Verizon Reports Strong Customer Additions and Another Quarter of Double-Digit Earnings Growth
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3Q 2014 HIGHLIGHTS
(PDF of Financial Tables)
- 89 cents in earnings per share (EPS), compared with 78 cents per share (or 77 cents on a non-GAAP adjusted basis) in 3Q 2013.
- Added 1.5 million net retail connections; retail postpaid churn of 1.00 percent; 106.2 million total retail connections; 100.1 million total retail postpaid connections.
- 4.8 percent year-over-year increase in service revenues; 4.6 percent year-over-year increase in retail service revenues; 31.9 percent operating income margin; 49.5 percent segment EBITDA margin on service revenues (non-GAAP).
- 4.5 percent year-over-year increase in consumer revenues, the ninth consecutive quarter of more than 4 percent growth; consumer ARPU (average revenue per user) up 10.3 percent.
- 13.4 percent year-over-year increase in FiOS revenues; 162,000 FiOS Internet and 114,000 FiOS Video net additions.
NEW YORK – Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported double-digit year-over-year percentage growth in reported and adjusted earnings per share for the 10th time in the past 11 quarters.
The company posted another strong quarter of Verizon Wireless connections growth and profitability, and customer growth for FiOS fiber-optic services.
Chairman and CEO Lowell McAdam said: “We have great confidence heading into the fourth quarter, as Verizon continues to deliver consistently strong operating and financial results. We see continued, healthy customer demand for wireless and broadband services, and we are encouraged by the growth we are starting to see in the areas of video delivery and machine-to-machine. Our cash generation remains strong, and last month we were pleased to announce board approval of a quarterly dividend increase for the eighth consecutive year.”
Verizon reported 89 cents in EPS in third-quarter 2014, compared with 78 cents per share in third-quarter 2013. No special items impacted third-quarter 2014 earnings. Third-quarter 2013 results included a non-operational net gain of 1 cent per share.
The 89 cents in EPS in third-quarter 2014 is a 15.6 percent increase compared with 77 cents per share on an adjusted basis (non-GAAP) in third-quarter 2013.
- Total operating revenues in third-quarter 2014 were $31.6 billion, a 4.3 percent increase compared with third-quarter 2013. Excluding third-quarter 2013 revenues of the public sector business Verizon divested at the beginning of third-quarter 2014, the comparable growth rate (non-GAAP) would have been 4.9 percent.
- Capital expenditures totaled $12.6 billion through the first nine months of 2014, up 6.9 percent year over year. Verizon projects capital spending of around $17 billion for full-year 2014, with consistent wireless capital spending throughout the year to stay ahead of customer demand by adding capacity to optimize the company’s 4G LTE network.
- Verizon continues to target consolidated top-line growth of 4 percent in 2014. For the full year, results for consolidated adjusted and wireless segment EBITDA service margin (non-GAAP, based on earnings before interest, taxes, depreciation and amortization) will be dependent on fourth-quarter volumes and installment take rates. Wireline segment EBITDA margin remains on track to expand on a full-year basis.
- New revenue streams from machine-to-machine and telematics totaled $150 million in third-quarter 2014 – or more than $400 million through the first nine months of 2014, an increase of more than 40 percent year to date.
Verizon Wireless Delivers Strong Customer Additions and Profitability
In third-quarter 2014, Verizon Wireless delivered strong growth in retail postpaid net connections, a high number of tablet additions, an increase in smartphone penetration and continued high segment EBITDA margin on service revenues (non-GAAP).
Wireless Financial Highlights
- Total revenues were $21.8 billion in third-quarter 2014, up 7.0 percent year over year. Service revenues in the quarter totaled $18.4 billion, up 4.8 percent year over year. Retail service revenues grew 4.6 percent year over year, to $17.6 billion.
- Retail postpaid ARPA (average revenue per account) increased 3.5 percent over third-quarter 2013, to $161.24 per month.
- In third-quarter 2014, wireless operating income margin was 31.9 percent and segment EBITDA margin on service revenues was 49.5 percent. This compares with 33.8 percent and 51.1 percent, respectively, in third-quarter 2013.
Wireless Operational Highlights
- Verizon Wireless added 1.53 million retail net connections, including 1.52 million retail postpaid connections, in the third quarter. These additions exclude acquisitions and adjustments.
- At the end of the third quarter, the company had 106.2 million retail connections. This includes 100.1 million retail postpaid connections, a 5.2 percent increase year over year.
- Verizon Wireless had 35.4 million retail postpaid accounts at the end of the third quarter, up 1.3 percent over third-quarter 2013, and 2.82 connections per account, up 3.7 percent year over year.
- During third-quarter 2014, the company added 457,000 postpaid phones and 1.1 million postpaid tablets. At the end of the quarter, smartphones accounted for 77 percent of the Verizon Wireless retail postpaid customer phone base, up from 75 percent at the end of second-quarter 2014.
- Retail postpaid churn was 1.00 percent in the third quarter, an increase of 6 basis points sequentially and 3 basis points year over year. Retail churn was 1.29 percent in the third quarter, up 4 basis points sequentially and 1 basis point year over year.
- The company continued to enhance its 4G LTE device lineup. In the third quarter, Verizon Wireless launched the HTC One Remix, LG G Vista, Kyocera Brigadier, HTC One (M8) for Windows, Apple iPhone 6 and 6 Plus and New Moto X smartphones; the Verizon Jetpack 4G LTE Mobile Hotspot MiFi 6620L, and Samsung Galaxy Tab 4 (10.1) and Tab S 10.5 tablets.
- During the third quarter, Verizon Wireless continued to add capacity to its 4G LTE network, the largest in the United States, using AWS-1 spectrum. This additional bandwidth, called XLTE, is now available in more than 400 markets across the country.
Wireline Consumer Revenue Growth Remains Strong
Verizon’s wireline segment reported continued strong results for consumer services, where year-over-year quarterly revenues now have grown by more than 4 percent for nine consecutive quarters.
Wireline Financial Highlights
- Total revenues were $9.6 billion in third-quarter 2014, down 0.8 percent year over year. Consumer revenues were $3.9 billion, up 4.5 percent compared with third-quarter 2013, with FiOS revenues representing 76 percent of the total. Consumer ARPU for wireline services increased to $125.32 per month in third-quarter 2014, up 10.3 percent compared with third-quarter 2013.
- Total FiOS revenues grew 13.4 percent, to $3.2 billion, comparing third-quarter 2014 with third-quarter 2013.
- Wireline operating income margin was 2.3 percent in third-quarter 2014, up from 1.5 percent in third-quarter 2013. Segment EBITDA margin (non-GAAP) was 23.0 percent in third-quarter 2014, flat compared with third-quarter 2013.
- Sales of strategic services to enterprise customers increased 1.0 percent, to $2.1 billion, compared with third-quarter 2013. Strategic services include private IP, Ethernet, data center, cloud, security and managed services.
Wireline Operational Highlights
- In third-quarter 2014, Verizon added 162,000 net new FiOS Internet connections and 114,000 net new FiOS Video connections. Verizon had totals of 6.5 million FiOS Internet and 5.5 million FiOS Video connections at the end of the third quarter, representing year-over-year increases of 8.8 percent and 7.0 percent, respectively.
- FiOS Internet penetration (subscribers as a percentage of potential subscribers) was 40.6 percent at the end of third-quarter 2014, compared with 39.2 percent at the end of third-quarter 2013. In the same periods, FiOS Video penetration was 35.5 percent, compared with 34.9 percent. The FiOS network passed 19.7 million premises by the end of third-quarter 2014.
- By the end of third-quarter 2014, 57 percent of consumer FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50 to 500 megabits per second, up from 55 percent at the end of second-quarter 2014.
- As of this week, nearly 5 million FiOS customers have already been upgraded to SpeedMatch upload speeds that mirror download speeds. This upgrade, at no additional customer cost, helps distinguish the benefits of fiber-based broadband.
- Broadband connections totaled 9.1 million at the end of third-quarter 2014, a 1.7 percent year-over-year increase. Net broadband connections increased by 69,000 in third-quarter 2014, as FiOS Internet net additions more than offset declines in DSL-based High Speed Internet connections.
- Verizon has been replacing high-maintenance portions of its residential copper network with fiber optics to provide customers with more resilient infrastructure and reduce repairs, which improves customer satisfaction and reduces costs. In third-quarter 2014, Verizon migrated an additional 55,000 customers to fiber, bringing the year-to-date total to around 200,000.
- In the third quarter, Verizon Enterprise Solutions began deploying innovative enterprise-grade network, cloud, security, mobility and other technology solutions for some of the world’s strongest brands: healthcare clients CVS Health, Carestream Health and Atlantic Health System; public sector customers such as the Australian Taxation Office, Australian Department of Foreign Affairs, California Department of Transportation (Caltrans) and Corporation for Education Initiatives in California (CENIC); and industry leaders such as Avianet, Dun & Bradstreet, Property Exchange Australia (PEXA), Telerx, TruGreen and Vanguard Logistics Services (USA), Inc.
NOTE: See the accompanying schedules and www.verizon.com/about/investors for reconciliations to generally accepted accounting principles (GAAP) for non-GAAP financial measures cited in this document.
In this communication we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes” or similar expressions. 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, along with those discussed in our filings with the Securities and Exchange Commission (the “SEC”), could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: the ability to realize the expected benefits of our transaction with Vodafone in the timeframe expected or at all; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets affecting the cost, including interest rates, and/or availability of further financing; significantly increased levels of indebtedness as a result of the Vodafone transaction; changes in tax laws or treaties, or in their interpretation; adverse conditions in the U.S. and international economies; material adverse changes in labor matters, including labor negotiations, and any resulting financial and/or operational impact; material changes in technology or technology substitution; disruption of our key suppliers’ provisioning of products or services; changes in the regulatory environment in which we operate, including any increase in restrictions on our ability to operate our networks; breaches of network or information technology security, natural disasters, terrorist attacks or acts of war or significant litigation and any resulting financial impact not covered by insurance; the effects of competition in the markets in which we operate; changes in 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; significant increases in benefit plan costs or lower investment returns on plan assets; and the inability to implement our business strategies.