3rd QUARTER 2012 EARNINGS RESULTS

Fran Shammo Chief Financial Officer

October 18, 2012

“SAFE HARBOR” STATEMENT
NOTE: This 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 adverse changes in labor matters, including labor negotiations or additional organizing activity, and any resulting financial and/or operational impact; material changes in available technology; any disruption of our key suppliers’ provisioning of products or services; significant increases in benefit plan costs or lower investment returns on plan assets; breaches of network or information technology security, natural disasters or terrorist attacks or existing or future litigation and any resulting financial impact not covered by insurance; technology substitution; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets impacting the cost, including interest rates, and/or availability of financing; any changes in the regulatory environments in which we operate, including any increase in restrictions on our ability to operate our networks; the timing, scope and financial impact of our deployment of broadband technology; 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; our ability to complete acquisitions and dispositions; and the inability to implement our business strategies.
As required by SEC rules, we have provided a reconciliation of the non-GAAP financial measures included in this presentation to the most directly comparable GAAP measures in materials on our website at www.verizon.com/investor.

2

CONSOLIDATED

3Q ’12 OVERVIEW

• Solid double-digit growth in operating income and earnings • YTD free cash flow up 50% over last year • Strong growth in wireless retail service revenue • Industry-leading and record wireless EBITDA service margin • Accelerating wireline consumer revenue and ARPU growth • Continued focus on profitability and cash management

Consistent, strong, sustained performance

3

CONSOLIDATED

3Q ’12 FINANCIAL SUMMARY
Revenue ($B)
$27.9 $28.6 $29.0
Y/Y Growth

• Consolidated revenue of $29.0B, up 3.9% Y/Y
3.9%

– Revenue growth across all strategic areas Y/Y

3Q '11
■ Wireline

2Q '12
■ Wireless

3Q '12

• Operating income growth of 17.9% • EBITDA margin expansion to 34.6%, highest since 4Q'08

Earnings Per Share
$0.64 $0.56 $0.64
Y/Y Growth

14.3%

• Adjusted EPS of $0.64 up 14.3% Y/Y; reported EPS of $0.56 • YTD adjusted EPS of $1.87 up 14.7% Y/Y; YTD reported EPS of $1.79

3Q '11

2Q '12

3Q '12
■ Reported

■ Non-operational items

Note: Results above are adjusted for non-operational items.

3 consecutive quarters of strong double-digit adjusted EPS growth Y/Y

4

CONSOLIDATED

CASH FLOW
Cash Flow Summary ($B) 3Q’11 3Q’12 YTD YTD $21.5 $24.8 $12.5 $9.0 $11.3 $13.4 1.1x

Cash from operations Capital expenditures Free cash flow

• YTD cash flow of $24.8B, up 15.1% Y/Y • Disciplined capital spending across entire business
– YTD capital expenditures down 9.8% Y/Y – Capital efficiency continues to improve

Net Debt to Adjusted EBITDA 1.3x Capital Expenditures / Revenue
15.2% 13.2%

• YTD free cash flow up $4.5B or 49.9% Y/Y

3Q'11 YTD

3Q'12 YTD

Note: Amounts may not add due to rounding.

Solid cash flow growth and capital efficiency profile

5

CONSOLIDATED

PENSION SETTLEMENT – OVERVIEW • Agreement with Prudential to purchase group annuity contract and assume annuity obligation • Transfer pension assets to settle $7.5B of pension benefit obligation related to 41,000 management retirees • Additional cash contribution to plan assets in 2012 • No change in retiree benefit levels
– Affected benefits are 100% funded upon settlement – Settlement relates to most management retirees

• Targeting closing of transaction by early December 2012
Transferring ~25% of pension obligation at a reasonable cost
6

CONSOLIDATED

PENSION SETTLEMENT – FINANCIAL IMPLICATIONS • Removes volatile pension liability • Modestly accelerated pension funding • Reduces cash flow exposure to funding volatility • Reduces income statement volatility from mark to market gains/losses • Percent funded status of retained pension obligation not affected by the settlement • Improves financial flexibility
Improves longer term financial profile of the business

7

WIRELESS

REVENUE
Retail Service Revenue ($B)
$14.4 $15.2 $15.5

Y/Y Growth

7.9%

• Total revenue growth of 7.3% Y/Y
– Retail postpaid revenue up 7.2% Y/Y – Retail prepaid revenue up 41.8% Y/Y

3Q '11

2Q '12

3Q '12

Retail Postpaid ARPA
$136.57 143.32 $145.42

• Retail postpaid ARPA of $145.42, up 6.5% Y/Y
– More than 13% of base on Share Everything Plans – Smartphone penetration of 53%, up 1,400 bps Y/Y

7.0% 3Q '11
■ Y/Y Growth

7.5% 6.5% 2Q '12 3Q '12

Sustained top-line growth trends

8

WIRELESS

CONNECTIONS / NET ADDS / CHURN
Retail Connections (M)
90.7 94.2 95.9

Retail Postpaid Accounts (M)
34.4
Y/Y Growth

34.6

34.8
Y/Y Growth

5.7%

1.0%

2.50

2.56 2Q '12

2.60

3Q '11
■ Retail Prepaid

2Q '12

3Q '12

3Q '11

3Q '12

■ Retail Postpaid

■ Retail Postpaid Connections per Account

Retail Net Adds* (000)
1,763 968 1,178

• Strong growth in retail postpaid connections, up 4.8% Y/Y • 1,535K retail postpaid net adds*
Y/Y Growth

82.1%

• 228K retail prepaid net adds* • 6.8% of retail postpaid base upgraded in 3Q ’12 • 64% of tablet connections are postpaid
9

0.94%
3Q ’11

0.84%
2Q ’12

0.91%
3Q ’12

■ Retail Prepaid ■ Retail Postpaid ■ Retail Postpaid Churn
* Excludes acquisitions and adjustments

Retail postpaid gross and net adds highest in 4 years

WIRELESS

DEVICES / 4G LTE COVERAGE
Retail Postpaid Phone Connections (M)
53%
Smartphones Phones

• 6.8M smartphones sold in 3Q
– 79% of postpaid phone sales were smartphones – 44% of postpaid smartphone upgrades were new to category

39% 3Q '11

50%

2Q '12

3Q '12

■ Smartphone Penetration

4G LTE Devices (M)
14.9 10.9 8.0 5.3 3.1
3.6% 6.1% 9.1% 12.2% 16.5%

• 4.5M 4G LTE device sales in 3Q ’12 • Verizon Wireless 4G LTE network:
– More than 35% of total data traffic on 4G LTE network – Now available in 419 markets – Covers more than 250M POPs; about 80% of the U.S. population

3Q '11

4Q '11

1Q '12

2Q '12

3Q '12

■ % of Retail Postpaid Connections

Continued leadership in 4G LTE adoption

10

WIRELESS

PROFITABILITY
EBITDA Service Margin
47.8% 49.0% 50.0%

• Record EBITDA service margin • Continue to balance growth and profitability • Sustained service revenue growth • Increased smartphone penetration

3Q '11

2Q '12

3Q '12

• Delivering targeted expense reduction in 2012

Sustained industry-leading profitability

11

WIRELINE

MASS MARKETS
Consumer Revenue ($B)
$3.4
$94.20

$3.5
$100.26

$3.6
$103.86
ARPU Y/Y Growth

• Consumer revenue growth accelerated to 4.6%
10.3%

• FiOS now 66% of consumer revenue
– About 15% Y/Y growth in triple play customers – ARPU over $150

3Q '11

2Q '12

3Q '12

■ Consumer ARPU

Mass Markets Revenue ($B)
$4.1 $4.1 $4.2

• FiOS Internet subscribers
– 5.3M subscribers, 136K net adds – 37% penetration
Y/Y Growth

3.8%

• FiOS Video subscribers
– 4.6M subscribers, 119K net adds – 33% penetration

3Q '11

2Q '12

3Q '12

• Copper migrations accelerating

Highest consumer Y/Y revenue growth in 10 years

12

WIRELINE

GLOBAL ENTERPRISE
Global Enterprise Revenue ($B)
Y/Y Growth

$3.9

$3.8

$3.8

(3.6%)

• Continued global economy and F/X pressures • Product rationalization actions
– De-emphasis of CPE

• Positive revenue growth without CPE and F/X impacts
3Q '11
■ Services

2Q '12
■ Hardware

3Q '12

• Strategic services revenue growth of 4.4%
– 53% of Global Enterprise revenue

Challenges remain, confident in asset portfolio longer term

13

WIRELINE

REVENUE & PROFITABILITY
Total Revenue ($B)
Y/Y Growth

$10.1

$9.9

$9.9

(2.3%)

• Strategic revenue growth continues
– Consumer revenue up 4.6% Y/Y – FiOS revenue grew 18.0% Y/Y – Enterprise strategic services revenue up 4.4% Y/Y

3Q '11

2Q '12

3Q '12

• EBITDA impacted by:
Segment EBITDA ($B)
$2.2 21.4% 3Q '11 $2.3 23.1% $2.1 21.7% 3Q '12
Y/Y Growth

– Seasonal items – Enterprise “Re-Tooling”
(1.1%) • Product rationalization • End to end process streamlining

– Global economic challenges

2Q '12

■ EBITDA Margin %

• Union contract will help EBITDA going forward

Focus on improving long-term profitability

14

WIRELINE

TENTATIVE AGREEMENT ON EAST CONTRACTS

• Fair and balanced agreement • Must be ratified by union members • Changes to health and welfare benefits including contributions toward healthcare premiums • Operational flexibility designed to improve customer experience and reduce operating expenses

Improves long-term financial profile of Wireline

15

CONSOLIDATED

3Q ’12 SUMMARY • Continued revenue growth and EBITDA margin expansion
– Strongest consolidated adjusted EBITDA margin of 34.6% since 2008

• Strong earnings momentum and free cash flow generation
– 3 successive quarters of strong double-digit earnings growth

• Capital efficiency continues to improve
– YTD Capex/Revenue ratio is 13.2%

• Execution of strategy on track
– Investments set stage for continued growth – Actions leading to enhanced long-term profitability On track for solid double-digit earnings growth in 2012

16

Sign up to vote on this title
UsefulNot useful