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CenturyLink Analyst Day
June 24 , 2015
Forward-Looking Statements / Non-GAAP Financial Measures
Non-GAAP Financial Measures This presentation includes certain non-GAAP financial measures. These measures are provided and valid only as of the date of this presentation and should not be relied upon beyond that date. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website at www.centurylink.com.
Certain non-historical statements made in this presentation and future oral or written statements or press releases by us or our management are intended to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations only, 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 if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change, including product displacement; the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, access charges, universal service, broadband deployment, data protection and net neutrality; our ability to effectively adjust to changes in the communications industry, and changes in our markets, product mix and network; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services, including our ability to effectively respond to increased demand for high-speed broadband service; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; the adverse impact on our business and network from possible equipment failures, security breaches or similar attacks on our network; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; our ability to use our net operating loss carryovers in projected amounts; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled companies; our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions; any adverse developments in legal or regulatory proceedings involving us; changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, including those caused by changes in our cash requirements, capital expenditure needs, debt obligations, pension funding requirements, cash flows, or financial position, or other similar changes; the effects of adverse weather; other risks referenced from time to time in our filings with the SEC; and the effects of more general factors such as changes in interest rates, in tax laws, in accounting policies or practices, in operating, medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. These and other uncertainties related to our business and our recent acquisitions are described in greater detail in our Form 10-Q for the quarter ended March 31, 2015, as updated and supplemented by our subsequent SEC reports. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We undertake no obligation to update or revise any forward-looking statements for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise. Furthermore, any information about our intentions contained in any of our forward-looking statements reflects our intentions as of the date of this release, and is based upon, among other things, the existing regulatory and technological environment, industry and competitive conditions, economic and market conditions, and our assumptions as of such date. We may change our intentions, strategies or plans at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.
2
Strategic Overview
G l e n P o s t C h i e f E x e c u t i v e O f f i c e r & P r e s i d e n t
4
Agenda
Strategic Overview
Product Development & Technology
Global Markets
Global Operations & Shared Services
Finance
Q & A
Company Overview & Transformation
6
CenturyLink by the Numbers
Total 2014 Annual Operating Revenues
Total Revenue from Strategic services
Revenue from Business Customers
Fortune 500 Companies served
Route-mile U.S. and International transport network
Broadband customers
Data centers globally
$18.0B
>60%
98%
>550K
6.1M
52%
58
2008 20141
Employees 6,500 45,000 Assets $8.3 billion $50.1 billion Reported Revenue $2.6 billion $18.0 billion Operating Cash Flow2 $1.3 billion $7.1 billion Free Cash Flow2 $582 million $2.7 billion
1) 2009-2011 acquired Embarq, Qwest & Savvis 2) Excludes special items
Transformation by the Numbers
7
Industry Rapidly Redefining Itself
• New competitors, partnerships and business models
• Environment of continuous innovation and automation
• Technology advancing rapidly, driving changes in customer expectations and creating opportunities
• Local services less regulated, Internet services now regulated
8
CenturyLink is reinventing the way we do business to take advantage of opportunities resulting from these changes
Strategic Vision
9
Transition from a traditional network
communications provider to a growing
provider of integrated, advanced IP-enabled
network, cloud, hosting and IT services.
$29 $34
$65 $95
$86
$147
2014 2015 2016 2017 2018 2019
Strategic Market Opportunity
Strategic vision aligned with the market opportunity $ in billions
Total Market 2014: ~$180B 2019: ~$275B
CAGR = 9%
14-19 CAGR
11%
8%
3%
Consumer Broadband & Video
Strategic Network Services
IT Outsourcing – Hosting, Cloud,
Security & Consulting
Source: Third party research and CenturyLink analysis. Notes: Market size and position represents the domestic US market. for Strategic Network Services. IT Infrastructure Outsourcing Services represents the North America market. Consumer Broadband and Video represent estimated CenturyLink in-territory opportunity. IT Infrastructure Outsourcing Services include Colocation, Hosting, Cloud, Security Services, IT Consulting Services. SaaS is excluded. Strategic Network includes IP based services such as Ethernet, MPLS, B-VoIP and Managed Network Services.
10
Strong Foundation for Success
• Great strategic assets for growth • Growing market opportunity for strategic
services • Strong cash flows support
–Continued investment –Dividend payouts
• Recent organizational realignment designed to drive increased agility, productivity and efficiency
11
Strategic Priorities
Business Solutions • Grow strategic revenue offerings: MPLS, Ethernet,
Wavelength, VoIP, Hosting, Cloud and Big Data • Invest in fiber/GPON to drive increased network
bandwidth and capacity • Create advanced cloud and hosting capabilities
Strategic Priorities
13
Business Solutions (continued) • Develop and deliver managed services solutions
across our broad portfolio of network, hosting, cloud and IT capabilities
• Expand and increase efficiency of direct and indirect sales channels
Strategic Priorities (continued)
14
Consumer Broadband and Video • Deploy fiber/GPON deeper into network to drive higher
speeds • Expand PrismTM TV footprint and penetration • Develop home automation and security solutions Operating Efficiency • Simplify and rationalize network infrastructure • Automate and improve processes • Continue to integrate and simplify systems
Strategic Priorities (continued)
15
You’ll Hear Today About Our…
• Focus on customers’ needs and the customer experience in all we do
• Strong foundation of assets that positions us for growth
• Advanced network services and robust, high-quality network
16
You’ll Hear Today About Our… (continued)
• Managed services solutions designed to meet customers’ evolving needs
• Automation of systems and streamlining of processes
• Financial strength that supports continued investment and dividend payouts
17
Product Development & Technology
A a m i r H u s s a i n E x e c u t i v e V i c e P r e s i d e n t & C h i e f Te c h n o l o g y O f f i c e r
Managed Network Services
Cloud & Hosting Services (XaaS)
Managed Security Services
Unified Communications
Broadband
Video & Over-the-Top Content Services
Data Analytics and Internet of Things (IOT)
Hybrid IT Services
Define, Design & Deliver
o New Products & Services
o Network & Cloud Technologies
o Security Framework
Achieve Profitable Growth
19
Areas of Responsibility
Aligning Organization to CenturyLink’s Business Transformation Objectives
20
Product Development & Technology
Technology Transformation
Platform Development
Integration and Innovation
Service Transformation
Product & Platform
Rationalization
Program Management & Metrics
Quicker Time to Market Differentiated Customer Experience
Focus Areas
21
Accelerated
Cloud Adoption
Hybrid Cloud
Data Monetization
Data Analytics
Over-the-Top
Services (video etc)
Increase
Connectivity
Fiber Deployment
Copper
Innovations
Cost Savings
Speeds Up
Service Delivery
On Demand
Virtualized Services
Everything is Connected
Data Explosion
Device & Sensor
Saturation
Clo
ud &
Big
Dat
a
Hig
her B
andw
idth
Prog
ram
mab
le S
ervi
ce B
ackb
one
Inte
rnet
of T
hing
s
• Expansion of cloud footprint • Integration of network to cloud • Enabling hybrid cloud • PaaS for development community • Enabling platform Managed
Services (DRaaS, Big Data Analytics, ecommerce Apps, ERP/CRM Apps)
22
Cloud & Big Data
Enhance our cloud offering
Interconnect our network and platform to all relevant cloud and
data center partners
23
CenturyLink Cloud Platform
Cloud Colocation Network Hosting
Legacy Application Optimization New Application Agility
IT Services – Managed Application Solutions
Platform Managed Services
Platform Control Portal
Extending On Premise
Ecosystem
Exten
ding T
o AW
S, vC
loud…
• Continue to expand gigabit footprint • Use vectoring/bonding technology to
provide up to 200 Mbps • Enhance our video offerings
(OTT, Prism)
• Enhance Unified Communications offerings
24
Enabling Higher Bandwidth & Applications for Our Customers
Enhance our higher speed Broadband footprint
Network Modernization
Application Integration
• Video
• Unified Communications
• Completed NFV Deployments in 36 data centers across 7 countries (network based security)
• Fully Distributed & Programmable
• Self Healing, Self Learning Network
Simplify Network Infrastructure
Modernize the Network
25
Programmable Service Backbone
Any Service | Any Place | Any Time Our Goal: A Single Network Service Delivery Fabric
Internet of Things (IoT) Use Cases
26
• Idling Vehicle Management
• GPS Analytics
• Maintenance Management
Smart Fleet • Building Floor Space
Utilization
• Building Automation
• Smart Workspace
Smart Building • Safety / Regulation
• Over-the-Top Content to Vehicle
Smart Car
• Conducting Trials • Complements Our
Analytics & Cloud offering
• Trials in Progress • Big Data Learning Opportunity • Extensible to Smart Car /
Smart City Use Cases
• Aligned to Insurance Opportunities.
• Integration with Smart Home Use Cases
IoT creates Data & Storage opportunities as well as complements our Infrastructure & Cloud Offerings while enhancing our Managed Services.
Two Technology Development Centers
27
Technology Center of Excellence Monroe, LA
Cloud Development Center Seattle, WA
Innovate
Incubate
Collaborate
Deliver
Product Development & Technology Review
28
• Velocity of innovation • Transformation of technology & business model • Driving newer product areas to replace legacy
revenue streams • Committed to establishing CenturyLink as a leader in
the new era of IT Services
Global Markets
Global Markets Overview R o s s G a r r i t y I n t e r i m P r e s i d e n t , G l o b a l M a r k e t s
33,000 Business and Government customers
Over 6.1M high-speed Internet subscribers across our Business and Consumer Segments
Nearly 250,000 PrismTM TV customers
31
Global Markets
Business • Small to Large
Businesses both domestic and abroad
• Local & Federal Government
• Wholesale
Consumer • Single family
homes and multi-dwelling units targeting video, high-speed Internet, security products and voice
Impact of Information Technology
32
MOORE’S LAW STATES THAT EVERY 18 MONTHS, THE NUMBER OF TRANSISTORS THAT CAN BE PLACED IN A CHIP DOUBLES.
1958 - MICROCHIP INVENTED
1960 1975 2000 2025
IT Used to … Enable Existing Industries
IT Used to … Disrupt Industries
• Microsoft • Intel • IBM • Dell • Oracle • SAP • DEC
• Amazon • Uber • Airbnb • Netflix
First Half of the Chess Board
Second Half of the Chess Board
2016
Enterprise IT Transformation
33
Enterprise IT Ecosystem Transformation
Maintenance Plan
IT Infrastructure Purchase/Plan
Connectivity Plan
Upfront Software Purchase
Maintenance Included
IaaS capability included
Simplified IP Connectivity
Per Seat/Use Purchase
Old Enterprise Software Deployment Model High upfront costs Slow decision making
New Enterprise Software Deployment Model Low upfront costs Decision making velocity
and innovation
100% Uptime
I T C H A L L E N G E S Prioritizing budgets, people, systems
B U S I N E S S D E M A N D S Need more of everything, faster
Cost containment
Accelerating Business Innovation really Challenges IT
Profitability
Increased productivity
Mobile & Social
eCommerce
Resource acquisition, retention, skills, and training
Complexity
Compliance
Shorter implementation cycles
34
Why CenturyLink Business Solutions
Pure Players • Good toolset, but client
remains effectively DIY shop • Requires individual sourcing of
all components needed to deliver end-to-end solutions
• No accountability for end-to-end business outcomes
System Integrators • Labor and Capital integration in
the classic SI model • Focus on very large, complex
solutions
CenturyLink • Solution designs using the right
mix of automation and customization
• Extensive breadth of innovative standard building blocks (cloud, automation)
• Flexible services and outsourcing arrangements
• Managed Services, Security, Cloud, and Network on a foundation of owned assets 35
Business Marketing Shirish Lal Chief Marketing Officer
CenturyLink is Well-Positioned
Cloud disrupts the ITO providers, VAR value proposition, and business model leaving CenturyLink well positioned in Mid-Market and SMB
Point Platform Managed Solutions Outsourced IT
SMB (<500)
Mid-Market (500 – 5K)
Enterprise (5K+ Employees)
Mid-Tier Sis, Vertical ISVs
VARs
Mid-Tier Sis,VARs
VARs
SaaS Providers
Third Party Cloud Survey Results
38
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Ease of Use
Differentiated Very Differentiated
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Global Networking
Differentiated Very Differentiated
• 80% of surveyed IT organizations rated CenturyLink Cloud’s Ease of Use as differentiated or better compared to the competition
• 82% of surveyed IT organizations rated CenturyLink Cloud’s Global Network of use as differentiated or better compared to the competition
• CenturyLink Cloud customers reported saving 25% on average for Capital Expenditures on IT infrastructure and 22% on average for Operating Expenditures
*Third party research of CenturyLink customer base
CenturyLink Managed Solutions
MANAGED DATA
MANAGED VOICE
MANAGED HYBRID CLOUD Remote Infrastructure Management
MANAGED SECURITY
OPERATIONAL SCALE MANAGING DATA CENTERS, SERVERS, APPLICATIONS, AND NETWORKS AND HIGHLY EFFICIENT ON-SHORE AND OFF-SHORE MODEL
UNIQUE BREADTH OF NFRASTRUCTURE
MANAGED SERVICES
MANAGED OFFICE Infrastructure Outsourcing to Desktop for
Small/Mid Sized Businesses
NETWORK IP COMMUNICATIONS COLO CLOUD – IAAS, SAAS
BIG DATA AS A SERVICE (Cognilytics) Complete Big Data Solutions from Infrastructure Management to Analytics
PRE-PACKAGED SOLUTIONS
SERVICES SCALE
CenturyLink Managed Hybrid Cloud Solutions
40
Managed Hosting
Bare Metal
Public Cloud
Customer
INFRASTRUCTURE, APPLICATION, OS MANAGEMENT Complete range of On-shore and Off-shore options
Customer Infrastructure
Big Data eCom ERP BCDR
Manage /Integrate existing customer environments into
solutions.
Migrate from or add to an existing customer environment via optimal mix of scaled public cloud, scaled private cloud, and customized Managed Hosting.
Reduce costs through scaled, multi-tenant managed services.
Practice area-based packaged solutions. Defined app support with reference architectures.
CenturyLink
Customization
Business Solutions Focus by Segment
41
SMB (<500 employees)
Mid-Market (500 – 5K employees)
Global (5K+ employees)
IT Spend per Employee Low High Med/High
Competitive Intensity High in Telecom Low/Med in IT
Medium Very High
CenturyLink Solutions GPON/MTU Managed Office
MPLS Hybrid IT
Managed Services
MPLS Hybrid IT
Managed Services
How CenturyLink Will Win
Grow distribution and leverage speed and
functionality advantage of GPON & Managed Office
Aggressively target less competitive Mid-Market with Hybrid IT solutions and Managed Services
Win our fair share of opportunities leveraging
disruption of ITO business
Business Solutions Kenny Wyatt Senior Vice President, Business Solutions
FROM
Enhancing Our Go-To-Market to Better Serve Customers
TO
Customer Segments
Multiple Approaches
• Aligned by Buyer Behavior • Highly targeted value propositions • Focused verticals
Channel Alignment
Aligned By Product
• Aligned by Customer Segment • Single Sales Pro to Customer • Solution Specialists to cross portfolio
Sales Posture
Retention Centric Limited Hunting
• Prospecting • CXO level selling – challenger • Selling through alliances
Arming Sales Pros
Ad-Hoc Tools / Training
• Tools to enable single call close • University-style certifications • Strong coaching culture
Appealing to Changing Buyer Behaviors
• Optimized by Segment • Provider accountability for End-to-End Service
Level Agreement • Agile / Tech refresh at scale
Colo / Infra-
structure
Cloud/ Managed
IT Services
Network
Provider A
Provider C
Provider D
Customer Assembles/
Manages Environment
Secu
rity
/ Bus
ines
s C
ontin
uity
&
Dis
aste
r Rec
over
y
Selective Outsourcing Hybrid IT
Provider B
• Traditional Posture on Capital Purchase • Customer accountable for coordinating
End-to-End Service delivery • Agility limited to internal processes
Colo / Infra-
structure
Cloud/ Managed
IT Services
Network
Big
Dat
a
Appl
icat
ion
Dev
elop
men
t /
Dep
loym
ent
Man
aged
Offi
ce
44
Businesses of all Sizes Trust CenturyLink to Manage IT needs
Customer Service(s) Provided by CenturyLink
Managed Office: Applications, Storage, Security, Network, Voice – priced per seat
Business Problem
G500 Beverage Company
“Need a more competitive cost structure for maintaining global eCommerce Platform”
Global Colocation
Managed Infrastructure IT Services
Network Aerospace
Manufacturer
“Need a quicker path to market for my commercial maintenance applications”
Cloud Security / Disaster Recovery
Now Bidding Big Data
Financial Services
“As I spin off, need to rethink my internal IT”
IT Services Network
Managed Compute / Storage
DB and Middleware
Apps
<50 Person Law Firm
“I run a law firm and don’t want to even think about my
IT infrastructure”
45
CenturyLink Business Value Proposition
46
With a comprehensive services approach – from access to applications – and the ability
to orchestrate across public, private and remote infrastructures, CenturyLink is
uniquely positioned to support an enterprise's migration to Hybrid IT.
Consumer Marketing Shirish Lal Chief Marketing Officer
Consumer Strategy
High Value Focus
• Optimize investment and marketing mix based for highest value customers
Set up Future Growth
• Invest in HSI speeds through bonding, vectoring, FTTP, smart build approach
• Leverage PRISM and Value Added Products to drive ARPU growth
Marcom Optimization
• Differentiate CenturyLink messaging through focus on simplicity • Shift focus to more efficient digital advertising/channels
Customer Focus
• Apply differentiated product design, service delivery and customer experience by customer behavioral segment
48
DSL FTTN FTTP
Sales
Network and Prism Investment Drives Penetration and Revenue Growth
1.5x
Incremental 10% Bump From Fiber Halo
1.5x
Sales per 1000 HHs
0 20 40 60 80
100 120 140 160
Consumer Average
PRISM Consumer
ARPU
Optimization of Approach
50
Clear message delivered in a warm/friendly tone Mass Media Direct Response
Maintain aggressive price driven narrative
Shifting focus and spend to online opportunities
Digital Advertising
Aligning Offerings Sub-
Segment Product Offering Customer Experience Key Differentiation
Millennial/MDU
CenturyLink On and OTT
Online ordering and customer service
Products they want offered in the
environment where they want to interact
and purchase
Home Office
Managed Home Office
High tech product suite with business support
Business optimized product suite and
service level for their home office
High Income Family
GPON/Prism/ Smart Home
Bundle
Best in class technology configured to meet their
needs
Bundles configured to deliver the products they want and the
service they expect
Low Tenure Pure Broadband Low touch engagement
with online ordering Internet delivered without
hassle 51
Global Operations & Shared Services
M a x i n e M o r e a u E x e c u t i v e V i c e P r e s i d e n t , G l o b a l O p e r a t i o n s & S h a r e d S e r v i c e s
• End-to-end post-sales operational support
• Enable world-class network and data centers to support revenue growth
• Support customer sales of solutions that rely on the quality, reliability and security of our network and data center platforms
• Support product roadmap and operationalize evolving technology
• Provide local and national field technician expertise
End-to-end planning, engineering, construction and management of global network and hosting data centers
Global network and data center operations, service delivery and service assurance
Managed services: office, network (data/voice), hosting, remote infrastructure management and security
Shared services support of real estate, fleet, environmental health & safety and disaster recovery
53
Areas of Responsibility
54
CenturyLink Offers … A comprehensive data networking portfolio including MPLS, Ethernet, Wavelength and VoIP services that delivers …
Best-in-class connectivity across our owned and operated Tier 1 global network that is …
Seamlessly integrated with our industry-leading cloud and hosting infrastructure …
Backed by our award-winning commitment to working with our customers.
55
CenturyLink’s Global Network
• 250,000+ miles of owned and operated fiber across U.S. plus 300,000+ miles of owned or leased international transport network
• Enterprise network services in 85 countries
• Connected into our 58 global data centers plus another 200+ third-party U.S. data centers
• 21,500+ fiber-fed buildings domestically
• Scalable bandwidth of up to 100 Gbps with 99.999% documented uptime transporting more than 100 trillion bits of data per second
• Among top three North American telecom providers and leading MPLS/Ethernet provider
CenturyLink Network + Data Centers – International • Own or lease over 300,000 international transport miles • Connected to 11 international data centers (EMEA and Asia)
DATA CENTERS
56
57
Network Enablement
Fiber to the Premise Addressable businesses
Fiber to the Premise Addressable homes
Addressable units capable of 20 Mbps+
Addressable units capable of 40 Mbps+
PrismTM TV Addressable homes
Fiber Enabled Wireless Towers
<5K
33%
15%
1.2M
390K
56%
27%
2.4M
1st Quarter 2013 1st Quarter 2015
16K 22K
<50K 360K
Integrated Platform Enablement Data Centers
– #2 North American data center provider1
– 58 data centers globally – 1.5+ million square feet sellable floor space – 24/7 operations, security and support – 100% uptime SLA
Managed Hosting – #5 North American managed hosting provider2 – End to end management of IT security, infrastructure, applications – More than 30,000 servers under management – 26 PB (petabytes) of storage – Highly efficient on-shore and off-shore model
Cloud – Recognized leader in key industry reports – Public | Private | Hybrid – 12 global deployments
58 1 Source: 451 Research 2 Source: Synergy Research
• Increase capacity at reduced cost per bit • Continued investment in automation and
customer self-service • Continued investment in system
consolidation • Improve service delivery • Meet/exceed network/platform availability
targets • Evolve network infrastructure to work
seamlessly with cloud infrastructure
Focus on operational efficiency
Improve customer experience
Align costs with revenue
59
Operational Excellence
• 99.999% Availability • Recipient of the 2015 FTTXcellence Award • Recipient of five Wholesale Provider Excellence Awards
from Atlantic-ACM • TL 9000 certification • #1 provider of Managed Trusted Internet Protocol Service
(MTIPS)
60
Network Quality/Reliability
• Brill Award for Efficient IT • Industry-recognized practices (ITIL - Information
Technology Infrastructure Library) • Uptime Tier III certification
61
Data Center/Hosting Quality
62
Global Operations & Shared Services Review
• Robust domestic and international network • Extensive global data center footprint • Focus on operational excellence in service delivery
and support • Align cost structure with revenue
Finance
S t e w a r t E w i n g E x e c u t i v e V i c e P r e s i d e n t & C h i e f F i n a n c i a l O f f i c e r
Key Financial Objectives
• Top-line revenue stabilization/growth • Cost alignment with revenue trends • Capital investment with return-based and
disciplined approach • Long-term shareholder value
64
• Revenue declined 0.4% for full-year 2014 versus 5.6% for pro-forma full-year 2010
• Strategic growth initiatives and reducing the rate of legacy revenue decline have driven improved trend
Revenue Trend
Pro forma 2009-2010
Pro forma 2010-2011
Pro forma 2011-2012 2012-2013 2013-2014
Annual Revenue Decline Analyst Average
2014-2015
65 (5.6%)
(3.8%)
(1.7%) (1.5%)
(0.4%) (0.9%)
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
Uses of Operating Cash Flow1
• Capital expenditures • Dividends • Cash Interest • Other
– Share repurchase – Cash taxes – Reduce debt
66
1 2014 figures
$3.0
$1.2
$1.3
$1.5
Capital expenditures Dividends Cash Interest Other
54%
24%
18%
5%
Revenue Enablement & Success-based Maintenance Capacity Investment All other
Capital Expenditures1
67
• Bottoms-up capital allocation process
• Sufficient capital budget to meet growing demands
• Expect similar capital expenditure level in 2015
1 2014 figures
$3.0 B
Analyst Projected Dividend Coverage
Analyst Estimates 1
($ millions) 2015 2016 2017 2018
Free Cash Flow 2 $2,559 $1,365 $1,727 $1,738 Cash Dividends Paid 3 1,207 1,190 1,182 1,181 Dividend Payout Ratio (with deferral) 4 47% 87% 68% 68% Dividend Payout Ratio (without deferral) 5 53% 71% 68% 68%
68
1 Analyst estimates derived from financial models received from 12 sell-side analysts as of June 1, 2015 2 Free cash flow is defined as operating cash flow less cash paid for taxes, interest, and capital expenditures, along with other income (CTL-defined) 3 Cash dividends calculated as weighted average shares outstanding from analyst models multiplied by $2.16 per share current annual dividend rate 4 Dividend payout ratio calculated as projected cash dividends (assuming current rates) divided by projected free cash flow including deferral of $300 million from 2015 to 2016. 5 Dividend payout ratio calculated as projected cash dividends (assuming current rates) divided by projected free cash flow excluding deferral of $300 million from 2015 to 2016.
0%
20%
40%
60%
80%
100%
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2015 2016 2017 2018
Divid
end
Payo
ut R
atio
(Lin
e)
Estim
ated
FCF
(Col
umn)
Liability Management
69
• Upcoming debt maturities are manageable • Actions over the past few years have extended our weighted average maturity curve to
approximately 15 years with average coupon of 6.658% • $7.4 billion, or 36% of total debt, held at Qwest Corporation level which currently holds
Investment Grade rating; $3.4 billion in long-dated retail bonds with maturity of 2051 and beyond 1 Leverage ratio calculated as net debt divided by trailing twelve months operating cash flow.
-
200
400
600
800
1,000
1,200
1,400
1,600
2015 2016 2017 2018 2019 2020
$ milli
ons
Debt Maturities Qwest Corp
All Other
2.91x 2.90x
1.00x
1.50x
2.00x
2.50x
3.00x
3.50x
2014 1Q15
Leverage1
• Eligible to receive up to $514 million of annual pre-tax funding
• Build-out requirements include: – Target build-out speed of 10 Mbps downstream / 1 Mbps upstream – No less than 7 years of funding – Designed to reach approximately 1.2 million living units
• Currently analyzing our cost to build to these rural high-cost markets
• Continue to evaluate accounting treatment for funds • Plan to announce participation level in third quarter
Summary of CAF II
70
Financial Review1
• Investing to drive long-term growth and shareholder value
• Maintaining strong balance sheet • Continuing to support dividend payouts and
current share repurchase program
71
1 For additional information, see our periodic reports filed with the U.S. Securities and Exchange Commission
Q & A
Closing Remarks
G l e n P o s t C h i e f E x e c u t i v e O f f i c e r & P r e s i d e n t