CenturyLink, Inc. (CTL)

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CenturyTel, Inc. (CTL)

Q4 2008 Earnings Call Transcript

February 19, 2009 11:35 am ET

Executives

Tony Davis – VP, IR

Glen Post – Chairman & CEO

Stewart Ewing – EVP & CFO

Karen Puckett – President & COO

Analysts

Simon Flannery – Morgan Stanley

Batya Levi – UBS

Frank Louthan – Raymond James

Michael Rollins – Citigroup

Christopher King – Stifel Nicolaus

Don Yaeger [ph]

Nicholas Pentiotopolous [ph]

Allan Bear [ph]

Presentation

Operator

Good day, ladies and gentlemen, and welcome to CenturyTel’s fourth quarter 2008 earnings conference call. At this time, all participants are on listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at that time. (Operator instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Tony Davis, Vice President of Investor Relations. Mr. Davis, you may begin.

Tony Davis

Thank you, Sayid. Good morning, everyone, and welcome to our call today to discuss CenturyTel’s fourth quarter 2008 earnings results released earlier this morning. During today’s call, we will refer to certain non-GAAP financial measures and we have reconciled those measures to GAAP figures in our earnings release, which is available on our Web site at www.centurytel.com.

Your host for today’s call is Glen Post, Chairman and Chief Executive Officer of CenturyTel. Joining Glen on our call today is Stewart Ewing, CenturyTel’s Executive Vice President and Chief Financial Officer. Also available during the call today is Karen Puckett, CenturyTel’s President and Chief Operating Officer.

We will be making certain forward-looking statements today, particularly as they pertain to guidance for first quarter and full year 2009, selected information regarding 2009, and the pending (inaudible) transaction, and other outlooks in our business. Please review our Safe Harbor Language found in our press release and in our SEC filings, which describes factors that could cause our actual results to differ materially from those projected by us and our forward-looking statements.

Our call today will be accessible for telephone replay though February 25th, 2009 and accessible for webcast replay through March 11, 2009. For anyone listening to the tape or webcast replay of this call or for anyone reviewing a written transcript of today’s call, please note that all information presented is current only as of today and should be considered valid only as of today regardless of the date listened to or reviewed.

At this time, I will turn the call over to your host today, Glen Post. Glen?

Glen Post

Thank you, Tony. Appreciate your joining us today as we discuss CenturyTel’s fourth quarter 2008 operating results and our guidance for our first quarter and full year 2009. Our diluted earnings per share, excluding non-recurring items was $0.88 for the quarter or $0.05 ahead of our previous guidance, and $0.06 ahead of first call consensus of $0.86. These increased earnings are driven by continuing reductions in our call structure along with the impacts of the 2008 income tax that reflects our effective 2008 income tax rate.

Operating revenues, excluding non-recurring items for the quarter was $642.6 million, which was then our previous revenue guidance $635 million to $645 million. Our revenue increases during the quarter, approximately $70 million, resulted primarily from gross associated with our 15.5% increase in high speed Internet customers. This increase has more than offset our revenue decline of approximately $32 million, primarily attributable to previously anticipated access line losses and lower access revenues.

We continue to see strong demand for broadband services during the quarter growth as with tier growth and beta revenues 9.5% for fourth quarter of 2007. This increase was primarily driven by an addition of more than 85,000 high speed Internet subscribers in the last 12 months.

We also generated strong free cash flow of $114 million during the fourth quarter for the full year 2008, which generated a record $584 million of free cash flow driven by 12% lower CapEx in 2008 versus 2007.

Our 2008 capital investment were primarily focused on maintenance or sustaining capital. Also, we were focused on increasing our broadband capabilities, our switch digital video operations, along with the expansion of our core fiber network. We added nearly 13,300 high speed Internet subscribers during the fourth quarter, which represents the 2.1% sequential growth in broadband customers.

We ended 2008 with more than 641,000 high speed Internet subscribers, 36.3% penetration of DSL enabled lines, and 32.1% penetration of total access lines. We’ve experienced taxes by loss of approximately 42,900 during the quarter, which equates to a full year 2008 loss of 6.4%. From the overall standpoint, 34.7% of our residential customers are served with one of our bundle offerings, compared to 31.5% a year ago.

We also continue to experience solid demand for our satellite video products and we added nearly 13,000 customers during fourth quarter. and ended 2008 with nearly 118,000 total satellite video subscribers, which was more than double the level of service a year ago. We believe we’ll continue to see solid demand in this service in the months ahead.

Before turning the call over to Stewart, I want to make a few comments regarding operations and our progress towards completing the pending transactions with (inaudible), our bundle offering – I’m sorry – we’ll continue to work towards the remaining Federal and state regulatory approval that’s necessary to close the transaction, and we expect to close the transaction in second quarter of the year. We are excited about this combination. It obviously creates a company of impressive scale. We expect to realize substantial synergy to both increase operational efficiencies and enhance our revenue opportunities. That transaction is expected to be free cash flow plus share accretive, and the first full year after closing of the combined company – will be financially strong with pro forma leverage or approximately 2.1 times operating cash flow including synergies on full run rate basis.

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