Verizon’s Q3 EPS tops expectations at $0.77 on $30.3 billion in sales

Verizon Earnings Q3 2013

Following solid earnings in the second quarter that narrowly topped the Street’s expectations, Verizon Communications on Thursday reported its third-quarter results ahead of the bell. Analysts polled by FactSet expected the nations largest carrier to post a profit of $0.74 per share for the September quarter, and their revenue consensus sat at $30.15 billion. Verizon beat expectations, however, reporting earnings of $0.77 per share — or $2.23 billion, up more than 20% — on $30.3 billion in sales. In the same quarter last year, Verizon earned $0.64 per share on revenue that totaled $29.01 billion. The carrier said that at the end of the third quarter it was home to 101.5 million total retail connections, including 95.2 million retail postpaid connections. Verizon added 927,000 net retail postpaid connections in the quarter and postpaid churn was 0.97%. Verizon’s full press release follows below.

Verizon Posts Double-Digit Earnings Growth and Continued Strong Operating Performance in 3Q

3Q 2013 HIGHLIGHTSConsolidated

  • 78 cents in earnings per share (EPS), including a non-operational net gain of 1 cent per share, compared with 56 cents per share in 3Q 2012.
  • 77 cents in adjusted EPS (non-GAAP), a 20.3 percent increase compared with adjusted EPS of 64 cents per share in 3Q 2012.

Wireless

  • 8.4 percent year-over-year increase in service revenues in 3Q 2013; 8.0 percent increase in retail service revenues; 33.8 percent operating income margin and 51.1 percent segment EBITDA margin on service revenues (non-GAAP).
  • Added 1.1 million net retail connections, including 927,000 net retail postpaid connections; low retail postpaid churn of 0.97 percent; 101.2 million total retail connections, 95.2 million total retail postpaid connections.
  • 4G LTE service now available to more than 303 million people in more than 500 markets across the United States.

Wireline

  • 4.3 percent year-over-year increase in consumer revenues; consumer ARPU (average revenue per user) up 8.7 percent year over year.
  • 173,000 FiOS Internet and 135,000 FiOS Video net additions, with continued increased sales penetration for both services; 56,000 net broadband customer additions.
  • 5.2 percent year-over-year increase in revenues for global enterprise strategic services.

NEW YORK – Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported year-over-year double-digit percentage growth in operating income and earnings per share for the third consecutive quarter. Third-quarter 2013 results showed continued high customer demand for Verizon Wireless, FiOS and strategic enterprise services.

Lowell McAdam, Verizon chairman and CEO, said: “These strong third-quarter results reflect Verizon’s long-term investment in reliable, high-quality networks to deliver value to customers. Our unwavering focus on wireless, FiOS and strategic enterprise services has produced consistent performance, and we’ve delivered double-digit earnings growth in six of the past seven quarters. Verizon’s strategic networks form a powerful distribution platform for future growth and innovation.”

Verizon reported 78 cents in EPS in third-quarter 2013, compared with 56 cents per share in third-quarter 2012. Third-quarter 2013 results include a non-operational gain of 2 cents per share related to the sale of wireless spectrum, partially offset by 1 cent per share in incremental interest expense related to the financing of Verizon’s planned purchase of Vodafone Group PLC’s 45 percent stake in Verizon Wireless.

Adjusted third-quarter 2013 earnings of 77 cents per share increased 20.3 percent, compared with an adjusted 64 cents per share in third-quarter 2012, which excluded 8 cents per share in charges related to patent-litigation settlements.

Consolidated Results Highlighted by Revenue and Cash Flow Growth

Verizon’s consolidated revenue growth increased for the third consecutive quarter, with 84 percent of third-quarter 2013 revenues generated by Verizon Wireless, FiOS and strategic enterprise services.

Consolidated Highlights

  • Total operating revenues in third-quarter 2013 were $30.3 billion, a 4.4 percent increase compared with third-quarter 2012. This is the fourth consecutive quarter of year-over-year revenue growth of more than 4 percent.
  • Operating income increased 30.0 percent, to $7.1 billion in third-quarter 2013, compared with $5.5 billion in third-quarter 2012. Operating income margin was 23.5 percent in third-quarter 2013, compared with 18.9 percent in third-quarter 2012.
  • Consolidated EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) grew 16.9 percent year over year, totaling $11.3 billion in third-quarter 2013. EBITDA margin (non-GAAP) expanded to 37.3 percent in third-quarter 2013, up from 33.3 percent in third-quarter 2012.
  • Cash flow from operating activities totaled $28.4 billion in the first nine months of 2013, a 14.7 percent increase compared with $24.8 billion in the first nine months of 2012. Over these same time periods, capital expenditures totaled $11.8 billion in 2013 and $11.3 billion in 2012. Verizon estimates that 2013 capital spending will total approximately $16.6 billion.
  • Free cash flow (non-GAAP, cash flow from operations less capital expenditures) totaled $16.6 billion in the first nine months of 2013, a 23.3 percent increase compared with $13.4 billion in the first nine months of 2012.

Since early September, Verizon successfully arranged the required permanent financing of the Vodafone transaction, with a $49 billion debt offering and an agreement for up to $12 billion in term loans. Also, Verizon’s Board of Directors approved a quarterly dividend increase for the seventh consecutive year.

Verizon Wireless: Strong Profitability, and Customer and Revenue Growth

In third-quarter 2013, Verizon Wireless delivered consistently strong growth in retail postpaid net additions and revenues; an increase in smartphone penetration; and continued high segment EBITDA margin on service revenues (non-GAAP).

Wireless Financial Highlights

  • Total revenues were $20.4 billion in third-quarter 2013, up 7.2 percent year over year. Service revenues in the quarter totaled $17.5 billion, up 8.4 percent year over year. Retail service revenues grew 8.0 percent year over year, to $16.8 billion.
  • Retail postpaid ARPA (average revenue per account) increased 7.1 percent over third-quarter 2012, to $155.74 per month.
  • In third-quarter 2013, wireless operating income margin was 33.8 percent, compared with 31.8 percent in third-quarter 2012. Segment EBITDA margin on service revenues was 51.1 percent, up 110 basis points over third-quarter 2012.
  • Verizon Wireless is on track to deliver 49 percent to 50 percent segment EBITDA margin on service revenues for the full year. Through the first three quarters of 2013, segment EBITDA margin on service revenues was 50.4 percent, with Verizon Wireless maintaining margins of 49 percent or higher in five of the past six quarters.

Wireless Operational Highlights

  • Verizon Wireless added 1.1 million net retail connections, including 927,000 retail postpaid net connections, in the third quarter. These additions exclude acquisitions and adjustments. The company expects customer growth to increase sequentially in the fourth quarter.
  • At the end of the third quarter, the company had 101.2 million retail connections — a 5.5 percent increase year over year — including 95.2 million retail postpaid connections.
  • Verizon Wireless had 35 million retail postpaid accounts at the end of the third quarter — an average of 2.7 connections per account. Nearly 42 percent of retail postpaid accounts are now on a Share Everything Plan, which allows customers to share data among multiple devices.
  • At the end of the third quarter, smartphones accounted for more than 67 percent of the Verizon Wireless retail postpaid customer phone base, up from 64 percent at the end of second-quarter 2013.
  • Retail postpaid churn was 0.97 percent in the third quarter, up 6 basis points year over year. Retail churn was 1.28 percent in the third quarter, up 10 basis points year over year.
  • Verizon Wireless has substantially completed deployment of its 4G LTE network, covering more than 99 percent of its current 3G network footprint. The Verizon Wireless 4G LTE network is now available in more than 500 markets to 97 percent of the U.S. population and covers more than 303 million people, including those in areas served by the company’s LTE in Rural America partners.
  • The company continued to enhance its 4G LTE smartphone device lineup. In the third quarter, Verizon Wireless launched the HTC One, the DROID Mini, DROID Ultra and DROID Maxx, and the iPhone 5s and iPhone 5c. The company also launched a 4G LTE Broadband Router with Voice, which can be used to connect landline phones and wireless data devices simultaneously. In early October, the company launched the Samsung Galaxy Note 3.
  • In August, Verizon Wireless introduced Verizon EDGE, an innovative device upgrade plan that spreads the retail price of a phone with no contract over 24 months. Customers can upgrade to a new phone after six months if 50 percent of the retail price has been paid.

Wireline Reports Continued Strong Consumer Revenue Growth

Verizon’s Wireline segment reported continued strong growth in consumer revenues, driven by continued strong customer demand for FiOS services. The company is on track to achieve net new customer growth targets for FiOS in 2013. In enterprise and wholesale markets, sales of global enterprise strategic services continued to increase, and constitute a larger percentage of the revenue base.

Wireline Financial Highlights

  • Consumer revenues were $3.7 billion, an increase of 4.3 percent compared with third-quarter 2012. Consumer revenues have grown more than 4 percent year over year for five consecutive quarters. Consumer ARPU for wireline services increased to $112.86 in third-quarter 2013, up 8.7 percent compared with third-quarter 2012.
  • FiOS revenues grew 13.4 percent, to $2.8 billion in third-quarter 2013, compared with $2.5 billion in third-quarter 2012.
  • Wireline operating income margin was 1.6 percent in third-quarter 2013, up 120 basis points over third-quarter 2012. Segment EBITDA margin (non-GAAP) was 22.7 percent, compared with 21.7 percent in third-quarter 2012. Verizon continues to expect that full-year 2013 Wireline EBITDA margin will be similar to 2012 when excluding impacts of Superstorm Sandy from last year’s results. The company also continues to target improved Wireline profitability and margin expansion in 2014.
  • Sales of strategic services to global enterprise customers increased 5.2 percent compared with third-quarter 2012 and represented 58 percent of total enterprise revenues. Strategic services include cloud and data center services, security and IT solutions, advanced communications, strategic networking and telematics services. Earlier this month, Verizon announced its new cloud services strategy.

Wireline Operational Highlights

  • In third-quarter 2013, Verizon added 173,000 net new FiOS Internet connections, up 27.2 percent from third-quarter 2012 — and 135,000 net new FiOS Video connections, up 13.4 percent. Verizon had a total of 5.9 million FiOS Internet and 5.2 million FiOS Video connections at the end of the quarter, representing year-over-year increases of 12.6 percent for each.
  • FiOS penetration (subscribers as a percentage of potential subscribers) continued to increase. FiOS Internet penetration was 39.2 percent at the end of third-quarter 2013, compared with 37.0 percent at the end of third-quarter 2012. In the same periods, FiOS Video penetration was 34.9 percent, compared with 32.9 percent. The FiOS network passed 18.3 million premises by the end of third-quarter 2013.
  • Verizon is enriching the FiOS Video customer value proposition by adding free anytime, anywhere mobile access to nine of the most popular TV channels via the FiOS Mobile app (iPad, iPhone, select Android tablets and smartphones, and Kindle Fire HD). Customers who download the app can also buy or rent more than 45,000 on-demand movie and TV show titles from Verizon FlexView. More live TV channels will be added in the coming months.
  • By the end of third-quarter 2013, more than 40 percent of FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50 to 500 megabits per second, up from 35 percent at the end of second-quarter 2013.
  • Broadband connections totaled nearly 9.0 million at the end of third-quarter 2013, a 2.6 percent year-over-year increase. Overall, net broadband customers increased 56,000 in the third quarter, as FiOS Internet net customer additions more than offset a decline in subscribers for DSL-based High Speed Internet services.
  • Verizon has been replacing high-maintenance portions of its residential copper network with fiber optics to provide enhanced services and to reduce ongoing repair costs. Through the first nine months of 2013, Verizon migrated nearly 250,000 homes to fiber, on track to exceed a target of 300,000 migrations within FiOS markets in 2013. By year-end 2013, Verizon projects it will have less than 1 million remaining customers served by copper in FiOS markets.
  • Verizon Enterprise Solutions completed agreements with, and began deploying innovative business technology solutions for, a variety of corporations and organizations around the globe in the quarter, including the American Red Cross, General Electric, Guggenheim Partners, JetBlue, Juniper Networks, Landstar Systems, Royal Caribbean Cruises Ltd., Shangri-La Hotels, Synchronoss Technologies and the U.S. Department of the Interior.
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