Verizon Communications Third-Quarter Revenues Increase 6.7%, to a Record $18.2 Billion; Wireless Revenues Up 23%
PRNewswire (10/28/2004 10:25 AM ET)

NEW YORK, Oct. 28 /PRNewswire/ -- Showing continued strong revenue growth, Verizon Communications Inc. today reported third-quarter 2004 earnings of $1.8 billion -- 64 cents per diluted share, or 65 cents per share before one special item.

Quarterly consolidated operating revenues topped $18 billion for the first time in the company's history -- increasing 6.7 percent to $18.2 billion, compared with $17.1 billion in the third quarter 2003.

Also for the first time, Verizon Wireless contributed more than 40 percent of Verizon's total revenues. The nation's leading wireless company grew revenues 23.0 percent to $7.3 billion, compared with $5.9 billion in the third quarter 2003.

This marks Verizon Wireless' ninth consecutive quarter of double-digit, year-over-year revenue increases, and the third consecutive quarter that increases totaled more than $1 billion compared with the previous year's quarter.

Overall, Verizon's growth businesses -- wireless, long-distance, broadband, data and Enterprise services -- accounted for 55 percent of third-quarter 2004 revenues. This compares with 49 percent of third-quarter 2003 revenues. Over the past year, revenues from these businesses have grown by 20.8 percent.

Domestic Telecom operating revenues were $9.6 billion in the third quarter 2004, a 2.1 percent decrease compared with the third quarter 2003 and a slight increase compared with the second quarter 2004. The segment's third-quarter results included an 8.7 percent increase in revenues from all long-distance services, which were $1.1 billion compared with $1.0 billion in the third quarter 2003, and an 11.5 percent increase in total data revenues, which were $2.0 billion compared with $1.8 billion in the third quarter 2003.

'Building Momentum'

"Verizon has posted record revenues and another quarter of strong profitability. We are steadily building momentum and accelerating our transformation into an industry-leading wireless and broadband company," said Ivan Seidenberg, Verizon chairman and CEO. "Our wireless business has been a driver of overall revenue growth and a model of sustained excellence in terms of network quality, product innovation and customer satisfaction.

"As our business shifts from traditional narrow-band services and related markets, we are encouraged by the pace at which our overall revenue mix is evolving toward higher-growth services. We continue to see the benefits of cost controls and productivity improvements in our stable margins and cash flows, and we have the strongest balance sheet since our company was formed."

Continued Record Wireless Growth

Verizon Wireless added 1.7 million net new customers, the largest quarterly customer increase in the history of the company, which was formed in April 2000. The total number of customers grew 16.9 percent year-over-year to 42.1 million, including 40.2 million retail customers.

As the company attracts new customers in record numbers, Verizon Wireless continues to produce industry-leading operational and profitability results. Average monthly churn, a key gauge of customer satisfaction, was 1.5 percent and continued to be the lowest in the industry among major carriers that have reported. Average monthly service revenue per customer increased 3.1 percent year-over-year to $51.58.

Wireless' operating income margin of 22.5 percent in the third quarter 2004 compares with 18.9 percent in the third quarter 2003. Quarterly operating income grew 46.4 percent year-over-year to $1.6 billion.

Wireless' EBITDA margin in the third quarter was 43.7 percent, the third consecutive quarter above 40 percent. (EBITDA -- or earnings before interest, taxes, depreciation and amortization -- is a non-GAAP measure that adds depreciation and amortization to operating income; EBITDA margin is calculated by dividing EBITDA by Wireless' service revenues.)

Continued Solid Margins

On a consolidated basis, Verizon's operating income margin rose to 19.8 percent in the third quarter 2004, compared with 18.7 percent in the third quarter 2003. When adjusted to exclude the special and non-recurring items described later in this release as well as net pension and OPEB (other post-retirement benefit) impact, Verizon's consolidated operating income margin would have been 21.0 percent in the third quarter 2004 and 19.0 percent in the third quarter 2003 (non-GAAP measures).

Domestic Telecom's operating income margin was 14.7 percent in the third quarter 2004, compared with 16.3 percent in the third quarter 2003. When adjusted to exclude the items listed above, Domestic Telecom's operating income margin would have been 16.3 percent in the third quarter 2004 and 15.1 percent in the third quarter 2003 (non-GAAP measures).

Consistent with past practice, Verizon believes that excluding the impact of net pension and OPEB expenses or credits enhances comparability and provides a better picture of operating cost management.

Wireline Broadband Growth

Verizon added a net of 309,000 broadband DSL lines in the third quarter 2004 for a total of 3.3 million DSL lines in service, representing 1.1 million net additions over the past year. The company also began rolling out FiOS fiber-optic-based services in the third quarter 2004.

Revenues from DSL contributed to Verizon's total data revenues of $2.0 billion in the third quarter 2004. Data revenues represented 21 percent of Domestic Telecom's total operating revenues in the quarter, up from 18 percent in the third quarter 2003.

Cash Flows, Debt

Cash flows from operating activities were $5.6 billion in the third quarter 2004, an increase of 5.5 percent compared with $5.3 billion in the third quarter 2003. Net cash used in investing activities was $3.1 billion, and net cash used in financing activities was $2.5 billion in the third quarter 2004.

Free cash flow was $1.3 billion for the third quarter of 2004, and $3.2 billion for the first nine months of the year. This compares with $1.4 billion for the third quarter of 2003, and $4.9 billion for the first nine months of 2003. Impacts on cash flow in 2004 have included severance payments associated with a 21,000-employee voluntary separation program, as well as increased capital investments compared with 2003 to fund broadband growth initiatives.

Total debt at the end of the third quarter 2004 was $40.5 billion, a reduction of 10.7 percent compared with $45.4 billion at year-end 2003.

Expense Items

Reported operating expenses increased 5.3 percent compared with the third quarter 2003, to $14.6 billion in the third quarter 2004.

When adjusted for special and non-recurring items, operating expenses were also $14.6 billion in the third quarter 2004, an increase of 6.1 percent from comparable expenses in the third quarter 2003 (non-GAAP measures). This increase was driven by the negative impact of $268 million related to pension and OPEB costs, and by costs associated with Verizon's growth businesses. Expenses for last year's third quarter included additional Domestic Telecom labor and weather-related repair costs, partially offset by non-operational expense benefits in other business units.

In Domestic Telecom, wage and salary expenses again decreased by more than $200 million year-over-year due to last year's voluntary separation program. These savings were used to fund increases in sales and marketing expenses and other operating costs in the growth areas of the wireline segment.

Earnings Comparisons and Special Items

Reported earnings were 64 cents per share in both the third quarter 2004 and the third quarter 2003.

Before a $20 million (1 cent per share) special item related to pension settlements, third-quarter 2004 earnings were 65 cents per share. Third-quarter 2003 earnings were 67 cents per share before one special item of $81 million (3 cents per share), also related to pension settlements.

Business Segment Highlights

Following are third-quarter 2004 highlights from Verizon's four business segments.

NOTE: This press release 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: materially adverse changes in economic and industry conditions and labor matters, including workforce levels and labor negotiations, and any resulting financial and/or operational impact, in the markets served by us or by companies in which we have substantial investments; material changes in available technology; technology substitution; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations; the final results of federal and state regulatory proceedings concerning our provision of retail and wholesale services and judicial review of those results; the effects of competition in our markets; our ability to satisfy regulatory merger conditions; the timing, scope and financial impacts of our deployment of fiber-to-the-premises broadband technology; the ability of Verizon Wireless to continue to obtain sufficient spectrum resources; and 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 result in an impact on earnings.