CenturyLink Meets Q3 Earnings Expectations; Considers Selling Data Centers

Telecommunications giant CenturyLink reported Wednesday that it met Wall Street's revenue expectations for the third quarter of 2015, and also revealed that is considering selling its data centers.

The company posted a 9 percent increase in business segment profits year over year. But while CenturyLink saw an increase in revenue stemming from its high-bandwidth data services, business wholesale and hosting revenues declined for the quarter.

CenturyLink reported operating revenue of about $4.55 billion and 70 cents per share for the quarter ended Sept. 30, up from $4.51 billion and 63 cents per share in the third quarter of 2014. Wall Street expected CenturyLink to report third-quarter earnings of 70 cents per share on revenue of $4.6 billion.

[Related: CyrusOne Fortifies Five More Data Centers With CenturyLink Fiber Network Backbone]

Perhaps most notably, CenturyLink said during its earnings call Wednesday that it is working with financial advisers to review strategic alternatives for the company's data centers and colocation business operations.

"We expect colocation will continue to be a service our customers will look to us for, but we do not necessary believe we have to own the data center assets to be effective in the delivery of those services," said Glen Post, CEO and president of CenturyLink, during the earnings call.

The company's data center assets and operations include 59 in the U.S., Asia and Europe. The review process involves options such as partnerships, or the sale of all or a portion of its data centers, as well as keeping data center assets as part of CenturyLink's portfolio, Post said.

The review process has just begun and CenturyLink is not setting a specific timetable for a decision, he said, but promised to keep shareholders up to date on any further information.

Revenue from high-bandwidth data services provided to business customers, including MPLS and Ethernet, increased 6.7 percent year over year. Retail network high-bandwidth data services revenue grew 8.6 over Q3 2014. Post said that demand for high-bandwidth data services remained strong in Q3 as business network sales increased sequentially and year over year, primarily driven by enterprise and global customers.

While the demand for high-bandwidth data services is evidenced by the nearly 9 percent increase in revenue from retail business customers year over year, the Monroe, La.-based communications company noted a decline in business wholesale and hosting revenues.

CenturyLink reported strategic revenues of $1.56 billion in Q3 2015, a 2.1 percent decrease from Q3 2014. Total business segment revenues were $2.64 billion, a decrease of 4.9 percent year over year, which the company attributed to decreased interest in legacy voice and low-bandwidth data services. Low-bandwidth data services revenue declined 11.8 percent.

Despite the decline in business segment revenues, CenturyLink exited the quarter with a very strong business sales funnel, including an increased number of large deal opportunities, said Stewart Ewing, executive vice president and chief financial officer for CenturyLink.

The company also reported an operating cash flow of $1.78 billion and free cash flow totaling $747 million, and posted net subscriber gains for its TV Prism cable subscription service, adding 11,300 new cable customers during Q3 2015.

Compared with one year ago, the company's overall strengthened financial position was attributed in part to the $150 million increase in high-cost support revenues because of the acceptance of Connect America Fund Phase 2, an initiative to bring high-speed Internet services to underserved rural areas during third quarter 2015.

Post said that although revenues did not meet CenturyLink's own expectations for the quarter, he is confident that the company has the assets required to grow the business into Q4. CenturyLink plans to add new capabilities to its managed services suite to attract more SMB customers looking for outsourced networking and cloud solutions, he added.

The provider will also continue to drive network virtualization through the expansion of its SDN product for customers.

"Our goal is to enable this capability to 43 data centers and 3.1 million businesses by year end," Post said.

PUBLISHED NOV. 4, 2015