Verizon Posts Strong Earnings Growth In 1Q 2013

Verizon Wireless Expands Margins; Continued Strong Customer and Revenue Gains Reported for Wireless, FiOS and Global Enterprise Strategic Services

By Robin Nicol on April 18, 2013

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Peter Thonis
peter.thonis@verizon.com
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Bob Varettoni
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1Q 2013 HIGHLIGHTS

Consolidated

  • 68 cents in earnings per share (EPS), a 15.3 percent increase compared with 59 cents per share in 1Q 2012.
  • 4.2 percent year-over-year increase in total operating revenues; cash flow from operating activities up $1.6 billion, or 26.4 percent, from 1Q 2012.

Wireless

  • 8.6 percent year-over-year increase in both service revenues and retail service revenues in 1Q 2013; 32.9 percent operating income margin and 50.4 percent segment EBITDA margin on service revenues (non-GAAP), both record highs.
  • 677,000 retail postpaid net additions, up 35 percent year over year; low retail postpaid churn of 1.01 percent; 98.9 million total retail connections, 93.2 million total retail postpaid connections.
  • 4G LTE service now available to 287 million people in 491 markets across the U.S.

Wireline

  • 188,000 FiOS Internet and 169,000 FiOS Video net additions, with continued increased sales penetration for both services; FiOS revenues up 15.1 percent year over year, to $2.6 billion.
  • 4.3 percent year-over-year increase in consumer revenues; consumer ARPU up 9.5 percent year over year, to $107.15.
  • 6.0 percent year-over-year increase in revenues for global enterprise strategic services.

Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported strong first-quarter 2013 earnings growth, driven by record margins at Verizon Wireless and continued strong cash flow and year-over-year revenue increases for wireless, FiOS and strategic enterprise services.

Verizon reported 68 cents in EPS in first-quarter 2013, a 15.3 percent increase compared with first-quarter 2012 earnings of 59 cents per share.  There were no adjustments in either quarter.

“Verizon is off to an excellent start in 2013,” said Lowell McAdam, Verizon chairman and CEO.  “Our strategic investments in wireless, wireline and global networks have given us the platforms to sustain momentum and take advantage of growth opportunities in key markets for broadband, video and cloud services.  With ongoing improvements in operating efficiency, we expect continued growth in free cash flow and earnings as we move through the year.”

Strong Cash Flow and Consolidated Revenue Growth

In first-quarter 2013, Verizon’s consolidated results were highlighted by continued strong cash flow and revenue growth.

Consolidated Highlights

  • Total operating revenues in first-quarter 2013 were $29.4 billion, a 4.2 percent increase compared with first-quarter 2012.
  • Operating income grew 19.8 percent, to $6.2 billion in first-quarter 2013, compared with $5.2 billion in first-quarter 2012.  Operating income margin was 21.1 percent in first-quarter 2013, compared with 18.4 percent in first-quarter 2012.
  • Consolidated EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) grew 12.1 percent year over year, totaling $10.3 billion in first-quarter 2013.  EBITDA margin (non-GAAP) expanded to 35.1 percent in first-quarter 2013, up 240 basis points year over year.
  • Cash flow from operating activities grew $1.6 billion, or 26.4 percent, compared with first-quarter 2012.  Capital expenditures in first-quarter 2013 were $3.6 billion, flat year over year.  Free cash flow (non-GAAP, cash flow from operations less capex) in first-quarter 2013 increased $1.5 billion, or 64.3 percent, compared with first-quarter 2012.

Verizon Wireless Delivers Record Profitability, Strong Customer and Revenue Growth

In first-quarter 2013, Verizon Wireless delivered strong growth in retail postpaid net additions and revenues; an increase in smartphone penetration; and the highest segment EBITDA margin on service revenues (non-GAAP) in the company’s history -- surpassing the previous high in third-quarter 2012.

Wireless Financial Highlights

  • Total revenues were $19.5 billion in first-quarter 2013, up 6.8 percent year over year.  Service revenues in the quarter totaled $16.7 billion, up 8.6 percent year over year.  Retail service revenues also grew 8.6 percent year over year, to $16.2 billion.
  • Retail postpaid ARPA (average revenue per account) increased 6.9 percent over first-quarter 2012, to $150.27 per month.  As customers continue to add multiple devices to accounts following the introduction of the Share Everything Plan last June, Verizon Wireless has been reporting ARPA instead of ARPU (average revenue per user) on a postpaid basis since customers can share data among multiple devices.
  • In first-quarter 2013, wireless operating income margin was 32.9 percent and segment EBITDA margin on service revenues was 50.4 percent, setting record-highs.

Wireless Operational Highlights

  • Verizon Wireless added 677,000 retail postpaid net connections, out of a total 720,000 net retail connections, in the first quarter.  These additions exclude acquisitions and adjustments.  Last year, net additions for retail postpaid connections increased sequentially each quarter, and Verizon expects a similar pattern of accelerating customer growth in 2013.
  • At the end of the first quarter, the company had 98.9 million retail connections, a 6.4 percent increase year over year -- including 93.2 million retail postpaid connections.
  • Verizon Wireless had 34.9 million retail postpaid accounts at the end of the first quarter, a 1.1 percent increase over first-quarter 2012, and an average of 2.7 connections per account, up 5.1 percent year over year.
  • At the end of the first quarter, smartphones accounted for more than 61 percent of the Verizon Wireless retail postpaid customer phone base, up from 58 percent at the end of fourth-quarter 2012.
  • Retail postpaid churn was 1.01 percent in the first quarter, up 5 basis points year over year.  Retail churn was 1.30 percent in the first quarter, up 6 basis points year over year.
  • Verizon Wireless continued to roll out its 4G LTE mobile broadband network, the largest 4G LTE network in the U.S.  As of today (April 18), Verizon Wireless 4G LTE service is available to 287 million people in 491 markets across the U.S., covering more than 95 percent of Verizon’s current 3G network footprint.
  • The company continued to enhance its 4G LTE device lineup with smartphones, tablets and other devices.  In the first quarter, Verizon Wireless launched the Samsung ATIV Odyssey, the BlackBerry Z10, the Samsung Galaxy Note 10.1 tablet, the Verizon 4G LTE USB Modem UML295 by Pantech, and the Verizon Jetpack 4G LTE Mobile Hotspot MiFi 5510L by Novatel Wireless.  Earlier this month, the company launched the Lucid 2 by LG and the Verizon 4G LTE Router, an Internet solution that connects both wired and Wi-Fi-enabled devices.

Wireline Reports Continued Strong FiOS Customer and Revenue Growth

Verizon’s Wireline segment reported continued strong FiOS customer, market share and revenue growth in first-quarter 2013, leading to overall growth in consumer revenues.  In enterprise and wholesale, increased sales of global enterprise strategic services continued to help mitigate lower revenues resulting from secular and global economic impacts.

Wireline Financial Highlights

  • Consumer revenues were $3.6 billion, an increase of 4.3 percent compared with first-quarter 2012.  Consumer ARPU for wireline services increased to $107.15 in first-quarter 2013, up 9.5 percent compared with first-quarter 2012.
  • FiOS revenues grew 15.1 percent, to $2.6 billion in first-quarter 2013 compared with $2.3 billion in first-quarter 2012.  ARPU for FiOS customers continued to be more than $150 in first-quarter 2013.
  • Sales of strategic services to global enterprise customers increased 6.0 percent compared with first-quarter 2012 and represented 55.6 percent of total enterprise revenues.  Strategic services include Verizon Terremark cloud and data center services, security and IT solutions, advanced communications, and strategic networking.

Wireline Operational Highlights

  • Verizon added 188,000 net new FiOS Internet connections in first-quarter 2013, marking the third consecutive quarter of sequential growth in net customer additions.  The company also added 169,000 net new FiOS Video connections in the quarter.  Verizon had a total of 5.6 million FiOS Internet and 4.9 million FiOS Video connections at the end of the quarter, representing year-over-year increases of 12.0 percent and 12.5 percent, respectively.
  • FiOS penetration (subscribers as a percentage of potential subscribers) continued to increase.  FiOS Internet penetration was 38.2 percent at the end of first-quarter 2013, compared with 36.4 percent at the end of first-quarter 2012.  In the same periods, FiOS Video penetration was 34.1 percent, compared with 32.3 percent.  The FiOS network passed 17.8 million premises by the end of first-quarter 2013.
  • Broadband connections totaled 8.9 million at the end of first-quarter 2013, a 1.4 percent year-over-year increase.  Overall, net broadband customers increased 99,000 in the first quarter, as FiOS Internet net customer additions more than offset fewer subscribers for DSL-based High Speed Internet services.
  • Verizon has been replacing high-maintenance portions of its residential copper network with fiber optics to provide enhanced services and to reduce ongoing repair costs.  In first-quarter 2013, Verizon migrated 83,000 homes to fiber, toward a target of 300,000 migrations within FiOS markets in 2013.
  • Verizon Enterprise Solutions completed agreements with and began deploying innovative business technology solutions for a variety of corporations and organizations in the quarter, including the Commonwealth of Pennsylvania, Ocean Exploration Trust, Quest Diagnostics and Synchronoss Technologies (Nasdaq: SNCR). 

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.

Verizon Communications Inc. (NYSE, Nasdaq: VZ), headquartered in New York, is a global leader in delivering broadband and other wireless and wireline communications services to consumer, business, government and wholesale customers.  Verizon Wireless operates America’s most reliable wireless network, with nearly 99 million retail connections nationwide.  Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and delivers integrated business solutions to customers in more than 150 countries, including all of the Fortune 500.  A Dow 30 company with nearly $116 billion in 2012 revenues, Verizon employs a diverse workforce of 181,900.  For more information, visit www.verizon.com.

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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 changes in available technology or technology substitution; disruption of our key suppliers’ provisioning of products or services; changes in the regulatory environments 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 significant litigation and any resulting financial impact not covered by insurance; 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; 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; material adverse changes in labor matters, including labor negotiations, and any resulting financial and/or operational impact; significant increases in benefit plan costs or lower investment returns on plan assets; and the inability to implement our business strategies.