Verizon Posts Record Revenue, Fueled by -- Smartphones and FiOS

Fueled by continued strong demand for smartphones and FiOS fiber-optic services, Verizon Communications posted the highest year-over-year quarterly revenue growth in the company's 11-year history -- Q4 revenue of $28.4 billion on a consolidated basis, an increase of 7.7 percent compared with fourth-quarter 2010. For full-year 2011, revenues totaled $110.9 billion, a 4.0 percent increase compared with 2010, when results included revenues from operations that have since been divested.


Due primarily to non-cash pension charges, Verizon reported a loss of 71 cents in EPS in fourth-quarter 2011, compared with earnings of 93 cents per share in fourth-quarter 2010. Adjusted fourth-quarter 2011 earnings (non-GAAP) of 52 cents per share exclude $1.20 per share, or $3.4 billion after-tax, due to the actuarial valuation of Verizon's benefit plans, and 3 cents per share for the early extinguishment of debt.


"Verizon finished 2011 very strong, both in terms of revenue growth and by delivering an 18.2 percent total return to our shareholders for the full year, and the company has great momentum for 2012," said Lowell McAdam, Verizon chairman, president and chief executive officer. "Verizon Wireless produced particularly strong growth in the fourth quarter. While that diluted wireless margins in the short term, it is good news for revenue and margin growth over the long term, particularly given our leadership in the rapidly developing 4G LTE ecosystem."


Some highlights:


Cash flow from operating activities totaled $29.8 billion in 2011, and capital expenditures totaled $16.2 billion.


Free cash flow (non-GAAP, cash flow from operations less capex) was more than $13.5 billion in 2011.


Verizon returned $5.6 billion in quarterly dividends to shareholders in 2011, as the company's Board of Directors approved a fifth consecutive year of dividend increases.


Wireless


Total revenues were $18.3 billion in fourth-quarter 2011, up 13.0 percent year over year.


Data revenues were $6.3 billion, up more than $1.0 billion or 19.2 percent year over year, and represented 41.6 percent of all service revenues.


Service revenues were $15.1 billion, up 6.4 percent year over year. For full-year 2011, total revenues were $70.2 billion, up 10.6 percent over full-year 2010, and service revenues were $59.2 billion in 2011, up 6.3 percent year over year.


Retail service ARPU grew 2.6 percent over fourth-quarter 2010, to $53.14. Retail postpaid ARPU grew 2.5 percent, to $54.80. Retail postpaid data ARPU increased to $22.76, up 14.3 percent year over year.


Verizon Wireless added 1.0 million total net connections in fourth-quarter 2011. The company added 1.5 million retail customers, including 1.2 million retail postpaid customers. While the wholesale channel grew during the fourth quarter, a loss of telematics customers resulted in a net decrease of 490,000 wholesale and other connections in the quarter.


Within retail, 1.2 million were postpaid and 252,000 were pre-paid. Within the postpaid net add mix, 1 million were smartphones and 400,000 were Internet data devices, the remaining being the net change in basic phones. Of particular interest, more than 700,000 of these net adds were 4G LTE smartphones or data devices.


During the quarter, Verizon Wireless activated 4.3 million Apple iPhones and sold 1.6 million 4G LTE smartphones. In addition, the carrier sold roughly 700,000 4G LTE Internet data devices.


At year-end 2011, the company had 108.7 million total connections, a 6.3 percent increase year over year, consisting of 92.2 million retail connections and 16.5 million wholesale and other connections.


At year-end 2011, smartphones accounted for 44 percent of the Verizon Wireless retail postpaid customer phone base, up from 39 percent at the end of third-quarter 2011.


Retail postpaid churn was 0.94 percent in fourth-quarter 2011, an improvement of 7 basis points year over year. Total retail churn was 1.23 percent, an improvement of 14 basis points year over year.


In Q4, Wireless capital spending was $1.8 billion, bringing the full year to $9 billion, an increase of 6.3%.The incremental spending in 2011 was a combination of 3G capacity requirements, driven by the Apple iPhone, and the continued rapid expansion of our 4G LTE network.


Wireline


q4 revenues were $10.1 billion, a decline of 1.5 percent compared with fourth-quarter 2010. Consumer revenues grew 1.3 percent compared with fourth-quarter 2010.


Consumer ARPU for wireline services was $96.43 in fourth-quarter 2011, up 8.5 percent compared with fourth-quarter 2010. ARPU for FiOS customers totaled more than $148 in fourth-quarter 2011, rising approximately $2 year over year. FiOS services to consumer retail customers represented 61 percent of consumer wireline revenues in fourth-quarter 2011.


Global enterprise revenues totaled $3.9 billion in the quarter, up 1.3 percent compared with fourth-quarter 2010. Sales of strategic services - including Terremark cloud services, security and IT solutions, and strategic networking - increased 14.7 percent compared with fourth-quarter 2010 and represented 51 percent of global enterprise revenues in fourth-quarter 2011.


Verizon added 201,000 net new FiOS Internet connections and 194,000 net new FiOS Video connections in fourth-quarter 2011. Verizon had a total of 4.8 million FiOS Internet and 4.2 million FiOS Video connections at year-end.


FiOS penetration (subscribers as a percentage of potential subscribers) continued to increase. FiOS Internet penetration was 35.5 percent at year-end 2011, compared with 31.9 percent at year-end 2010. In the same periods, FiOS Video penetration was 31.5 percent, compared with 28.0 percent, respectively. The FiOS network passed 16.5 million premises at year-end 2011, up more than 900,000 from year-end 2010.


Broadband connections totaled 8.7 million at year-end 2011, a 3.3 percent year-over-year increase. FiOS Internet connections more than offset a decrease in DSL-based HSI connections, resulting in a net increase of 98,000 broadband connections from third-quarter 2011. Total voice connections, which measures FiOS Digital Voice connections in addition to traditional switched access lines, declined 7.2 percent to 24.1 million - the smallest year-over-year decline since first-quarter 2006.


In Wireline, capital spending was $1.6 billion in the fourth quarter, bringing the full year to $6.4 billion, a decline of more than $800 million or 12%, thanks to lower FiOS rollout spending.
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