CenturyLink Sees Improving EBITDA, Lower Dividends, NOL Protection

CenturyLink reported its Q4 numbers yesterday after the market closed, continuing the integration process and boosting adjusted EBITDA.  The company decided to cut its dividend from $2.16 per share down to $1.00, which won’t make the markets very happy.  They also announced a plan to protect the company’s $7.3B pile of NOLs (net operating losses).

$ in millions	Q4/17 (pro forma)	Q1/18	Q2/18	Q3/18	Q4/18
Total Revenue	6005	5945	5902	5818	5778
– SME	874	860	884	860	825
– Enterprise	1324	1315	1295	1278	1329
– Int’l & Global Accounts	941	937	903	892	925
– Wholesale	1276	1271	1283	1255	1237
– Consumer	1401	1379	1352	1355	1285
– Regulatory	189	183	185	178	177
Adjusted EBITDA	1992	2074	2111	2228	2189
Adj. EBITDA Margin	33.2%	34.9%	35.8%	38.3%	37.9%
Adj. EBITDA after items	2210	2181	2271	2287	2301
Capex	844	805	771	684	915
Free Cash Flow	457	862	811	1103	1081

Revenues fell sequentially again but less than they have seen recently, as declines in consumer, SME, and wholesale were partially offset by growth in enterprise and in international and global accounts.

Adjusted EBITDA was up $197M over the same period last year, and down sequentially by $39M.  But when you take out the one time and integration expenses, it was up sequentially again as the company continues to squeeze synergies out of the Level 3 combination.  Free cash flow was also strong at $1.081B.

Looking forward CenturyLink is expecting 2019 EBITDA of $9.0-9.2B, and free cash flow of $3.1-3.4B.  The company expects to spend $3.5-3.8B in free cash flow.  There are also another $800M-$1B in annualized integration synergies left to derive over the next three years, for which they will spend $450-650M to achieve.

The new NOLs protection plan is directed toward avoiding shifts in share distribution that would result in an ownership change, although the company clarified it is not an anti-takeover provision. Through the issuance of rights with an expiration date of December 2020, they hope to deter trading that might head in the wrong direction from a NOLs valuation perspective.

I haven’t been closely following CenturyLink’s results since the Level 3 deal, so I’ll avoid too much commentary just now.  I do plan to rectify that situation as 2019 continues.

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