Third Quarter 2022 Highlights
- Completed the $2.7 billion
divestiture of its Latin American business to Stonepeak on
Aug. 1
- Updated guidance for the full year 2022 for free cash flow and
capital expenditures
- Reported Net Income of $578
million for the third quarter 2022, compared to reported Net
Income of $544 million for the third
quarter 2021
- Diluted EPS of $0.57 for the
third quarter 2022, compared to $0.51
per share for the third quarter 2021. Excluding Special Items,
Diluted EPS of $0.14 per share for
the third quarter 2022, compared to $0.49 per share for the third quarter 2021
- Generated Adjusted EBITDA of $1.688
billion for the third quarter 2022, compared to $2.078 billion for the third quarter 2021,
excluding the effects of Special Items of $(527) million and $(31)
million, respectively
- Generated Pro Forma1 Adjusted EBITDA of $1.659 billion for the third quarter 2022,
compared to $1.872 billion for the
third quarter 2021, excluding the effects of Special Items of
$(527) million and $(31) million, respectively
- Reported Net Cash Provided by Operating Activities of
$1.123 billion for the third quarter
2022
- Generated Free Cash Flow of $620
million for the third quarter 2022, compared to $1.072 billion for the third quarter 2021,
excluding cash paid for Special Items of $342 million and $32
million, respectively
Subsequent Events
- Capital Allocation Update
-
- Eliminated stock dividend, there will be no dividend paid in
the fourth quarter of 2022
- Authorized an up to $1.5 billion,
two-year share repurchase program
- Investing in growth initiatives while remaining relatively net
leverage neutral
- Announced today that it had entered into an exclusive
arrangement for the proposed sale of its EMEA business to Colt
Technology Services for $1.8
billion
- Completed the $7.5 billion
divestiture of its 20-state ILEC business to Apollo on Oct. 3
DENVER, Nov. 2, 2022
/PRNewswire/ -- Lumen Technologies, Inc. (NYSE: LUMN) reported
results for the third quarter ended Sept.
30, 2022.
"As I look forward to my retirement next week, I reflect on the
significant progress in transforming Lumen over the last five years
and I am very proud of the Lumen team and all of their
accomplishments." said Jeff Storey,
president and CEO of Lumen. "Today's announced capital allocation
change follows a very thoughtful process by our Board of Directors
that we believe will provide a clear path to invest in growth,
repurchase shares at attractive valuations, and maintain a strong
balance sheet. It has been a privilege to serve as CEO to this very
talented team, and I am confident that my successor, Kate Johnson, will continue building on our
momentum to drive profitable growth at Lumen."
"The opportunity for Lumen is significant, and I am eager to
leverage today's announcements and the adjusted capital allocation
priorities to drive profitable growth and shareholder value. Jeff,
the Lumen Board, and I are fully aligned on these decisions. I look
forward to hitting the ground running on November 7," said Kate
Johnson, incoming president and CEO of Lumen.
Total Revenue was $4.390 billion
for the third quarter 2022, compared to $4.887 billion for the third quarter 2021.
Pro Forma1 Total Revenue was $4.328 billion for the third quarter 2022,
compared to $4.582 billion for the
third quarter 2021.
_________________________________
|
1 Pro
Forma amounts include adjustments to remove the financial impacts
related to (i) the Latin American business divestiture completed
Aug. 1, 2022, including revenue expected to be received under the
post-closing agreements, and (ii) the Federal Communications
Commission's Connect America Fund ("CAF") Phase II program, which
lapsed on Dec. 31, 2021, each excluding the effects of special
items. Reconciliation of these non-GAAP financial measures to the
most directly comparable GAAP measures are provided in the
Financial Trending Schedule available on Lumen's website at
ir.lumen.com, along with additional Pro Forma information reported
on this basis.
|
Financial Results
Metric, as
reported
|
Third
Quarter
|
Third
Quarter
|
($ in millions,
except per share data)
|
2022
|
2021
|
International and
Global Accounts
|
$
853
|
1,027
|
Large
Enterprise
|
844
|
942
|
Mid-Market
Enterprise
|
618
|
648
|
Enterprise
Channels
|
2,315
|
2,617
|
Wholesale
|
902
|
891
|
Business Segment
Revenue
|
3,217
|
3,508
|
Mass Markets Segment
Revenue
|
1,173
|
1,379
|
Total
Revenue
|
$
4,390
|
4,887
|
Cost of Services and
Products
|
1,999
|
2,151
|
Selling, General and
Administrative Expenses(1)
|
199
|
654
|
Stock-based
Compensation Expense
|
23
|
27
|
Adjusted
EBITDA(2)
|
2,215
|
2,109
|
Adjusted EBITDA,
Excluding Special Items(2)(3)
|
1,688
|
2,078
|
Adjusted EBITDA
Margin(2)
|
50.5 %
|
43.2 %
|
Adjusted EBITDA Margin,
Excluding Special Items(2)(3)
|
38.5 %
|
42.5 %
|
Net Cash Provided by
Operating Activities
|
1,123
|
1,730
|
Capital
Expenditures
|
845
|
690
|
Unlevered Cash
Flow(2)
|
665
|
1,440
|
Unlevered Cash Flow,
Excluding Cash Special Items(2)(4)
|
1,007
|
1,472
|
Free Cash
Flow(2)
|
278
|
1,040
|
Free Cash Flow,
Excluding Cash Special Items(2)(4)
|
620
|
1,072
|
Net Income
|
578
|
544
|
Net Income, Excluding
Special Items(2)(5)
|
146
|
521
|
Net Income per Common
Share - Diluted
|
0.57
|
0.51
|
Net Income per Common
Share - Diluted, Excluding Special
Items(2)(5)
|
0.14
|
0.49
|
Weighted Average Shares
Outstanding (in millions) - Diluted
|
1,017.0
|
1,069.2
|
|
|
|
(1)
Inclusive of $593 million gain on sale of Latin American business
for the third quarter of 2022.
|
|
|
(2)
See the attached schedules for definitions of non-GAAP metrics and
reconciliations to GAAP figures.
|
(3)
Excludes Special Items in the amounts of (i) $(527) million for the
third quarter of 2022 and (ii) $(31) million for the third quarter
of 2021.
|
(4)
Excludes cash paid for Special Items of (i) $342 million for the
third quarter of 2022 and (ii) $32 million for the third quarter of
2021.
|
(5)
Excludes Special Items (net of the income tax effect thereof) in
the amounts of (i) $(432) million for the third quarter of 2022 and
(ii) $(23) million for the third quarter of 2021.
|
Pro
Forma(1) Metrics
|
Third
Quarter
|
Third
Quarter
|
YoY
Percent
|
($ in
millions)
|
2022
|
2021
|
Change
|
Revenue By Sales
Channel
|
|
|
|
International and
Global Accounts
|
$
789
|
841
|
(6) %
|
Large
Enterprise
|
844
|
942
|
(10) %
|
Mid-Market
Enterprise
|
618
|
648
|
(5) %
|
Enterprise
Channels
|
2,251
|
2,431
|
(7) %
|
Wholesale
|
904
|
895
|
1 %
|
Business Segment
Revenue
|
3,155
|
3,326
|
(5) %
|
Mass Markets Segment
Revenue
|
1,173
|
1,256
|
(7) %
|
Total
Revenue
|
$
4,328
|
4,582
|
(6) %
|
Adjusted EBITDA,
Excluding Special Items
|
$
1,659
|
1,872
|
(11) %
|
Adjusted EBITDA Margin,
Excluding Special Items
|
38.3 %
|
40.9 %
|
(6) %
|
Capital
Expenditures
|
$
831
|
614
|
35 %
|
|
(1) Pro
Forma amounts include adjustments to remove the financial impacts
related to (i) the Latin American business divestiture completed
Aug. 1, 2022, including revenue expected to be received under the
post-closing agreements, and (ii) the Federal Communications
Commission's Connect America Fund ("CAF") Phase II program, which
lapsed on Dec. 31, 2021, each excluding the effects of special
items. Reconciliation of these non-GAAP financial measures to the
most directly comparable GAAP measures are provided in the
Financial Trending Schedule available on Lumen's website at
ir.lumen.com, along with additional Pro Forma information reported
on this basis.
|
Cash Flow
Free Cash Flow, excluding Special Items, was $620 million in the third quarter 2022,
compared to $1.072 billion in
the third quarter 2021.
As of Sept. 30, 2022, Lumen had
cash and cash equivalents of $252
million. On Oct. 3, 2022, we
received approximately $5.6 billion
of pre-tax cash proceeds upon selling our 20-state ILEC business.
Additionally, since Sept. 30, 2022,
we repaid approximately $3.2 billion
aggregate principal amount of our consolidated indebtedness and we
will additionally redeem $112 million
of senior notes on Nov. 4, 2022, in
accordance with our redemption notice dated Sept. 26, 2022.
Divestiture Transactions
After the close of the third quarter 2022:
- On Nov. 2, 2022, Lumen issued a
separate press release announcing that it had entered into an
exclusive arrangement for the proposed sale of its EMEA business to
Colt Technology Services for $1.8
billion.
- On Oct. 3, 2022, we completed the
divestiture of a portion of our incumbent local exchange carrier
("ILEC") business.
Capital Allocation Update
After extensive review, the Board of Directors has eliminated
the company's annual dividend of $1.00 going forward and has authorized an up to
$1.5 billion, two-year share
repurchase program. Under this revised capital allocation policy,
the company plans to continue to invest in growth initiatives while
remaining relatively net leverage neutral.
2022 Financial Outlook
The company updated its full-year 2022 financial outlook which
is detailed below:
Metric
(1)(2)
|
Current
Outlook
|
Previous
Outlook(3)
|
Adjusted
EBITDA
|
$6.9 to $7.1
billion
|
$6.9 to $7.1
billion
|
Free Cash
Flow(4)
|
$2.2 to $2.4
billion
|
$2.0 to $2.2
billion
|
Net Cash
Interest
|
$1.3 to $1.4
billion
|
$1.3 to $1.4
billion
|
GAAP Interest
Expense
|
$1.350
billion
|
$1.350
billion
|
Dividends(5)
|
—
|
$1.00 per
share
|
Capital
Expenditures
|
$3.0 to $3.2
billion
|
$3.2 to $3.4
billion
|
Depreciation and
Amortization
|
$3.2 to $3.4
billion
|
$3.2 to $3.4
billion
|
Stock-based
Compensation Expense
|
~$100
million
|
~$150
million
|
Cash Income
Taxes
|
~$100
million
|
~$100
million
|
Full Year Effective
Income Tax Rate(6)
|
~26%
|
~26%
|
|
|
|
(1)
For definitions of non-GAAP metrics and reconciliations to GAAP
figures, see the attached schedules and our Investor Relations
website.
|
(2)
Outlook measures in this chart and the accompanying schedules (i)
exclude the effects of Special Items, future changes in our
operating or capital allocation plans, unforeseen changes in
regulation, laws or litigation, and other unforeseen events or
circumstances impacting our financial performance and (ii) speak
only as of Nov. 2, 2022. See "Forward-Looking
Statements."
|
(3)
Outlook measures include accounting impacts of the recently
completed divestiture of the Latin American business on Aug. 1,
2022, as well as the Oct. 3, 2022 divestiture of Lumen's 20-state
ILEC business, resulting in 2022 financial contributions of three
quarters for that business.
|
(4)
Assumes no discretionary pension plan contributions during 2022 and
excludes $319 million of pension plan contributions made in Sept.
2022 related to the 20-state ILEC business divestiture.
|
(5)
Third quarter 2022 year-to-date dividends paid were $0.75 per
share. Dividend guidance has been withdrawn as of Nov. 2, 2022
related to our updated capital allocation policy, and there will
not be a dividend payment in the fourth quarter 2022.
|
(6)
Excludes the impact of taxes related to our divestitures completed
on Aug. 1, 2022 and Oct. 3, 2022.
|
Investor Call
Lumen's management team will host a conference call at
5:00 p.m. ET today, Nov. 2,
2022. The conference call will be streamed live over the Lumen
website at ir.lumen.com. Additional information regarding third
quarter 2022 results, including the presentation materials
management will review during the conference call, will be
available on the Investor Relations website prior to the call. If
you are unable to join the call via the web, the call can be
accessed live at +1 877-283-5145 (U.S. Domestic) or +1 312-281-1201
(International).
A telephone replay of the call will be available beginning at
8:00 p.m. ET on Nov. 2, 2022,
and ending Jan. 31, 2023, at
8:00 p.m. ET. The replay can be
accessed by dialing +1 800-633-8284 (U.S. Domestic) or +1
402-977-9140 (International), reservation code 22020905. A webcast
replay of the call will also be available on our website beginning
at 7:00 p.m. ET on November 2,
2022, and ending February 1, 2023, at
6:00 p.m. ET.
About Lumen Technologies and the People of Lumen:
Lumen Technologies Inc. (NYSE: LUMN) is guided by our belief
that humanity is at its best when technology advances the way we
live and work. With approximately 400,000 route fiber miles and
serving customers in more than 60 countries, we deliver the
fastest, most secure platform for applications and data to help
businesses, government and communities deliver amazing
experiences.
Learn more about the Lumen network, edge cloud, security,
communication and collaboration solutions and our purpose to
further human progress through technology at news.lumen.com,
LinkedIn: /lumentechnologies, Twitter: @lumentechco, Facebook:
/lumentechnologies, Instagram: @lumentechnologies and YouTube:
/lumentechnologies. Lumen and Lumen Technologies are registered
trademarks of Lumen Technologies LLC in the United States. Lumen Technologies LLC is a
wholly-owned affiliate of Lumen Technologies, Inc.
Forward-Looking Statements
Except for historical and factual information, the matters set
forth in this release and other of our oral or written statements
identified by words such as "estimates," "expects," "anticipates,"
"believes," "plans," "intends," "will," and similar expressions are
forward-looking statements as defined by the federal securities
laws, and are subject to the "safe harbor" protections thereunder.
These forward-looking statements are not guarantees of future
results and are based on current expectations only, are inherently
speculative, and are subject to a number of assumptions, risks and
uncertainties, many of which are beyond our control. Actual events
and results may differ materially from those anticipated,
estimated, projected or implied by us in those statements if one or
more of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect. Factors that could affect actual
results include but are not limited to: the effects of competition
from a wide variety of competitive providers, including decreased
demand for our more mature service offerings and increased pricing
pressures; the effects of new, emerging or competing technologies,
including those that could make our products less desirable or
obsolete; our ability to successfully and timely attain our key
operating imperatives, including simplifying and consolidating our
network, simplifying and automating our service support systems,
attaining our Quantum Fiber buildout plans, strengthening our
relationships with customers and attaining projected cost savings;
our ability to safeguard our network, and to avoid the adverse
impact of possible cyber-attacks, security breaches, service
outages, system failures, or similar events impacting our network
or the availability and quality of our services; the effects of
ongoing changes in the regulation of the communications industry,
including the outcome of legislative, regulatory or judicial
proceedings relating to content liability standards, intercarrier
compensation, universal service, service standards, broadband
deployment, data protection, privacy and net neutrality; our
ability to effectively retain and hire key personnel and to
successfully negotiate collective bargaining agreements on
reasonable terms without work stoppages; changes in customer demand
for our products and services, including increased demand for
high-speed data transmission services; our ability to successfully
maintain the quality and profitability of our existing product and
service offerings and to introduce profitable new offerings on a
timely and cost-effective basis; our ability to generate cash flows
sufficient to fund our financial commitments and objectives,
including our capital expenditures, operating costs, debt
repayments, pension contributions and other benefits payments; our
ability to successfully and timely implement our corporate
strategies, including our deleveraging strategy; our ability to
successfully and timely consummate the pending divestiture of our
European, Middle Eastern and African operations, to successfully
and timely realize the anticipated benefits from that divestiture
and our divestitures completed in 2022, and to successfully operate
our retained business successfully after such divestitures; changes
in our operating plans, corporate strategies, or capital allocation
plans, whether based upon changes in our cash flows, cash
requirements, financial performance, financial position, market or
regulatory conditions, or otherwise; the impact of any future
material acquisitions or divestitures that we may transact; the
negative impact of increases in the costs of our pension,
healthcare, post-employment or other benefits, including those
caused by changes in markets, interest rates, mortality rates,
demographics or regulations; the potential negative impact of
customer complaints, government investigations, security breaches
or service outages impacting us or our industry; adverse changes in
our access to credit markets on favorable terms, whether caused by
changes in our financial position, lower credit ratings, unstable
markets or otherwise; our ability to meet the terms and conditions
of our debt obligations and covenants, including our ability to
make transfers of cash in compliance therewith; our ability to
maintain favorable relations with our securityholders, key business
partners, suppliers, vendors, landlords and financial institutions;
our ability to meet evolving environmental, social and governance
("ESG") expectations and benchmarks, and effectively communicate
and implement our ESG strategies; our ability to collect our
receivables from, or continue to do business with,
financially-troubled customers; our ability to use our net
operating loss carryforwards in the amounts projected; our ability
to continue to use or renew intellectual property used to conduct
our operations; any adverse developments in legal or regulatory
proceedings involving us; changes in tax, pension, healthcare or
other laws or regulations, in governmental support programs, or in
general government funding levels, including those arising from
recently-enacted legislation promoting broadband development; the
effects of changes in accounting policies, practices or
assumptions, including changes that could potentially require
additional future impairment charges; continuing uncertainties
regarding the impact that COVID-19 disruptions could have on our
business, operations, cash flows and corporate initiatives; the
effects of adverse weather, terrorism, epidemics, pandemics,
rioting, vandalism, societal unrest, or other natural or man-made
disasters or disturbances; the potential adverse effects if our
internal controls over financial reporting have weaknesses or
deficiencies, or otherwise fail to operate as intended; the effects
of changes in interest rates and inflation; the effects of more
general factors such as changes in exchange rates, in operating
costs, in public policy, in the views of financial analysts, or in
general market, labor, economic or geo-political conditions; and
other risks referenced from time to time in our filings with the
U.S. Securities and Exchange Commission. You are cautioned not to
unduly rely upon our forward-looking statements, which speak only
as of the date made. We undertake no obligation to publicly update
or revise any forward-looking statements for any reason, whether as
a result of new information, future events or developments, changed
circumstances, or otherwise. Furthermore, any information about our
intentions contained in any of our forward-looking statements
reflects our intentions as of the date of such forward-looking
statement, and is based upon, among other things, regulatory,
technological, industry, competitive, economic and market
conditions, and our related assumptions, as of such date. We may
change our intentions, strategies or plans without notice at any
time and for any reason.
Reconciliation to GAAP
This release includes certain historical and forward-looking
non-GAAP financial measures, including but not limited to Adjusted
EBITDA, Free Cash Flow, Unlevered Cash Flow, and adjustments to
GAAP and non-GAAP measures to exclude the effect of Special Items.
This release also includes certain pro forma information, none of
which has been prepared in accordance with Regulation S-X
promulgated by the U.S. Securities and Exchange Commission.
In addition to providing key metrics for management to evaluate
the company's performance, we believe these above-described
measurements assist investors in their understanding of
period-to-period operating performance and in identifying
historical and prospective trends.
Reconciliations of non-GAAP financial measures to the most
comparable GAAP measures are included in the attached financial
schedules. Reconciliation of pro forma information appearing herein
and additional non-GAAP historical financial measures that may be
discussed during the call described above, along with further
descriptions of non-GAAP financial measures, will be available in
the Investor Relations portion of the company's website at
http://ir.lumen.com. Non-GAAP measures are not presented to be
replacements or alternatives to the GAAP measures, and investors
are urged to consider these non-GAAP measures in addition to, and
not in substitution for, measures prepared in accordance with GAAP.
Lumen may present or calculate its non-GAAP measures differently
from other companies.
Lumen Technologies,
Inc.
|
CONSOLIDATED STATEMENTS
OF OPERATIONS
|
THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2022 AND 2021
|
(UNAUDITED)
|
($ in millions,
except per share amounts; shares in thousands)
|
|
|
Three months
ended
September 30,
|
|
(Decrease)
/ Increase
|
|
Nine months
ended
September 30,
|
|
(Decrease)
/ Increase
|
|
|
2022
|
|
2021
|
|
|
2022
|
|
2021
|
|
OPERATING
REVENUE
|
|
$
4,390
|
|
4,887
|
|
(10) %
|
|
13,678
|
|
14,840
|
|
(8) %
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and
products (exclusive of depreciation and amortization)
|
|
1,999
|
|
2,151
|
|
(7) %
|
|
6,042
|
|
6,402
|
|
(6) %
|
Selling, general and
administrative
|
|
792
|
|
654
|
|
21 %
|
|
2,407
|
|
2,172
|
|
11 %
|
Gain on sale of
business
|
|
(593)
|
|
—
|
|
nm
|
|
(593)
|
|
—
|
|
nm
|
Depreciation and
amortization
|
|
808
|
|
951
|
|
(15) %
|
|
2,443
|
|
3,142
|
|
(22) %
|
Total operating
expenses
|
|
3,006
|
|
3,756
|
|
(20) %
|
|
10,299
|
|
11,716
|
|
(12) %
|
OPERATING
INCOME
|
|
1,384
|
|
1,131
|
|
22 %
|
|
3,379
|
|
3,124
|
|
8 %
|
OTHER (EXPENSE)
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(363)
|
|
(377)
|
|
(4) %
|
|
(1,052)
|
|
(1,150)
|
|
(9) %
|
Other (expense) income,
net
|
|
(84)
|
|
(38)
|
|
121 %
|
|
(136)
|
|
48
|
|
nm
|
Income tax
expense
|
|
(359)
|
|
(172)
|
|
109 %
|
|
(670)
|
|
(497)
|
|
35 %
|
NET INCOME
|
|
$
578
|
|
544
|
|
6 %
|
|
$
1,521
|
|
1,525
|
|
— %
|
|
|
|
|
|
|
|
BASIC EARNINGS PER
SHARE
|
|
$
0.57
|
|
0.51
|
|
12 %
|
|
1.50
|
|
1.42
|
|
6 %
|
DILUTED EARNINGS PER
SHARE
|
|
$
0.57
|
|
0.51
|
|
12 %
|
|
1.50
|
|
1.41
|
|
6 %
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES
OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
1,013,124
|
|
1,062,084
|
|
(5) %
|
|
1,011,498
|
|
1,077,106
|
|
(6) %
|
Diluted
|
|
1,017,013
|
|
1,069,157
|
|
(5) %
|
|
1,016,281
|
|
1,083,879
|
|
(6) %
|
DIVIDENDS PER COMMON
SHARE
|
|
$
0.25
|
|
0.25
|
|
— %
|
|
0.75
|
|
0.75
|
|
— %
|
|
|
|
|
|
|
|
Exclude: Special
Items(1)
|
|
$
(432)
|
|
(23)
|
|
nm
|
|
(382)
|
|
(8)
|
|
nm
|
NET INCOME EXCLUDING
SPECIAL ITEMS
|
|
$
146
|
|
521
|
|
(72) %
|
|
1,139
|
|
1,517
|
|
(25) %
|
DILUTED EARNINGS PER
SHARE EXCLUDING SPECIAL ITEMS
|
|
$
0.14
|
|
0.49
|
|
(71) %
|
|
1.12
|
|
1.40
|
|
(20) %
|
|
|
|
|
|
|
|
(1) Excludes
the Special Items described in the accompanying Non-GAAP Special
Items table, net of the income tax effect thereof.
|
nm - Percentages
greater than 200% and comparisons between positive and negative
values are considered not meaningful.
|
Lumen Technologies,
Inc.
|
CONSOLIDATED BALANCE
SHEETS
|
AS OF SEPTEMBER 30,
2022 AND DECEMBER 31, 2021
|
(UNAUDITED)
|
($ in
millions)
|
|
September 30,
2022
|
|
December 31,
2021
|
ASSETS
|
|
|
|
CURRENT
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
252
|
|
354
|
Accounts receivable,
less allowance of $95 and $114
|
1,457
|
|
1,544
|
Assets held for
sale
|
6,779
|
|
8,809
|
Other
|
894
|
|
829
|
Total
current assets
|
9,382
|
|
11,536
|
Property, plant and
equipment, net of accumulated depreciation of $20,391 and
$19,271
|
20,713
|
|
20,895
|
GOODWILL AND OTHER
ASSETS
|
|
|
|
Goodwill
|
15,918
|
|
15,986
|
Other intangible
assets, net
|
6,436
|
|
6,970
|
Other, net
|
2,368
|
|
2,606
|
Total goodwill and other assets
|
24,722
|
|
25,562
|
TOTAL ASSETS
|
$
54,817
|
|
57,993
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
Current maturities of
long-term debt
|
$
3,474
|
|
1,554
|
Accounts
payable
|
1,009
|
|
758
|
Accrued expenses and
other liabilities
|
|
|
|
Salaries and
benefits
|
788
|
|
860
|
Income and other
taxes
|
275
|
|
228
|
Current operating
lease liabilities
|
396
|
|
385
|
Interest
|
184
|
|
278
|
Other
|
173
|
|
232
|
Liabilities held for
sale
|
1,792
|
|
2,257
|
Current portion of
deferred revenue
|
624
|
|
617
|
Total current liabilities
|
8,715
|
|
7,169
|
LONG-TERM
DEBT
|
21,764
|
|
27,428
|
DEFERRED CREDITS AND
OTHER LIABILITIES
|
|
|
|
Deferred income taxes,
net
|
4,595
|
|
4,049
|
Benefit plan
obligations, net
|
3,192
|
|
3,710
|
Other
|
3,974
|
|
3,797
|
Total deferred credits
and other liabilities
|
11,761
|
|
11,556
|
STOCKHOLDERS'
EQUITY
|
|
|
|
Common stock
|
1,035
|
|
1,024
|
Additional paid-in
capital
|
18,221
|
|
18,972
|
Accumulated other
comprehensive loss
|
(2,202)
|
|
(2,158)
|
Accumulated
deficit
|
(4,477)
|
|
(5,998)
|
Total stockholders'
equity
|
12,577
|
|
11,840
|
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
|
$
54,817
|
|
57,993
|
Lumen Technologies,
Inc.
|
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
NINE MONTHS ENDED
SEPTEMBER 30, 2022 AND 2021
|
(UNAUDITED)
|
($ in
millions)
|
|
|
|
|
|
Nine months
ended
|
|
September 30,
2022
|
|
September 30,
2021
|
OPERATING
ACTIVITIES
|
|
|
|
Net Income
|
$
1,521
|
|
1,525
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation and
amortization
|
2,443
|
|
3,142
|
Gain on sale of
business
|
(593)
|
|
—
|
Deferred income
taxes
|
618
|
|
431
|
Provision for
uncollectible accounts
|
99
|
|
80
|
Net gain on early
retirement of debt
|
(9)
|
|
(8)
|
Unrealized loss on
investments
|
197
|
|
9
|
Stock-based
compensation
|
71
|
|
89
|
Changes in current
assets and liabilities, net
|
(280)
|
|
(476)
|
Retirement
benefits
|
(440)
|
|
(126)
|
Changes in other
noncurrent assets and liabilities, net
|
141
|
|
207
|
Other, net
|
126
|
|
21
|
Net cash provided by
operating activities
|
3,894
|
|
4,894
|
INVESTING
ACTIVITIES
|
|
|
|
Capital
expenditures
|
(2,183)
|
|
(2,052)
|
Proceeds from sale of
business
|
2,707
|
|
—
|
Proceeds from sale of
property, plant and equipment and other assets
|
67
|
|
90
|
Other, net
|
3
|
|
13
|
Net cash used in
investing activities
|
594
|
|
(1,949)
|
FINANCING
ACTIVITIES
|
|
|
|
Net proceeds from
issuance of long-term debt
|
—
|
|
1,881
|
Payments of long-term
debt
|
(3,899)
|
|
(2,604)
|
Net proceeds from
(payments on) revolving line of credit
|
80
|
|
(150)
|
Dividends
paid
|
(780)
|
|
(834)
|
Repurchases of common
stock
|
—
|
|
(909)
|
Other, net
|
(33)
|
|
(52)
|
Net cash used in
financing activities
|
(4,632)
|
|
(2,668)
|
Net increase in cash,
cash equivalents and restricted cash
|
(144)
|
|
277
|
Cash, cash equivalents
and restricted cash at beginning of period
|
409
|
|
427
|
Cash, cash equivalents
and restricted cash at end of period
|
$
265
|
|
704
|
|
|
|
|
Cash, cash equivalents
and restricted cash:
|
|
|
|
Cash and cash
equivalents
|
$
252
|
|
635
|
Cash and cash
equivalents included in assets held for sale
|
—
|
|
39
|
Restricted
cash
|
13
|
|
30
|
Total
|
$
265
|
|
704
|
Lumen Technologies,
Inc.
|
OPERATING
METRICS
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
September 30,
2022
|
|
June 30,
2022
|
|
September 30,
2021
|
|
|
|
|
|
|
|
Operating
Metrics
|
|
|
|
|
|
|
Mass Markets
broadband subscribers
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
Fiber broadband
subscribers
|
|
889
|
|
858
|
|
774
|
Other broadband
subscribers(1)
|
|
3,367
|
|
3,519
|
|
3,815
|
Mass Markets total
broadband subscribers(2)
|
|
4,256
|
|
4,377
|
|
4,589
|
|
|
|
|
|
|
|
Mass Markets
broadband enabled
|
|
|
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
Fiber broadband
enabled
|
|
3.3
|
|
3.1
|
|
2.7
|
Other broadband
enabled
|
|
26.0
|
|
26.1
|
|
25.8
|
Mass Markets total
broadband enabled
|
|
29.3
|
|
29.2
|
|
28.5
|
_________________________________________
|
(1) Other
broadband subscribers are customers that primarily subscribe to
lower speed copper-based broadband services marketed under the
CenturyLink brand.
|
(2) Mass
Markets broadband subscribers are customers that purchase broadband
connection service through their existing telephone lines,
stand-alone telephone lines, or fiber-optic cables. Our methodology
for counting our Mass Markets broadband subscribers includes only
those lines that we use to provide services to external customers
and excludes lines used solely by us and our affiliates. It also
excludes unbundled loops and includes stand-alone Mass Markets
broadband subscribers. We count lines when we install the service.
Other companies may use different
methodologies.
|
Description of Non-GAAP Metrics
Pursuant to Regulation G, the company is hereby providing
definitions of non-GAAP financial metrics and reconciliations to
the most directly comparable GAAP measures.
The following describes and reconciles those financial measures
as reported under accounting principles generally accepted in
the United States (GAAP) with
those financial measures as adjusted by the items detailed below
and presented in the accompanying news release. These calculations
are not prepared in accordance with GAAP and should not be viewed
as alternatives to GAAP. In keeping with its historical financial
reporting practices, the company believes that the supplemental
presentation of these calculations provides meaningful non-GAAP
financial measures to help investors understand and compare
business trends among different reporting periods on a consistent
basis.
We use the term Special Items as a non-GAAP measure to
describe items that impacted a period's statement of operations for
which investors may want to give special consideration due to their
magnitude, nature or both. We do not call these items
non-recurring because, while some are infrequent, others may
recur in future periods.
Adjusted EBITDA ($) is defined as net income (loss) from
the Statements of Operations before income tax (expense) benefit,
total other income (expense), depreciation and amortization,
stock-based compensation expense and impairments.
Adjusted EBITDA Margin (%) is defined as Adjusted EBITDA
divided by total revenue.
Management believes that Adjusted EBITDA and Adjusted EBITDA
Margin are relevant and useful metrics to provide to investors, as
they are an important part of our internal reporting and are key
measures used by management to evaluate profitability and operating
performance of Lumen and to make resource allocation decisions.
Management believes such measures are especially important in a
capital-intensive industry such as telecommunications. Management
also uses Adjusted EBITDA and Adjusted EBITDA Margin (and similarly
uses these terms excluding Special Items) to compare our
performance to that of our competitors and to eliminate certain
non-cash and non-operating items in order to consistently measure
from period to period our ability to fund capital expenditures,
fund growth, service debt and determine bonuses. Adjusted EBITDA
excludes non-cash stock compensation expense and impairments
because of the non-cash nature of these items. Adjusted EBITDA also
excludes interest income, interest expense and income taxes, and in
our view constitutes an accrual-based measure that has the effect
of excluding period-to-period changes in working capital and shows
profitability without regard to the effects of capital or tax
structure. Adjusted EBITDA also excludes depreciation and
amortization expense because these non-cash expenses primarily
reflect the impact of historical capital investments, as opposed to
the cash impacts of capital expenditures made in recent periods,
which may be evaluated through cash flow measures. Adjusted EBITDA
further excludes the gain (or loss) on extinguishment and
modification of debt and other income (expense), net, because these
items are not related to the primary business operations of
Lumen.
There are material limitations to using Adjusted EBITDA as a
financial measure, including the difficulty associated with
comparing companies that use similar performance measures whose
calculations may differ from our calculations. Additionally, by
excluding the above-listed items, Adjusted EBITDA may exclude items
that investors believe are important components of our performance.
Adjusted EBITDA and Adjusted EBITDA Margin (either with or without
Special Items) should not be considered a substitute for other
measures of financial performance reported in accordance with
GAAP.
Unlevered Cash Flow is defined as net cash provided
by (used in) operating activities less capital expenditures, plus
cash interest paid and less interest income, all as disclosed in
the Statements of Cash Flows or the Statements of Operations.
Management believes that Unlevered Cash Flow is a relevant metric
to provide to investors, because it reflects the operational
performance of Lumen and, measured over time, enables management
and investors to monitor the underlying business' growth pattern
and ability to generate cash. Unlevered Cash Flow excludes cash
used for acquisitions and debt service and the impact of exchange
rate changes on cash and cash equivalents balances.
There are material limitations to using Unlevered Cash Flow to
measure our cash performance as it excludes certain material items
that investors may believe are important components of our cash
flows. Comparisons of our Unlevered Cash Flow to that of some of
our competitors may be of limited usefulness since Lumen does not
currently pay a significant amount of income taxes due to net
operating loss carryforwards, and therefore, currently generates
higher cash flow than a comparable business that does pay income
taxes. Additionally, this financial measure is subject to
variability quarter over quarter as a result of the timing of
payments related to accounts receivable, accounts payable, payroll
and capital expenditures. Unlevered Cash Flow should not be used as
a substitute for net change in cash, cash equivalents and
restricted cash in the Consolidated Statements of Cash Flows.
Free Cash Flow is defined as net cash provided by
(used in) operating activities less capital expenditures as
disclosed in the Statements of Cash Flows. Management believes that
Free Cash Flow is a relevant metric to provide to investors, as it
is an indicator of our ability to generate cash to service our
debt. Free Cash Flow excludes cash used for acquisitions, principal
repayments and the impact of exchange rate changes on cash and cash
equivalents balances.
There are material limitations to using Free Cash Flow to
measure our performance as it excludes certain material items that
investors may believe are important components of our cash flows.
Comparisons of our Free Cash Flow to that of some of its
competitors may be of limited usefulness since Lumen does not
currently pay a significant amount of income taxes due to net
operating loss carryforwards, and therefore, generates higher cash
flow than a comparable business that does pay income taxes.
Additionally, this financial measure is subject to variability
quarter over quarter as a result of the timing of payments related
to interest expense, accounts receivable, accounts payable, payroll
and capital expenditures. Free Cash Flow should not be used as a
substitute for net change in cash, cash equivalents and restricted
cash on the Consolidated Statements of Cash Flows.
Lumen Technologies,
Inc.
|
Non-GAAP Special
Items
|
(UNAUDITED)
|
($ in
millions)
|
|
|
|
|
|
|
Actual
QTD
|
|
Actual
YTD
|
Special Items
Impacting Adjusted EBITDA
|
|
3Q22
|
3Q21
|
|
3Q22
|
3Q21
|
Consumer and other
litigation
|
|
$
—
|
—
|
|
$
(3)
|
19
|
Severance
|
|
—
|
—
|
|
2
|
—
|
Gain on sale of
business(1)
|
|
(593)
|
—
|
|
(593)
|
—
|
Transaction and
separation costs(2)
|
|
66
|
9
|
|
166
|
18
|
Real estate
transactions(3)
|
|
—
|
(40)
|
|
—
|
(40)
|
Total Special Items
impacting Adjusted EBITDA
|
|
$
(527)
|
(31)
|
|
$
(428)
|
(3)
|
|
|
|
|
|
|
|
|
|
Actual
QTD
|
|
Actual
YTD
|
Special Items
Impacting Net Income
|
|
3Q22
|
3Q21
|
|
3Q22
|
3Q21
|
Consumer and other
litigation
|
|
$
—
|
—
|
|
$
(3)
|
19
|
Gain on sale of
business(1)
|
|
(593)
|
—
|
|
(593)
|
—
|
Gain on early
retirement of debt(4)
|
|
(9)
|
—
|
|
(9)
|
(8)
|
Severance
|
|
—
|
—
|
|
2
|
—
|
Transaction and
separation costs(2)
|
|
66
|
9
|
|
166
|
18
|
Real estate
transactions(3)
|
|
—
|
(40)
|
|
—
|
(40)
|
Income from transition
and separation services(5)
|
|
(37)
|
—
|
|
(70)
|
—
|
Total Special Items
impacting Net Income
|
|
(573)
|
(31)
|
|
(507)
|
(11)
|
Income tax effect of
Special Items(6)
|
|
141
|
8
|
|
125
|
3
|
Total Special Items
impacting Net Income, net of tax
|
|
$ (432)
|
(23)
|
|
$ (382)
|
(8)
|
|
|
|
|
(1) Reflects
the pre-tax gain recorded in operating income as a result of
completing the sale of our Latin American business for net cash
proceeds of $2.7 billion, subject to certain post-closing
adjustments, on August 1, 2022.
|
(2)
Transaction and separation costs associated with (i) the recently
completed sale of our Latin American business on August 1, 2022 to
Stonepeak for $2.7 billion, (ii) the recently completed sale of our
ILEC (incumbent local exchange carrier) business in 20 states on
October 3, 2022 for $7.5 billion, and (iii) our evaluation of other
potential transactions.
|
(3) Real
estate transactions include the third quarter 2021 (gain) on sale
of real estate, net of impairment charges or acceleration of costs
associated with our real estate rationalization program.
|
(4) Reflects
a gain as a result of $2.3 billion in early debt retirement in Q3
2022 and $1.1 billion in early debt retirement in Q1 2021. There
were no comparable gains or losses during Q2 2022, Q1 2022, Q3
2021, or Q2 2021.
|
(5) Income
from transition and separation services includes charges we billed
for transition services and IT professional services provided to
the purchasers in connection with our divestitures.
|
(6) Tax
effect calculated using the annualized effective statutory tax
rate, excluding any non-recurring discrete items, which was 24.6%
for 2022 and 24.5% for 2021.
|
Lumen Technologies,
Inc.
|
Non-GAAP Cash Flow
Reconciliation
|
(UNAUDITED)
|
($ in
millions)
|
|
Actual
QTD
|
|
3Q22
|
3Q21
|
Net cash provided by
operating activities
|
$
1,123
|
1,730
|
Capital
expenditures
|
(845)
|
(690)
|
Free Cash
Flow
|
278
|
1,040
|
Cash interest
paid
|
393
|
400
|
Interest
income
|
(6)
|
—
|
Unlevered Cash
Flow
|
$
665
|
$
1,440
|
|
|
|
Free Cash
Flow
|
$
278
|
$
1,040
|
Add back:
Severance(1)
|
7
|
13
|
Add back: Consumer and
other litigation(1)
|
—
|
11
|
Add back: Pension
contributions(1)
|
319
|
—
|
Add back: Transaction
and separation costs(1)
|
60
|
7
|
Add back: Real estate
transactions(1)
|
—
|
1
|
Remove: Income from
transition and separation services(1)
|
(44)
|
—
|
Free Cash Flow
excluding cash Special Items
|
$
620
|
$
1,072
|
|
|
|
Unlevered Cash
Flow
|
$
665
|
$
1,440
|
Add back:
Severance(1)
|
7
|
13
|
Add back: Consumer and
other litigation(1)
|
—
|
11
|
Add back: Pension
contributions(1)
|
319
|
—
|
Add back: Transaction
and separation costs(1)
|
60
|
7
|
Add back: Real estate
transactions(1)
|
—
|
1
|
Remove: Income from
transition and separation services(1)
|
(44)
|
—
|
Unlevered Cash Flow
excluding cash Special Items
|
$
1,007
|
$
1,472
|
|
|
|
(1) Refer to
Non-GAAP Special Items table for details of the Special
Items impacting cash included above.
|
Lumen Technologies,
Inc.
|
Adjusted EBITDA
Non-GAAP Reconciliation
|
(UNAUDITED)
|
($ in
millions)
|
|
Actual
QTD
|
|
3Q22
|
3Q21
|
Net
income
|
$
578
|
544
|
Income tax
expense
|
359
|
172
|
Total other expense,
net
|
447
|
415
|
Depreciation and
amortization expense
|
808
|
951
|
Stock-based
compensation expense
|
23
|
27
|
Adjusted
EBITDA
|
$
2,215
|
2,109
|
|
|
|
Remove: Gain on sale of
business(1)
|
$ (593)
|
—
|
Add back: Transaction
and separation costs(1)
|
66
|
9
|
Add back: Real estate
transactions(1)
|
—
|
(40)
|
Adjusted EBITDA
excluding Special Items
|
$
1,688
|
2,078
|
|
|
|
Total
revenue
|
$
4,390
|
4,887
|
|
|
|
Adjusted EBITDA
margin
|
50.5 %
|
43.2 %
|
Adjusted EBITDA
margin excluding Special Items
|
38.5 %
|
42.5 %
|
|
|
|
(1) Refer to
Non-GAAP Special Items table for details of the Special
Items included above.
|
Outlook
To enhance the information in our outlook with respect to
non-GAAP metrics, we are providing a range for certain GAAP
measures that are components of the reconciliation of the non-GAAP
metrics. The provision of these ranges is in no way meant to
indicate that Lumen is explicitly or implicitly providing an
outlook on those GAAP components of the reconciliation. In order to
reconcile the non-GAAP financial metric to GAAP, Lumen has to use
ranges for the GAAP components that arithmetically add up to the
non-GAAP financial metric. While Lumen believes that it has used
reasonable assumptions in connection with developing the outlook
for its non-GAAP financial metrics, it fully expects that the
ranges used for the GAAP components will vary from actual results.
We will consider our outlook of non-GAAP financial metrics to be
accurate if the specific non-GAAP metric is met or exceeded, even
if the GAAP components of the reconciliation are different from
those provided in an earlier reconciliation.
Lumen Technologies,
Inc.
|
2022
OUTLOOK (1) (2) (3) (4) (5)
(6)
|
(UNAUDITED)
|
($ in
millions)
|
|
|
|
|
Adjusted EBITDA
Outlook
|
|
|
|
Twelve Months Ended
December 31, 2022
|
|
|
|
|
Range
|
|
Low
|
|
High
|
Net
income
|
$
1,385
|
|
1,875
|
Income tax
expense
|
490
|
|
650
|
Total other
expense
|
1,500
|
|
1,300
|
Depreciation and
amortization expense
|
3,400
|
|
3,200
|
Stock-based
compensation expense
|
125
|
|
75
|
Adjusted
EBITDA
|
$
6,900
|
|
$
7,100
|
|
|
|
|
Free Cash Flow
Outlook
|
|
|
|
Twelve Months Ended
December 31, 2022
|
|
|
|
|
Range
|
|
Low
|
|
High
|
Net cash provided by
operating activities
|
$
5,200
|
|
5,600
|
Capital
expenditures
|
(3,000)
|
|
(3,200)
|
Free Cash
Flow
|
$
2,200
|
|
2,400
|
|
(1) For
definitions of non-GAAP metrics and reconciliation to GAAP figures,
see the above schedules and our Investor Relations
website.
|
(2) Outlook
measures in this chart (i) exclude the effects of Special Items,
future changes in our operating or capital allocation plans,
unforeseen changes in regulation, laws or litigation, and other
unforeseen events or circumstances impacting our financial
performance and (ii) speak only as of Nov. 2, 2022. See
"Forward-Looking Statements."
|
(3) Outlook
measures include accounting impacts of the recently completed
divestiture of the Latin American business on Aug. 1, 2022, as well
as the Oct. 3, 2022 divestiture of Lumen's 20-state ILEC business,
resulting in 2022 financial contributions of three quarters for
that business.
|
(4) Assumes
no discretionary pension plan contributions during 2022 and
excludes $319 million of pension plan contributions made in
September 2022 related to the 20-state ILEC business
divestiture.
|
(5) Third quarter 2022 year-to-date
dividends paid were $0.75 per share. Dividend guidance has been
withdrawn as of Nov. 2, 2022 related to our updated capital
allocation policy, and there will not be a dividend payment in the
fourth quarter 2022.
|
(6) Excludes
the impact of taxes related to our divestitures completed on Aug.
1, 2022 and Oct. 3, 2022.
|
|
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SOURCE Lumen Technologies, Inc.