Verizon Communications Inc. (VZ Quick QuoteVZ - Free Report) reported mixed financial numbers in the second quarter of 2016. While the top line missed the Zacks Consensus Estimate, the bottom line managed to beat.

Adjusted earnings per share came in at 94 cents in the reported quarter. Quarterly GAAP net income was $831 million compared with $4,353 million in the year-ago quarter.

Quarterly total revenue decreased 5.3% year over year to $30,532 million. The Zacks Consensus Estimate was pegged at $31,117 million.

Total operating expenses in the second quarter of 2016 were $25,978 million, up 6.5% year over year. Operating income came at $4,554 million compared with $7,821 million in the year-ago quarter. Adjusted EBITDA was $11,079 million against $11,321 million in the prior-year quarter.

Cash Flow & Liquidity

In the second quarter of 2016, Verizon generated $12,380 million of cash from operating activities compared with $18,906 million in the year-ago quarter. Free cash flow in the reported quarter was $16,496 million compared with $57 million in the comparable year-ago quarter.

At the end of the second quarter of 2016, Verizon had $2,857 million in cash and $92,922 million in long-term debt compared with $4,470 million and $103,240 million respectively at the end of fiscal 2015. The debt-to-equity ratio was 4.48 at the end of second quarter of 2016 compared with 5.78 at the end of 2015.

Wireless Segment

Total revenue was $21,704 million, down 4% year over year. Service revenues were down 5.4% to $16,741 million. Equipment revenues decreased 4.1% to $3,704 million. Other revenues totalled $1,259 million, up 18.4%.

Operating expenses decreased 8.2% to $13,687 million. Operating income improved 4.2% to $8,017 million. Quarterly operating income margin was 36.9% in comparison with 34% in the year-ago comparable period. Segment EBITDA increased 3.8% to $10,299 million. EBITDA margin was 47.5% compared with 43.9% in the prior-year quarter.

At the end of the second quarter of 2016, Verizon had 113.154 million retail subscribers, up 3.3% year over year. Out of the total, retail postpaid subscriber count was 107.780 million, up 3.9% and retail prepaid user count was 5.374 million, down 7.6%. During the reported quarter, the company added 0.615 million postpaid customers (down 45.8% year over year) while prepaid customer count decreased by 0.3 million (down 76.2% year over year).

Quarterly retail postpaid churn rate was 0.94% compared with 0.90% in the year-ago quarter whereas total retail churn rate was 1.19% against 1.18% in the year-ago quarter. Of the total activated phones, smartphones accounted for 92.1% compared with 91.7% in the prior-year quarter.

Wireline Segment

Total revenue at the segment was $7,823 million, down 2.4% year over year. Consumer retail revenues were down 0.3% to $3,165 million. Small business revenues grossed $408 million, down 7.5%. Global Enterprise revenues declined 3.3% to $2,907 million. Global wholesale revenues decreased 4.1% to $1,256 million and Other revenues increased 7.4% to $87 million.

Operating expenses increased 0.9% to $8,286 million. Operating loss escalated in the quarter to $463 million. Quarterly operating loss margin came in at 5.9% against 2.5% in the year-ago quarter. Segment EBITDA was down 26.5% to $1,099 million. EBITDA margin was 14% compared with 18.7% in the year-ago quarter.

At the end of the second quarter of 2016, FiOS video subscriber base was 4.637 million (up 1.6% year over year), FiOS Internet subscriber count was 5.495 million (up 4.9%) and FiOS digital voice residence connections totalled 3.879 million (up 2.4%). During the quarter, Verizon lost 41,000 FiOS video subscribers, 13,000 FiOS Internet customers and 38,000 FiOS digital voice residential connections.

High-speed Internet connection tally dropped 1.4% to 1.519 million while total broadband connection number dropped by 83,000 to 7.014 million, Primary residence switched access connections decreased 6% to 3.501 million and Primary residence connections fell 22.4% to 7.380 million. Total retail residence voice connections declined 19.5% to 7.634 million and total voice connections decreased 1.9% to 14.476 million.

Recent Developments

Verizon is facing intense competitive pressure at present from rivals like AT&T Inc. (T Quick QuoteT - Free Report) . In order to counter the competition, Verizon has been focusing on generating revenues from video streaming services and digital advertising. Keeping with this strategy it acquired AOL and Millennium Media.

But in a bid to step up its presence in this space, it has come into an agreement to acquire Yahoo! Inc.’s core assets for $4.8 billion. If Verizon can effectively assimilate the strategic assets with that of AOL and Millennium Media, we believe that Verizon can compete with giants like Facebook Inc. in this segment.

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