Greetings and welcome to CenturyLink's Fourth Quarter and Full Year 2019 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] And as a reminder, this conference is being recorded today, Wednesday, February 12, 2020.

It is now my pleasure to turn the conference over to Valerie Finberg, Vice President, Investor Relations. Please, go ahead. .

Thank you, France. Good afternoon, everyone and thank you for joining us for the CenturyLink fourth quarter 2019 earnings call. Joining me on the call today are Jeff Storey, President and Chief Executive Officer; and Neel Dev, Executive Vice President and Chief Financial Officer.

Before we begin, I'd like to call your attention to our Safe Harbor statement on slide two of our 4Q 2019 presentation, which notes that this conference call may include forward-looking statements, subject to certain risks and uncertainties.

In addition, we will refer to certain non-GAAP financial measures, which are reconciled to the most comparable GAAP measures. Those reconciliations can be found in the earnings press release or the supplemental schedules on the CenturyLink website.

Additionally, please note that certain metrics discussed on the call today exclude transformation costs and other special items, as noted in our earnings materials. With that, I'll turn the call over to Jeff. .

Extending our fiber footprint in areas that make economic sense and ensuring we grow where we invest; improving our systems tools and capabilities to create a simpler digital experience for our customers and to drive efficiencies to maximize cash flow from the declining parts of the business; and completing the CAF II build out.

In addition, we like the framework we've seen over the last few weeks with the RDOF program and believe the FCC has done an excellent job in designing a program to enable access to underserved areas. We believe RDOF is a natural fit with CenturyLink's network and the robust fiber network capillarity from our CAF II position.

We will pursue participation in RDOF, where the economics make sense for us.

While we remain an enterprise-centric company, we see clear value in what the Consumer business contributes to CenturyLink, by growing where we invest, driving efficiencies into our operating model and maximizing the contribution from the declining parts of consumer, we believe we can effectively manage EBITDA and cash flow contributions from this business.

And I'd also like to update you on a couple of other consumer-related items. First, you may have seen several announcements at the end of 2019 of settlements with various attorneys general regarding the consumer billing practices lawsuits. As of last week, we've reached settlements with AGs in five states.

In the fourth quarter, we took a $50 million charge for consumer-related AG and litigation matters. We continue to maintain our marketing and billing practices. We're properly disclosed and consistent with widely used industry practices but we also saw the benefit of settling these cases to enable us to focus on continuing to improve the business.

We still have some ongoing litigation related to the consumer business but we've made significant steps towards putting these matters behind us. I'd also like to give you an update on our strategic review of the Consumer business. During our review, we had no preconceived notions or predetermined outcomes in mind. There were no sacred cows.

Our goal was to scrutinize the business unit and determine how we could maximize shareholder value over the long-term. To that end, we have engaged with parties that are interested in exploring the purchase of all or parts of the business. We also took a look at what we could do -- be doing better internally to drive additional value.

In this aspect, we confirmed several things we already knew. First, we can continue to improve efficiency in the business. By simplifying our product offers and moving to a more digital experience we believe, we can improve efficiency as legacy revenues decline. Second, we can more effectively penetrate our fiber fed areas.

We still have opportunities within our existing fiber footprint to drive higher penetration rates and are implementing new initiatives to do so. Third, that we should continue to expand our addressable market through further fiber deployment. We win where we invest in fiber fed neighborhoods.

Fiber is a superior solution and we have demonstrated the ability to take share where we invest. As I mentioned, we are focusing on fiber as our preferred access solution in the consumer broadband market.

We remain open to all value-enhancing opportunities and continue to engage with parties interested in transactions or partnership opportunities as we always would.

But our focus right now is to continue to expand our fiber footprint, improve the operating model and extract costs from the business, which creates the best long-term value for the company and for our shareholders under any scenario.

I will tell you that the team here sees the value in our network, platforms, products and our approach to customers and we are excited about 2020.

We hear from our customers that our willingness to invest, our differentiated service experience and our solutions capabilities make a difference in their ability to achieve their goals for 2020 and beyond.

We continue to invest in our fiber network to drive greater revenue from our existing fiber infrastructure and invest in simplification and automation of our business both to take out costs and to improve the customer experience. As we execute on that strategy, we believe we will drive sustainable long-term growth and free cash flow per share.

With that, I'll now turn the call over to Neel to provide an update on our detailed financial results and the outlook for 2020.

Neel?.

Thank you, Jeff, and good afternoon, everyone. Before we get into the details of the fourth quarter, I wanted to provide a brief overview of our financial performance for the year, which can be found on slide 7. 2019 was a solid year for CenturyLink.

We met all our financial outlook metrics, specifically adjusted EBITDA of $9.070 billion and free cash flow of $3.276 billion. For the full year 2019, we expanded our adjusted EBITDA margin to 40.5%, compared to 38.6% for full year 2018, which represents a more than 500 basis point improvement since the Level 3 transaction.

Over the course of 2019 through a series of capital market transactions, we reduced net debt by approximately $2 billion delevering to 3.7 times this quarter from four times for the same period last year and 4.3 times at the close of the Level 3 transaction.

Over the last 12 months, we have also refinanced approximately $17 billion in long-term debt, reducing interest expense and extending maturities. And for the full year 2019, we achieved approximately $430 million of annualized run rate adjusted EBITDA transformation savings. Moving to revenue.

For the full year 2019, total revenue declined 4.4% to $22.4 billion. If you look at the year-over-year revenue decline for 2019, we estimate that about 25% to 30% of that decline was driven by actions we took to focus on profitable revenue in the failed sales leaseback accounting change that we described on our fourth quarter 2018 earnings call.

Turning to slide eight. Total revenue in the fourth quarter declined 3.6% to $5.57 billion. This compares to declines of 3.6% in the third quarter, 5.5% in the second quarter and 5% in the first quarter. As a reminder, in the fourth quarter of 2018, we highlighted that we had about $40 million in non-recurring revenue benefit.

USF is up about the same amount this year compared to the fourth quarter of 2018. So as you look at the year-over-year percentage change, it is representative of the underlying business. Sequentially, total revenue decreased 0.6%, compared to an increase of 0.5% in the third quarter and a decline of 1.2% in the second quarter.

Also, please keep in mind, the fourth quarter is typically stronger from a seasonality perspective, while the first quarter is when we usually see contract rerates, primarily for our largest customers. We also expect a decrease in USF rates by approximately 15% in the first quarter of 2020 relative to the rates in the fourth quarter of 2019.

As a reminder, this is pass-through revenue we collect for the FCC. Moving now to our business segments. On a year-over-year basis, international and global accounts or IGAM revenue decreased 2.1%. On a constant currency basis IGAM declined 1.1%. On a sequential basis IGAM grew 0.6% compared to a decline of 0.3% last quarter.

Moving to our Enterprise segment. On both a year-over-year and sequential basis, Enterprise revenue was roughly flat. We achieved our objective of improving the revenue trajectory for IGAM and Enterprise.

Currency was a headwind, but adjusting for currency, which primarily impacts IGAM, and excluding USF, both IGAM and Enterprise grew revenue for the second half of the year compared to the first half. SMB revenue decreased 3.3% year-over-year. This compares to our third quarter 2019 year-over-year decline of 6.5%.

Sequentially, revenue declined 0.4% compared to a decline of 0.3% last quarter. Wholesale revenue decreased 7.4% year-over-year. Sequentially we saw a decline of 3% compared to an increase of 0.7% last quarter. As a reminder, we had a benefit of $15 million from a carrier settlement in the third quarter of 2019.

Excluding that carrier settlement, Wholesale would have declined 1.6% sequentially in the fourth quarter. Turning to Consumer on Slide 9. For the fourth quarter of 2019, revenue declined 5.5% year-over-year.

Sequentially, revenue declined 0.9%, which compares to declines of 1.3% in the third quarter, 1.7% in the second quarter and 1.8% in the first quarter. Broadband revenue for the fourth quarter 2019 grew 2.1% year-over-year, which compares to growth of 2.3% last quarter. In the fourth quarter we saw a net loss of 36,000 total broadband subs.

In speeds of 100 meg and above, we added 53,000 subs. Turning to adjusted EBITDA on Slide 10. For the fourth quarter 2019, adjusted EBITDA was $2.278 billion compared to $2.301 billion from the year-ago quarter. For the full year 2019, adjusted EBITDA was $9.070 billion, which compares to $9.040 billion for 2018.

Despite more than $1 billion in revenue loss year-over-year, we achieved our objective of growing full year adjusted EBITDA, focusing on profitable revenue and our cost transformation efforts. For the fourth quarter 2019, capital expenditures were $940 million. For 2019, capital expenditures were $3.628 billion.

We ramped up our CapEx spend by more than $450 million relative to 2018, as we focused on improving revenue trajectory. In the fourth quarter of 2019, the company generated free cash flow of $1.022 billion. For the full year 2019, we generated free cash flow of $3.276 billion. Turning to capital markets activity on Slide 11.

On our fourth quarter 2018 earnings call, we outlined a three-year plan to get to a target range of 2.75 to 3.25 times net debt to adjusted EBITDA. Over the course of 2019, we have been very active in the capital markets. And through a series of transactions, we decreased net debt by approximately $2 billion.

Additionally, since announcing our deleveraging plan last February, we have refinanced $17 billion or roughly half our debt. Our improved credit profile and constructive market conditions have enabled us to reduce interest expense and extend maturities. Turning to our maturity profile on Slide 12.

At the end of 2018 for the five-year period from 2020 through 2025, we had approximately $26 billion of debt maturing. As a result of our deleveraging and refinancing activities, we have reduced maturities by over $12 billion for the same period. For the full year 2020, we expect net cash interest expense in the range of $1.75 billion to $1.8 billion.

The midpoint of this range implies net cash interest expense savings of more than $200 million compared to 2019 and more than $350 million compared to 2018. Our net debt to adjusted EBITDA leverage ratio is now at 3.7 times and we remain highly focused on getting to our 2.75 to 3. 25 net debt to adjusted EBITDA leverage target.

As the end of the fourth quarter, we have achieved approximately $430 million of annualized run rate adjusted EBITDA transformation savings. These savings are part of our three-year transformation plan that we outlined last year. Overall, we continue to expect to achieve the $800 million to $1 billion in annualized run rate adjusted EBITDA savings.

Integration and transformation costs and special items incurred in the fourth quarter 2019 impacted adjusted EBITDA by $173 million and free cash flow by $33 million. Turning to slide 13 and our outlook for the full year 2020. Please note, all outlook measures exclude integration and transformation expenses.

For the full year 2020, we expect adjusted EBITDA of $9 billion to $9.2 billion and free cash flow of $3.1 billion to $3.4 billion. We expect capital expenditures in the range of $3.6 billion to $3.9 billion.

The slight increase in our outlook relative to last year is primarily driven by increased fiber deployments for our enterprise, federal and consumer customers. In terms of notable items on working capital, we expect cash payments for other post-employment benefits or OPEB of approximately $200 million.

As a reminder, our fourth quarter has typically high working capital use, driven by timing of bonus payments and other prepaid expenses. Also important to note, our free cash flow guidance does not include any discretionary contributions to the pension fund. For 2020, we do not have any required contributions.

In summary, we concluded 2019 with strong execution on several fronts. We improved the revenue trajectory for the overall business. We delivered on EBITDA growth and margin expansion as we successfully balanced investing in our growth products, investing in customer experience and appropriately harvesting our declining products.

In addition to interest expense savings, our deleveraging activities and capital market transactions significantly strengthened our balance sheet. With our continued investments in the business, our focus on profitable growth and ongoing cost transformation initiatives, we are well-positioned for 2020. With that I'll hand it back over to Jeff..

Thanks Neel. It's time to open it up for questions.

France, would you explain the process?.

Thank you. [Operator Instructions] Going to our first question from the line of Simon Flannery with Morgan Stanley. .

Hi. This is Alexis Roper on for Simon.

I wanted to ask, could you talk a little bit about the impacts from the large contract wins you've been announcing and how they're expected to kind of ramp over time?.

Yeah. In the terms, but your last part of the question is exactly right. They ramp over time, especially with the federal government. These are -- we're awarded multiyear contracts that anticipate future services. We get an overall task order for that.

But then we receive individual orders along the way and we'll get them spread out over time and they'll turn up over time. Some of the things are more urgent. So, for example, on the 2020 census that has a time line associated with it. But, in general, they ramp just over a fair amount of time. .

Great. And if I could ask another question.

Could you talk a little bit about churn risk or opportunities from the pending wireless merger or potential DISH network build?.

Sure. If DISH network builds out, then we look at that as a great opportunity for us to go win a new customer and help them in support of their 5G rollout or their broadband network wireless rollout.

If you look at T-Mobile and Sprint, if that ultimately goes through, which, it looks like it will, but if it all goes through we have great relationships with both companies. We're a key provider to them in both companies. There's always upside and downside.

And their expansion into 5G and expansion into other markets represents an upside, but we'll have to just look at it over time. We've gotten really good at industry consolidation and winning business with our wholesale partners as they go out and buy other companies.

And so, we just look at it as an opportunity to define where we're the right solution for those providers..

And just to add to the contract question, I think, just to provide a little bit of additional color. These contracts usually have a very long tail. So from a return perspective, we've seen they're very good for us, but it takes a while to ramp.

So if you think about the contracts in 2020, the impact will be, from a revenue perspective, will be in the low tens of millions in year-one of these contracts..

Thank you very much..

Our next question is from the line of Tim Horan with Oppenheimer & Company. Please go ahead..

Thanks, guys and congratulations on a great year. Can you talk a little bit about the booking trends and a little color around that? And maybe related to that, just the demand for fiber, broadly speaking. We're seeing some incredible build outs by a lot of these hyperscale companies and others.

Are you able to leverage a lot of your existing fiber with some of the demand out there and same for existing conduits or any other infrastructure you have? Thanks..

Yeah. I'll take the second half of the question first. We see great demand for our fiber-based services.

Part of the reason that led us to invest in the ultra-low loss overbuild is demand from hyperscalers and others who need really, really high capacities over the fiber and where traditional fibers just couldn't do it as efficiently as the new low loss fiber.

And so we continue to work with them and to partner within them in network builds but also providing them solutions. And we think that's a great part of our business. From a conduit perspective, we sell conduit from time-to-time or least conduit from time-to-time but it's not a big part of the overall business..

And on the – on your question Tim, on the booking trends. Fourth quarter overall was the best sales quarter for us this year, largely driven by iGAM and Enterprise.

But I also do want to caution, usually fourth quarter tends to be a light quarter for sales but this quarter was a very good quarter of sales but driven by more complex larger deals, which take a while to install. So we're not going to see the benefit in the first quarter but more so coming in in the second, third and fourth quarter of this year..

And are you seeing a competitive intensity in enterprise increase or decrease or any change in competitive intensity?.

No. We've got great competitors out there that work really hard to provide for the customers. We think we have a better solution. And we think we execute better. We think our local model for enterprise customers is really a key differentiator for us.

We think our high-touch model for iGAM customers and our global footprint is really a differentiator for us. But ultimately, we've got strong competitors and the competitive intensity is high every day. It's up to us to execute. And I haven't seen anybody that if we execute well that beats us. So it's really us that matters.

Our performance is what determines success or not..

Thank you..

Sure..

Our next question from the line of Batya Levi with UBS. Please go ahead..

Great. Thank you. Couple of questions. First you talked about potential impact of rerating customers in the first quarter.

Is that on the Wholesale side? Or is there some component on the Enterprise? Is there a way of quantifying potentially that impact? And second, can you talk about what your guidance assumes in terms of incremental synergy achievement this year? And then maybe finally, cash taxes have remained really low.

When do you expect that to ramp?.

Neel?.

I was just making sure I get all parts of that. So Batya on the rerate, that was just a general statement in terms of seasonality. We see that every year, fourth quarter tends to be strong and then first quarter we do have some pressures from rerates from our larger customers.

So primarily, it's not just wholesale but also iGAM and the top end of enterprise, so there are just some seasonal weakness in the first quarter. In terms of your question on savings I think linear is still a good assumption. We achieved $430 million. And we're still good with the $800 million to $1 billion over three years.

We're going to be very milestone based. We have good line of sight and that's all factored into our EBITDA guidance range. In terms of cash taxes, we do have offsets there and it's been running lower than $100 million. And as we look at our NOLs, we're good for the next few years..

Okay. Thank you..

Our next question from the line of Philip Cusick with JPMorgan. Please proceed..

Hey, guys. Thanks. Jeff that was helpful on the consumer side. Can we assume that your strategic view is sort of over? And can you expand on the potential to as you said sell or partner for parts of the business? It sounds like you engaged, but is the focus now more internal? Or do those discussions continue? Thanks..

No. Thank you, Phil. The discussions are continuing. But the strategic review is over. And the strategic review says here's how we should be investing in the business and here's how -- where we should be harvesting and all of those types of things.

And regardless of whatever scenario, whether we maintain it all as a part of CenturyLink, we sell part of it or we partner with somebody those things that we're doing now drives the best long-term shareholder value regardless of whatever scenario works out. And so those are the things that we are focused on.

So I would say that the strategic review is over, but we are continuing and actively engaged with partners and parties that might be interested in the transaction and we'll continue to stay engaged with them and figure out if there's some another way to create additional shareholder value..

Okay.

And can you help us quantify the current count of home fiber broadband available? And how big you think that could be in your footprint? And anything you can do to reduce the cost of deploying that to homes over time?.

Yeah. So I think we have about two million fiber homes activated today, fiber addressable homes today. We continue to expand that and we'll continue to expand it in the coming years. I don't have a specific number for how big that can be, but we're not nearing the cap of it. We've got a lot of room to continue to grow.

And even within that two million homes, we've got a lot of room to grow our penetration rate. We think we can do a much better job of driving the penetration rate within that two million homes. We think we can expand the addressable market by building out to more homes pretty aggressively over the coming years.

And we don't see any near-term cap in our ability to expand our addressable footprint.

So Neel do you want to add?.

Yeah. So I think just the only thing I'd highlight is Phil, a big part in call it 20%, 25% of that footprint, we added over the last 18 months to a couple of years or so. And so part of the reason the penetration there is still ramping and we like the penetration ramp is because some of that is relatively new deployment.

And so we still see a lot of opportunity in terms of adding homes with our micro targeting strategy where the cost is low and they look good from a return perspective. .

And if you think about it, I mean doubling our 100 meg subscribers in the -- over the course of the last year and almost tripling our one gig subscribers. Our consumer team is doing a good job at figuring out how to -- where do we build fiber and how do we communicate with our customers in a way to give them the products and services that they want.

And so they're -- we're only going to get better at that. And they've got a lot of initiatives to drive the penetration rates up..

And if I can -- sorry and I know I'm taking a lot here, but I'm getting some questions coming in.

Can you just help us with the types of conversations you're having? I mean, are there books out on your consumer business all or part of it? Or is this, sort of, gradual conversations that may or may not develop over time that we shouldn't think are an urgency behind them?.

We've been very transparent with a number of parties. We've worked closely with them.

We have -- of course, have NDAs and other things in place, so I'm not going to name names, but we have worked very closely to give people true insight to our consumer business, so that they can evaluate, if there are opportunities for us to partner together or to do a transaction.

The character of those transactions are all across the board and the types of companies that we've talked to are a little bit across the board too. So whether it's a look at a particular state or look at all of the consumer business, or some sort of joint venture, I mean, we're open to all of those various things..

Thanks very much..

Our next question from the line of David Barden with Bank of America. Please proceed..

Hi, guys. Thanks for taking the questions. I guess, the first one, Neel, just as we kind of look at the cash flow guidance range. It seems like there's some nice tailwinds from interest savings, tailwinds from maybe a pension contribution savings.

So, I guess, I wonder, is the high and the low end, is the difference there the CapEx spending, given that the midpoint of the guidance is kind of pretty much consistent at EBITDA with what we did in 2019? I guess, kind of, where are we -- what will land us in the higher or lower ends of those ranges and the moving parts there would be helpful.

And then, just the second piece on the consumer broadband side, the -- could you kind of talk a little bit about the ARPU difference between the lower speed that you're losing and the higher speeds that you're gaining? And how the cadence of price hikes will kind of feather in over the course of 2020? Thanks..

So, David, I think on your guidance range for cash flow, I'll try to see if I can simplify that. I think its capital and working capital. So if you start with EBITDA, less CapEx, net cash interest and our guidance for cash taxes and kind of do the math on the implied working capital, it's roughly $200 million.

And -- which is largely our OPEB cash spend, which is in addition to what kind of flows through EBITDA. So that's the $200 million use of working capital. And if you think about our trade working capital, DSOs and DPOs, just a day difference there could swing working capital by $100 million or so. And then there is capital, in general.

So it's not perfect, but that's kind of the rough math in terms of the working capital -- the overall free cash flow range..

Got it..

And on ARPU..

In terms of ARPU, I think, in general, as we are moving customers up from a bandwidth standpoint, especially into gig services, the ARPU is significantly higher. And so, that is something that we are continuing to work on. And the churn rates are better. So that's going to be an ongoing effort for us. .

Okay. Great. Thanks guys..

Our next question is from the line of Nick Del Deo with the MoffettNathanson. Please go ahead..

Hi. Thanks for taking my questions.

To what degree is your higher expected CapEx in the coming year helping to lower your OpEx? And on the flip side, do any of the initiatives you're undertaking like Edge come with a measurable OpEx drag?.

Yes. So, first of all, I appreciate the fact that -- I mean, the question is, it hits right to the point. We do invest capital to reduce OpEx. That is a significant part of our strategy. We invest capital to ultimately drive free cash flow per share, but on a remediate basis improve EBITDA.

And so whether that comes from revenue or comes from operational efficiencies, we think that's a really good use of our capital.

I don't have an exact percentage but there is a fair amount that we use to drive the operational efficiencies, the digitalization of our business, the tools and the processes that we use with our customers to drive out costs and drive up the customer experience.

Yes typically, Nick I think like Jeff has mentioned several times I think when we invest it's a combination of improving margin and also driving revenue.

So just give you a simple example like when you're adding buildings to the network, there is off-net on-net savings that we're saving in terms of network expense and then there's other savings in terms of operation side and how we can troubleshoot, et cetera.

So there's a long list of things that drives efficiencies from our capital investment, similarly on the back-office systems and processes as well..

But I wouldn't – on the flip side, do any of your initiatives come with a measurable upfront OpEx drag?.

Yes, I mean they do. There's nothing that is a massive OpEx drag. But there is. If you're going to launch a business like Edge computing, you're going to have OpEx that pre-runs revenue. And so yes there is some. It's not material to our business. I don't see it as a major overhang on this or something that we have to work really hard to overcome.

But you're certainly right that there is operational costs that sometimes advanced revenues..

Okay. And then Jeff you've described the vision for the SMB platform as being high-volume and frictionless, I think the words you used.

How far away are you from having that platform sort of in place and generating new business?.

We're getting closer every day, which is maybe not a very fulfilling answer. But it's a complicated thing. So let me tell you some of the stuff that we're doing that indicates that we're getting there.

We're adding new buildings continually and those new buildings give us an addressable market with those customers that make it possible for us to sell to them in the first place off-net, not being a very good solution for that type of business, on-net really driving it. So we're doing that.

We're also deploying equipment in those buildings that make it easy for our operations team to turn up services on a very quick basis because that's what we think we need in that – for those types of customers. Then we're also introducing products like UCaaS and we are very actively rolling out SD-WAN. We're active with various different platforms.

We're actively rolling out UCaaS and making sure that we have the products and services. All of those things go into the digital environment that we're looking for. We're also updating our back office support so to speak. I want to be more front office than back office.

Some of those take a little bit longer but we have a number of initiatives that we think are going to help us drive the growth out of that business and really create an environment and a product set that meet the needs of those customers..

Got it. Thanks, guys..

Sure..

Our next question from the line of Brett Feldman with Goldman Sachs. Please proceed..

Thanks. So you've had a couple of quarters here. You talked about this earlier, a very strong bookings in the enterprise segment it sounds like 4Q was so strong. We probably should not be run rating that into the early part of this year.

When we speak to investors about your business, they seem to think of you as selling into a very hard end market with some secular precedent.

So I was hoping you can maybe just give us a little more context around, why the bookings have improved? How much of that is, is stuff you think you're doing right? Maybe how much of it is a misunderstanding of the growth opportunities available to your enterprise business in this market? And maybe just some general context around the extent, to which you think some of this, is durable even if we're not necessarily extrapolating the 4Q performance? Thank you..

Yeah. So let me talk about why I think we win and I got a list of things that go into it, it's not one thing that causes us to win. But it starts with -- we have what I believe is the world's best fiber network. We're increasing our connectivity in the on-net locations every single day. We are connected with every cloud provider across the U.S.

but really across the world. And we have great connectivity into them.

We're creating solutions that allow our customers to manage their infrastructure more efficiently, things like dynamic connections where they can scale bandwidth up and down redirect it from one provider to another, from one cloud provider to another cloud provider if they want, things like cloud application management where they can look a layer higher and look at their cloud applications and how are they running.

And so I think it starts with the connectivity, the fiber base, the high speed, the low-latency connectivity, coupled with embedded security to make it a reliable and safe environment for them, coupled with our network-related services to make it easier for our customers to manage, coupled with a great team.

And I talked about our federal team and how great I think they are. But we also have great enterprise and GAM teams in small and medium business teams. We have a great team going out and driving the success.

So I think that our success over time in the short-term and in the long-term comes down to our ability to leverage our network with great products and make sure that we're positioning them in front of our customers properly through great sales and we're executing on delivering them through a great operations group.

And so I think it comes down to we win, if we execute with the network and the services we have..

Thanks.

Just as follow-up, so do you think that the end market opportunity would allow you if you keep executing this way to continue to grow your bookings? I think that's the debate a lot of investors have is it a growing pie? Is it a shrinking pie? Are you just taking a bigger part of it?.

I understand the reason for the confusion, because it is a growing pie in some parts and a shrinking pie in other parts. And sometimes we get so focused on the shrinking pie, we're not paying attention to the growing pie. And that's what I think we also do differently. One of the reasons I think that we're in a better position as we are one thing.

We are a fiber provider. We are mostly enterprise focused, but we are a fiber provider. And so we look at how do we leverage all of those capabilities. So for us, I think that yes we have parts of our business that are declining. But we face the truth on those. We recognize them for what they are.

We manage them for contribution while we have them and we lean into the growth of the things that we think will grow like Edge compute, like the other cloud capabilities that I've talked about, like pure bandwidth and transmission rates that are going to continue to go up. And so, I think the -- I get the reason the confusion.

It's a complicated business. But, overall, I see better opportunities than that..

And, Brett, I think one of the things to add to that. I think, it's -- Jeff kind of mentioned it several times. I think, if you think about everything we see in terms of emerging trends, it's all about more bandwidth and less latency. And that makes fiber more and more valuable.

And I think what clouds the picture, like Jeff said, are the legacy services. So all the fiber-based services are growing. And the other thing that we do is, we have a lot of focus.

So compared to a lot of our larger competitors that have – are not as focused on the enterprise business like we are and we are investing in our customers and we're building out to a lot of their locations and enabling the transitions. .

And if you – when an investor asks you that, ask them about their business and do they need more bandwidth or less bandwidth over time.

Do they need more locations or fewer locations over time? Do they need more control of their applications or less control of their applications? They need more security or less security? If you think about the fundamental trends that drive our customers, they are good for us and we see opportunities across all of those..

Appreciate the color. Thank you..

Sure. Thank you, Brett. And France, I think we have time for one last question..

Very well. Our last question is from the line of Michael McCormack with Guggenheim. Please proceed..

Hi, guys. Thanks. Maybe just a quick comment on the CapEx guidance. What's driving the variance there? What would cause you to be at one end or the other of it? And then, secondly, I guess, on the consumer business. Will there be any incentives to roll fiber faster to some of those areas where you're seeing the most loss on the ISP data set? Thanks..

So, generally, our approach is very success-based. And so, that's one of the reasons for the range. So we want to make sure that if we're deploying fiber, we're deploying capacity, we're keeping up with the penetration and selling into those buildings before we deploy more.

So that's one of the drivers, just keeping the capital more aligned with revenue performance. And then the two, overall, driver is really investing in more fiber in both in enterprise and consumer..

And then on the -- are there things that drive us into one area more than another. Yes, there are. It's a complicated formula, so to speak. But it includes things like, how much does it cost us to build, what's the permitting time frame, what are the customer penetrations, what types of customers do we see in there.

So there are a lot of factors that go into it. And we've got a very smart operations research team within our consumer business that is working on that every day to make sure that not only are we capturing and targeting all of the homes that we should be targeting, but that we're doing it in the right priority..

Great. Thanks..

With that, thank you very much Mike. Appreciate the question. Before we end today's call, I'd like to summarize a few key thoughts based on our progress in 2019 and the outlook for 2020. We are executing well on the capital allocation plan we announced last year.

We are investing more in the business to drive growth and positioning our fiber network as the platform for delivering the solutions our customers need. We made excellent progress on our objective to reduce leverage, extend maturities and lower interest expense.

And as you saw, our interest expense for 2020 is more than $300 million lower than we paid in 2018 and we still returned over $1 billion in the form of a dividend to our shareholders in 2019.

For our iGAM and Enterprise business units, we met our objective for growth in the second half of 2019 compared to the first half of 2019 and we're optimistic about 2020.

We had a solid start in our first year with our transformation initiatives, which not only improve the customer experience and increased efficiency throughout the organization, they reduce our cost to operate the business. We delivered $430 million in annualized run rate savings as of the end of 2019.

We operate what we believe to be the world's best fiber network and we will continue to focus our capital deployment on extending our fiber footprint and providing innovative solutions over that network to all of our customers.

All of these initiatives and accomplishments are aligned with our overall guiding principle to grow free cash flow per share. Thank you for joining today's call and your interest in CenturyLink. France, that concludes the call..

Thank you. We would like to thank everyone for your participation and for using the CenturyLink conferencing service today. This does conclude the conference call. We ask that you please disconnect your lines. Have a great day, everyone..