Overview
Verizon Communications Inc. (Verizon, or the Company) is a holding company that, acting through its subsidiaries, is one of the world's leading providers of communications, information and entertainment products and services to consumers, businesses and government entities. With a presence around the world, we offer data, video and voice services and solutions on our networks that are designed to meet customers' demand for mobility, reliable network connectivity, security and control. We have a highly diverse workforce of approximately 133,200 employees as ofSeptember 30, 2020 . To compete effectively in today's dynamic marketplace, we are focused on the capabilities of our high-performing networks to drive growth based on delivering what customers want and need in the new digital world. During 2020, we are focused on leveraging our network leadership; retaining and growing our high-quality customer base while balancing profitability; enhancing ecosystems in growth businesses; and driving monetization of our networks and solutions. We are creating business value by earning customers', employees' and shareholders' trust, limiting our environmental impact and continuing our customer base growth while creating social benefit through our products and services. Our strategy requires significant capital investments primarily to acquire wireless spectrum, put the spectrum into service, provide additional capacity for growth in our networks, invest in the fiber that supports our businesses, evolve and maintain our networks and develop and maintain significant advanced information technology systems and data system capabilities. We believe that steady and consistent investments in our networks and platforms will drive innovative products and services and fuel our growth. We are consistently deploying new network architecture and technologies to secure our leadership in both fourth-generation (4G) and fifth-generation (5G) wireless networks. We expect that our next-generation multi-use platform, which we call the Intelligent Edge Network, will simplify operations by eliminating legacy network elements, speed the deployment of 5G wireless technology and create new opportunities in the business market in a cost efficient manner. Our network leadership is the hallmark of our brand and the foundation for the connectivity, platforms and solutions upon which we build our competitive advantage. Highlights of Our Financial Results for the Three Months EndedSeptember 30, 2020 and 2019 (dollars in millions)
[[Image Removed: vz-20200930_g1.jpg]][[Image Removed: vz-20200930_g2.jpg]][[Image Removed: vz-20200930_g3.jpg]]
33 -------------------------------------------------------------------------------- Table of Contents Highlights of Our Financial Results for the Nine Months EndedSeptember 30, 2020 and 2019 (dollars in millions)
[[Image Removed: vz-20200930_g4.jpg]][[Image Removed: vz-20200930_g5.jpg]][[Image Removed: vz-20200930_g6.jpg]]
[[Image Removed: vz-20200930_g7.jpg]][[Image Removed: vz-20200930_g8.jpg]]
Impacts of the Recent Novel Coronavirus (COVID-19) This disclosure discusses the actions Verizon has taken in response to the COVID-19 crisis and the impacts that the situation has had on our business, as well as related known or expected trends. The disclosure in the remainder of this Management's Discussion & Analysis of Financial Condition and Results of Operations is qualified by the disclosure in this section on the impacts of COVID-19 and, to the extent that the disclosure in the remainder of Management's Discussion & Analysis refers to a financial or performance metric that has been affected by a trend or activity, that reference is in addition to any impact discussed in this section on the impacts of COVID-19. COVID-19 was identified inChina in late 2019 and has since spread throughout the world, including throughoutthe United States (U.S. ). Public and private sector policies and initiatives to reduce the transmission of COVID-19 have varied significantly across theU.S. , but during the nine months endedSeptember 30, 2020 a significant percentage of theU.S. population was subject to meaningful restrictions on activities, which included limitations on the operation of businesses including retail operations, requirements that individuals remain in or close to their homes, school closures, limitations on large gatherings, travel restrictions and other policies to promote or enforce physical distancing. Similar restrictions have been implemented in many other countries in which we operate. Some of these restrictions eased to varying degrees during the second and third quarters of 2020. As described below, these restrictions and our responses to them have significantly impacted how our customers use our products and services, how they interact with us, and how our employees work and provide services to our customers. In addition, governments have imposed a wide variety of consumer protection measures that limit how certain businesses, including telecommunications companies, can operate their businesses and interact with their customers. The crisis and governmental responses to the crisis have also resulted in a slowdown of global economic activity, which has significantly impacted our customers. As a result, prior trends in our business may not be applicable to our operations during the pendency of the crisis. The impact of COVID-19 for the remainder of the year and beyond will depend significantly on the duration and potential cyclicality of the health crisis and the related public policy actions, additional initiatives we may undertake in response to employee, market or regulatory needs or demands, the length and severity of the global economic slowdown, and whether and how our customers change their behaviors over the longer term.
Operations
In response to the crisis beginning in the first quarter 2020, we began executing our business continuity plans and evolving our operations to
34 -------------------------------------------------------------------------------- Table of Contents continue to protect the safety of our employees and customers and to continue to provide critical infrastructure and connectivity to our customers as they changed their ways of working and living. Some of the initiatives we took include: •Moving over 115,000 of our 133,200 employees to remote work arrangements. •Temporarily closing nearly 70% of our company-owned retail store locations and moving to appointment-only access to our remaining store locations. •Limiting our customer-focused field operations based on the criticality of the services being provided or repaired. •Enhancing our safety protocols for employees working outside their homes. •Providing temporary additional compensation to employees in front line roles that cannot be done from home. •Adjusting other compensation and benefits programs to address circumstances created by the crisis. •Taking theFederal Communication Commission's (FCC 's) "Keep Americans Connected" pledge, through which we pledged to waive late fees for, and not terminate service to, any of our consumer or small business customers who informed us that they had been impacted financially by the COVID-19 crisis throughMay 13 , which we extended toJune 30, 2020 . •Providing additional data allocations to permit wireless consumer and small business customers to remain connected during the first several months of the pandemic. •Waiving activation and upgrade fees through digital distribution channels. •Working with business customers to address payment needs during the crisis. •Maintaining effective governance and internal controls in a remote work environment. As some of the restrictions on physical movement and limitations on business and other activities described above eased to varying degrees during the second and third quarters of 2020, we began the process of resuming certain of our operations, with the health and safety of our employees and customers as our utmost priority, and modifying some of our temporary policies. These initiatives include: •Transitioning to facility access at limited capacity where feasible for those with remote work arrangements. •Optimizing our sales channels to drive more activity through online and telesales to serve customers. •Reopening temporarily closed company-owned retail store locations, with nearly 100% of all company-owned retail store locations open as ofSeptember 30, 2020 , and introducing social distancing measures for employee and customer safety, such as touch-less retail, appointment scheduling and curbside pickup options. •StartingJuly 1 , customers who had notified us that they had been financially impacted by the crisis and had an unpaid balance were automatically enrolled in our "Stay Connected" repayment program, which allows customers to pay off their service balance over six months and extends any unpaid device payment plan agreements by the number of months unpaid. •Resuming certain customer-focused field operations. •Discontinuing certain of our temporary compensation and benefits arrangements. We expect that we will continue to revise our approach to these initiatives as the crisis evolves in the fourth quarter 2020 and beyond in order to meet the needs of our employees, customers and the Company in order to continue to provide our innovative products and services. Liquidity and Capital Resources Verizon finished the third quarter 2020 in a strong financial position. As ofSeptember 30, 2020 , our balance sheet included: Cash and cash equivalents$ 9.0 billion Unsecured debt$ 105.5 billion As ofSeptember 30, 2020 , our Cash and cash equivalents balance was$9.0 billion compared to$2.6 billion as ofDecember 31, 2019 and$3.0 billion as ofSeptember 30, 2019 . We made the decision to maintain a higher cash balance in order to further protect the Company against the uncertainties of the COVID-19 crisis. As ofSeptember 30, 2020 , we have no unsecured notes maturing during the remainder of 2020 and we have less than$1.0 billion of unsecured notes maturing in 2021. As ofSeptember 30, 2020 , we had not drawn down on our$9.5 billion revolving credit facility and the unused borrowing capacity was approximately$9.4 billion . The revolving credit facility does not require us to comply with financial covenants or maintain specified credit ratings, and it permits us to borrow even if our business has incurred a material adverse change. During the three months endedSeptember 30, 2020 , we drew$1.0 billion from export credit facilities and issued$2.1 billion aggregate principal amount of unsecured notes, including$1.0 billion principal amount of green bonds. We repaid the remaining balance of the commercial paper issued inApril 2020 and had no outstanding commercial paper as ofSeptember 30, 2020 . InOctober 2020 , we completed exchange offers with respect to 17 series of unsecured notes issued by Verizon, allowing us to exchange the notes accepted in the exchange offers for new unsecured Verizon notes having a later maturity date and, for certain of the accepted series of notes, cash. We also amended our revolving credit facility to extend the maturity date to 2024. The COVID-19 crisis, together with other dynamics in the marketplace, has caused borrowing costs to fluctuate significantly and, in certain cases, restricted the ability of borrowers to access the capital markets and other sources of financing. In order to provide financial flexibility and finance certain investments and projects, we may continue to utilize external financing arrangements that have been or may be affected by these market conditions. However, we believe that our cash on hand, the cash we expect to generate from our operations, and cash from other sources of financing available to us are, and will continue to be, sufficient to meet our ongoing operating, capital expenditure and investing requirements. We expect to continue to have sufficient cash to fund our operations, although we could experience significant fluctuations in our cash flows from period to period during the crisis. The net cash generated from our operations provides our primary source of cash flows. While we have historically experienced consistently low levels of payment delinquencies among our consumer and business accounts, beginning late 35 -------------------------------------------------------------------------------- Table of Contents in the first quarter 2020, we started to see increases in delinquencies across our retail customer base and our small and medium business accounts. This change in delinquency rate moderated during the second quarter and significantly improved during the third quarter. Accordingly, our provision for credit losses increased in the first quarter 2020, but remained flat in the second quarter and decreased in the third quarter. If these levels of delinquencies begin to grow again, they could have a material adverse impact on our cash flows. We could also experience fluctuations in our cash flows resulting from the ongoing impacts of the crisis on macroeconomic conditions in theU.S. and our customers working to become current on their bills in the fourth quarter 2020 and beyond. In addition, we issue asset-backed debt secured by our device payment plan agreement receivables and the collections on such receivables. These transactions require us to comply with various tests, including delinquency and loss-related tests, which, if not met, would cause the asset-backed debt to amortize earlier and faster than otherwise expected. The holders of our asset-backed debt do not have any recourse to Verizon with respect to the payment of principal and interest on the debt. However, if an early amortization of our asset-backed debt occurs, including as a result of increased customer delinquencies or losses relating to COVID-19, all collections on the securitized device payment plan agreement receivables would be used to pay principal and interest on the asset-backed debt, and our financing cash flow requirements would increase for the twelve months immediately following an early amortization event. Impacts on Financial Results Our revenues and expenses in 2020 were impacted by COVID-19 as a result of the actions we took to care for our employees and to keep our customers connected and as a result of our customers' changing activities as well as the restrictions on activities and the global economic slowdown, as described below. We estimate that the net impact of COVID-19 on our third quarter results was a reduction of approximately$0.05 in earnings per share, primarily as a result of decreases in wireless service revenue, decreases in advertising and search revenue atVerizon Media Group (Verizon Media), and the operational actions we took, as described above.
Revenues
The nine months endedSeptember 30, 2020 included lower overage revenues and lower fees from activations and upgrades and fewer fees, as well as lower roaming revenues as our customers meaningfully reduced travel during the year. As a result of our decision to keep our customers connected during the crisis, we experienced fewer step ups in data plans in the first half of 2020. We saw the rate of step ups increase during the three months endedSeptember 30, 2020 . During the first half of 2020, we also saw a reduction in advertising and search revenue in Verizon Media, as customers scaled back their advertising campaigns. This reduction has moderated during the three months endedSeptember 30, 2020 .
We have seen considerably less churn in the consumer wireless base and lower
equipment volumes and upgrade rates since the beginning of the crisis. As a
result of changing customer behaviors, we experienced significantly lower
equipment revenue during the nine months ended
Expenses
While certain expenses, such as equipment cost, were lower during the nine months endedSeptember 30, 2020 as a result of the revenue impacts discussed above, these decreases were partially offset by an increase in commission expense and, during the first quarter 2020, an increase in the allowance for credit losses. The increase in commission expense was a result of an expansion of our compensation programs for both employees and agents early in the crisis. This COVID-19 relief program did not qualify for deferral treatment as defined by Accounting Standards Update (ASU) 2014-09, "Revenue from Contracts with Customers;" however the costs were not materially different on a cash basis. As a result of waiving late fees and keeping customers connected during the crisis pursuant to our pledge, and pursuant to various state orders and laws, we saw increases in delinquencies across our retail customer base and certain of our business accounts. This change in the delinquency rate has since moderated, as discussed above; however, if the levels of delinquencies for our consumer and small and medium business customers begin to grow again, additional provisions to our allowance for credit losses may be required, which could be significant. We continue to monitor customer behavior and our expected loss assumptions and estimates.
Other
Equity and debt markets have experienced significant volatility during 2020 partially as a result of the crisis, and federal governmental actions to stimulate the economy have significantly impacted interest rates. These circumstances could affect the funding level of our pension plans and our calculated liabilities under our pension and other postemployment benefit plans. Other impacts from the crisis on our financial results in the fourth quarter and beyond could result from a further slowdown in the global economy, additional regulatory or legislative initiatives that impact our relationships with our customers, and other initiatives we undertake to respond to the needs of our employees and our customers.
We expect these impacts on our revenues and expenses to continue during the fourth quarter 2020 and beyond, though the extent of these impacts will depend on the factors described above.
Business Overview We have two reportable segments that we operate and manage as strategic business units -Verizon Consumer Group (Consumer) andVerizon Business Group (Business). 36 -------------------------------------------------------------------------------- Table of Contents Revenue by Segment for the Three Months EndedSeptember 30, 2020 and 2019
[[Image Removed: vz-20200930_g9.jpg]][[Image Removed: vz-20200930_g10.jpg]]
[[Image Removed: vz-20200930_g11.jpg]]
---
Note: Excludes eliminations.
Revenue by Segment for the Nine Months Ended
[[Image Removed: vz-20200930_g12.jpg]][[Image Removed: vz-20200930_g13.jpg]]
[[Image Removed: vz-20200930_g11.jpg]]
---
Note: Excludes eliminations.
Verizon Consumer Group Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are provided across one of the most extensive wireless networks in theU.S. under the Verizon brand and through wholesale and other arrangements. Our wireline services are provided in nine states in the Mid-Atlantic andNortheastern U.S. , as well asWashington D.C. , over our 100% fiber-optic network by our Verizon Fios product portfolio and over a traditional copper-based network to customers who are not served by Fios. Our Consumer segment's wireless and wireline products and services are available to our retail customers, as well as resellers that purchase wireless network access from us on a wholesale basis. Customers can obtain our wireless services on a postpaid or prepaid basis. Our postpaid service is generally billed one month in advance for a monthly access charge in return for access to and usage of network services. Our prepaid service is offered only to Consumer customers and enables individuals to obtain wireless services without credit verification by paying for all services in advance. The Consumer segment also offers several categories of wireless equipment to customers, including a variety of smartphones and other handsets, wireless-enabled internet devices, such as tablets and jetpacks, and other wireless-enabled connected devices, such as smart watches and other wearables. In addition to the wireless services and equipment discussed above, Consumer sells residential fixed connectivity solutions, including internet, video and voice services, and wireless network access to resellers on a wholesale basis. The Consumer segment's operating revenues for the three and nine months endedSeptember 30, 2020 totaled$21.7 billion and$64.6 billion , respectively, representing a decrease of 4.3% and 3.3%, respectively, compared to the similar periods in 2019. See "Segment Results of Operations" for additional information regarding our Consumer segment's operating performance and selected operating statistics.Verizon Business Group Our Business segment provides wireless and wireline communications services and products, including data, video and conferencing services, corporate networking solutions, security and managed network services, local and long distance voice services and network access to deliver various Internet of Things (IoT) services and products, including solutions that support fleet tracking management, compliance management, field service management, asset tracking and other types of mobile resource management. We provide these products and services to businesses, government customers and wireless and wireline carriers across theU.S. and select products and services to customers around the 37 -------------------------------------------------------------------------------- Table of Contents world. The Business segment's operating revenues for the three and nine months endedSeptember 30, 2020 totaled$7.7 billion and$22.9 billion , respectively, representing a decrease of 1.7% and 2.0%, respectively, compared to the similar periods in 2019. See "Segment Results of Operations" for additional information regarding our Business segment's operating performance and selected operating statistics. Corporate and Other Corporate and other includes the results of our media business, Verizon Media, and other businesses, investments in unconsolidated businesses, insurance captives, unallocated corporate expenses, certain pension and other employee benefit related costs and interest and financing expenses. Corporate and other also includes the historical results of divested businesses and other adjustments and gains and losses that are not allocated in assessing segment performance due to their nature. Although such transactions are excluded from the business segment results, they are included in reported consolidated earnings. Gains and losses from transactions that are not individually significant are included in segment results as these items are included in the chief operating decision maker's assessment of segment performance. Verizon Media includes diverse media and technology brands that serve both consumers and businesses. Verizon Media provides consumers with owned and operated and third-party search properties as well as mail, news, finance, sports and entertainment offerings, and provides other businesses and partners access to consumers through digital advertising, content delivery and video streaming platforms. Verizon Media's total operating revenues were$1.7 billion and$4.7 billion , respectively, for the three and nine months endedSeptember 30, 2020 , which represents a decrease of 7.4% and 12.1%, respectively, compared to the similar periods in 2019. Capital Expenditures and Investments We continue to invest in our wireless networks, high-speed fiber and other advanced technologies to position ourselves at the center of growth trends for the future. During the nine months endedSeptember 30, 2020 , these investments included$14.2 billion for capital expenditures. See "Cash Flows Used in Investing Activities" for additional information. Capital expenditures for 2020 are currently expected to be at the upper end of the$17.5 billion to$18.5 billion range, including the continued investment in our 5G network. We believe that our investments aimed at expanding our portfolio of products and services will provide our customers with an efficient, reliable infrastructure for competing in the information economy. Global Network and Technology We are focusing our capital spending on adding capacity and density to our 4G Long-Term Evolution (LTE) network, while also building our next generation 5G network. We are densifying our network by utilizing small cell technology, in-building solutions and distributed antenna systems. Network densification enables us to add capacity to address increasing mobile video consumption and the growing demand for IoT products and services on our 4G LTE and 5G networks. Over the past several years, we have been leading the development of 5G wireless technology industry standards and the ecosystems for fixed and mobile 5G wireless services. We expect that 5G technology will provide higher throughput and lower latency than the current 4G LTE technology and enable our networks to handle more traffic as the number of internet-connected devices grows. As ofOctober 2020 , we have launched our 5G Ultra Wideband Network in 55 U.S. markets, as well as numerous 5G-compatible smartphones and other devices. We have also announced the launch of 5G nationwide service, available to 200 million people in over 1,800 markets. Using an advanced technology called Dynamic Spectrum Sharing, we are utilizing our current low and mid-band spectrum resources to maximize our 5G and 4G LTE customers' experiences on the Verizon network. In addition, as ofOctober 2020 , Verizon has commercially launched 5G Home in eightU.S. markets. To compensate for the shrinking market for traditional copper-based products, we continue to build fiber-based networks supporting data, video and advanced business services - areas where demand for reliable high-speed connections is growing. We are evolving the architecture of our networks to a next-generation multi-use platform, providing improved efficiency and virtualization, increased automation and opportunities for edge computing services that will support both our fiber-based and radio access network technologies. We call this the Intelligent Edge Network. We expect that this new architecture will simplify operations by eliminating legacy network elements, speed the deployment of 5G wireless technology and create new opportunities in the business market in a cost efficient manner. Operating Environment and Trends The information related to trends affecting our business in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 is updated by the disclosure included above under "Impacts of the Recent Novel Coronavirus (COVID-19)" and the following information. We adopted ASU 2016-13, ASU 2018-19, ASU 2019-04, ASU 2019-05, Financial Instruments - Credit Losses (Topic 326) onJanuary 1, 2020 , using the modified retrospective application. This method does not impact the prior periods, which continue to reflect the accounting treatment prior to the adoption of Topic 326. As a result, for items that were affected by our adoption of Topic 326, financial results of periods prior toJanuary 1, 2020 are not comparable to the current period financial results. See Notes 1 and 6 to the condensed consolidated financial statements for additional information. Recent Developments InAugust 2020 , theFCC completed Auction 105 for Priority Access Licenses in the 3.5 Gigahertz (GHz) Citizens Broadband Radio Service band. Verizon won 557 licenses, valued at approximately$1.9 billion , in the auction. InSeptember 2020 , Verizon filed an application to participate inFCC Auction 107, which relates to mid-band wireless spectrum known as C-Band. The auction is expected to commence onDecember 8, 2020 . 38
--------------------------------------------------------------------------------
Table of Contents
Consolidated Results of Operations
In this section, we discuss our overall results of operations and highlight special items that are not included in our segment results. Our revenues and expenses in the first nine months of 2020 were impacted by the COVID-19 pandemic as a result of the actions we took to care for our employees and keep our customers connected and as a result of our customers' changing activities, restrictions on activities and the global economic slowdown. See "Overview" for more information. In "Segment Results of Operations," we review the performance of our two reportable segments in more detail.
© Edgar Online, source