CenturyLink is starting to cash in on Level 3 deal

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CenturyLink is starting to see its Level 3 deal pay off with an improved product line and a worldwide reach for its products and services. (CenturyLink)

CenturyLink is starting to reap the rewards of its $34 billion deal to buy Level 3 Communications, which were outlined in its second-quarter earnings results.

While large telecommunications deals almost always include the use of the word "synergy," CenturyLink provided some concrete examples of how it has cashed in on its Level 3 acquisition. In its second-quarter earnings report, CenturyLink said it had achieved a total of approximately $675 million of annualized run-rate adjusted EBITDA synergies since the Level 3 transaction closed in November. CenturyLink said it expected to reach its targeted $850 million run-rate adjusted EBITDA operating expense savings.

"More than either CenturyLink or Level 3 standalone, the combined CenturyLink is a participant in virtually every large deal in the U.S. wireline enterprise market and a serious provider globally," said CenturyLink President and CEO Jeff Storey, according to a Seeking Alpha transcript. "These deals often have a longer sales cycle, but our overall opportunity is growing. We also expect to grow our share of wallet with these customers that both companies serve prior to the acquisition."

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Based on that bullish optimism, CenturyLink raised its outlook for the year by projecting adjusted profits between $9 billion and $9.15 billion versus the previous guidance of between $8.75 billion and $8.95 billion.

"We believe our global network assets, robust product portfolio, and our willingness to invest to meet our customers' needs enable CenturyLink to evolve as our customers evolve," Storey said. "In addition to the integration efforts associated with the acquisition of Level 3, we are also focused on transforming to more efficient operating models beyond the capture of synergies.

"Integration is about bringing the two companies together. Transformation is about enhancing our business for effectiveness, cost efficiency, and customer experience to move us to where we want to be as a company."

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Storey and Sunit Patel, executive vice president and chief financial officer, also said that the combined companies allowed it to offer better products and services across hybrid cloud, SD-WAN and security, which will enable CenturyLink to compete for a broader set of opportunities going forward.

CenturyLink reported earnings of $292 million, or 27 cents a share, in the second quarter, compared with $69 million, or 6 cents a share, in the same quarter a year ago. CenturyLink's revenue fell to $5.90 billion, compared to $6.04 billion last year. Capital expenditures were $755 million in the second quarter while CenturyLink had $162 million in integration expenses.

CenturyLink's total revenue declined 2.1%, business revenue declined 1.6%, and consumer revenue declined by 4%.