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Verizon Reports Q2 Earnings – Revenues Continue to Grow, 50% of Wireless Customers on Smartphones

Verizon released their Q2 2012 earnings report this morning, and as expected, includes a bunch of positive numbers for the communications giant. We mostly care about the wireless side of the business, so on that note, they reported 7.3 percent year-over-year increase in service revenues, 8.6 percent year-over-year increase in retail revenues, and data revenues that were up 18.5 percent year-over-year. They added 1.2 million retail net customers, which includes 888,000 postpaid customers. They now have 94.8 million retail customers, 88.8 million of which are postpaid.

On the non-boring financial and customer count side, they also announced that 50% of their customers now use a smartphone. Over the last couple of years, Verizon has made it increasingly difficult to find feature phones. Their goal is get you onto a smartphone, so that you have to buy extra data packages and other high-priced features. It’s working, alright. Can you imagine life without a smartphone? 

Verizon Reports Continued Double-Digit Earnings Growth And Strong Operating Cash Flow In Second-Quarter 2012

Verizon Wireless Posts Record-High Margin, Strong Increase In Service Revenues; Wireline Consumer Revenue Growth Accelerates

NEW YORK, NY —

2Q 2012 HIGHLIGHTS

Consolidated

  • 64 cents in diluted earnings per share (EPS), compared with 57 cents per share in 2Q 2011 – a 12.3 percent increase.
  • $9.3 billion in cash flow from operating activities, up 20.1 percent compared with 2Q 2011, leading to $7.8 billion in free cash flow (non-GAAP) in 1H 2012, more than doubling free cash flow generated in 1H 2011.

Wireless

  • 7.3 percent year-over-year increase in service revenues in 2Q 2012; 8.6 percent year-over-year increase in retail service revenues; data revenues up 18.5 percent year over year; 30.8 percent operating income margin and 49.0 percent segment EBITDA margin on service revenues (non-GAAP), both record highs.
  • 1.2 million retail net customer additions, excluding acquisitions and adjustments, includes 888,000 retail postpaid net customers; low retail postpaid churn of 0.84 percent; 94.2 million total retail customers; 88.8 million total retail postpaid customers.

Wireline

  • 2.5 percent year-over-year increase in consumer revenues, the highest in several years; ARPU (average revenue per user) now tops $100 a month, with 65 percent of consumer revenues generated by FiOS.
  • 134,000 FiOS Internet and 120,000 FiOS Video net additions, with continued increased sales penetration for both products; 5.1 million total FiOS Internet and 4.5 million total FiOS Video customers.

Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported a second consecutive quarter of double-digit percentage growth in year-over-year earnings results and significant increases in operating cash flow.  Verizon Wireless generated record-high margins and strong operational results, and Verizon’s Wireline segment generated continued increases in revenues from FiOS fiber-optic services and strategic business services.

Verizon reported 64 cents in EPS in second-quarter 2012, an increase of 12.3 percent compared with second-quarter 2011 earnings of 57 cents per share.  There were no adjustments in either period.

On Track for ‘Solid Double-Digit Earnings Growth’ in 2012

“Verizon delivered another strong quarter of earnings growth and cash generation, and we remain on track to meet our financial objectives and produce solid double-digit earnings growth for the year,” said Lowell McAdam, Verizon chairman and CEO.  “Verizon Wireless has once again demonstrated its industry leadership, combining strong revenue growth with record margins and high customer loyalty.  We reported sequential improvement in second-quarter Wireline margins, and we expect to see that improving trend carry through the second half of the year.  We also look forward to the closing of strategic transactions and to the integration of process improvements that will set the stage for continued long-term profitable growth across all our business units.”

Consolidated Results: Strong Gains in Cash Flow

In second-quarter 2012, Verizon’s total operating revenues were $28.6 billion on a consolidated basis, an increase of 3.7 percent compared with second-quarter 2011.

Consolidated operating income was $5.7 billion in second-quarter 2012, compared with $4.9 billion in second-quarter 2011.  Consolidated EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) totaled $9.8 billion in second-quarter 2012, compared with $9.0 billion in second-quarter 2011.

Cash flow from operating activities totaled $15.3 billion in first-half 2012, compared with $12.8 billion in first-half 2011.  In second-quarter 2012 alone, cash flow from operating activities totaled $9.3 billion, a 20.1 percent increase compared with second-quarter 2011.

With capital expenditures of $7.4 billion in first-half 2012, free cash flow (non-GAAP, cash flow from operations less capex) was $7.8 billion in first-half 2012, compared with $3.9 billion in first-half 2011.

For full-year 2012, capital expenditures are expected to be flat to down compared with 2011 capital expenditures of $16.2 billion.

Verizon Wireless Results: Record Profitability, Strong Operational Metrics

In second-quarter 2012, Verizon Wireless delivered strong growth in revenues and retail customers; an increase in smartphone penetration; record-high retail postpaid ARPU; and the highest segment EBITDA margin on service revenues (non-GAAP) in the company’s history.

Wireless Financial Highlights

  • Service revenues in the quarter totaled $15.8 billion, up 7.3 percent year over year.  Retail service revenues grew 8.6 percent year over year, to $15.2 billion.
  • Data revenues were $6.9 billion, up $1.1 billion – or 18.5 percent – year over year, and represent 43.6 percent of all service revenues.  Total revenues were $18.6 billion, up 7.4 percent year over year.
  • Retail postpaid ARPU grew 3.7 percent over second-quarter 2011, to a record $56.13, the highest growth in three years.  Retail postpaid data ARPU increased to $24.53, up 15.4 percent year over year.  Retail service ARPU grew 3.4 percent year over year, to a record $54.29.
  • Wireless operating income margin was 30.8 percent and segment EBITDA margin on service revenues (non-GAAP) was 49.0 percent, both record highs.

Wireless Operational Highlights

  • Verizon Wireless added 1.2 million retail net customers in the second quarter, including 888,000 retail postpaid net customers.  These additions exclude acquisitions and adjustments.
  • At the end of the second quarter, the company had 94.2 million retail customers, a 4.9 percent increase year over year, including 88.8 million retail postpaid customers.
  • At the end of the second quarter, smartphones constituted 50 percent of Verizon Wireless’ retail postpaid customer phone base, up from 47 percent at the end of first-quarter 2012.
  • Retail postpaid churn was 0.84 percent, the lowest in four years, and an improvement of 5 basis points year over year. Total retail churn was 1.11 percent, an improvement of 11 basis points year over year.
  • Verizon Wireless continued to roll out its 4G LTE mobile broadband network, the largest such network in the U.S.  As of today, Verizon Wireless 4G LTE service is available to more than 230 million people in 337 markets across the U.S. – nearly 75 percent of the population.
  • The company introduced two new 4G LTE Internet devices in second-quarter 2012: the Verizon Jetpack 4G LTE Mobile Hotspot 890L and the Verizon Jetpack 4G LTE Mobile Hotspot MiFi4620L.  Earlier this month, Verizon Wireless launched the Droid Incredible 4G LTE by HTC and the Samsung Galaxy S III.
  • Verizon Wireless launched its ShareEverything Plan on June 28, offering customers unlimited voice minutes, unlimited text, video and picture messaging, and a shareable data allowance for up to 10 Verizon Wireless devices.  In the second quarter, HomeFusion Broadband, a service that provides high-speed in-home Internet access, became available nationwide.
  • In late June, Verizon Wireless announced an agreement with a subsidiary of T-Mobile USA Inc. to exchange spectrum in the AWS band in specific markets to meet LTE capacity needs and enable LTE expansion.  This agreement is contingent on the expected summer closing of Verizon’s proposed spectrum transactions with SpectrumCo, Cox and Leap.

Wireline Results: FiOS Sales Help Grow Consumer Revenue

In second-quarter 2012 in the Wireline segment, revenue growth for FiOS led to overall revenue growth among U.S. consumer customers.  Increased sales of strategic services helped mitigate lower revenues resulting from global economic impacts, including the adverse effects of foreign exchange rates compared with last year.

Wireline Financial Highlights

  • Second-quarter 2012 operating revenues were $9.9 billion, a decline of 3.1 percent compared with second-quarter 2011.  Wireline operating income margin was 1.9 percent, compared with 1.6 percent in first-quarter 2012 and 3.1 percent in second-quarter 2011.  Segment EBITDA margin (non-GAAP) was 23.1 percent in second-quarter 2012, compared with 22.6 percent in first-quarter 2012 and 23.8 percent in second-quarter 2011.
  • Consumer revenues grew 2.5 percent compared with second-quarter 2011, the highest increase in several years.  Consumer ARPU for wireline services reached more than $100 for the first time, increasing to $100.26 in second-quarter 2012, up 8.5 percent compared with second-quarter 2011.
  • ARPU for FiOS customers increased to more than $149 in second-quarter 2012.  FiOS services produced 65 percent of consumer wireline revenues in second-quarter 2012.  Approximately 70 percent of FiOS consumer customers have purchased a “triple play” of phone, Internet and TV services.
  • Global enterprise revenues totaled $3.8 billion in the quarter, down 3.4 percent compared with second-quarter 2011.  Sales of strategic services increased 4.4 percent compared with second-quarter 2011 and represented 52 percent of global enterprise revenues in second-quarter 2012.  Strategic services include Terremark cloud services, security and IT solutions, and strategic networking.

Wireline Operational Highlights

  • Verizon added 134,000 net new FiOS Internet connections and 120,000 net new FiOS Video connections in second-quarter 2012.  Verizon had a total of 5.1 million FiOS Internet and 4.5 million FiOS Video connections at the end of the quarter.
  • FiOS penetration (subscribers as a percentage of potential subscribers) continued to increase.  FiOS Internet penetration was 36.6 percent at the end of second-quarter 2012, compared with 33.9 percent at the end of second-quarter 2011.  In the same periods, FiOS Video penetration was 32.6 percent, compared with 29.9 percent.  The FiOS network now passes more than 17 million premises.
  • Broadband connections totaled 8.8 million at the end of second-quarter 2012, a 2.6 percent year-over-year increase.
  • Verizon launched several network projects during the second quarter, including deployment of next-generation routing equipment on the global Private IP network to meet growth demands, improve scalability and support 10 gigabit customer access ports and 40G and 100G backbone trunk ports; and a long-term core network architecture project for a common multi-protocol label switching (MPLS) backbone platform that will support current and future service demands.
  • The company also launched its first major initiative to build additional control plane technology into its network infrastructure.  This will allow Verizon to deliver on the promise of cloud-based and mobility-enabled industry solutions, as well as enable rapid and automated recovery of complex optical mesh networks.

Verizon Enterprise Solutions Highlights

Verizon Enterprise Solutions continued to expand and enhance its capabilities in the U.S. and abroad.  In second-quarter 2012, Verizon announced an agreement to acquire Hughes Telematics Inc.  This will expand Verizon’s machine-to-machine and telematics capabilities and accelerate revenue growth across key vertical segments of Verizon Enterprise Solutions, including automotive and transportation, energy, health care and manufacturing.  The transaction is expected to close in the third quarter.

Verizon Enterprise Solutions is a global sales and marketing organization that harnesses all of Verizon’s cloud, mobility and other platforms to serve the rapidly transforming enterprise market with integrated solutions.  Among other second-quarter highlights:

  • Affirmative Insurance; Lane Bryant and Catherine Shops; Lifetouch; NetApp; Shaw Industries Group Inc., a subsidiary of Berkshire Hathaway Inc.; Royal Caribbean Cruises Ltd.; the Commonwealth of Pennsylvania; and Arlington County, Va., were among the companies and government agencies completing agreements with Verizon for a wide range of strategic services to advance their operations.
  • Verizon extended the reach of the Terremark global cloud platform by deploying additional nodes in its London and Denver data centers; expanding its Sao Paulo, Brazil, data center; and launching a new Private Edition of its flagship Enterprise Cloud service.
  • Verizon strengthened its platform capabilities with a new solution that provides access to its global Private IP network service through Verizon’s 4G LTE wireless network.

NOTE: 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 document.

Verizon Communications Inc. (NYSE, Nasdaq: VZ), headquartered in New York, is a global leader in delivering broadband and other wireless and wireline communications services to consumer, business, government and wholesale customers.  Verizon Wireless operates America’s most reliable wireless network, with more than 94 million retail customers nationwide.  Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and delivers integrated business solutions to customers in more than 150 countries, including all of the Fortune 500.  A Dow 30 company with $111 billion in 2011 revenues, Verizon employs a diverse workforce of more than 188,000.  For more information, visit www.verizon.com.

  • wm snyder

    Come on Google I want some off contract nexus phones (but they will probably get wise to prepay), we’ll just have to see. Personally I think carriers should not be able to sell Phone’s this would strip them of there power and we can buy the latest tech from manufacturer’s and phone carriers would compete for your business!

  • wm snyder

    Well no wonder my wallet is dry and every other verizon customer

  • Hurrah

    T-Mobile has a $30 a month prepaid – 100 minutes talk ($0.10 additional minute) + unlimited texting + unlimited data (4G speeds for up to 5GB consumed). Get a Nexus phone from Google Play. You are good to go and free of Verizon. Verizon is the Apple of carriers, they want full control, everything locked, and all of your money. Give T-Mo or hell, Sprint a chance, the more competition the more they have to compete for us customers, making for a better deal in the long run. Verizon, currently is abusing its position as top dog. Time to cut them down to size.

  • teejaycard

    So 50% on smartphones. That’s roughly 24% of new customers who went out to get KY at their local grocery store for their monthly “how do you do” by Verizon. 13% of people who are going to put up a fight but will inevitably surrender to their “Share every F’in” by Verizon. 11% of us who would rather sell our family heirlooms to afford an out of contract phone than give into Big Red and his mighty fist of fury. And then the 2% that will probably jump ship in a few months for an inferior carrier but then will regret it, consider coming back to Verizon, but having more respect for themselves they then decide to leap from the tallest building screaming “CAN YOU HEAR ME NOW!” But then again I’ve never been good at math…

  • Butters619

    Huh? So why did they need that contract renewal fee?

    • JoshGroff

      To train their incompetent tech support personnel.

      • Tyler Chappell

        Supposedly. ;]

  • http://twitter.com/pcola_boy pcola_boy

    I’m anxious to see their 3rd quarter results since it’d be the first quarter that their share everything plans have been in effect.

  • TheGuyUpNorth

    Please keep in mind that these were second quarter earnings……. Remember that the new data plan went into effect on June 28. Many people were jumping on their final upgrades to stay on unlimited data. The true test will be down the road when it is time for new devices. Do people go and buy retail to keep an existing plan? Or do they jump ship? While AT&T is following the footsteps of Verizon, T-Mobile is basically standing strong and bashing these money hungry thugs. Granted T-Mobile does not compare in network strength, but I would venture to say the impact will be felt later. You may not get the latest cool devices, but Wal-Marts Straight Talk will be a good option for those who cannot continue to ransom their groceries to Verizon.

  • Cowbrains

    Yea I wonder why, because of them charging 30 bucks to upgrade at time of change, and their bs policies now I wont be renewing either and am tempted to even pay the ETF

    • JoshGroff

      My second ETF this year (first was leaving t-mobile because I thought I wanted better reception.) Then I remembered I hate talking on my phone, so why not pay less for more data?

  • Wireless Fool

    My Verizon shares are up 31% since I first bought them, however, after tabulating my bills over the years, I think I’m still down big time!

  • Matt Gondek

    If I switched to a dumb phone, I think I’d reward myself with a Nexus 7

    • JoshGroff

      I think I’ll be downgrading to T-mobile’s $30 5GB/100 min/unlimited text plan. The savings is well worth the VZW ETF I will be partaking in. Either that or I might drop my phone line entirely. Data is all I use it for anyway.

  • Scott Willenborg

    OH THANK GOD!! I was concerned that the $200+ a month I was sending them wasn’t enough for them to make a profit and was considering sending them a little extra just to help them out!

  • Greg Morgan

    I’m really getting tired of VZW and their antics. Really thinking of moving to Sprint or Tmobile.

    • JoshGroff

      If you’re doing prepaid, T-mo has some nice plans, post paid you’re better off with Sprint.

  • hkklife

    To be perfectly honest, yes, I COULD live quite well without a smartphone. I would find the smallest dumbphone possible and carry it alongside a Galaxy Player 5″ or Sony Walkman or some similar Android PMP, just like I used to do in the old Palm OS PDA days. Converged devices are handy but they are not absolutely for daily living.

    Heck, even after I got my first Treo smartphone in 2005/2006, I still carried a small Moto flipphone around because the Tros were so horribly unstable and such poor voice calling devices. The OG Droid in 2009 was the first time I had a smartphone I considered powerful and reliable enough to make my primary device.

  • Droidzilla

    With all that revenue growth, I can see why they can’t afford to offer unlimited data anymore. You know, in Opposite World.

  • Steve Wojciechowski

    I remember a time when I thought “Hey, I’ll never need a smart phone, that’s just silly.” Now I can’t live without one :(

    Isn’t technology lovely lol.

    • JoshGroff

      Same, that any time data access is killer.

  • Fuddy Duddy

    I could easily live without a smart phone and I’ve had one since the release day of the Original Droid. If my price goes up I’ll revert to an non data phone in a minute and will carry my G3 around and connect via wifi.

    • JoshGroff

      Oh the savings, it will be glorious.

  • Trevor

    Kinda makes that $30 upgrade fee seem like an even bigger slap in the face.

  • http://twitter.com/Brave_Fellow BCoch

    Everyone cries that people will leave Verizon because of the increase costs. But NO OTHER CARRIER provides the same network that Verizon can. NO ONE. This is why Verizon dominates….and AT&T seems to have trouble understanding this.

    • http://twitter.com/chqueed charles rogers

      Dont worry eventually AT&T and Verizon’s 4g rollouts will be finished. By then though 1 GB of data for 1 phone will be 70 bucks.

  • kevintufts

    How these numbers change from this point on is going to be very interesting. I have one more year at my acceptable rate with VZW, but it is very likely I will be switching to a higher value option then.

  • Lucky Armpit

    Of course they have strong earnings. Device exclusivity + the most expensive plans in wireless = massive profits.

  • Captain Dangle

    VZW profits will drop once everyone jumps ships due to the stupid Family Share BS. VZW sucks. Takin advantage of their customers cuz they have the best network.

    • dragonflyr

      it is true .. the “best network” thing is the ONLY thing that keeps me with them. in every other way they completely suck.

    • PC_Tool

      DL users != everyone.

      Sadly, most of their users probably couldn’t care less if they tried.

      I was getting a phone number changed in one of their corporate stores last weekend and they moved 3 people over to the share plan. One of the customers even said, “Yeah, it costs more, but that’s technology.”

      This is their customer-base. If VZW tells them they have to pay more because, “That’s technology”, they’ll line up and gladly hand over their money.

      • cgalyon

        You’re right, and that’s why it’s important for those of us who are “tech-heads” to inform our friends and family (when they ask for advice) that they should switch from Verizon and explain why. It’s not in the companies’ best interest to educate their customers, so it’s up to those of us who love tech.

        • PC_Tool

          Oh. You’re in the habit of offering unsolicited financial advice?

          I bet they love that. ;-)

          (the snark isn’t personal, simply there to illustrate a point)

          Be careful offering financial advice. If your friends and family are used to it and accepting of it, that’s wonderful. It has been my experience, however, that most folks tend to not look fondly upon such things, and I would hesitate to tell anyone that they should jump right in and start offering such advice without testing the waters, so to speak, first.

          • JoshGroff

            You have to know who you have influence over. People usually don’t complain when you save them a few hundred/year. I took an ETF from T-mobile 4 months ago, and in 3 more months I will have made the cost of the ETF back. Sure as hell beat being stuck with them for another 18 months. Although, I wish that $30 5GB 100 minute plan was active when I took the ETF.

          • PC_Tool

            I do…and that was my point. Simply suggesting that people start sticking their noses into the finances of their friends and family is rarely a good idea.

          • cgalyon

            I agree, that’s why I said, “when they ask for advice”. I wouldn’t advocate one simply begin offering advice without being asked (regardless of the topic).

          • PC_Tool

            I swear that wasn’t there when I replied. :P

            But yeah, pretty much right on, then.

      • JoshGroff

        Technology should progressively get cheaper as it becomes more efficient to produce/maintain. Either that or it better skyrocket in quality if they want more money.

        • PC_Tool

          That was kinda my point. We may understand this, the average customer? Not so much.

          • JoshGroff

            I think I’m making that my status update. Quite an effective way to inform people nowadays.

    • http://profiles.google.com/adamtruelove Adam Truelove

      Everyone will not jump ship BECAUSE of their amazing network.

  • SirSoloDolo

    Funny, I’ll actually be leaving when my contract ends. Just don’t want to pay the disconnection fee. Verizon is no longer consumer oriented which got them their big break into the industry. I’ll be enjoying my cheaper phone bill

    • https://twitter.com/#!/fitman88 Fitman88

      I understand where you’re coming from but I think this is an industry problem. Switching to any of the other carriers doesn’t solve the problem IMHO. For one AT&T is just as money hungry as Verizon; thus immediately ruling them out for me. In addition, if millions of customers were to suddenly jump ship to T-mobile, Sprint or any of the other “more affordable” carriers, it would only be a matter of time before they raised their prices.

      I really wish we could just switch to the European model. i.e. buy phones off contract and pay for cheap service on any carrier of our choosing. That would mean lower cumulative expenditures for consumers, no more locked bootloader BS, updates DIRECTLY from google, etc.

      • JoshGroff

        Prepaid plans and unlocked GSM Nexus phones. Pretty sure there’s people that do that exact thing. It’s just not widespread enough to be effective. Plus those CDMA carriers ruin everything.

        • michael arazan

          Sprint just started and opened up their true 4g LTE market in like 5 or seven markets, kansas city MO, of course where they are head quartered. That’s six months before there previous statement of 2013. So it might be wise to jump on the sprint plan since their main advertising point is unlimited data unlike the other carriers.

    • dragonflyr

      well … you’ll be jumping ship to an inferior network. believe me, i would love nothing more than to walk into VZW and tear up my contract .. but every other option leaves you with a much inferior network. ever hear the saying “.. by the short hairs”. yupt, that’s how they got us.

      • Superfly

        So long as you keep this attitude they will continue to do so. T-Mobile needs more subscribers to get more revenue to better compete with Verizon. It’s kinda like it was when Android first hit the scene. This was the main type of argument people made for sticking with the iPhone. It’s the only game in town. Android is an experiment, and Google is not a software or hardware company. As more people joined the Android army, more developers came over as well building the ecosystem to what it is today. This was because enough people rejected the argument that “the iPhone is the only game in town” and gave Android a chance. Give T-Mo a chance, or Sprint, with more customers and revenue, they will challenge Verizon in no time, and we, consumers, will be the better for it,.

        • michael arazan

          I’d like to see Google buy T-Mo and and invest in it to compete with the carriers. Its already established, just needs an investor willing to fix them and vamp up their network and coverage. Also wish their faster internet project would pick up more too.

  • dragonflyr

    it’s only going to go up from here with the new shared data packages. they’re basically high tech “drug” dealers. lure people in with smoke and mirrors (free voice/text).. get them addicted (data) .. $$$

    • http://twitter.com/jdk2 jdk2

      Shareholders=Big Smile
      Customers=Big Frown

      • Fuddy Duddy

        Maybe it’s time to become a shareholder, their dividend is pretty nice.