CenturyLink CEO Storey: Future of work from home uncertain

Mercy/CenturyLink
CenturyLink CEO Jeff Storey says his company's fiber-rich network is able to handle the increase in demand for its services during the COVID-19 pandemic. (CenturyLink)

CenturyLink CEO Jeff Storey had his doubts initially about the company's employees working from home during the COVID-19 crisis, but now he's a believer.

On Wednesday's first quarter conference call, Storey said in early March that the telco acted quickly by sending 75% of its 42,000 employees home for work. Storey said roughly 10,000 essential employees that support customers and maintain the company's networks stayed put.

CenturyLink's field technicians are now guiding customers through installs outside of their houses via phone calls, and have the discretion not to do anything they feel isn't safe, Storey said.

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Like other service providers, Storey said it remains to be seen how many employees will eventually return to their office spaces, but the COVID-19 crisis has accelerated CenturyLink's digital transformation, and the digital transformations of its customers.

"Frankly, I doubt we ever go back to the way things were before," Storey said, according to the Seeking Alpha transcript. "As a manager, I was hesitant about embracing a distributed workforce, but the performance of our employees over the past two months has demonstrated that we can remain highly effective when working digitally from home.

"That performance allows us to be deliberate in our return and more broad-minded about how we work together in the future. We will take our time and accelerate our own digital transformation as we look at the future of work within CenturyLink."

RELATED: CenturyLink's adaptive networks flourish during COVID-19 crisis

Storey said that CenturyLink's fiber-rich network was well suited to handle the increased demand for the company's services during the coronavirus pandemic. Overall, CenturyLink has seen a 30% to 40% growth in its backbone during the pandemic, and "a correspondingly significant increase in average usage across our CDN, end user IP, voice and conferencing platforms," Storey said.

"While the daily growth in traffic has leveled off over the last few weeks, usage remains high," Storey said. "Not all of that growth translates to revenue, as contracts often include unlimited usage. But, the overall increase in traffic is a positive leading indicator for us.

"The good news here is that the CenturyLink network was purpose built as a platform of capabilities to handle the growing consumption of bandwidth that is brought about by digital transformation and the fourth industrial revolution. You’ve heard me talk about the benefits of fiber. It is faster, more secure, and far more scalable than other infrastructures. Our network is built to flex in response to in-the-moment traffic increases."

CenturyLink's Q1 numbers

CenturyLink saw a net loss of 11,000 total broadband subscribers in the first quarter. In speeds of 100 Mbps and above, it added 60,000 subscribers. Revenue for consumer broadband was flat year over year.

Enterprise revenue decreased 0.4% year-over-year versus a decline of 2.1% in the first quarter 2019. On a sequential basis, enterprise declined 1%, compared to a decline of 2.4% in the first quarter of 2019, which is the typical seasonality we see in the first quarter of each year.

CenturyLink's SMB revenue decreased 6% year-over-year, in line with the average year-over-year decline of 6.5% in 2019, primarily driven by continued declines in legacy voice services. Both Storey and Dev voiced their concern over how small and medium-sized busiensess will emerge, or go bankrupt, from largely being closed during the pandemic.

"As we look at SMB for the remainder of the year, as I mentioned earlier, this is an area of concern," said CenturyLink CFO Neel Dev. "We are working closely with these customers as they are critical not only to CenturyLink, but the entire U.S. economy. So far, we have not seen a material change in churn, but we are closely monitoring the situation. It is also important to note that SMB is an opportunity for us, and we will continue to focus on increasing market share in our on-net buildings."

On a year-over-year basis, enteprise revenue declined 3.7% to $5.2 billion in Q1 compared to 5.1% in the first quarter of 2019. Dev said on the earnings call that the company has seen steady improvement in it revenue trajectory over the last few quarters. Sequentially, total revenue declined 1.5%, compared to a decline of 2.2% in the first quarter of 2019.

Wholesale revenue was down 7% year-over-year compared to a decline of 6.1% in the first quarter 2019. Sequentially, CenturyLink saw a decline of 2.5% compared to a decline of 3.3% in the fourth quarter of 2019.

On a year-over-year basis, International and Global Accounts (IGAM) revenue was roughly flat and grew 1.3% on a constant currency basis. CenturyLink had a decrease of 4.7% in the fourth quarter of 2019.

"In the short term for both IGAM and Enterprise, we expect the demand impact from cancellation of live events and customers deferring major network buying decisions," Dev said. "However, the funnel remains strong and the theme from current customer conversations has been a delay of around 60-to-90 days, but with no fundamental change in long-term demand for our services. In fact, several of our customers are evaluating accelerating their own digital transformation, which we expect to be a benefit over the long-term."

After posting a loss in last year's first quarter, CenturyLink reported first-quarter net income of $314 million. CenturyLink posted revenue of $5.23 billion in Q1, which missed analysts' projections  of $5.48 billion.

Along the same lines as AT&T, Verizon and other large service providers, CenturyLink said its guidance for the reminder of the year was uncertain.

"As we look at the remainder of the year, we do expect to see pressure on both, revenue and the speed with which we continue to take costs out of the business, as a result of COVID-19," Dev said. "With the current uncertainty, particularly as it relates to timing for an economic recovery, we are withdrawing our full-year 2020 financial outlook for adjusted EBITDA, free cash flow and capital expenditures."

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