CenturyLink 'Not Satisfied' With Low-Margin Products; Plans To Double Down On Strategic IT Solutions

Almost exactly a year after the close of CenturyLink's Level 3 acquisition, the combined company is proud of its integration efforts. However, coming together meant shedding unprofitable business units that have negatively impacted revenue.

"We're taking a hard look … we are going to continue to be disciplined, looking at low-margin products and things that aren't network-centric that are distracting our organization. We are going to focus on network-centric products," Jeff Storey, CenturyLink's president and CEO said during the company's third-quarter 2018 earnings call on Thursday evening.

CenturyLink this week also announced that Neel Dev, who has served as interim CFO since September, has taken a permanent seat as executive vice president and CFO, effective immediately. Dev, a 14-year CenturyLink veteran, stepped into the CFO role following former CFO Sunit Patel's move to T-Mobile.

Dev said that the company is looking forward "to moving from integration to business transformation."

[Related: CenturyLink Channel Changes Resonate As Two Programs Become One]

CenturyLink today is the second-largest U.S.-based communications provider to global enterprise customers behind cable competitor Comcast, and 74 percent of its revenue is being generated from business services. However, overall business revenues fell down 3 percent during Q3 2018 to $4.29.

Storey said that the company is "not satisfied," and that business services revenues "should be stronger."

To get there, CenturyLink is betting big on its strategic IT services, including the CenturyLink Cloud Connect Dynamic Connections solution that it made available in October. Dynamic Connections give customers on-demand connectivity to cloud and data center environments across the globe, Storey said.

CenturyLink's SD-WAN portfolio will also help the company make up for legacy revenue declines, the company said. CenturyLink's SD-WAN solutions today are available in over 30 countries and connect to more than 2,200 owned and third-party data centers, and more than 100,000 enterprises worldwide.

"I think SD-WAN is a great product for us in some areas, I think MPLS is a great product for us in some locations. Every one of our customers have different sites with different needs … it's one of the strengths we look at in our product portfolio," Storey told investors.

CenturyLink's SD-WAN portfolio will also help the company make up for legacy revenue declines, the company said. CenturyLink's SD-WAN solutions today connect to and more than 100,000 enterprises worldwide.

IT and managed services, typically a bright spot in Monroe, La.-based CenturyLink's financials, fell 7 percent during the third quarter of 2018. The segment pulled in $153 million compared to Q3 2017's result of $165 million.

Wholesale and indirect revenue also saw a decline, dipping down 4 percent from $1.30 billion in Q3 2017, down from $1.26 billion this quarter. Enterprise sales, a segment that includes CenturyLink's high-bandwidth data services, managed services, and SD-WAN packages, also declined 3 percent to $1.28 billion from $1.31 billion in 2017's third-quarter, which the company attributed to changes in a couple of large-scale government customer contracts.

CenturyLink said its wholesale and indirect revenue, as well as its enterprise revenues, were also impacted negatively by the new revenue recognition standard that the company adopted.

Small and medium business sales slipped down 4 percent to $860 million during the quarter, compared to $896 million in Q3 2017. CenturyLink has placed more of an emphasis on this space recently, having revealed several new offerings specifically to SMB customers, including CenturyLink Business Wi-Fi, CenturyLink Business VoIP for small business customers, and CenturyLink Managed Enterprise with Cisco Meraki last year.

Voice and collaboration services also declined by 8 percent from $165 million in the year-ago quarter to $153 million in Q3 2018.

The CenturyLink/Level 3 acquisition triggered many executive changes, with Level 3 executives taking over the top spots at the new company. Along with its CFO announcement, the company also announced Andrew Dugan, former senior vice president of technology planning and network architecture at CenturyLink, will be taking over as the company's new CTO. Dugan will be succeeding Aamir Hussain, who has left the company due to integration-related "organizational changes," Storey said.

Consumer revenues declined by 5 percent to $1.36 billion during the quarter compared to Q3 2017's result of $1.43 billion, which the provider attributed to declining legacy voice revenues, lower broadband, and video revenues, and increased cable competition.

For the quarter which ended on Sept. 30, the provider reported total revenue of $5.82 billion and Diluted earnings per share of $0.25. Business revenues accounted for $4.29 of the company's total revenue. Total revenue declined 4 percent overall from Q3 2017's result of $6.33 billion and diluted earnings per share of $0.18.

The company fell short of Wall Street's expectation of $5.89 billion for the current quarter.

CenturyLink reported net Income of $272 million for the quarter, which increased compared to last year's result of $187 million.