CenturyLink Focuses on Fiber Network Growth in Q2 Earnings Report
CenturyLink reported Q2 2019 revenue of $5.58 billion Wednesday, down from $5.9 billion in the same quarter last year, as it continues to expand its fiber network. The company's "guiding principle" is growing free cash flow per share, said CEO Jeff Storey during an earnings call (requires login). The company generated $956 million in free cash flow in Q2, excluding cash paid for integration and transformation costs and special items of $55 million, it said in an earnings report.
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Storey was reluctant to give details on CenturyLink's long-term plans for its consumer business while it undergoes a strategic review of its options (see 1905090008) because it's "still early in the process," but he said the company's "open to all options, including continuing to own and operate it." Storey said CenturyLink actively evaluated over the past several months whether to sell other lines of its business, noting there must first be a willing buyer: "Regardless of the particular product or particular line of business, if we focus on growing free cash flow, then we have options of whether we keep it or don't keep it."
"We think there is great demand out there for the types of products and services we sell, and that demand is growing," Storey said, adding there's opportunity for the company to take market share from competitors as it upgrades its network. "If we augment our capabilities, we win." CenturyLink installed fiber to almost 5,000 buildings in Q2 and 4,500 buildings in Q1 where it can offer its On-Net services, it said Wednesday. "Expanding our fiber footprint is a major focus for us," he said.
The company will evaluate the rules for new USF auctions as they're finalized before deciding whether to participate in the proposed Rural Digital Opportunity Fund, Storey said. "If it makes sense for us, we'll participate," he said, noting the company has participated in USF Connect America Fund auctions in some years, not others (see 1907110031). Chief Financial Officer Neel Dev said the USF auction programs are a revenue opportunity, but they also bring capital costs. "We still don't know how much CenturyLink might receive from the RDOF or the exact economics, but the NPRM appears to take at least some risk off the table for CenturyLink," said MoffettNathanson Thursday.
The company reported a $15 million charge in Q2 for a settlement in nationwide consumer class-action cases dating back to mid-2017 that are subject to judicial approval.
When asked during the call whether CenturyLink was exploring merger and acquisition activities, Storey said "we're an acquisitive company" but wouldn't disclose specific discussions. "Our real effort is transitioning CenturyLink" by looking at customer interactions, he said; for example, the company offers digital tools to its Enterprise customers allowing them to switch cloud service providers at the touch of a few keystrokes, and it's examining how to give them flexibility in upgrading their service capacity or speeds online directly.
The company had sequential growth in enterprise sales during the quarter because Q1 sales had taken a hit with the government shutdown, said Dev. Revenue in the second half of the year should be helped as installations are completed from Q2 sales, he said. The stock closed Thursday at $10.70, down 7.6 percent.
CenturyLink also won a contract to provide cloud connectivity to the Census Bureau to help digitize the 2020 census, Storey said during the call. The task order began last month and runs through the end of next year, according to an announcement Thursday. A company spokesperson emailed Thursday that the order is valued at $24 million, and CenturyLink will help promote public participation in the 2020 census through its social media channels.