Verizon Communications (VZ)

Q4 2011 Earnings Call

January 24, 2012 8:30 am ET

Executives

John N. Doherty - Senior Vice President of Investor Relations

Francis J. Shammo - Chief Financial Officer and Executive Vice President

Analysts

John C. Hodulik - UBS Investment Bank, Research Division

Timothy K. Horan - Oppenheimer & Co. Inc., Research Division

Philip Cusick - JP Morgan Chase & Co, Research Division

Michael Rollins - Citigroup Inc, Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

David W. Barden - BofA Merrill Lynch, Research Division

Simon Flannery - Morgan Stanley, Research Division

Jennifer M. Fritzsche - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

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Good morning, and welcome to the Verizon Fourth Quarter 2011 Earnings Conference Call. [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. John Doherty, Senior Vice President, Investor Relations for Verizon.

John N. Doherty

Thanks, Brad. Good morning, and welcome to our fourth quarter 2011 earnings conference call. Thanks for joining us this morning, I'm John Doherty. With me this morning is Fran Shammo.

Before we get started, let me remind you that our earnings release, financial and operating information, investor quarterly 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.

For the fourth quarter of 2011, we reported a loss of $0.71 per share on a GAAP basis. These results include a noncash pension and benefits charge of $5.6 billion on a pretax basis. This mark-to-market adjustment related to our current year asset returns, discount rate and mortality assumption changes in our pension and postretirement plans. This adjustment is in accordance with the accounting policy we adopted a year ago, which requires us to recognize actuarial gains and losses in the year in which they occur and not smooth the effects over a longer period of time.

Adjusting for $1.23 per share of nonoperational items, fourth quarter EPS was $0.52, bringing our full year 2011 adjusted EPS to $2.15. The comparable adjusted EPS in 2010 was $2.08.

With that, I will now turn the call over to Fran.

Francis J. Shammo

Thanks, John, and good morning, everyone and happy new year. Before we get into the details, let me start with a few summary comments. We finished the year very strong, creating value for our shareholders in 2011 by generating a total return of 18.2% through a combination of stock price appreciation of 12.1% and our dividend payments. Our stock price appreciation outpaced our peers, as well as the S&P, Dow Jones and broader indices. For the fifth consecutive year, our Board of Directors approved a dividend increase, indicating their confidence in the sustainability of our business model, cash flows and our improving earnings profile into 2012 and beyond.

In 2011, we also made some smart investments for the future growth and improved profitability. While very disciplined in our approach to capital spending, we continue to invest in networks and new technologies, which will be the platform for accelerated growth.

On the strategic front, we made some moves that will significantly improve our competitive position. These include the acquisitions of Terremark and CloudSwitch in the cloud computing space, several agreements to purchase additional spectrum, joint efforts around innovation with a number of partners including the cable companies and, of course, our continued leadership in the rapid development of the 4G LTE ecosystem.

We also renewed our focus on delivering solutions to customers and the markets we serve by better leveraging our capabilities across all parts of the business, wireless, FiOS, Strategic Services, the cloud, digital media and our global high-speed IP network. Our recently formed Global Enterprise solutions organization will strengthen our ability to provide fully integrated customer solutions.

In addition to making these investments in our future, 2011 was a great year of solid execution. We posted record revenue growth in the fourth quarter, resulting in adjusted revenue growth of 6.2% for the full year, a significant acceleration from just below 2% growth in 2010. In addition to our strong revenue results, our sharp focus on capturing operating efficiencies helped us to mitigate a number of cost pressures, driving an increase to consolidated EBITDA of more than $950 million.

We also had a strong year in terms of cash generation with $13.5 billion in free cash flow. 2011 was an impressive year on a number of fronts, giving us tremendous confidence about our long-term growth prospects.

Now let's turn our attention to the fourth quarter, starting with a few highlights.

As I just noted, we had a very strong revenue performance in the fourth quarter. Our 7.7% year-over-year growth was easily our highest quarterly growth of the year, and in fact, the highest quarterly growth since the formation of Verizon 11 years ago. In wireless, we had our best quarter ever in terms of smartphone sales, 4G LTE device sales and customer upgrades, along with the most retail gross adds in the 3 years. We lead the industry in retail postpaid connections and our 1.2 million postpaid net adds this quarter demonstrate that we continue to gain market share. We are by far the market leader in 4G LTE, which is now available in 195 markets covering more than 200 million POPs, with increasing customer awareness of its superior speeds, capabilities and new high-quality devices.

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