CenturyLink Reports Fourth Quarter And Full-Year 2015 Results

OREANDA-NEWS. CenturyLink, Inc. (NYSE: CTL) today reported results for fourth quarter and full-year 2015.

"CenturyLink achieved strong fourth quarter financial results as revenues, cash flow and adjusted diluted earnings per share exceeded the top end of our guidance for the quarter, driven by solid revenue performance and lower operating costs," said Glen F. Post III, chief executive officer and president. "Our Consumer segment continued to perform well as revenues grew both sequentially and year-over-year, while Business segment revenues grew sequentially on stronger core revenue generation. Our employees did a great job of containing costs during the second half of the year, which helped us exceed our goal of planned operating expense reductions for the second half of 2015.

"As we look to 2016, we are seeing strong demand for high-bandwidth data and managed services from businesses, which we expect to help mitigate the anticipated further declines in our legacy revenues. Our IT services business, while relatively small today, continued to grow and gain traction during 2015, generating revenues that more than doubled compared to the prior year. We also have a solid funnel of business services opportunities going into 2016, which we expect to help drive network and managed services revenue," Post concluded.

Fourth Quarter 2015 Highlights

• Achieved core revenues of approximately $4.0 billion in fourth quarter 2015.
• Revenue from high-bandwidth data services provided to Business customers, including MPLS³ and Ethernet, grew approximately 9% year-over-year; revenue from Consumer strategic services grew more than 6% year-over-year.
• Operating expenses declined more than $100 million in fourth quarter 2015 compared to third quarter 2015.
• Generated free cash flow of $591 million, excluding special items.
• Added approximately 16,000 CenturyLink^® Prism^TM TV customers during fourth quarter 2015, ending the period with approximately 285,000 customers.
• Ended the quarter with approximately 6.0 million high-speed Internet customers, a decrease of approximately 22,000 customers in fourth quarter 2015.
• Purchased and retired more than 10 million shares of CenturyLink common stock for nearly $280 million during fourth quarter 2015.

Consolidated Financial Results

Operating revenues for fourth quarter 2015 were $4.48 billion compared to $4.44 billion in fourth quarter 2014 driven by the increase in high-cost support revenues due to the recognition of Connect America Fund Phase 2 (CAF Phase 2) support during fourth quarter 2015, along with strength in high-bandwidth data services and Consumer strategic revenues. These increases were partially offset by the declines in low-bandwidth data services, as well as the decline in legacy revenues⁴ which was primarily driven by access line losses and lower long distance revenues. Growth in strategic revenues was primarily due to continued business customer demand for high-bandwidth data services, along with year-over-year growth in consumer high-speed Internet and CenturyLink^® Prism^TM TV revenues.

Operating expenses, excluding special items, decreased to $3.71 billion from $3.86 billion in fourth quarter 2014. The year-over-year decrease was primarily driven by lower depreciation and amortization expenses and employee-related expenses.

Operating cash flow (as defined in our attached supplemental schedules), excluding special items, increased to $1.82 billion from $1.71 billion in fourth quarter 2014. For fourth quarter 2015, CenturyLink achieved an operating cash flow margin, excluding special items, of 40.6% versus 38.5% in fourth quarter 2014.

Adjusted Net Income and Adjusted Diluted Earnings Per Share (EPS) exclude the after-tax impact of special items, the non-cash after-tax impact of the amortization of certain intangible assets related to major acquisitions since mid-2009, and the non-cash after-tax impact to interest expense relating to the assignment of fair value to the outstanding debt assumed in connection with those acquisitions. Excluding these items and including the impact of favorable income tax adjustments, CenturyLink's Adjusted Net Income for fourth quarter 2015 was $434 million compared to Adjusted Net Income of $340 million in fourth quarter 2014. Fourth quarter 2015 Adjusted Diluted EPS was $0.80 compared to $0.60 in the year-ago period due to the higher Adjusted Net Income and the impact of the lower number of shares outstanding due to share repurchases in 2015. See the attached schedules for additional information.

Full-Year 2015 Results

For the full-year 2015, operating revenues decreased to $17.9 billion from $18.0 billion in 2014. Core revenues decreased to $16.1 billion in 2015 from $16.3 in 2014. Operating cash flow, excluding special items, was $7.0 billion in 2015 compared to $7.1 billion in 2014. The decline in operating revenues was driven by the impact of lower legacy voice revenues, a decline in strategic low-bandwidth data services and lower data integration revenues. These revenue declines were partially offset by increases in strategic revenues resulting primarily from increased business customer demand for high-bandwidth data services, along with growth in high-speed Internet and CenturyLink^® Prism^TM TV revenues, and increased high-cost support revenues due to the recognition of CAF Phase 2 funds. The operating cash flow decline was driven primarily by the decline in operating revenues. Adjusted Net Income, excluding special items, was $1.5 billion in 2015, flat compared to 2014. Adjusted Diluted EPS, excluding special items, was $2.71 in 2015 compared to $2.61 in 2014.

GAAP Results - Fourth Quarter and Full-Year

Under generally accepted accounting principles (GAAP), net income for fourth quarter 2015 was $338 million compared to a net income of $188 million for fourth quarter 2014, and diluted earnings per share was $0.62 for fourth quarter 2015 compared to $0.33 for fourth quarter 2014.

Net income under GAAP for full-year 2015 was $878 million compared to net income of $772 million for full-year 2014, and diluted earnings per share for full-year 2015 was $1.58 compared to diluted earnings per share of $1.36 for full-year 2014.

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

Segment Financial Results⁵

Segment income margin improved to 50.1% from 49.1% a year ago primarily due to cost reduction efforts and strategic revenue growth, which together more than offset the margin impact of the continued decline in legacy revenue.

Business

The Business segment continued to experience solid demand for high-bandwidth data services in fourth quarter 2015.

• High-bandwidth data services revenues from business customers grew approximately 9% year-over-year.
• Strategic revenues were $1.60 billion in the quarter, a 1.4% increase from fourth quarter 2014, primarily due to increased high-bandwidth data services and IT services revenues which were partially offset by continued declines in low-bandwidth data services.
• Total segment revenues were $2.66 billion, a decrease of 1.6% from fourth quarter 2014, due primarily to declines in low-bandwidth data services and legacy revenues which were partially offset by growth in high-bandwidth data services revenues.

Consumer

The Consumer segment achieved solid year-over-year revenue growth driven primarily by increased high-speed Internet and CenturyLink^® Prism^TM TV revenues.

• Total segment revenues were $1.51 billion for fourth quarter 2015, an increase of 1.3% from fourth quarter 2014.
• Strategic revenues were $773 million in the quarter, a 6.3% increase over fourth quarter 2014.
• Approximately 16,000 CenturyLink^® Prism^TM TV customers were added during fourth quarter 2015 and more than 190,000 addressable homes were added in new and existing service areas, ending the quarter with nearly 3.2 million addressable homes.

Guidance — Full-Year and First Quarter 2016

CenturyLink anticipates slightly lower operating revenues and core revenues in full-year 2016 compared to full-year 2015 due to expected legacy revenue declines more than offsetting anticipated increases in strategic revenue growth. Operating cash flow is expected to decline from full-year 2015 primarily driven by the continued decline in legacy and low-bandwidth data services revenues. The company also anticipates lower depreciation and amortization expense for full-year 2016 compared to full-year 2015. Free cash flow in full-year 2016 is expected to decline from full-year 2015 due to the lower level of operating cash flow, an increase in cash income taxes and anticipated capital expenditures of $3 billion for the year.

Full-Year 2016 (excluding special items)

CenturyLink expects first quarter 2016 operating revenues to decrease compared to fourth quarter 2015 primarily due to anticipated declines in legacy, hosting and low-bandwidth data services revenues. The company expects first quarter 2016 operating cash flow to decrease compared to fourth quarter 2015 primarily due to the decline in operating revenues, higher marketing costs and increased payroll taxes, along with approximately $35 million in favorable year-end expense true-ups reflected in fourth quarter 2015 results that are not expected to recur in first quarter 2016. The company also anticipates a decline in depreciation and amortization expense in the first quarter of 2016 which is expected to be more than offset by the decrease in operating cash flow and the impact of favorable income tax adjustments in the fourth quarter 2015, resulting in a decline in adjusted diluted EPS in first quarter 2016 compared to fourth quarter 2015.

First Quarter 2016 (excluding special items)