Lumen Technologies reports fourth quarter 2022 results
Lumen Technologies (NYSE: LUMN) reported a net loss of $(3.069) billion for Q4 2022, including a non-cash goodwill impairment charge of $3.271 billion, compared to a net income of $508 million in Q4 2021. Revenue fell to $3.800 billion from $4.847 billion year-over-year. The company completed the divestiture of its 20-state ILEC business for $7.5 billion and plans to sell its EMEA business to Colt for $1.8 billion. Lumen's free cash flow decreased to $126 million in Q4 2022, down from $776 million in Q4 2021. The company also announced a 2023 outlook of $4.6 to $4.8 billion for Adjusted EBITDA and $0 to $200 million for Free Cash Flow.
- Completed the $7.5 billion divestiture of 20-state ILEC business.
- Announced the proposed sale of EMEA business to Colt Technology Services for $1.8 billion.
- Generated $10.2 billion in gross proceeds from business divestitures for 2022.
- Reported Net Cash Provided by Operating Activities of $841 million in Q4 2022.
- Reported a net loss of $(3.069) billion for Q4 2022.
- Diluted loss per share of ($3.08) for Q4 2022, compared to earnings per share of $0.50 in Q4 2021.
- Adjusted EBITDA decreased to $1.393 billion in Q4 2022 from $2.088 billion in Q4 2021.
- Free Cash Flow dropped to $126 million in Q4 2022 from $776 million in Q4 2021.
Fourth Quarter 2022 Highlights
- Appointed
Kate Johnson as president, chief executive officer, and a member of the company's Board of Directors - Completed the
$7.5 billion Oct. 3 - Announced an exclusive arrangement for the proposed sale of its EMEA business to
Colt Technology Services for$1.8 billion - Repurchased 33 million shares of common stock for a total purchase price of
$200 million - Reported Net Loss of
$(3.06 9) billion$3.27 1 billion$508 million - Reported diluted loss per share of (
$3.08 $0.50 $0.43 $0.51 - Generated Adjusted EBITDA of
$1.39 3 billion$2.08 8 billion$583 million $19 million - Generated Modified1 Adjusted EBITDA of
$1.39 3 billion$1.49 6 billion$583 million $19 million - Reported Net Cash Provided by Operating Activities of
$841 million - Generated Free Cash Flow of
$126 million $776 million $118 million $17 million
_____________________________________________ |
1 Modified amounts include adjustments to reflect (i) removal of the financial impacts related to the Latin American business divestiture completed |
Full Year 2022 Financial Highlights
- Generated
$10.2 billion - Reduced Estimated Net Debt3 by
$9.9 billion - Reported Net Loss of
$(1.54 8) billion$3.27 1 billion$2.03 3 billion - Reported diluted loss per share of (
$1.54 $1.91 $1.55 $1.91 - Generated Adjusted EBITDA of
$6.85 8 billion$8.44 0 billion$155 million $16 million - Generated Modified1 Adjusted EBITDA of
$5.54 0 billion$6.09 2 billion$155 million $16 million - Reported Net Cash Provided by Operating Activities of
$4.73 5 billion - Delivered Free Cash Flow of
$2.26 0 billion$3.74 2 billion$541 million $141 million
"This year brings significant change for Lumen as we pivot to growth with a new leadership team and an energized group of highly skilled employees to execute on our plan," said
Total Revenue was
_______________________________________________ |
1 Modified amounts include adjustments to reflect (i) removal of the financial impacts related to the Latin American business divestiture completed |
2 For the 20-state ILEC business divestiture, we received |
3 During the first half of 2023, we expect to pay approximately |
Financial Results
Metric, as reported | Fourth Quarter | Full Year | ||
($ in millions, except per share data) | 2022 | 2021 | 2022 | 2021 |
International and Global Accounts | $ 797 | 1,025 | $ 3,645 | 4,083 |
Large Enterprise | 804 | 931 | 3,409 | 3,771 |
Mid-Market Enterprise | 585 | 647 | 2,465 | 2,649 |
Enterprise Channels | 2,186 | 2,603 | 9,519 | 10,503 |
Wholesale | 819 | 891 | 3,520 | 3,616 |
Business Segment Revenue | 3,005 | 3,494 | 13,039 | 14,119 |
Mass Markets Segment Revenue | 795 | 1,353 | 4,439 | 5,568 |
Total Revenue | $ 3,800 | 4,847 | 19,687 | |
Cost of Services and Products | 1,826 | 2,086 | 7,868 | 8,488 |
Selling, General and Administrative Expenses | 671 | 723 | 3,078 | 2,895 |
Gain on Sale of Businesses(1) | (180) | — | (773) | — |
Loss on disposal groups held for sale | 700 | — | 700 | — |
Stock-based Compensation Expense | 27 | 31 | 98 | 120 |
Adjusted EBITDA(2) | 810 | 2,069 | 6,703 | 8,424 |
Adjusted EBITDA, Excluding Special Items(2)(3) | 1,393 | 2,088 | 6,858 | 8,440 |
Adjusted EBITDA Margin(2) | 21.3 % | 42.7 % | 38.4 % | 42.8 % |
Adjusted EBITDA Margin, Excluding Special Items(2)(3) | 36.7 % | 43.1 % | 39.2 % | 42.9 % |
Net Cash Provided by Operating Activities | 841 | 1,607 | 4,735 | 6,501 |
Capital Expenditures | 833 | 848 | 3,016 | 2,900 |
Unlevered Cash Flow(2) | 264 | 1,100 | 3,059 | 5,086 |
Unlevered Cash Flow, Excluding Cash Special Items(2)(4) | 382 | 1,117 | 3,600 | 5,227 |
Free Cash Flow(2) | 8 | 759 | 1,719 | 3,601 |
Free Cash Flow, Excluding Cash Special Items(2)(4) | 126 | 776 | 2,260 | 3,742 |
Net (Loss) Income | (3,069) | 508 | (1,548) | 2,033 |
Net Income, Excluding Special Items(2)(5) | 425 | 522 | 1,564 | 2,039 |
Net Income per Common Share - Diluted | (3.08) | 0.50 | (1.54) | 1.91 |
Net Income per Common Share - Diluted, Excluding Special Items(2)(5) | 0.43 | 0.51 | 1.55 | 1.91 |
Weighted Average Shares Outstanding (in millions) - Diluted | 995.6 | 1,015.5 | 1,007.5 | 1,066.8 |
(1) Reflects (i) the pre-tax gain of | ||||
(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) | ||||
(4) Excludes cash paid for Special Items of (i) | ||||
(5) Excludes Special Items (net of the income tax effect thereof) in the amounts of (i) | ||||
Modified(1) Metrics | Fourth Quarter | YoY | Full Year | YoY | ||
($ in millions) | 2022 | 2021 | Change | 2022 | 2021 | Change |
Revenue By Sales Channel | ||||||
Large Enterprise | $ 1,217 | 1,272 | (4) % | $ 4,894 | 5,106 | (4) % |
Mid-Market Enterprise | 522 | 559 | (7) % | 2,144 | 2,297 | (7) % |
Public Sector | 431 | 500 | (14) % | 1,788 | 1,997 | (10) % |
Enterprise Channels | 2,170 | 2,331 | (7) % | 8,826 | 9,400 | (6) % |
Wholesale | 835 | 831 | — % | 3,360 | 3,385 | (1) % |
Business Segment Revenue | 3,005 | 3,162 | (5) % | 12,186 | 12,785 | (5) % |
Mass Markets Segment Revenue | 795 | 860 | (8) % | 3,302 | 3,554 | (7) % |
Total Revenue | $ 3,800 | 4,022 | (6) % | 16,339 | (5) % | |
Adjusted EBITDA, Excluding Special Items | $ 1,393 | 1,496 | (7) % | $ 5,540 | 6,092 | (9) % |
Adjusted EBITDA Margin, Excluding Special Items | 36.7 % | 37.2 % | (1) % | 35.8 % | 37.3 % | (4) % |
Capital Expenditures | $ 833 | 681 | 22 % | $ 2,691 | 2,325 | 16 % |
(1) Modified amounts include adjustments to reflect (i) removal of the financial impacts related to the Latin American business divestiture completed | ||||||
Cash Flow
Free Cash Flow, excluding Special Items, was
As of
Goodwill Impairment
Each year, the company is required under GAAP to undertake a goodwill impairment analysis of all its reporting units. The analysis compares the fair value of the equity for each of the reporting units to the carrying value of equity for each reporting unit. The analysis takes into account weighted average cost of capital and market multiples, along with the company's forecasts. Based on this analysis, in the fourth quarter of 2022 the company recorded an aggregate
Update on the Divestiture of EMEA Business to Colt
Since we announced this transaction on
2023 Financial Outlook
The company announced its full-year 2023 financial outlook which is detailed below:
Metric (1)(2) | Outlook(3) |
Adjusted EBITDA | |
Free Cash Flow(4)(5) | |
Net Cash Interest | |
GAAP Interest Expense | |
Capital Expenditures | |
Depreciation and Amortization | |
Stock-based Compensation Expense | |
Cash Income Taxes(5) | |
Full Year Effective Income Tax Rate | ~ |
(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 | |
(3) Includes accounting impacts of assets and liabilities held for sale and assumes the proposed sale of Lumen's EMEA business is not completed during 2023. | |
(4) Assumes no discretionary pension plan contributions during 2023. | |
(5) Excludes the estimated | |
Investor Call
Lumen's management team will host a conference call at
A telephone replay of the call will be available beginning at
About
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,
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 intense 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 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 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 successfully and timely implement our corporate strategies, including our deleveraging and buildout strategies; our ability to successfully and timely consummate the pending divestiture of our European, Middle Eastern and African business, to successfully and timely realize the anticipated benefits from that divestiture and our divestitures completed in 2022, and to successfully operate and transform our retained business 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 security holders, key business partners, suppliers, vendors, landlords and financial institutions; our ability to timely obtain necessary hardware, software, equipment, services, governmental permits and other items on favorable terms; 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 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; our ability to use our net operating loss carryforwards in the amounts projected; 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 and its aftermath 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 geopolitical conditions; and other risks referenced from time to time in our filings with the
Reconciliation to GAAP
This release includes certain historical and forward-looking non-GAAP financial measures, including but not limited to Modified Revenue, Modified Adjusted Revenue, Adjusted EBITDA, Modified 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 modified historical information, none of which has been prepared in accordance with Regulation S-X promulgated by the
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 modified historical 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.
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||
THREE AND TWELVE MONTHS ENDED | ||||||||||||
(UNAUDITED) | ||||||||||||
($ in millions, except per share amounts; shares in thousands) | ||||||||||||
Three months ended | (Decrease) | Twelve months ended | (Decrease) | |||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
OPERATING REVENUE | $ 3,800 | 4,847 | (22) % | 17,478 | 19,687 | (11) % | ||||||
OPERATING EXPENSES | ||||||||||||
Cost of services and products (exclusive of depreciation and amortization) | 1,826 | 2,086 | (12) % | 7,868 | 8,488 | (7) % | ||||||
Selling, general and administrative | 671 | 723 | (7) % | 3,078 | 2,895 | 6 % | ||||||
Gain on sale of businesses | (180) | — | nm | (773) | — | nm | ||||||
Loss on disposal groups held for sale | 700 | — | nm | 700 | — | nm | ||||||
Depreciation and amortization | 796 | 877 | (9) % | 3,239 | 4,019 | (19) % | ||||||
3,271 | — | nm | 3,271 | — | nm | |||||||
Total operating expenses | 7,084 | 3,686 | 92 % | 17,383 | 15,402 | 13 % | ||||||
OPERATING (LOSS) INCOME | (3,284) | 1,161 | nm | 95 | 4,285 | (98) % | ||||||
OTHER (EXPENSE) INCOME | ||||||||||||
Interest expense | (280) | (372) | (25) % | (1,332) | (1,522) | (12) % | ||||||
Other income (expense), net | 382 | (110) | nm | 246 | (62) | nm | ||||||
Income tax benefit (expense) | 113 | (171) | (166) % | (557) | (668) | (17) % | ||||||
NET (LOSS) INCOME | $ (3,069) | 508 | nm | $ (1,548) | 2,033 | (176) % | ||||||
BASIC (LOSS) EARNINGS PER SHARE | $ (3.08) | 0.50 | nm | (1.54) | 1.92 | (180) % | ||||||
DILUTED (LOSS) EARNINGS PER SHARE | $ (3.08) | 0.50 | nm | (1.54) | 1.91 | (181) % | ||||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
Basic | 995,573 | 1,006,846 | (1) % | 1,007,517 | 1,059,541 | (5) % | ||||||
Diluted | 995,573 | 1,015,472 | (2) % | 1,007,517 | 1,066,778 | (6) % | ||||||
DIVIDENDS PER COMMON SHARE | $ — | 0.25 | (100) % | 0.75 | 1.00 | (25) % | ||||||
Exclude: Special Items(1) | $ 3,494 | 14 | nm | 3,112 | 6 | nm | ||||||
NET INCOME EXCLUDING SPECIAL ITEMS | $ 425 | 522 | (19) % | 1,564 | 2,039 | (23) % | ||||||
DILUTED EARNINGS PER SHARE EXCLUDING SPECIAL ITEMS | $ 0.43 | 0.51 | (16) % | 1.55 | 1.91 | (19) % | ||||||
(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 | ||||||||||||
CONSOLIDATED BALANCE SHEETS | |||
AS OF | |||
(UNAUDITED) | |||
($ in millions) | |||
ASSETS | |||
CURRENT ASSETS | |||
Cash and cash equivalents | $ 1,251 | 354 | |
Accounts receivable, less allowance of | 1,477 | 1,544 | |
Assets held for sale | 1,889 | 8,809 | |
Other | 803 | 829 | |
Total current assets | 5,420 | 11,536 | |
Property, plant and equipment, net of accumulated depreciation of | 19,166 | 20,895 | |
GOODWILL AND OTHER ASSETS | |||
12,657 | 15,986 | ||
Other intangible assets, net | 6,166 | 6,970 | |
Other, net | 2,172 | 2,606 | |
Total goodwill and other assets | 20,995 | 25,562 | |
TOTAL ASSETS | $ 45,581 | 57,993 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
CURRENT LIABILITIES | |||
Current maturities of long-term debt | $ 154 | 1,554 | |
Accounts payable | 950 | 758 | |
Accrued expenses and other liabilities | |||
Salaries and benefits | 692 | 860 | |
Income and other taxes | 1,158 | 228 | |
Current operating lease liabilities | 344 | 385 | |
Interest | 181 | 278 | |
Other | 277 | 232 | |
Liabilities held for sale | 451 | 2,257 | |
Current portion of deferred revenue | 596 | 617 | |
Total current liabilities | 4,803 | 7,169 | |
LONG-TERM DEBT | 20,418 | 27,428 | |
DEFERRED CREDITS AND OTHER LIABILITIES | |||
Deferred income taxes, net | 3,163 | 4,049 | |
Benefit plan obligations, net | 2,391 | 3,710 | |
Other | 4,369 | 3,797 | |
Total deferred credits and other liabilities | 9,923 | 11,556 | |
STOCKHOLDERS' EQUITY | |||
Common stock | 1,002 | 1,024 | |
Additional paid-in capital | 18,080 | 18,972 | |
Accumulated other comprehensive loss | (1,099) | (2,158) | |
Accumulated deficit | (7,546) | (5,998) | |
Total stockholders' equity | 10,437 | 11,840 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 45,581 | 57,993 | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
TWELVE MONTHS ENDED | |||
(UNAUDITED) | |||
($ in millions) | |||
Twelve months ended | |||
OPERATING ACTIVITIES | |||
Net (Loss) Income | $ (1,548) | 2,033 | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||
Depreciation and amortization | 3,239 | 4,019 | |
3,271 | — | ||
Gain on sale of businesses | (773) | — | |
Loss on disposal groups held for sale | 700 | — | |
Deferred income taxes | (1,230) | 598 | |
Provision for uncollectible accounts | 133 | 105 | |
Net gain on early retirement of debt | (214) | (8) | |
Unrealized loss on investments | 191 | (138) | |
Stock-based compensation | 98 | 120 | |
Changes in current assets and liabilities, net | 540 | (691) | |
Retirement benefits | 46 | 163 | |
Changes in other noncurrent assets and liabilities, net | 258 | 283 | |
Other, net | 24 | 17 | |
Net cash provided by operating activities | 4,735 | 6,501 | |
INVESTING ACTIVITIES | |||
Capital expenditures | (3,016) | (2,900) | |
Proceeds from sale of businesses | 8,369 | — | |
Proceeds from sale of property, plant and equipment and other assets | 120 | 135 | |
Other, net | 3 | 53 | |
Net cash used in investing activities | 5,476 | (2,712) | |
FINANCING ACTIVITIES | |||
Net proceeds from issuance of long-term debt | — | 1,881 | |
Payments of long-term debt | (8,093) | (3,598) | |
Net (payments on) proceeds from revolving line of credit | (200) | 50 | |
Dividends paid | (780) | (1,087) | |
Repurchases of common stock | (200) | (1,000) | |
Other, net | (40) | (53) | |
Net cash used in financing activities | (9,313) | (3,807) | |
Net increase in cash, cash equivalents and restricted cash | 898 | (18) | |
Cash, cash equivalents and restricted cash at beginning of period | 409 | 427 | |
Cash, cash equivalents and restricted cash at end of period | $ 1,307 | 409 | |
Cash, cash equivalents and restricted cash: | |||
Cash and cash equivalents | $ 1,251 | 354 | |
Cash and cash equivalents and restricted cash included in assets held for sale | 44 | 40 | |
Restricted cash | 12 | 15 | |
Total | $ 1,307 | 409 | |
MODIFIED(1) OPERATING METRICS | |||||
(UNAUDITED) | |||||
Operating Metrics | 4Q22 | 3Q22 | 4Q21 | ||
Mass Markets broadband subscribers | |||||
(in thousands) | |||||
Fiber broadband subscribers | 832 | 813 | 735 | ||
Other broadband subscribers(2) | 2,205 | 2,294 | 2,555 | ||
Mass Markets total broadband subscribers(3) | 3,037 | 3,107 | 3,290 | ||
Mass Markets broadband enabled units(4) | |||||
(in millions) | |||||
Fiber broadband enabled units | 3.1 | 3.0 | 2.5 | ||
Other broadband enabled units | 18.7 | 18.8 | 18.8 | ||
Mass Markets total broadband enabled units | 21.8 | 21.8 | 21.3 | ||
(1) Modified to remove the impacts of the 20-state ILEC business divestiture completed | |||||
(2) Other broadband subscribers are customers that primarily subscribe to lower speed copper-based broadband services marketed under the | |||||
(3) 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. | |||||
(4) Represents the total number of units capable of receiving our broadband services at period end. Other companies may use different methodologies to count their broadband enabled units. | |||||
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
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.
We use the term "Modified" basis on certain metrics herein, which reflect amounts modified to assume the Latin American business and 20-state ILEC business divestitures took place on
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.
For further information on our use of Modified Revenue and Modified Adjusted EBITDA, see page 1 and 2 of this release, our current Report on Form 8-K filed with the
Non-GAAP Special Items | |||||
(UNAUDITED) | |||||
($ in millions) | |||||
Actual QTD | Actual YTD | ||||
Special Items Impacting Adjusted EBITDA | 4Q22 | 4Q21 | 4Q22 | 4Q21 | |
Consumer and other litigation | $ — | (3) | $ (3) | 16 | |
Severance | 10 | 3 | 12 | 3 | |
Gain on sale of businesses(1) | (180) | — | (773) | — | |
Loss on disposal groups held for sale | 700 | — | 700 | — | |
Transaction and separation costs(2) | 53 | 19 | 219 | 37 | |
Real estate transactions(3) | — | — | — | (40) | |
Total Special Items impacting Adjusted EBITDA | $ 583 | 19 | $ 155 | 16 | |
Actual QTD | Actual YTD | ||||
Special Items Impacting Net (Loss) Income | 4Q22 | 4Q21 | 4Q22 | 4Q21 | |
Consumer and other litigation | $ — | (3) | $ (3) | 16 | |
Impairment of goodwill | 3,271 | — | 3,271 | — | |
Gain on sale of businesses(1) | (180) | — | (773) | — | |
Loss on disposal groups held for sale | 700 | — | 700 | — | |
Gain on early retirement of debt(4) | (205) | — | (214) | (8) | |
Severance | 10 | 3 | 12 | 3 | |
Transaction and separation costs(2) | 53 | 19 | 219 | 37 | |
Real estate transactions(3) | — | — | — | (40) | |
Income from transition and separation services(5) | (82) | — | (152) | — | |
Total Special Items impacting Net (Loss) Income | 3,567 | 19 | 3,060 | 8 | |
Income tax effect of Special Items(6) | (73) | (5) | 52 | (2) | |
Total Special Items impacting Net (Loss) Income, net of tax | $ 3,494 | 14 | $ 3,112 | 6 | |
(1) Reflects (i) the pre-tax gain of | |||||
(2) Transaction and separation costs associated with (i) the sale of our Latin American business on | |||||
(3) Real estate transactions include the Q3 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 (i) | |||||
(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 | |||||
Non-GAAP Cash Flow Reconciliation | |||||
(UNAUDITED) | |||||
($ in millions) | |||||
Actual QTD | Actual YTD | ||||
4Q22 | 4Q21 | 4Q22 | 4Q21 | ||
Net cash provided by operating activities | $ 841 | 1,607 | $ 4,735 | 6,501 | |
Capital expenditures | (833) | (848) | (3,016) | (2,900) | |
Free Cash Flow | 8 | 759 | 1,719 | 3,601 | |
Cash interest paid | 273 | 343 | 1,365 | 1,487 | |
Interest income | (17) | (2) | (25) | (2) | |
Unlevered Cash Flow | $ 264 | $ 1,100 | $ 3,059 | $ 5,086 | |
Free Cash Flow | $ 8 | $ 759 | $ 1,719 | $ 3,601 | |
Add back: Severance(1) | 7 | 6 | 37 | 70 | |
Add back: Consumer and other litigation(1) | — | (3) | — | 47 | |
Add back: Pension contributions(1) | — | — | 319 | — | |
Add back: Transaction and separation costs(1) | 142 | 11 | 282 | 20 | |
Add back: Real estate transactions(1) | — | 3 | — | 4 | |
Remove: Income from transition and separation services(1) | (31) | — | (97) | — | |
Free Cash Flow excluding cash Special Items | $ 126 | $ 776 | $ 2,260 | $ 3,742 | |
Unlevered Cash Flow | $ 264 | $ 1,100 | $ 3,059 | $ 5,086 | |
Add back: Severance(1) | 7 | 6 | 37 | 70 | |
Add back: Consumer and other litigation(1) | — | (3) | — | 47 | |
Add back: Pension contributions(1) | — | — | 319 | — | |
Add back: Transaction and separation costs(1) | 142 | 11 | 282 | 20 | |
Add back: Real estate transactions(1) | — | 3 | — | 4 | |
Remove: Income from transition and separation services(1) | (31) | — | (97) | — | |
Unlevered Cash Flow excluding cash Special Items | $ 382 | $ 1,117 | $ 3,600 | $ 5,227 | |
(1) Refer to Non-GAAP Special Items table for details of the Special Items impacting cash included above. | |||||
Adjusted EBITDA Non-GAAP Reconciliation | |||||
(UNAUDITED) | |||||
($ in millions) | |||||
Actual QTD | Actual YTD | ||||
4Q22 | 4Q21 | 4Q22 | 4Q21 | ||
Net (loss) income | $ (3,069) | 508 | $ (1,548) | 2,033 | |
Income tax (benefit) expense | (113) | 171 | 557 | 668 | |
Total other expense, net | (102) | 482 | 1,086 | 1,584 | |
Depreciation and amortization expense | 796 | 877 | 3,239 | 4,019 | |
Stock-based compensation expense | 27 | 31 | 98 | 120 | |
3,271 | — | 3,271 | — | ||
Adjusted EBITDA | $ 810 | 2,069 | $ 6,703 | 8,424 | |
Add back: Severance(1) | $ 10 | 3 | $ 12 | 3 | |
Add back: Consumer and other litigation(1) | — | (3) | (3) | 16 | |
Remove: Gain on sale of businesses(1) | (180) | — | (773) | — | |
Add back: Loss on disposal groups held for sale | 700 | — | 700 | — | |
Add back: Transaction and separation costs(1) | 53 | 19 | 219 | 37 | |
Add back: Real estate transactions(1) | — | — | — | (40) | |
Adjusted EBITDA excluding Special Items | $ 1,393 | 2,088 | $ 6,858 | 8,440 | |
Total revenue | $ 3,800 | 4,847 | 19,687 | ||
Adjusted EBITDA margin | 21.3 % | 42.7 % | 38.4 % | 42.8 % | |
Adjusted EBITDA margin excluding Special Items | 36.7 % | 43.1 % | 39.2 % | 42.9 % | |
(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.
2023 OUTLOOK (1) (2) (3) (4) (5) | |||
(UNAUDITED) | |||
($ in millions) | |||
Adjusted EBITDA Outlook | |||
Twelve Months Ended | |||
Range | |||
Low | High | ||
Net income | $ 185 | 670 | |
Income tax expense | 65 | 235 | |
Total other expense | 1,100 | 900 | |
Depreciation and amortization expense | 3,100 | 2,900 | |
Stock-based compensation expense | 150 | 95 | |
Adjusted EBITDA | $ 4,600 | $ 4,800 | |
Free Cash Flow Outlook | |||
Twelve Months Ended | |||
Range | |||
Low | High | ||
Net cash provided by operating activities | $ 2,900 | 3,300 | |
Capital expenditures | (2,900) | (3,100) | |
Free Cash Flow | $ — | 200 | |
(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 |
(3) Includes accounting impacts of assets and liabilities held for sale and assumes the proposed sale of Lumen's EMEA business is not completed during 2023. |
(4) Assumes no discretionary pension plan contributions during 2023. |
(5) Excludes the estimated |
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