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CenturyLink president says deeper 'fiber is good,' talks ongoing cost cuts

Reporting its results for the first time since closing its acquisition of Level 3 at the end of 2017, CenturyLink Inc. said 2018 will be a year focused on integration, cost cuts and an improved customer experience.

Speaking during a Feb. 14 earnings conference call, CenturyLink CEO Glen Post and company President Jeff Storey stressed that these goals — reduced costs and improved experience — are sometimes seen as mutually exclusive, but they are not.

Post said that while CenturyLink is on one hand "simplifying and eliminating products, processes and systems" to take costs out of the business, it will at the same time be "investing with discipline to expand key network capabilities and to take fiber deeper into the network."

Storey, meanwhile, said that in addition to extending its fiber deployments, CenturyLink will also work to better monetize that investment by encouraging consumer adoption of higher speed and higher price services. "We have a significant footprint that has been activated with high speed. We need to focus on selling what we've got," Storey said.

In addition to targeting consumers, Storey said CenturyLink will also go after small businesses and enterprise customers. "We'll continue to deploy more fiber into our network, getting it closer and closer to ... consumer customers and making that higher speed available to the larger footprint. And then we have the benefit of being able to spread that fiber deployment across not only our consumer customers, but our small and medium enterprise customers, our larger enterprise customers, passing more buildings and going into more buildings. And so we believe fiber is good," Storey said.

Presently, CenturyLink's consumer business represents 23% of the company's revenue, while business revenues represent 74%.

In terms of cost cuts related to the Level 3 transaction, CenturyLink has achieved about $75 million in annualized run rate adjusted EBITDA synergies. All in all, the company is ultimately targeting $975 million of annualized run rate synergies, comprised of $850 million in operating expense synergies and $125 million in capital expense synergies. "We are confident that we can capture the majority of the targeted run rate adjusted EBITDA savings over the next 3 years," CenturyLink CFO Sunit Patel said during the call, adding the company expects to achieve the $125 million of CapEx synergies this year.

For the fourth quarter of 2017, CenturyLink reported consolidated net income of $1.12 billion, or $1.26 per share, up year over year from net income of $42 million, or 8 cents per share. The reported results include two months of Level 3's financial performance, reflecting CenturyLink's purchase of Level 3 on Nov. 1, 2017. In addition, the results also reflect a recognized tax benefit of $1.1 billion from the enactment of the Tax Cuts and Jobs Act, along with $222 million of acquisition and integration-related expenses. Excluding these items, fourth-quarter 2017 EPS totaled 18 cents per share.

The S&P Capital IQ consensus EPS estimate for the quarter was 37 cents on a normalized basis and 10 cents on a GAAP basis.

For full year 207, CenturyLink reported consolidated net income of $1.39 billion, or $2.21 per share, up from net income of $626 million, or $1.16 per share, in 2016. For the full year, the S&P Capital IQ consensus EPS estimate was 72 cents on a GAAP basis and $1.76 on a normalized basis.

Consolidated total revenue was $5.32 billion for fourth quarter 2017, compared to $4.29 billion for fourth quarter 2016. For the full year, consolidated revenue was $17.66 billion in 2017, up from $17.47 billion for full year 2016. On a pro forma basis, treating the Level 3 acquisition and the sale of CenturyLink's data centers and colocation business as if those transactions had been completed on Jan. 1, 2016, CenturyLink reported fourth-quarter 2017 revenue of $6.01 billion, down from $6.11 billion. For the full year, pro forma 2017 revenue totaled $24.13 billion, down from $24.78 billion.

Looking ahead, CenturyLink expects full year 2018 adjusted EBITDA of $8.75 billion to $8.95 billion and free cash flow of $3.15 billion to $3.35 billion, excluding Level 3 integration-related expenses.