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Verizon Reports Strong 1Q 2007 Results, Driven by Top-Line Growth Across Key Markets
Continued Strong Wireless Performance and Improvements in the Wireline Consumer and Large-Business Markets
Operating Income Increases as Wireless, Broadband, Video and Strategic Services Growth Accelerates
NEW YORK —
1Q 2007 HIGHLIGHTS
Note: Prior-period amounts have been reclassified to reflect comparable results. See the schedules accompanying this news release and www.verizon.com/investor for reconciliations to generally accepted accounting principles (GAAP) for the non-GAAP financial measures included in this announcement. Discontinued operations include Verizon Information Services, as well as interests in Verizon Dominicana and Telecomunicaciones de Puerto Rico. 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 strong, profitable first-quarter 2007 revenue growth, supported by industry-leading retail customer growth at Verizon Wireless and strong sales of broadband services, including video.
Verizon reported first-quarter 2007 earnings of $1.5 billion, or 51 cents in fully diluted earnings per share (EPS). This compares with EPS of 56 cents in the first quarter 2006 -- which includes operations that Verizon has since divested.
Verizonís first-quarter 2007 diluted EPS before discontinued operations was 51 cents, or 54 cents per share on an adjusted basis (before special items, non-GAAP), a 17.4 percent increase from 46 cents per share in the first quarter 2006.
In total, on an adjusted basis (non-GAAP), Verizonís first-quarter 2007 earnings were $1.6 billion, or 56 cents in EPS, compared with 60 cents in EPS in the first quarter 2006, which included operations that Verizon has since divested. Special item adjustments in the first quarter 2007 included an extraordinary loss of 5 cents in EPS due to the impact of the Venezuelan governmentís nationalization of telecommunications services.
Accelerating Growth in Key Markets
ďVerizon is off to a strong start in 2007,Ē said Chairman and CEO Ivan Seidenberg. ďOur results show that across-the-board we have accelerated organic growth in key markets: retail wireless, broadband, data, video and global IP [Internet protocol].Ē
Seidenberg added, ďVerizon is focused on growing revenue, capturing market share, improving margins, increasing productivity, and providing the best customer experience. Throughout the first quarter, we built positive momentum on all these fronts, and this reinforces our confident outlook.
ďWe continue to drive value for shareholders. Our investment in advanced network platforms has been a foundation for product innovations and operating efficiencies, and we have divested non-strategic assets while maintaining our strong balance sheet and returning capital to shareholders through dividends and share repurchases.Ē
Profitable Revenue Growth
Verizonís total operating revenues grew 6.4 percent, to $22.6 billion, comparing first quarter 2007 with first quarter 2006. On an adjusted basis (non-GAAP), which reflects comparable results for the sale of selected non-strategic assets in the first quarter 2007, year-over-year operating revenue growth was 6.5 percent.
Total operating expenses increased 4.1 percent, to $18.8 billion, and to $18.7 billion on an adjusted basis, which also represented a 4.1 percent increase. Operating income grew 19.6 percent, to $3.8 billion, and 19.5 percent on an adjusted basis, to $3.9 billion, over the same periods.
Because Verizon completed its merger with MCI, Inc. on Jan. 6, 2006, GAAP comparisons of the first quarters in 2006 and 2007 do not include five days of the former MCIís 2006 results. Comparing results on a pro-forma basis (non-GAAP) -- as if Verizon and MCI had merged on Jan. 1, 2006 -- Verizonís adjusted operating revenues increased 5.4 percent and adjusted operating expenses increased 2.8 percent in the first quarter 2007.
Verizonís operating income margin rose to 16.8 percent in the first quarter 2007, compared with 15.0 percent in the first quarter 2006. On an adjusted basis and on a pro-forma basis, Verizonís operating income margin rose to 17.3 percent in the first quarter 2007, compared with 15.4 percent (adjusted) and 15.2 percent (pro-forma) in the first quarter 2006.
Verizon Wireless Continues to Stand Out From Industry
Verizon Wireless continued its record of strong, industry-leading retail net customer additions, revenue growth, profitability and low churn in the first quarter 2007.
Verizon Wireless remains the largest U.S. wireless company in terms of retail (non-wholesale) customers, total revenues and data revenues. In the first quarter:
Verizon Wireline Highlighted by Broadband and Data Growth
Verizonís Wireline operations reported continued strong growth from broadband, video and strategic services. This segment includes Verizon Telecom, which serves residential and small-business customers, and Verizon Business, which provides advanced communications and information technology solutions to large-business and government customers globally. In the first quarter 2007:
Strong Demand for FiOS TV
Verizon Telecom added a net of 141,000 new FiOS TV customers in the first quarter 2007. Verizon served 348,000 FiOS TV customers as of the end of the quarter, and this growth is accelerating. The company averaged approximately 2,200 FiOS TV net customer additions per business day in the first quarter 2007, about 750 more net additions per business day than the fourth-quarter 2006 average.
Complementing the FiOS TV rollout, Verizon now serves 618,000 satellite TV customers in partnership with DIRECTV, for a total approaching 1 million video customers nationwide.
Revenues for Verizon Telecomís consumer market decreased by 3.5 percent, to $4.2 billion, comparing first quarter 2007 with first quarter 2006. However, in legacy Verizon markets, consumer revenues reversed recent year-over-year declines. (Legacy Verizon consumer markets exclude former MCI consumer markets -- where Verizonís strategic focus has led to expected declines.) With an increasing shift to broadband and video sales, FiOS sales contributed to revenue growth in legacy Verizon markets of 1.6 percent, to $3.8 billion, comparing first quarter 2007 with first quarter 2006.
ARPU in this consumer market increased 8.5 percent, to $55.66, comparing first quarter 2007 with first quarter 2006.
Verizon Business Continues Momentum of Revenue Growth
Verizon Business reported first-quarter 2007 revenues of $5.2 billion, or growth of 2.3 percent compared with the first quarter 2006 on a pro-forma adjusted basis (non-GAAP, including MCI revenues from Jan. 1, 2006). This is the second consecutive quarter of positive year-over-year revenue growth.
Overall revenue growth at Verizon Business was driven by the continued momentum of strong sales of key strategic services, such as IP and managed services. In the first quarter 2007, strategic services generated $1.2 billion in revenue, up 22.8 percent from the first quarter 2006 on a pro-forma basis.
This resulted in year-over-year growth of more than $200 million in revenues from strategic services, and it exceeded declines in revenues from core services, such as traditional voice and data services. Sales of strategic services were also up sequentially, increasing 2.0 percent from the fourth quarter 2006.
Also during the quarter, Verizon Business rolled out significant enhancements to its global networking and managed services offerings. These rollouts focused on expanding strategic service offerings and enhancing global consistency among products.
Capex, Share Repurchases, Debt Levels as Planned
At the consolidated level, Verizon reported $5.0 billion in cash flows from continuing operations for the first quarter 2007, compared with $5.6 billion in the first quarter 2006. First quarter 2007 included payments of about $500 million related to funding qualified pension plans.
Capital expenditures were in line with the companyís previously announced plans. Expenditures totaled $4.2 billion in the first quarter 2007, compared with $4.0 billion in the first quarter 2006.
Verizon repurchased approximately $425 million in shares during the first quarter 2007, as part of a previously announced plan to repurchase $2 billion in shares over the course of the year.
Total debt at the end of the first quarter 2007 was $34.7 billion, down from $36.4 billion at year-end 2006. Verizon reduced its total debt by $7.7 billion year-over-year, largely as a result of the effect of last yearís spin-off of the directories business.
Detail of Special Items
Special items in the first quarter 2007 consisted primarily of a $131 million after-tax extraordinary loss, or 5 cents per share, related to the tender offer implementing the nationalization of CompaŮia Anůnima Nacional Telťfonos de Venezuela (CANTV).
Other special items were less than 1 cent per share: $9 million in after-tax charges for MCI merger integration costs and a $5 million net gain related to the sale of Telecomunicaciones de Puerto Rico. This sale closed on March 30, 2007, and Verizon received gross proceeds of approximately $980 million -- $100 million of which was contributed to the Verizon Foundation.
Special items in the first quarter 2006 reflected costs of 4 cents per share, or 1 cent per share each for the early extinguishment of debt, employee relocations, merger integration costs and the cumulative effect of an accounting change.
Business Segment Highlights
Following are first-quarter 2007 highlights for Verizonís Wireless and Wireline business segments.
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 60.7 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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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 suppliersí 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 timing of the completion of the sale of our Latin American property; and the extent and timing of our ability to obtain revenue enhancements and cost savings following our business combination with MCI, Inc.