10-QPeriod: Q2 FY2011

VERIZON COMMUNICATIONS INC Quarterly Report for Q2 Ended Jun 30, 2011

Filed July 28, 2011For Securities:VZ

Summary

Verizon Communications Inc. (VZ) reported its second-quarter and first-half 2011 financial results, demonstrating robust growth in its Domestic Wireless segment, which continues to be the primary driver of revenue and profit. The company saw a significant increase in wireless service revenue, largely propelled by a surge in data usage and smartphone penetration, with data revenue accounting for a growing portion of the total. While the Wireline segment experienced a slight revenue dip overall, it showed promising growth in strategic services and continued expansion of its FiOS broadband and TV offerings, signaling a strategic shift away from traditional voice services. Financially, Verizon reported higher net income for the second quarter compared to the same period last year, reversing a loss from the prior year. Total operating revenues saw a modest increase year-over-year, supported by the wireless segment's performance and the recent acquisition of Terremark. The company's focus on strategic imperatives like revenue growth in higher-growth markets and market share gains, particularly in wireless, remains evident. Investments in network modernization, including the expansion of its 4G LTE network, are a key capital allocation priority.

Financial Highlights

51 data points
Beta

Revenue

$27.54B

59.5% Gross Margin

Net Income

$1.61B

5.8% Net Margin

EPS (Diluted)

$0.57

Total Assets

$223.76B

Cash & Equivalents

$6.24B

Free Cash Flow

$7.76B

Financial Statements
Beta
Revenue$27.54B
Cost of Revenue$11.16B
Gross Profit$16.38B
SG&A Expenses$7.37B
Operating Expenses$22.64B
Operating Income$4.89B
Interest Expense$717.00M
Net Income$1.61B
EPS (Basic)$0.57
EPS (Diluted)$0.57
Shares Outstanding (Basic)2.83B
Shares Outstanding (Diluted)2.84B

Key Highlights

  • 1Domestic Wireless revenue increased by 10.2% year-over-year for the quarter, driven by strong growth in both service and equipment sales, with data revenue now representing 39.5% of service revenue.
  • 2Wireline segment revenues saw a slight decline of 0.3% year-over-year for the quarter, but strategic services revenue grew by 17.8%, showcasing a focus on higher-margin offerings.
  • 3Net income attributable to Verizon was $1.6 billion for the quarter, a significant improvement from a net loss of $1.2 billion in the prior year's quarter.
  • 4Capital expenditures increased to $8.9 billion for the first six months of 2011, up from $7.6 billion in the prior year, primarily for wireless network expansion (4G LTE) and capacity.
  • 5The company acquired Terremark Worldwide, Inc. in April 2011 for approximately $1.4 billion to enhance its IT infrastructure and cloud services offerings, particularly for business and government clients.
  • 6Free cash flow for the first six months of 2011 was $3.9 billion, a decrease from $9.2 billion in the prior year, largely due to increased capital expenditures and timing of tax payments.
  • 7Total debt to total debt plus equity remained stable at approximately 57.8% as of June 30, 2011.

Frequently Asked Questions

The primary driver of Verizon's revenue growth is its Domestic Wireless segment. This segment saw a significant increase in service revenue due to higher total connections and continued growth in retail postpaid data Average Revenue Per User (ARPU), supported by increased smartphone sales and data usage.

Verizon is strategically shifting its focus within the Wireline segment towards growth areas like strategic services (including IT, cloud, and managed network services) and the expansion of its FiOS broadband and TV offerings. While traditional voice revenues are declining due to competition and technology substitution, the growth in these newer services is intended to offset these declines and improve overall Wireline profitability.

The acquisition of Terremark, a cloud services provider, was completed in April 2011 and is expected to enhance Verizon's offerings to business and government customers. Its operating revenues were included in the Wireline segment, contributing to the growth in strategic services revenue for the period.

Verizon significantly increased its capital expenditures in the first half of 2011, totaling $8.9 billion, primarily to invest in the capacity of its wireless networks (EV-DO) and the build-out of its 4G LTE network. The company expects consolidated capital expenditures for 2011 to be similar to the $16.5 billion spent in 2010.