Lumen Technologies Inc. reports fourth quarter 2020 results
DENVER, Feb. 10, 2021 /PRNewswire/ -- Lumen Technologies Inc. (NYSE: LUMN) reported results for the fourth quarter ended Dec. 31, 2020.
"We made significant transformational progress in 2020, launching the Lumen platform to support our customers' application and data needs for the 4(th) Industrial Revolution," said Jeff Storey, president and CEO of Lumen. "We invested in our Edge Cloud capabilities, enhanced our customers' digital experiences, and launched new platform-based solutions. These investments enabled us to improve our revenue growth trajectory and serve as the foundation for several new strategic partnerships. We are excited about the opportunity for growth in 2021 as we truly become the platform for amazing things."
Total revenue was $5.125 billion for the fourth quarter 2020, compared to $5.306 billion for the fourth quarter 2019.
Financial Results
Metric Fourth Fourth Full Year Full Year
Quarter Quarter
($ in millions, except per share data) 2020 2019(1) 2020 2019(1)
International and Global Accounts $
856 870 3,405 3,476
Enterprise 1,430 1,434 5,722 5,696
Small and Medium Business 618 665 2,557 2,727
Wholesale 922 983 3,777 4,042
Consumer 1,299 1,354 5,251 5,517
Total Revenue $
5,125 5,306 20,712 21,458
Cost of Services and Products 2,231 2,257 8,934 9,134
Selling, General and Administrative Expenses 866 992 3,464 3,715
Share-based Compensation Expenses 55 48 175 162
Adjusted EBITDA(2) 2,083 2,105 8,489 8,771
Adjusted EBITDA, Excluding Integration and Transformation Costs
and Special Items(2)(3) 2,281 2,278 8,888 9,070
Adjusted EBITDA Margin(2) 40.6% 39.7% 41.0% 40.9%
Adjusted EBITDA Margin, Excluding Integration and Transformation
Costs and Special Items(2)(3) 44.5% 42.9% 42.9% 42.3%
Net Cash Provided by Operating Activities 1,682 1,909 6,524 6,680
Capital Expenditures 758 940 3,729 3,628
Unlevered Cash Flow(2) 1,297 1,486 4,416 5,065
Unlevered Cash Flow, Excluding Cash Integration and Transformation
Costs and Special Items(2)(4) 1,377 1,539 4,752 5,289
Free Cash Flow(2) 924 969 2,795 3,052
Free Cash Flow, Excluding Cash Integration and Transformation
Costs and Special Items(2)(4) 1,004 1,022 3,131 3,276
Net (Loss) Income (2,289) 223 (1,232) (5,269)
Net Income, Excluding Integration and Transformation Costs and
Special Items(5) 522 352 1,801 1,409
Net (Loss) Income per Common Share - Diluted (2.12) 0.21 (1.14) (4.92)
Net Income per Common Share -Diluted, Excluding Integration and
Transformation Costs and Special Items(5) 0.48 0.33 1.67 1.32
Weighted Average Shares Outstanding (in millions) -Diluted 1,080.5 1,078.2 1,079.1 1,071.4
(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 Integration and Transformation Costs and Special Items in the amounts of (i) $198 million for the fourth quarter of 2020, (ii) $173 million for the fourth quarter of 2019, (ii) $399 million for the full year
2020, and (iv) $299 million for the full year 2019.
(4) Excludes cash paid for Integration and Transformation Costs and Special Items of (i) $80 million for the fourth quarter of 2020, (ii) $53 million for the fourth quarter of 2019, (iii) $336 million for the full year
2020, and (iv) $224 million for the full year 2019.
(5) Excludes Integration and Transformation Costs and Special Items (net of the income tax effect thereof) in the amounts of (i) $2.811 billion for the fourth quarter of 2020, (ii) $129 million for the fourth quarter of
2019, (iii) $3.033 billion for the full year 2020, and (iv) $6.678 billion for the full year 2019.
Revenue Fourth Third QoQ Fourth YoY
Quarter Quarter Percent Quarter Percent
($ in millions) 2020 2020 Change 2019 Change
---
By Business
Segment
International
and Global
Accounts $
856 835 3% 870 (2)%
Enterprise 1,430 1,439 (1)% 1,434 -%
Small and Medium
Business 618 635 (3)% 665 (7)%
Wholesale 922 949 (3)% 983 (6)%
Consumer 1,299 1,309 (1)% 1,354 (4)%
Total Revenue $
5,125 5,167 (1)% 5,306 (3)%
Cash Flow
Free Cash Flow, excluding Integration and Transformation Costs and Special Items, was $1.004 billion in the fourth quarter 2020, compared to $1.022 billion in the fourth quarter 2019.
As of Dec. 31, 2020, Lumen had cash and cash equivalents of $406 million.
Goodwill Impairment
Each year, the company is required under GAAP to undertake a goodwill impairment analysis of all its reporting units. The analysis compares the fair value of the equity for each of the reporting units to the carrying value of equity for each reporting unit. The analysis takes into account weighted average cost of capital and market multiples, along with the company's forecasts. Based on this analysis, in the fourth quarter of 2020 the company recorded an aggregate $2.642 billion non-cash goodwill impairment across multiple reporting units.
2021 Reporting Changes
Segment and Sales Channel Reporting
The company is making changes to its segment and customer-facing sales channel reporting categories in 2021 to align with operational changes designed to better support its customers.
Beginning next quarter, the company will report two segments: Business and Mass Markets. The Business segment will include four sales channels: International & Global Accounts, Large Enterprise, Mid-Market Enterprise, and Wholesale. Mass Markets includes both Consumer and our Small Business Group (SBG).
For the Business and Mass Markets segments, proforma for these upcoming changes, fourth quarter 2020 revenue was:
Revenue Proforma
Fourth
Quarter
2020
($ in millions)
---
By Sales Channel
International & Global Accounts $
1,033
Large Enterprise 986
Mid-Market Enterprise 716
Wholesale 930
Business Segment $
3,665
Mass Markets Segment 1,460
Total Revenue $
5,125
Product Category Reporting
Additionally, beginning next quarter the company is making changes to the product category reporting to better reflect product life cycles and the company's go to market approach. These changes include both the creation of new product categories and the realignment of products and services within previously reported product categories.
For Business segment revenue, the company will report the following product categories: Compute & Application Services, IP & Data Services, Fiber Infrastructure Services and Voice & Other.
Proforma for these upcoming changes, fourth quarter 2020 product categories for the Business Segment were:
Business Proforma
Fourth
Quarter
2020
By Product Category
($ in millions)
---
Compute & Application Services $
454
IP & Data Services 1,588
Fiber Infrastructure Services 575
Voice & Other 1,048
Total Revenue $
3,665
For Mass Markets segment revenue, the company will report in the following product categories: Consumer Broadband, Small Business Group (SBG) Broadband, Voice & Other, and CAF II.
Proforma for these upcoming changes, fourth quarter 2020 product categories revenue for the Mass Markets segment were:
Mass Markets Proforma
Fourth
Quarter
2020
By Product Category
($ in millions)
---
Consumer Broadband $
731
SBG Broadband 37
Voice & Other 569
CAF II 123
Total Revenue $
1,460
Adjusted EBITDA and Free Cash Flow excluding Special Items
Going forward, the company plans to discontinue reporting Integration and Transformation savings and associated costs.
The company plans to continue to provide disclosure on Adjusted EBITDA, Free Cash Flow and other profitability measures, including and excluding Special Items. Special Items will include expenses such as severance, material legal settlements or other unforeseen material items that are one-time or unusual in nature.
Proforma for these upcoming changes, 2020 profitability and cash flow metrics were:
Proforma Adjusted EBITDA Reporting Proforma Free Cash Flow Reporting
Metric 2020 Reported 2020 Proforma
Metric 2020 Reported 2020 Proforma
Adjusted EBITDA(1) $8,489 $8,489 Free Cash Flow(1) $2,795 $2,795
Severance(2) $151 $151
Severance(2) $137 $137
Other Integration and $224
n/a Other Integration and Transformation
Transformation Costs Costs $152
n/a
---
Subtotal $375 $151
Subtotal $289 $137
Special Items $24 $24
Special Items $47 $47
---
Total Add Backs $399 $175 Total Add Backs $336 $184
Adjusted EBITDA $8,888
n/a Free Cash Flow $3,131
n/a
Excl. Integration and Excl. Integration and Transformation
Transformation Costs and Special Costs and Special Items
items
Adjusted EBITDA
n/a $8,664 Free Cash Flow
n/a $2,979
Excl. Special Items
Excl. Special Items
Adjusted EBITDA
Margin(3) 43% 42%
(1) For definitions of non-GAAP metrics and reconciliation to GAAP figures, see the attached schedules and Lumen's Investor Relations website.
(2) Severance costs were previously classified within Integration and Transformation Costs. Effective in 2021, this will be reported within Special Items.
(3) 2020 reported Adj. EBITDA margin excludes Integration and Transformation Costs and Special Items; 2020 proforma Adj. EBITDA margin excludes only Special Items (including
severance costs).
2021 Outlook
2021 Metric (1)(2) 2020 Proforma(3) 2021 Outlook
Adjusted EBITDA
(excluding Special
Items)
$8.664 billion
$8.4 to $8.6 billion
Free Cash Flow
(excluding Special
Items)(4)
$2.979 billion
$2.8 to $3.0 billion
2021 Metric (1)(2) 2020 Actual 2021 Outlook
Net Cash Interest
$1.627 billion
$1.525 to $1.575 billion
GAAP Interest
Expense
$1.668 billion
$1.550 billion
Dividends (5)
$1.1 billion
$1.1 billion
Capital Expenditures
$3.729 billion
$3.5 to $3.8 billion
Depreciation and
Amortization
$4.710 billion
$4.2 to $4.4 billion
Share-based
Compensation
Expenses
$175 million
~$200 million
Cash Income Taxes
$70 million
$100 million
Full Year Effective
Income Tax Rate(6) 24% 27%
(1) For definitions of non-GAAP metrics and reconciliation to GAAP
figures, see the attached schedules and Lumen's Investor Relations
website.
(2) Outlook measures in this chart and the accompanying schedules (i)
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 (ii) speak only as of Feb. 10, 2021. See
"Forward-Looking Statements."
(3) For 2020 results, Adjusted EBITDA and Free Cash Flow are on a
proforma basis to reflect our upcoming 2021 reporting. All other
metrics are on an as reported basis.
(4) Free Cash Flow outlook does not include any potential discretionary
pension fund contribution.
(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 Dec. 31, 2020. Payments of all dividends are at the
discretion of the Board of Directors.
(6) 2020 Actual excludes goodwill impairment.
Investor Call
Lumen's management will host a conference call at 5 p.m. ET today, Feb. 10, 2021. The conference call will be streamed live over Lumen's website at ir.lumen.com. Additional information regarding fourth 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 Feb. 10, 2021, and ending May 11, 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 21989194. A webcast replay of the call will also be available on our website beginning at 7 p.m. ET on Feb. 10, 2021, and ending May 11, 2021, at 6 p.m. ET.
About Lumen
Lumen Technologies Inc. (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 the Lumen network, edge cloud, security, communication and collaboration solutions and our purpose to further human progress through technology at news.lumen.com/home, 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 Lumen Technologies, Inc.
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," "will," 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 regarding the extent to which COVID-19 health and economic disruptions will continue to impact our business, operations, cash flows and corporate initiatives; 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 of possible security breaches, service outages, system failures, 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 legislative, regulatory or judicial proceedings relating to content liability standards, intercarrier compensation, universal service, broadband deployment, data protection, privacy and net neutrality; our ability to effectively retain and hire key personnel and to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; 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; the impact of any future material acquisitions or divestitures that we may engage in; 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; 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 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 securityholders, key business partners, suppliers, vendors, landlords and financial institutions; our ability to meet evolving environmental, social and governance expectations and benchmarks; our ability to collect our receivables from, or continue to do business with, financially-troubled customers, including, but not limited to, 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; any adverse developments in legal or regulatory proceedings involving us; changes in tax, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels, including those arising from pending proposals to increase federal income tax rates; 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, rioting, societal unrest, or other natural or man-made disasters or disturbances; 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. 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, regulatory, technological, industry, competitive, economic and market conditions, and our related 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 historical and forward-looking non-GAAP 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.
Lumen Technologies, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2020 AND 2019
(UNAUDITED)
($ in millions, except per share amounts; shares in thousands)
Three months ended Increase /
Twelve months Increase /
December 31, (decrease) ended December 31, (decrease)
2020 2019 (1) 2020 2019 (1)
OPERATING REVENUE $
5,125 5,306 (3)% 20,712 21,458 (3)%
OPERATING EXPENSES
Cost of services and products 2,231 2,257 (1)% 8,934 9,134 (2)%
Selling, general and administrative 866 992 (13)% 3,464 3,715 (7)%
Depreciation and amortization 1,195 1,210 (1)% 4,710 4,829 (2)%
Goodwill impairment 2,642
nm 2,642 6,506 (59)%
Total operating expenses 6,934 4,459 56% 19,750 24,184 (18)%
OPERATING (LOSS) INCOME (1,809) 847
nm 962 (2,726)
nm
OTHER (EXPENSE) INCOME
Interest expense (396) (484) (18)% (1,668) (2,021) (17)%
Other (expense) income, net (3) (14) (79)% (76) (19)
nm
Income tax expense (81) (126) (36)% (450) (503) (11)%
NET (LOSS) INCOME $
(2,289) 223
nm (1,232) (5,269) (77)%
BASIC (LOSS) EARNINGS PER SHARE $
(2.12) 0.21
nm (1.14) (4.92)
nm
DILUTED (LOSS) EARNINGS PER SHARE $
(2.12) 0.21
nm (1.14) (4.92)
nm
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 1,080,507 1,073,000 1% 1,079,130 1,071,441 1%
Diluted 1,080,507 1,078,175 -% 1,079,130 1,071,441 1%
DIVIDENDS PER COMMON SHARE $
0.25 0.25 -% 1.00 1.00 -%
Exclude: Integration and Transformation
Costs and Special Items(2) $
2,811 129
nm 3,033 6,678 (55)%
NET INCOME EXCLUDING INTEGRATION
AND TRANSFORMATION COSTS AND
SPECIAL ITEMS $
522 352 48% 1,801 1,409 28%
DILUTED EARNINGS PER SHARE
EXCLUDING INTEGRATION AND
TRANSFORMATION COSTS AND SPECIAL
ITEMS $
0.48 0.33 45% 1.67 1.32 27%
(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.
Lumen Technologies, Inc.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2020 AND 2019
(UNAUDITED)
($ in millions)
December 31, December 31,
2020 2019
---
ASSETS
---
CURRENT ASSETS
Cash and cash equivalents $
406 1,690
Accounts receivable, less
allowance of $191 and $106 1,962 2,259
Other 808 819
Total current assets 3,176 4,768
Property, plant and equipment,
net of accumulated
depreciation of $31,596 and
$29,346 26,338 26,079
GOODWILL AND OTHER ASSETS
Goodwill 18,870 21,534
Other intangible assets, net 8,219 9,567
Other, net 2,791 2,794
Total goodwill and other
assets 29,880 33,895
TOTAL ASSETS $
59,394 64,742
LIABILITIES AND STOCKHOLDERS' EQUITY
---
CURRENT LIABILITIES
Current maturities of long-
term debt $
2,427 2,300
Accounts payable 1,134 1,724
Accrued expenses and other liabilities
Salaries and benefits 1,008 1,037
Income and other taxes 314 311
Current operating lease
liabilities 379 416
Interest 291 280
Other 328 386
Current portion of deferred
revenue 753 804
Total current liabilities 6,634 7,258
LONG-TERM DEBT 29,410 32,394
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net 3,342 2,918
Benefit plan obligations, net 4,556 4,594
Other 4,290 4,108
Total deferred credits and
other liabilities 12,188 11,620
STOCKHOLDERS' EQUITY
Common stock 1,097 1,090
Additional paid-in capital 20,909 21,874
Accumulated other
comprehensive loss (2,813) (2,680)
Accumulated deficit (8,031) (6,814)
Total stockholders' equity 11,162 13,470
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $
59,394 64,742
Lumen Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
TWELVE MONTHS ENDED DECEMBER 31, 2020 AND 2019
(UNAUDITED)
($ in millions)
Twelve months ended
December 31, 2020 December 31, 2019
OPERATING ACTIVITIES
Net Loss $
(1,232) (5,269)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 4,710 4,829
Impairment of goodwill and other assets 2,642 6,506
Deferred income taxes 366 440
Provision for uncollectible accounts 189 145
Net loss (gain) on early retirement and
modification of debt 105 (72)
Share-based compensation 175 162
Changes in current assets and
liabilities, net (663) (278)
Retirement benefits (111) (12)
Changes in other noncurrent assets and
liabilities, net 246 245
Other, net 97 (16)
Net cash provided by operating activities 6,524 6,680
INVESTING ACTIVITIES
Capital expenditures (3,729) (3,628)
Proceeds from sale of property, plant and
equipment and other assets 153 93
Other, net 12 (35)
Net cash used in investing activities (3,564) (3,570)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term
debt 4,361 3,707
Payments of long-term debt (7,315) (4,157)
Net proceeds on revolving line of credit (100) (300)
Dividends paid (1,109) (1,100)
Other, net (87) (61)
Net cash used in financing activities (4,250) (1,911)
Net (decrease) increase in cash, cash
equivalents and restricted cash (1,290) 1,199
Cash, cash equivalents and restricted
cash at beginning of period 1,717 518
Cash, cash equivalents and restricted
cash at end of period $
427 1,717
Cash, cash equivalents and restricted
cash:
Cash and cash equivalents $
406 1,690
Restricted cash 21 27
Total $
427 1,717
Lumen Technologies, Inc.
OPERATING METRICS
(UNAUDITED)
(In thousands)
December 31, 2020 September 30, 2020 December 31, 2019
Operating Metrics
Consumer broadband
subscribers 4,544 4,563 4,678
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 Lumen's internal reporting and are key measures used by Management to evaluate profitability and operating performance of Lumen 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 Lumen'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 Lumen.
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 Lumen'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 Lumen 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 Lumen'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 Lumen's Unlevered Cash Flow to that of some of its competitors may be of limited usefulness since Lumen 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 Lumen'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 Lumen'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 Lumen's Free Cash Flow to that of some of its competitors may be of limited usefulness since Lumen 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.
Lumen Technologies, 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 4Q20 4Q19 4Q20 4Q19
--- ---
Consumer and other
litigation $
16 50 24 65
Total Special Items
impacting Adjusted EBITDA 16 50 24 65
Plus: Integration and
Transformation Costs 182 123 375 234
Total Integration and
Transformation Costs and
Special Items impacting
Adjusted EBITDA $
198 173 399 299
Actual QTD Actual YTD
---
Integration and
Transformation Costs and
Special Items Impacting Net
Income (Loss) 4Q20 4Q19 4Q20 4Q19
--- ---
Consumer and other
litigation $
16 50 24 65
Impairment of goodwill 2,642 2,642 6,506
Loss on sale of business - 8
Loss (gain) on early debt
retirement 27 (2) 109 (72)
Total Special Items
impacting Net Income (loss) 2,685 48 2,783 6,499
Plus: Integration and
Transformation Costs 182 123 375 234
Total Integration and
Transformation Costs and
Special Items impacting Net
Income (loss) 2,867 171 3,158 6,733
Income tax effect of
Integration and
Transformation Costs and
Special Items (2) (56) (42) (125) (55)
Total Integration and
Transformation Costs and
Special Items impacting Net
Income (loss), net of tax $
2,811 129 3,033 6,678
(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 24.5% and 24.3% for
the 12 months ended Dec. 31, 2020 and 2019, respectively.
Lumen Technologies, Inc.
Non-GAAP Cash Flow Reconciliation
(UNAUDITED)
($ in millions)
Actual QTD Actual YTD
---
4Q20 4Q19 4Q20 4Q19
---
Net cash provided by
operating activities $
1,682 1,909 $
6,524 6,680
Capital expenditures (758) (940) (3,729) (3,628)
Free Cash Flow 924 969 2,795 3,052
Cash interest paid 373 522 1,627 2,028
Interest income - (5) (6) (15)
Unlevered Cash Flow $
1,297 1,486 $
4,416 5,065
Free Cash Flow $
924 969 $
2,795 3,052
Add back: cash
Integration and
Transformation Costs (1) 77 53 289 223
Add back: Special Items
(1) 3 47 1
Free Cash Flow excluding
cash Integration and
Transformation Costs and
Special Items $
1,004 1,022 $
3,131 3,276
Unlevered Cash Flow $
1,297 1,486 $
4,416 5,065
Add back: cash
Integration and
Transformation Costs (1) 77 53 289 223
Add back: Special Items
(1) 3 47 1
Unlevered Cash Flow
excluding cash
Integration and
Transformation Costs and
Special Items $
1,377 1,539 $
4,752 5,289
(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.
Lumen Technologies, Inc.
Adjusted EBITDA Non-GAAP Reconciliation
(UNAUDITED)
($ in millions)
Actual QTD Actual YTD
4Q20 4Q19 4Q20 4Q19
---
Net (loss) income $
(2,289) 223 $
(1,232) (5,269)
Income tax expense 81 126 450 503
Total other expense, net 399 498 1,744 2,040
Depreciation and
amortization expense 1,195 1,210 4,710 4,829
Share-based compensation
expense 55 48 175 162
Goodwill impairment 2,642 2,642 6,506
Adjusted EBITDA $
2,083 2,105 $
8,489 8,771
Add back: Integration and
Transformation Costs(1) $
182 123 $
375 234
Add back: Special Items
(1) 16 50 24 65
Adjusted EBITDA excluding
Integration and
Transformation Costs and
Special Items $
2,281 2,278 $
8,888 9,070
Total revenue $
5,125 5,306 $
20,712 21,458
Adjusted EBITDA margin 40.6% 39.7% 41.0% 40.9%
Adjusted EBITDA margin
excluding Integration
and Transformation Costs
and Special Items 44.5% 42.9% 42.9% 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.
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 Lumen 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, Lumen has to use ranges for the GAAP components that arithmetically add up to the non-GAAP financial metric. While Lumen believes that it has used reasonable assumptions in connection with developing 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.
Lumen Technologies, Inc.
2021 OUTLOOK (1) (2)
(UNAUDITED)
($ in millions)
Adjusted EBITDA Outlook
Twelve Months Ended Dec. 31, 2021
Range
Low High
---
Net income $
1,625 1,975
Income tax expense 500 800
Total other expense 1,650 1,450
Depreciation and
amortization
expense 4,400 4,200
Share-based
compensation
expenses 225 175
Adjusted EBITDA $
8,400 $
8,600
Free Cash Flow Outlook
Twelve Months Ended Dec. 31, 2021
Range
Low High
---
Net cash provided by
operating
activities $
6,600 6,500
Capital expenditures (3,800) (3,500)
$
2,800 3,000
Free Cash Flow
(1) For definitions of non-GAAP
metrics and reconciliation to GAAP
figures, see the above schedules
and Lumen's Investor Relations
website.
(2) Outlook measures in this chart
(i) 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 (ii)
speak only as of Feb. 10, 2021.
See "Forward-Looking Statements."
View original content to download multimedia:http://www.prnewswire.com/news-releases/lumen-technologies-inc-reports-fourth-quarter-2020-results-301226073.html
SOURCE Lumen Technologies
