CenturyLink, Inc. (CTL)

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CenturyTel Inc. (CTL)

Q2 2009 Earnings Call

August 6, 2009 11:30 am ET

Executives

Tony Davis – Vice President Investor Relations

Glen Post – Chairman and Chief Executive Officer

Stewart Ewing – Executive Vice President and Chief Financial Officer

Karen Puckett – President and Chief Operating Officer

Analysts

Simon Flannery – Morgan Stanley

Jason Armstrong – Goldman Sachs

Batya Levi – UBS

David Barden – BAS-ML

Mike McCormack – JP Morgan

Frank Louthan – Raymond James

Michael Rollins – Citi

Chris King – Stifel Nicolaus & Co.

Chris Larsen – Piper Jaffray

Donna Jaegers – D.A. Davidson & Co.

Presentation

Operator

Good day ladies and gentlemen and welcome to CenturyLink's second quarter 2009 earnings conference call. (Operator Instructions). 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

Good morning everyone and welcome to our call today to discuss CenturyLink's second quarter 2009 earnings results released earlier this morning. Effective with the July 1, 2009 closing of the EMBARQ transaction, CenturyTel began operating under the trade name CenturyLink. Unless otherwise noted in the press release or in our remarks this morning, the second quarter results discussed in the press release and during this call relate solely to legacy CenturyTel, Inc. Also during today's call we will refer to certain non-GAAP financial measures. We have reconciled these measures to GAAP figures in our earnings release which is available on our Website at www.centurylink.com.

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

We will be making certain forward-looking statements today particularly as they pertain to guidance for the third quarter, second half and full-year 2009, selected information regarding 2009 and other outlooks in our business. 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 August 12, 2009 and accessible for Webcast replay through August 26, 2009. For anyone listening to a 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 August 6, 2009 and should be considered valid only as of this date regardless of the date listened to or reviews.

With that, at this time, I'll turn the call over to your host today, Glen Post.

Glen Post

Thank you for joining us today as we discuss CenturyTel's second quarter 2009 operating results and our guidance for the third quarter, second half 2009. Diluted earnings per share excluding nonrecurring items for – was $0.83 for the quarter or $0.02 ahead of the upper end of our previous guidance and $0.03 higher than the first call consensus of $0.80 per share.

Operating revenue excluding nonrecurring items for the quarter were $634.5 million in line with our previous revenue guidance of $628 million to $638 million. Revenue increase this year in the quarter approximately $17 million resulted primarily from growth associated with our 12.2% increase of high speed Internet customers.

These increases were more than offset by revenue declines of approximately $39 million primarily attributable to previously anticipated access line losses, lower universal service fund receipts and lower access revenues. We continue to see strong demand for broadband services during the second quarter as we achieved growth in data revenues of 9.1% over the second quarter 2008. This increase was primarily driven by the addition of approximately 74,000 high-speed Internet subscribers during the last 12 months.

We also generated solid free cash flow of $140 million during the second quarter and we continue to see steady demand for our high speed Internet products as we added over 16,000 net subscribers during the second quarter. Additionally our high speed Internet churn remained at 1.9% for the second quarter, consistent with the first quarter and our all-time low which remains, of course, encouraging.

We entered the quarter with more than 681,000 high speed Internet subscribers for over 42% penetration of our residential customer base and almost 35% penetration of total access lines. We experienced access line losses of 33,500 during the quarter, resulting in a 6.9% line loss over the last 12 months. We believe economic conditions represent the primary driver of line loss in our markets, especially in the business sector where we are seeing fewer business start-ups and more business closing than previous.

We have seen competitive line loss stabilized overall and we also continue to experience solid demand for our satellite video product as we added nearly 14,300 dish customers during the second quarter, and we ended the quarter with more than 139,000 dish satellite video subscribers. Our total video subscribers as a percentage of primary residential lines is 12% compared the 6.5% a year ago. Our IPTV products in Columbia, Missouri and Lacrosse, Wisconsin continue to drive solid customer growth and have a positive impact of course on customer loyalty.

We expect to roll-out IPTV in one of the smaller EMBARQ to the tune of third quarter. We continue to evaluate potential expansion of IPTV and other of the EMBARQ markets. Before turning the call over to Stewart I want to make a few comments regarding the completion of the transaction with EMBARQ. First we are pleased to have received all of the necessary regulatory approvals in a timely manner and to have completed the transaction within the eight-month timeframe we originally anticipated.

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