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CenturyLink Reports First Quarter 2016 Results

Achieved operating revenues of approximately $4.4 billion, including core revenues(1) of approximately $4.0 billionGenerated operating cash flow(2) of nearly $1.7 billion, excluding special itemsGenerated free cash flow(2)(3) of $824 million, excluding special itemsAchieved Adjusted Net Income(2) of $386 million and Adjusted Diluted EPS(2) of $0.71, excluding special itemsAdded nearly 17,000 Prism™ TV customers and approximately 8,000 high-speed Internet customersAnnounced placement of approximately $1.2 billion of debt financing

MONROE, La., May 4, 2016 /PRNewswire/ -- CenturyLink, Inc. CTL today reported results for first quarter 2016.

"CenturyLink achieved another solid quarter, with core revenues, operating cash flow and adjusted diluted earnings per share in-line with our previous guidance," said Glen F. Post III, chief executive officer and president. "Additionally, since the first of the year, we have completed two debt issuances totaling more than $1.2 billion, which strengthens our ability to invest in our business while returning cash to shareholders.

"We remain on track with our data centers and colocation business strategic alternatives process and are pleased with the level of interest and progress to date. We continue to focus on leveraging our strategic asset portfolio and financial strength to execute on our operational initiatives and better serve our customers," Post concluded.

First Quarter 2016 Highlights

  • Achieved core revenues of approximately $4.0 billion.
  • Grew revenue from high-bandwidth data services provided to Business customers, including MPLS(4) and Ethernet, by more than 7% year-over-year and revenue from Consumer strategic(5) services by approximately 5% year-over-year.
  • Generated free cash flow of $824 million, excluding special items.
  • Added more than 16,900 CenturyLink [® ] Prism [TM] TV customers during first quarter 2016, ending the period with approximately 302,000 customers.
  • Ended the quarter with approximately 6.1 million high-speed Internet customers, an increase of approximately 7,800 customers in first quarter 2016.
  • Announced placement of approximately $1.2 billion of debt to refinance substantially all 2016 debt maturities.

Consolidated Financial Results

Operating revenues for first quarter 2016 were $4.40 billion compared to $4.45 billion in first quarter 2015. Declines in voice and long distance revenues, low-bandwidth data services revenues and data integration revenues were partially offset by the increases in Business high-bandwidth data services revenues, Consumer high-speed Internet and Prism [TM] TV revenues and high-cost support revenues related to Connect America Fund Phase 2 (CAF Phase 2) support in first quarter 2016.

Operating expenses, excluding special items, decreased to $3.69 billion from $3.76 billion in first quarter 2015. 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, decreased to $1.69 billion from $1.74 billion in first quarter 2015. For first quarter 2016, CenturyLink achieved an operating cash flow margin, excluding special items, of 38.4% versus 39.0% in first quarter 2015.

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, CenturyLink's Adjusted Net Income for first quarter 2016 was $386 million compared to Adjusted Net Income of $375 million in first quarter 2015. First quarter 2016 Adjusted Diluted EPS was $0.71 compared to $0.67 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.

GAAP Results - First Quarter

Under generally accepted accounting principles (GAAP), net income for first quarter 2016 was $236 million compared to a net income of $192 million for first quarter 2015, and diluted earnings per share was $0.44 for first quarter 2016 compared to $0.34 for first quarter 2015.

Additional details regarding the company's special items for the three months ended March 31, 2016 and 2015 are provided in the accompanying financial schedules.

Segment Financial Results 6

Business

The Business segment continued to experience solid demand for high-bandwidth data services in first quarter 2016.

  • High-bandwidth data services revenues from Business customers grew more than 7% year-over-year.
  • Strategic revenues were $1.58 billion in the quarter, flat from first quarter 2015, primarily due to increased high-bandwidth data services revenues offset by continued declines in low-bandwidth data services and hosting revenues.
  • Total segment revenues were $2.60 billion, a decrease of 3.4% from first quarter 2015, primarily due to declines in legacy services, low-bandwidth data services and data integration revenues, which were partially offset by growth in high-bandwidth data services revenues.

Consumer

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

  • Total segment revenues were $1.49 billion for first quarter 2016, a slight decrease of 0.5% from first quarter 2015.
  • Strategic revenues were $774 million in the quarter, a 4.9% increase over first quarter 2015.
  • Approximately 16,900 CenturyLink [® ] Prism [TM] TV customers were added during first quarter 2016; added nearly 150,000 addressable homes in new and existing service areas, ending the quarter with more than 3.3 million addressable homes.

Guidance - Second Quarter 2016

CenturyLink expects second quarter 2016 operating revenues to be in-line with first quarter 2016 operating revenues primarily due to anticipated growth in data integration, high-bandwidth data services, high-speed Internet and Prism TV revenues being offset by expected declines in legacy and low-bandwidth data services revenues. The company expects second quarter 2016 operating cash flow to decrease compared to first quarter 2016 primarily due to expected higher seasonal cash expenses.

Second Quarter 2016 (excluding special items)

Operating Revenues


$4.38 to $4.43 billion

Core Revenues


$3.94 to $3.99 billion

Operating Cash Flow


$1.59 to $1.64 billion

Adjusted Diluted EPS


$0.57 to $0.62

During first quarter 2016, CenturyLink revised its free cash flow calculation to include the cash impact of pension/other post-employment benefit costs as well as stock-based compensation. The company believes this calculation provides additional detail and insight into CenturyLink's ongoing cash requirements. Although the inclusion of these items in the free cash flow calculation is anticipated to result in a slightly lower level of free cash flow for 2016, CenturyLink still expects to generate full-year 2016 free cash flow within the previously provided guidance range of $1.8 billion to $2.0 billion.

All 2016 guidance figures and 2016 outlook statements included in this release (i) speak as of May 4, 2016 only, (ii) exclude the impact of any share repurchases made after March 31, 2016 and (iii) exclude the effects of special items, future impairment charges, future changes in regulation (including changes in the CAF Phase 2 program), future changes in tax laws, accounting rules or our accounting policies, unforeseen litigation or contingencies, integration expenses associated with major acquisitions, any changes in our expected pension fundings, any changes in operating or capital plans or other unforeseen events or circumstances that impact our financial performance, and any future mergers, acquisitions, divestitures, joint ventures or other similar business transactions. See "Forward Looking Statements" below. For additional information on how we define certain of the terms used above, see the attached schedules.

Investor Call

As previously announced, CenturyLink's management will host a conference call at 4:00 p.m. Central Time today, May 4, 2016. Interested parties can access the call by dialing 866-814-1933. The call will be accessible for replay through May 12, 2016, by dialing 888-266-2081 and entering the access code 1670691. Investors can also listen to CenturyLink's earnings conference call and webcast replay by accessing the Investor Relations portion of the company's website at http://www.centurylink.com through May 27, 2016. Financial, statistical and other information related to the call will also be posted to our website.

Reconciliation to GAAP

This release includes certain non-GAAP financial measures, including but not limited to operating cash flow, free cash flow, core revenues, Adjusted Net Income, Adjusted Diluted EPS and adjustments to GAAP measures to exclude the effect of special items. In addition to providing key metrics for management to evaluate the company's performance, we believe these measurements assist investors in their understanding of period-to-period operating performance and in identifying historical and prospective trends. Reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the attached financial schedules. Reconciliation of additional non-GAAP financial measures that may be discussed during the earnings call described above will be available in the Investor Relations portion of the company's website at www.centurylink.com. Investors are urged to consider these non-GAAP measures in addition to, and not in substitution for, measures prepared in accordance with GAAP.

About CenturyLink

CenturyLink CTL is a global communications, hosting, cloud and IT services company enabling millions of customers to transform their businesses and their lives through innovative technology solutions. CenturyLink offers network and data systems management, Big Data analytics and IT consulting, and operates more than 55 data centers in North America, Europe and Asia. The company provides broadband, voice, video, data and managed services over a robust 250,000-route-mile U.S. fiber network and a 300,000-route-mile international transport network. Visit www.centurylink.com for more information.

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...


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