verizon q3 2012 earnings release slides[1]

7/31/2019 Verizon Q3 2012 Earnings Release Slides[1]

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3rd QUARTER 2012 EARNINGS RESULTS

Fran ShammoChief Financial Officer

October 18, 2012


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SAFE HARBOR STATEMENT

NOTE: This presentation contains statements about expected future events and financial results thatare forward-looking and subject to risks and uncertainties. For those statements, we claim theprotection of the safe harbor for forward-looking statements contained in the Private SecuritiesLitigation Reform Act of 1995. The following important factors could affect future results and couldcause 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; materialadverse changes in labor matters, including labor negotiations or additional organizing activity, andany resulting financial and/or operational impact; material changes in available technology; anydisruption of our key suppliers provisioning of products or services; significant increases in benefitplan costs or lower investment returns on plan assets; breaches of network or information technologysecurity, natural disasters or terrorist attacks or existing or future litigation and any resulting financialimpact not covered by insurance; technology substitution; an adverse change in the ratings affordedour debt securities by nationally accredited ratings organizations or adverse conditions in the creditmarkets impacting the cost, including interest rates, and/or availability of financing; any changes in theregulatory environments in which we operate, including any increase in restrictions on our ability tooperate our networks; the timing, scope and financial impact of our deployment of broadbandtechnology; changes in our accounting assumptions that regulatory agencies, including the SEC, mayrequire 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 toimplement our business strategies.

As required by SEC rules, we have provided a reconciliation of the non-GAAP financial measures included in thispresentation to the most directly comparable GAAP measures in materials on our website at www.verizon.com/investor.

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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


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CONSOLIDATED

3Q 12 FINANCIAL SUMMARY

Consolidated revenueof $29.0B, up 3.9% Y/Y

Revenue growth across all

strategic areas Y/Y

Operating income growth of17.9%

EBITDA margin expansion to34.6%, highest since 4Q'08

Adjusted EPS of $0.64 up14.3% Y/Y; reported EPS of$0.56

YTD adjusted EPS of $1.87up 14.7% Y/Y; YTD reportedEPS of $1.79

Earnings Per Share

Revenue ($B)

3.9%Y/Y Growth

3Q '11 2Q '12 3Q '12

$0.56

$0.64 $0.64

3Q '11 2Q '12 3Q '12

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

14.3%Y/Y Growth

4

$27.9 $28.6 $29.0

Wireless Wireline

Reported Non-operational items

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


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CONSOLIDATED

CASH FLOW

YTD cash flow of $24.8B, up

15.1% Y/Y

Disciplined capital spendingacross entire business

YTD capital expenditures down

9.8% Y/Y Capital efficiency continues to

improve

YTD free cash flow up $4.5B or

49.9% Y/Y

Capital Expenditures / Revenue

3Q11YTD

3Q12YTD

Cash from operations $21.5 $24.8

Capital expenditures $12.5 $11.3

Free cash flow $9.0 $13.4

Net Debt to Adjusted EBITDA 1.3x 1.1x

Note: Amounts may not add due to rounding.

15.2%

13.2%

3Q'11 YTD 3Q'12 YTD

Cash Flow Summary ($B)

Solid cash flow growth and capital efficiency profile 5


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CONSOLIDATED

PENSION SETTLEMENT OVERVIEW

Agreement with Prudential to purchase group annuitycontract and assume annuity obligation

Transfer pension assets to settle $7.5B of pension benefitobligation 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


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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 marketgains/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


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0.91%

0.84%

0.94%

WIRELESS

CONNECTIONS / NET ADDS / CHURN

Strong growth in retail postpaidconnections, up 4.8% Y/Y

1,535K retail postpaid net adds*

228K retail prepaid net adds*

6.8% of retail postpaid baseupgraded in 3Q 12

64% of tablet connections arepostpaid

* Excludes acquisitions and adjustments

5.7%Y/Y Growth

3Q '11 2Q '12 3Q '12

2Q 123Q 11 3Q 12

Retail Postpaid Retail Prepaid

90.7 94.295.9

Retail Postpaid Retail Prepaid

9681,178

Retail Postpaid Churn

Retail Net Adds* (000)

Retail Connections (M)

Retail postpaid gross and net adds highest in 4 years 9

1,763

82.1%Y/Y Growth

34.834.4 34.6

2.50 2.562.60

3Q '11 2Q '12 3Q '12

Retail Postpaid Accounts (M)

1.0%Y/Y Growth

Retail Postpaid Connections per Account


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39%50%

53%

3Q '11 2Q '12 3Q '12

WIRELESS

DEVICES / 4G LTE COVERAGE

6.8M smartphones sold in 3Q

79% of postpaid phone sales

were smartphones 44% of postpaid smartphone

upgrades were new to category

4.5M 4G LTE device sales in

3Q 12 Verizon Wireless 4G LTE network:

More than 35% of total data trafficon 4G LTE network

Now available in 419 markets Covers more than 250M POPs;

about 80% of the U.S. population

Retail Postpaid Phone Connections (M)

Smartphone Penetration

Phones

Smartphones

10Continued leadership in 4G LTE adoption 10

4G LTE Devices (M)

3.15.3

8.0

10.9

14.9

3.6% 6.1%9.1%

12.2%

16.5%

3Q '11 4Q '11 1Q '12 2Q '12 3Q '12

% of Retail Postpaid Connections


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WIRELESS

PROFITABILITY

Record EBITDA service margin

Continue to balance growth andprofitability

Sustained service revenue

growth

Increased smartphonepenetration

Delivering targeted expensereduction in 2012

47.8%49.0% 50.0%

3Q '11 2Q '12 3Q '12

EBITDA Service Margin

Sustained industry-leading profitability 11


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WIRELINE

MASS MARKETS

Consumer revenue growthaccelerated to 4.6%

FiOS now 66% of consumerrevenue About 15% Y/Y growth in triple

play customers

ARPU over $150

FiOS Internet subscribers 5.3M subscribers, 136K net adds

37% penetration

FiOS Video subscribers

4.6M subscribers, 119K net adds 33% penetration

Copper migrations accelerating

Consumer Revenue ($B)

Mass Markets Revenue ($B)

3.8%Y/Y Growth

10.3%ARPU

Y/Y Growth

$4.1 $4.1$4.2

3Q '11 2Q '12 3Q '12

$3.4 $3.5 $3.6

$94.20

3Q '11 2Q '12 3Q '12

$100.26 $103.86

Consumer ARPU

Highest consumer Y/Y revenue growth in 10 years 12


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WIRELINE

REVENUE & PROFITABILITY

Strategic revenue growthcontinues

Consumer revenue up 4.6% Y/Y

FiOS revenue grew 18.0% Y/Y Enterprise strategic services

revenue up 4.4% Y/Y

EBITDA impacted by:

Seasonal items Enterprise Re-Tooling

Product rationalization

End to end process streamlining

Global economic challenges Union contract will help

EBITDA going forward

(2.3%)Y/Y Growth

Total Revenue ($B)

Segment EBITDA ($B)

$10.1 $9.9 $9.9

3Q '11 2Q '12 3Q '12

$2.2 $2.3 $2.1

21.4%23.1%

21.7%

3Q '11 2Q '12 3Q '12

EBITDA Margin %

Focus on improving long-term profitability

(1.1%)Y/Y Growth

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WIRELINE

TENTATIVE AGREEMENT ON EAST CONTRACTS

Improves long-term financial profile of Wireline 15

Fair and balanced agreement

Must be ratified by union members

Changes to health and welfare benefits includingcontributions toward healthcare premiums

Operational flexibility designed to improve customer

experience and reduce operating expenses


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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


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verizon q3 2012 earnings release slides[1]

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