CenturyLink, Inc. (CTL)

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CenturyTel, Inc. (CTL)

Q1 2009 Earnings Call

April 30, 2009 11:30 am ET

Executives

Glen Post - Chairman and CEO

Stewart Ewing - EVP and CFO

Karen Puckett - President and COO

Analysts

Batya Levi - UBS

Jason Armstrong - Goldman Sachs

Simon Flannery - Morgan Stanley

Chris King - Stifel Nicolaus

Chris Larsen - Piper Jaffray

Todd Rethemeier - Hudson Square

Donna Jaegers - D.A. Davidson

Frank Louthan - Raymond James

Tom Seitz - Barclays

Presentation

Operator

Good day, ladies and gentlemen, and welcome to CenturyTel's first quarter 2009 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. If anyone should require assistance during the conference call press star then zero on your touchtone telephone. 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 Relation. Mr. Davis, you may begin.

Tony Davis

Good morning, everyone, and welcome to our call today to discuss CenturyTel's first quarter 2009 earnings results released earlier this morning. During today's call, we will refer to certain non-GAAP financial measures; we’ve reconciled these measures to GAAP figures in our earnings release, which is available on our website at www.centurytel.com. Your host for today's call is Glen Post, Chairman and Chief Executive Officer of CenturyTel. Joining Glen on our tall 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 selected information regarding 2009 and the pending EMBARQ transaction and other outlooks in our business. So we ask that you please review our Safe Harbor language found in our press release and in our SEC filings, which describe factors that could cause our actual results to differ materially from those projected by us in our forward-looking statements. Our call today will be accessible for telephone replay through May 6, 2009 and accessible for webcast replay through May 20, 2009.

For anyone listening to a taped 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 April 30, 2009, and should be considered valid as of this date regardless of the date listened to or reviewed. And at this time, I will turn the call over to your host today, Glen Post. Glen?

Glen Post

Thank you, Tony, and we appreciate you joining us today as we discuss CenturyTel's first quarter 2009 operating results and our guidance for second quarter, 2009. Diluted earnings per share excluding non-recurring items of $0.82 for quarter are a penny ahead of the upper-end of our previous guidance, and $0.02 higher than the first call consensus of $0.80 per share.

Operating revenues excluding non-recurring items for the quarter were $635.4 million, which was toward the upper-end of our previous revenue guidance of $628 million, to $638 million. Our revenue increases during the quarter approximately $11 million resulted primarily from growth associated with our 13.5% increase in high-speed internet customers. These increases were more than offset by revenue declines of approximately $24 million primarily attributable to previously anticipated access line losses and lower access revenues.

We continue to see strong demand for broadband services during the fourth quarter, as we achieved growth and data revenues of 10.4% over the first quarter of 2008. This increase is primarily driven by the addition of approximately 79,000 high-speed internet subscribers during the last 12 months. We also generated strong free cash flow of $170 million during the first quarter. We continue to see steady demand for high-speed internet product as we added over 24,000 net subscribers during the first quarter, representing a 3.8%; sequential growth in broadband customers and an 81% improvement over net additions in the fourth quarter of last year.

Additionally, our high-speed internet charges are at an all-time low, which is encouraging. We also ended the quarter with more than 665,000 high-speed internet subscribers or over 38% penetration of DSL enabled lines and almost 34% penetration of total lines. We experienced access line losses of 31,700 during the quarter, resulting at 6.7% line loss over the last 12 months.

Access line losses continue to be a concern. However, we are seeing an increased network activity, which up over 1% due to the success of recent marketing initiatives. We also continue to experience solid demand for our satellite video product, as we added over 17,800 customers during the first quarter, and ended the quarter with more than 130,000 satellite video subscribers. We ended the first quarter with 9.5% satellite video penetration of primary residential lines up from 4.9% just a year ago.

Our IPTV offering in Columbia and La Crosse also continued to drive solid customer growth and have a very positive impact on customer loyalty. Before turning the call over to Stewart, I want to make a few comments regarding the pending transaction with EMBARQ. First, I want to clarify our expectations regarding dividends. As we stated at the time of the EMBARQ announcement, we expect both companies to continue to pay their respective quarterly cash dividends on common stock through the merger close.

Earlier this year, CenturyTel and EMBARQ agreed to set the same record date for our respective first and second quarter 2009 common stock dividends. We also anticipate continuing CenturyTel's current quarterly cash dividend of $0.70 or $2.80 on an annualized basis after the merger closes. Concerning our integration efforts, as know we received a Hart-Scott-Rodino approval in late November and shareholders of both companies overwhelmingly approved the merger on January 27.

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