Verizon Reports Strong 4Q and 2004 Results, Driven by Wireless Revenue Growth, Solid Cash Flows and Margins
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Earnings per Share
- Fourth quarter: $1.08 in diluted earnings per share, or 64 cents per share before special items (non-GAAP measure)
- Full year: $2.79 in earnings per share, or $2.51 per share before special items (non-GAAP)
- Fourth quarter: 1.7 million net customer additions, up 13.5 percent from last year's quarter and the highest quarterly increase for the third consecutive quarter; total revenues up 22.7 percent; record-low churn (customer turnover) of 1.43 percent; average monthly revenue per customer up 3 percent to $50.32
- Full year: Record 6.3 million total net customer additions, up 25.1 percent from 2003; total revenues up 23.0 percent; cash flows from operating activities (CFFO) increased $2.0 billion from 2003; data services revenues more than double 2003's total; record operating income margin of 21.1 percent
- Fourth quarter: 306,000 net additions of broadband DSL (digital subscriber lines); total data revenues up 9.2 percent from last year's quarter; stable revenues and margins; average monthly revenue per residential customer up 4 percent to nearly $50; total Enterprise (large business) revenues up 4.9 percent
- Full year: 3.6 million total DSL lines, up 53.5 percent year-over-year; $4.2 billion in revenues from all long-distance services, up 10.4 percent; Enterprise revenues of approximately $6 billion, up 1.9 percent; data revenues of $7.8 billion, up 7.4 percent
- Total debt: $39.3 billion at year-end 2004, a $6.1 billion decrease from year-end 2003
- Capital expenditures: $13.3 billion in 2004, compared with $11.9 billion in 2003; 2005 capital spending expected to increase approximately 10 percent over 2004; increases driven by investments for wireless and fiber-optic broadband growth initiatives
Notes: 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 included in this announcement. Discontinued operations in the quarterly periods presented include the operations of Verizon Information Services Canada, following a third-quarter 2004 agreement to sell this business. Fourth quarter and year-to-date 2004 also include the gain on the sale.
NEW YORK - Verizon Communications Inc. (NYSE:VZ) today reported strong fourth-quarter and year-end 2004 results as quarterly revenues increased 6.2 percent, driven by a 10th consecutive quarter of double-digit, year-over-year revenue increases for wireless services. Wireless contributed $27.7 billion to the corporation's $71.3 billion total revenues in 2004.
For the fourth quarter 2004, Verizon reported earnings of $3.0 billion, or $1.08 per diluted share, compared with a loss of $1.5 billion, or 53 cents per share, in the fourth quarter 2003. Reported earnings in the fourth quarter 2004 included non-recurring gains from sales of non-strategic assets and tax benefits, while the fourth quarter 2003 loss included non-recurring expenses from a voluntary separation plan and environmental remediation costs.
Before special items, earnings were 64 cents per share in the fourth quarter 2004 and 58 cents per share in the fourth quarter 2003.
For the year, Verizon reported earnings of $7.8 billion, or $2.79 per share, compared with $3.1 billion, or $1.12 per share, in 2003. Before special items, earnings were $7.0 billion ($2.51 per share) in 2004, and $7.3 billion ($2.60 per share) in 2003.
Quarterly consolidated operating revenues reached a company-record $18.3 billion in the fourth quarter 2004, increasing 6.2 percent compared with $17.2 billion in the fourth quarter 2003. Annual consolidated operating revenues were $71.3 billion in 2004, increasing 5.7 percent compared with $67.5 billion in 2003 -- Verizon's strongest annual revenue growth in three years.
Verizon Wireless contributed more than 40 percent of Verizon's total revenues in the fourth quarter 2004, compared with less than 35 percent in the fourth quarter 2003. Wireless revenues were $7.3 billion in the fourth quarter 2004, a 22.7 percent increase compared with $6.0 billion in the fourth quarter 2003. Full-year 2004 wireless revenues were $27.7 billion, an increase of $5.2 billion, or 23.0 percent, compared with 2003.
Overall, Verizon's growth businesses -- wireless, long-distance, broadband, data and Enterprise services -- accounted for 55.2 percent of fourth-quarter 2004 revenues, compared with 49.3 percent of fourth-quarter 2003 revenues. Over the past year, revenues from these businesses have grown by 19.0 percent.
Operating revenues for Domestic Telecom, the company's U.S. wireline business segment, were $9.7 billion in the fourth quarter 2004, a 2.4 percent decrease compared with the fourth quarter 2003. For the year, wireline operating revenues were $38.6 billion, a 2.7 percent decrease compared with 2003.
"Building on our excellent fourth-quarter and full-year results, our business fundamentals as we enter 2005 are the strongest they've been in years," said Ivan Seidenberg, Verizon chairman and CEO.
"In 2004, we changed our growth profile by divesting non-strategic assets, by extending our industry leadership in wireless, and by gaining momentum in broadband, long-distance and Enterprise markets. Our wireline business has maintained stable margins, and Verizon Information Services and International have continued to contribute significant revenue, income and cash flow. As we move forward, we are realizing value from our diversified asset base, and we are investing in growth areas as we build tomorrow's networks to provide customers with continuous service enhancements and product innovations."
Sustained Wireless Growth
Verizon Wireless added 1.7 million net new customers, the largest quarterly customer increase in the history of the company, which was formed in April 2000. For the year, Verizon Wireless added 6.3 million net new customers, as its total number of customers grew 16.8 percent year-over-year to 43.8 million, including 41.8 million retail customers.
Total churn reached record-low levels for the quarter and the year. Total churn was 1.43 percent for the fourth quarter and 1.50 percent for the year. Churn among retail post-pay customers -- or 92 percent of the company's customers -- was 1.2 percent for the quarter and 1.3 percent for the year.
Continued Solid Margins
On a consolidated basis, Verizon's operating income margin was 18.4 percent in the fourth quarter 2004, compared with negative margins due to the reported loss in the fourth quarter 2003. When adjusted to exclude the special and non-recurring items described later in this release as well as net pension and OPEB (other post-retirement benefit) impact, Verizon's consolidated operating income margin would have been 20.3 percent in the fourth quarter 2004 and 18.3 percent in the fourth quarter 2003 (non-GAAP measures).
Operating income margin for the wireline segment was 15.2 percent in the fourth quarter 2004, compared with 15.4 percent in the fourth quarter 2003. When adjusted to exclude the items listed above, wireline's operating income margin would have been 17.3 percent in the fourth quarter 2004 and 15.4 percent in the fourth quarter 2003 (non-GAAP measures).
Consistent with past practice, Verizon believes that excluding the impact of special and non-recurring items and net pension and OPEB expenses or credits enhances comparability, providing a better picture of operating cost management.
Verizon Wireless' operating income margin was 18.7 percent in the fourth quarter 2004, compared with 18.5 percent in the fourth quarter 2003, and a record 21.1 percent for full-year 2004, compared with 18.2 percent for 2003.
Wireless' EBITDA margin was 39.5 percent in the fourth quarter 2004, compared with 39.7 percent in the fourth quarter 2003. (EBITDA -- or earnings before interest, taxes, depreciation and amortization -- is a non-GAAP measure that adds depreciation and amortization to operating income; EBITDA margin is calculated by dividing EBITDA by Wireless' service revenues.) Fourth-quarter 2004 EBITDA margin was impacted by expenses attributable to Verizon Wireless' long-term employee incentive plan, which have increased as the value of Verizon Wireless has increased.
Verizon Wireless' 2004 EBITDA margin of 42.3 percent was its highest-ever margin for a full year.
Wireline Broadband and Data Growth
Verizon added a net of 306,000 broadband DSL lines in the fourth quarter 2004 for a total of 3.6 million DSL lines in service, representing 1.2 million net additions over the past year -- a growth rate of 53.5 percent.
Revenues from DSL contributed to total wireline data revenues of $2.0 billion in the fourth quarter 2004, a 9.2 percent increase compared with $1.9 billion in data revenues in the fourth quarter 2003. For the year, data revenues of $7.8 billion grew 7.4 percent compared with 2003 and now represent more than 20 percent of total wireline revenues.
Even as strong DSL customer and revenue growth continue, Verizon has begun deploying FiOS next-generation, fiber-optic-based broadband services. FiOS services currently have more than 20 percent market penetration in Keller, Texas, Verizon's first market, after the first four and a half months of sales.
In another wireline growth area, revenues from long-distance services, including regional toll services, were $1.1 billion in the fourth quarter 2004, a 5.8 percent increase compared with $1.0 billion in the fourth quarter 2003. On an annual basis, these revenues totaled $4.2 billion in 2004, a 10.4 percent increase compared with 2003.
Debt Reduction and Cash Management
Verizon's total debt decreased $6.1 billion last year, to $39.3 billion at year-end 2004 from $45.4 billion at year-end 2003 -- reaching a previously announced target of debt levels in relation to corporate earnings before interest, taxes, depreciation and amortization.
CFFO was $21.8 billion in 2004, compared with $22.5 billion in 2003. The change is primarily due to 2004 severance payments related to the 21,000-employee voluntary separation plan in the fourth quarter 2003, offset by strong cash flow. In 2004, net cash used in investing activities was $10.3 billion, and net cash used in financing activities was $9.9 billion.
On a segment level, wireline's CFFO was $11.8 billion in 2004, compared with $12.3 billion in 2003. Verizon Wireless' CFFO was $9.5 billion in 2004, compared with $7.5 billion in 2003.
Free cash flow (non-GAAP, cash from operating activities less capital expenditures and dividends) was $4.3 billion in 2004, compared with $6.4 billion in 2003. Impacts on cash flow in 2004 included severance payments associated with the voluntary separation plan, as well as increased capital investments compared with 2003 to fund wireless and fiber-optic broadband growth initiatives.
Capital expenditures in 2004 totaled $13.3 billion, compared with $11.9 billion in 2003. In 2005, overall capital spending is expected to increase approximately 10 percent over 2004, driven by focused investments in growth markets.
In the fourth quarter 2004, reported operating expenses decreased 23.0 percent compared with the fourth quarter 2003, to $14.9 billion. When adjusted for special and non-recurring items, operating expenses were $14.8 billion in the fourth quarter 2004, an increase of 5.1 percent from comparable expenses in the fourth quarter 2003 (non-GAAP measure). Expenses for the fourth quarter 2003 included special items associated with the voluntary separation plan, environmental remediation costs and leasing operations costs, partially offset by net gains on sales of investments.
Verizon's reported fourth-quarter 2004 earnings of $3.0 billion, or $1.08 per share, principally included these special items: net gains of $1.0 billion, or 36 cents per share, from the sales of Verizon Information Services Canada and Verizon's investment stake in TELUS Corp.; and tax benefits of $0.2 billion, or 8 cents per share, from previous investment-related losses. Verizon's reported year-end 2004 earnings of $7.8 billion, or $2.79 per share, also included $0.5 billion, or 18 cents per share, in previously reported severance-related charges, partially offset by a $43 million, or 2 cents per share, gain on the sale of an investment.
Verizon's reported year-end 2003 earnings of $3.1 billion, or $1.12 per share, included net charges of $4.2 billion. These net charges included gains of $0.5 billion related to accounting changes and to the net proceeds from sales of investments. These gains were more than offset by charges, including $3.4 billion related to severance, pension and benefit costs; $0.9 billion related to Verizon's decision to sell its interest in Grupo Iusacell, a Mexican wireless business; and $0.4 billion related to environmental remediation, leasing operations and other charges.
Earnings per share calculations in all periods are impacted by a recent accounting change that increases the net income and number of shares in the diluted earnings per share calculations. This accounting change decreased 2004 diluted earnings per share by 1 cent and 2003 diluted earnings per share by 2 cents.
Business Segment Highlights
Following are fourth-quarter 2004 and full-year highlights from Verizon's four business segments.
- Wireline operating revenues of $9.7 billion in the fourth quarter 2004 were up slightly compared with the third quarter 2004, marking the third consecutive quarter of sequential operating revenue increases. This was supported by a 2.5 percent increase in business revenues, to $3.0 billion, comparing fourth quarter 2004 with third quarter 2004. For the year, wholesale revenues were up 1.4 percent -- including growth in key areas such as SONET services -- contributing $8.9 billion to total revenues of $38.6 billion. Business revenues were flat at $11.7 billion, and consumer revenues declined 2.5 percent to $15.5 billion.
- Wireline cash expenses, excluding net pension and OPEB expenses (non-GAAP), were $5.7 billion in the fourth quarter 2004, a 5.7 percent decrease from the fourth quarter 2003. Fourth-quarter 2004 wage and salary expenses decreased by more than $200 million year-over-year due to the voluntary separation program and a fourth-quarter 2003 lump-sum labor contract payment. Savings helped fund increases in sales and marketing expenses and other operating costs in wireline growth areas.
- Approximately 56 percent of Verizon residential customers have purchased local services in combination with either Verizon long-distance or Verizon DSL, or both. This compares with 43 percent in the fourth quarter 2003.
- The average revenue per month per Verizon residential wireline customer rose to nearly $50 in the fourth quarter 2004, a 4 percent increase compared with the fourth quarter 2003.
- Approximately 4.4 million Verizon Freedom packages were in service to residential and business customers by year-end 2004. 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.
- The company had 17.7 million long-distance lines in service as of year-end 2004, an increase of 342,000 lines from end of the third quarter 2004.
- Resale and Unbundled Network Element-Platform (UNE-P) lines totaled 6.6 million at the end of the fourth quarter 2004, up from 5.8 million at the end of the fourth quarter 2003 and down from 6.7 million at the end of the third quarter 2004. UNE-P lines decreased by 93,000 from the third to the fourth quarter in 2004. The company had 53.0 million switched wireline access lines in service as of year-end 2004.
- Enterprise revenues totaled approximately $6 billion in 2004, increasing 4.9 percent in the fourth quarter 2004 and 1.9 percent in the full year, compared with the same periods in 2003.
- Verizon's Enterprise Solutions Group ended 2004 with more than 750 Enterprise Advance sales, meeting its year-end target of $250 million in Enterprise Advance revenues. Year-over-year trends were positive, and sales in the fourth quarter 2004 included a multi-year $138 million contract extension with Virginia Tech for NetworkVirginia broadband services connecting approximately 1,500 schools, libraries, clinics, research institutions and public service organizations throughout the commonwealth.
- Retail gross additions increased 5.7 percent over the fourth quarter 2003. Retail net additions increased 14.7 percent, to 1.6 million of the company's 1.7 million total net additions.
- Service revenues for the quarter were $6.5 billion, up 20.5 percent. For the year, service revenues were $24.4 billion, up 20.0 percent. The company does not include taxes and regulatory fees in service revenues. Average service revenue per customer increased 3 percent in the quarter and nearly 3 percent for the full year, to $50.32 and $50.22, respectively.
- Verizon Wireless continued its industry-leading cost management. In 2004, cash expense per customer declined 2.5 percent to its lowest-ever expense level for a full year, which is especially noteworthy given the record-high volume of new customers.
- Data services usage continued to climb, contributing $1.1 billion in revenues in 2004, more than double the data revenues in 2003. In the fourth quarter, $359 million, or 5.6 percent, of all service revenues came from data services, continuing the upward trend from 3.2 percent in the prior year's quarter. The company has 16.6 million data customers -- more than one-third of all its customers.
- Contributing to wireless data revenues, 3 billion text messages were exchanged during the quarter. Additionally, there were 32.6 million picture messages and 30.2 million downloads of Get It Now's more than 500 games, exclusive content and other applications.
- As previously announced, the company next week will launch V CAST, the nation's first 3G (third-generation) consumer multimedia services, delivering high-quality video, 3D games and music to 3G handsets. At the same time, the company also will introduce three cutting-edge 3G handsets.
- 3G services are made possible by the company's significantly-expanded (3G) EV-DO network, the largest and fastest wide-area broadband network in the nation, reaching 75 million Americans and growing. Already riding on this 3G network is the company's BroadbandAccess service for business customers, giving them broadband-speed remote access from laptops and PDAs when out of the office.
- Verizon Information Services (VIS) revenues of $890 million decreased 4.6 percent for the fourth quarter 2004 compared with the fourth quarter 2003, primarily due to reduced domestic print advertising revenues. For the year, VIS' revenues of $3.6 billion decreased 5.6 percent in 2004 from 2003, primarily due to reduced domestic print advertising revenues and the elimination of revenues from the 2003 sale of European operations.
- VIS' domestic online directory and search service, SuperPages.com, continued to achieve strong growth in 2004, as demonstrated by a 22 percent increase in revenues and a 49 percent increase in searches over 2003.
- Verizon sold the Verizon Information Services Canada directory operations to an affiliate of Bain Capital, a private investment firm, for $1.6 billion. The sale closed in the fourth quarter 2004, generating an after-tax gain of $516 million. As noted earlier, this gain and prior-period results for this unit are excluded from Information Services segment results.
- Fourth-quarter revenues were $544 million, bringing full-year revenues to $2.0 billion, compared with $477 million and $1.9 billion in the fourth quarter and full-year 2003, respectively. The fourth-quarter increase of 14.0 percent was primarily driven by Verizon's 100 percent-owned affiliate in the Dominican Republic and reflects operational growth as well as foreign exchange rate improvement. The full-year increase of 3.3 percent reflects operational growth at Verizon Dominicana, as well as a prior-year revenue adjustment in Puerto Rico, partially offset by unfavorable foreign exchange rates in the Dominican Republic.
- Fourth-quarter segment income was $338 million, bringing full-year segment income to $1.2 billion, compared with $341 million and $1.4 billion in the fourth quarter and full-year 2003, respectively. The decrease for the full-year primarily resulted from additional Italian tax benefits in 2003 from a reorganization at Vodafone Omnitel, lower asset sales and unfavorable foreign exchange rates, partially offset by operational growth at Verizon Dominicana and the prior-year revenue and expense adjustments in Puerto Rico.
- During the fourth quarter, Verizon sold its 20.5 percent interest in TELUS and 24.5 percent interest in EuroTel Bratislava, a Slovak wireless provider. These transactions reflect International's continuing efforts to realign its portfolio and focus primarily on the Caribbean and Latin American region, as well as on Verizon's 23.1 percent investment in Vodafone Omnitel.
With more than $71 billion in annual revenues, Verizon Communications Inc. (NYSE:VZ) is one of the world's leading providers of communications services. Verizon has a diverse work force of more than 210,000 in four business units: Domestic Telecom serves customers based in 29 states with wireline telecommunications services, including broadband, nationwide long-distance and other services. Verizon Wireless owns and operates the nation's most reliable wireless network, serving 43.8 million voice and data customers across the United States. Information Services operates directory publishing businesses and provides electronic commerce services. International includes wireline and wireless 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: 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; the timing, scope and financial impacts of our deployment of fiber-to-the-premises broadband technology; 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.