Verizon Posts Strong 2Q 2007 Results Highlighted by Gains in Earnings, Consolidated Margins and Cash Flows
NEW YORK - Verizon Communications Inc. (NYSE:VZ) today reported strong second-quarter 2007 financial and operational results, as the company expanded margins while continuing revenue growth momentum in its key strategic markets -- wireless, broadband, data, video and global IP.
Verizon reported second-quarter 2007 earnings of $1.7 billion, or 58 cents in fully diluted earnings per share (EPS). This compares with reported EPS in the second quarter 2006 of 43 cents before discontinued operations. Including results from discontinued operations, which Verizon has since divested, second-quarter 2006 reported earnings were 55 cents per share.
On an adjusted basis (non-GAAP), Verizonís second-quarter 2007 earnings totaled $1.7 billion, or 58 cents in EPS. This is an increase of 11.5 percent compared with 52 cents per share before discontinued operations in the second quarter 2006.
Adjustments for special items in the second quarter 2007 included less than a penny per share in merger integration costs. Adjusted earnings in the second quarter 2006 reflected 9 cents per share in special items, consisting of severance and related pension and benefits charges, merger integration and Verizon Center relocation costs.
Organic Growth Strategy Gains Momentum
ďVerizonís strategy of focusing on organic revenue growth and improving margins continues to gain momentum,Ē said Chairman and CEO Ivan Seidenberg. "Results show that we are producing accelerating -- and sustainable -- top-line growth across all key markets.
ďVerizon is also generating strong operating cash flows, which we expect to improve throughout the year. With our strong balance sheet and investment in advanced network platforms, we can continue to drive future earnings growth and return value to shareholders. We are confident we have the products and services, distribution infrastructure and customer service capabilities to continue to capture share from the competition in strategic markets.Ē
Continued Profitable Revenue Growth
Verizonís total operating revenues grew 6.3 percent to $23.3 billion, compared with the second quarter of 2006. Year-over-year operating revenues grew 6.5 percent on an adjusted basis (non-GAAP).
Verizonís total operating expenses increased to $19.1 billion, or 2.4 percent year over year. On an adjusted basis (non-GAAP), operating expenses increased 4.8 percent to $19.1 billion over the same period.
On a reported basis, Verizonís operating income grew 29.0 percent year over year to $4.1 billion and, on an adjusted basis, by 14.9 percent to $4.2 billion. Operating income margin rose to 17.8 percent, compared with 14.7 percent in the second quarter 2006. On an adjusted basis, Verizonís operating income margin rose to 17.9 percent, compared with 16.6 percent in the second quarter 2006 and 17.3 percent in the first quarter 2007.
Strong Cash Flows; Capital Investments on Target
Margin expansion and revenue growth contributed to $11.6 billion in operating cash flows from continuing operations in the first half of 2007. This represents an increase of more than $800 million, or 7.5 percent, compared with the first half of 2006.
Capital expenditures totaled $4.4 billion in the second quarter 2007, in line with the companyís guidance for full-year expenditures.
Total debt at the end of the second quarter was $32.5 billion, down from $34.7 billion at the end of the first quarter 2007.
Wireless Leads Industry in Financial, Operational Performance
Verizon Wireless continued its record of strong, industry-leading retail net customer additions, revenue growth, low churn and profitability.
Verizon Wireless remains the largest U.S. wireless company in terms of total revenues and data revenues. In addition, it has 60.1 million retail customers -- the most customers of any wireless brand. In the second quarter:
Nearly all of the 1.6 million retail net customer additions (including acquisitions and adjustments) were post-paid customers.
Total customers (retail and wholesale) were 62.1 million. The company added 1.3 million net customers after about 300,000 net reductions to the companyís wholesale base -- primarily due to the bankruptcy of a reseller.
Verizon Wireless continued its industry-leading low churn, with retail churn at 1.08 percent, indicating a continuing high degree of customer loyalty. Churn among retail post-paid customers was even lower, a company-record 0.85 percent.
Revenues totaled $10.8 billion, up 17.1 percent. Service revenues were $9.4 billion, up 17.0 percent, driven by customer growth and demand for data services.
Retail service ARPU (average monthly revenue per customer) was $51.84, up 3.0 percent year over year.
Wireless operating income margin was 27.8 percent, the highest ever for the company. EBITDA margin of 45.8 percent was the second-highest ever. (EBITDA -- earnings before interest, taxes, depreciation and amortization -- is non-GAAP, and wireless EBITDA margin is EBITDA divided by wireless service revenues.)
Wireline Reports Accelerating Growth in FiOS, Strategic Services
Verizonís Wireline business -- which includes Verizon Telecom, serving domestic residential and small-business customers, and Verizon Business, serving large-business and government customers globally -- reported accelerating growth in sales of FiOS fiber-optic services and sales of strategic services to enterprise customers. In the second quarter 2007:
Data revenues across all market segments increased 11.6 percent, to $4.4 billion. This reflects increasing revenues from consumer broadband -- such as FiOS services and Verizon High Speed Internet (DSL) -- as well as from wholesale data transport and sales of Verizon Business data services.
Verizon added 288,000 net new broadband connections, a measure that combines the number of Verizon High Speed Internet and FiOS Internet connections.
Wireline broadband connections totaled 7.7 million, an increase of 1.6 million, or 25.5 percent, compared with the second quarter 2006. This total includes 1.1 million FiOS Internet connections, an increase of 203,000 from the first quarter 2007.
Verizon Telecom Reports Video, Consumer Revenue Growth
Sales of FiOS TV continued to accelerate as Verizon Telecom added a net of 167,000 new FiOS TV customers in the second quarter 2007. Net customer additions averaged about 2,600 per business day in the quarter. The company had a total of 515,000 FiOS TV customers as of the end of the second quarter 2007 -- an addition of 460,000 FiOS TV customers since the end of the second quarter 2006.
Complementing the FiOS TV rollout, the company added 125,000 satellite TV customers in partnership with DIRECTV in the second quarter 2007. At the end of the quarter, Verizon had a total of nearly 1.3 million video customers.
Second-quarter revenues in Verizon Telecomís consumer market decreased by 2.1 percent, to $4.2 billion, compared with the second quarter 2006. In legacy Verizon markets, year-over-year consumer revenues grew 3.4 percent, to $3.8 billion, in the second quarter 2007, more than doubling the year-over-year growth rate reported in the first quarter 2007. (ďLegacy VerizonĒ excludes former MCI consumer markets, where Verizonís strategic focus has led to expected declines.) ARPU in these markets increased 10.9 percent, to $57.47, comparing second quarter 2007 with second quarter 2006, as customers purchased value-added broadband services.
Verizon Business Posts Third Consecutive Quarter of Revenue Growth
Verizon Business reported second-quarter 2007 revenues of $5.3 billion, or growth of 2.4 percent compared with the second quarter 2006 on an adjusted basis (non-GAAP). This is the third consecutive quarter of accelerating year-over-year pro-forma revenue growth (non-GAAP, calculated as if Verizon and MCI had merged on Jan. 1, 2006).
Overall revenue growth at Verizon Business was driven by the continued momentum of strong sales of key strategic services, such as IP (Internet protocol) and managed services as well as Ethernet and optical ring services. In the second quarter 2007, strategic services generated $1.3 billion in revenue, up 25.5 percent from the second quarter 2006.
Growth in revenues from strategic services also continued to exceed declines in revenues from core services, such as traditional voice and data services. Strategic services revenues were also up sequentially, increasing 9.3 percent from the first quarter 2007.
Verizon Business rolled out significant enhancements to its global networking and managed services offerings during the quarter. On July 1, Verizon Business became the leading provider of managed security services to business and government customers worldwide with the completion of its previously announced acquisition of Cybertrust.
2Q 2007 Business Group Highlights
The company added the most retail customers in the industry. Nearly 97 percent of the companyís customer base was retail (non-wholesale).
Verizon Wireless continued to lead the industry in cost efficiency. Cash expense per customer (non-GAAP) was $27.70, an increase of 0.1 percent over the similar period last year and a decrease of 0.6 percent sequentially.
Total data revenues were up 70.3 percent over the prior year, contributing $1.8 billion or 19 percent of all service revenues in the quarter. Retail data service ARPU increased 48 percent over the year-ago quarter to $9.84. The company had 39.5 million retail data customers in June -- a 36.6 percent increase over second quarter 2006.
Verizon Wireless completed Revision A (Rev. A) technology enhancements to its high-speed wireless broadband network, making faster speeds available throughout 100 percent of its nationwide broadband network and covering more than 210 million people. At the end of the second quarter, 46 percent of the companyís retail customers -- 27.5 million -- had broadband-capable devices.
Verizon Wireless continued to add more broadband-capable products for business connectivity, including the BlackBerry 8830 World Edition smartphone, the first Global CDMA/GSM BlackBerry.
For consumers, the company introduced new handsets, including the enV Orange, the latest Gíz One Type-S rugged phone for outdoor lifestyles, and the new Chocolate by LG. The company also announced new Americaís Choice Select plans -- which offer customers unlimited text, picture and video messages to anyone on any network in the U.S. -- and Premium plans, which bundle unlimited messaging with V CAST VPak, VZ Navigator and Mobile E-mail.
In May, the company launched V CAST Song ID, a Verizon Wireless exclusive that lets customers identify music playing on the radio or from any music source, then purchase and download the corresponding ringtone, ringback tone and full-track song from V CAST Music. Verizon Wireless offers some 20 multimedia phones -- at various price points -- that download music over-the-air and surf the Web wirelessly at broadband speeds.
Verizon Wireless customers reached a messaging milestone in June with more than 10 billion text messages exchanged for the first time in a single month. During the second quarter, Verizon Wireless customers sent or received 28.4 billion text messages and 575 million picture/video messages. Customers also completed 25 million music and video downloads.
Wireline total operating revenues were $12.6 billion, a 1.1 percent decrease on an adjusted basis (non-GAAP), compared with second quarter 2006. This was driven in part by a continuation of the expected declines in former MCI operations serving mass market customers, and it is an improvement from the adjusted, pro-forma 6.2 percent year-over-year decline in the second quarter of 2006. Wireline total operating expenses were $11.5 billion, a 0.4 percent decrease on an adjusted basis (non-GAAP), compared with second quarter 2006.
Verizonís broadband fiber-to-the-premises network, over which customers receive FiOS Internet and FiOS TV services, passed a total of nearly 7.6 million premises by the end of the second quarter 2007, on track with the year-end target of 9 million. With accelerated FiOS customer growth, EPS dilution from FiOS deployment was 10 cents in the quarter -- 1 cent per share less than in the first quarter 2007, in line with previously announced guidance.
FiOS Internet was available for sale to 5.7 million premises in parts of 16 states by the end of the second quarter. Penetration for the service is 19 percent across all markets, compared with 14 percent against a 4.8 million potential customer base at year-end 2006.
By the end of the second quarter, Verizon was offering FiOS TV to nearly 500 communities in 12 states. FiOS TV was available for sale to nearly 3.9 million premises by the end of the second quarter, up from 3.1 million at the end of the first quarter. Penetration for the service is 13 percent across all markets, compared with 9 percent penetration against a 2.4 million potential customer base at year-end 2006.
Consumer broadband and video revenues grew 55 percent, compared with the second quarter 2006. This growth is accelerating and helped drive the revenue and ARPU increases in legacy Verizon consumer markets. In the first quarter 2007, the year-over-year growth for consumer broadband and video revenues was 46 percent.
Retail residence customers with bundled services increased 28.5 percent, compared with second quarter 2006.
Multinational companies that completed agreements with Verizon Business in the quarter included the American Automobile Association, Champ Cargosystems, EDS, Healthe, ING, Intrepid Travel, Mikron Technology Group and PNC. Companies extending master service agreements included the London Stock Exchange, Merrill Lynch and UBS. After being named a prime contractor for the U.S. General Services Administrationís multibillion-dollar Networx Universal program in the first quarter, Verizon Business in late May was awarded a contract in the programís second part, Networx Enterprise.
Product launches included an extension of the VoIP (voice over IP) portfolio to the Asia-Pacific region, new Private IP capabilities, global on-demand supply-chain management services (in partnership with GXS), and wireless backup for IP VPN (virtual private network) broadband and secure gateway services.
Verizon Business continued to expand its global network, activating five new Private IP nodes in Australia and Egypt and 43 nodes in the U.S., while strengthening its global Ethernet, activating 10 additional Converged Packet Architecture switches.
Verizon Business continued to receive recognition from leading industry authorities, including Frost & Sullivanís Market Leadership Award for Hosted Contact Center and five Cisco awards for customer service.
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 Americaís most reliable wireless network, serving more than 62 million customers nationwide. Verizonís 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 nationís most advanced fiber-optic network. A Dow 30 company, Verizon has a diverse workforce of more than 238,000 and last year generated consolidated operating revenues of more than $88 billion. For more information, visit www.verizon.com.
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