MONROE, La., Nov. 8, 2018 /PRNewswire/ -- CenturyLink,
Inc. (NYSE: CTL) today reported results for the third
quarter 2018.
"A year into the close of the Level 3 acquisition, we are
pleased with our integration accomplishments to date, highlighted
by significant synergy achievement and Adjusted EBITDA margin
expansion," said Jeff Storey,
president and CEO of CenturyLink. "We are now transitioning our
focus to transforming the business, through product evolution,
digitalizing interactions with our customers and a simplified
environment for our employees, all of which are intended to drive
profitable revenue growth."
Total revenue was $5.82 billion
for the third quarter 2018, compared to $6.03 billion for the third quarter 2017 on a pro
forma basis.
Diluted earnings per share was $0.25 for the third quarter
2018, compared to diluted earnings per share of $0.18 for
third quarter 2017. Diluted earnings per share for the third
quarter 2018, excluding $55 million
of after-tax integration-related expenses and special items was,
$0.30.
Financial Results
|
|
Pro Forma
(1)
|
Metric
|
Third
Quarter
|
Third
Quarter
|
($ in millions,
except per share data)
|
2018
|
2017
|
Medium & Small
Business Revenue
|
$
|
860
|
|
896
|
|
Enterprise
Revenue
|
1,278
|
|
1,311
|
|
International &
Global Accounts Revenue
|
892
|
|
918
|
|
Wholesale &
Indirect Revenue
|
1,255
|
|
1,302
|
|
Consumer
Revenue
|
1,355
|
|
1,420
|
|
Regulatory
Revenue
|
178
|
|
186
|
|
Total
Revenue
|
$
|
5,818
|
|
6,033
|
|
Cost of Services and
Products
|
2,672
|
|
2,914
|
|
Selling, General and
Administrative Expenses
|
967
|
|
1,064
|
|
Share-based
Compensation Expenses
|
49
|
|
54
|
|
Adjusted EBITDA
(2)
|
2,228
|
|
2,109
|
|
Adjusted EBITDA,
Excluding Integration-related Expenses and Special Items (2),
(3)
|
2,287
|
|
2,140
|
|
Adjusted EBITDA
Margin (2)
|
38.3
|
%
|
35.0
|
%
|
Adjusted EBITDA
Margin, Excluding Integration-related Expenses and Special Items
(2), (3)
|
39.3
|
%
|
35.5
|
%
|
Net Cash Provided by
Operating Activities
|
1,787
|
|
1,649
|
|
Capital
Expenditures
|
684
|
|
1,075
|
|
Capital Expenditures,
Excluding Integration-related Capital Expenditures and Special
Items (4)
|
665
|
|
1,066
|
|
Unlevered Cash Flow
(2)
|
1,612
|
|
977
|
|
Unlevered Cash Flow,
Excluding Integration-related Capital Expenditures and Special
Items (2), (4), (5)
|
1,672
|
|
1,003
|
|
Free Cash Flow
(2)
|
1,103
|
|
574
|
|
Free Cash Flow,
Excluding Integration-related Capital Expenditures and Special
Items (2), (4), (5)
|
1,163
|
|
600
|
|
Net Income
|
272
|
|
187
|
|
Net Income per Common
Share - Diluted
|
$
|
0.25
|
|
$
|
0.18
|
|
Weighted Average
Shares Outstanding (in millions) - Diluted
|
1,072.4
|
|
1,063.9
|
|
|
|
|
(1)
Reference to "pro forma" figures throughout this release assume the
Level 3 acquisition and the colocation and data center sale took
place on January 1, 2017. For a description of adjustments made in
connection with preparing these pro forma figures, see the attached
schedule in the Non-GAAP metrics section of this
release.
|
(2)
See the attached schedules for definitions of non-GAAP metrics and
reconciliation to GAAP figures.
|
(3)
Excludes (i) $41 million of integration-related expenses and $18
million of special items for the third quarter of 2018 and (ii) $68
million of integration-related expenses and $(37) million of
special items for the third quarter of 2017.
|
(4)
Excludes (i) integration-related capital expenditures of $19
million in the third quarter of 2018 and (ii)
integration-related capital expenditures of $9 million in the third
quarter of 2017.
|
(5)
Excludes cash paid (i) for integration-related expenses and special
items of $60 million for the third quarter of 2018 and (ii) for
integration-related expense of $26 million for the third quarter of
2017.
|
|
|
|
|
|
|
|
As of January 1, 2018, the company
prospectively adopted the new revenue recognition standard (ASC
606). The adoption of this new standard positively affected total
revenue in the third quarter 2018 by approximately $15 million, with a $12
million positive effect on Consumer revenue and an overall
$3 million positive effect on
Business revenue. Within Business, the revenue recognition standard
had a benefit of approximately $3
million to the Medium and Small Business unit and
approximately $5 million to the
International and Global Accounts business unit. The Enterprise
business unit was negatively impacted by $3
million and the Wholesale and Indirect business unit was
negatively affected by $2
million.
|
|
Pro Forma
(2)
|
|
Revenue
|
Third
Quarter
|
Third
Quarter
|
Percent
|
($ in
millions)
|
2018
(1)
|
2017
|
Change
|
By Business
Unit
|
|
|
|
Medium and Small
Business
|
$
|
860
|
|
896
|
|
(4)
|
%
|
Enterprise
|
1,278
|
|
1,311
|
|
(3)
|
%
|
International and
Global Accounts
|
892
|
|
918
|
|
(3)
|
%
|
Wholesale and
Indirect
|
1,255
|
|
1,302
|
|
(4)
|
%
|
Consumer
|
1,355
|
|
1,420
|
|
(5)
|
%
|
Regulatory
|
178
|
|
186
|
|
(4)
|
%
|
Total
Revenue
|
$
|
5,818
|
|
6,033
|
|
(4)
|
%
|
|
|
|
|
By Service Type
(3)
|
|
|
|
IP and Data
Services
|
$
|
1,796
|
|
1,801
|
|
—
|
%
|
Transport and
Infrastructure
|
2,051
|
|
2,091
|
|
(2)
|
%
|
Voice and
Collaboration
|
1,640
|
|
1,790
|
|
(8)
|
%
|
IT and Managed
Services
|
153
|
|
165
|
|
(7)
|
%
|
Regulatory
|
178
|
|
186
|
|
(4)
|
%
|
Total
Revenue
|
$
|
5,818
|
|
6,033
|
|
(4)
|
%
|
|
|
|
|
(1)
Third quarter 2018 revenue includes the effects of Revenue
Recognition Standard ASC 606.
|
(2)
Reference to "pro forma" figures throughout this release assume the
Level 3 acquisition and the colocation and data center sale took
place on January 1, 2017. For description of adjustments made
in connection with preparing these pro forma figures, see the
attached schedule in the Non-GAAP metrics section of this
release.
|
(3)
The categorization of pro forma revenue by service type was
reclassified to conform to the current period
presentation.
|
Cash Flow
Free Cash Flow, excluding integration-related expenses and
special items, was $1.163 billion in
the third quarter 2018, compared to $600
million in the third quarter 2017 on a pro forma basis.
As of September 30, 2018, CenturyLink had cash and cash
equivalents of $390 million.
During the third quarter 2018, the company received a tax refund
of $392 million and made a
$400 million contribution to its
pension plan. Year-to-date, the company has contributed a total of
$500 million to the pension plan.
Integration Synergies and Expenses
CenturyLink exited the third quarter 2018 with approximately
$790 million of annualized run-rate
Adjusted EBITDA synergies, related to the Level 3 acquisition,
compared to $675 million as of the
end of the second quarter 2018.
Integration-related expenses and special items in the third
quarter 2018 were $94 million, of
which $59 million impacted Adjusted
EBITDA and $60 million impacted Free
Cash Flow.
2018 Business Outlook
"We are pleased with our performance and are reiterating our
full year outlook for Adjusted EBITDA of $9.00 to $9.15
billion," said Neel Dev, CenturyLink's executive vice
president and chief financial officer. "Based on lower year
to date spending, we are updating our outlook for full year 2018
Capital Expenditures to $3.15 to
$3.25 billion. Additionally,
driven by our lower capital spending, we are updating our full year
2018 outlook for Free Cash Flow to $4.00 to $4.20
billion from $3.60 to
$3.80 billion."
2018 Metric
(1), (2)
|
Updated
Outlook
|
Previous
Outlook
|
Adjusted
EBITDA
|
$9.00 to $9.15
billion
|
$9.00 to $9.15
billion
|
Free Cash
Flow
|
$4.00 billion to
$4.20 billion
|
$3.60 to $3.80
billion
|
Dividends
(3)
|
$2.30
billion
|
$2.30
billion
|
Free Cash Flow after
Dividends
|
$1.70 billion to
$1.90 billion
|
$1.30 billion to
$1.50 billion
|
GAAP Interest
Expense
|
$2.25
billion
|
$2.25
billion
|
Cash
Interest
|
$2.10
billion
|
$2.10
billion
|
Capital
Expenditures
|
$3.15 billion to
$3.25 billion
|
~16% of
Revenue
|
Depreciation and
Amortization
|
$5.10 to $5.30
billion
|
$5.10 to $5.30
billion
|
Non-cash Compensation
Expense
|
$200
million
|
$200
million
|
Cash Income Taxes
(4)
|
$100
million
|
$100
million
|
Full Year Effective
Income Tax Rate
|
~18%
|
~18%
|
|
|
|
(1)
See the attached schedules for definitions of non-GAAP metrics and
reconciliation to GAAP figures.
|
(2)
Outlook measures in this release and the accompanying schedules (i)
exclude integration-related expenses, (ii) exclude the effects of
special items, future changes in our operating or capital
allocation plans, unforeseen changes in regulation, laws or
litigation, and other unforeseen events or circumstances impacting
our financial performance and (iii) speak only as of Nov. 8,
2018. See "Forward Looking Statements" below.
|
(3)
Dividends is defined as dividends paid as disclosed in the
Consolidated Statements of Cash Flows. Assumes continued
payment of dividends at the current rates based on the number of
shares outstanding on September 30, 2018. Payments of all
dividends are at the discretion of the board of
directors.
|
(4)
Cash income taxes are exclusive of all material prior period
refunds.
|
Investor Call
CenturyLink's management will host a conference call at
5:00 p.m. ET today, November 8, 2018. The conference call will be
streamed live over CenturyLink's website at ir.centurylink.com.
Additional information regarding third quarter 2018 results,
including the presentation management will review during the
conference call, will be available on the Investor Relations
website prior to the call. If you are unable to join the call via
the Web, the call can be accessed live at +1 877-283-5145 (U.S.
Domestic) or +1 312-281-1200 (International).
A telephone replay of the call will be available beginning at
7:00 p.m. ET on November 8, 2018, and ending February 6, 2019, at 6:00
p.m. ET. The replay can be accessed by dialing +1
800-633-8284 (U.S. Domestic) or +1 402-977-9140 (International),
reservation code 21897318. A webcast replay of the call will also
be available on our website beginning at 7:00 p.m. ET on November
8, 2018 and ending February 6,
2019 at 6:00 p.m. ET.
About CenturyLink
CenturyLink (NYSE: CTL) is the second largest U.S.
communications provider to global enterprise customers. With
customers in more than 60 countries and an intense focus on the
customer experience, CenturyLink strives to be the world's best
networking company by solving customers' increased demand for
reliable and secure connections. The company also serves as its
customers' trusted partner, helping them manage increased network
and IT complexity and providing managed network and cyber security
solutions that help protect their business.
Forward Looking Statements
Except for historical and factual information, the matters
set forth in this release and other of our oral or written
statements identified by words such as "estimates," "expects,"
"anticipates," "believes," "plans," "intends," and similar
expressions are forward-looking statements as defined by the
federal securities laws, and are subject to the "safe harbor"
protections thereunder. These forward-looking statements are not
guarantees of future results and are based on current expectations
only, are inherently speculative, and are subject to a number of
assumptions, risks and uncertainties, many of which are beyond our
control. Actual events and results may differ materially from
those anticipated, estimated, projected or implied by us in those
statements if one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect. Factors
that could affect actual results include but are not limited to:
the effects of competition from a wide variety of competitive
providers, including decreased demand for our legacy offerings and
increased pricing pressures; the effects of new, emerging or
competing technologies, including those that could make our
products less desirable or obsolete; the effects of ongoing changes
in the regulation of the communications industry, including the
outcome of regulatory or judicial proceedings relating to
intercarrier compensation, interconnection obligations, universal
service, broadband deployment, data protection and net neutrality;
our ability to timely realize the anticipated benefits of our
recently-completed combination with Level 3, including our ability
to attain anticipated cost savings, to use Level 3's net operating
losses in the amounts projected, to retain key personnel and to
avoid unanticipated integration disruptions; our ability to
safeguard our network, and to avoid the adverse impact on our
business from possible security breaches, service outages, system
failures, equipment breakages or similar events impacting our
network or the availability and quality of our services; our
ability to effectively adjust to changes in the communications
industry and changes in the composition of our markets and product
mix; possible changes in the demand for our products and services,
including our ability to effectively respond to increased demand
for high-speed broadband service; our ability to successfully
maintain the quality and profitability of our existing product and
service offerings, to provision them efficiently to our customers,
and to introduce profitable new offerings on a timely and
cost-effective basis; our ability to generate cash flows sufficient
to fund our financial commitments and objectives, including our
capital expenditures, operating costs, debt repayments, periodic
share repurchases, dividends, pension contributions and other
benefits payments; changes in our operating plans, corporate
strategies, dividend payment plans or other capital allocation
plans, whether based upon changes in our cash flows, cash
requirements, financial performance, financial position, market
conditions or otherwise; our ability to effectively retain and hire
key personnel and to successfully negotiate collective bargaining
agreements on reasonable terms without work stoppages; increases in
the costs of our pension, health, post-employment or other
benefits, including those caused by changes in markets, interest
rates, mortality rates, demographics or regulations; adverse
changes in our access to credit markets on favorable terms, whether
caused by changes in our financial position, lower debt credit
ratings, unstable markets or otherwise; our ability to meet the
terms and conditions of our debt obligations; our ability to
maintain favorable relations with our key business partners,
customers, suppliers, vendors, landlords and financial
institutions; our ability to effectively manage our network
buildout projects and our other expansion opportunities; our
ability to collect our receivables from financially troubled
customers; any adverse developments in legal or regulatory
proceedings involving us; changes in tax, communications, pension,
healthcare or other laws or regulations, in governmental support
programs, or in general government funding levels; the effects of
changes in accounting policies or practices, including changes that
could potentially require future impairment charges; the effects of
adverse weather, terrorism or other natural or man-made disasters;
the effects of more general factors such as changes in interest
rates, in exchange rates, in operating costs, in general market,
labor, economic or geo-political conditions, or in public policy;
and other risks referenced from time to time in our filings with
the U.S. Securities and Exchange Commission ("SEC"). For all
the reasons set forth above and in our SEC filings, you are
cautioned not to unduly rely upon our forward-looking statements,
which speak only as of the date made. We undertake no obligation to
publicly update or revise any forward-looking statements for any
reason, whether as a result of new information, future events or
developments, changed circumstances, or otherwise. Furthermore, any
information about our intentions contained in any of our
forward-looking statements reflects our intentions as of the date
of such forward-looking statement, and is based upon, among other
things, existing regulatory, technological, industry, competitive,
economic and market conditions, and our assumptions as of such
date. We may change our intentions, strategies or plans without
notice at any time and for any reason.
Reconciliation to GAAP
This release includes certain non-GAAP historical and
forward-looking financial measures, including but not limited to
adjusted EBITDA, free cash flow, unlevered cash flow, pro forma
financial data and adjustments to GAAP measures to exclude the
effect of special items. In addition to providing key metrics for
management to evaluate the company's performance, we believe these
measurements assist investors in their understanding of
period-to-period operating performance and in identifying
historical and prospective trends.
Reconciliations of non-GAAP financial measures to the most
comparable GAAP measures are included in the attached financial
schedules. Reconciliation of additional non-GAAP historical
financial measures that may be discussed during the call described
above, along with further descriptions of non-GAAP financial
measures, will be available in the Investor Relations portion of
the company's website at www.centurylink.com and in the associated
current report on form 8-K. Non-GAAP measures are not presented to
be replacements or alternatives to the GAAP measures, and investors
are urged to consider these non-GAAP measures in addition to, and
not in substitution for, measures prepared in accordance with GAAP.
CenturyLink may present or calculate its non-GAAP measures
differently from other companies.
CenturyLink,
Inc.
|
CONSOLIDATED
STATEMENTS OF INCOME
|
THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2018 AND 2017
|
(UNAUDITED)
|
($ in millions,
except per share amounts; shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
September 30,
|
|
Increase /
(decrease)
|
|
Nine months
ended
September 30,
|
|
Increase /
(decrease)
|
|
|
|
2018
|
|
2017
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
REVENUE
|
|
$
|
5,818
|
|
|
4,034
|
|
|
44
|
%
|
|
$
|
17,665
|
|
|
12,333
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and
products
|
|
2,672
|
|
|
1,927
|
|
|
39
|
%
|
|
8,205
|
|
|
5,705
|
|
|
44
|
%
|
|
Selling, general and
administrative
|
|
967
|
|
|
710
|
|
|
36
|
%
|
|
3,191
|
|
|
2,404
|
|
|
33
|
%
|
|
Depreciation and
amortization
|
|
1,285
|
|
|
910
|
|
|
41
|
%
|
|
3,858
|
|
|
2,739
|
|
|
41
|
%
|
|
Total operating
expenses
|
|
4,924
|
|
|
3,547
|
|
|
39
|
%
|
|
15,254
|
|
|
10,848
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
|
894
|
|
|
487
|
|
|
84
|
%
|
|
2,411
|
|
|
1,485
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSE)
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(557)
|
|
|
(362)
|
|
|
54
|
%
|
|
(1,638)
|
|
|
(1,000)
|
|
|
64
|
%
|
|
Other income
(expense), net
|
|
(8)
|
|
|
14
|
|
|
nm
|
|
|
29
|
|
|
1
|
|
|
nm
|
|
|
Income tax
expense
|
|
(57)
|
|
|
(47)
|
|
|
21
|
%
|
|
(123)
|
|
|
(214)
|
|
|
(43)
|
%
|
NET INCOME
|
|
$
|
272
|
|
|
92
|
|
|
196
|
%
|
|
$
|
679
|
|
|
272
|
|
|
150
|
%
|
BASIC EARNINGS PER
SHARE
|
|
$
|
0.25
|
|
|
0.17
|
|
|
47
|
%
|
|
$
|
0.64
|
|
|
0.50
|
|
|
28
|
%
|
DILUTED EARNINGS PER
SHARE
|
|
$
|
0.25
|
|
|
0.17
|
|
|
47
|
%
|
|
$
|
0.63
|
|
|
0.50
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
1,066,904
|
|
|
541,521
|
|
|
97
|
%
|
|
1,065,410
|
|
|
541,113
|
|
|
97
|
%
|
|
Diluted
|
|
1,072,351
|
|
|
541,963
|
|
|
98
|
%
|
|
1,069,726
|
|
|
541,879
|
|
|
97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS PER COMMON
SHARE(1)
|
|
$
|
0.54
|
|
|
0.54
|
|
|
—
|
%
|
|
$
|
1.62
|
|
|
1.62
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exclude:
integration-related expenses and special
items(2)
|
|
55
|
|
|
22
|
|
|
150
|
%
|
|
192
|
|
|
167
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME EXCLUDING
INTEGRATION-RELATED EXPENSES AND SPECIAL ITEMS
|
|
$
|
327
|
|
|
114
|
|
|
187
|
%
|
|
$
|
871
|
|
|
439
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER
SHARE EXCLUDING INTEGRATION-RELATED EXPENSES AND SPECIAL
ITEMS
|
|
$
|
0.30
|
|
|
0.21
|
|
|
|
|
$
|
0.81
|
|
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Dividends per common share based on actuals previously
reported
|
(2) Net of
income tax effect. Refer to Non-GAAP Special Items for
detail of special items included.
|
|
nm - Percentages
greater than 200% and comparisons between positive and negative
values are considered not meaningful.
|
CenturyLink,
Inc.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
AS OF SEPTEMBER 30,
2018 AND DECEMBER 31, 2017
|
(UNAUDITED)
|
($ in
millions)
|
|
|
September 30, 2018
|
|
December 31, 2017
|
ASSETS
|
|
|
|
CURRENT
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
|
390
|
|
|
551
|
|
Restricted
cash
|
3
|
|
|
5
|
|
Other current
assets
|
3,721
|
|
|
3,638
|
|
Total
current assets
|
4,114
|
|
|
4,194
|
|
|
|
|
|
NET PROPERTY, PLANT
AND EQUIPMENT
|
|
|
|
Property, plant and
equipment
|
52,661
|
|
|
51,204
|
|
Accumulated
depreciation
|
(26,493)
|
|
|
(24,352)
|
|
Net
property, plant and equipment
|
26,168
|
|
|
26,852
|
|
|
|
|
|
GOODWILL AND OTHER
ASSETS
|
|
|
|
Goodwill
|
30,770
|
|
|
30,475
|
|
Restricted
cash
|
27
|
|
|
31
|
|
Other, net
|
12,292
|
|
|
14,059
|
|
Total goodwill and other assets
|
43,089
|
|
|
44,565
|
|
|
|
|
|
TOTAL
ASSETS
|
$
|
73,371
|
|
|
75,611
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
Current maturities of
long-term debt
|
$
|
778
|
|
|
443
|
|
Other current
liabilities
|
4,508
|
|
|
4,414
|
|
Total current liabilities
|
5,286
|
|
|
4,857
|
|
|
|
|
|
LONG-TERM
DEBT
|
35,749
|
|
|
37,283
|
|
DEFERRED CREDITS AND
OTHER LIABILITIES
|
9,533
|
|
|
9,980
|
|
STOCKHOLDERS'
EQUITY
|
22,803
|
|
|
23,491
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
|
$
|
73,371
|
|
|
75,611
|
|
|
|
|
|
|
CenturyLink,
Inc.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
NINE MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017
|
|
(UNAUDITED)
|
|
($ in
millions)
|
|
|
|
|
|
|
|
Nine months
ended
|
|
|
September 30,
2018
|
|
September 30, 2017
*
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
Net cash provided by
operating activities
|
$
|
5,036
|
|
|
2,700
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
Capital
expenditures
|
(2,260)
|
|
|
(2,363)
|
|
|
Proceeds from the
sale of data centers and colocation business, less cash
sold
|
—
|
|
|
1,467
|
|
|
Proceeds from sale of
property, plant and equipment and other assets
|
125
|
|
|
51
|
|
|
Other investing,
net
|
(61)
|
|
|
(5)
|
|
|
Net cash used in
investing activities
|
(2,196)
|
|
|
(850)
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
Net proceeds from
issuance of long-term debt
|
130
|
|
|
6,608
|
|
|
Proceeds from
financing obligation
|
—
|
|
|
356
|
|
|
Payments of long-term
debt
|
(1,539)
|
|
|
(1,612)
|
|
|
Net payments on
revolving line of credit
|
185
|
|
|
(370)
|
|
|
Dividends
paid
|
(1,735)
|
|
|
(881)
|
|
|
Other financing,
net
|
(48)
|
|
|
(11)
|
|
|
Net cash (used in)
provided by financing activities
|
(3,007)
|
|
|
4,090
|
|
|
Net increase in cash,
cash equivalents, restricted cash and securities
|
(167)
|
|
|
5,940
|
|
|
Cash, cash
equivalents, restricted cash, and securities at beginning of period
*
|
587
|
|
|
224
|
|
|
Cash, cash
equivalents restricted cash, and securities at end of period
*
|
$
|
420
|
|
|
6,164
|
|
|
|
|
|
|
*
|
In the second quarter
of 2017, CenturyLink adopted Accounting Standards Update ("ASU")
2016-18, "Restricted Cash (a consensus of the FASB Emerging Issues
Task Force)" ("ASU 2016-18"), which requires that a statement of
cash flows explain the change in the total of cash, cash
equivalents and amounts generally described as restricted cash and
restricted cash equivalents as compared to the prior presentation,
which explained only the change in cash and cash equivalents. ASU
2016-18 became effective January 1, 2018. This change was
applied on a retrospective basis to all previous periods to match
the current period presentation with immaterial impact.
|
CenturyLink,
Inc.
|
OPERATING
METRICS
|
(UNAUDITED)
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
June 30,
2018
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
Operating
Metrics
|
|
|
|
|
|
|
Consumer broadband
subscribers
|
|
4,843
|
|
|
4,906
|
|
|
5,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer broadband
subscribers are customers that purchase broadband connection
service through their existing telephone lines, stand-alone
telephone lines, or fiber-optic cables. Our methodology for
counting our consumer broadband subscribers includes only those
lines that we use to provide services to external customers and
excludes lines used solely by us and our affiliates. It also
excludes unbundled loops and includes stand-alone consumer
broadband subscribers. We count lines when we install the
service.
|
|
|
|
|
|
|
|
|
|
|
|
Description of Non-GAAP Metrics
Pursuant to Regulation G, the company is hereby providing
definitions of non-GAAP financial metrics and reconciliations to
the most directly comparable GAAP measures.
The following describes and reconciles those financial measures
as reported under accounting principles generally accepted in
the United States (GAAP) with
those financial measures as adjusted by the items detailed below
and presented in the accompanying news release. These calculations
are not prepared in accordance with GAAP and should not be viewed
as alternatives to GAAP. In keeping with its historical financial
reporting practices, the company believes that the supplemental
presentation of these calculations provides meaningful non-GAAP
financial measures to help investors understand and compare
business trends among different reporting periods on a consistent
basis.
We use the term Special items as a non-GAAP measure to
describe items that impacted a period's statement of income for
which investors may want to give special consideration due to their
magnitude, nature or both. We do not use the term
non-recurring because while some of these items are special
because they are unusual and infrequent, others may recur in future
periods.
Adjusted EBITDA ($) is defined as net income (loss) from
the Statements of Income before income tax (expense) benefit, total
other income (expense), depreciation and amortization and non-cash
stock compensation expense.
Adjusted EBITDA Margin (%) is defined as Adjusted EBITDA
divided by total revenue.
Management believes that Adjusted EBITDA and Adjusted EBITDA
Margin are relevant and useful metrics to provide to investors, as
they are an important part of CenturyLink's internal reporting and
are key measures used by Management to evaluate profitability and
operating performance of CenturyLink and to make resource
allocation decisions. Management believes such measures are
especially important in a capital-intensive industry such as
telecommunications. Management also uses Adjusted EBITDA and
Adjusted EBITDA Margin (and similarly uses these terms excluding
acquisition-related expenses) to compare CenturyLink's performance
to that of its competitors and to eliminate certain non-cash and
non-operating items in order to consistently measure from period to
period its ability to fund capital expenditures, fund growth,
service debt and determine bonuses. Adjusted EBITDA excludes
non-cash stock compensation expense because of the non-cash nature
of this item. Adjusted EBITDA also excludes interest income,
interest expense and income taxes, and in our view constitutes an
accrual-based measure that has the effect of excluding
period-to-period changes in working capital and shows profitability
without regard to the effects of capital or tax structure. Adjusted
EBITDA also excludes depreciation and amortization expense because
these non-cash expenses primarily reflect the impact of historical
capital investments, as opposed to the cash impacts of capital
expenditures made in recent periods, which may be evaluated through
cash flow measures. Adjusted EBITDA excludes the gain (or
loss) on extinguishment and modification of debt and other, net
because these items are not related to the primary operations of
CenturyLink.
There are limitations to using Adjusted EBITDA as a financial
measure, including the difficulty associated with comparing
companies that use similar performance measures whose calculations
may differ from CenturyLink's calculations. Additionally, this
financial measure does not include certain significant items such
as interest income, interest expense, income taxes, depreciation
and amortization, non-cash stock compensation expense, the gain (or
loss) on extinguishment and modification of debt and net other
income (expense). Adjusted EBITDA and Adjusted EBITDA Margin
(either with or without acquisition-related expense adjustments)
should not be considered a substitute for other measures of
financial performance reported in accordance with GAAP.
Unlevered Cash Flow is defined as net cash provided by
(used in) operating activities less capital expenditures, plus cash
interest paid and less interest income all as disclosed in the
Statements of Cash Flows or the Statements of Income. Management
believes that Unlevered Cash Flow is a relevant metric to provide
to investors, as it is an indicator of the operational strength and
performance of CenturyLink and, measured over time, provides
management and investors with a sense of the underlying business'
growth pattern and ability to generate cash. Unlevered Cash
Flow excludes cash used for acquisitions and debt service and the
impact of exchange rate changes on cash and cash equivalents
balances.
There are material limitations to using Unlevered Cash Flow to
measure CenturyLink's cash performance as it excludes certain
material items such as payments on and repurchases of long-term
debt, interest income, cash interest expense and cash used to fund
acquisitions. Comparisons of CenturyLink's Unlevered Cash Flow to
that of some of its competitors may be of limited usefulness since
CenturyLink does not currently pay a significant amount of income
taxes due to net operating loss carryforwards, and therefore,
currently generates higher cash flow than a comparable business
that does pay income taxes. Additionally, this financial measure is
subject to variability quarter over quarter as a result of the
timing of payments related to accounts receivable and accounts
payable and capital expenditures. Unlevered Cash Flow should not be
used as a substitute for net change in cash and cash equivalents in
the Consolidated Statements of Cash Flows.
Free Cash Flow is defined as net cash provided by (used
in) operating activities less capital expenditures as disclosed in
the Statements of Cash Flows. Management believes that Free Cash
Flow is a relevant metric to provide to investors, as it is an
indicator of the CenturyLink's ability to generate cash to service
its debt. Free Cash Flow excludes cash used for acquisitions,
principal repayments and the impact of exchange rate changes on
cash and cash equivalents balances.
There are material limitations to using Free Cash Flow to
measure CenturyLink's performance as it excludes certain material
items such as principal payments on and repurchases of long-term
debt and cash used to fund acquisitions. Comparisons of
CenturyLink's Free Cash Flow to that of some of its competitors may
be of limited usefulness since CenturyLink does not currently pay a
significant amount of income taxes due to net operating loss
carryforwards, and therefore, generates higher cash flow than a
comparable business that does pay income taxes. Additionally, this
financial measure is subject to variability quarter over quarter as
a result of the timing of payments related to interest expense,
accounts receivable and accounts payable and capital expenditures.
Free Cash Flow should not be used as a substitute for net change in
cash and cash equivalents on the Consolidated Statements of Cash
Flows.
CenturyLink,
Inc.
|
Non-GAAP
Integration-Related Expenses and Special Items
|
(UNAUDITED)
|
($ in
millions)
|
|
|
|
|
|
Actual
QTD
|
|
Pro
Forma
|
|
Actual
YTD
|
Integration-Related Expenses and Special Items
Impacting Adjusted EBITDA
|
3Q18
|
3Q17
|
|
3Q17
|
|
3Q18
|
3Q17
|
(Gain) Loss on sale
of data centers and colocation business
|
$
|
—
|
|
(37)
|
|
|
(37)
|
|
|
—
|
|
82
|
|
OTT/Stream impairment
of content commitment and hardware, software, and internal labor
(1)
|
18
|
|
—
|
|
|
—
|
|
|
60
|
|
—
|
|
Total special
items impacting adjusted EBITDA
|
18
|
|
(37)
|
|
|
(37)
|
|
|
60
|
|
82
|
|
Plus:
integration-related expenses impacting adjusted EBITDA
(2)
|
41
|
|
67
|
|
|
68
|
|
|
266
|
|
95
|
|
Total
integration-related expenses and special items impacting adjusted
EBITDA
|
$
|
59
|
|
30
|
|
|
31
|
|
|
326
|
|
177
|
|
|
|
|
|
|
|
|
|
|
Actual
QTD
|
|
Pro
Forma
|
|
Actual
YTD
|
Integration-Related Expenses and Special Items
Impacting Net Income
|
3Q18
|
3Q17
|
|
3Q17
|
|
3Q18
|
3Q17
|
(Gain) Loss on sale
of data centers and colocation business
|
$
|
—
|
|
(37)
|
|
|
(37)
|
|
|
—
|
|
82
|
|
OTT/Stream impairment
of content commitment and hardware, software, and internal labor
(1)
|
18
|
|
—
|
|
|
—
|
|
|
60
|
|
—
|
|
Additional
depreciation expense for real estate assets not meeting the
requirement of sale leaseback accounting
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
44
|
|
Early debt retirement
costs
|
33
|
|
—
|
|
|
—
|
|
|
33
|
|
—
|
|
Total special
items impacting net income
|
51
|
|
(37)
|
|
|
(37)
|
|
|
93
|
|
126
|
|
Plus:
integration-related expenses impacting net income
(2)
|
43
|
|
67
|
|
|
68
|
|
|
276
|
|
95
|
|
Total
integration-related expenses and special items impacting net
income
|
94
|
|
30
|
|
|
31
|
|
|
369
|
|
221
|
|
Income tax effect of
integration-related expenses and special items
(1)
|
(19)
|
|
(8)
|
|
|
(12)
|
|
|
(91)
|
|
(54)
|
|
Tax benefit from
carryback losses
|
—
|
|
—
|
|
|
—
|
|
|
(142)
|
|
—
|
|
Impact of tax
reform
|
7
|
|
—
|
|
|
—
|
|
|
83
|
|
—
|
|
FIN 48 release due to
statute expiration
|
(27)
|
|
—
|
|
|
—
|
|
|
(27)
|
|
—
|
|
Total
integration-related expenses and special items impacting net
income, net of tax
|
$
|
55
|
|
22
|
|
|
19
|
|
|
192
|
|
167
|
|
|
|
|
|
|
|
|
|
(1) Tax
effect calculated using the annualized effective statutory tax
rate, excluding any non-recurring discrete items, which was 38% for
2017, 26.4% for the three months ended Q1 2018, 26.1% for the six
months ended Q2 2018 and 24.6% for the nine months ended Q3
2018.
|
(2)
Includes $55 million of restructuring reserve impairment for Q2
2018.
|
CenturyLink,
Inc.
|
Pro Forma
Consolidated Statements of Income
|
(UNAUDITED)
|
($ in
millions)
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2017
|
|
Actual
Consolidated
CenturyLink
|
Predecessor
Level 3
|
Adjustments
|
|
Pro Forma
Combined
Company (1)
|
OPERATING
REVENUES
|
|
|
|
|
|
Operating
revenues
|
$
|
4,034
|
|
2,059
|
|
(61)
|
|
(a)
|
6,032
|
|
Colocation sold to
Cyxtera and not retained
|
—
|
|
—
|
|
1
|
|
|
1
|
|
Total operating
revenues
|
4,034
|
|
2,059
|
|
(60)
|
|
|
6,033
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
Cost of services and
products
|
1,927
|
|
1,046
|
|
(59)
|
|
(a)
|
2,914
|
|
Selling, general and
administrative
|
710
|
|
354
|
|
—
|
|
|
1,064
|
|
Depreciation and
amortization
|
910
|
|
310
|
|
48
|
|
(b)
|
1,268
|
|
Total operating
expenses
|
3,547
|
|
1,710
|
|
(11)
|
|
|
5,246
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
487
|
|
349
|
|
(49)
|
|
|
787
|
|
|
|
|
|
|
|
OTHER (EXPENSE)
INCOME
|
|
|
|
|
|
Interest
expense
|
(362)
|
|
(128)
|
|
(38)
|
|
(c)
|
(528)
|
|
Other expense,
net
|
14
|
|
12
|
|
(13)
|
|
(d)
|
13
|
|
Income tax
expense
|
(47)
|
|
(76)
|
|
38
|
|
(e)
|
(85)
|
|
NET INCOME
|
$
|
92
|
|
157
|
|
(62)
|
|
|
187
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER
COMMON SHARE
|
|
|
|
|
0.18
|
|
|
|
|
|
|
|
DILUTED WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
1,063.9
|
|
|
|
|
|
|
|
Pro Forma
Reconciliation for Non-GAAP Adjusted EBITDA
|
Acquisition/integration related expenses
|
$
|
67
|
|
31
|
|
(30)
|
|
(f)
|
68
|
|
Loss on sale of data
centers and colocation business
|
(37)
|
|
—
|
|
—
|
|
|
(37)
|
|
Share-based
compensation expense
|
21
|
|
33
|
|
—
|
|
(g)
|
54
|
|
|
|
|
(1) These
pro forma figures have not been prepared in conformity with SEC
rules governing the preparation of pro forma financial data under
Regulation S-X.
|
(a)
|
Adjustment reflects
the elimination of operating revenues and expenses for existing
commercial transactions between CenturyLink and Level 3 and
elimination of Level 3 deferred revenues.
|
(b)
|
Depreciation expense
decreased on Level 3's property, plant and equipment resulting from
decreased PP&E fair value. Increase in amortization expense
resulting from increase intangible asset fair value.
|
(c)
|
Adjustments reflect
the net increase in interest expense resulting from (i) interest on
the new debt to finance the combination and the amortization of the
related debt issuance costs; (ii) the elimination of Level 3's
historical amortization of debt discount and amortization of debt
issuance costs; and (iii) a reduction in interest expense from the
accretion of the purchase accounting associated with reflecting
Level 3's long-term debt based on its estimated fair
value.
|
(d)
|
Adjustments reflect
the removal of CenturyLink's interest income earned on funds held
in escrow for the purpose of the acquisition of Level 3; the Q4
2017 adjustment includes the reclassification of Level 3 interest
income from Interest expense to Other income/(expense),
net.
|
(e)
|
Income tax effect of
Pro Forma adjustments was based on the effective tax rate of
38%.
|
(f)
|
Pro Forma adjustments
relate to integration related interest income and expense as such
items would not have been incurred in 2017 under the Pro Forma
perspective that assumes the Level 3 acquisition occurred on
January 1, 2016.
|
(g)
|
Adjustment reflects
the removal of share-based compensation expense that would not have
been incurred in 2017 under the Pro Forma perspective that assumes
the Level 3 acquisition occurred on January 1, 2016.
|
CenturyLink,
Inc.
|
Pro Forma Condensed
Consolidated Statements of Cash Flows
|
(UNAUDITED)
|
($ in
millions)
|
|
|
|
|
|
Three Months Ended
September 30, 2017
|
|
Actual
Consolidated
CenturyLink
|
Predecessor
Level 3
|
Pro Forma
Combined
Company(1)
|
OPERATING
ACTIVITIES
|
|
|
|
Net cash provided by
operating activities
|
$
|
958
|
|
691
|
|
1,649
|
|
INVESTING
ACTIVITIES
|
|
|
|
Capital
expenditures
|
(753)
|
|
(322)
|
|
(1,075)
|
|
Proceeds from the
sale of data centers and colocation business, less cash
sold
|
(6)
|
|
—
|
|
(6)
|
|
Proceeds from sale of
property, plant and equipment and other
|
3
|
|
1
|
|
4
|
|
Maturity of
marketable securities
|
—
|
|
1,127
|
|
1,127
|
|
Net cash (used in)
provided by investing activities
|
(756)
|
|
806
|
|
50
|
|
FINANCING
ACTIVITIES
|
|
|
|
Proceeds from
financing obligation
|
(22)
|
|
—
|
|
(22)
|
|
Payments of financing
obligations
|
4
|
|
—
|
|
4
|
|
Payments of long-term
debt
|
(86)
|
|
(302)
|
|
(388)
|
|
Dividends
paid
|
(291)
|
|
—
|
|
(291)
|
|
Proceeds from the
issuance of stock
|
1
|
|
—
|
|
1
|
|
Other financing,
net
|
(1)
|
|
1
|
|
—
|
|
Net cash used in
financing activities
|
(395)
|
|
(301)
|
|
(696)
|
|
Net (decrease)
increase in cash, cash equivalents, restricted cash and
securities
|
(193)
|
|
1,196
|
|
1,003
|
|
Cash, cash
equivalents, restricted cash and securities at beginning of
period
|
6,357
|
|
1,090
|
|
7,447
|
|
Cash, cash
equivalents, restricted cash and securities at end of
period
|
$
|
6,164
|
|
2,286
|
|
8,450
|
|
|
|
|
|
Pro Forma
Reconciliation for Non-GAAP Cash Flow:
|
Cash interest
paid
|
$
|
293
|
|
130
|
|
423
|
|
Interest
income
|
(14)
|
|
(6)
|
|
(20)
|
|
Cash
integration-related expenses
|
16
|
|
10
|
|
26
|
|
Integration-related
capital expenditures
|
5
|
|
4
|
|
9
|
|
|
|
(1) The
Pro Forma statement of cash flows was derived by summing the cash
flows of legacy CenturyLink and legacy Level 3. There were no Pro
Forma adjustments made related to the sale of the legacy
CenturyLink data centers and colocation business.
|
|
CenturyLink,
Inc.
|
Non-GAAP Cash Flow
Reconciliation
|
(UNAUDITED)
|
($ in
millions)
|
|
|
|
|
|
Actual
|
|
Pro
Forma
|
|
3Q18
|
|
3Q17
|
Net cash provided by
operating activities
|
$
|
1,787
|
|
|
1,649
|
|
Capital
expenditures
|
(684)
|
|
|
(1,075)
|
|
Free cash
flow
|
1,103
|
|
|
574
|
|
Cash interest
paid
|
512
|
|
|
423
|
|
Interest
income
|
(3)
|
|
|
(20)
|
|
Unlevered cash
flow
|
$
|
1,612
|
|
|
977
|
|
|
|
|
|
Free cash
flow
|
$
|
1,103
|
|
|
574
|
|
Add back: cash
integration-related expenses
|
57
|
|
|
26
|
|
Add back: special
items
|
3
|
|
|
—
|
|
Free cash flow
excluding cash integration-related expenses and special
items
|
$
|
1,163
|
|
|
600
|
|
|
|
|
|
Unlevered cash
flow
|
$
|
1,612
|
|
|
977
|
|
Add back: cash
integration-related expenses
|
57
|
|
|
26
|
|
Add back: special
items
|
3
|
|
|
—
|
|
Unlevered cash
flow excluding cash integration-related expenses and special
items
|
$
|
1,672
|
|
|
1,003
|
|
|
|
|
|
Capital
expenditures
|
$
|
(684)
|
|
|
(1,075)
|
|
Less:
integration-related capital expenditures
|
19
|
|
|
9
|
|
Capital
expenditures, excluding integration-related capital expenditures
and special items
|
$
|
(665)
|
|
|
(1,066)
|
|
CenturyLink,
Inc.
|
Adjusted EBITDA
Non-GAAP Reconciliation
|
(UNAUDITED)
|
($ in
millions)
|
|
|
|
|
Actual
|
Pro
Forma
|
|
3Q18
|
3Q17
|
|
|
|
Net
income
|
$
|
272
|
|
187
|
|
Income tax
expense
|
57
|
|
85
|
|
Total other
expense
|
565
|
|
515
|
|
Depreciation and
amortization expense
|
1,285
|
|
1,268
|
|
Share-based
compensation expenses
|
49
|
|
54
|
|
Adjusted
EBITDA
|
$
|
2,228
|
|
2,109
|
|
|
|
|
Add back:
integration-related expenses (1)
|
$
|
41
|
|
68
|
|
Add back: special
items (2)
|
18
|
|
(37)
|
|
Adjusted EBITDA
excluding integration-related expenses and special
items
|
$
|
2,287
|
|
2,140
|
|
|
|
|
Total
revenue
|
$
|
5,818
|
|
6,033
|
|
|
|
|
Adjusted EBITDA
margin
|
38.3
|
%
|
35.0
|
%
|
Adjusted EBITDA
excluding integration-related expenses and special items
margin
|
39.3
|
%
|
35.5
|
%
|
|
|
|
(1) In the
third quarter of 2018, integration-related expenses include $41
million of expenses that impact adjusted EBITDA and $2 million of
additional expenses that impact net income.
|
(2) Refer
to Non-GAAP Special Items table for details of the
integration-related expenses and special items included
above.
|
Outlook
To enhance the information in our outlook with respect to
non-GAAP metrics, we are providing a range for certain GAAP
measures that are components of the reconciliation of the non-GAAP
metrics. The provision of these ranges is in no way meant to
indicate that CenturyLink is explicitly or implicitly providing an
outlook on those GAAP components of the reconciliation. In order to
reconcile the non-GAAP financial metric to GAAP, CenturyLink has to
use ranges for the GAAP components that arithmetically add up to
the non-GAAP financial metric. While CenturyLink feels reasonably
comfortable about the outlook for its non-GAAP financial metrics,
it fully expects that the ranges used for the GAAP components will
vary from actual results. We will consider our outlook of non-GAAP
financial metrics to be accurate if the specific non-GAAP metric is
met or exceeded, even if the GAAP components of the reconciliation
are different from those provided in an earlier reconciliation.
CenturyLink,
Inc.
|
2018 OUTLOOK
(1)
|
(UNAUDITED)
|
($ in
millions)
|
|
|
|
|
Adjusted EBITDA
Outlook
|
|
|
|
Twelve Months Ended
December 31, 2018
|
|
|
|
|
Range
|
|
Low
|
|
High
|
Net income
|
$
|
720
|
|
|
1,130
|
|
Income tax
expense
|
150
|
|
|
250
|
|
Total other
expense
|
2,200
|
|
|
2,100
|
|
Depreciation and
amortization expense
|
5,300
|
|
|
5,100
|
|
Non-cash compensation
expense
|
210
|
|
|
190
|
|
Integration-related
expenses
|
420
|
|
|
380
|
|
Adjusted
EBITDA
|
$
|
9,000
|
|
|
9,150
|
|
|
|
|
|
|
|
|
|
Free Cash Flow
Outlook
|
|
|
|
Twelve Months Ended
December 31, 2018
|
|
|
|
|
Range
|
|
Low
|
|
High
|
Net cash provided by
operating activities excluding integration costs
|
$
|
7,250
|
|
|
7,350
|
|
Capital expenditures,
excluding: integration projects
|
(3,250)
|
|
|
(3,150)
|
|
Free cash
flow
|
$
|
4,000
|
|
|
4,200
|
|
|
(1)
Footnotes (1) and (2) from the outlook table included at page 4 are
incorporated herein by reference.
|
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SOURCE CenturyLink, Inc.