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3rd QUARTER 2012 EARNINGS RESULTS
Fran ShammoChief Financial Officer
October 18, 2012
7/31/2019 Verizon Q3 2012 Earnings Release Slides[1]
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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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