Verizon Reports Continued Success in 3Q 2007

 

News Release

Verizon Reports Continued Success in 3Q 2007

Results Reflect Another Quarter of Strong Wireless and FiOS Customer Growth

October 29, 2007

Media Contact:

Peter Thonis [1], 212-395-2355
Bob Varettoni [2], 908-559-6388

 

3Q 2007 HIGHLIGHTS

(Click here for financial tables [3])

Consolidated Results

• 44 cents in EPS and 63 cents in adjusted EPS (non-GAAP), compared with EPS for the same quarter last year of 53 cents and 55 cents, respectively, before discontinued operations.
• $23.8 billion in revenues, up 5.8 percent; up 6.0 percent on an adjusted basis (non-GAAP).
• $4.2 billion in operating income, up 19.0 percent.

Wireless

• 1.8 million net retail customer additions, 1.6 million total net customer additions after reductions in wholesale customers, 61.8 million retail (non-wholesale) customers and 63.7 million total customers.
• 1.21 percent retail and 0.96 percent retail post-paid churn -- industry lows.
• 14.4 percent increase in total revenues -- largest U.S. wireless company based on total revenues; data revenues up 63.4 percent; highest-ever service and data ARPU; 44.7 percent EBITDA margin (non-GAAP).

Wireline

• 202,000 net new FiOS TV customers, 717,000 total FiOS TV customers; more than 1.5 million total video customers, including satellite TV.
• 229,000 net new FiOS Internet customers, 1.3 million total FiOS Internet customers; 8.0 million total broadband connections (FiOS Internet and DSL), up 21.3 percent.
• 28.6 percent increase in Verizon Business revenues from strategic services (IP and managed services); total Verizon Business adjusted revenue growth (non-GAAP) of 2.2 percent.

Note: Comparisons are year over year unless otherwise noted.  Prior-period amounts have been reclassified to reflect comparable results.  See the accompanying schedules and www.verizon.com/investor [4]  for reconciliations to generally accepted accounting principles (GAAP) for non-GAAP financial measures cited in this news release.  Discontinued operations include Verizon Information Services, as well as Verizon's interests in Verizon Dominicana C. por A. and Telecomunicaciones de Puerto Rico, Inc.  The dispositions of these non-strategic businesses were completed on Nov. 17, 2006; Dec. 1, 2006; and March 30, 2007, respectively.

NEW YORK -- Verizon Communications Inc. (NYSE:VZ) today reported another strong quarter of financial and operational results.  Verizon Wireless continued its record of industry-leading profitability, Verizon Telecom reported accelerating sales of FiOS TV, and Verizon Business increased overall sales and sales of strategic services.

Verizon reported third-quarter 2007 earnings of 44 cents in fully diluted earnings per share (EPS).  This compares with third-quarter 2006 earnings of 53 cents per share before income from discontinued operations that have since been sold or divested.

On an adjusted basis (non-GAAP), third-quarter 2007 earnings were 63 cents per share.  This is a 14.5 percent increase, compared with 55 cents per share in the third quarter 2006 after excluding discontinued operations.

Adjusted earnings in the third quarter 2007 reflect 19 cents per share in special items:  16 cents per share for international taxes, 2 cents per share for costs related to a previously announced spin-off of access lines and 1 cent per share in merger integration costs.  Adjusted earnings in the third quarter 2006 excluded 2 cents per share in special items for pension settlement charges, and merger integration and Verizon Center relocation costs.

Successful Transformation

 "Our third-quarter results show that we have hit our stride as a leading wireless, broadband and enterprise company," said Verizon Chairman and CEO Ivan Seidenberg.  "In recent years, we have transformed our business model and revenue base.  Our results throughout 2007, and especially in the third quarter, show that our strategy has been successful.  We expect to build on these results in the fourth quarter and beyond."

Strong Consolidated Results

Verizon's total operating revenues grew 5.8 percent to $23.8 billion, compared with the third quarter 2006.  Operating revenues grew 6.0 percent on an adjusted basis (non-GAAP).  Verizon's total operating expenses increased 3.4 percent to $19.6 billion, compared with the third quarter 2006.  Operating expenses increased 3.5 percent on an adjusted basis (non-GAAP).

On a reported basis, Verizon's operating income grew 19.0 percent to $4.2 billion, compared with the third quarter 2006.  On an adjusted basis, operating income grew 18.5 percent to $4.3 billion.

Operating income margin rose to 17.7 percent, compared with 15.7 percent in the third quarter 2006.  On an adjusted basis, Verizon's operating income margin rose to 18.1 percent, compared with 16.2 percent in the third quarter 2006.

Cash flows from continuing operations totaled $18.0 billion through the first nine months of 2007.  This represents 5.0 percent growth over the same period last year.

Dividends, Repurchase Program Reflect Confidence

Reflecting confidence in Verizon's business model and continued strong cash flows, Verizon's Board of Directors announced during the third quarter that it had increased the company's quarterly dividend 6.2 percent, beginning with the Nov. 1 dividend.

Verizon also repurchased nearly $800 million of its shares in the quarter, for a total of $1.7 billion in the last nine months.  Verizon is increasing the 2007 target for its share repurchase program to $2.5 billion, up $500 million from the original target.

Wireless Continues to Lead Industry

Verizon Wireless extended its record of strong, industry-leading performance.  It continues to be the largest domestic wireless company in total revenues, data revenues and retail customers.

In the third quarter:

• Nearly all of the 1.8 million retail net customer additions (including acquisitions and adjustments) were post-paid customers.
• Total customers (retail and wholesale) increased to 63.7 million.  The company added 1.6 million total net customers after approximately 115,000 net reductions to the company's wholesale base.
• Verizon Wireless continued its industry-leading customer loyalty, with 1.21 percent retail churn.  Churn among retail post-paid customers at 0.96 percent was substantially lower.
• Revenues totaled $11.3 billion, up 14.4 percent.  Service revenues were $9.7 billion, up 15.1 percent, driven by customer growth and demand for data services.
• ARPU levels (average monthly revenue per customer) were the company's highest ever: $52.17 retail service ARPU, up 1.9 percent year over year; $10.59 retail data ARPU, up 42.9 percent.
• Wireless operating income margin was 27.1 percent, the company's second highest.  EBITDA margin on service revenues (non-GAAP) was 44.7 percent.

Wireline Reports Strong Growth in FiOS, Strategic Services

Verizon's Wireline business, which includes Verizon Telecom and Verizon Business, reported continued strong growth in customers of FiOS fiber-optic services and sales of strategic services to enterprise customers.

In the third quarter:

• Verizon added a net of 202,000 new FiOS TV customers.  The company has 717,000 FiOS TV customers in total, with approximately 600,000 added within the past 12 months.  Including satellite TV customers served in partnership with DIRECTV (a net of 85,000 added this quarter), Verizon has more than 1.5 million video customers.
• Verizon added a net of 285,000 new broadband connections (DSL and FiOS Internet connections combined).  Broadband connections totaled 8.0 million, an increase of 21.3 percent compared with the third quarter 2006.  The company added a net of 229,000 FiOS Internet connections this quarter, for a total of 1.3 million.
• ARPU in legacy Verizon wireline markets (which excludes former MCI consumer markets) increased 10.8 percent to $58.79, compared with last year's third quarter.  This increase was due to strong demand for broadband and TV services.
• Wireline operating income margin rose to 9.4 percent, compared with 8.8 percent in last year's third quarter.
• Verizon Business had revenues of $5.3 billion, or growth of 2.2 percent compared with last year's third quarter on an adjusted basis (non-GAAP).  This is Verizon Business' fourth consecutive quarter of year-over-year, pro-forma revenue growth (non-GAAP, calculated as if Verizon and MCI had merged on Jan. 1, 2005).
• 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 28.6 percent from last year's third quarter.

Details of 3Q 2007 Adjustments

Special items reflected in this quarter's EPS are:

• 16 cents per share for tax charges that would be payable as a result of possible distributions from the company's investment in Vodafone Omnitel N.V.  Verizon estimates that its portion of these distributions may amount to as much as $2.5 billion pre-tax over the next 12 months.
• 2 cents per share for costs in connection with the spin-off of access lines in Maine, New Hampshire and Vermont.  These costs are non-operational and include systems-related costs to enable the spin-off to operate on a stand-alone basis.
• 1 cent per share for MCI merger integration costs.

Additional 3Q Business Group Results

Wireless

• The company added 1.8 million retail customers -- the most in the industry.  More than 97 percent of the company's customer base was retail.
• Verizon Wireless continued to lead the industry in cost efficiency.  Cash expense per customer (non-GAAP) was $28.62, an increase of 2.8 percent over the similar period in 2006 and 3.3 percent over second quarter 2007.
• Total data revenues were up 63.4 percent over the prior year, contributing $2.0 billion or 20 percent of all service revenues in the quarter.  The company had 42.0 million retail data customers in September -- a 35.6 percent increase over the prior year and up 6.2 percent sequentially.
• Verizon Wireless continued to expand the size of its nationwide high-speed wireless broadband network, powered by EV-DO Revision A (Rev. A) technology, making it available in additional cities.  At the end of the quarter, more than half of the company's retail customers -- 32 million -- had broadband-capable devices.
• The company unveiled several best-in-class music-capable phones that will be available for the 2007 holiday season, including the Juke by Samsung, the Venus and the Voyager by LG, and the BlackBerry Pearl.  Verizon Wireless offers some 25 multimedia phones -- at various price points -- that can download music over the air and surf the Web wirelessly at broadband speeds.
• For business customers, Verizon Wireless began offering the industry's first USB wireless broadband modem and the smallest EV-DO Rev. A modem stick with up to 4GB of data storage capacity.  The company also introduced Verizon Wireless Private Network, a secure turnkey network solution that gives greater security to enterprise customers who routinely send proprietary information using Verizon Wireless PC cards, PDAs and smartphones.
• During the quarter, Verizon Wireless customers sent or received 36.5 billion text messages and 721 million picture/video messages.  Customers also completed 29.7 million music and video downloads.

Wireline

• Wireline total operating revenues were $12.7 billion, a 0.8 percent decrease on an adjusted basis (non-GAAP), compared with third quarter 2006.  This includes the continuation of expected declines in former MCI operations serving mass market customers.  Excluding these operations, revenues increased 0.9 percent.  Wireline total operating expenses were $11.5 billion, a 1.5 percent decrease on an adjusted basis, compared with third quarter 2006.
• Data revenues across all market segments increased 13.0 percent to $4.6 billion.  This is the largest increase (on a non-GAAP basis) since the MCI merger.  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.
• Revenues in Verizon Telecom's total consumer market decreased by 2.2 percent, compared with third quarter 2006.  However, in legacy Verizon consumer markets year-over-year revenues grew 3.1 percent.  In addition, broadband and video revenues in all consumer markets grew more than 67 percent, comparing this year's third quarter to last year's.
• Verizon's broadband fiber-to-the-premises network, which delivers FiOS Internet and FiOS TV services to customers, passed 8.5 million premises by the end of the quarter.  Third-quarter EPS dilution from FiOS deployment and customer-acquisition costs was 9 cents.
• FiOS Internet was available for sale to 6.5 million premises in parts of 16 states by the end of the quarter.  Penetration for the service averaged 20.0 percent across all markets.  FiOS TV was available for sale to 4.7 million premises by the end of the quarter.  Penetration for the service averaged 15.2 percent across all markets.
• Verizon Business rolled out significant enhancements to its global networking and managed services offerings, strengthening its position as the global IP leader and network-based solutions partner for corporations and governments worldwide.  Rollouts included a managed solution to upgrade networks serving retail stores, branch offices or other remote locations; a Unified Communications solution for voice-over-IP customers; Verizon Integrated Optical Service, which enables enterprises to converge multiple technologies onto a single network; and an extension of the company's Denial of Service Defense Mitigation security offering to the Asia-Pacific region.
• Verizon Business also took steps to make it even easier to do business with the company.  It enhanced service level agreements for Private IP customers, streamlined billing processes, reduced the number of billing platforms and expanded the availability of the Verizon Business Customer Center portal to customers based in the Asia-Pacific region.
• Verizon Business continued to expand and enhance its global network.  It began deployment of the Internet's next-generation IPv6 protocol; obtained connectivity to China Telecom's Next Convergence Network; began construction under a special license of the first multi-terabit, optical submarine cable system directly linking the U.S. mainland and China; and activated additional Converged Packet Architecture switches globally.
• Multinational corporations including Arup, Cavotec MSL, Deltek, Fujitsu, NAVTEQ, OMX, Schindler Elevator Corp. and Thomson Corp., as well as major U.S. regional players such as Park Nicollet Health Services, completed agreements for a wide range of advanced communications, information technology and professional services.  Organizations extending their master service agreements included the Australian Federal Government's Department of Finance, the Belgian Federal Government Service for Information Communication Technology (ICT), Korn/Ferry International, Martinair and Tele Atlas Data Gent.

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 63.7 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 has a diverse workforce of nearly 238,000 and last year generated consolidated operating revenues of more than $88 billion.  For more information, visit www.verizon.com [5].

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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 and services; 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; the ability to complete acquisitions and dispositions; and the extent and timing of our ability to obtain revenue enhancements and cost savings following our business combination with MCI, Inc.