MONROE, La., May 5, 2015 /PRNewswire/ -- CenturyLink, Inc. (NYSE: CTL) today reported solid results for first quarter 2015.

CenturyLink logo.

"During the first quarter, CenturyLink generated strong operating cash flow and free cash flow that exceeded our guidance, due primarily to lower than anticipated cash expenses," said Glen F. Post III, chief executive officer and president. "At the same time, total operating revenues came in near the lower end of our guidance for the quarter, reflecting lower than anticipated equipment sales that had minimal impact on our cash flows.

"We are beginning to see the benefits of the organizational realignment implemented in late 2014, and we are confident our new streamlined operating structure positions us to drive stronger sales results, strategic revenue growth and operating efficiency. We continue to see strong demand from business customers for high-bandwidth data services and our integrated network and IT managed services solutions," Post concluded.

First Quarter 2015 Highlights


  • Achieved core revenues of $4.06 billion in first quarter 2015; revenue from high-bandwidth data services provided to business customers, including MPLS(3), Ethernet and Wavelength, grew more than 11% year-over-year.
  • Generated free cash flow of $849 million, excluding special items and integration-related capital expenditures.
  • Added more than 35,000 high-speed Internet customers during first quarter 2015, ending the period with approximately 6.12 million customers in service.
  • Ended the quarter with more than 249,000 CenturyLink® PrismTM TV customers, an increase of nearly 8,000 during first quarter 2015.
  • Purchased and retired an additional 4.5 million shares of CenturyLink common stock for nearly $170 million during first quarter 2015.

Consolidated Financial Results

Operating revenues for first quarter 2015 were $4.45 billion compared to $4.54 billion in first quarter 2014. The declines in legacy revenues(4) (primarily driven by access line losses) and data integration revenues were partially offset by increased strategic revenues. The growth of strategic revenues was primarily due to continued strong business customer demand for high-bandwidth data services, along with year-over-year growth in high-speed Internet and CenturyLink® PrismTM TV customers and select price increases.

Operating expenses, excluding special items, decreased to $3.76 billion from $3.86 billion in first quarter 2014. The year-over-year decline was primarily driven by lower employee-related expenses, customer premise equipment costs (related to lower data integration revenues) and depreciation and amortization, which were partially offset by higher network/data center expenses and PrismTM TV costs.

Operating cash flow (as defined in our attached supplemental schedules), excluding special items, decreased to $1.74 billion from $1.79 billion in first quarter 2014. For first quarter 2015, CenturyLink achieved an operating cash flow margin, excluding special items, of 39.0% versus 39.4% in first quarter 2014. These decreases were primarily driven by the decline in higher-margin legacy revenues described above.

Adjusted Net Income and Adjusted Diluted Earnings Per Share (EPS)

Adjusted Net Income and Adjusted Diluted EPS exclude the after-tax impact of special items, the non-cash after-tax impact of the amortization of certain intangible assets related to major acquisitions since mid-2009, and the non-cash after-tax impact to interest expense relating to the assignment of fair value to the outstanding debt assumed in connection with those acquisitions.

Excluding the items outlined above, CenturyLink's Adjusted Net Income for first quarter 2015 was $375 million compared to Adjusted Net Income of $381 million in first quarter 2014. First quarter 2015 Adjusted Diluted EPS was $0.67 compared to $0.66 in the year-ago period due to lower operating cash flow being more than offset by lower depreciation and amortization, along with the impact of the lower number of shares outstanding due to share repurchases since first quarter 2014. See the attached schedules for additional information.

GAAP Results - First Quarter

Under generally accepted accounting principles (GAAP), net income for first quarter 2015 was $192 million compared to a net income of $203 million for first quarter 2014, and diluted earnings per share was $0.34 for first quarter 2015 compared to $0.35 for first quarter 2014.

Additional details regarding the company's special items for the three months ended March 31, 2015 and 2014 are provided in the accompanying financial schedules.

Segment Financial Results(5)

Business

  • The Business segment experienced continued strong demand for high-bandwidth data services in the first quarter of 2015.
  • Strategic revenues were $1.58 billion in the quarter, a 0.8% increase over first quarter 2014, driven by high-bandwidth offerings (such as MPLS, Ethernet and Wavelength services) and other strategic services, partially offset by declines in low-bandwidth data and hosting services revenue.
  • Total revenues were $2.70 billion, a decrease of 2.8% from first quarter 2014, as lower legacy, low-bandwidth data services and data integration revenues were partially offset by growth in high-bandwidth offerings.
  • High-bandwidth data services grew more than 11% over first quarter 2014 driven by continued strength in customer demand.

Consumer

The Consumer segment achieved solid year-over-year strategic revenue growth driven primarily by increased high-speed Internet and CenturyLink® PrismTM TV customers, along with select price increases.


  • Strategic revenues were $738 million in the quarter, a 5.1% increase over first quarter 2014.
  • Total revenues were $1.50 billion for first quarter 2015 compared to $1.51 billion for first quarter 2014.
  • Added approximately 8,000 CenturyLink® PrismTM TV customers during first quarter 2015, increasing penetration of the approximately 2.4 million addressable homes to 10.2%.

Guidance - Second Quarter 2015

The company expects second quarter 2015 operating and core revenues to be flat to slightly lower compared to first quarter 2015. Second quarter 2015 operating cash flow is expected to be lower compared to first quarter 2015 primarily due to higher employee-related expenses and the impact of the continued decline in higher-margin legacy revenues.

Second Quarter 2015 (excluding special items)

Operating Revenues


$4.41 to $4.46 billion

Core Revenues


$4.02 to $4.07 billion

Operating Cash Flow


$1.67 to $1.72 billion

Adjusted Diluted EPS


$0.59 to $0.64

All 2015 guidance figures and 2015 outlook statements included in this release (i) speak as of May 5, 2015 only, (ii) exclude the impact of any share repurchases made after March 31, 2015 and (iii) exclude the effects of special items, future impairment charges, future changes in regulation, implementation of the FCC's CAF 2 program, future changes in tax laws or accounting rules, integration expenses associated with major acquisitions, any changes in operating or capital plans or other unforeseen events or circumstances that impact our financial performance, and any future mergers, acquisitions, divestitures, joint ventures or other similar business transactions. See "Forward Looking Statements" below. For additional information on how we define certain of the terms used above, see the attached schedules.

Investor Call

As previously announced, CenturyLink's management will host a conference call at 4:00 p.m. Central Time today, May 5, 2015. Interested parties can access the call by dialing 866-244-4630. The call will be accessible for replay through May 13, 2015, by dialing 888-266-2081 and entering the access code 1654508. Investors can also listen to CenturyLink's earnings conference call and webcast replay by accessing the Investor Relations portion of the Company's website at www.centurylink.com through May 27, 2015. Financial, statistical and other information related to the call will also be posted to our website.

Reconciliation to GAAP

This release includes certain non-GAAP financial measures, including but not limited to operating cash flow, free cash flow, core revenues, Adjusted Net Income, Adjusted Diluted EPS 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 financial measures that may be discussed during the earnings call described above will be available in the Investor Relations portion of the Company's website at www.centurylink.com. Investors are urged to consider these non-GAAP measures in addition to, and not in substitution for, measures prepared in accordance with GAAP.

About CenturyLink

CenturyLink (NYSE: CTL) is a global communications, hosting, cloud and IT services company enabling millions of customers to transform their businesses and their lives through innovative technology solutions. CenturyLink offers network and data systems management, Big Data analytics and IT consulting, and operates more than 55 data centers in North America, Europe and Asia. The company provides broadband, voice, video, data and managed services over a robust 250,000-route-mile U.S. fiber network and a 300,000-route-mile international transport network. Visit www.centurylink.com for more information.


Forward Looking Statements

Certain non-historical statements made in this release and future oral or written statements or press releases by us or our management are intended to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations only, 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 if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change, including product displacement; the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, access charges, universal service, broadband deployment, data protection and net neutrality; our ability to effectively adjust to changes in the communications industry, and changes in our markets, product mix and network; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services, including our ability to effectively respond to increased demand for high-speed broadband service; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; the adverse impact on our business and network from possible equipment failures, security breaches or similar attacks on our network; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; our ability to use our net operating loss carryovers in projected amounts; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled companies; our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions; any adverse developments in legal or regulatory proceedings involving us; changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, including those caused by changes in our cash requirements, capital expenditure needs, debt obligations, pension funding requirements, cash flows, or financial position, or other similar changes; the effects of adverse weather; other risks referenced from time to time in our filings with the SEC; and the effects of more general factors such as changes in interest rates, in tax laws, in accounting policies or practices, in operating, medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to our business and our recent acquisitions are described in greater detail in Item 1A of our Form 10-K for the year ended December 31, 2014, as updated and supplemented by our subsequent SEC reports. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements.  We undertake no obligation to 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 this release, and is based upon, among other things, the existing regulatory and technological environment, industry and competitive conditions, economic and market conditions, and our assumptions as of such date.  We may change our intentions, strategies or plans at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

(1) Core revenues defined as strategic revenues plus legacy revenues (excludes data integration and other revenues), as described further in the attached schedules.

(2) See attachments for non-GAAP reconciliations.

(3) Multi-Protocol Label Switching

(4) Beginning first quarter 2015, certain revenues were reclassified between strategic services and legacy services. All historical periods have been restated to reflect this change.

(5) All references to segment data herein reflect certain adjustments described in the attached schedules.

 

 


CenturyLink, Inc.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(UNAUDITED)

(Dollars in millions, except per share amounts; shares in thousands)




Three months ended March 31, 2015


Three months ended March 31, 2014











As adjusted






As adjusted




Increase







excluding






excluding




(decrease)





Less


special




Less


special


Increase


excluding



As


special


items


As


special


items


(decrease)


special



reported


items


(Non-GAAP)


reported


items


(Non-GAAP)


as reported


items

OPERATING REVENUES *

















Strategic

$

2,320





2,320



2,271





2,271



2.2

%


2.2

%


Legacy

1,735





1,735



1,839





1,839



(5.7)

%


(5.7)

%


Data integration

139





139



174





174



(20.1)

%


(20.1)

%


Other

257





257



254





254



1.2

%


1.2

%



4,451





4,451



4,538





4,538



(1.9)

%


(1.9)

%


















OPERATING EXPENSES

















Cost of services and products

1,911



3


(1)

1,908



1,935



4


(3)

1,931



(1.2)

%


(1.2)

%


Selling, general and administrative

851



43


(1)

808



843



24


(3)

819



0.9

%


(1.3)

%


Depreciation and amortization

1,040





1,040



1,107





1,107



(6.1)

%


(6.1)

%



3,802



46



3,756



3,885



28



3,857



(2.1)

%


(2.6)

%


















OPERATING INCOME

649



(46)



695



653



(28)



681



(0.6)

%


2.1

%

















OTHER INCOME (EXPENSE)

















Interest expense

(328)





(328)



(331)





(331)



(0.9)

%


(0.9)

%


Other income, net

2





2



9





9



(77.8)

%


(77.8)

%


Income tax expense

(131)



12


(2)

(143)



(128)



11


(4)

(139)



2.3

%


2.9

%

NET INCOME

$

192



(34)



226



203



(17)



220



(5.4)

%


2.7

%

BASIC EARNINGS PER SHARE

$

0.34



(0.06)



0.40



0.35



(0.03)



0.38



(2.9)

%


5.3

%

DILUTED EARNINGS PER SHARE

$

0.34



(0.06)



0.40



0.35



(0.03)



0.38



(2.9)

%


5.3

%


















AVERAGE SHARES OUTSTANDING
















Basic

561,969




561,969


574,535




574,535


(2.2)

%


(2.2)

%


Diluted

563,505




563,505


575,456




575,456


(2.1)

%


(2.1)

%


















DIVIDENDS PER COMMON SHARE

$

0.54





0.54



0.54





0.54



%


%

SPECIAL ITEMS
















(1) -

Includes severance costs associated with recent headcount reductions ($13 million), integration costs associated with our acquisition of Qwest ($10 million), the impairment of office buildings ($8 million) and regulatory fines associated with a 911 system outage ($15 million).

(2) -

Income tax benefit of Item (1).

(3) -

Includes severance costs associated with reduction in force initiatives ($19 million), integration and retention costs associated with our acquisition of Qwest  ($11 million) and the offsetting impact of a litigation settlement in the amount of $2 million.

(4) -

Income tax benefit of Item (3).


*

During the first quarter of 2015, we determined that certain products and services associated with our acquisition of SAVVIS, Inc. are more closely aligned to legacy services than to strategic services. As a result, these operating revenues are now reflected as legacy services.

 

CenturyLink, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2015 AND DECEMBER 31, 2014

(UNAUDITED)

(Dollars in millions)


March 31,


December 31,


2015


2014

ASSETS




CURRENT ASSETS




Cash and cash equivalents

$

155



128


Other current assets

3,313



3,448


   Total current assets

3,468



3,576






NET PROPERTY, PLANT AND EQUIPMENT




Property, plant and equipment

37,100



36,718


Accumulated depreciation

(18,917)



(18,285)


   Net property, plant and equipment

18,183



18,433






GOODWILL AND OTHER ASSETS




Goodwill

20,753



20,755


Other, net

7,116



7,383


    Total goodwill and other assets

27,869



28,138






TOTAL ASSETS

$

49,520



50,147






LIABILITIES AND STOCKHOLDERS' EQUITY




CURRENT LIABILITIES




Current maturities of long-term debt

$

202



550


Other current liabilities

3,377



3,368


    Total current liabilities

3,579



3,918






LONG-TERM DEBT

20,254



20,121


DEFERRED CREDITS AND OTHER LIABILITIES

10,922



11,085


STOCKHOLDERS' EQUITY

14,765



15,023






TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

49,520



50,147


 

CenturyLink, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(UNAUDITED)

(Dollars in millions)






Three months ended


Three months ended


March 31, 2015


March 31, 2014

OPERATING ACTIVITIES




Net income

$

192



203


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

1,040



1,107


Impairment of assets

8




Deferred income taxes

37



106


Provision for uncollectible accounts

42



30


Share-based compensation

18



19


Changes in current assets and liabilities, net

13



(47)


Retirement benefits

(9)



(28)


Changes in other noncurrent assets and liabilities, net

(10)



3


Other, net

5



(13)


Net cash provided by operating activities

1,336



1,380


INVESTING ACTIVITIES




Payments for property, plant and equipment and capitalized software

(616)



(670)


Proceeds from sale of property and intangible assets

14



1


Other, net

(8)



(13)


Net cash used in investing activities

(610)



(682)


FINANCING ACTIVITIES




Net proceeds from issuance of long-term debt

594




Payments of long-term debt

(386)



(47)


Net (payments) borrowings on credit facility

(425)



30


Dividends paid

(304)



(309)


Net proceeds from issuance of common stock

8



7


Repurchase of common stock

(185)



(328)


Other, net

(1)




Net cash used in financing activities

(699)



(647)


Net increase in cash and cash equivalents

27



51


Cash and cash equivalents at beginning of period

128



168


Cash and cash equivalents at end of period

$

155



219


 


CenturyLink, Inc.

SELECTED SEGMENT FINANCIAL INFORMATION

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(UNAUDITED)

(Dollars in millions)










Three months ended March 31,*




2015


2014

Total segment revenues


$

4,194



4,284


Total segment expenses


2,073



2,096


Total segment income


$

2,121



2,188


Total segment income margin (segment income divided by segment revenues)


50.6

%


51.1

%







Business





Revenues






Strategic services


$

1,582



1,569



Legacy services


977



1,033



Data integration


138



173





2,697



2,775


Expenses






Total expenses


1,484



1,503








Segment income


$

1,213



1,272


Segment income margin


45.0

%


45.8

%







Consumer





Revenues






Strategic services


$

738



702



Legacy services


758



806



Data integration


1



1





1,497



1,509


Expenses






Total expenses


589



593








Segment income


$

908



916


Segment income margin


60.7

%


60.7

%


*

Effective November 1, 2014, we implemented a new organizational structure designed to strengthen our ability to attain our operational, strategic and financial goals. Prior to this reorganization, we recognized four segments: consumer, business, wholesale and hosting. As a result of this reorganization, we now report two segments: business and consumer, in our consolidated financial statements. We have restated prior periods to reflect the reorganization, including changes with respect to the assignment of certain expenses to our segments, and have restated our previously-reported segment results to conform to the current presentation. The nature of the most significant changes to segment expenses are as follows: certain business segment expenses were reassigned to consumer segment expense; and certain business segment expenses were reassigned to corporate overhead.


 

During the first quarter of 2015, we determined that certain products and services associated with our acquisition of SAVVIS, Inc. are more closely aligned to legacy services than to strategic services. As a result, these operating revenues are now reflected as legacy services.



 


CenturyLink, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

(Dollars in millions)
















Three months ended March 31, 2015


Three months ended March 31, 2014







As adjusted






As adjusted





Less


excluding




Less


excluding



As


special


special


As


special


special



reported


items


items


reported


items


items

Operating cash flow and cash flow margin













Operating income

$

649



(46)


(1)

695



653



(28)


(2)

681



Add: Depreciation and amortization

1,040





1,040



1,107





1,107



Operating cash flow

$

1,689



(46)



1,735



1,760



(28)



1,788
















Revenues

$

4,451





4,451



4,538





4,538
















Operating income margin (operating income divided by revenues)

14.6

%




15.6

%


14.4

%




15.0

%















Operating cash flow margin (operating cash flow divided by revenues)

37.9

%




39.0

%


38.8

%




39.4

%














Free cash flow













Operating cash flow





$

1,735







1,788



Less: Cash paid for income taxes, net of refunds





(5)







(10)



Less: Cash paid for interest, net of amounts capitalized





(270)







(265)



Less: Capital expenditures (3)





(613)







(662)



Add:  Other income





2







9



Free cash flow (4)





$

849







860















SPECIAL ITEMS

(1) -

Includes severance costs associated with recent headcount reductions ($13 million), integration costs associated with our acquisition of Qwest ($10 million), the impairment of office buildings ($8 million) and regulatory fines associated with a 911 system outage ($15 million).

(2) -

Includes severance costs associated with reduction in force initiatives ($19 million), integration and retention costs associated with our acquisition of Qwest  ($11 million) and the offsetting impact of a litigation settlement in the amount of $2 million.

(3) -

Excludes $3 million in 2015 and $8 million in 2014 of capital expenditures related to the integration of Qwest and Savvis.

(4) -

Excludes special items identified in items (1) and (2).

 


CenturyLink, Inc.

Business Revenues and Operating Metrics

(UNAUDITED)














Three months ended







March 31, 2015


March 31, 2014

Business Segment Revenue Detail














(In millions)

Revenues








High-bandwidth data services (1)





$

687



617


Hosting services (2)





318



328


Other strategic services (3)





44



3


Low-bandwidth data services (4)





533



621


Legacy voice services





671



711


Other legacy services





306



322


Data integration





138



173


Total revenues





$

2,697



2,775











(1)

Includes MPLS, Ethernet and Wavelength revenue

(2)

See Hosting Services Detail below

(3)

Includes primarily VoIP, video, IT services and deferred revenue recognition

(4)

Includes private line and high-speed Internet revenue







Three months ended







March 31, 2015


March 31, 2014

Hosting Services Detail (5)














(In millions)

Colocation





$

156



161


Managed Hosting / Cloud





140



142


Hosting Area Network





22



25


Total Hosting Services





$

318



328











(5)

Excludes Wide-Area Network (WAN) revenue previously reported in total Hosting revenue














As of


As of


As of





March 31, 2015


December 31, 2014


March 31, 2014

Hosting Data Center Metrics

















Number of data centers (6)



58



58



56


Sellable square feet, million sq ft



1.53



1.46



1.42


Billed square feet, million sq ft



0.93



0.92



0.93


Utilization



61

%


63

%


66

%










(6)

We define a data center as any facility where we market, sell and deliver colocation services, managed hosting (including cloud hosting) services, multi-tenant managed services, or any combination thereof.














As of


As of


As of





March 31, 2015


December 31, 2014


March 31, 2014

Operating Metrics












(In thousands)

Broadband subscribers



6,117



6,082



6,057


Access lines



12,270



12,394



12,882


Prism subscribers



249



242



199












Our methodology for counting broadband subscribers, access lines and Prism subscribers may not be comparable to those of other companies.

 

 


CenturyLink, Inc.

SUPPLEMENTAL NON-GAAP INFORMATION - ADJUSTED DILUTED EPS

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(UNAUDITED)

(Dollars in millions, except per share amounts; shares in thousands)



Three months ended


March 31, 2015
(excluding
special items)


March 31, 2014
(excluding
special items)








Net income *



$

226



220









Add back:






Amortization of customer base intangibles:







Qwest



205



219



Embarq



25



29



Savvis



15



15









Amortization of trademark intangibles:







Qwest



1



6



Savvis





5









Amortization of fair value adjustment of long-term debt:







Embarq



1



1



Qwest



(6)



(12)









Subtotal



241



263


Tax effect of above items



(92)



(102)


Net adjustment, after taxes



149



161









Net income, as adjusted for above items



$

375



381









Weighted average diluted shares outstanding



563.5



575.5









Diluted EPS
(excluding special items)



$

0.40



0.38









Adjusted diluted EPS as adjusted for the above-listed purchase accounting intangible and interest amortizations (excluding special items)



$

0.67



0.66



The above schedule presents adjusted net income and adjusted diluted earnings per share (both excluding special items) by adding back to net income and diluted earnings per share certain non-cash expense items that arise as a result of the application of business combination accounting rules to our major acquisitions since mid-2009. Such presentation is not in accordance with generally accepted accounting principles but management believes the presentation is useful to analysts and investors to understand the impacts of growing our business through acquisitions.

*See preceding schedules for a summary description of special items.

 

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SOURCE CenturyLink, Inc.