Verizon Communications (NYSE: VZ) reported Q1 EPS of $1.06, in-line with the analyst estimate of $1.06. Revenue for the quarter came in at $32.2 billion versus the consensus estimate of $32.49 billion.

Wireless highlights

• Verizon reported 640,000 retail postpaid net additions in first-quarter 2016, a seasonally low-volume quarter. These net adds exclude all wholesale connections, including IoT. At the end of first-quarter 2016, Verizon had 112.6 million retail connections, a 3.7 percent year-over-year increase, and 107.2 million retail postpaid connections, a 4.4 percent year-over-year increase.
• Customer retention remained high, with retail postpaid churn at a low 0.96 percent in first-quarter 2016, a year-over-year improvement of 7 basis points.
• Segment operating income was $7.9 billion, and segment operating income margin was 35.8 percent. In first-quarter 2016, Verizon Wireless generated $10.2 billion in EBITDA (non-GAAP), a year-over-year increase of 1.7 percent. Segment EBITDA margin (non-GAAP) was 46.2 percent, compared with 44.8 percent in first-quarter 2015.
• Total revenues were $22.0 billion in first-quarter 2016, a decline of 1.5 percent compared with first-quarter 2015 as more customers continued to choose unsubsidized device payment plans. Service revenues plus installment billings increased 1.6 percent, comparing first-quarter 2016 with first-quarter 2015.
• The percentage of phone activations on installment plans grew to 68 percent in first-quarter 2016, compared with 67 percent in fourth-quarter 2015. The company expects this percentage to grow to 70 percent in second-quarter 2016. About 48 percent of postpaid phone customers are on an unsubsidized pricing plan, and service revenue declines are expected to flatten when this base exceeds 50 percent. Verizon expects the decline in service revenues to slow throughout the year and ultimately turn positive by the end of 2017.
• The composition of the 640,000 retail postpaid net adds was strong: Verizon added 452,000 4G smartphones to its postpaid base in first-quarter 2016. Due to declines in 3G and basic phones, postpaid phone net adds were a negative 8,000. Tablet net adds totaled 507,000 in the quarter.
• Verizon ended first-quarter 2016 with a total of 73.8 million smartphones. This is 85 percent of the total phone base, with 4G devices more than 81 percent of the retail postpaid connections base.
• Growth in 4G device adoption is driving increased data and video usage. Approximately 92 percent of Verizon's total data traffic is on the LTE network. Overall data traffic on LTE has increased by approximately 50 percent year over year.
• Wireless capital expenditures totaled $2.2 billion in first-quarter 2016 and are expected to ramp up throughout the year.

Fios remains the growth driver in wireline segment

In the wireline segment, Fios fiber-optic-based services remain the driver of revenue growth and now represent about 81 percent of consumer revenues.

Wireline highlights

• Verizon added 98,000 net new Fios internet connections and 36,000 net new Fios video connections in first-quarter 2016. Total Fios revenues grew 5.0 percent, to $3.5 billion, comparing first-quarter 2016 with first-quarter 2015, including consumer Fios revenue growth of 4.7 percent.
• In first-quarter 2016, consumer revenues were $4.0 billion, an increase of 0.8 percent compared with first-quarter 2015.
• Segment operating income was $0.6 billion, and segment operating income margin was 6.3 percent. In first-quarter 2016, wireline generated $2.2 billion in EBITDA (non-GAAP), a year-over-year increase of 1.2 percent. Segment EBITDA margin (non-GAAP) was 23.4 percent, compared with 22.7 percent in first-quarter 2015.
• By the end of first-quarter 2016, about 78 percent of consumer Fios internet customers subscribed to data speeds of 50 megabits per second or higher. Customer demand remained strong for Custom TV, which represented about 38 percent of Fios video sales in the quarter.
• During the first quarter, Verizon Enterprise Solutions entered into new agreements with or began servicing a number of clients, including 1-800-Flowers, the Commonwealth of Virginia, Dana Holding Corporation, the Florida Sheriffs Association, Promeditec, PSE&G, South Australia Health & Medical Research Institute, and Wyndham Worldwide.

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