CenturyLink Reports Strong First Quarter 2014 Results

MONROE, La., May 7, 2014 /PRNewswire/ -- CenturyLink, Inc. CTL today reported strong operating revenues, operating cash flow and free cash flow for first quarter 2014.

"CenturyLink generated strong first quarter financial and operating results, driven by continued business demand for high-bandwidth data services, consumer demand for high-speed Internet and Prism TV services, hosting revenue growth and a solid improvement in the rate of legacy revenue decline," said Glen F. Post III, chief executive officer and president. "Total operating revenues of $4.54 billion for the quarter exceeded our revenue guidance and our first quarter 2013 total operating revenues of $4.51 billion, reflecting stronger than anticipated Data Integration revenues, while Core Revenues of $4.11 billion were near the top of our guidance. Cash flows for the quarter were also strong, primarily due to our revenue outperformance and disciplined cost containment by our employees.

"We continue to see increasing demand from business customers for our reliable, secure solutions that meet their network and hosting needs. We are pleased with the early success of our Managed Office product suite launch, as well as the continued strength in multi-site MPLS(3) sales. Our integration of Tier 3 continues to progress well as we added our new cloud nodes in two CenturyLink data centers in the first quarter and remain on track to add these nodes in four additional CenturyLink data centers by year-end. We believe this advanced cloud infrastructure technology significantly strengthens our capabilities to meet the growing demand for highly automated cloud and managed services.

"Overall, I'm very pleased with first quarter results and our continued progress toward revenue stability," Post concluded.

First Quarter 2014 Highlights

• Achieved core revenues of $4.11 billion in first quarter, nearly flat year-over-year, compared with a 2.0% year-over-year decline in first quarter 2013; Strategic revenues(4) grew 5.4% from the first quarter a year-ago.
• Generated free cash flow of $860 million, excluding special items and integration-related capital expenditures.
• Continued strength in sales of high bandwidth data services to business customers.
• Added approximately 66,000 high-speed Internet customers during first quarter, ending the period with more than 6 million customers in service.
• Ended the quarter with nearly 200,000 CenturyLink^® Prism^TM TV customers, an increase of approximately 24,000 in first quarter 2014.
• Purchased and retired an additional 10.4 million shares for $319 million during first quarter 2014.

Consolidated Financial Results

Operating revenues for first quarter 2014 increased to $4.54 billion from $4.51 billion in first quarter 2013 driven by higher strategic and data integration revenues. The increase in strategic revenues was primarily due to increased business customer demand for high-bandwidth data services and hosting solutions, along with growth in the number of high-speed Internet and CenturyLink^® Prism^TM TV customers. This increase was partially offset by lower legacy services revenues, primarily due to the impact of access line losses and lower access revenues.

Operating expenses, excluding special items, increased to $3.86 billion from $3.70 billion in first quarter 2013. The year-over-year increase was primarily driven by higher CPE sales and maintenance costs, employee-related expenses, facility costs, weather-related power costs and expenses related to the growth of Prism™ TV. Also contributing to this year-over-year increase was the impact of certain one-time favorable expense reductions experienced during first quarter 2013, which resulted in higher operating margins in the year-ago period.

Operating cash flow (as defined in our attached supplemental schedules), excluding special items, decreased to $1.79 billion from $1.93 billion in first quarter 2013. For first quarter 2014, CenturyLink achieved an operating cash flow margin, excluding special items, of 39.4% versus 42.8% in first quarter 2013. These decreases were primarily driven by the result of lower legacy revenues and the expense impacts described above.

Adjusted Net Income and Adjusted Diluted Earnings Per Share (Adjusted Diluted 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 intangible assets related to acquisitions since mid-2009, and the non-cash after-tax impact to interest expense of 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 2014 was $381 million compared to Adjusted Net Income of $475 million in first quarter 2013. First quarter 2014 Adjusted Diluted EPS was $0.66 compared to $0.76 in the year-ago period. See the attached schedules for additional information.

GAAP Results

Under generally accepted accounting principles (GAAP), net income for first quarter 2014 was $203 million compared to $298 million for first quarter 2013, and diluted earnings per share for first quarter 2014 was $0.35 compared to $0.48 for first quarter 2013.

For details regarding the Company's special items for the three months ended March 31, 2014 and 2013, please see the accompanying financial schedules.

Segment Financial Results(5)

Consumer

The Consumer segment achieved strong strategic revenue growth driven by increased high-speed Internet and CenturyLink^® Prism^TM TV customers, price increases on certain products and lower customer churn.

• Strategic revenues were $702 million in the quarter, an 8.8% increase over first quarter 2013.
• Generated nearly $1.51 billion in total revenues, approximately flat from first quarter 2013, reflecting solid growth in strategic services offset by the continued decline in legacy services.
• Added nearly 24,000 CenturyLink^® Prism^TM TV customers during first quarter 2014, increasing penetration of the more than 2 million addressable homes to nearly 10%.

Business

The Business segment achieved year-over-year recurring revenue growth driven by continued demand for high-bandwidth data services and solid sales momentum.

• Strategic revenues were $655 million in the quarter, a 6.7% increase over first quarter 2013, driven by strength in high-bandwidth offerings such as MPLS and Ethernet services.
• Generated $1.56 billion in total revenues, an increase of 3.6% from first quarter 2013, as growth in high-bandwidth offerings and data integration revenues offset lower legacy services revenues. Data integration revenues were $35 million higher in first quarter 2014 compared to first quarter 2013.
• Achieved segment margin of 38.0%, which declined from 43.1% a year-ago. This decrease was primarily due to higher costs related to business revenue growth such as CPE, facility and sales and marketing costs, along with the impact of certain favorable one-time expenses experienced in first quarter 2013 and the decline in legacy revenues.
• Continued strong sales momentum in first quarter with solid sales funnel entering second quarter; encouraging early success in sales of Managed Office solutions.

Wholesale

The Wholesale segment ended the quarter with more than 19,200 fiber-connected towers, an increase of nearly 24% from first quarter 2013.

• Strategic revenues were $570 million in the quarter, basically flat from first quarter 2013, as increases in wireless carrier bandwidth demand and Ethernet sales were offset by declines in copper-based revenue.
• Generated $862 million in total revenues, a decrease of 4.9% from first quarter 2013, reflecting the continued decline in legacy revenues, primarily driven by lower long distance and switched access minutes of use, along with access rate reductions from implementation of the CAF Order(6).
• Completed approximately 395 fiber builds in first quarter 2014 and lowered the annual estimate for fiber builds to between 2,500 to 3,000 for full-year 2014 due to customer decisions to defer certain sites into 2015.

Hosting

The Hosting segment grew managed hosting (including cloud) and colocation revenues as cross-selling initiatives continue to strengthen sales opportunities.

• Operating revenues were $354 million in the quarter, a 6.0% increase from first quarter 2013.
• Managed hosting revenues(7) were $142 million, representing a 12.7% increase from first quarter 2013, and colocation revenues were $158 million, a 3.3% increase over the same period a year ago.
• Expenses increased $26 million from first quarter 2013 primarily due to higher employee costs, partially related to the AppFog and Tier 3 acquisitions, and weather-related power costs.
• Added CenturyLink Cloud, the acquired Tier 3 platform, into two CenturyLink data centers providing strong capabilities to meet growing demand for highly automated cloud services.

Guidance – Second Quarter 2014

The Company expects second quarter 2014 revenue and operating cash flow to be impacted by lower data integration revenue and the continued decline of legacy revenue.

All 2014 guidance figures and 2014 outlook statements included in this release (i) speak as of May 7, 2014 only, (ii) exclude the impact of any share repurchases made after March 31, 2014 and (iii) exclude the effects of special items, future changes in regulation or accounting rules, integration expenses associated with our recent 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 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 7, 2014. Interested parties can access the call by dialing 866-835-8905. The call will be accessible for replay through May 14, 2014, by dialing 888-266-2081 and entering the access code 1635562. 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 29, 2014.

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 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 is the third largest telecommunications company in the United States and is recognized as a leader in the network services market by technology industry analyst firms. The Company is a global leader in cloud infrastructure and hosted IT solutions for enterprise customers. CenturyLink provides data, voice and managed services in local, national and select international markets through its high-quality advanced fiber optic network and multiple data centers for businesses and consumers. The company also offers advanced entertainment services under the CenturyLink^® Prism^TM TV and DIRECTV brands. Headquartered in Monroe, La., CenturyLink is an S&P 500 company and is included among the Fortune 500 list of America's largest corporations. For more information, visit www.centurylink.com.

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 caused by our recent acquisitions; our ability to successfully integrate recently-acquired operations into our incumbent operations, including the possibility that the anticipated benefits from our recent acquisitions cannot be fully realized in a timely manner or at all; 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 net operating loss carryovers of Qwest in projected amounts; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled communications 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, 2013, 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. You are further cautioned not to place undue reliance on these forward-looking statements, which are inherently speculative and speak only as of the date made. We undertake no obligation to update any of our forward-looking statements for any reason.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE CenturyLink, Inc.