FiOS Drives Verizon Profits in 2Q2012

NEW YORK - Wall Street has had its doubts about FiOS, but Verizon's bet appears to be paying off as it reported a second consecutive quarter of double-digit percentage growth in year-over-year earnings results and significant increases in operating cash flow. The company's wireline segment generated continued increases in revenues from FiOS fiber optic services and strategic business services, and Verizon Wireless generated record high margins and strong operational results. Overall, Verizon reported 64 cents in earnings per share in second quarter 2012, an increase of 12.3 percent compared with second-quarter 2011 earnings of 57 cents per share.

On Track for 'Solid Double-Digit Earnings Growth'
"Verizon delivered another strong quarter of earnings growth and cash generation, and we remain on track to meet our financial objectives and produce solid double-digit earnings growth for the year," says Lowell McAdam, Verizon chairman and CEO. "Verizon Wireless has once again demonstrated its industry leadership, combining strong revenue growth with record margins and high customer loyalty. We reported sequential improvement in second-quarter wireline margins, and we expect to see that improving trend carry through the second half of the year. We also look forward to the closing of strategic transactions and to the integration of process improvements that will set the stage for continued long-term profitable growth across all our business units."

In second-quarter 2012, Verizon's total operating revenues were $28.6 billion on a consolidated basis, an increase of 3.7 percent compared with second-quarter 2011. Consolidated operating income was $5.7 billion in second-quarter 2012, compared with $4.9 billion in second-quarter 2011. Consolidated EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) totaled $9.8 billion in second-quarter 2012, compared with $9.0 billion in second-quarter 2011.

Cash flow from operating activities totaled $15.3 billion in first-half 2012, compared with $12.8 billion in first-half 2011. In second-quarter 2012 alone, cash flow from operating activities totaled $9.3 billion, a 20.1 percent increase compared with second-quarter 2011.

With capital expenditures of $7.4 billion in first-half 2012, free cash flow (non-GAAP, cash flow from operations less capex) was $7.8 billion in first-half 2012, compared with $3.9 billion in first-half 2011.

For full-year 2012, capital expenditures are expected to be flat to down compared with 2011 capital expenditures of $16.2 billion.

FiOS ARPU Reaches $149
Second-quarter 2012 operating revenues were $9.9 billion, a decline of 3.1 percent compared with second-quarter 2011. Wireline operating income margin was 1.9 percent, compared with 1.6 percent in first-quarter 2012 and 3.1 percent in second-quarter 2011. Segment EBITDA margin (non-GAAP) was 23.1 percent in second-quarter 2012, compared with 22.6 percent in first-quarter 2012 and 23.8 percent in second-quarter 2011.

Consumer revenues grew 2.5 percent compared with second-quarter 2011, the highest increase in several years. Consumer ARPU for wireline services reached more than $100 for the first time, increasing to $100.26 in second-quarter 2012, up 8.5 percent compared with second-quarter 2011.

ARPU for FiOS customers increased to more than $149 in second-quarter 2012. FiOS services produced 65 percent of consumer wireline revenues in second-quarter 2012. Approximately 70 percent of FiOS consumer customers have purchased a triple play of phone, Internet and TV services.

Verizon Adds 134,000 FiOS Customers in Second Quarter
Verizon added 134,000 net new FiOS Internet connections and 120,000 net new FiOS Video connections in the second quarter of 2012. Verizon had a total of 5.1 million FiOS Internet and 4.5 million FiOS Video connections at the end of the quarter.

FiOS penetration (subscribers as a percentage of potential subscribers) continued to increase. FiOS Internet penetration was 36.6 percent at the end of second-quarter 2012, compared with 33.9 percent at the end of second-quarter 2011. In the same periods, FiOS Video penetration was 32.6 percent, compared with 29.9 percent. The FiOS network now passes more than 17 million premises.

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