Verizon Reports Strong Wireless Customer and Data Growth in 4Q; Delivers Higher Operating Cash Flows
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4Q 2009 HIGHLIGHTS
- Continued cash flow growth in 4Q 2009: $31.6 billion in cash flow from operations in 2009, up $4.0 billion, or 14.5 percent, from 2008.
- A loss of 23 cents per share and adjusted earnings (non-GAAP) of 54 cents per share, compared with 4Q 2008 EPS of 43 cents and 61 cents, respectively.
- 2.2 million total net customer additions, excluding acquisitions and adjustments, in 4Q 2009; 1.2 million retail net customer additions in quarter; 87.5 million retail customers, up 25 percent from year-end 2008; 91.2 million total customers, up 26.6 percent from year-end 2008.
- 22.5 percent increase in total revenues from 4Q 2008; continued low retail postpaid churn, 1.06 percent; data revenues up 45.9 percent; 27.3 percent operating income margin and 45.0 percent EBITDA margin on service revenues (non-GAAP).
- 153,000 each of net FiOS Internet and FiOS TV customer additions in 4Q 2009; 3.4 million total FiOS Internet customers and 2.9 million total FiOS TV customers.
- 12.6 percent increase in consumer ARPU from 4Q 2008; total broadband and video revenues of $1.7 billion, up 25.5 percent from 4Q 2008.
Verizon Communications Inc. (NYSE:VZ) today reported continued strong cash flow in the fourth quarter 2009, fueled by quarterly growth in strategic areas. Verizon Wireless added a net of 2.2 million total customers, including 1.2 million retail customers, and reported increased data revenue. Verizon's wireline operations posted customer and revenue gains in FiOS broadband services and increased sales of strategic business services.
In the fourth quarter, Verizon recorded a loss of 23 cents in diluted earnings per share (EPS), compared with EPS of 43 cents per share in the fourth quarter 2008. Contributing to the loss was a special item of $3.0 billion in pre-tax costs related to workforce reductions. On an adjusted basis (non-GAAP), fourth-quarter 2009 EPS was 54 cents, compared with 61 cents in the fourth quarter 2008.
On an annual basis, Verizon reported $1.29 in 2009 EPS, compared with $2.26 in 2008. On an adjusted basis, full-year 2009 EPS was $2.40, compared with 2008 EPS of $2.54.
Positioned to Deliver Long-Term Growth
"In last year's turbulent economy, we took significant steps to strengthen Verizon going forward," said Chairman and CEO Ivan Seidenberg. "We focused on expanding wireless data and set the stage to deploy a nationwide 4G network later this year. We also expanded the scale of FiOS and our global IP network. We saw growth in all these areas in 2009, and we expect continued growth in 2010 and beyond, with a goal of delivering long-term shareowner value."
In the fourth quarter, Verizon continued streamlining its wireline operations. The company also incurred costs in preparation for the spinoff of wireline access lines to Frontier Communications, a transaction that Seidenberg said was on track to close in the second quarter of 2010.
Seidenberg added: "Our fourth-quarter earnings reflect costs to re-size and simplify our wireline business. This transformation is realigning our wireline cost structure, improving productivity, and focusing resources on sales of FiOS and strategic business services. Verizon Wireless also underwent a successful transformation in 2009. Our customer base moved more toward data-centric devices and services, and we are successfully integrating Alltel operations and capturing merger synergies."
Revenue and Cash Flow Growth
In the fourth quarter 2009, Verizon's total operating revenues grew 9.9 percent to $27.1 billion, compared with the fourth quarter 2008. This includes revenues from Alltel, which Verizon acquired in January 2009. On a pro forma basis (consolidating the operating results of Verizon and the former Alltel as though the acquisition had occurred on Jan. 1, 2008), fourth-quarter 2009 operating revenue growth was 0.2 percent, compared with the fourth quarter 2008.
For 2009, annual operating revenues totaled $107.8 billion, an increase of 10.7 percent from 2008 on a reported basis and 1.5 percent on a pro forma basis.
Cash flow from operations totaled $31.6 billion in 2009, up 14.5 percent, or $4.0 billion, from 2008. Free cash flow (non-GAAP; cash flow from operations less capital expenditures) totaled $14.5 billion in 2009, up $4.2 billion from 2008. Verizon's capital expenditures were $17.0 billion in 2009, compared with $17.2 billion in 2008.
Details of 4Q Adjustments
Adjusted earnings in the fourth quarter 2009 excluded 77 cents per share in special items: 66 cents for severance, pension and benefit charges in connection with workforce reductions in the fourth quarter and continuing into 2010; 2 cents for merger integration and acquisition costs primarily in connection with the Alltel transaction; and 9 cents for other charges, including costs related to the pending spinoff of non-strategic wireline access lines.
Adjusted earnings in the fourth quarter 2008 excluded 15 cents per share for severance, pension and benefit related charges; 1 cent per share for merger integration costs; and 1 cent per share for an other-than-temporary decline in investment values.
Verizon announced today that, in future quarterly earnings reports, the company will no longer adjust reported results for non-operational or special items. However, the company will continue to provide information to help investors understand reported results on a comparable basis with historical periods.
Wireless Customer Growth and Profitability Continue Strong
Verizon Wireless delivered sustained high margins and solid customer growth. In the fourth quarter 2009:
- Verizon Wireless continued to grow its high-quality retail (non-wholesale) customer base. The company added 1.2 million retail net customers in the quarter (almost all postpaid) and 4.6 million retail net customers in the full year, both excluding acquisitions and adjustments.
- Verizon Wireless has the most retail customers of any U.S. wireless provider. The company had 87.5 million retail customers at the end of the fourth quarter, an increase of 25.0 percent year over year and 5.7 percent on a pro forma basis.
- The company also added 1.0 million reseller customers in the fourth quarter, bringing its total number of customers at the end of the quarter to 91.2 million, an increase of 26.6 percent year over year and 7.0 percent on a pro forma basis.
- Retail postpaid churn and total retail churn remained low, at 1.06 percent and 1.44 percent, respectively. Total churn was 1.42 percent.
- Retail service revenues in the quarter totaled $13.2 billion, up 22.5 percent year over year and 5.2 percent on a pro forma basis. Service revenues in the fourth quarter were $13.5 billion, up 22.5 percent and 5.0 percent on a pro forma basis. Total revenues were $15.7 billion, up 22.5 percent year over year and 3.1 percent on a pro forma basis. Full-year revenues were $62.1 billion, up 25.9 percent and 6.1 percent on a pro forma basis.
- Retail service ARPU (average monthly service revenue per user) decreased 2.2 percent year over year and 0.6 percent on a pro forma basis to $50.75. Retail data ARPU increased to $16.24, up 16.1 percent year over year and 20.5 percent on a pro forma basis.
- Wireless operating income margin, adjusted for merger integration and acquisition costs, was 27.3 percent, a decrease of 2.4 percentage points year over year and 1.7 percentage points on a pro forma basis. Adjusted on the same basis, EBITDA (earnings before interest, taxes, depreciation and amortization) margin on service revenues (non-GAAP) was 45.0 percent, a decrease of 2.2 percentage points year over year and 2.5 percentage points on a pro forma basis.
Continued Growth in Consumer Broadband and Video
In wireline, Verizon posted another consecutive quarter of gains in the number of customers using fiber-optic-based FiOS Internet and FiOS TV services. In consumer markets served by Verizon's wireline network, increased revenues from broadband and video services again helped produce overall revenue growth, as well as ARPU growth. In the fourth quarter:
- Verizon added 153,000 net new FiOS Internet customers. The company served 3.4 million FiOS Internet customers by the end of the quarter, a 38.4 percent year-over-year increase.
- FiOS Internet penetration (customers as a percentage of potential customers) was 28.1 percent by the end of the fourth quarter, with the product available for sale to 12.2 million premises. This compares with a 24.9 percent penetration and 10.0 million premises open for sale at the end of the fourth quarter 2008.
- Verizon also added 153,000 net new FiOS TV customers and served 2.9 million FiOS TV customers by the end of the quarter, a 49.2 percent year-over-year increase.
- FiOS TV penetration was 24.5 percent by the end of the fourth quarter, with the product available for sale to 11.7 million premises. This compares with a 20.8 percent penetration and 9.2 million premises open for sale at the end of the fourth quarter 2008.
- Total broadband and video revenues were $1.7 billion, a 25.5 percent increase compared with the fourth quarter 2008. This contributed to an overall 1.2 percent revenue growth in consumer markets served by Verizon's wireline network.
- Revenue growth from broadband and video services boosted consumer ARPU to $77.06 in the fourth quarter 2009, a 12.6 percent year-over-year increase. FiOS ARPU is more than $140, driven primarily by triple-play bundles of voice, Internet and TV services.
- Triple-play customers increased from 1.6 million in fourth-quarter 2008 to 2.4 million in fourth-quarter 2009, a 47 percent increase.
- Worldwide sales of strategic business services - such as IP (Internet protocol), managed services, Ethernet and security solutions - generated $1.6 billion in revenue in the quarter, up 6.0 percent compared with the fourth quarter 2008. Revenue from IP data services alone increased 8.6 percent year over year.
Regarding 2010, Verizon announced the following consolidated expectations:
- Capital spending targeted in the range of $16.8 billion to $17.2 billion.
- Incremental pressure of approximately 4 cents to 6 cents on EPS due to non-cash pension and retiree benefit costs.
- An annual effective tax rate attributable to Verizon in the range of 33 percent to 35 percent.
- A year-end net debt-to-EBITDA ratio (non-GAAP, total debt less cash and cash equivalents, divided by EBITDA on a comparable basis to 2009) of 1.4 to 1.5.
- At the end of 2009, retail customers (postpaid and prepaid) represented 96 percent of the company's base. Verizon Wireless is the nation's largest wireless provider based on total customers.
- Verizon Wireless continued to lead the industry in cost efficiency. Monthly cash expense per customer (non-GAAP) increased in the fourth quarter 2009 to $27.62 from $26.77 in the fourth quarter 2008 on a pro forma basis. For the full year, cash expense per customer was $27.49, unchanged from 2008 on a pro forma basis.
- Data revenues of $16.0 billion for the full year were up 31 percent over 2008 on a pro forma basis. In the fourth quarter, data revenues were 31.9 percent of all service revenues, up from 26.5 percent in the fourth quarter 2008 on a pro forma basis.
- Verizon Wireless continued to extend the reach of its broadband network, the nation's largest and most reliable 3G (third-generation) network. Verizon's 3G network provides more coverage than any other U.S. carrier and is available where more than 285 million people reside.
- In December, the company updated specifications for wireless devices that will run on its LTE 4G (Long Term Evolution, fourth generation) network, which ultimately will connect a full range of electronics and machines, and enable a new class of services, such as online gaming, media sharing and video entertainment. Verizon Wireless plans to launch its 4G network in 25 to 30 markets in 2010 and cover virtually all of its current nationwide 3G footprint by the end of 2013.
- As part of its strategic partnership with Google, Verizon Wireless introduced two Android-based devices in November: the DROID by Motorola and the DROID Eris by HTC. Other 3G smartphones launched during the fourth quarter include the BlackBerry Storm2 and BlackBerry Curve 8530, both with built-in Wi-Fi, and the Samsung Omnia II powered by Windows Mobile 6.5.
- During the fourth quarter, Verizon Wireless customers sent or received more than 162 billion text messages. Customers also sent more than 4 billion picture/video messages and completed more than 38 million music and video downloads.
- Fourth-quarter operating revenues were $11.5 billion, a decline of 3.9 percent compared with the fourth quarter 2008. This is an improvement of 0.9 percentage points compared with the year-over-year revenue declines reported in the third quarter 2009.
- Broadband connections totaled 9.2 million at the end of the fourth quarter, a 6.3 percent year-over-year increase. This is a net increase of 46,000 from the third quarter 2009, as the increase in FiOS Internet connections more than offset a decrease in DSL-based High Speed Internet connections.
- As of the end of 2009, the FiOS network passed 15.4 million premises, or approximately 48 percent of total households in areas currently covered by Verizon's wireline network.
- New Verizon offerings for multinational corporate customers and government customers included IT consulting and managed services to help enterprises transition to cloud computing technologies; telehealth collaboration services; consulting services aimed at helping track and protect corporate data; a cloud-based application performance monitoring service; and solutions to prevent hacker threats to corporate applications. Additionally, Verizon announced a global strategic alliance with McAfee to provide integrated security solutions.
- Continuing to widen and deepen its global scope and capabilities, Verizon expanded its Virtual Private LAN service to Europe, Asia-Pacific and additional North American locations. The company also deployed the industry's first commercial 100G (gigabits per second) ultra-long-haul optical system for live traffic on its European optical core network; added a Japan landing to its Trans-Pacific Express submarine cable system; and installed 19 Private IP edge routers for a total of 753 edge routers in 212 sites throughout 59 countries.
- New agreements with large-business customers included Aon Corp.; Danfoss A/S; Expedia Inc.; and Nissan North America. Verizon also announced new agreements with U.S. government agencies, including the U.S. Army Reserve Command.
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. Reclassifications of prior-period amounts have been made in accordance with the adoption of the accounting standard on noncontrolling interests in consolidated financial statements and, 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. Unless stated otherwise, segment results shown are adjusted for special items. Adjusted EPS is calculated based on net income attributable to Verizon before special items, which eliminates items of revenues, expenses, gains and losses primarily as a result of their non-operational or non-recurring nature.
Verizon Communications Inc. (NYSE:VZ), headquartered in New York, is a global leader in delivering broadband and other wireless and wireline communications services to mass market, business, government and wholesale customers. Verizon Wireless operates America's most reliable wireless network, serving more than 91 million customers nationwide. Verizon also provides converged communications, information and entertainment services over America's most advanced fiber-optic network, and delivers innovative, seamless business solutions to customers around the world. A Dow 30 company, Verizon employs a diverse workforce of approximately 222,900 and last year generated consolidated revenues of more than $107 billion. For more information, visit www.verizon.com.
NOTE: This document 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 effects of adverse conditions in the U.S. and international economies; the effects of competition in our markets; materially adverse changes in 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; the effect of material changes in available technology; any disruption of our suppliers' provisioning of critical products or services; significant increases in benefit plan costs or lower investment returns on plan assets; the impact of natural or man-made disasters 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 loss of or inability to renew wireless licenses, and the final results of federal and state regulatory proceedings and judicial review of those results; the timing, scope and financial impact of our deployment of fiber-to-the-premises 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; our ability to successfully integrate Alltel Corporation into Verizon Wireless' business and achieve anticipated benefits of the acquisition; and the inability to implement our business strategies.