Verizon Posts Strong Q1 Results

If you were to tell me Verizon was going to post strong Q1 numbers I would just look at you with a blank stare because I wouldn’t be the least bit surprised. Their success came from a number of different areas (they do internet, TV, phone, and other things, if you were unaware), but we only care about wireless.

They added 906k new postpaid customers for a total of 1.8 million net additions. That brings their total to 88.4 million retail customers out of 104 million total connections. Their data revenue was up 22% going from $4.5 to $5.5 billion. This is 38% of their overall service revenue of $14.3 billion. Their total revenue for the quarter was $16.9 billion.

Once upon a time I’d chalk it up to Android’s success on the major American carrier, but that is no longer an option – “it” launched last quarter. (Still, I’d like to think Android users account for a majority of their smartphone connections.) Read on for the full press details.

Verizon Reports Strong Start to 2011 as Wireless, FiOS and Strategic Services Continue to Generate Profitable Growth

First-Quarter Performance Affirms 2011 Revenue and Earnings Guidance

1Q HIGHLIGHTS

Consolidated
· 51 cents in diluted earnings per share (EPS), compared with EPS of 16 cents and adjusted EPS (non-GAAP) of 48 cents in 1Q 2010.

Wireless
· 6.3 percent year-over-year increase in service revenues in 1Q 2011; data revenues up 22.3 percent; 25.8 percent operating income margin and 43.7 percent Segment EBITDA margin on service revenues (non-GAAP).
· 1.8 million net additions, excluding acquisitions and adjustments, includes 906,000 retail postpaid net customer additions; continued low retail postpaid churn of 1.01 percent.
· 104.0 million total connections, includes 88.4 million retail customers.

Wireline
· 207,000 net FiOS Internet and 192,000 net FiOS TV additions; 4.3 million total FiOS Internet connections and 3.7 million total FiOS TV connections.
· 10.5 percent year-over-year increase in consumer ARPU; FiOS consumer retail revenues now represent approximately 54 percent of total consumer revenues.
· 12.8 percent increase in strategic enterprise revenues, which now represent approximately 46 percent of total global enterprise revenues.

NEW YORK — Verizon Communications Inc. (NYSE, NASDAQ: VZ) today reported strong first-quarter 2011 earnings, as industry leader Verizon Wireless continued to effectively balance customer growth and profitability, while growth in FiOS and strategic enterprise services contributed to another quarter of improvement in wireline margins.

Verizon reported 51 cents in EPS in first-quarter 2011, compared with first-quarter 2010 earnings of 16 cents per share. There are no adjustments to first-quarter 2011 earnings results. Adjusted first-quarter 2010 earnings, excluding the impact of divestitures and non-operational charges (non-GAAP), were 48 cents per share.

On Track to Meet Revenue and Earnings Objectives

“In the first quarter, Verizon Wireless solidified its industry leadership with results that once again showed sustainable, profitable growth,” said Verizon Chairman and CEO Ivan Seidenberg. “We are executing on our business plans and building momentum, and we are on track to meet both our revenue and earnings objectives for the year.”

Seidenberg added, “Wireline EBITDA margins expanded for the fourth consecutive quarter, driven by continued strength in FiOS revenues and disciplined cost management. Our strategic acquisition of Terremark, which closed earlier this month, improves our ability to provide integrated, enterprise-class cloud solutions and accelerate growth.”

Consolidated Revenue Growth Accelerates

On a consolidated basis, Verizon’s total operating revenues were $27.0 billion in first-quarter 2011, an increase of 0.3 percent compared with first-quarter 2010. Last year’s results included revenues from operations that have since been divested.

On a comparable basis (non-GAAP), first-quarter 2011 total operating revenues increased 5.3 percent compared with first-quarter 2010 — up from growth of 2.3 percent on the same basis comparing fourth-quarter 2010 with fourth-quarter 2009. Approximately 77 percent of first-quarter 2011 revenues were generated by higher-growth wireless, FiOS and strategic enterprise services, compared with approximately 72 percent of comparable first-quarter 2010 revenues.

As previously stated, Verizon is targeting comparable top-line revenue growth rates in the range of 4 percent to 8 percent for full-year 2011. The company is also targeting EPS growth of 5 percent to 8 percent in 2011, over a comparable adjusted base of $2.08 per share in 2010.

Verizon continues to expect 2011 capital spending to be essentially flat, compared with the 2010 investment of $16.5 billion. In first-quarter 2011, Verizon’s capital expenditures totaled $4.4 billion, compared with $3.4 billion in first-quarter 2010, as the company aggressively invested in growth opportunities, including the deployment of Verizon’s nationwide 4G LTE (fourth-generation, Long-Term Evolution) wireless broadband network. With 4G LTE deployment well under way, Verizon’s capitalized interest will be lower in 2011, resulting in higher interest expense of about $150 million for each quarter this year.

Cash flow from operations totaled $5.0 billion in first-quarter 2011, down from $7.1 billion in first-quarter 2010. Operating cash flow from higher net income in first-quarter 2011 was offset by the launch of the iPhone and satisfaction of Verizon’s full-year 2011 pension funding obligation of $392 million. In addition, the first half of last year included cash flows from since-divested properties.

Verizon said its cash flow outlook for 2011 remains strong, and there is no change regarding the anticipated 2012 timing of a Verizon Wireless dividend to its parent companies.

The effective income tax rate attributable to Verizon for the first quarter was 30 percent. For full-year 2011, Verizon anticipates an effective tax rate to be in a range consistent with the past three quarters, post the Frontier and Alltel divestitures.
Verizon Wireless Delivers Strong Operational and Financial Results

Verizon Wireless delivered strong growth in revenues, retail customers and other connections; increased retail postpaid ARPU (average monthly service revenue per user) and smartphone penetration; and delivered a strong EBITDA margin. In the first quarter of 2011:

Wireless Financial Highlights
· Service revenues in the quarter totaled $14.3 billion, up 6.3 percent year over year. Data revenues were $5.5 billion, up $1.0 billion or 22.3 percent year over year, and represent 38.1 percent of all service revenues. Total revenues were $16.9 billion, up 10.2 percent year over year.
· Retail postpaid ARPU grew 2.2 percent over first-quarter 2010, to $53.52. Retail postpaid data ARPU increased to $20.51, up 17.3 percent year over year. Retail service ARPU also grew 2.2 percent, to $51.88.
· Wireless operating income margin was 25.8 percent. Segment EBITDA margin on service revenues (non-GAAP) was 43.7 percent.

Wireless Operational Highlights
· Verizon Wireless added 1.8 million total connections, including 906,000 retail postpaid customers, and 897,000 wholesale and other connections. These additions exclude acquisitions and adjustments.
· At the end of the first quarter, the company had 104.0 million total connections, an increase of 6.1 percent year over year, including 88.4 million retail customers and 15.6 million wholesale and other connections.
· At the end of the first quarter, 32 percent of Verizon Wireless’ retail postpaid customer phone base were smartphones, up from 28 percent at the end of fourth-quarter 2010.
· Retail postpaid churn remained low at 1.01 percent, and total retail churn was 1.33 percent. Both improved year over year.
· Following the launch of its 4G LTE mobile broadband network in 38 markets in December 2010, the company so far has named more than 100 additional markets where 4G LTE is being rolled out. By year-end, Verizon Wireless’ 4G LTE network, the fastest and most advanced 4G LTE network in the U.S., is expected to be available in more than 175 markets, covering a population of more than 185 million people throughout the country.
· The company introduced three 4G LTE devices: the ThunderBolt by HTC, the first 4G LTE smartphone; the Verizon USB551L, a modem made by Novatel Wireless; and a Samsung 4G LTE Mobile Hotspot.
· Demand was strong for new LTE devices — as well as for Apple’s iPhone 4, which produced the most successful first-day sales in Verizon Wireless history when it was introduced in February to existing customers.
· Verizon Wireless continued to invest in its 3G network, the nation’s largest and most reliable 3G network.
· The company announced plans to open the Verizon Wireless Application Innovation Center in San Francisco later this year, where developers, engineers and others can work together on innovative applications that will run on the company’s 3G and 4G networks.

Continued Wireline Margin Expansion and FiOS Growth

Verizon’s Wireline segment delivered continued margin expansion and growth in FiOS customers and revenues, as well as accelerated growth in revenues for strategic enterprise services. In the first quarter of 2011:

Wireline Financial Highlights
· Segment EBITDA margin (non-GAAP) was 23.6 percent, compared with 21.1 percent in first-quarter 2010. This was Wireline’s fourth consecutive quarter of sequential margin expansion.
· First-quarter 2011 operating revenues were $10.1 billion, a decline of 2.2 percent compared with first-quarter 2010. This is an improvement from a decline of 2.8 percent comparing fourth-quarter 2010 to fourth-quarter 2009. First-quarter 2011 total operating expenses were $9.9 billion, a decline of 3.9 percent compared with first-quarter 2010.
· Revenues for Verizon’s FiOS fiber-optic services to consumer retail customers generated approximately 54 percent of consumer wireline revenues in first-quarter 2011, compared with approximately 45 percent in first-quarter 2010.
· Consumer revenues grew 1.9 percent compared with first-quarter 2010. Consumer ARPU for wireline services was $90.55 in first-quarter 2011, up 10.5 percent compared with first-quarter 2010. ARPU for FiOS customers continues to be more than $146.
· Global enterprise revenues totaled $3.8 billion in the quarter, up 1.0 percent compared with first-quarter 2010. Sales of strategic enterprise services — such as security and IT solutions, as well as strategic networking — increased 12.8 percent compared with first-quarter 2010, and accelerated from a growth rate of 8.0 percent comparing fourth-quarter 2010 with fourth-quarter 2009. Strategic services now represent approximately 46 percent of global enterprise revenues.

Wireline Operational Highlights
· Verizon added 207,000 net new FiOS Internet connections and 192,000 net new FiOS TV connections in first-quarter 2011. Verizon had 4.3 million FiOS Internet and 3.7 million FiOS TV connections at the end of the quarter.
· FiOS Internet penetration (subscribers as a percentage of potential subscribers) was 33.1 percent by the end of the first quarter, with the product available for sale to 13.0 million premises. This compares with 29.0 percent and 12.0 million, respectively, at the end of first-quarter 2010. FiOS TV penetration was 29.1 percent by the end of first-quarter 2011, with the product available for sale to 12.6 million premises. This compares with 25.4 percent and 11.5 million, respectively, at the end of first-quarter 2010.
· Broadband connections totaled 8.5 million at the end of first-quarter 2011, a 3.0 percent year-over-year increase. FiOS Internet connections more than offset a decrease in DSL-based HSI connections, leading to a net increase of 98,000 broadband connections from fourth-quarter 2010. These are the most broadband net additions since second-quarter 2009. Total voice connections, which measures FiOS Digital Voice connections in addition to traditional switched access lines, declined 8.2 percent to 25.5 million — the smallest year-over-year decline since first-quarter 2008.
· During the quarter, Verizon moved decisively to accelerate its “everything-as-a-service” enterprise cloud strategy by announcing its acquisition of cloud and managed IT infrastructure leader Terremark Worldwide, which closed in April.
· Verizon continued to deploy secure IT and communications solutions that enable better business outcomes for multinational enterprise, medium-sized and government customers. These included a new cloud-based unified communications service, an enhanced set of Enterprise Identity Management offerings, and delivery of SAP’s Customer Relationship Management service through Verizon’s flagship cloud offering, Computing as a Service. In addition, Verizon completed new agreements during the quarter with a range of multinational corporations, including Delphi Automotive.
· Verizon expanded its global network infrastructure, continuing to broaden its global scope and capabilities. The company installed 38 additional Private IP edge routers for a total of 852 edge routers in 238 sites throughout 63 countries; activated the first 100GE (gigabit Ethernet) transmission trunk between routers on Verizon’s backbone network; implemented Internet Protocol Version 6 (IPv6) on its public IP backbone in Europe and the Asia-Pacific regions; and activated 7,021 miles of the Europe India Gateway submarine cable system, which connects the United Kingdom, the Middle East, Africa and Asia.
· The Wireline workforce totaled 92,000 at the end of first-quarter 2011, a year-over-year decline of 16,000 (adjusted for divested operations), primarily as a result of incentive offers that led to voluntary separations.