Verizon Communications, most people shareholder of Verizon Wireless, just tossed out its Q2 2010 earnings, and unlike nearly all of the other big boys we\’ve seen, this company actually lost money over the last few months. All told, the mega-corp posted a $198m net loss compared to a $1.48b net profit this time last year, but while you were to exclude \” special charges\” for a workforce reduction, Verizon as a complete would\’ve seen net profits of $0.58 per share. When focusing strictly on mobile, Verizon Wireless managed to select up 1.4 million net customer additions, that’s 200,000 shy of the 1.6 million that AT&T recently picked up. What\’s crazy is that one carrier has the iPhone while the alternative doesn\’t, and it doesn\’t take the imagination of Peter Pan to work out how those numbers would shift if Apple\’s smartphone somehow picked up a CDMA radio and headed over to special Red. Other fun facts about VZW\’s second quarter include a 3.4 percent uptick in total revenues year-over-year, a 5.2 percent increase in service revenues and a staggering 28.3 percent boost in data revenues. With all that money flowing in, is there really a need for these newfangled caps? Consumers say \” no,\” but Sir Capitalism says \” yes.\”
Update: We\’ve been pinged by Verizon and given some clarification to the grim mess also known as filing quarterly reports in accordance with GAAP with varying shares of ownership. We also learned that Verizon Wireless added 665,000 new net wireless customers under contract inside the prior quarter, whereas AT&T added 496,000 contract customers. It\’s pretty easy to make these numbers say whatever you would like them to, apparently.
Results Include Costs for Voluntary Workforce Reductions, as Prior Cost- Reduction Initiatives Gain Momentum and Strategic Divestitures Are Completed
July 23, 2010 –
2Q HIGHLIGHTS
Consolidated
* $9.8 billion in cash flow from operations during 2Q 2010, up 29.8 percent from 2Q 2009; $5.5 billion in free cash flow (non-GAAP), up 76.7 percent.
* A loss of 7 cents per share, including 65 cents of earnings per share in adjustments, compared with 2Q 2009 EPS of 52 cents.
Wireless
* 1.4 million total net customer additions, excluding divestitures and adjustments, in 2Q 2010; 665,000 retail postpaid net customer additions inside the quarter; continued low retail postpaid churn of 0.94 percent.
* 86.2 million retail customers; 92.1 million total customers, after divestitures and conforming adjustments on the topic of the Alltel acquisition.
* 3.4 percent increase in total revenues from 2Q 2009; 5.2 percent increase in service revenues; data revenues up 23.8 percent; 30.3 percent operating income margin and 47.5 percent Segment EBITDA margin on service revenues (non-GAAP).
Wireline
* 196,000 net FiOS Internet and 174,000 net FiOS TV customer additions; 3.8 million total FiOS Internet customers and 3.2 million total FiOS TV customers.
* 11.4 percent increase in consumer ARPU from 2Q 2009; total broadband and video revenues of $1.8 billion, up 20.1 percent from 2Q 2009.
* 6.2 percent increase in strategic business services revenues; total global enterprise revenues up 0.6 percent from 2Q 2009.
LONG ISLAND – For second-quarter 2010, Verizon Communications Inc. (NYSE, NASDAQ: VZ) reported continued strong cash flow growth, coupled with improved margins for both its Wireless and Wireline business segments, and improved revenue trends for sales to global business customers.
The company reported a loss of 7 cents in basic earnings per share (EPS) within the quarter, which included $2.3 billion in pre-tax costs for workforce reductions associated with a second-quarter incentive offer so they can bring about approximately 11,000 voluntary separations this year. This compares with earnings of 52 cents per share inside the second quarter of 2009.
\’Solid Improvement in Operational Results\’
\” Verizon showed solid improvement in operational ends up in the quarter,\” said Chairman and CEO Ivan Seidenberg. \” Similarly, the wireline spinoff to Frontier on July 1 improves our future growth profile. We see the opportunity to create additional shareholder value with a revenue portfolio it really is now more heavily concerned with wireless, FiOS and global IP.\”
Seidenberg added, \” We now have the network platforms in place, and the product and service innovations inside the pipeline, to fuel the following generation of growth in our changing industry. Our cost-reduction efforts are gaining momentum, and trends inside the global business market are showing signs of stabilization.\”
Consolidated Results Include Divestitures
Verizon\’s consolidated second-quarter 2010 results include wireline local exchange businesses covering 4 million access lines that were spun off and merged with Frontier Communications on July 1. Results also include certain wireless properties until they were divested in April and June to observe conditions imposed in connection with regulatory approvals of last year\’s acquisition of Alltel. These wireless properties, covering more than 2 million customers, were held in a trust in the course of the date of divestiture.
Items that negatively impacted Verizon\’s second-quarter 2010 net income were 52 cents per share associated with the voluntary incentive program for union-represented employees, about two-thirds of whom left the payroll in late June or early July; 6 cents per share for both Alltel merger integration costs and taxes associated with the divestiture of the Alltel trust properties; 4 cents per share in Frontier spinoff-related charges; and 3 cents per share for a one-time, non-cash revenue adjustment of $268 million, which was recorded to properly defer previously recognized wireless data revenues in an effort to be earned and recognized in future periods.
Verizon\’s total operating revenues were $26.8 billion in second-quarter 2010, a decrease of 0.3 percent compared with second-quarter 2009.
Cash flow from operations totaled $16.9 billion inside the first half of 2010, compared with $14.1 billion within the first half of 2009. Cash flow from operations totaled $9.8 billion in second-quarter 2010 alone, up 29.8 percent compared with second-quarter 2009.
Capital expenditures totaled $4.2 billion within the second quarter of 2010, down 3.6 percent from second-quarter 2009. Full-year 2010 guidance for capital expenditures remains within the range of $16.8 billion to $17.2 billion. In second-quarter 2010, free cash flow (non-GAAP; cash flow from operations less capital expenditures) totaled $5.5 billion, a 76.7 percent year-over-year increase.
Verizon\’s net debt (non-GAAP; total debt less end-of-period cash and cash equivalents) was $52.7 billion at the tip of second-quarter 2010. The internet debt to Adjusted EBITDA ratio (non-GAAP; net debt divided by earnings before interest, taxes, depreciation and amortization adjusted for non-recurring or one-time items) was approximately 1.5 at the tip of the quarter, and Verizon expects it to be lower by year-end 2010.
Wireless Momentum Continues: Top-Line Revenue Growth, Strong Profitability, Low Retail Postpaid Churn
Verizon Wireless continued to deliver strong margins and knowledge revenue growth, and solid customer additions. Inside the second quarter of 2010:
* Verizon Wireless added 665,000 retail postpaid and 454,000 total retail customers inside the quarter, excluding divestitures and adjustments, both increases over the first quarter of 2010.
* At the top of the second quarter, the company had 86.2 million retail customers, which represented nearly 94 percent of the company\’s wireless customers, the biggest number of retail customers of any U.S. wireless provider.
* The company also added 896,000 reseller customers inside the second quarter.
* The complete number of shoppers at the tip of the quarter was 92.1 million, after adding 1.4 million total net customers within the quarter and removing a net 2.1 million customers in connection with divestitures and conforming adjustments concerning the Alltel acquisition.
* Moreover, the company had 7.7 million \” other connections\” at the tip of the quarter – similar to machine-to-machine, eReaders and telematics – adding 264,000 net other connections inside the quarter. This brings the number of total wireless connections to 99.7 million at the tip of the second quarter.
* Retail postpaid churn, retail churn and total customer churn remained low, at 0.94 percent, 1.33 percent and 1.27 percent, respectively. All are the company\’s best levels in nearly two years.
* Retail service revenues within the quarter totaled $13.5 billion, up 4.2 percent year over year. Retail data revenue was up 23.4 percent to $4.7 billion. Service revenues within the second quarter were $14.0 billion, up 5.2 percent. Total revenues were $16.0 billion, up 3.4 percent year over year.
* Retail service ARPU (average monthly service revenue per user) grew 0.9 percent over the second quarter of 2009 to $51.56. Retail data ARPU increased to $17.85, up 19.4 percent year over year.
* Wireless operating income margin was 30.3 percent, an increase of 150 basis points, or 1.5 percentage points, year over year. Segment EBITDA margin on service revenues (non-GAAP) was 47.5 percent, up 120 basis points over second-quarter 2009.
Wireline Growth in Consumer and Enterprise Markets: Revenues Increase for FiOS and Strategic Business Services
Verizon continued to add customers for broadband and video services provided over its FiOS fiber-optic network, and revenues increased for advanced communications and related business services provided over Verizon\’s global IP (Internet protocol) network. Within the second quarter of 2010:
* Verizon added 196,000 net new FiOS Internet customers and 174,000 net new FiOS TV customers. Verizon has posted consecutive quarterly gains within the number of shoppers using FiOS services since FiOS Internet was introduced in 2004, and by the top of the second quarter had 3.8 million FiOS Internet and 3.2 million FiOS TV customers.
* FiOS Internet penetration (customers as a percentage of potential customers) was 29.7 percent by the tip of the quarter, with the product available for sale to 12.9 million premises. This compares with 28.1 percent and 11.0 million, respectively, at the tip of second-quarter 2009.
* FiOS TV penetration was 25.9 percent by the top of the quarter, with the product available for sale to 12.4 million premises. This compares with 24.6 percent and 10.3 million, respectively, at the tip of second-quarter 2009.
* Total wireline broadband and video revenues were $1.8 billion inside the quarter, up 20.1 percent from second-quarter 2009. This includes FiOS broadband revenues, which grew 33.2 percent year over year. All FiOS-based services, including narrowband voice, generated 43 percent of consumer wireline revenues in second-quarter 2010, compared with 33 percent in second-quarter 2009.
* Consumer ARPU for wireline services was $80.76 inside the quarter, up 11.4 percent compared with second-quarter 2009. ARPU for FiOS customers was more than $145.
* Global enterprise revenue totaled $4.0 billion within the quarter, an increase of 0.6 percent compared with second-quarter 2009 and an improvement from the 1.4 percent year-over-year decline within the first quarter of 2010. Sales of strategic enterprise services – similar to security and IT solutions, in addition as strategic networking – generated $1.6 billion, up 6.2 percent compared with second-quarter 2009.
* Segment EBITDA margin (non-GAAP) was 22.7 percent, compared with 21.7 percent within the first quarter of 2010 and 24.5 percent within the second quarter of 2009.
Additional Highlights
Wireless
* Verizon Wireless continued to guide the industry in cost efficiency. Monthly cash expense per customer (non-GAAP) decreased within the second quarter 2010 to $26.48, from $27.42 inside the comparable period in 2009.
* Inside the second quarter, data revenues increased to 34.5 percent of all service revenues, up from 29.3 percent within the second quarter 2009.
* Verizon Wireless continued to take a position in its broadband network, the nation\’s largest and top-rated 3G (third generation) network. Verizon\’s 3G network provides more coverage than any other U.S. carrier\’s and is on the market where 289 million people reside.
* Verizon Wireless plans to launch the nation\’s first 4G LTE (Long run Evolution) network in 25 to 30 markets by the top of this year and cover virtually all of its current nationwide 3G footprint by the top of 2013. Furthermore, as component of its 4G LTE network deployment plans, Verizon Wireless announced efforts through the quarter to work with rural companies to collaboratively build and operate a 4G network in those areas, using Verizon Wireless\’ 700MHz spectrum.
* In June, Verizon Wireless unveiled the much-anticipated DROID X by Motorola, the most recent Android smartphone, which became available in shops and online last week. The Droid X contains a large, high-resolution screen, 3G Mobile HotSpot capabilities, personal HD video capture and sharing, and is in a position for Adobe Flash Player 10.1 when the software is released by Adobe. In the course of the second quarter, the company also expanded its smartphone lineup with the LG Ally, an Android device; the LG Fathom, powered by Windows Mobile; and the BlackBerry Bold 9650 global smartphone. The company also introduced the Samsung Reality, which has a whole suite of messaging options, and the Pantech Jest.
* In the course of the second quarter, Verizon Wireless customers sent or received more than 180 billion text messages. Customers also sent nearly 4.2 billion picture/video messages and completed more than 25 million music and video downloads.
* Verizon Wireless ranked highest among wireless providers in small to mid-sized business customer satisfaction within the J.D. Power and colleagues 2010 U.S. Business Wireless Satisfaction Study released in June.
Wireline
* Second-quarter 2010 operating revenues were $11.1 billion, a decline of 3.3 percent compared with second-quarter 2009. Second-quarter 2010 operating expenses were $10.9 billion, a decline of 0.3 percent compared with second-quarter 2009.
* Broadband connections totaled 9.3 million at the top of the second quarter 2010, a 2.5 percent year-over-year increase. It is a net increase of 28,000 from the first quarter 2010, as the increase in FiOS Internet connections more than offset a decrease in DSL-based High Speed Internet connections.
* As of the top of second-quarter 2010, the FiOS network passed 15.9 million premises.
* The wireline workforce totaled 110,600 at the tip of the second quarter 2010. It is a decline of 3,800 compared with the top of the first quarter 2010. Inside the first half of 2010, Verizon reduced its wireline workforce by 6,100. More than 9,200 employees were subsequently transferred to Frontier as component of the July 1 spinoff.
* Verizon continued through the quarter to roll out global solutions that enable multinational enterprise, medium business and government customers to milk cloud-based service delivery of key IT resources and applications. These included new cloud-based computing, data storage, security and unified communications offers, in addition as expanded network coverage, enterprise mobility and professional service solutions. As well, Verizon announced industry-specific solutions, including extension of its dedicated financial services network to Europe and knowledge consulting services for healthcare providers.
* Continuing to broaden its global scope and capabilities, Verizon expanded its network infrastructure, adding a second data center in Hong Kong so as to enhance the company\’s cloud and knowledge center services within the Asia-Pacific region and provide direct access to its global network. The company also installed 18 additional Private IP edge routers for a total of 781 edge routers in 221 sites throughout 60 countries and added four new converged packet architecture switches in Tel Aviv, Israel; Rotterdam, Netherlands; Winnipeg, Canada; and San Jose, Costa Rica. This brings the entire number of CPA switches to 146 in 129 sites across 35 countries.
* Along with winning new business with quite a lot of multinational corporate customers, Verizon entered into new agreements with several government agencies, including the U.S. Department of Health and Human Services.
NOTE: Comparisons are year over year unless otherwise noted. 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 news release.
Verizon Communications Inc. (NYSE, NASDAQ:VZ), headquartered in Long island, is an international leader in delivering broadband and other wireless and wireline communications services to mass market, business, government and wholesale customers. Verizon Wireless operates America\’s most desirable wireless network, serving more than 92 million customers nationwide. Verizon also provides converged communications, information and entertainment services over America\’s most advanced fiber-optic network, and delivers innovative, seamless business solutions to customers worldwide. A Dow 30 company, Verizon last year generated consolidated revenues of more than $107 billion. For additional info, visit www.verizon.com.
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