Verizon Reports Continued Success in 3Q 2007

Monday, October 29th, 2007
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Results Reflect Another Quarter of Strong Wireless and FiOS Customer Growth

Consolidated Results

  • 44 cents in EPS and 63 cents in adjusted EPS (non-GAAP), compared with EPS for the same quarter last year of 53 cents and 55 cents, respectively, before discontinued operations.
  • $23.8 billion in revenues, up 5.8 percent; up 6.0 percent on an adjusted basis (non-GAAP).
  • $4.2 billion in operating income, up 19.0 percent.

Wireless

  • 1.8 million net retail customer additions, 1.6 million total net customer additions after reductions in wholesale customers, 61.8 million retail (non-wholesale) customers and 63.7 million total customers.
  • 1.21 percent retail and 0.96 percent retail post-paid churn — industry lows.
  • 14.4 percent increase in total revenues — largest U.S. wireless company based on total revenues; data revenues up 63.4 percent; highest-ever service and data ARPU; 44.7 percent EBITDA margin (non-GAAP).

Wireline

  • 202,000 net new FiOS TV customers, 717,000 total FiOS TV customers; more than 1.5 million total video customers, including satellite TV.
  • 229,000 net new FiOS Internet customers, 1.3 million total FiOS Internet customers; 8.0 million total broadband connections (FiOS Internet and DSL), up 21.3 percent.
  • 28.6 percent increase in Verizon Business revenues from strategic services (IP and managed services); total Verizon Business adjusted revenue growth (non-GAAP) of 2.2 percent.
Note: Comparisons are year over year unless otherwise noted. Prior-period amounts have been reclassified to reflect comparable results. 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 news release. Discontinued operations include Verizon Information Services, as well as Verizon’s interests in Verizon Dominicana C. por A. and Telecomunicaciones de Puerto Rico, Inc. The dispositions of these non-strategic businesses were completed on Nov. 17, 2006; Dec. 1, 2006; and March 30, 2007, respectively.

NEW YORK — Verizon Communications Inc. (NYSE:VZ) today reported another strong quarter of financial and operational results. Verizon Wireless continued its record of industry-leading profitability, Verizon Telecom reported accelerating sales of FiOS TV, and Verizon Business increased overall sales and sales of strategic services.

Verizon reported third-quarter 2007 earnings of 44 cents in fully diluted earnings per share (EPS). This compares with third-quarter 2006 earnings of 53 cents per share before income from discontinued operations that have since been sold or divested.

On an adjusted basis (non-GAAP), third-quarter 2007 earnings were 63 cents per share. This is a 14.5 percent increase, compared with 55 cents per share in the third quarter 2006 after excluding discontinued operations.

Adjusted earnings in the third quarter 2007 reflect 19 cents per share in special items: 16 cents per share for international taxes, 2 cents per share for costs related to a previously announced spin-off of access lines and 1 cent per share in merger integration costs. Adjusted earnings in the third quarter 2006 excluded 2 cents per share in special items for pension settlement charges, and merger integration and Verizon Center relocation costs.

Successful Transformation

“Our third-quarter results show that we have hit our stride as a leading wireless, broadband and enterprise company,” said Verizon Chairman and CEO Ivan Seidenberg. “In recent years, we have transformed our business model and revenue base. Our results throughout 2007, and especially in the third quarter, show that our strategy has been successful. We expect to build on these results in the fourth quarter and beyond.”

Strong Consolidated Results

Verizon’s total operating revenues grew 5.8 percent to $23.8 billion, compared with the third quarter 2006. Operating revenues grew 6.0 percent on an adjusted basis (non-GAAP). Verizon’s total operating expenses increased 3.4 percent to $19.6 billion, compared with the third quarter 2006. Operating expenses increased 3.5 percent on an adjusted basis (non-GAAP).

On a reported basis, Verizon’s operating income grew 19.0 percent to $4.2 billion, compared with the third quarter 2006. On an adjusted basis, operating income grew 18.5 percent to $4.3 billion.

Operating income margin rose to 17.7 percent, compared with 15.7 percent in the third quarter 2006. On an adjusted basis, Verizon’s operating income margin rose to 18.1 percent, compared with 16.2 percent in the third quarter 2006.

Cash flows from continuing operations totaled $18.0 billion through the first nine months of 2007. This represents 5.0 percent growth over the same period last year.

Dividends, Repurchase Program Reflect Confidence

Reflecting confidence in Verizon’s business model and continued strong cash flows, Verizon’s Board of Directors announced during the third quarter that it had increased the company’s quarterly dividend 6.2 percent, beginning with the Nov. 1 dividend.

Verizon also repurchased nearly $800 million of its shares in the quarter, for a total of $1.7 billion in the last nine months. Verizon is increasing the 2007 target for its share repurchase program to $2.5 billion, up $500 million from the original target.

Wireless Continues to Lead Industry

Verizon Wireless extended its record of strong, industry-leading performance. It continues to be the largest domestic wireless company in total revenues, data revenues and retail customers.

In the third quarter:

  • Nearly all of the 1.8 million retail net customer additions (including acquisitions and adjustments) were post-paid customers.
  • Total customers (retail and wholesale) increased to 63.7 million. The company added 1.6 million total net customers after approximately 115,000 net reductions to the company’s wholesale base.
  • Verizon Wireless continued its industry-leading customer loyalty, with 1.21 percent retail churn. Churn among retail post-paid customers at 0.96 percent was substantially lower.
  • Revenues totaled $11.3 billion, up 14.4 percent. Service revenues were $9.7 billion, up 15.1 percent, driven by customer growth and demand for data services.
  • ARPU levels (average monthly revenue per customer) were the company’s highest ever: $52.17 retail service ARPU, up 1.9 percent year over year; $10.59 retail data ARPU, up 42.9 percent.
  • Wireless operating income margin was 27.1 percent, the company’s second highest. EBITDA margin on service revenues (non-GAAP) was 44.7 percent.

Wireline Reports Strong Growth in FiOS, Strategic Services

Verizon’s Wireline business, which includes Verizon Telecom and Verizon Business, reported continued strong growth in customers of FiOS fiber-optic services and sales of strategic services to enterprise customers.

In the third quarter:

  • Verizon added a net of 202,000 new FiOS TV customers. The company has 717,000 FiOS TV customers in total, with approximately 600,000 added within the past 12 months. Including satellite TV customers served in partnership with DIRECTV (a net of 85,000 added this quarter), Verizon has more than 1.5 million video customers.
  • Verizon added a net of 285,000 new broadband connections (DSL and FiOS Internet connections combined). Broadband connections totaled 8.0 million, an increase of 21.3 percent compared with the third quarter 2006. The company added a net of 229,000 FiOS Internet connections this quarter, for a total of 1.3 million.
  • ARPU in legacy Verizon wireline markets (which excludes former MCI consumer markets) increased 10.8 percent to $58.79, compared with last year’s third quarter. This increase was due to strong demand for broadband and TV services.
  • Wireline operating income margin rose to 9.4 percent, compared with 8.8 percent in last year’s third quarter.
  • Verizon Business had revenues of $5.3 billion, or growth of 2.2 percent compared with last year’s third quarter on an adjusted basis (non-GAAP). This is Verizon Business’ fourth consecutive quarter of year-over-year, pro-forma revenue growth (non-GAAP, calculated as if Verizon and MCI had merged on Jan. 1, 2005).
  • Strong sales of key strategic services — such as IP (Internet protocol), managed services, Ethernet and optical ring services — continued to drive Verizon Business’ growth. These services generated $1.4 billion in revenue, up 28.6 percent from last year’s third quarter.

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