13 Feb Dr. Jon Cartu Writes – CenturyLink Inc (CTL) Q4 2019 Earnings Call Transcript
CenturyLink Inc (NYSE:CTL)
Q4 2019 Earnings Call
Feb 12, 2020, 5:00 p.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Greetings, and welcome to CenturyLink’s Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] Afterwards, we will conduct a question-and-answer session. [Operator Instructions]
It is now my pleasure to turn the conference over to Valerie Finberg, Vice President-Investor Relations. Please go ahead.
Valerie Finberg — Vice President of Investor Relations
Thank you, France. Good afternoon everyone, and thank you for joining us for the CenturyLink fourth quarter 2019 earnings call. Joining me on the call today are Jeff Storey, President and Chief Executive Officer; and Neel Dev, Executive Vice President and Chief Financial Officer.
Before we begin, I’d like to call your attention to our Safe Harbor statement on Slide 2 of our 4Q ’19 presentation, which notes that this conference call may include forward-looking statements subject to certain risks and uncertainties. In addition, we will refer to certain non-GAAP financial measures, which are reconciled to the most comparable GAAP measures. Those reconciliations can be found in the earnings press release or the supplemental schedules on the CenturyLink website. Additionally, please note that certain metrics discussed on the call today exclude transformation costs and other special items as noted in our earnings materials.
With that, I’ll turn the call over to Jeff.
Jeff Storey — Chief Executive Officer
Thanks, Valerie. And thank you everyone for joining us. On today’s call, I’ll provide a recap on our progress in 2019 and how we’re thinking about 2020 and beyond. Neel will provide an overview of our financial results and then, we’ll go into your questions.
We made good progress in 2019 transforming and positioning our business for the future, while also delivering on our near-term objectives and meeting the guidance targets we provided at the beginning of the year. As I look back over the past two years since the close of the Level 3 transaction, simply put, we’ve done exactly what we said we were going to do.
As you can see on Slide 4, in 2018 and 2019, we met or exceeded all of the outlook measures we provided. We delivered two consecutive years of growth in adjusted EBITDA and two years of expanding margins. We also exceeded our integration synergy targets in 2018 and are well on our way to achieving the deleveraging and transformation cost savings targets we shared with you in 2019.
We have significantly ramped our free cash flow from pre-merger levels last year, as we said we would. We grew Enterprise and IGAM revenue in the second half of 2019 compared to the first half of 2019. We still have a lot of work ahead, but I’m proud of the work our team has done. And we will remain focused and financially disciplined as we continue to drive our transformation.
You’ve heard me say many times that our focus is on driving growth in both profitable revenue and free cash flow per share. Our strategy is fairly straightforward. And our 2019 capital investment program focused on three primary areas, enhancing our product capabilities to meet the changing technology needs of our customers and the digital interactions they seek; increasing the size of our addressable market by continually expanding our fiber footprint; and improving our customer experience and reducing our cost to operate through simplification and automation. I’m pleased with the progress across all of these dimensions.
As an example of expanding our addressable market, in 2019, we built fiber to approximately 18,000 additional Enterprise buildings, bringing our total count to around 170,000 fiber-fed on-net locations. We’ve prioritized fiber deployment for consumers over previous investments in copper-based technologies like bonding and vectoring. We now have enabled more than 2 million fiber households, a number we expect to continue to grow. And we’re making it easy — easier for our consumer customers to access these networks by standardizing our product set and enabling a digital environment. That digital environment allows customers to immediately initiate service using automated and seamless provisioning processes. In turn, this lowers our cost to operate and improves our customer experience. This type of transformation creates a virtuous cycle. We optimize our capabilities to reduce costs, which drives a better customer experience and happy customers buy more and churn less.
Beyond our capital investments, we continue to take steps to improve the profitability of CenturyLink’s base business. We are slowly eliminating our linear video products and shutdown initiatives to create a streaming video product. We continue to groom our enterprise customer base to identify and exit low-margin contracts. We have deemphasized low-margin CPE sales. We still sell CPE, but only in the context of larger network-centric and professional services deals. These moves, obviously, had a negative effect on revenue, but had a positive effect on free cash flow generation. We believe the majority of this low-quality revenue grooming is now behind us, but we remain disciplined with our focus on profitable revenue growth.
We’re also very active in grooming low-margin off-net circuit onto our own fiber facilities. This is a long slow process though. From a pure cost perspective, we achieved $850 million in run rate integration synergies in 2018 and are well on our way to achieving the $800 million to $1 billion in transformation efficiencies we announced in 2019. We will continue to streamline our operating model and believe we have significant opportunities to continue to transform CenturyLink in the future.
I’d like to cover one last highlight from 2019 before I discuss 2020. Turning to Slide 5, at the beginning of last year, we modified our capital allocation strategy to focus on three priorities. Increased capital spending to drive growth in the business. As examples, the addition of the 18,000 new on-net buildings I mentioned brings more customers’ locations on-net and gives us a…