Verizon Reports Strong Balanced Results; Delivers Customer, Earnings and Cash Flow Growth in First Quarter

1Q 2015 HIGHLIGHTS
(PDF of Financial Tables)

Consolidated

• $1.02 in earnings per share (EPS), compared with $1.15 per share and 84 cents in adjusted EPS (non-GAAP) in 1Q 2014.

Servicios móviles

• 6.9 percent year-over-year increase in total revenues; 35.0 percent operating income margin.
• 55.8 percent segment EBITDA margin on service revenues (non-GAAP), and 44.8 percent segment EBITDA margin on total revenues (non-GAAP).
• 565,000 net retail postpaid connections added in the quarter; low retail postpaid churn of 1.03 percent; 108.6 million total retail connections; 102.6 million total retail postpaid connections.

Wireline

• 4.0 percent year-over-year increase in consumer revenues, the 11th consecutive quarter of increases of at least 4 percent.
• 10.2 percent year-over-year increase in FiOS revenues; 133,000 FiOS Internet and 90,000 FiOS Video net additions.

NEW YORK – Verizon Communications Inc. (NYSE, Nasdaq: VZ) today announced first-quarter 2015 results highlighted by customer growth in key wireless and broadband markets, strong earnings and increased cash flow.

“Verizon is off to a strong start in 2015 with another quarter of profitable growth,” said Verizon Chairman and CEO Lowell McAdam. “We expanded our base of customers seeking a premium experience, and we grew revenues, earnings and cash flow during a quarter in which we also took significant steps to sharpen our strategic focus. We are confident in our ability to maintain momentum and continue to add value for customers and shareholders.”

The company reported $1.02 in EPS in first-quarter 2015, compared with $1.15 per share in first-quarter 2014.

There were no non-operational adjustments to first-quarter 2015 per-share results; first-quarter-2014 results included non-operational gains related to Verizon’s acquisition of full ownership of Verizon Wireless in February 2014.

First-quarter 2015 earnings of $1.02 per share compares with 84 cents per share in adjusted EPS (non-GAAP) in first-quarter 2014 – an increase of 21.4 percent.

In first-quarter 2015, Verizon agreed to sell its local wireline operations serving customers in three states to Frontier Communications, monetized wireless tower assets in a transaction with American Tower, and announced an accelerated share-repurchase program to return $5 billion in capital to shareholders. The company also completed the purchase of $10.4 billion in spectrum in the Federal Communications Commission’s AWS-3 auction.

Consolidated Margin Expansion and Cash Flow Growth

On a consolidated basis, Verizon generated top-line growth, margin expansion and increased cash flow in first-quarter 2015.

Consolidated Highlights

• Total operating revenues in first-quarter 2015 were $32.0 billion, a 3.8 percent increase compared with first-quarter 2014. Excluding first-quarter 2014 revenues from a business that has since been sold, the comparable year-over-year growth rate (non-GAAP) would have been 4.2 percent.
• Continued effective cost management drove first-quarter 2015 operating income to $8.0 billion, an 11.2 percent increase compared with first-quarter 2014.
• Consolidated operating income margin was 24.9 percent in first-quarter 2015, compared with 23.2 percent in first-quarter 2014. Consolidated EBITDA margin (non-GAAP, based on earnings before interest, taxes, depreciation and amortization) was 37.4 percent in first-quarter 2015, compared with 36.7 percent in first-quarter 2014.
• Cash flow from operating activities increased to $10.2 billion in first-quarter 2015, compared with $7.1 billion in first-quarter 2014. The $10.2 billion included a non-recurring $2.4 billion related to the monetization of tower assets.
• Excluding the tower-transaction impact, free cash flow (non-GAAP, cash flow from operations less capital expenditures) totaled about $4.2 billion in first-quarter 2015, compared with $3.0 billion in first-quarter 2014. Verizon continues to expect full-year 2015 capital expenditures to range between $17.5 billion and $18.0 billion.

Verizon Wireless Delivers Quality Customer Growth and Profitability

In first-quarter 2015, Verizon Wireless delivered quality connections growth and strong profitability.

Wireless Financial Highlights

• Total revenues were $22.3 billion in first-quarter 2015, up 6.9 percent year over year. Service revenues totaled $17.9 billion, down 0.4 percent year over year, while equipment revenues increased $1.5 billion compared with first-quarter 2014 as more customers chose Verizon Edge pricing. This pricing makes it easy to buy a new device with a low upfront cost and simple monthly installments.
• Service revenues plus Edge installment billings increased 3.1 percent year over year. The percentage of phone activations on the Edge program was about 39 percent in first-quarter 2015, compared with about 25 percent in fourth-quarter 2014. The company expects this percentage, which is currently approaching 50 percent, to continue to increase.
• In first-quarter 2015, wireless operating income margin was 35.0 percent, flat with last year’s first quarter. Segment EBITDA margin on service revenues was 55.8 percent, compared with 52.1 percent in first-quarter 2014; and segment EBITDA margin on total revenues was 44.8 percent, similar to a year ago.

Wireless Operational Highlights

• Verizon Wireless had 565,000 retail postpaid net additions in first-quarter 2015, a 4.8 percent increase compared with first-quarter 2014. At the end of first-quarter 2015, the company had 108.6 million retail connections, a 5.1 percent year-over-year increase, and had 102.6 million retail postpaid connections.
• The company added 621,000 4G smartphones to its customer base in first-quarter 2015. In light of a net decline in 3G smartphones, overall smartphone growth totaled 247,000. The company also added 820,000 4G tablets and reported net declines of 385,000 basic phones and 188,000 prepaid devices in first-quarter 2015.
• 4G devices now constitute approximately 70 percent of the retail postpaid connections base, up from 49 percent a year ago – with the 4G LTE network handling about 86 percent of total wireless data traffic in first-quarter 2015.
• Growth in 4G device adoption continues to drive increased data and video usage. Within More Everything accounts, average data usage continues to rise, up 54 percent year over year.
• At 1.03 percent in first-quarter 2015, retail postpaid churn improved both sequentially and year over year. Retail postpaid smartphone customer churn was less than 0.9 percent.

Wireline Consumer Revenue Maintains Consistent Growth

Verizon’s wireline segment reported continued strong results for consumer services. Year-over-year quarterly revenues, driven by FiOS fiber-optic broadband services, have now grown by at least 4 percent for the 11th consecutive quarter.

Wireline Financial Highlights

• In first-quarter 2015, consumer revenues were $4.0 billion, an increase of 4.0 percent compared with first-quarter 2014, with FiOS revenues representing 78 percent of the total.
• Total FiOS revenues grew 10.2 percent, to $3.4 billion, comparing first-quarter 2015 with first-quarter 2014.
• Wireline operating income margin was 4.3 percent in first-quarter 2015, up from 1.5 percent in first-quarter 2014. Segment EBITDA margin (non-GAAP) was 22.7 percent in first-quarter 2015, compared with 22.5 percent in first-quarter 2014.

Wireline Operational Highlights

• In first-quarter 2015, Verizon added 133,000 net new FiOS Internet connections and 90,000 net new FiOS Video connections. Verizon had totals of 6.7 million FiOS Internet and 5.7 million FiOS Video connections at the end of the first quarter, representing year-over-year increases of 9.4 percent and 7.9 percent, respectively.
• FiOS Internet penetration (subscribers as a percentage of potential subscribers) was 41.5 percent at the end of first-quarter 2015, compared with 39.7 percent at the end of first-quarter 2014. In the same periods, FiOS Video penetration was 36.0 percent, compared with 35.0 percent.
• By the end of first-quarter 2015, 62 percent of consumer FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50 to 500 megabits per second, up from 59 percent at year-end 2014. The highest rate of growth is in the 75-megabit-per-second tier, to which more than 20 percent of FiOS customers subscribe.
• Broadband connections totaled 9.2 million at the end of first-quarter 2015, a 2.4 percent year-over-year increase. Net broadband connections increased by 41,000 in first-quarter 2015, as FiOS Internet net additions more than offset declines in DSL-based High Speed Internet connections.
• Verizon continues to replace portions of its residential copper network with fiber optics to provide customers with a more reliable and resilient infrastructure, which has proven to increase customer satisfaction and reduce repair costs. In first-quarter 2015, Verizon migrated 47,000 customers who had been using copper connections, toward a full-year goal of 200,000.
• Verizon Enterprise Solutions helped clients around the globe improve customer experience, drive growth and business performance and manage risk in the first quarter. The company deployed innovative enterprise-grade network, cloud, security, Internet of Things, mobility and other business solutions for some of the world’s leading brands, including Altisource, Cisco, Hallmark Cards Inc., MiCTA, National DCP LLC, PetSmart Inc., Slomin’s Inc., TNT, Visteon Corporation and The Welsh Government.

Wireline segment results include operations being sold to Frontier. Verizon’s consolidated balance sheet reflects these operations as assets held for sale. Accounting rules require that depreciation expense not be recorded on such assets; accordingly, wireline depreciation expense will be lower in 2015. This produced an EPS benefit of 2 cents per share in first-quarter 2015 and is expected to produce a 3-cent-per-share benefit in subsequent full quarters until the transaction’s closing, targeted for first-half 2016.

NOTE: See the accompanying schedules and www.verizon.com/about/investors for reconciliations to generally accepted accounting principles (GAAP) for non-GAAP financial measures cited in this document.

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Forward-Looking Statements

In this communication we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes” or similar expressions. 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, along with those discussed in our filings with the Securities and Exchange Commission (the “SEC”), could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: adverse conditions in the U.S. and international economies; the effects of competition in the markets in which we operate; material changes in technology or technology substitution; disruption of our key suppliers’ provisioning of products or services; changes in the regulatory environment in which we operate, including any increase in restrictions on our ability to operate our networks; breaches of network or information technology security, natural disasters, terrorist attacks or acts of war or significant litigation and any resulting financial impact not covered by insurance; our high level of indebtedness; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets affecting the cost, including interest rates, and/or availability of further financing; material adverse changes in labor matters, including labor negotiations, and any resulting financial and/or operational impact; significant increases in benefit plan costs or lower investment returns on plan assets; changes in tax laws or treaties, or in their interpretation; changes in 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; and the inability to implement our business strategies.