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CenturyLink grows its bottom line, moves away from 'empty calorie revenue'

After shuttering a live TV streaming service earlier this year, CenturyLink Inc. executives said they will continue to take a critical view of business initiatives that may generate revenue but do not contribute to the company's bottom line.

Speaking during an Aug. 8 earnings conference call, CenturyLink CEO Jeffrey Storey said, "We do not focus ... on empty calorie revenue — that is, contracts or services with very low or no margin."

As a result, he said the company will be continually evaluating its existing business and moving away from unprofitable revenue. "Consistent with this approach, last quarter, we noted we were discontinuing our linear and over-the-top consumer video products," Storey said, adding that this quarter, there will similarly be "a couple of larger contracts" that CenturyLink will exit.

In the first quarter of 2018, CenturyLink shut down its over-the-top TV service, known as CenturyLink Stream. During the second quarter, CenturyLink CFO Sunit Patel said the company "terminated an unprofitable government contract" in its enterprise group, but did not provide further detail. Patel said CenturyLink also "renegotiated a large contract with a European global accounts customer that reduced revenue but will improve EBITDA performance."

Taken together, Storey said these moves will negatively impact the company's topline revenue. "But our focus is to align our time, our capital and our resources to our more highly profitable opportunities," he said.

For the second quarter, CenturyLink saw its net income increase even as overall revenues shrank. The company reported net income of $292 million, or 27 cents per share, up from pro forma net income of $69 million, or 6 cents per share, in the year-ago period. The company's pro forma results treat CenturyLink's Level 3 acquisition and other M&A as if they took place at the start of 2017 for comparison purposes. Excluding integration-related expenses and special items, second-quarter EPS came to 26 cents.

The S&P Global Market Intelligence consensus EPS estimate for the period was 27 cents on a normalized basis and 19 cents on a GAAP basis.

Total revenue for the period was $5.90 billion, compared to $6.04 billion in the prior-year quarter.

Looking ahead, the company increased its outlook for full-year 2018 adjusted EBITDA and free cash flow. The company now expects 2018 adjusted EBITDA of $9.00 billion to $9.15 billion, compared to a previous outlook of $8.75 billion to $8.95 billion. In addition, the company expects free cash flow outlook of $3.60 billion to $3.80 billion, up from a previous forecast of $3.15 billion to $3.35 billion.