NEW YORK - Verizon Communications Inc. (NYSE:VZ) today reported continued strong quarterly financial and operational results, as the company again produced significant gains in strategic growth areas such as wireless, broadband, data, video and global IP.
Verizon reported fourth-quarter 2007 earnings of 37 cents in fully diluted earnings per share (EPS). This compares with fourth-quarter 2006 earnings of 48 cents per share before income from discontinued operations that have since been divested.
On an adjusted basis (non-GAAP), fourth-quarter 2007 earnings were 62 cents per share from continuing operations. This is a 19.2 percent increase, compared with 52 cents per share from continuing operations in the fourth quarter 2006.
On an annual basis, Verizon reported 2007 EPS of $1.90, compared with $1.88 per share from continuing operations. On an adjusted annual basis, 2007 EPS was $2.36, a 14.6 percent increase, compared with 2006 EPS of $2.06 from continuing operations.
Special items reflected in fourth-quarter 2007 EPS are: 16 cents per share for severance and other related expenses recognized as a result of workforce reductions that began in the fourth quarter and will continue throughout 2008; 5 cents per share for taxes and expenses associated with an increase in the distributable earnings from the company's Vodafone Omnitel N.V. investment, including cash distributions received in December 2007; 2 cents per share for merger integration costs; and 1 cent per share for costs related to the spinoff of wireline access lines in Maine, New Hampshire and Vermont. Further detail on earnings adjustments is provided later in this release.
Delivering Value to Shareowners
"In the fourth quarter, the momentum of revenue growth and margin expansion continued to drive double-digit earnings growth, and we once again reported strong growth in sales of all our strategic products," said Verizon Chairman and CEO Ivan Seidenberg.
"Throughout 2007 Verizon's results consistently showed success in what we set out to do: grow revenue, capture market share, improve margins, increase productivity and provide the best customer experience," he said. "In 2008 we are focused on these same strategic imperatives, and we are confident that our performance will continue to deliver value to shareowners. We see significant opportunities to grow revenues and expand our leadership in wireless and broadband markets, while reducing operating expenses."
Revenue Growth, Cash Flows Highlight Consolidated Results
Verizon's consolidated operating revenues grew 5.5 percent in the fourth quarter 2007 and 6.0 percent in the full year, compared with fourth-quarter and full-year 2006. Total 2007 revenue was $93.5 billion, an increase of $5.3 billion over 2006. On an adjusted basis (non-GAAP), 2007 revenue increased 6.1 percent over 2006, and on a pro-forma basis (non-GAAP, calculated as if Verizon and MCI had merged on Jan. 1, 2006), this increase was 5.8 percent, or $5.2 billion.
Verizon's operating income declined 0.6 percent to $3.4 billion, compared with the fourth quarter 2006. On an adjusted basis (non-GAAP), operating income grew 18.5 percent to $4.3 billion, compared with the fourth quarter 2006.
Operating income margin was 14.4 percent for the fourth quarter 2007 and 16.7 percent for the full year, compared with 15.2 percent in both the same periods in 2006. On an adjusted basis (non-GAAP), Verizon's operating income margin rose to 18.2 percent in the fourth quarter 2007 and 17.9 percent for the full year, compared with 16.2 percent and 16.1 percent, respectively, for the same periods in 2006.
Cash flows from continuing operations totaled $26.3 billion in 2007. This is an increase of 14.2 percent, compared with $23.0 billion in 2006. Capital expenditures in 2007 totaled $17.5 billion, compared with $17.1 billion in 2006.
Verizon's Board of Directors increased the quarterly dividend 6.2 percent beginning with the November 2007 payment, reflecting confidence in the company's ability to sustain strong cash flows. Verizon also repurchased more than $1.1 billion of its shares in the fourth quarter 2007, for a total of more than $2.8 billion for the year and $4.5 billion over the past two years.
Year-end total debt was less than $31.2 billion. The company paid down more than $5 billion in debt during 2007.
Wireless Strength Continues for Quarter, Full Year
Verizon Wireless continues to be the most profitable domestic wireless company and the largest in terms of retail customers. In the fourth quarter:
Total customers increased to 65.7 million, up 11.3 percent year-over-year.
1.6 million of a total 2.0 million (retail and wholesale) net customer additions were retail post-paid customers.
Verizon Wireless continued its industry-leading customer loyalty, with 1.20 percent total churn. Churn among retail post-paid customers, 93 percent of all its customers, was under 1.0 percent for the quarter and the full year.
Total revenues in the quarter were $11.4 billion, up 13.3 percent; service revenues were $9.9 billion, up 13.7 percent, driven by customer growth and demand for data services. Full-year revenues were $43.9 billion, up 15.3 percent.
ARPU (average monthly revenue per customer) levels increased year-over-year for the seventh consecutive quarter: retail ARPU of $51.49 was up 1.4 percent; retail data ARPU of $11.06 was up 36.0 percent.
Wireless operating income margin was 26.2 percent. EBITDA margin on service revenues (non-GAAP) was 43.6 percent. (EBITDA is earnings before interest, taxes, depreciation and amortization.)
Continued Strong Growth in FiOS, Strategic Services
Verizon's Wireline business, which consists of 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 fourth quarter:
Verizon added a net of 226,000 new FiOS TV customers. The company had 943,000 FiOS TV customers by year-end and announced today that it had added its 1 millionth FiOS TV customer earlier this month. Including satellite TV customers served in partnership with DIRECTV (a net of 63,000 added this quarter), Verizon has more than 1.8 million video customers.
Verizon added a net of 264,000 new broadband connections (DSL and FiOS Internet connections combined). Broadband connections totaled 8.2 million, an increase of 17.9 percent compared with year-end 2006. The company added a net of 245,000 FiOS Internet connections this quarter, for a total of more than 1.5 million as of year-end.
Due to continued strong demand for broadband and TV services, ARPU in legacy Verizon wireline markets (which excludes former MCI consumer markets) increased 11.0 percent to $59.48, compared with the fourth quarter 2006.
Verizon Business generated revenues of $5.4 billion, or growth of 0.5 percent compared with the fourth quarter 2006 on an adjusted basis (non-GAAP). This is Verizon Business' fifth consecutive quarter of year-over-year, pro-forma revenue growth.
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 more than $1.4 billion in revenue, up 25.1 percent from the fourth quarter 2006.
Details of Prior EPS Adjustments
Special items for full-year 2007 totaled 49 cents per share. This includes the fourth-quarter charges detailed earlier, along with charges for taxes on foreign distributions, charges related to the access line spinoff and merger integration costs, as well as credits and charges associated with the disposition of Compañia Anónima Nacional Teléfonos de Venezuela and the net gain on the sale of Telecomunicaciones de Puerto Rico. As previously announced, Verizon received gross proceeds of approximately $980 million from this sale -- $100 million of which was contributed to the Verizon Foundation.
Special items reflected in fourth-quarter 2006 EPS included 27 cents per share related to the sale of Verizon Dominicana; pension settlement charges; and costs related to the spin-off of Verizon's directories business, merger integration and relocation of employees to the Verizon Center. In the first three quarters of 2006, there were additional settlement charges and costs for integration and relocation, as well as charges for the extinguishment of debt and the cumulative effect of an accounting change. Special items for full-year 2006 totaled 42 cents per share.
Additional Business Group Results
Wireless
At the end of 2007, 97 percent of the company's customer base was retail (post-paid and pre-paid).
Verizon Wireless continued to lead the industry in cost efficiency. Cash expense per customer (non-GAAP) increased slightly in the fourth quarter and for the full year to $28.75 and $28.24 in 2007 from $28.46 and $27.76 in 2006, respectively.
Total data revenues of $7.4 billion for the full year were up 65 percent over 2006. In the fourth quarter, data revenues were 21.3 percent of all service revenues, up from 15.8 percent in the fourth quarter 2006. The company had 47.2 million retail data customers in December -- 74 percent of the retail customer base and a 37 percent increase over the prior year.
The company made two major strategic announcements, setting the stage for the next level of innovation and growth in wireless: Verizon Wireless announced that it will provide customers the option to use, on its nationwide wireless network, wireless devices, software and applications not offered by the company. The company plans to have the new option available to customers throughout the country by year-end and will host an Open Development Conference for device developers in March. Verizon Wireless also announced plans to develop its fourth-generation mobile broadband network using Long Term Evolution (LTE) technology, with trials beginning this year.
Verizon Wireless continued to extend the reach of its nationwide high-speed wireless broadband network, powered by EV-DO Revision A (Rev. A) technology, making it available to more than 240 million Americans by year-end. More than half of the company's retail customers -- 35 million -- had broadband-capable devices by year-end.
The company continued to introduce additional broadband-capable devices, designed for business and personal productivity, including the first EV-DO BlackBerry Pearl, the 8130; a new roster of PDAs and smartphones, such as the Samsung SCH-i760 and the Palm Treo 755p, as well as the Kyocera KPC680 ExpressCard and the UM 150 USB wireless modem. New music-capable phones launched in the quarter include the Venus and Voyager by LG. 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.
During the quarter, Verizon Wireless customers sent or received nearly 45 billion text messages and 927 million picture/video messages. Customers also completed nearly 30 million music and video downloads.
Wireline
Wireline total operating revenues were $12.5 billion, a 1.4 percent decrease on an adjusted basis (non-GAAP), compared with fourth-quarter 2006. This includes the continuation of expected declines in former MCI operations serving mass market customers. Wireline total operating expenses were $11.3 billion, a 2.3 percent decrease on an adjusted basis, compared with fourth-quarter 2006.
Data revenues increased 12.8 percent to $4.8 billion. For the full year, data revenues were $18.1 billion, an increase of 12.4 percent over 2006. 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 for mass markets decreased by 0.6 percent, compared with fourth-quarter 2006. In the legacy Verizon consumer market, year-over-year revenues grew 2.7 percent -- the fourth consecutive quarter of growth in this market.
Verizon's broadband fiber-to-the-premises network, which delivers FiOS Internet and FiOS TV services to customers, passed more than 9.3 million premises by year-end. Estimated earnings dilution from FiOS was 9 cents per share in the fourth quarter.
FiOS Internet was available for sale to 7.5 million premises in parts of 17 states by year-end. Penetration for the service averaged 20.6 percent across all markets. FiOS TV was available for sale to 5.9 million premises in parts of 13 states by year-end. Penetration for the service averaged 16.0 percent across all markets.
Verizon Business, a global IP leader and network-based solutions partner, added significant enhancements to its fast-growing strategic services in the quarter. These included: new IP services and capabilities to help customers leverage and optimize VoIP (voice over IP); Ethernet access to Verizon Private IP service in Canada, Latin America and additional European countries; a new Managed WAN Optimization Service that speeds delivery of software applications; and a new portable satellite service for enterprise customers.
In addition, Verizon Business expanded its industry-leading security capabilities by offering retailers and financial service providers even stronger safeguards for protecting credit card holders' confidential data. The company also enhanced its Verizon Business Customer Center portal and announced two eBonding enhancements that enable customers to more easily link their systems directly to those of Verizon Business.
Verizon Business continued to expand and enhance its global IP network. It announced additional Private IP nodes in the Philippines and Malaysia; an aggressive rollout of its next-generation ultra long-haul optical transport network in Europe; and success in the industry's first field test of 100 gigabits-per-second optical transmission. Verizon Business also completed the landing work for the Trans-Pacific Express submarine cable in Oregon.
Multinational corporations and major regional players -- including CEDES, First Data Corporation, infoUSA, Invacare, Investec Limited, Labinal (SAFRON Group), The Menarini Group, Tellabs, and Travel and Transport -- completed agreements during the quarter for a wide range of advanced communications, IT and professional services. In addition, the company signed new agreements with several U.S. government agencies, including the U.S. Postal Service and U.S. Coast Guard, and with JANET, which operates and develops the U.K.'s JANET education and research network. Companies extending their master service agreements during the quarter included Arivia.kom and Xtrion/Melexis.
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 nearly 66 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 employs a diverse workforce of nearly 235,000 and last year generated consolidated operating revenues of $93.5 billion. For more information, visit www.verizon.com [1].
####
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 on our operations of natural or man-made disasters 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; 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.
Links:
[1] http://www.verizon.com/