Strategic Investments in 4G LTE, FiOS and Global Networks Continue to Drive Strong Growth in Revenues, Earnings and Cash Flow

source Verizon Communications Inc.,

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2Q 2013 HIGHLIGHTS
Consolidated

  • 78 cents in earnings per share (EPS), including a non-operational gain of 5 cents per share related to pensions, compared with 64 cents per share in 2Q 2012.
  • 73 cents in adjusted EPS (non-GAAP), a 14.1 percent increase compared with 2Q 2012.

Wireless

  • 8.3 percent year-over-year increase in service revenues in 2Q 2013; 7.8 percent increase in retail service revenues; 32.4 percent operating income margin and 49.8 percent segment EBITDA margin on service revenues (non-GAAP).
  • 941,000 retail postpaid net additions, up 6 percent year over year; low retail postpaid churn of 0.93 percent; 100.1 million total retail connections, 94.3 million total retail postpaid connections.
  • 4G LTE service now available to 301 million people in 500 markets across the U.S.

Wireline

  • 4.7 percent year-over-year increase in consumer revenues; consumer ARPU (average revenue per user) up 9.4 percent year over year, to $109.67.
  • 14.7 percent year-over-year increase in FiOS revenues; 161,000 FiOS Internet and 140,000 FiOS Video net additions, including the addition of the 5 millionth FiOS Video customer, with continued increased sales penetration for both services.
  • 4.8 percent year-over-year increase in revenues for global enterprise strategic services.

NEW YORK - Verizon Communications Inc. (NYSE, Nasdaq: VZ) today reported year-over-year double-digit percentage growth in operating income and earnings per share, as second-quarter 2013 results showed continued strong operating performance and customer demand for Verizon Wireless, FiOS and strategic enterprise services.

Verizon reported 78 cents in EPS in second-quarter 2013, compared with 64 cents per share in second-quarter 2012. Second-quarter 2013 results include a non-cash, non-operational gain of 5 cents per share for an interim actuarial remeasurement associated with one of Verizon’s pension plans.

Adjusted second-quarter 2013 earnings of 73 cents per share increased 14.1 percent, compared with 64 cents per share in second-quarter 2012, when there were no adjustments.

“Verizon’s consistent strategic investments in wireless, FiOS and global networks drove strong financial performance in the first half of 2013,” said Lowell McAdam, Verizon chairman and CEO. “Having posted double-digit earnings growth in five of the last six quarters, we are focused on continuing to provide the best portfolio of products on the most reliable networks; capturing incremental revenue growth in broadband, video and cloud services; and sustaining our earnings and cash-flow momentum.”

Consolidated Results Reflect Continued Profitable Growth

In second-quarter 2013, Verizon’s consolidated results were highlighted by continued strong operating performance and profitable growth based on operating efficiencies and customer demand.

Consolidated Highlights

  • Total operating revenues in second-quarter 2013 were $29.8 billion, a 4.3 percent increase compared with second-quarter 2012.
  • Operating income increased 16.0 percent, to $6.6 billion in second-quarter 2013, compared with $5.7 billion in second-quarter 2012. Operating income margin was 22.0 percent in second-quarter 2013, compared with 19.8 percent in second-quarter 2012.
  • Consolidated EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) grew 9.5 percent year over year, totaling $10.7 billion in second-quarter 2013. EBITDA margin (non-GAAP) expanded to 35.9 percent in second-quarter 2013, up 170 basis points year over year.
  • Cash flow from operating activities totaled $17.1 billion in first-half 2013, compared with $15.3 billion in first-half 2012. Capital expenditures in first-half 2013 were $7.6 billion, compared with $7.4 billion in first-half 2012. Free cash flow (non-GAAP, cash flow from operations less capital expenditures) in first-half 2013 totaled $9.5 billion, compared with $7.8 billion in first-half 2012.

Verizon is increasing its capital spending guidance from $16.2 billion to between $16.4 billion and $16.6 billion for full-year 2013, as the company anticipates higher demand for wireless data consumption and begins deployment of AWS (advanced wireless services) spectrum in second-half 2013.

Verizon Wireless Delivers Another Strong Quarter

In second-quarter 2013, Verizon Wireless delivered solid growth in retail postpaid net additions and revenues; an increase in smartphone penetration; and a strong segment EBITDA margin on service revenues (non-GAAP).

Wireless Financial Highlights

  • Total revenues were $20.0 billion in second-quarter 2013, up 7.5 percent year over year. Service revenues in the quarter totaled $17.1 billion, up 8.3 percent year over year. Retail service revenues grew 7.8 percent year over year, to $16.4 billion.
  • Retail postpaid ARPA (average revenue per account) increased 6.4 percent over second-quarter 2012, to $152.50 per month.
  • In second-quarter 2013, wireless operating income margin was 32.4 percent, compared with 30.8 percent in second-quarter 2012. Segment EBITDA margin on service revenues was 49.8 percent, up 80 basis points over second-quarter 2012.

Wireless Operational Highlights

  • Verizon Wireless added 941,000 retail postpaid net connections, out of a total 1.0 million net retail connections, in the second quarter. These additions exclude acquisitions and adjustments. Verizon expects to continue to see increases in quarterly sequential net additions for retail postpaid connections in the second half of 2013.
  • At the end of the second quarter, the company had 100.1 million retail connections, a 6.3 percent increase year over year — including 94.3 million retail postpaid connections.
  • With more than 36 percent of retail postpaid accounts now on a Share Everything Plan, which allows customers to share data among multiple devices, Verizon Wireless had 35 million retail postpaid accounts at the end of the second quarter. This is an average of 2.7 connections per account.
  • At the end of the second quarter, smartphones accounted for more than 64 percent of the Verizon Wireless retail postpaid customer phone base, up from 61 percent at the end of first-quarter 2013.
  • Retail postpaid churn was 0.93 percent in the second quarter, up 9 basis points year over year. Retail churn was 1.23 percent in the second quarter, up 12 basis points year over year.
  • As of the end of June, Verizon Wireless has substantially completed deployment of its 4G LTE network, covering more than 99 percent of its current 3G network footprint. In the second quarter, the company activated 4G LTE data service in Alaska, resulting in Verizon Wireless 4G LTE service being available in all 50 states. The Verizon Wireless 4G LTE network is now available in 500 markets to more than 95 percent of the U.S. population and covers about 301 million people, including those in areas served by the company’s LTE in Rural America partners.
  • The company continued to enhance its 4G LTE smartphone device lineup. In the second quarter, Verizon Wireless launched the Pantech Perception, the Nokia Lumia 928, the Casio G’zOne Commando 4G LTE, the Blackberry Q10 and the Samsung Galaxy S4. The company has also announced the HTC One would be available later this summer.

Wireline Reports Another Quarter of Strong FiOS Customer and Revenue Growth

Verizon’s Wireline segment reported another quarter of FiOS customer, market share and revenue growth, leading to continued growth in consumer revenues. In enterprise and wholesale, sales of global enterprise strategic services continued to increase and constitute a larger percentage of the revenue base.

Wireline Financial Highlights

  • Consumer revenues were $3.6 billion, an increase of 4.7 percent compared with second-quarter 2012. Consumer ARPU for wireline services increased to $109.67 in second-quarter 2013, up 9.4 percent compared with second-quarter 2012.
  • FiOS revenues grew 14.7 percent, to $2.7 billion in second-quarter 2013, compared with $2.4 billion in second-quarter 2012. ARPU for FiOS customers continued to be more than $150 in second-quarter 2013.
  • Sales of strategic services to global enterprise customers increased 4.8 percent compared with second-quarter 2012 and represented 57 percent of total enterprise revenues, compared with 52 percent in second-quarter 2012. Strategic services include cloud and data center services, security and IT solutions, advanced communications, strategic networking and telematics services.

Wireline Operational Highlights

  • Verizon added 161,000 net new FiOS Internet connections and 140,000 net new FiOS Video connections in second-quarter 2013. Verizon had a total of 5.8 million FiOS Internet and 5.0 million FiOS Video connections at the end of the quarter, representing year-over-year increases of 12.2 percent and 12.6 percent, respectively.
  • FiOS penetration (subscribers as a percentage of potential subscribers) continued to increase. FiOS Internet penetration was 38.6 percent at the end of second-quarter 2013, compared with 36.6 percent at the end of second-quarter 2012. In the same periods, FiOS Video penetration was 34.5 percent, compared with 32.6 percent. The FiOS network passed 18.0 million premises by the end of second-quarter 2013.
  • By the end of second-quarter 2013, 35 percent of FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50 to 300 megabits per second.
  • Broadband connections totaled 8.9 million at the end of second-quarter 2013, a 1.9 percent year-over-year increase. Overall, net broadband customers increased 45,000 in the second quarter, as FiOS Internet net customer additions more than offset a decline in subscribers for DSL-based High Speed Internet services.
  • Verizon has been replacing high-maintenance portions of its residential copper network with fiber optics to provide enhanced services and to reduce ongoing repair costs. In first-half 2013, Verizon migrated 169,000 homes to fiber, toward a target of 300,000 migrations within FiOS markets in 2013.
  • Verizon Enterprise Solutions completed agreements with and began deploying innovative business technology solutions for a variety of corporations and organizations around the globe in the quarter, including American Tower, the Australian Federal Police and its client agencies, d’Amico Societa di Navigazione, the District of Columbia, Kohn Pedersen and Fox Associates, Marathon Petroleum Corporation, Panviva and Veolia Environnement.

NOTESee 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.

NOTEThis presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. 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 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; competition in our markets; material changes in available technology or technology substitution; disruption of our key suppliers’ provisioning of products or services; changes in the regulatory environments 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 significant litigation and any resulting financial impact not covered by insurance; 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 financing; changes in our accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could affect earnings; 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; and the inability to implement our business strategies.

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