Verizon Turns in Exceptional Third Quarter Results, Half of Smartphones Sold Were Android

Verizon has announced financial results for the third quarter for the company. They generated $27.91 billion in revenue, up from the third quarter last year and beating Wall Street’s expectations by a hair. Of that revenue, $15 billion alone was generated from Verizon Wireless.

Verizon added 1.3 million connections overall to their wireless business, bringing their total to 107.7 million as they retain first place for the amount of US subscribers. Verizon also touched on percentage of postpaid consumers with smartphone, boasting that 39% of their base all owned smartphones of varying flavor in OS and OEM. And half of all smartphones sold – 5.6 million in all – run Android.

Things are right on track, as they usually are, for Verizon. Their exceptional performance year-in and year-out is what helped get their 4G network to over 160 markets in a record-breaking amount of time. While their competitors are still struggling to meet half of their rollout (which began just a year ago, give or take a few days to/from 365), Verizon’s on pace to drench Americans in 4G LTE by the end of 2013. Read on for the full financial results.

Verizon Generates Strong Wireless Results, Increased Cash Flow, and FiOS and Strategic Services Growth in 3Q

3Q 2011 HIGHLIGHTS

Consolidated

·         49 cents in diluted earnings per share (EPS), compared with 23 cents per share in 3Q 2010.

·         56 cents per share in adjusted EPS (non-GAAP), which excludes 7 cents per share in non-operational items, compared with 55 cents in adjusted EPS in 3Q 2010.

Wireless

·         $15.0 billion in service revenues in 3Q 2011, up 6.1 percent year over year; data revenues of $6.1 billion, up 20.5 percent, representing 40.6 percent of service revenues; total revenues of $17.7 billion, up 9.1 percent.

·         2.4 percent growth in retail postpaid ARPU over 3Q 2010; retail postpaid data ARPU up 15.7 percent; retail service ARPU also up 2.4 percent.

·         29.0 percent operating income margin; record-high 47.8 percent Segment EBITDA margin on service revenues (non-GAAP), up 60 basis points year over year.

Wireline

·         138,000 FiOS Internet and 131,000 FiOS TV net additions, with increased sales penetration for both products; 4.0 million customers now subscribe to FiOS TV.

·         8.8 percent year-over-year increase in consumer ARPU; FiOS consumer retail revenues represent nearly 60 percent of total consumer revenues.

·         15.6 percent increase in strategic services revenues, representing nearly 50 percent of global enterprise revenues.

NEW YORK – With another strong showing by Verizon Wireless, and continued growth in FiOS and strategic business services, Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported third-quarter 2011 financial and operational results that keep the company on track to achieve its full-year earnings and revenue guidance.

Verizon reported 49 cents in EPS in the quarter, compared with 23 cents per share in third-quarter 2010.

Adjusted third-quarter 2011 earnings (non-GAAP) of 56 cents per share exclude 7 cents per share for a non-operational charge relating to a remeasurement, based on an actuarial valuation of pension plans.  No adjustments were made for the previously announced $250 million (5 cents per share) negative impact in the quarter due to storm-related repair costs and a two-week strike affecting the Wireline segment.  Comparable adjusted third-quarter 2010 earnings were 55 cents per share, excluding the impact of non-operational charges, the largest of which was related to pension and benefits remeasurements.

Well-Positioned for 4Q and 2012

“Verizon emerges from the third quarter in a strong position to accelerate growth,” said Lowell McAdam, Verizon president and chief executive officer.  “We faced significant challenges in recent months, yet delivered results that keep us on track to meet our 2011 earnings and revenue guidance, with great momentum expected entering 2012.  We continue to grow revenues from strategic products and to increase free cash flow through improved operating performance and disciplined capital spending.”

McAdam added, “Verizon Wireless delivered impressive results across the board in the third quarter, and we are geared up for an even better fourth quarter, with new smartphones, tablets and data devices coming to market.  In FiOS, we expect to capitalize on pent-up demand and deliver stronger growth in the fourth quarter.  In enterprise, the integration of Terremark and recent acquisition of CloudSwitch have significantly improved our competitive positioning.”

Verizon has targeted 2011 adjusted EPS growth of 5 percent to 8 percent from an adjusted base of $2.08 in EPS in 2010, and 2011 revenue growth of 4 percent to 8 percent on a comparable basis with 2010.

Consolidated Revenue and Cash Flow Growth

In third-quarter 2011, Verizon’s total operating revenues were $27.9 billion on a consolidated basis, an increase of 5.4 percent compared with third-quarter 2010.  Total operating expenses were $23.3 billion, an increase of 0.7 percent.

Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) for the quarter totaled $8.8 billion, up 19.2 percent year over year.

Cash flow from operating activities totaled $21.5 billion in the first nine months of 2011, and capital expenditures totaled $12.5 billion — on track to meet the company’s full-year guidance of $16.5 billion.  From the $9.0 billion in free cash flow (non-GAAP, cash flow from operations less capex) over the first nine months, Verizon has paid $4.1 billion in dividends to shareholders, and in September the Verizon Board of Directors approved a dividend increase for the fifth consecutive year.

Verizon Wireless Delivers Strong Results

In third-quarter 2011, Verizon Wireless again delivered strong growth in revenues, retail customers and other connections, driven by increased smartphone penetration and increased retail postpaid ARPU (average monthly service revenue per user).

Wireless Financial Highlights

·         Service revenues in third-quarter 2011 totaled $15.0 billion, up 6.1 percent year over year.  Data revenues were $6.1 billion, up more than $1.0 billion or 20.5 percent year over year, and represent 40.6 percent of all service revenues.  Total revenues were $17.7 billion, up 9.1 percent year over year.

·         Retail postpaid ARPU grew 2.4 percent over third-quarter 2010, to $54.89.  Retail postpaid data ARPU increased to $22.22, up 15.7 percent year over year.  Retail service ARPU also grew 2.4 percent, to $53.21.

·         Wireless operating income margin was 29.0 percent.  Verizon Wireless generated $7.2 billion of EBITDA in third-quarter 2011, an increase of 7.5 percent year over year.  Segment EBITDA margin on service revenues (non-GAAP) was 47.8 percent, up 60 basis points over third-quarter 2010 and up 240 basis points over second-quarter 2011.  This was the highest Segment EBITDA margin on service revenues Verizon Wireless has ever reported.

Wireless Operational Highlights

·         Verizon Wireless added 1.3 million total connections in third-quarter 2011, including 882,000 retail postpaid customers, and 367,000 wholesale and other connections.  These additions exclude acquisitions and adjustments.

·         At the end of the third quarter, the company had 107.7 million total connections, an increase of 6.5 percent year over year, consisting of 90.7 million retail customers and 17.0 million wholesale and other connections.

·         At the end of the third quarter, smartphones accounted for 39 percent of the Verizon Wireless retail postpaid customer phone base, up from 36 percent at the end of second-quarter 2011.

·         Retail postpaid churn was 0.94 percent in third-quarter 2011, an improvement of 13 basis points year over year.  Total retail churn was 1.26 percent, an improvement of 17 basis points year over year.

·         Verizon Wireless continued to roll out its 4G LTE mobile broadband network, the largest 4G LTE network in the United States, during the quarter.  As of yesterday (Oct. 20), Verizon Wireless 4G LTE service was available in 165 markets covering a population of more than 186 million, across the country.  With additional markets planned before year-end, the company’s 4G LTE network build-out is ahead of schedule and has already exceeded the company’s 2011 target of covering a population of 185 million.

·         The company introduced five new 4G LTE devices:  the DROID BIONIC by Motorola, Pantech Breakout, Samsung Galaxy Tab 10.1 tablet, Compaq Mini CQ10-688nr netbook and HP Pavilion dm 1-3010nr notebook.  On Oct. 14, the Apple iPhone 4S became available on the Verizon Wireless 3G network.  On Oct. 18, the company announced that the DROID RAZR by Motorola, a 4G LTE device, will be available in November.

·         Verizon Wireless opened its LTE Innovation Center in Waltham, Mass., in July and its Application Innovation Center in San Francisco in August.

·         The company continued to invest in and enhance its 3G network, the nation’s largest and most reliable 3G network.

·         Verizon Wireless ranked highest in customer care among the major national wireless phone service providers in the J.D. Power and Associates “2011 Wireless Customer Care Performance Study.”  Verizon Wireless was also named a Small Business Influencer Champion for 2011 by Small Business Trends and SmallBizTechnology.com.

FiOS, Strategic Services Transform Wireline Revenue Mix

Revenues and customers continued to increase for FiOS fiber-optic services, and sales of strategic services to business customers remained strong — countering the adverse impacts to Verizon’s Wireline segment in third-quarter 2011.  FiOS and strategic services continued to become a larger percentage of the wireline revenue mix.

Wireline Financial Highlights

·         Third-quarter 2011 operating revenues were $10.1 billion, a decline of 1.3 percent compared with third-quarter 2010.  Consumer revenues grew 1.1 percent compared with third-quarter 2010.

·         Consumer ARPU for wireline services was $94.20 in third-quarter 2011, up 8.8 percent compared with third-quarter 2010.  ARPU for FiOS customers continues to be more than $146.  Revenues for Verizon’s FiOS services to consumer retail customers generated nearly 60 percent of consumer wireline revenues in third-quarter 2011, compared with approximately 50 percent in third-quarter 2010.

·         Global enterprise revenues totaled $3.9 billion in the quarter, up 2.1 percent compared with third-quarter 2010.  Sales of strategic services — including Terremark cloud services, security and IT solutions, and strategic networking — increased 15.6 percent compared with third-quarter 2010 and now represent nearly 50 percent of global enterprise revenues.  Terremark achieved record new sales bookings in third-quarter 2011.  International revenue, which makes up approximately 15 percent of global enterprise, grew 9.8 percent year over year.

·         Segment EBITDA (non-GAAP) was $2.2 billion in the quarter, including the $250 million impact from the storms and strike.  This compares with $2.3 billion in third-quarter 2010.  As a result, segment EBITDA margin (non-GAAP) was 21.4 percent in third-quarter 2011, compared with 22.7 percent in third-quarter 2010.

Wireline Operational Highlights

·         Verizon added 138,000 net new FiOS Internet connections and 131,000 net new FiOS TV connections in third-quarter 2011.  Verizon had a total of 4.6 million FiOS Internet and 4.0 million FiOS TV connections at the end of the quarter.  With the clearing of FiOS installation backlogs caused by the storms and strike, Verizon expects to add at least 200,000 FiOS Internet and 200,000 FiOS TV customers in fourth-quarter 2011.

·         FiOS penetration (subscribers as a percentage of potential subscribers) continued to increase.  FiOS Internet penetration was 35 percent at the end of third-quarter 2011, compared with 31 percent at the end of third-quarter 2010.  In the same periods, FiOS TV penetration was 31 percent, compared with 27 percent, respectively.

·         Broadband connections totaled 8.6 million at the end of third-quarter 2011, a 2.8 percent year-over-year increase.  FiOS Internet connections more than offset a decrease in DSL-based HSI connections, resulting in a net increase of 20,000 broadband connections from second-quarter 2011.  Total voice connections, which measures FiOS Digital Voice connections in addition to traditional switched access lines, declined 7.6 percent to 24.5 million — the smallest year-over-year decline since fourth-quarter 2006.

·         During the quarter Verizon continued to aggressively execute its global cloud strategy, expanding its portfolio of secure IT solutions and acquiring CloudSwitch, which will enable Verizon to boost industry adoption by simplifying the move to the enterprise cloud.  Multinational companies including ARINC adopted Verizon enterprise cloud services during the quarter.  In addition, enterprise customers including RWE of Germany, the University of North Carolina at Chapel Hill, Plunkett & Cooney Inc. and Smile Brands Inc. completed new agreements for a wide range of strategic advanced communications and information technology solutions.

·         Verizon also continued to broaden the scope and capabilities of its global network infrastructure.  The company completed the integration of Terremark data centers in Florida and Virginia with Verizon’s Global IP network; activated its first 100 gigabit-per-second network route in the United States; expanded its 100G capabilities in Europe; and completed deployment of advanced network equipment on its global network in Singapore and Sydney.

NOTE: Reclassifications of prior period amounts have been made, where appropriate, to reflect comparable operating results for the divestiture of overlapping wireless properties in 105 operating markets in 24 states during the first half of 2010; the wireless deferred revenue adjustment that was disclosed in Verizon’s Form 10-Q for the period ended June 30, 2010; the spinoff to Frontier of local exchange and related landline assets in 14 states, effective on July 1, 2010; and other non-operational items.  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.