CenturyLink Reports Fourth Quarter 2019 Results

MONROE, La., Feb. 12, 2020 /PRNewswire/ -- CenturyLink, Inc. (NYSE: CTL) reported results for the fourth quarter ended Dec. 31, 2019.

"We made solid progress in 2019 with our fiber-based investments and our transformation initiatives," said Jeff Storey, president and CEO of CenturyLink. "Our investments not only helped to enhance and expand our fiber network and product portfolio, they enabled us to continue to improve the customer experience. We are well-positioned to support our customers as they transition to next-generation hybrid platforms to meet their networking needs. We are excited about the opportunity we see for profitable revenue growth from ongoing market dynamics, such as the growth in security, IoT, big data, 5G, AI and the demand for edge computing."

Total revenue was $5.57 billion for the fourth quarter 2019, compared to $5.78 billion for the fourth quarter 2018.

Diluted earnings per share was $0.21 for the fourth quarter 2019, compared to ($2.26) for fourth quarter 2018. Diluted earnings per share for the fourth quarter 2019 was $0.33 compared to $0.37 per share for the fourth quarter in 2018, excluding the aggregate effects of Integration and Transformation Costs and Special Items of $129 million and $2.806 billion, respectively.

Financial Results

                 Metric                          Fourth               Fourth     Full Year      Full Year
                                        Quarter               Quarter


                 ($ in millions, except
                  per share data)                  2019         2018        2019           2018


      International and
       Global Accounts                                    $
        904         923          3,596           3,653



     Enterprise                                  1,555        1,558       6,133          6,133


      Small and Medium
       Business                                     731          756       2,956          3,144



     Wholesale                                     994        1,074       4,074          4,397



     Consumer                                    1,386        1,467       5,642          6,116




     Total Revenue                                     $
        5,570       5,778         22,401          23,443



      Cost of Services and
       Products                                   2,521        2,657      10,077         10,862


      Selling, General and
       Administrative
       Expenses                                     992          974       3,715          4,165


      Share-based
       Compensation Expenses                         48           42         162            186


      Adjusted EBITDA(1)                          2,105        2,189       8,771          8,602


      Adjusted EBITDA,
       Excluding Integration
       and Transformation
       Costs and Special
       Items(1), (2)                              2,278        2,301       9,070          9,040


      Adjusted EBITDA
       Margin(1)                                  37.8%       37.9%      39.2%         36.7%


      Adjusted EBITDA
       Margin, Excluding
       Integration and
       Transformation Costs
       and Special Items(1),
       (2)                                       40.9%       39.8%      40.5%         38.6%


      Net Cash Provided by
       Operating Activities                       1,909        1,996       6,680          7,032


      Capital Expenditures                          940          915       3,628          3,175


      Unlevered Cash Flow(1)                      1,486        1,643       5,065          5,984


      Unlevered Cash Flow,
       Excluding Cash
       Integration and
       Transformation Costs
       and Special Items(1),
       (3)                                       1,539        1,754       5,289          6,342


      Free Cash Flow(1)                             969        1,081       3,052          3,857


      Free Cash Flow,
       Excluding Cash
       Integration and
       Transformation Costs
       and Special Items(1),
       (3)                                       1,022        1,192       3,276          4,215


      Net Income (loss)                             223      (2,412)    (5,269)       (1,733)


      Net Income, Excluding
       Integration and
       Transformation Costs
       and Special Items(4)                         352          394       1,409          1,265


      Net Income (loss) per
       Common Share -
       Diluted                                     0.21       (2.26)     (4.92)        (1.63)


      Net Income per Common
       Share -Diluted,
       Excluding Integration
       and Transformation
       Costs and Special
       Items(4)                                    0.33         0.37        1.32           1.19


      Weighted Average
       Shares Outstanding
       (in millions) -
       Diluted                                  1,078.2      1,067.2     1,071.4        1,065.9



                            (1)  See the attached schedules for
                             definitions of non-GAAP metrics,
                             reconciliation to GAAP figures and
                             further explanations of the
                             adjustments referred to in notes
                             2, 3 and 4.




                            (2)  Excludes (i) $123 million of
                             integration and transformation
                             costs and $50 million of special
                             items for the fourth quarter of
                             2019, (ii) $112 million of
                             integration costs for the fourth
                             quarter of 2018, (iii) $234
                             million of integration and
                             transformation costs and $65
                             million of special items costs for
                             the full year 2019 and (iv) $378
                             million of integration costs and
                             $60 million of special items costs
                             for the full year 2018.




                            (3)  Excludes cash paid (i) for
                             integration and transformation
                             costs and special items of $53
                             million for the fourth quarter of
                             2019, (ii) for integration costs
                             and special items of $111 million
                             for the fourth quarter of 2018,
                             (iii) for integration and
                             transformation costs and special
                             items of $224 million for the full
                             year 2019, and (iv) for
                             integration costs and special
                             items of $358 million for the full
                             year 2018.




                            (4)  Excludes (i) $129 million of
                             integration and transformation
                             costs and special items for the
                             fourth quarter of 2019, (ii)
                             $2.806 billion of integration
                             costs and special items for the
                             fourth quarter of 2018, (iii)
                             $6.678 billion of integration and
                             transformation costs and special
                             items for the full year 2019, and
                             (iv) $2.998 billion of integration
                             costs and special items for the
                             full year 2018.

                     Revenue                 Fourth         Third           QoQ             Fourth              YoY
                                     Quarter        Quarter        Percent          Quarter          Percent


                     ($ in millions)           2019           2019                Change                       2018    Change

    ---

                     By Business
                      Segment


        International
         and Global
         Accounts                                      $
         904            899                  1%              923      (2)%


        Enterprise                            1,555          1,550                              -%           1,558        -%


        Small and Medium
         Business                               731            734                              -%             756      (3)%


        Wholesale                               994          1,025           (3)%              1,074              (7)%


        Consumer                              1,386          1,398           (1)%              1,467              (6)%



                     Total Revenue                   $
         5,570          5,606                (1)%            5,778      (4)%


                     Revenue     Full Year             Full Year         Percent


                     ($ in
                      millions)       2019        2018            Change

    ---

                     By Business
                      Segment


         International
         and Global
         Accounts                           $
      3,596             3,653         (2)%


        Enterprise                   6,133       6,133                -%


        Small and
         Medium
         Business                    2,956       3,144              (6)%


        Wholesale                    4,074       4,397              (7)%


        Consumer                     5,642       6,116              (8)%



                     Total
                      Revenue              $
      22,401            23,443         (4)%


Cash Flow

Free Cash Flow, excluding integration and transformation costs and special items, was $1.022 billion in the fourth quarter 2019, compared to $1.192 billion in the fourth quarter 2018.

As of Dec. 31, 2019, CenturyLink had cash and cash equivalents of $1.69 billion, which includes the net proceeds from the sale of $1.25 billion of senior notes in December 2019, which were used to retire debt in January 2020.

2020 Business Outlook

"In 2019, we met all of our key financial outlook measures, highlighted by Adjusted EBITDA growth and margin expansion," said Neel Dev, CenturyLink's executive vice president and chief financial officer. "Our investments and initiatives position us well for 2020, and we expect full year Adjusted EBITDA of $9.0 to $9.2 billion, Capital Expenditures of $3.6 to $3.9 billion and Free Cash Flow of $3.1 to $3.4 billion."

                       Metric (1), (2)                        2020 Outlook

                 ---


     Adjusted EBITDA                       
       $9.0 billion to $9.2 billion



     Free Cash Flow                        
       $3.1 billion to $3.4 billion



     Dividends (3)                                  
              $1.1 billion



     GAAP Interest Expense                          
              $1.8 billion



     Net Cash Interest                   
       $1.75 billion to $1.80 billion



     Capital Expenditures                  
       $3.6 billion to $3.9 billion


      Depreciation and Amortization         
       $4.7 billion to $4.9 billion


      Share-based Compensation Expenses              
              $200 million



     Cash Income Taxes                              
              $100 million


      Full Year Effective Income Tax Rate                               ~28%



                            (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
                             and transformation costs, (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 Feb. 12, 2020.
                             See "Forward Looking Statements"
                             below.




                            (3)  Dividends is defined as
                             dividends paid as disclosed in the
                             Consolidated Statements of Cash
                             Flows.  Assumes payment of
                             dividends at the rate of $1.00 per
                             share per year, based on the
                             number of shares outstanding on
                             Dec. 31, 2019.  Payments of all
                             dividends are at the discretion of
                             the Board of Directors.

Investor Call

CenturyLink's management will host a conference call at 5:00 p.m. ET today, Feb. 12, 2020. The conference call will be streamed live over CenturyLink's website at ir.centurylink.com. Additional information regarding fourth quarter 2019 results, including the presentation materials 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 Feb. 12, 2020, and ending May 12, 2020, 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 21951156. A webcast replay of the call will also be available on our website beginning at 7:00 p.m. ET on Feb. 12, 2020, and ending May 5, 2020, at 6:00 p.m. ET.

About CenturyLink

CenturyLink, Inc. (NYSE: CTL) is a technology leader delivering hybrid networking, cloud connectivity, and security solutions to customers around the world. Through its extensive global fiber network, CenturyLink provides secure and reliable services to meet the growing digital demands of businesses and consumers. CenturyLink strives to be the trusted connection to the networked world and is focused on delivering technology that enhances the customer experience. Learn more at http://news.centurylink.com/.

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 more mature service offerings and increased pricing pressures; the effects of new, emerging or competing technologies, including those that could make our products less desirable or obsolete; our ability to attain our key operating imperatives, including simplifying and consolidating our network, simplifying and automating our service support systems, strengthening our relationships with customers and attaining projected cost savings; our ability to safeguard our network, and to avoid the adverse impact on our business from possible security breaches, service outages, system failures, equipment breakage or similar events impacting our network or the availability and quality of our services; 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, special access, universal service, broadband deployment, data protection, privacy and net neutrality; 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 data transmission services; our ability to successfully maintain the quality and profitability of our existing product and service offerings 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, dividends, pension contributions and other benefits payments; our ability to implement our operating plans and corporate strategies, including our delevering strategy; 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; the negative impact of 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, including our ability to make transfers of cash in compliance therewith; our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions; our ability to collect our receivables from financially troubled customers; our ability to use our net operating loss carry forwards in the amounts projected; 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, practices or assumptions, including changes that could potentially require future additional impairment charges; the effects of adverse weather, terrorism or other natural or man-made disasters; the potential adverse effects if our internal controls over financial reporting have weaknesses or deficiencies, or otherwise fail to operate as intended; the effects of more general factors such as changes in interest rates, in exchange rates, in operating costs, in public policy, in the views of financial analysts or in general market, labor, economic or geo-political conditions; 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, and adjustments to GAAP and non-GAAP measures to exclude the effect of integration and transformation costs and 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 ir.centurylink.com. 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 OPERATIONS


                                                                                      
         THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2019 AND 2018


                                                                                                        
              (UNAUDITED)


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




                                                                                                                           Three months ended December                                Increase /(decrease)                    Twelve months ended December
                                                                                                                              31,                                                                              31,                      Increase /(decrease)


                                                                                                            2019                          2018                                 2019                        2018






     OPERATING REVENUE                                                               $
         5,570                          5,778                          (4)%                22,401                      23,443                                      (4)%






     OPERATING EXPENSES


                                                  Cost of services and products                              2,521                         2,657                        (5)%                10,077                     10,862                                    (7)%


                                                  Selling, general and administrative                          992                           974                          2%                 3,715                      4,165                                   (11)%


                                                  Depreciation and amortization                              1,210                         1,262                        (4)%                 4,829                      5,120                                    (6)%


                                                
     Goodwill impairment                                                                     2,726                 
            nm                 6,506                      2,726                                    139%



                                                
     Total operating expenses                                   4,723                         7,619                       (38)%                25,127                     22,873                                     10%






     OPERATING INCOME (LOSS)                                                                               847                       (1,841)                     (146)%               (2,726)                       570                                 
        nm





     OTHER (EXPENSE) INCOME


                                                
     Interest expense                                           (484)                        (539)                      (10)%               (2,021)                   (2,177)                                   (7)%


                                                
     Other (expense) income, net                                 (14)                           15                 
            nm                  (19)                        44                                  (143)%


                                                
     Income tax expense                                         (126)                         (47)                       168%                 (503)                     (170)                                   196%




     NET INCOME (LOSS)                                                                 $
         223                        (2,412)                       (109)%               (5,269)                    (1,733)                            
              nm




     BASIC EARNINGS (LOSS) PER SHARE                                                  $
         0.21                         (2.26)                       (109)%                (4.92)                     (1.63)                            
              nm



     DILUTED EARNINGS (LOSS) PER SHARE                                                $
         0.21                         (2.26)                       (109)%                (4.92)                     (1.63)                            
              nm




      WEIGHTED AVERAGE SHARES OUTSTANDING


                                                
     Basic                                                  1,073,000                     1,067,234                          1%             1,071,441                  1,065,866                                      1%


                                                
     Diluted                                                1,078,175                     1,067,234                          1%             1,071,441                  1,065,866                                      1%





     DIVIDENDS PER COMMON SHARE                                                       $
         0.25                           0.54                         (54)%                  1.00                        2.16                                     (54)%




                                                  Exclude: integration and
                                                   transformation costs and special
                                                   items(1)                                                    129                         2,806                       (95)%                 6,678                      2,998                                    123%




      NET INCOME EXCLUDING INTEGRATION AND
       TRANSFORMATION COSTS AND SPECIAL ITEMS                                           $
         352                            394                         (11)%                 1,409                       1,265                                       11%





      DILUTED EARNINGS PER SHARE EXCLUDING
       INTEGRATION AND TRANSFORMATION COSTS AND
       SPECIAL ITEMS                                                                   $
         0.33                           0.37                         (11)%                  1.32                        1.19                                       11%



               (1) Excludes the integration and
                transformation costs and special items
                described in the Non-GAAP Integration and
                Transformation Costs and Special Items
                table, net of the income tax effect thereof.




                           nm -Percentages greater than 200%
                            and comparisons between positive and
                            negative values are considered not
                            meaningful.

                                            
              
                CenturyLink, Inc.


                                         
              CONDENSED CONSOLIDATED BALANCE SHEETS


                                     
              AS OF DECEMBER 31, 2019 AND DECEMBER 31, 2018


                                                      
              (UNAUDITED)


                                             
              
                ($ in millions)


                                                                    December 31, 2019                       December 31, 2018

                                                                                                     ---

                        
              
                ASSETS



     CURRENT ASSETS


      Cash and cash equivalents                                                          $
        1,690                  488



     Restricted cash                                                               3                     4


      Other current assets                                                      3,075                 3,328


         Total current assets                                                   4,768                 3,820





      PROPERTY, PLANT AND EQUIPMENT,
       Net of accumulated
       depreciation of $29,346 and
       $26,859                                                                 26,079                26,408





     GOODWILL AND OTHER ASSETS



     Goodwill                                                                 21,534                28,031


      Operating lease assets (1)                                                1,686



     Restricted cash                                                              24                    26



     Other, net                                                               10,651                11,971



          Total goodwill and other
           assets                                                              33,895                40,028






     TOTAL ASSETS                                                                      $
        64,742               70,256





                                 LIABILITIES AND STOCKHOLDERS' EQUITY



     CURRENT LIABILITIES


      Current maturities of long-
       term debt                                                                         $
        2,300                  652


      Other current liabilities (1)                                             4,958                 4,879



          Total current liabilities                                             7,258                 5,531






     LONG-TERM DEBT                                                           32,394                35,409


      DEFERRED CREDITS AND OTHER
       LIABILITIES (1)                                                         11,620                 9,488


      STOCKHOLDERS' EQUITY                                                     13,470                19,828





      TOTAL LIABILITIES AND
       STOCKHOLDERS' EQUITY                                                             $
        64,742               70,256




                            (1) The Company adopted
                             Accounting Standards Update
                             ("ASU") 2016-02, Leases (ASC
                             842) beginning Jan. 1, 2019 and
                             recorded operating lease assets
                             and operating lease liabilities
                             in its Condensed Consolidated
                             Balance Sheets for 2019.

                       
              
                CenturyLink, Inc.


              
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


              
              TWELVE MONTHS ENDED DECEMBER 31, 2019 AND 2018


                                
              (UNAUDITED)


                        
              
                ($ in millions)




                                                                                                Twelve months ended


                                                                         December 31, 2019                          December 31, 2018



                    OPERATING ACTIVITIES


     
     Net Loss                                                                            $
         (5,269)                                      (1,733)


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


     
     Depreciation and amortization                                                 4,829                                               5,120


       Impairment of goodwill and other assets                                       6,506                                               2,746


     
     Deferred income taxes                                                           440                                                 522


       Provision for uncollectible accounts                                            145                                                 153


       Net (gain) loss on early retirement and
        modification of debt                                                          (72)                                                  7


     
     Share-based compensation                                                        162                                                 186


       Changes in current assets and
        liabilities, net                                                             (278)                                                351


     
     Retirement benefits                                                            (12)                                              (667)


       Changes in other noncurrent assets and
        liabilities, net                                                               245                                                 329


     
     Other, net                                                                     (16)                                                 18



       Net cash provided by operating
        activities                                                                   6,680                                               7,032



                    INVESTING ACTIVITIES


     
     Capital expenditures                                                        (3,628)                                            (3,175)


       Proceeds from sale of property, plant
        and equipment and other assets                                                  93                                                 158


     
     Other, net                                                                     (35)                                               (61)



       Net cash used in investing activities                                       (3,570)                                            (3,078)



                    FINANCING ACTIVITIES


       Net proceeds from issuance of long-term
        debt                                                                         3,707                                                 130


     
     Payments of long-term debt                                                  (4,157)                                            (1,936)


       Net (payments) proceeds on revolving
        line of credit                                                               (300)                                                145


     
     Dividends paid                                                              (1,100)                                            (2,312)


     
     Other, net                                                                     (61)                                               (50)



       Net cash used in financing activities                                       (1,911)                                            (4,023)



       Net increase (decrease) in cash, cash
        equivalents and restricted cash                                              1,199                                                (69)


       Cash, cash equivalents and restricted
        cash at beginning of period                                                    518                                                 587



       Cash, cash equivalents and restricted
        cash at end of period                                                                $
         1,717                                           518


                                               
              
             CenturyLink, Inc.


                                                      
           OPERATING METRICS


                                                         
           (UNAUDITED)


                                                 
              
             (In thousands)




                                          December 31, 2019                           September 30, 2019  December 31, 2018





                  Operating Metrics


     Consumer broadband
      subscribers                   4,678                                                           4,714                   4,812





                           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 operations for which investors may want to give special consideration due to their magnitude, nature or both. We do not call these items non-recurring because, while some are infrequent, others may recur in future periods.

Adjusted EBITDA ($) is defined as net income (loss) from the Statements of Operations before income tax (expense) benefit, total other income (expense), depreciation and amortization, share-based compensation expense and impairments.

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 integration and transformation costs) 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 and impairments because of the non-cash nature of these items. 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 material 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 integration and transformation costs adjustments and special items) 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 Operations. Management believes that Unlevered Cash Flow is a relevant metric to provide to investors, because it reflects the operational 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, accounts payable, payroll 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 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, accounts payable, payroll 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 and Transformation Costs and Special Items


                                                                      
              (UNAUDITED)


                                                             
              
                ($ in millions)




                                                       Actual QTD                                                  Actual YTD


                     Integration and
                      Transformation Costs(1)
                      and Special Items
                      Impacting Adjusted
                      EBITDA                   4Q19                       4Q18                                          4Q19     4Q18

    ---                                                                                                                           ---

        Consumer litigation
         settlement costs                                       $
              50                                                                 65


        OTT/Stream impairment of
         content commitment and
         hardware, software, and
         internal labor                           -                                                                                                            60


                     Total special items
                      impacting adjusted
                      EBITDA                     50                                                                                      65             60


        Plus: integration and
         transformation costs                   123                                     112                                              234            378


                     Total integration and
                      transformation costs and
                      special items impacting
                      adjusted EBITDA               $
            
                173                                               112               299               438





                                                       Actual QTD                                                  Actual YTD


                     Integration and
                      Transformation Costs and
                      Special Items Impacting
                      Net Income (Loss)        4Q19                       4Q18                                          4Q19     4Q18

    ---                                                                                                                           ---

        Consumer litigation
         settlement costs                                       $
              50                                                                 65


        Impairment of goodwill                    -                                  2,726                                            6,506          2,726


        OTT/Stream impairment of
         content commitment and
         hardware, software, and
         internal labor                           -                                                                                                            60


        (Gain) loss on early debt
         retirement                             (2)                                   (26)                                            (72)             7


                     Total special items
                      impacting net income
                      (loss)                     48                                   2,700                                            6,499          2,793


        Plus: integration and
         transformation costs                   123                                     117                                              234            393



                     Total integration and
                      transformation costs and
                      special items impacting
                      net income (loss)         171                                   2,817                                            6,733          3,186


        Income tax effect of
         integration and
         transformation costs and
         special items (2)                     (42)                                   (20)                                            (55)         (111)


        Tax benefit from
         carryback losses                         -                                                                                                         (142)


        Impact of tax reform                      -                                      9                                                                    92


        FIN 48 release due to
         statute expiration                       -                                                                                                          (27)


                     Total integration and
                      transformation costs and
                      special items impacting
                      net income (loss), net
                      of tax                        $
            
                129                                             2,806             6,678             2,998




                            (1) Represents (i) for the fourth
                             quarter of 2019 and full year 2019,
                             the cost of obtaining the synergy
                             and transformations savings over
                             2019-2021 that the Company
                             discussed in its Feb. 13, 2019
                             earnings release and (ii) for the
                             fourth quarter of 2018 and full year
                             2018, the cost of obtaining the
                             acquisition-related synergies that
                             the Company captured between Nov. 1,
                             2017 and Dec. 31, 2018 following its
                             combination with Level 3.




                            (2) Tax effect calculated using the
                             annualized effective statutory tax
                             rate, excluding any non-recurring
                             discrete items, which was 24.3% for
                             the twelve months ended 2018 and
                             2019.

                                                    
              
                CenturyLink, Inc.


                                                  
              Non-GAAP Cash Flow Reconciliation


                                                             
              (UNAUDITED)


                                                     
              
                ($ in millions)




                                                    Actual QTD                                       Actual YTD


                                         4Q19                          4Q18                    4Q19             4Q18

                                                                                                                 ---

     Net cash provided by
      operating activities                                 $
              1,909                   1,996                           6,680            7,032


     Capital expenditures               (940)                                      (915)                             (3,628)         (3,175)



                  Free cash flow          969                                       1,081                                3,052            3,857


     Cash interest paid                   522                                         565                                2,028            2,138


     Interest income                      (5)                                        (3)                                (15)            (11)



                  Unlevered cash flow         $
              
                1,486                   1,643                           5,065            5,984





                  Free cash flow                $
              
                969                   1,081                           3,052            3,857


     Add back: cash
      integration and
      transformation costs
      (1)                                 53                                         106                                  223              341


     Add back: special items
      (1)                                  -                                          5                                    1               17



                  Free cash flow
                   excluding cash
                   integration and
                   transformation costs
                   and special items          $
              
                1,022                   1,192                           3,276            4,215





                  Unlevered cash flow         $
              
                1,486                   1,643                           5,065            5,984


     Add back: cash
      integration and
      transformation costs                 53                                         106                                  223              341


     Add back: special items                -                                          5                                    1               17



                  Unlevered cash flow
                   excluding cash
                   integration and
                   transformation costs
                   and special items          $
              
                1,539                   1,754                           5,289            6,342




                            (1) Refer to Non-GAAP Integration and
                             Transformation Costs and Special
                             Items table for details of the
                             integration and transformation costs
                             and special items included above.

                                           
              
                CenturyLink, Inc.


                                         
            Adjusted EBITDA Non-GAAP Reconciliation


                                                     
              (UNAUDITED)


                                            
              
                ($ in millions)




                                                            Actual QTD                            Actual YTD


                                               4Q19                                 4Q18                         4Q19      4Q18

                                                                                                                            ---

                  Net income (loss)                     $
              
                223      (2,412)                (5,269)   (1,733)


     Income tax expense                         126                                47                        503       170


     Total other expense,
      net                                       498                               524                      2,040     2,133


     Depreciation and
      amortization expense                    1,210                             1,262                      4,829     5,120


     Share-based
      compensation expense                       48                                42                        162       186


     Goodwill impairment                          -                            2,726                      6,506     2,726

                                                                                                                    ---

                  Adjusted EBITDA                     $
              
                2,105        2,189                   8,771      8,602

                                                                                                                              ===



     Add back: integration
      and transformation
      costs(1)                                                       $
              123          112                     234        378


     Add back: special items
      (1)                                       50                                                                   65         60

                                                                                                                            ---

                  Adjusted EBITDA
                   excluding integration
                   and transformation
                   costs and special
                   items                              $
              
                2,278        2,301                   9,070      9,040

                                                                                                                              ===



                  Total revenue                       $
              
                5,570        5,778                  22,401     23,443




                  Adjusted EBITDA margin      37.8%                            37.9%                     39.2%    36.7%


                  Adjusted EBITDA margin
                   excluding integration
                   and transformation
                   costs and special
                   items                      40.9%                            39.8%                     40.5%    38.6%



                            (1) Refer to Non-GAAP Integration and
                             Transformation Costs and Special
                             Items table for details of the
                             integration and transformation costs
                             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.


                                             
              2020 OUTLOOK (1)


                                               
              (UNAUDITED)


                                           
          
                ($ in millions)




                  Adjusted EBITDA Outlook


     Twelve Months Ended Dec. 31, 2020


                                                           
              
             Range


                                                      Low                               High

                                                                                         ---

                  Net income                                $
              
             1,290               1,710


     Income tax expense                               400                                         700


     Total other expense                            1,900                                       1,700


     Depreciation and
      amortization
      expense                                       4,900                                       4,700


     Share-based
      Compensation
      Expenses                                        210                                         190


     Integration and
      transformation
      costs                                           300                                         200



                  Adjusted EBITDA                           $
              
             9,000               9,200







                  Free Cash Flow Outlook


     Twelve Months Ended Dec. 31, 2020


                                                           
              
             Range


                                                      Low                               High

                                                                                         ---

                  Net cash provided by
                   operating
                   activities                               $
              
             7,000               7,000


     Capital expenditures                         (3,900)                                    (3,600)


                  Free cash flow                            $
              
             3,100               3,400




                            (1) Footnotes (1) and (2) from
                             the outlook table included at
                             page 5 are incorporated herein
                             by reference.

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SOURCE CenturyLink, Inc.