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Verizon Reports Q3 Earnings – Double-Digit Earnings Growth and Sells 4.5M 4G LTE Devices

Verizon released their Q3 2012 earnings report early this morning, announcing that this is their third consecutive quarter of double-digit earnings growth. They posted a record-high margin for their wireless business, and saw continued growth in wireline. If it’s not obvious, yes, Verizon had another great quarter.

On the wireless side of things, Verizon added 1.8million subscribers, 1.5million of which were postpaid connections. Their 4G LTE network now covers more than 250 million people in 419 markets. They sold 6.8 million smartphones, 79% of which were to postpaid customers. Verizon managed to sell a total of 4.5million LTE devices, a number that probably includes tablets and a week’s worth of iPhone 5 sales. Thanks to all of those LTE sales, more than 35% of their total data traffic now takes place on the 4G LTE network.

The full press release, for all of the dirty Q3 details, is below. 

Verizon Reports Third Consecutive Quarter of Double-Digit Earnings Growth, Continued Strong Cash Flow 

Verizon Wireless Again Posts Record-High Margin, Supported by Strong Service Revenues; Wireline Consumer Revenue Growth Continues to Accelerate

3Q 2012 HIGHLIGHTS

Consolidated

  • 56 cents in diluted earnings per share (EPS), compared with 49 cents per share in 3Q 2011 – a 14.3 percent increase.
  • 64 cents per share in adjusted EPS (non-GAAP), which excludes 8 cents per share in charges, compared with 56 cents in adjusted EPS in 3Q 2011 – a 14.3 percent increase.

Wireless

  • 7.5 percent year-over-year increase in service revenues in 3Q 2012; 7.9 percent year-over-year increase in retail service revenues; 31.8 percent operating income margin and 50.0 percent segment EBITDA margin on service revenues (non-GAAP), both record highs.
  • 1.8 million retail net additions, excluding acquisitions and adjustments, including 1.5 million retail postpaid net connections; low retail postpaid churn of 0.91 percent; 95.9 million total retail connections, 90.4 million total retail postpaid connections.
  • 4G LTE service now available to more than 250 million people in 419 markets across the U.S.

Wireline

  • 4.6 percent year-over-year increase in consumer revenues, the highest in a decade; consumer ARPU (average revenue per user) up 10.3 percent year over year, to $103.86.
  • 136,000 FiOS Internet and 119,000 FiOS Video net additions, with continued increased sales penetration for both products; 5.3 million total FiOS Internet, 4.6 million total FiOS Video customers.

NEW YORK – Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported a third consecutive quarter of double-digit percentage growth in year-over-year earnings, as Verizon Wireless generated a second consecutive quarter of record-high margins and Verizon’s Wireline segment posted accelerated growth in consumer revenues.

Verizon reported 56 cents in EPS in third-quarter 2012, an increase of 14.3 percent compared with third-quarter 2011 earnings of 49 cents per share.

Adjusted third-quarter 2012 earnings (non-GAAP) of 64 cents per share exclude 8 cents per share for charges related to patent litigation settlements.  Comparable adjusted third-quarter 2011 earnings of 56 cents per share excluded 7 cents per share for a non-operational charge related to an actuarial valuation of pension plans.

On Track to Meet 2012 Financial Objectives

“In the third quarter, Verizon continued to deliver double-digit earnings growth and strong cash generation, and we remain solidly on track to meet our financial objectives for the year,” said Lowell McAdam, Verizon chairman and CEO.  “With our 4G LTE network advantage, well-received Share Everything Plans and unmatched product portfolio, Verizon Wireless continues to do an outstanding job of balancing growth and profitability.  Wireless achieved record profitability in a quarter in which we reported the highest number of retail postpaid gross and net adds in four years.”

McAdam added:  “Based on the strength of our FiOS fiber-optic network, we reported the highest growth in U.S. consumer wireline revenues in 10 years.  Additionally, strategic services growth in our Enterprise business helped offset weaker revenues caused by global economic challenges.  We are confident that we have the right plans in place to meet these challenges while improving the long-term profitability in both Consumer and Enterprise.”

Continued Strong Revenue Growth; Year-to-Date Free Cash Flow Up 49.9 Percent

In third-quarter 2012, Verizon’s total operating revenues were $29.0 billion on a consolidated basis, an increase of 3.9 percent compared with third-quarter 2011.

Consolidated operating income was $5.5 billion in third-quarter 2012, compared with $4.6 billion in third-quarter 2011.  Consolidated EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) totaled $9.65 billion in third-quarter 2012, compared with $8.8 billion in third-quarter 2011.

Cash flow from operating activities totaled $24.8 billion in the first nine months of 2012, compared with $21.5 billion in the first nine months of 2011.

With capital expenditures of $11.3 billion in the first nine months of 2012, free cash flow (non-GAAP, cash flow from operations less capex) was $13.4 billion through third-quarter 2012, compared with $9.0 billion through third-quarter 2011 – an increase of 49.9 percent.

For full-year 2012, capital expenditures are expected to be lower than 2011 capital expenditures of $16.2 billion.

Verizon Wireless Results: Record Profitability, Strong Customer and Revenue Growth

In third-quarter 2012, Verizon Wireless delivered the highest number of retail postpaid net additions in four years; strong growth in revenues; an increase in smartphone penetration; and the highest segment EBITDA margin on service revenues (non-GAAP) in the company’s history, surpassing last quarter’s previous high.

Wireless Financial Highlights

  • Service revenues in the quarter totaled $16.2 billion, up 7.5 percent year over year.  Retail service revenues grew 7.9 percent year over year, to $15.5 billion.
  • Total revenues were $19.0 billion, up 7.3 percent year over year.
  • Retail postpaid ARPA (average revenue per account) grew 6.5 percent over third-quarter 2011, to $145.42 per month.  Following the recent introduction of the Share Everything Plan and as customers continue to add multiple devices to accounts, Verizon Wireless now reports ARPA instead of ARPU since customers can share data among multiple devices.
  • Wireless operating income margin was 31.8 percent and segment EBITDA margin on service revenues (non-GAAP) was 50.0 percent, setting record highs for the second consecutive quarter.

Wireless Operational Highlights

  • Verizon Wireless added 1.8 million retail net connections in the third quarter, including 1.5 million retail postpaid net connections, the highest in four years.  These additions exclude acquisitions and adjustments.
  • At the end of the third quarter, the company had 95.9 million retail connections, a 5.7 percent increase year over year, including 90.4 million retail postpaid connections.
  • Verizon Wireless had 34.8 million retail postpaid accounts at the end of the third quarter, a 1.0 percent increase over the third quarter 2011, and an average of 2.6 connections per account, up 4.0 percent year over year.
  • At the end of the third quarter, smartphones constituted more than 53 percent of Verizon Wireless’ retail postpaid customer phone base, up from 50 percent at the end of second-quarter 2012.
  • Retail postpaid churn was 0.91 percent in the third quarter, an improvement of 3 basis points year over year. Total retail churn was 1.18 percent in the third quarter, an improvement of 8 basis points year over year.
  • Verizon Wireless continued to roll out its 4G LTE mobile broadband network, the largest 4G LTE network in the U.S.  As of today (Oct. 18), Verizon Wireless 4G LTE service is available to more than 250 million people in 419 markets across the U.S.
  • The company introduced seven 4G LTE smartphones in third-quarter 2012: the DROID Incredible 4G LTE by HTC, Samsung Galaxy S III, Pantech Marauder, Intuition by LG, Samsung Galaxy Stellar, DROID RAZR M by Motorola, Apple iPhone 5; and one 4G LTE tablet, the Samsung Galaxy Tab 2.  The company also announced the availability of the DROID RAZR HD and the RAZR MAXX HD by Motorola, which are launching today.
  • After receiving FCC approval in late August, Verizon Wireless purchased AWS spectrum from SpectrumCo and Cox Communications, and also completed its spectrum transactions with T-Mobile USA Inc., Leap Wireless and Savary Island Wireless.

Wireline Results: Accelerated Consumer Revenue and ARPU Growth

In third-quarter 2012 in the Wireline segment, FiOS revenue growth led to strong overall revenue growth among U.S. consumer customers.  In global enterprise and wholesale, increased sales of strategic services helped mitigate lower revenues resulting from continued secular and global economic impacts.

Wireline Financial Highlights

  • Third-quarter 2012 operating revenues were $9.9 billion, a decline of 2.3 percent compared with third-quarter 2011.  Wireline operating income margin was 0.4 percent, compared with 0.5 percent in third-quarter 2011.  Segment EBITDA margin (non-GAAP) was 21.7 percent in third-quarter 2012, compared with 21.4 percent in third-quarter 2011.
  • Consumer revenues grew 4.6 percent compared with third-quarter 2011.  This is the highest year-over-year quarterly revenue increase in a decade and compares with a 2.5 percent year-over-year increase in second-quarter 2012.
  • Consumer ARPU for wireline services increased to $103.86 in third-quarter 2012, up 10.3 percent compared with third-quarter 2011.  This is an acceleration from an 8.5 percent ARPU increase, comparing second-quarter 2012 with second-quarter 2011.
  • ARPU for FiOS customers was more than $150 in third-quarter 2012.  FiOS services produced 66 percent of consumer wireline revenues in third-quarter 2012.  About two-thirds of FiOS consumer customers have purchased a “triple play” of phone, Internet and video services.
  • Global enterprise revenues totaled $3.8 billion in the quarter, down 3.6 percent compared with third-quarter 2011.  Sales of strategic services increased 4.4 percent compared with third-quarter 2011 and represented 53 percent of global enterprise revenues in third-quarter 2012.  Strategic services include Verizon Terremark cloud and data center services, security and IT solutions, advanced communications, and strategic networking.

Wireline Operational Highlights

  • Verizon added 136,000 net new FiOS Internet connections and 119,000 net new FiOS Video connections in third-quarter 2012.  Verizon had a total of 5.3 million FiOS Internet and 4.6 million FiOS Video connections at the end of the quarter, representing year-over-year increases of 14.4 percent and 15.4 percent, respectively.
  • FiOS penetration (subscribers as a percentage of potential subscribers) continued to increase.  FiOS Internet penetration was 37.0 percent at the end of third-quarter 2012, compared with 34.6 percent at the end of third-quarter 2011.  In the same periods, FiOS Video penetration was 32.9 percent, compared with 30.6 percent.  The FiOS network now passes 17.4 million premises.
  • Broadband connections totaled 8.8 million at the end of third-quarter 2012, a 2.3 percent year-over-year increase.
  • During the third quarter, Verizon continued building its network of the future by deploying 100G (gigabits per second) technology throughout the U.S.  Cloud applications, video distribution applications and wireless technologies, such as LTE, are driving the need for 100G deployment.  On its long-haul network, Verizon has connected major metropolitan areas with this next-generation 100G technology.  The company has also deployed 100G on several network routes in Europe.

Verizon Enterprise Solutions Highlights

Verizon Enterprise Solutions – 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 – continued to expand and enhance its capabilities in the U.S. and abroad in third-quarter 2012.  The organization saw new customers leveraging its dynamic cloud, intelligent networks, mobility and machine-to-machine (M2M) platforms, while the organization made significant announcements and won recognition during the quarter.  Among highlights, Verizon Enterprise Solutions:

  • Initiated work with Palace Sports & Entertainment in Michigan to deliver fans a live high-tech experience, incorporating digital signage and social media, fan-friendly Wi-Fi and digital menu boards;
  • Was selected by Stefanini, a global IT services provider based in Brazil, to provide secure hybrid cloud services to manage business-critical applications and development platforms in 32 world markets;
  • Implemented a key transformative health IT initiative for Gentiva Health Services, the largest provider of home health and hospice services in the U.S. based on revenues;
  • Began leveraging synergies with Verizon-acquired Hughes Telematics Inc. to deliveradvanced automotive and fleet telematics and M2M services; and,
  • Won both Gatekeeper accreditation and a Common Criteria product certification from the Australian federal government – the first company to do so – recognizing the company’s expertise in delivering specific Identity Access Management.

Further Verizon Enterprise Solutions third-quarter 2012 highlights are available online athttp://www.verizonbusiness.com/go/Q3.

Pension Funding Details

Verizon yesterday announced an agreement to transfer pension assets to The Prudential Insurance Company of America by purchasing a single premium group-annuity contract to settle approximately $7.5 billion of Verizon’s obligations for approximately 41,000 participants under its management pension plan.  The closing of the transaction, which is subject to certain conditions, is expected to occur in December 2012.

In connection with the closing, Verizon currently intends to contribute an aggregate of approximately $2.5 billion to the plan, including a $930 million contribution made last month, to provide for the annuity and so that the plan’s funding percentage does not decrease as a result of this transaction.

As a result, Verizon’s revised outlook for pension funding in 2012 is estimated to be $3.4 billion, compared with the $1.3 billion estimated at the beginning of the year.  Assuming the closing of the transaction and the additional contribution, Verizon does not expect to have any cash-funding requirement for pensions in 2013.

  • http://www.facebook.com/hillary.jacobs.589 Hillary Jacobs

    Anybody ever try one of those prepaid phones with unlimited data, text, voice, etc.? I saw one the other day in CVS pharmacy and man — it was tempting. The phones aren’t the best but if you don’t go mobile much, might be worth it. AND, they run on AT&T’s 4G LTE. I have a client at my salon in Dallas with one; she loves it. ??

  • https://www.facebook.com/aaron.williams.125 Champion1229

    I’m so glad I am still on unlimited and I hope they are LOSING money on me! 20GB and its the first week of my billing cycle…..LONG LIVE UNLIMITED DATA!

    • JazzoRenee

      lol

  • http://twitter.com/BlackTaxi2d BlackTaxi2d

    this is clearly the problem. they make more money but still find ways to screw their customers over to make MORE money. (upgrade fee, shared data, limited data, 299 phones, etc.) as soon as my contract is up, i am going pre-paid. i can’t support this.

  • Blhatman

    thats why I went to straight talk using verizon network but paying half as much.

    • zee112

      Straight Talk website says: “You will need a compatible GSM AT&T or T-Mobile phone.”

  • Rickerbilly

    greedy bastards. lol

  • enigmaco

    When you raise prices of course your profits rise…

  • John Simonelli

    And they still want to charge the $30 upgrade fee?

    • DanWazz

      Somebody needs to hold workshops so users can learn to use their phone.

      • TheWenger

        Pay me 10 bucks a person and I’ll hold a workshop, and probably do a better job than VZW.

        • DanWazz

          I do not doubt it. When the sales person told me about the fee and how it was for workshops to teach me how to use my phone, I laughed in her face.

        • michael arazan

          Most kids could teach the class better than a verizon rep.

          Fletch: All I needed now was a computer.. And a ten year old kid to teach me how to use it.

    • Stock Holder

      How did think they accomplished a growth in earnings? Giving away free stuff?

      • John Simonelli

        Im gonna take a wild guess and say by selling smart phones, which virtually cost nothing or near pennies after subsidizing the cost with plans, and offering over priced data packages perhaps? I don’t think the $30 fee gave them the double digit growth and record sales.

  • Jigga_Z

    Verizon is clearly the top dog in terms of network, and I think we’re feeling the burn from it as consumers since they can offer something nobody else can: an enormous LTE footprint. However, as the other networks (slowly) begin to catch up, I’ll be interested to see how Verizon attempts to compete. Right now they can rest on their laurels a bit (though they certainly aren’t slowing up their LTE rollout) but as other networks catch up, I wonder how prices will be affected.

    • jak_341

      I read somewhere that as soon as LTE is done rolling out, they will start rolling out LTE Advanced. Probably focus on VOIP too.

  • http://twitter.com/devolore Josh Allen

    Apologies for my ignorance, but what constitutes a “postpaid” purchase?

    • ERIFNOMI

      As apposed to prepaid lines.

      • http://twitter.com/devolore Josh Allen

        K, thought so but wanted to be sure. Thanks :)

  • Mike Yost

    Yet they still can’t offer an unlimited data plan. Sigh.

    • picaso86

      That’s why they are billionares!

    • http://twitter.com/Xeneize480 Xeneize480

      Unl data is not for everyone some people only use 1GB a month with thats 89.99+29.99= $120 now with share everything unl calls text 1GB of data = $90 thats $50 for your plan and $40 for smartphone… so thats a $30 savings $30x24months= $720 savings. Sorry for you but some are saving. I need unl data bc I use 20GB a month so I keep buying full price phone.

      • Keith

        Where did you pull those numbers from? I pay $85/month. 450 minute voice share plan with my wife who has a dumbphone and $29.99 for unlimited data on my phone. I’d be paying $120 a month at a minimum for a measly 1GB of data.

        Complete and utter BS.

        • david

          he’s talking about unlimited everything including talk and text.

          • http://twitter.com/Xeneize480 Xeneize480

            Thanks david you are a smart man :)

        • http://twitter.com/Xeneize480 Xeneize480

          Call verizon and ask them :) if I am wrong then twitter me @xeneize480 and let me know. Again Unl data is not for everyone. Some people save $ by moving to share everything.