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Verizon Reports Continued Strong Growth in 1Q 2008
Wireless Delivers Industry-Leading Fundamentals; FiOS Growth Accelerates; Sales of Strategic Services to Large Businesses Continue to IncreaseNews Release
April 28, 2008 –
1Q 2008 HIGHLIGHTS
- 57 cents in EPS and 61 cents in adjusted EPS before discontinued operations (non-GAAP), compared with 1Q 2007 EPS of 51 cents and 54 cents, respectively.
- $23.8 billion in revenues, up 5.5 percent; $4.3 billion in operating income, up 14.1 percent.
- Highest net adds in the industry - 1.5 million net customer additions; 67.2 million total customers; 65.2 million retail customers, most in the industry, up 11.5 percent.
- Industry-leading churn - 1.19 percent total churn and 0.93 percent retail post-paid churn.
- 13.2 percent increase in total revenues; data revenues up 48.9 percent.
- 44.9 percent EBITDA margin on service revenues (non-GAAP).
- 263,000 net new FiOS TV customers and 262,000 net new FiOS Internet customers, for a total of 1.2 million FiOS TV customers and 1.8 million FiOS Internet customers; 8.5 million total broadband customers, up 14.9 percent.
- More than $1 billion in consumer and small-business broadband and video revenues.
- 9.6 percent increase in consumer ARPU in legacy telecom markets.
- 23.5 percent increase in Verizon Business strategic services revenues.
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. Discontinued operations relate to the disposition of Telecomunicaciones de Puerto Rico, Inc. that was completed on March 30, 2007.
NEW YORK - Verizon Communications Inc. (NYSE:VZ) today reported another quarter of strong sales and operational results. In the first quarter 2008, Verizon Wireless continued to lead the industry in key metrics, and Verizon's Wireline business reported continued strong growth in sales of domestic FiOS services and global strategic business services.
Verizon reported first-quarter 2008 earnings of 57 cents in diluted earnings per share (EPS). This compares with first-quarter 2007 earnings of 51 cents per share, both before and after an extraordinary item and income from discontinued operations that have been divested.
On an adjusted basis (non-GAAP), first-quarter 2008 earnings were 61 cents per share. This is a 13.0 percent increase, compared with 54 cents per share before discontinued operations in the first quarter 2007 - Verizon's fifth consecutive quarter of a double-digit percentage increase in adjusted EPS.
Adjusted earnings in the first quarter 2008 excluded 4 cents per share in special items: 3 cents per share for costs related to the spinoff of wireline access lines in three states, completed March 31, 2008; and 1 cent per share in merger integration costs. Adjusted earnings in the first quarter 2007 excluded an extraordinary loss of 5 cents in EPS from the nationalization and sale of Verizon's interest in Compañía Anónima Nacional Teléfonos de Venezuela.
Strong Results in Face of Economy
"Verizon has weathered the current economic uncertainty with strong first-quarter results," said Verizon Chairman and CEO Ivan Seidenberg. "I am also confident of our position over the long term because we have further opportunities to drive revenue growth and further opportunities to eliminate costs.
"With our strong cash flows, we continue to invest in growth, evolve our business and return value to shareholders," he said. "In a larger sense, Verizon is leading an industry transformation. In wireless, we are changing the game with our open development initiative, our plans for next-generation technology deployment, and our strategic investment in spectrum for nationwide broadband services. In wireline, we have spun off nonstrategic access lines, and we continue to introduce innovative FiOS and enterprise services."
Consolidated Growth and Share Repurchases
Verizon's total operating revenues grew 5.5 percent to $23.8 billion, compared with the first quarter 2007. Total operating expenses increased 3.8 percent to $19.5 billion over the same period.
Verizon's operating income grew 14.1 percent to $4.3 billion, compared with the first quarter 2007. On an adjusted basis (non-GAAP), operating income grew 14.2 percent to $4.5 billion. Operating income margin rose to 18.2 percent, compared with 16.8 percent in the first quarter 2007. On an adjusted basis, Verizon's operating income margin rose to 18.7 percent, compared with 17.3 percent in the first quarter 2007.
Cash flows from continuing operations totaled $5.4 billion through the first three months of 2008, up 6.9 percent over the same period last year. During the first quarter 2008, Verizon took advantage of market conditions to repurchase $1 billion of its common stock.
Total debt was $35.8 billion, compared with $31.2 billion at year-end 2007, and Verizon ended the quarter with $5.5 billion in cash and equivalents. Most of this cash, along with $4 billion in capital raised through long-term borrowings in April, has been used to pay for the wireless licenses won in the Federal Communications Commission's 700 MHz spectrum auction.
Verizon Wireless Leads Industry in Key Metrics
Verizon Wireless continued to lead the industry with the most retail customers, the lowest churn and the highest profitability. In the first quarter:
- Of the 1.5 million total net customer additions, 1.3 million were retail post-paid customers.
- Total churn was an industry-leading 1.19 percent. Among the company's retail post-paid customers, churn was even lower, at 0.93 percent.
- Revenues totaled $11.7 billion, up 13.2 percent year over year. Service revenues were $10.1 billion, an increase of 12.8 percent year over year, driven by customer growth and demand for data services. This is the first time quarterly service revenues have topped $10 billion.
- ARPU levels (average monthly revenue per customer) increased year over year for the eighth consecutive quarter. Retail service ARPU was $51.40, up 1.3 percent year over year; retail data ARPU was $11.94, up 33.4 percent over the same period last year.
- Wireless operating income margin was 27.9 percent, the highest ever.
- EBITDA margin on service revenues (non-GAAP) was 44.9 percent. (EBITDA is earnings before interest, taxes, depreciation and amortization.)
Another Quarter of Strong Growth in FiOS, Strategic Services
Verizon's Wireline business, which consists of Verizon Telecom and Verizon Business, reported continued strong growth in FiOS customers and in sales of enterprise strategic services. Results through the first quarter 2008 include operations in Maine, New Hampshire and Vermont that were spun off to Verizon shareholders and merged into FairPoint Communications Inc. on the final day of the quarter. In the first quarter:
- Verizon added a net of 263,000 new FiOS TV customers. The company had 1.2 million FiOS TV customers in total as of the end of the quarter, having added more than 850,000 FiOS TV customers since the end of the first quarter 2007.
- Verizon added a net of 266,000 new broadband connections - 262,000 from FiOS Internet service. Total broadband connections were 8.5 million (6.7 million DSL-based Verizon High Speed Internet connections and 1.8 million FiOS Internet connections), an increase of 14.9 percent compared with the first quarter 2007.
- Broadband and video revenues from consumer and small-business customers topped $1 billion, representing year-over-year quarterly growth of nearly 50 percent (56 percent growth in the consumer segment of broadband and video customers).
- Growing revenue from broadband and video services drove consumer ARPU in legacy Verizon wireline markets (which excludes consumer markets served by the former MCI) to $61.02, a 9.6 percent increase compared with last year's first quarter. The ARPU among FiOS customers was approximately $129 per month.
- Wireline data revenues - which now represent nearly 40 percent of total wireline revenues - were $4.9 billion, an increase of 14.8 percent compared with the first quarter 2007. This includes revenues from consumer broadband services, and revenues from wholesale data transport and sales of Verizon Business data services.
- Verizon Business had revenues of $5.2 billion, or growth of 0.4 percent compared with last year's first quarter. This is Verizon Business' sixth consecutive quarter of year-over-year, pro-forma revenue growth (non-GAAP, calculated as if Verizon and MCI had merged on Jan. 1, 2005). Global enterprise revenue, representing retail sales, increased 2.0 percent to $3.9 billion, compared with last year's first quarter.
- Strong sales of key strategic services - such as IP (Internet protocol), managed services, Ethernet and optical ring services - continued to drive Verizon Business' growth. These services generated $1.4 billion in revenue, up 23.5 percent from last year's first quarter.
- The company added 1.5 million retail customers - the most in the industry. At the end of the first quarter 2008, 97 percent of the company's base was retail (post-pay and pre-pay).
- Verizon Wireless continued to lead the industry in cost efficiency. Cash expense per customer (non-GAAP) was $28.05 in the first quarter 2008, an increase of 0.6 percent over the first quarter 2007 and a decrease of 2.4 percent from the fourth quarter 2007.
- Total data revenues were up 48.9 percent over the prior year, contributing $2.3 billion. The company had 48.1 million retail data customers in March (nearly 74 percent of the retail customer base), a 33.8 percent increase over the prior year.
- In March, Verizon Wireless held its first Open Development Initiative (ODI) conference to provide minimum technical standards required for creating products that can physically connect to the Verizon Wireless network, and a process to certify that these products will operate on the company's network. Plans call for customers to have the option to use products and services certified through the ODI process by the end of the year.
- The company continued to extend the reach of its nationwide high-speed wireless broadband network, powered by EV-DO Revision A (Rev. A) technology, which was available to more than 240 million Americans by the end of the first quarter. More than 58 percent of the company's retail customers - 38 million - had broadband-capable devices at the end of the quarter.
- In the 700 MHz auction, Verizon Wireless was the winning bidder for a nationwide spectrum footprint in the C-Block group of licenses, as well as 102 licenses for individual markets across the country. The spectrum purchase is a critical piece of the company's overall broadband strategy.
- During the quarter, Verizon Wireless announced additions to its leading lineup of broadband-capable devices - for business connectivity and productivity, managing family schedules and communications on the move, and for mobile entertainment. The new smartphones include the BlackBerry Curve and the MotoQ9c, available in May, and the XV 6900, which launched earlier this month. New handsets include the enV 2 by LG and the Alias by Samsung. Verizon Wireless offers some 25 multimedia phones at various price points.
- During the quarter, Verizon Wireless customers sent or received more than 58 billion text messages and 1.1 billion picture/video messages. Customers also completed 34.6 million music and video downloads.
- Wireline total operating revenues were $12.3 billion, a 1.4 percent decrease compared with the first quarter 2007. Wireline total operating expenses were $11.2 billion, a 1.0 percent decrease compared with the first quarter 2007.
- Verizon Telecom's total revenues of $7.8 billion decreased by 2.5 percent, compared with the first quarter 2007 - an improvement of 30 basis points over the year-over-year quarterly revenue decrease in the fourth quarter 2007. In legacy Verizon consumer markets, year-over-year revenues grew 0.9 percent, comparing first-quarter 2008 with first-quarter 2007.
- Verizon's broadband fiber-to-the-premises network, which delivers FiOS Internet and FiOS TV services to customers, passed 10.4 million premises by the end of the quarter.
- FiOS Internet was available for sale to 7.9 million premises by the end of the quarter. Penetration for the service averaged 22.9 percent across all markets. FiOS TV was available for sale to 6.5 million premises by the end of the quarter. Penetration for the service averaged 18.7 percent across all markets.
- Earlier this month, Verizon filed an application for the New York City video franchise, covering 3.1 million homes, many of which are in multiple dwelling units. Verizon already passes about 20 percent of these premises with fiber, and the company expects to begin selling FiOS TV service in the city later this year.
- Verizon Business, a global IP leader and network-based solutions partner for enterprise customers, again significantly enhanced its capabilities in the quarter. New offerings included a server-virtualization service that consolidates multiple IT resources, high-definition video conferencing, expansion internationally of managed local-area-network service, and a service to manage network security threats using a single piece of equipment.
- Verizon Business continued to expand its reach into high-growth, global markets. Joint venture Verizon Business India received international and national long-distance licenses, and a consortium that includes Verizon Business was awarded a license to provide services in Saudi Arabia. Additionally, Verizon Business obtained final FCC approval to activate and operate the Trans-Pacific Express submarine cable system in the U.S.
- Verizon Business continued to expand and enhance its global network. It announced deployment of a meshed architecture on the trans-Pacific portion of the network to provide more route diversity. The company also installed 18 additional IP-based switches globally, deployed its first ultra-long-haul (ULH) route outside of the U.S. in Japan, turned up ULH on six additional U.S. routes, and deployed a new multiplexer technology in an initial five U.S. markets that enables remote configuration and provisioning of bandwidth.
- New commercial customer agreements included The Bank of New York Mellon, Commerce Bank, Cuatrecasas, Extended Stay Hotels, Indesit Company SpA, Komatsu Ltd, Swedish Match AB, TeleTech and Weyerhaeuser. In addition, the company signed new contracts with several U.S. government agencies, including the Department of Veterans Affairs and Department of Defense.
Verizon Communications Inc. (NYSE:VZ), headquartered in New York, is a leader in delivering broadband and other wireline and wireless communication innovations to mass market, business, government and wholesale customers. Verizon Wireless operates America's most reliable wireless network, serving more than 67 million customers nationwide. Verizon's Wireline operations include Verizon Business, which delivers innovative and seamless business solutions to customers around the world, and Verizon Telecom, which brings customers the benefits of converged communications, information and entertainment services over the nation's most advanced fiber-optic network. A Dow 30 company, Verizon employed a diverse workforce of approximately 232,000 as of the end of the first quarter 2008 and last year generated consolidated operating revenues of $93.5 billion. For more information, visit www.verizon.com.
NOTE: This news 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, including disruption of our suppliers' provisioning of critical products or services; the impact of natural or man-made disasters or 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; 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; 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; and the ability to complete acquisitions and dispositions.