verizon.com.
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: the duration and extent of the current economic downturn; 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.