Lumen Technologies Reports Third Quarter 2020 Results
DENVER, Nov. 4, 2020 /PRNewswire/ -- Lumen Technologies (NYSE: LUMN) reported results for the third quarter ended Sept. 30, 2020.
"In addition to delivering strong financial results in the third quarter, I am encouraged by the opportunities we are seeing as we repositioned the company as Lumen," said Jeff Storey, president and CEO of Lumen. "The Lumen platform leverages our rich fiber infrastructure assets to deliver industry-leading services to customers implementing the technologies that power the 4th Industrial Revolution. As we invest in addressable markets that are growing and in our own digital transformation, we believe our revenue trajectory will continue to improve over the long term."
Total revenue was $5.167 billion for the third quarter 2020, compared to $5.350 billion for the third quarter 2019.
Financial Results
Metric Third Quarter Third Quarter
($ in millions,
except per
share data) 2020 2019(1)
International
and Global
Accounts $
835 866
Enterprise 1,439 1,428
Small and Medium
Business 635 674
Wholesale 949 1,017
Consumer 1,309 1,365
Total Revenue $
5,167 5,350
Cost of Services
and Products 2,236 2,334
Selling, General
and
Administrative
Expenses 850 831
Share-based
Compensation
Expenses 31 38
Adjusted
EBITDA(2) 2,112 2,223
Adjusted EBITDA,
Excluding
Integration and
Transformation
Costs and
Special
Items(2)(3) 2,190 2,261
Adjusted EBITDA
Margin(2) 40.9% 41.6%
Adjusted EBITDA
Margin,
Excluding
Integration and
Transformation
Costs and
Special
Items(2)(3) 42.4% 42.3%
Net Cash
Provided by
Operating
Activities 1,794 1,888
Capital
Expenditures 988 957
Unlevered Cash
Flow(2) 1,229 1,382
Unlevered Cash
Flow, Excluding
Cash
Integration and
Transformation
Costs and
Special
Items(2)(4) 1,340 1,434
Free Cash
Flow(2) 806 931
Free Cash Flow,
Excluding Cash
Integration and
Transformation
Costs and
Special
Items(2)(4) 917 983
Net Income 366 302
Net Income,
Excluding
Integration and
Transformation
Costs and
Special
Items(5) 430 328
Net Income per
Common Share -
Diluted 0.34 0.28
Net Income per
Common Share -
Diluted,
Excluding
Integration and
Transformation
Costs and
Special
Items(5) 0.40 0.31
Weighted Average
Shares
Outstanding (in
millions) -
Diluted 1,085.7 1,074.8
(1) Reflects certain reclassifications
due to accounting changes made in the
first quarter of 2020, which were
announced in the Company's 8-K report
filed with the SEC on April 30, 2020.
(2) See the attached schedules for
definitions of non-GAAP metrics,
reconciliation to GAAP figures and
further explanations of the
adjustments referred to in notes 3, 4
and 5.
(3) Excludes (i) $78 million of
Integration and Transformation Costs
and Special Items for the third
quarter of 2020 and (ii) $38 million
of Integration and Transformation
Costs and Special Items for the third
quarter of 2019.
(4) Excludes (i) $111 million of cash
paid for Integration and
Transformation Costs and Special Items
for the third quarter of 2020 and (ii)
$52 million of cash paid for
Integration and Transformation Costs
and Special Items for the third
quarter of 2019.
(5) Excludes (i) $64 million of
Integration and Transformation Costs
and Special Items for the third
quarter of 2020 and (ii) $26 million
of Integration and Transformation
Costs and Special Items for the third
quarter of 2019.
Revenue Third Quarter Second QoQ Percent Third
Quarter Quarter YoY Percent
($ in millions) 2020 2020 Change 2019 Change
---
By Business
Segment
International and
Global Accounts $
835 849 (2)% 866 (4)%
Enterprise 1,439 1,433 -% 1,428 1%
Small and Medium
Business 635 646 (2)% 674 (6)%
Wholesale 949 948 -% 1,017 (7)%
Consumer 1,309 1,316 (1)% 1,365 (4)%
Total Revenue $
5,167 5,192 -% 5,350 (3)%
Cash Flow
Free Cash Flow, excluding Integration and Transformation Costs and Special Items, was $917 million in the third quarter 2020, compared to $983 million in the third quarter 2019.
As of Sept. 30, 2020, Lumen had cash and cash equivalents of $526 million, a portion of which was used to redeem $160 million of Qwest Corporation's outstanding senior notes on Oct. 26, 2020.
2020 Outlook
"Compared to the second quarter 2020, we grew Adjusted EBITDA this quarter and expect another quarter of sequential growth in the fourth quarter 2020," said Neel Dev, Lumen's executive vice president and chief financial officer. "Additionally, with our continued focus on deleveraging, we are again lowering and narrowing our Net Cash Interest outlook for the full year 2020."
Metric (1), (2) Current Outlook Previous Outlook (3), (4)
Net Cash Interest
$1.62 billion to $1.65 billion
$1.65 billion to $1.70 billion
GAAP Interest Expense
$1.7 billion
$1.7 billion
Dividends (5)
$1.1 billion
$1.1 billion
Depreciation and
Amortization
$4.7 billion to $4.9 billion
$4.7 billion to $4.9 billion
Share-based
Compensation
Expenses
$200 million
$200 million
Cash Income Taxes
$100 million
$100 million
Full Year Effective
Income Tax Rate ~28% ~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)
(3) Refers to full-year 2020
financial outlook provided on Aug.
5, 2020
(4) The full-year 2020 financial
outlook for Adjusted EBITDA, Free
Cash Flow, and Capital Expenditures
was withdrawn on May 6, 2020
(5) 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 Sept. 30, 2020.
Payments of all dividends are at the
discretion of the board of
directors.
Investor Call
Lumen's management will host a conference call at 5 p.m. ET today, Nov. 4, 2020. The conference call will be streamed live over Lumen's website at ir.lumen.com. Additional information regarding third quarter 2020 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 +1 312-281-1201 (International).
A telephone replay of the call will be available beginning at 7 p.m. ET on Nov. 4, 2020, and ending Jan. 2, 2021, at 6 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 21970799. A webcast replay of the call will also be available on our website beginning at 7 p.m. ET on Nov. 4, 2020, and ending Jan. 2, 2021, at 6 p.m. ET.
About Lumen*
Lumen Technologies (NYSE: LUMN) is guided by our belief that humanity is at its best when technology advances the way we live and work. With approximately 450,000 route fiber miles and serving customers in more than 60 countries, we deliver the fastest, most secure platform for applications and data to help businesses, government and communities deliver amazing experiences.
Learn more about Lumen's network, edge cloud, security, communication and collaboration solutions and our purpose to further human progress through technology at news.lumen.com, LinkedIn: /lumentechnologies, Twitter: @lumentechco, Facebook: /lumentechnologies, Instagram: @lumentechnologies and YouTube: /lumentechnologies. Lumen and Lumen Technologies are registered trademarks of Lumen Technologies LLC in the United States. Lumen Technologies LLC is a wholly-owned affiliate of CenturyLink Inc.
*On Sept. 14, 2020, the company announced the "Lumen" brand launch and effective Sept. 18, 2020, began trading under the ticker symbol "LUMN". As a result, CenturyLink Inc. is referred to as "Lumen Technologies," or simply "Lumen." The legal name "CenturyLink, Inc." is expected to be formally changed to "Lumen Technologies, Inc." upon satisfying all applicable legal requirements.
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: uncertainties due to events outside of our control regarding the impact that COVID-19 health and economic disruptions will continue to have on our business, operations, employees, customers, suppliers, distribution channels, controls, regulatory environment, access to capital, operating or capital plans and corporate initiatives, and ultimately on our financial performance, financial position and cash flows; 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 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 successfully and timely 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 COVID-19 disruptions, 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, regulations or disruptions caused by the COVID-19 pandemic; the potential negative impact of customer complaints, government investigations, security breaches or service outages impacting us or our industry; 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 and covenants, 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, or continue to do business with, financially-troubled customers, including those adversely impacted by the economic dislocations caused by the COVID-19 pandemic; our ability to use our net operating loss carryforwards in the amounts projected; our ability to obtain approvals to implement our new brand name change; any adverse developments in legal or regulatory proceedings involving us; changes in tax, communications, pension, health care or other laws or regulations, in governmental support programs, or in general government funding levels, including those that might occur after the U.S. elections on Nov. 3, 2020; the effects of changes in accounting policies, practices or assumptions, including changes that could potentially require additional future impairment charges; the effects of adverse weather, terrorism, epidemics, pandemics 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 set forth or referenced in our filings with the U.S. Securities and Exchange Commission (the "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.lumen.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. Lumen may present or calculate its non-GAAP measures differently from other companies.
CenturyLink, Inc.
(doing business as Lumen Technologies)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
($ in millions, except per share amounts; shares in thousands)
Three months ended Increase / Nine months ended Increase /
September 30, (decrease) September 30, (decrease)
2020 2019 (1) 2020 2019 (1)
OPERATING REVENUE $
5,167 5,350 (3)% 15,587 16,152 (3)%
OPERATING EXPENSES
Cost of services and products 2,236 2,334 (4)% 6,703 6,877 (3)%
Selling, general and administrative 850 831 2% 2,598 2,723 (5)%
Depreciation and amortization 1,193 1,235 (3)% 3,515 3,619 (3)%
Goodwill impairment nm 6,506 nm
Total operating expenses 4,279 4,400 (3)% 12,816 19,725 (35)%
OPERATING INCOME (LOSS) 888 950 (7)% 2,771 (3,573) nm
OTHER (EXPENSE) INCOME
Interest expense (409) (496) (18)% (1,272) (1,537) (17)%
Other (expense) income, net 1 (44) (102)% (73) (5) nm
Income tax expense (114) (108) 6% (369) (377) (2)%
NET INCOME (LOSS) $
366 302 21% 1,057 (5,492) nm
BASIC EARNINGS (LOSS) PER SHARE $
0.34 0.28 21% 0.98 (5.13) nm
DILUTED EARNINGS (LOSS) PER SHARE $
0.34 0.28 21% 0.98 (5.13) nm
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 1,080,505 1,072,543 1% 1,078,672 1,070,921 1%
Diluted 1,085,666 1,074,790 1% 1,083,368 1,070,921 1%
DIVIDENDS PER COMMON SHARE $
0.25 0.25 -% 0.75 0.75 -%
Exclude: Integration and Transformation
Costs and Special Items(2) $
64 26 nm 222 6,549 (97)%
NET INCOME EXCLUDING INTEGRATION AND
TRANSFORMATION COSTS AND SPECIAL ITEMS $
430 328 31% 1,279 1,057 21%
DILUTED EARNINGS PER SHARE EXCLUDING
INTEGRATION AND TRANSFORMATION COSTS AND
SPECIAL ITEMS $
0.40 0.31 29% 1.18 0.99 19%
(1) Reflects certain reclassifications due to accounting changes made in the
first quarter of 2020, which were announced in the Company's 8-K report filed
with the SEC on April 30, 2020.
(2) Excludes the Integration and Transformation Costs and Special Items
described in the accompanying 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.
(doing business as Lumen Technologies)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019
(UNAUDITED)
($ in millions)
September 30, December 31,
2020 2019
---
ASSETS
---
CURRENT ASSETS
Cash and cash equivalents $
526 1,690
Accounts receivable, less
allowance of $156 and $106 2,143 2,259
Other 835 819
Total current assets 3,504 4,768
Property, plant and equipment,
net of accumulated
depreciation of $30,921 and
$29,346 26,290 26,079
GOODWILL AND OTHER ASSETS
Goodwill 21,476 21,534
Other intangible assets, net 8,563 9,567
Other, net 2,766 2,794
Total goodwill and other
assets 32,805 33,895
TOTAL ASSETS $
62,599 64,742
LIABILITIES AND STOCKHOLDERS' EQUITY
---
CURRENT LIABILITIES
Current maturities of long-
term debt $
1,487 2,300
Accounts payable 1,364 1,724
Accrued expenses and other liabilities
Salaries and benefits 898 1,037
Income and other taxes 378 311
Current operating lease
liabilities 401 416
Interest 278 280
Other 335 386
Current portion of deferred
revenue 738 804
Total current liabilities 5,879 7,258
LONG-TERM DEBT 31,105 32,394
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net 3,232 2,918
Benefit plan obligations, net 4,345 4,594
Other 4,349 4,108
Total deferred credits and
other liabilities 11,926 11,620
STOCKHOLDERS' EQUITY
Common stock 1,097 1,090
Additional paid-in capital 21,130 21,874
Accumulated other
comprehensive loss (2,795) (2,680)
Accumulated deficit (5,743) (6,814)
Total stockholders' equity 13,689 13,470
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $
62,599 64,742
CenturyLink, Inc.
(doing business as Lumen Technologies)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
($ in millions)
Nine months ended
September 30, September
2020 30, 2019
---
OPERATING ACTIVITIES
Net Income (Loss) $
1,057 (5,492)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and
amortization 3,515 3,619
Impairment of goodwill and
other assets - 6,516
Deferred income taxes 315 350
Provision for
uncollectible accounts 137 116
Net loss (gain) on early
retirement and
modification of debt 78 (70)
Share-based compensation 120 114
Changes in current assets
and liabilities, net (677) (464)
Retirement benefits (96) (24)
Changes in other
noncurrent assets and
liabilities, net 287 72
Other, net 106 34
Net cash provided by
operating activities 4,842 4,771
INVESTING ACTIVITIES
Capital expenditures (2,971) (2,688)
Proceeds from sale of
property, plant and
equipment and other
assets 119 54
Other, net 12 (37)
Net cash used in investing
activities (2,840) (2,671)
FINANCING ACTIVITIES
Net proceeds from issuance
of long-term debt 3,257 988
Payments of long-term
debt (6,334) (1,459)
Net proceeds on revolving
line of credit 825 150
Dividends paid (837) (829)
Other, net (83) (37)
Net cash used in financing
activities (3,172) (1,187)
Net increase (decrease) in
cash, cash equivalents
and restricted cash (1,170) 913
Cash, cash equivalents and
restricted cash at
beginning of period 1,717 518
Cash, cash equivalents and
restricted cash at end of
period $
547 1,431
Cash, cash equivalents and restricted
cash:
Cash and cash equivalents $
526 1,404
Restricted cash 21 27
Total $
547 1,431
CenturyLink, Inc.
(doing business as Lumen Technologies)
OPERATING METRICS
(UNAUDITED)
(In thousands)
September June 30, March 31,
30, 2020 2020 2020
Operating Metrics
Consumer broadband
subscribers 4,563 4,638 4,667
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, cash equivalents and restricted cash 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, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows.
CenturyLink, Inc.
(doing business as Lumen Technologies)
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 3Q20 3Q19 3Q20 3Q19
--- ---
Consumer litigation $
2 8 15
Total Special Items
impacting Adjusted EBITDA 2 8 15
Plus: Integration and
Transformation Costs 76 38 193 111
Total Integration and
Transformation Costs and
Special Items
impacting Adjusted EBITDA $
78 38 201 126
Actual QTD Actual YTD
Integration and
Transformation Costs and
Special Items Impacting Net
Income (Loss) 3Q20 3Q19 3Q20 3Q19
--- ---
Consumer litigation $
2 8 15
Impairment of goodwill - 6,506
Loss on sale of business 8 8 -
Loss (gain) on early debt
retirement (4) (4) 82 (70)
Total Special Items impacting
Net Income
(loss) 6 (4) 98 6,451
Plus: Integration and
Transformation Costs 76 38 193 111
Total Integration and
Transformation Costs and
Special Items impacting
Net Income (loss) 82 34 291 6,562
Income tax effect of
Integration and
Transformation Costs and
Special Items (2) (18) (8) (69) (13)
Total Integration and
Transformation Costs and
Special Items impacting
Net Income (loss),
net of tax $
64 26 222 6,549
(1) Represents the cost of obtaining the
synergy and transformations savings
over 2019-2021 that the Company
initially discussed in its Feb. 13,
2019 earnings release.
(2) Tax effect calculated using the
annualized effective statutory tax
rate, excluding any non-recurring
discrete items, which was 24.3% and
24.5% for the three and nine months
ended Sept. 30, 2019 and 2020,
respectively.
CenturyLink, Inc.
(doing business as Lumen Technologies)
Non-GAAP Cash Flow Reconciliation
(UNAUDITED)
($ in millions)
3Q20 3Q19
---
Net cash provided by
operating activities $
1,794 1,888
Capital expenditures (988) (957)
Free Cash Flow 806 931
Cash interest paid 426 456
Interest income (3) (5)
Unlevered Cash Flow $
1,229 1,382
Free Cash Flow $
806 931
Add back: cash
Integration and
Transformation Costs (1) 105 52
Add back: Special Items
(1) 6
Free Cash Flow excluding
cash Integration and
Transformation Costs and
Special Items $
917 983
Unlevered Cash Flow $
1,229 1,382
Add back: cash
Integration and
Transformation Costs (1) 105 52
Add back: Special Items
(1) 6
Unlevered Cash Flow
excluding cash
Integration and
Transformation Costs and
Special Items $
1,340 1,434
(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.
(doing business as Lumen Technologies)
Adjusted EBITDA Non-GAAP Reconciliation
(UNAUDITED)
($ in millions)
3Q20 3Q19
---
Net income $
366 302
Income tax expense 114 108
Total other expense, net 408 540
Depreciation and
amortization expense 1,193 1,235
Share-based compensation
expense 31 38
Adjusted EBITDA $
2,112 2,223
Add back: Integration and
Transformation Costs(1) $
76 38
Add back: Special Items
(1) 2
Adjusted EBITDA excluding
Integration and
Transformation Costs and
Special Items $
2,190 2,261
Total revenue $
5,167 5,350
Adjusted EBITDA margin 40.9% 41.6%
Adjusted EBITDA margin
excluding Integration
and Transformation Costs
and Special Items 42.4% 42.3%
(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.
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SOURCE Lumen Technologies
