Verizon adds 2.2 million customers in Q2, names Lowell McAdam as new CEO

Alex Wagner
Editorial Director of News and Content from  Omaha, NE
| July 22, 2011

Verizon logo

Hot on the heels of AT&T posting its Q2 2011 numbers for all to see, Verizon has gone ahead and done the same. Total operating revenues for Verizon finished at $27.5 billion in Q2, a 2.8 percent increase year-over-year, while wireless revenues grew 6.6 percent YOY and data revenues are up 22.2 percent over the same period of time. Verizon added 2.2 million new customers in the second quarter, 1.3 million of which were postpaid customers, giving Big Red 106.3 million total connections. Of that 106.3 million, 89.7 million were retail customers. Retail postpaid churn finished Q2 at 0.89 percent, Verizon's lowest in three years, while total retail churn was 1.22 percent. Finally, a total of 36 percent of Verizon's retail customer base were using smartphones at the end of Q2, up from 32 percent at the end of Q1.

Verizon also announced today that current CEO Ivan Seidenberg will be stepping down from his position on August 1st, at which point current Verizon COO Lowell McAdam will be promoted to the position of President and CEO of Verizon. Seidenberg will remain on as Chairman for an undisclosed period of time.

Certainly looks like another good quarter for the folks at Big Red, especially the fact that it added 1.3 million postpaid subs during Q2. To compare, AT&T added 1.1 million connections, 331,000 of which were postpaid customers, during the same period of time. For those of you that'd like to spend your Friday morning poring over all of Verizon's Q2 2011 numbers, you can find them all below.

Verizon Reports Accelerated Revenue Growth, Expanded Margins and Strong 2Q Earnings Performance


57 cents in diluted earnings per share (EPS), compared with a loss of 42 cents per share and adjusted EPS (non-GAAP) of 51 cents in 2Q 2010.

6.6 percent year-over-year increase in service revenues in 2Q 2011; data revenues up 22.2 percent; 27.1 percent operating income margin and 45.4 percent Segment EBITDA margin on service revenues (non-GAAP).
2.2 million net additions, excluding acquisitions and adjustments, includes 1.3 million retail postpaid net customer additions; 106.3 million total connections, includes 89.7 million retail customers.
Retail postpaid churn of 0.89 percent, the lowest in three years.

189,000 FiOS Internet and 184,000 FiOS TV net additions.
9.4 percent year-over-year increase in consumer ARPU; FiOS consumer retail revenues represent approximately 57 percent of total consumer revenues.
17.8 percent increase in strategic services revenues, representing approximately 48 percent of total global enterprise revenues.
Verizon Communications Inc. (NYSE, NASDAQ: VZ) today reported accelerated revenue growth and improved margins across its business groups, leading to a strong earnings performance in second-quarter 2011.

Verizon reported 57 cents in EPS in the quarter, compared with a second-quarter 2010 loss of 42 cents per share.

There are no adjustments to second-quarter 2011 earnings results. Adjusted second-quarter 2010 earnings were 51 cents per share, excluding the impact of divestitures and non-operational charges (non-GAAP). The most significant 2010 charges related to a workforce-reduction incentive offer that led to approximately 11,900 voluntary separations last year.

Strong, Positive Momentum

“In terms of earnings growth and the acceleration of revenue growth, this has been one of Verizon’s best quarters since the 2008 economic downturn,” said Chairman and CEO Ivan Seidenberg.  “We expanded sequential margins in both our wireline and wireless businesses, and in the second half of the year we expect Verizon to build on this strong, positive momentum to continue to drive profitable, sustainable growth.”

Seidenberg added: “We expect Verizon Wireless to gain share in the retail postpaid market and widen its network-quality lead throughout 2011.  We also continue to see strong customer demand for FiOS Internet and TV, and for cloud and other strategic services.  At the same time, we remain focused on our cost structure, as we deliver improvements in wireline margins quarter after quarter.”

Consolidated Revenue Growth Accelerates

On a consolidated basis, Verizon’s total operating revenues were $27.5 billion in second-quarter 2011, an increase of 2.8 percent compared with second-quarter 2010.  Last year’s results included revenues from operations that have since been divested.

On a comparable basis (non-GAAP), second-quarter 2011 total operating revenues increased 6.3 percent compared with second-quarter 2010.  This was Verizon’s strongest quarter for consolidated revenue growth in 10 quarters.

Also on a comparable basis, consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) for second-quarter 2011 totaled $9.0 billion, up 5.2 percent year over year.

Cash flow from operating activities totaled $12.8 billion in the first half of 2011, down from $16.8 billion in the first half of 2010.  Last year’s total included cash flow from businesses that have since been divested and the timing of favorable tax-related impacts, and 2011 totals include inventory purchases for wireless devices and the impact of previously announced pension-fund payments in first-quarter 2011.  Verizon said its cash flow outlook for the remainder of 2011 remains very strong.

The company aggressively invested in growth opportunities in the first half of 2011.  One example is the deployment of Verizon’s nationwide 4G LTE (fourth-generation, Long-Term Evolution) wireless broadband network.  In first-half 2011, Verizon’s capital expenditures totaled $8.9 billion, compared with $7.6 billion in first-half 2010.

Verizon continues to expect full-year 2011 capital spending to be similar to its 2010 investment of $16.5 billion.

Verizon Wireless Deliver Another Strong Quarter

Verizon Wireless delivered strong growth in revenues, retail customers and other connections, driven by increased smartphone penetration and increased retail postpaid ARPU (average monthly service revenue per user).  In the second quarter of 2011:

Wireless Financial Highlights

Service revenues in the quarter totaled $14.7 billion, up 6.6 percent year over year.  Data revenues were $5.8 billion, up $1.1 billion or 22.2 percent year over year, and represent 39.5 percent of all service revenues.  Total revenues were $17.3 billion, up 10.2 percent year over year.
Retail postpaid ARPU grew 1.9 percent or $1.00 over second-quarter 2010, to $54.12. Retail postpaid data ARPU increased to $21.26, up 15.2 percent year over year.  Retail service ARPU also grew 1.9 percent, to $52.49.
Wireless operating income margin was 27.1 percent.  Segment EBITDA margin on service revenues (non-GAAP) was 45.4 percent.
Wireless Operational Highlights

Verizon Wireless added 2.2 million total connections, including 1.3 million retail postpaid customers, and 890,000 wholesale and other connections.  These additions exclude acquisitions and adjustments.
At the end of the second quarter, the company had 106.3 million total connections, an increase of 6.6 percent year over year, including 89.7 million retail customers and 16.6 million wholesale and other connections.
At the end of the second quarter, smartphones were 36 percent of Verizon Wireless’ retail postpaid customer phone base, up from 32 percent at the end of first-quarter 2011.
Retail postpaid churn was 0.89 percent, the lowest in the industry and the company’s lowest since second-quarter 2008.  Total retail churn was 1.22 percent, an improvement of 9 basis points year over year and 11 basis points sequentially.
Verizon Wireless continued to roll out its 4G LTE mobile broadband network during the quarter.  As of yesterday (July 21), Verizon Wireless 4G LTE service is available in 102 markets across the country, covering a population of more than 160 million.  By year-end, Verizon Wireless’ 4G LTE network, the fastest and most advanced LTE network in the U.S., is expected to be available in more than 175 markets across the country, covering a population of more than 185 million.
The company introduced three new 4G LTE devices: the Droid Charge by Samsung, Revolution by LG and the MiFi 4510L 4G LTE Mobile Hotspot by Novatel Wireless.  The company also announced that the 4G LTE-enabled Samsung Galaxy Tab 10.1 is available for pre-order; the device is expected to launch by the end of this month.  During the second-quarter 2011, Verizon Wireless sold 1.2 million 4G LTE smartphones and Internet data devices.
Verizon Wireless continued to invest in and enhance its 3G network, the nation’s largest and most reliable 3G network.
During the quarter, Verizon Wireless deployed crisis response teams to help customers stay connected in areas devastated by disasters including the North Dakota floods,  Arizona wildfires and Joplin, Mo., tornado.
Improved Revenue Trends in Wireline

Verizon’s Wireline segment continued to expand margins, supported by improved revenue trends.  In the second quarter of 2011:

Wireline Financial Highlights

Segment EBITDA margin (non-GAAP) was 23.8 percent, compared with 22.4 percent in second-quarter 2010.  This was Wireline’s fifth consecutive quarter of sequential EBITDA margin expansion.
Second-quarter 2011 operating revenues were $10.2 billion, a decline of 0.3 percent compared with second-quarter 2010.  This is an improvement from a decline of 2.2 percent comparing first-quarter 2011 to first-quarter 2010.  Verizon acquired cloud and managed IT infrastructure leader Terremark Worldwide in April, and the inclusion of Terremark results added $98 million in revenue, representing 100 basis points of wireline revenue growth, in second-quarter 2011.
Revenues for Verizon’s FiOS fiber-optic services to consumer retail customers generated approximately 57 percent of consumer wireline revenues in second-quarter 2011, compared with approximately 48 percent in second-quarter 2010.
Consumer revenues grew 1.3 percent compared with second-quarter 2010.  Consumer ARPU for wireline services was $92.44 in second-quarter 2011, up 9.4 percent compared with second-quarter 2010.  ARPU for FiOS customers continues to be more than $146.
Global enterprise revenues totaled $4.0 billion in the quarter, up 3.6 percent compared with second-quarter 2010.  Sales of strategic services -- including Terremark cloud services, security and IT solutions, and strategic networking -- increased 17.8 percent compared with second-quarter 2010 and now represent approximately 48 percent of global enterprise revenues.
Wireline Operational Highlights

Verizon added 189,000 net new FiOS Internet connections and 184,000 net new FiOS TV connections in second-quarter 2011.  Verizon had a total of 4.5 million FiOS Internet and 3.8 million FiOS TV connections at the end of the quarter.
FiOS penetration (subscribers as a percentage of potential subscribers) is now 30 percent or more for both services.  FiOS Internet penetration was 34 percent at the end of second- quarter 2011, compared with 30 percent at the end of second-quarter 2010.  In the same periods, FiOS TV penetration was 30 percent, compared with 26 percent, respectively.  The FiOS network passed 16.1 million premises at mid-year 2011.
Broadband connections totaled 8.6 million at the end of second-quarter 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 62,000 broadband connections from first-quarter 2011.  Total voice connections, which measures FiOS Digital Voice connections in addition to traditional switched access lines, declined 7.9 percent to 25.0 million -- the smallest year-over-year decline since second-quarter 2007.
During the quarter Verizon continued to execute its global cloud strategy, rolling out an expanded portfolio of secure IT solutions and an operational model for its Terremark subsidiary.  Verizon also continued to deploy integrated IT and communications solutions for multinational enterprise, medium-sized and government customers.  These solutions included expansion of the company’s managed mobility services for tablets, mobile access to cloud-based SAP applications and enhanced security management programs for health care providers.  Verizon also completed new agreements with a range of multinational corporations, including Constellation Energy, Epsilon, Masco Corp. and PHH Corp.
Verizon expanded its global network infrastructure during the quarter as it continued to broaden its scope and capabilities.  The company installed 63 additional Private IP edge routers for a total of 915 edge routers in 245 sites throughout 63 countries, activated more than 1,500 kilometers (932 miles) of ultra-long-haul network across the southern part of the United Kingdom, and completed a joint fiber build in Singapore, which almost doubles the coverage of the Singapore fiber-optic network.  Verizon continued to demonstrate leadership in scaling the global IP network and kicked off the expansion of 100G IP backbone capabilities in the U.S. to nine routes.

Verizon Names Lowell McAdam as CEO; Ivan Seidenberg to Remain Chairman

The Verizon Board of Directors has named Verizon President and COO Lowell C. McAdam as president and chief executive officer of Verizon Communications Inc. (NYSE, NASDAQ: VZ), effective Aug. 1, completing the company's CEO succession process under way since 2010. Ivan G. Seidenberg will step down from the CEO role but remain chairman to continue to facilitate the transition.

McAdam will have responsibility for the operations of Verizon, including all business units and staff functions.

Seidenberg said, "Lowell's appointment to CEO is testimony to his extraordinary record of achievement. As a member of Verizon's executive leadership team since 2000 and COO over the last 10 months, Lowell has proven his ability to move the organization quickly and to focus on strong performance on behalf of our employees, our customers and our investors. His stellar leadership of Verizon Wireless and his outstanding 28-year career in the telecommunications industry have positioned Lowell to understand the potential of our company and the actions that need to be taken every day to attain that potential. The board and I are excited by what Lowell brings to our company: his outstanding character, his conviction and his dedication to Verizon's success."

In his current role, McAdam, 57, is responsible for all business operations at Verizon, including the strategic direction of the company's products and technologies. He has served on the board of Verizon since March 2011 and on the board of Verizon Wireless since 2003, chairing the Verizon Wireless board since September 2010.

As president and CEO of Verizon Wireless until September 2010, McAdam led the premier wireless provider with the nation's largest, most reliable wireless voice and 3G broadband data network. Prior to assuming this position in 2007, McAdam served as executive vice president and chief operating officer of Verizon Wireless from the company's inception in 2000, helping to build the industry's leading wireless company.

Previously, McAdam was president and CEO of PrimeCo Personal Communications, a joint venture owned by Bell Atlantic and Vodafone AirTouch. He also served as PrimeCo's chief operating officer, responsible for overseeing the building, deployment and successful launch of the new company's customer service operations and all-digital network.

McAdam has served as vice president - international operations for AirTouch Communications and was lead technical partner for cellular ventures in Spain, Portugal, Sweden, Italy, Korea and Japan. McAdam joined AirTouch as executive director of international applications and operations in 1993. Prior to that, he held various executive positions with Pacific Bell.

He earned a bachelor's degree in engineering from Cornell University and a master's degree in business administration from the University of San Diego. He also spent six years in the U.S. Navy's Civil Engineer Corps and is a licensed professional engineer.