Verizon Communications Inc. Q1 2010 Earnings Call Transcript

Verizon Communications Inc. Q1 2010 Earnings Call Transcript
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Verizon Communications Inc. (VZ)

Q1 2010 Earnings Call

April 22, 2010 8:30 am ET

Executives

Ron Lataille - Senior Vice President, Investor Relations

John F. Killian - Chief Financial Officer

Analysts

John Hodulik - UBS

Tim Horan - Oppenheimer

Simon Flannery - Morgan Stanley

David Barden - Bank of America-Merrill Lynch

Michael Rollins – Citi Investment Research

Mike McCormack - JPMorgan

Presentation

Operator

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Good morning and welcome to the Verizon First Quarter 2010 Earnings Conference Call. At this time all participants have been placed in listen only mode and the floor will be opened for questions following the presentation. (Operator Instructions)

Today’s conference is being recorded. If you have any objections you may disconnect at this time. It is now my pleasure to turn the call over to your host, Mr. Ron Lataille, Senior Vice President, Investor Relations of Verizon.

Ron Lataille

Good morning and welcome to our First Quarter 2010 Earnings Conference Call. Thanks for joining us this morning. I’m Ron Lataille and with me this morning is John Killian our Chief Financial Officer.

Before we get started, let me remind you that our earnings release, financial statements, the investor quarterly publication and the presentation slides are available on our investor relations website. This call is being webcast. If you would like to listen to a replay you can do so from our website.

I would also like to draw your attention to our Safe Harbor Statement. Information in this presentation contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties. Discussion of factors that may affect future results is contained in Verizon’s filings with the SEC which are available on our website. This presentation also contains certain non- GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also on our website.

As we indicated on our last earnings conference call, beginning this quarter we are no longer adjusting reported earnings results. Instead, we are only reporting GAAP earnings, consistent with trends in corporate reporting. Of course we will continue to provide the detailed information you need to understand and analyze our reported results, including the identification of material, non-operational items.

For the first quarter GAAP earnings were $0.14 per share. These earnings results include a total of $0.42 of non-operational charges, the largest of which is for reduced tax benefits related to retiree healthcare. This onetime, non-cash tax charge totaled $962 million or $0.34 per share. In addition, we incurred a non-cash charge of $0.03 per share related to pension settlement losses resulting from our previously announced separation plan. As you know, pension accounting rules require that settlement losses be recorded once prescribed payment thresholds have been reached.

We also incurred non-operational costs in connection with the spinoff of our local exchange business in 14 states. As we’ve previously discussed, these costs are related to network, software and other activities required for these facilities to function as a separate company. This quarter these get ready costs amounted to $0.04 per share. Lastly, we incurred $0.01 per share this quarter related to Alltel merger integration costs.

I would also point out that all of these non-operational items are reported at the consolidated level and therefore do affect any comparison for wireless or wireline segment results to prior periods.

One last item I’d like to mention relates to certain revenue reclassifications within the wireline segment, due primarily to business customer shifts between mass market, global enterprise and global wholesale. The largest shift involved businesses with 20 or more employees. These accounts are now being managed by our enterprise sales teams and the corresponding revenues will be reported on the global enterprise line. Revenue from businesses with less than 20 employees will continue to be included in the mass market line.

Prior period history has been reclassified and is provided in the supplemental schedule and historical files on our website. These changes in revenue line item reporting did not have a significant effect on historical growth rates. With that, I will now turn the call over to John Killian.

John F. Killian

Thanks, Ron, and good morning everyone. Before we get into the operational details, let me start with some brief comments on the business overall and add some perspective to the results for this quarter. In January, we outlined our key focus areas for 2010. In summary, we said that we expect to continue generating solid cash flows and maintain tight control over capital spending.

Second, we would continue to capitalize on our investments in wireless, FiOS and global IP networks to grow revenues and market share, drive deeper penetration and increase ARPU. Finally, we would remain focused on our cost structure, achieve meaningful cost reductions, and make sure the business is ready to quickly benefit from improvements in employment figures in the overall economy.

In the first quarter, we executed on the business plan we described to you. Free cash flow grew over 25% this quarter, driven by strong cash flow from operations and a lower capital spending. We saw good customer growth in wireless and FiOS and we may be seeing some positive early signs of recovery in the business markets.

Revenue trends this quarter were better on a consolidated basis, as well as in the wireless and wireline segments. In wireless, data growth was particularly strong this quarter driven by the significant amount of smart phone sales and upgrades. We feel very good about our retail postpaid ARPU and customer retention performance this quarter.

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