Verizon Reports Q3

NEW YORK -- Verizon Communications Inc. (NYSE:VZ) generated strong and improved cash flow in the third quarter 2009, with continued revenue and customer growth in wireless and broadband markets. Verizon today reported diluted earnings per share (EPS) of 41 cents in the third quarter, compared with 59 cents per share in the third quarter 2008. On an adjusted basis (non-GAAP), Verizon posted EPS of 60 cents in the third quarter 2009, compared with 66 cents in the third quarter 2008.

Verizon’s total operating revenues grew 10.2 percent to $27.3 billion, compared with the third quarter 2008. This includes revenues from Alltel Corporation, which Verizon acquired in January 2009. On a pro forma basis (consolidating the operating results of Verizon and the former Alltel as though the acquisition had occurred on Jan. 1, 2008), operating revenue growth was 0.6 percent.

Cash flow from operations totaled $23.1 billion for the first nine months of 2009, up 16.0 percent, or $3.2 billion, over the same period last year. Free cash flow (cash flow from operations minus capital expenditures) totaled $10.7 billion, up $3.3 billion over the same period last year. Verizon paid shareowners $3.9 billion in dividends during the first three quarters of 2009, and its Board of Directors approved a 3.3 percent quarterly dividend increase last month.

Long-Term Shareowner Value

“Verizon continues to generate strong cash flow, which we have used in building the foundation for sustainable, long-term shareowner value,” said Verizon Chairman and CEO Ivan Seidenberg. “Even through the worst of the recession, we have continued to raise our dividend and to add new customers, expand markets and grow revenues based on the power and innovation of Verizon’s wireless, broadband and global networks.”

He added, “The Verizon network is now an engine for next-generation communications services that will create new short- and long-term opportunities for us. As the U.S. economic and employment picture improves, and as we accelerate reductions in our own cost structure, we are well-positioned to quickly and significantly improve our growth profile.”

Seidenberg also noted that a simplified organizational structure announced earlier this month will enable Verizon to achieve improved levels of productivity. The realignment has combined two former Wireline business groups, Verizon Telecom and Verizon Business, into one organization.

Wireless Delivers Industry-Leading Profitability, Strong Customer Growth

Verizon Wireless continued to lead the industry with the highest profit margins. In the third quarter 2009:

• Wireless retail (non-wholesale) gross customer additions were up 15.0 percent over the prior year. On a pro forma basis, retail gross customer additions decreased by 8.3 percent.

• Verizon Wireless had 89.0 million customers at the end of the quarter, an increase of 25.7 percent year over year, and 6.3 percent on a pro forma basis. Verizon Wireless is the largest wireless company in the U.S. in terms of total customers and revenues.

• The company also has the most retail customers of any U.S. wireless provider and continued to grow its high-quality base, adding 1.0 million net retail customers in the quarter, excluding acquisitions and adjustments, for a total of 86.3 million retail customers.

• Total churn and retail postpaid churn were 1.49 percent and 1.13 percent, respectively.

• Revenues totaled $15.8 billion, up 24.4 percent year over year and up 4.9 percent on a pro forma basis. Service revenues were $13.5 billion, up 23.7 percent year over year and up 6.1 percent on a pro forma basis as demand continued to grow for data services. Data revenue grew to $4.1 billion, up 48.1 percent and up 28.9 percent on a pro forma basis.

• Total service ARPU (average monthly service revenue per user) decreased 2.2 percent year over year and 0.8 percent on a pro forma basis to $51.04. Total data ARPU increased to $15.59, up 17.2 percent year over year and 20.7 percent on a pro forma basis.

• Wireless operating income margin, adjusted for merger integration and acquisition costs, was 28.3 percent, up 1.0 percentage point year over year and up 1.4 percentage points pro forma. Adjusted on the same basis, EBITDA (earnings before interest, taxes, depreciation and amortization) margin on service revenues (non-GAAP) was 46.1 percent, an increase of 1.9 percentage points year over year and 1.3 percentage points on a pro forma basis.

Continued Growth in Consumer Broadband and Video

In addition to strong Wireless results, Verizon posted another quarter of gains in the number of customers using fiber-optic-based FiOS Internet and FiOS TV services. In consumer markets served by Verizon’s wireline network, increased revenues from broadband and video services helped produce overall revenue growth, as well as ARPU growth. In the third quarter:

• Verizon added 198,000 net new FiOS Internet customers. The company served 3.3 million FiOS Internet customers by the end of the quarter, a 49.2 percent year-over-year increase.

• FiOS Internet penetration (customers as a percentage of potential customers) increased to 28.5 percent by the end of the third quarter, with the product available for sale to 11.5 million premises. This compares with a 24.2 percent penetration at the end of the third quarter 2008.

• Verizon also added 191,000 net new FiOS TV customers. The company served 2.7 million FiOS TV customers by the end of the quarter, a 67.7 percent year-over-year increase.

• FiOS TV penetration increased to 24.9 percent by the end of the third quarter, with the product available for sale to 10.9 million premises. This compares with a 19.7 percent penetration at the end of the third quarter 2008.

• Consumer broadband and video revenues in wireline mass markets (which include consumer and small-business customers) represented growth of 30.7 percent compared with the third quarter 2008. This increase contributed to 1.2 percent revenue growth in consumer markets served by Verizon’s wireline network.

• Revenue growth from broadband and video services boosted consumer ARPU to $75.04 in the third quarter 2009, a 12.6 percent year-over-year increase. FiOS ARPU is more than $137, driven primarily by “triple-play” bundles of voice, Internet and TV services.

• Worldwide sales of strategic business services -- such as IP (Internet protocol), managed services, Ethernet and security solutions -- generated $1.6 billion in revenue in the quarter, up 1.0 percent from the third quarter 2008.

Verizon Communications Inc. (NYSE: VZ)