4 th QUARTER 2014 EARNINGS RESULTS Fran Shammo Chief Financial - - PowerPoint PPT Presentation

4th QUARTER 2014 EARNINGS RESULTS

Fran Shammo Chief Financial Officer

January 22, 2015

Confidential and proprietary materials for authorized Verizon personnel and outside agencies only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.

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NOTE: In this presentation we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes” or similar

• expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements

contained in the Private Securities Litigation Reform Act of 1995. The following important factors, along with those discussed in our filings with the Securities and Exchange Commission (the “SEC”), could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: adverse conditions in the U.S. and international economies; the effects of competition in the markets in which we operate; material changes in technology or technology substitution; disruption of our key suppliers’ provisioning of products or services; changes in the regulatory environment in which we operate, including any increase in restrictions on our ability to operate our networks; breaches of network or information technology security, natural disasters, terrorist attacks or acts of war or significant litigation and any resulting financial impact not covered by insurance; our high level of indebtedness; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets affecting the cost, including interest rates, and/or availability of further financing; material adverse changes in labor matters, including labor negotiations, and any resulting financial and/or operational impact; significant increases in benefit plan costs or lower investment returns on plan assets; changes in tax laws or treaties, or in their interpretation; changes in accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; and the inability to implement our business strategies.

“Safe Harbor” Statement

As required by SEC rules, we have provided a reconciliation of the non-GAAP financial measures included in this presentation to the most directly comparable GAAP measures in materials on our website at www.verizon.com/about/investors.

Confidential and proprietary materials for authorized Verizon personnel and outside agencies only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.

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4Q ’14 2014 Reported ($0.54) $2.42 Add: Pension remeasurement and severance Early debt redemption and other costs Purchase transaction costs $1.12 $0.13 ̶ $1.17 $0.28 $0.07 Less: Omnitel gain on sale Gain on sale of wireless licenses ̶ ̶ $0.47 $0.11 Adjusted* $0.71 $3.35 Adjusted growth rate Y/Y* 7.6% 18.0%

* Results above are adjusted for non-operational items Note: Amounts may not add due to rounding

Strong earnings performance

CONSOLIDATED Earnings Summary

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CONSOLIDATED

Overview

• Strong operating and financial performance
• Consistent investment in networks and platforms
• High-quality wireless connections growth and

profitability

• FiOS driving consistent growth in consumer market
• Strong free cash flow generation
• Increased dividend by 3.8%

Delivered strong operating and financial performance in 2014

Confidential and proprietary materials for authorized Verizon personnel and outside agencies only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.

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5.4%

Y/Y Growth

2013 2014 $120.6

■ Wireline ■ Wireless

Total Revenue ($B)

$127.1

Adjusted EPS*

2013 2014

18.0%

Adjusted Y/Y Growth

Strong revenue and earnings growth CONSOLIDATED

Financial Summary

* Adjusted for non-operational items

• Total revenue growth excluding

divested public sector business:

– 4Q’14 of 7.3% Y/Y – 2014 of 5.7% Y/Y

• 2014 M2M and telematics

revenue of $586M, up 46.6% Y/Y

• 2014 Adjusted EBITDA of

$43.3B*

• 2014 Adjusted EBITDA margin of

34.1%*

$2.84 $3.35

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($ in billions)

4Q ’14 2014 Cash flow from operations

$7.5 $30.6

Capital expenditures

$4.6 $17.2

Free cash flow

$2.9 $13.4

Dividends paid

$2.2 $7.8

Total debt

$113.3 $113.3

Net debt to adjusted EBITDA

2.4x 2.4x

Strong cash generation funds investment and shareowner returns

CONSOLIDATED Cash Flow Summary

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• Service revenue plus EDGE

installment billings up 5.2% Y/Y in 4Q ’14 and 6.6% Y/Y in 2014

• 4Q’14 phone activations on

EDGE were about 25%

• Significant increase in

activations pressured 4Q’14 profitability

Total Revenue ($B)

$69.0 $72.6 2013 2014 $34.2 $35.2 49.5% 48.5% 42.2% 40.2%

2013 2014

■ EBITDA Service Margin %

Segment EBITDA ($B)

$81.0

8.2%

Y/Y Growth

$87.6

WIRELESS

Revenue & Profitability

Strong 4G LTE device adoption and usage creates momentum for 2015

■ Service Revenue ■ Other Revenue

3.0%

Y/Y Growth ■ EBITDA Margin %

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46% 57% 61% 4Q '13 3Q '14 4Q '14

• ARPA growth of 3.9% Y/Y for

2014; ARPA plus EDGE installment billings up 5.3% Y/Y for 2014

• 35.6M retail postpaid accounts,

up 1.5% Y/Y

• 2.87 connections per account,

up 4.0% Y/Y

• 61% of postpaid accounts on

More Everything Plans

• Monthly average usage per

More Everything account up by about 50% Y/Y

Retail Postpaid ARPA + EDGE Billings 3.5%

Y/Y Growth $157.21 $161.24 $158.82

4Q '13 3Q '14 4Q '14 $157.42 $163.93 $162.98

More Everything Accounts

■ More Everything % of postpaid accounts

Smartphone penetration and data usage driving growth WIRELESS

ARPA

■ Retail Postpaid ARPA ■ EDGE installment billings

Note: ARPA plus EDGE billings is Retail Postpaid ARPA plus EDGE installment billings

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96.8 100.1 102.1 4Q '13 3Q '14 4Q '14 1,573 1,516 1,986 4Q '13 3Q '14 4Q '14

• 5.4M retail postpaid gross adds

in 4Q ’14, up 25.5% Y/Y

• 2.0M retail postpaid net adds in

4Q ’14*

• Retail postpaid churn of 1.14%

in 4Q ’14

• 9.8% of retail postpaid base

upgraded in 4Q ’14

– 93% were smartphones

* Excludes acquisitions and adjustments

5.3%

Y/Y Growth ■ Retail Postpaid ■ Retail Prepaid

102.8 106.2

■ Retail Postpaid ■ Retail Prepaid

Retail Net Adds* (000) Retail Connections (M)

1,525 1,653 108.2 2,067

High-quality retail postpaid connections base WIRELESS

Connections / Net Adds / Churn

26.3%

Y/Y Postpaid Growth

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4Q '13 1Q '14 2Q '14 3Q '14 4Q '14

• 4Q ’14 Retail postpaid device

activations up 34% Y/Y

• Smartphone penetration of 79%,

up from 70% a year ago

• Industry leading in 4G LTE

connections

– Added 24.7M 4G LTE devices in 2014 – More than 80% of smartphones are 4G LTE

• About 84% of total data traffic

currently on 4G LTE network

Retail Postpaid Device Activations (M) 4G LTE Devices (M)

42.7 47.9 53.7 59.4 67.4 44.1% 49.3% 54.5% 59.3% 66.0% 4Q '13 1Q '14 2Q '14 3Q '14 4Q '14

■ % of Retail Postpaid Connections ■ Smartphones ■ Other

11.5 11.1

4G device adoption driving increased usage on LTE network WIRELESS

Devices / 4G LTE

9.9 11.7 15.3

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• 10th consecutive quarter of
• ver 4% consumer revenue

growth Y/Y

• FiOS now 77% of consumer

revenue

– FiOS consumer revenue growth

• f 11.1% Y/Y in 4Q ’14
• FiOS Internet subscribers

– 6.6M subscribers, 145K net adds – 41.1% penetration

• FiOS Video subscribers

– 5.6M subscribers, 116K net adds – 35.8% penetration

Consumer Revenue ($B) Consumer FiOS Internet Subscribers 4.1%

Y/Y Growth

$3.8 $3.9 $4.0 4Q '13 3Q '14 4Q '14

FiOS continues to drive consumer growth WIRELINE

Mass Markets

46% 57% 59% 4Q '13 3Q '14 4Q '14

■ Quantum subscribers % of consumer FiOS Internet subscribers

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• Total FiOS revenue grew

11.6% Y/Y in 4Q ’14

• Global Enterprise revenue

down 4.6% Y/Y in 4Q ’14

– Strategic services revenue up 1.5% Y/Y in 4Q ’14

• Global Wholesale revenue

down 5.8% Y/Y in 4Q ’14

• 4Q ’14 EBITDA of $2.3B, up

4.3% Y/Y

• 4Q ’14 EBITDA margin of

23.9%

Total Revenue ($B)

2013 2014 $8.7 $8.9 22.4% 23.2% 2013 2014

■ EBITDA Margin %

Segment EBITDA ($B)

$38.6 $38.4

Expanded EBITDA margins in 2014 WIRELINE

Revenue & Profitability

(0.5%)

Y/Y Growth

3.0%

Y/Y Growth

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• Deliver strong operating and financial performance
• Consistently invest in networks and platforms
• Focus on new revenue streams
• Monetize non-strategic assets
• Generate strong free cash flow
• Return value to shareowners

CONSOLIDATED

2015 Priorities

Confident in ability to execute, grow profitably, and invest for the future

4th QUARTER 2014 EARNINGS RESULTS

Fran Shammo Chief Financial Officer

January 22, 2015