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 A decent Q1 from Verizon (VZ), which seems to have made it through the first three months of the year without getting bruised by a slowdown: Revenues, EPS are in-line with Street exepectations.
Rev: $23.8 billion, just in line $23.86 consensus, up 5.5% from $22.58 last year.
Operating income: $4.3 billion, up 14%
EPS: 61 cents (non-GAAP), in line with 61-62 consensus. 54 cents last year.
Some cause for concern with Verizon Wireless numbers, which continue to show deceleration. The company added 1.5 million net new customers, down from 2 million the previous quarters. More worrisome: Data revenue, which is supposed to fuel the industry's growth, continues to slow. Revenues were up 48.9% in Q1, down from 63% in Q4 2007.
The company remains pleased with its Fios TV/high-speed Web offering -- though it wouldn't discuss how many free TVs it gave away last quarter to woo customers. It feels confident enough, in fact, that it will start raising prices for some Fios products this quarter. One other concern: The loss of several major business accounts in the last year, including some high-margin customers.
Joining earnings call in-progress: Reading from script. Slides available here:
OI margin up 150 basis points y/y, EBITDA up 30 basis points. Capex flat. Capex to revenue ratio down to 17.7%.
Repurchased $1B in stock in last quarter, expect buybacks to slow.
Segment growth. Wireless: Majority of customers are post-paid; 4% are lower-quality "pre-paid". Churn: 1.19%.
Wireless: $11.7 billion, up 13.2% y/y. Service revenue up 12.8%, 2.7% sequentially. Two-thirds of growth from data. Retail data ARPU now $11.94. 47% of retail customers had some kind of data charges. See "continued momentum and excellent growth opportunities" ahead. Big spectrum buy will spur this.
Wireline: Fios TV adds 263k net adds, up 16% sequentially. Fios Internet: 262 net adds, up 7%. FiOS ARPU $129 -- more than double average retail ARPU of $61.62. Fios penetration goals on track. Wireline subs continued to decrease.
Business: Lost subs, dropped 1% due to "strategic takebacks". Predicts this quarter will be "low point" for the year.
Summary: Revenue trends remain flat sequentially: About 1.4% last three quarters; EBITDA margins hovering around 27-28%. Cost reduction plans in place: "Ongoing reductions" of workforce throughout year.
Q&A for Doreen, Verizon president Denny Strigl:
Wireline margins a little light. Can you offer additional info? Q1 margins typically lower than Q3, Q4, year-round averages. We expected that. There are some "timing issues" that affected revenue and margins. Last year we had price increases in Q1, this year they're going to happen Q2. As far as business, lost some large accounts just before or after MCI merger. We'll see that again in Q2, and work through that. Outlook for margins hasn't changed.
Productivity improvements? "Blocking and tackling" on operations. A lot more media spend in Q1, though.
What's impact of $99 "unlimited" plan? Let us put controversy to rest: We're pleased with growth. Churn benefits and data growth. 90% of unlimited plan ads are single lines. Accounted for 13% of single line growth paid ads, compared to 4% of people paying more than $99 prior to this. March, first full month after launch, average daily disconnects dropped 6% over past six months. Churn improved, "very happy" with results.
So was this accretive in Q1? It was in the first month.
Please talk about broadband: Fios growing but broadband softening. What's driving y/y decline? Saturation, marketshare, economy?
DSL gross adds are up sequentially, but migrations to Fios are up 23%; business migrations up higher. Excluding Fios migration churn is same. Translation: We're moving DSL subs to Fios, or at least replacing lost DSL subs with Fios. Bad debt from economy? In terms of uncollectables "we're not seeing it at all."
Another economy question: Can you give us update on metrics you're watching. "We are really not seeing changes in trends". Uncollectable in wireline down, has actually improved in wireless. Continuing to monitor, but not seeing changes in trends, no concerns at this point.
When will Fios be "EBITDA positive"? We're on track. At this point Fios not dilluting on sequential basis the Ebitda. Still expect to be EBITDA positive by end of year.
On business side, how can you improve margin? Non-answer. But note that a couple contracts we lost had very good margins.
Update on Fios pricing increase plans for Q2? Not much of answer, here, either. Will probably move up pricing end of this quarter. Think we're close on pricing with competitors. $129 ARPU doesn't include triple play, so triple play ARPU even much more impressive.
Tax rate guidance? Moving from 35 to 37 to 35 to 36.
Penetration on mature Fios markets? TV, certainly "well over 25". "Some with a four in front of it, and some with a three in front of it." In Internet, "almost everybody has a 2 in front of it" and some much higher.
More on price increases: Will you be increasing $99 bundle? Or individual components? Also on margin, how much did your TV giveaway cost you? We'll keep $99 price. But we'll increase settop boxes, individual channels, or premiums may go up. Won't give out specific numbers on TVs. Marketing expenses will trend down from Q1.
Apologies, missed last couple q's. Call now over.
See Also: Verizon Q4: Wireless Data Growth Slows
Verizon: $99 Plan Won't Kill Us
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