Good day, ladies and gentlemen, and welcome to CenturyLink's First Quarter 2012 Earnings Conference Call. [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.

Thank you, Sayed. Good afternoon, everyone, and welcome to our call today to discuss CenturyLink's first quarter 2012 results released earlier this afternoon. The slide presentation we will be reviewing during the prepared remarks portion of today's call is available in the Investor Relations section of our corporate website at ir.centurylink.com. At the conclusion of our prepared remarks today, we will open the call for Q&A. On Slide 2, you find our Safe Harbor language. We will be making certain forward-looking statements today, particularly as they pertain to guidance for second quarter and full year 2012, the integration of Qwest and Savvis and other outlooks in our business. We ask that you review our disclosure found on this slide as well as 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. We ask that you also note that our earnings release issued earlier this afternoon and the slide presentation and remarks made during this call contain certain non-GAAP financial measures. Reconciliation between the non-GAAP financial measures and the GAAP financial measures are available in our earnings release and on our website at www.centurylink.com. Now turning to Slide 3. Your host on today's call is Glen Post, Chief Executive Officer and President of CenturyLink. Joining Glen today will be Stewart Ewing, CenturyLink's Chief Financial Officer. And also available during the question-and-answer period of today's call will be Karen Puckett, CenturyLink's Chief Operating Officer, who leads our Region (sic) [Regional] Markets Group; Bill Cheek, President of our Wholesale Markets Group; and Jim Ousley, Chief Executive Officer of Savvis and President of our recently announced Enterprise Markets Group. Our call today will be available for telephone replay through May 16, 2012, and accessible by webcast through May 31, 2012. Anyone listening to a tape or webcast replay or reading a transcript of this call should note that all information presented is current only as of May 9, 2012, and should be considered valid only as of this date regardless of the date heard or reviewed. As we move to Slide 4, I will now turn the call over to your host today, Glen Post. Glen?

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today as we discuss CenturyLink's first quarter 2012 performance and review our strategic focus areas for the months ahead. For the past few quarters, we've outlined our plan to continue to move toward revenue stability, stable cash flow and further growth. That plan includes investing in key strategic initiatives, broadband expansion enhancement, Prism TV, fiber-to-the-tower and Managed Hosting and Cloud Computing services, areas that we believe provide the best opportunities for future revenue growth. We're executing well on this plan and remain focused on continuing this progress in the months ahead. Now turning to Slide 5. During the quarter, we made good progress in improving our top line revenue trend. We generated over $4.61 billion, a 2.7% year-over-year decline, comparing favorably to the 3.6% decline from the first quarter 2011 and a 3.2% decline from the pro forma fourth quarter 2011. Full year 2012, we remain on track to reduce our annual revenue rate of decline to between 1.5% to 2.5%. Business customers now drive about 60% of our total operating revenues. Our focus on delivering advanced solutions and data hosting services to businesses are key factors in improving our top line revenue trend. Also in the first quarter, we achieved further access line loss improvement and strong broadband subscriber growth, and we continue to scale our Prism TV service in the 8 markets where it is currently available. The integrations of Qwest and Savvis remain on track, and we will continue to leverage these assets to strengthen our competitive position. Due to the -- to better-than-expected synergy achievement and better visibility related to the Qwest acquisition, we have raised our annual operating expense synergy target to $650 million from $575 million, an increase of 13%. As of…

Thank you, Glen. I'll spend the next few minutes reviewing the financial highlights from the first quarter, and then I'll provide a brief liability management update and conclude my remarks with an overview of the second quarter and full year 2012 guidance we included in our earnings release issued earlier this afternoon. Turning to Slide 10. First, in order to provide more relevant comparisons, I'll be reviewing the financial results on a pro forma basis as if Qwest and Savvis were fully included in the results for all periods. I'll also be reviewing the results, excluding special items, as outlined in the earnings release and associated financial schedules. Additionally, this quarter, we continued to report 4 operating segments: RMG, BMG, WMG and Savvis. Next quarter, we'll continue to report 4 segments. However, they will be realigned to report under the new operating structure we announced in late March, which are the Enterprise Managements Group, which will include 2 segments, Network Services and Data Hosting Services, and the Regional Market Group and the Wholesale Markets Group. When we report second quarter results in early August, we plan to publish historical quarterly segment financial information along the new reporting lines as outlined in more detail in the earnings release. With that, let's turn our results -- to our results for the first quarter. As you can see, we generated strong operating cash flows and solid cash flows during the first quarter. Operating revenues were $4.61 billion on a consolidated basis, in line with our guidance for the quarter and represent a 2.7% decline from pro forma first quarter 2011 operating revenues. This also represents a solid improvement from the 3.6% annual decline in the year ago period. Strategic revenue in the quarter increased to 45% of total revenue from 42% of total…

[Operator Instructions] Our first question comes from David Barden from Bank of America.

Just if I could, quickly, Glen, could you go into a little bit more behind the rationale for the restructuring? I guess Chris has left and now, Jim, I think you're going to be taking over a larger swath of responsibilities. What are the specific benefits that are supposed to come out of that and is that part of the synergy guidance change? And then second, Stewart, could you refresh us or remind us kind of where your net operating loss tax carryforward now stands? And as you look out into the future, how many years are you now thinking that you'll be shielded from taxes under the current regime?

First of all, regarding the rationale for the organization change, first of all, we have a lot of common customers between our BMG -- legacy BMG group and our Savvis group, number one. Secondly, we're finding that virtually all of our enterprise customers now are asking and talking about what is -- wanting to talk about cloud and hosting services. And we believe that bringing those sales groups together, manage those groups together will enhance our ability to bring value to those enterprise and business customers. So that's a major factor there. And that -- we believe that opportunity will grow in the months ahead. Of course, we have a lot of training to do, cross-training to do with our BMG sales folks on cloud and some network training in the Savvis group. But we'll get that done over time. And it also consolidates how we approach the enterprise customers with one contact with coordination here. And we'll have leads and, of course, experts in different types of services. But it makes a lot of sense to us. Secondly, if you look at the businesses we moved to RMG and territory, the large businesses that we -- where we have local presence and we feel like, with our region management system and our general managers, we can bring more personalized -- build better relationships in these cities and markets where we have our local operating [indiscernible] business. So we think it makes a lot of sense and really will drive value for us and for our customers over time.

And David, as of the end of 2011, we had $6.2 billion of NOLs, and we would expect to be a full taxpayer probably in 2015. And also on the synergy question, David, we did not include the reorganization synergies as part of the synergy increase we're talking about with Qwest and -- with Qwest transaction.

Our next question comes from Michael McCormack from Nomura Securities.

Stewart, can you just address the change in guidance? It looks like the benefit on both the EPS and SGF [ph] was reached in Q1. I'm just trying to get a sense for how we should think about margins as the year progresses. It looks like, again, that the guidance increase was already captured. And then maybe just a quick comment, a little more color on the Qwest upside. You mentioned it was non-personnel. Is that access or other things we should be thinking about?

Yes, so Michael, basically the change in the guidance, most of it was captured. We always have a seasonal increase in expenses in the second and third quarters really related to our folks being able to get out and do more maintenance on the network and energy cost increase with heating -- with cooling, rather, in the summer and things like that. So most of it was really captured in the first quarter. With respect to margins, we'd expect the margin, it was a little bit over 42% in the first quarter, would expect to end up somewhere in the 41.5% range or so, probably, for the full year.

Okay. And any Qwest comments? You mentioned it was non-personnel. I'm just trying to get a sense for what the moving parts were there on the upside.

So basically, in the network side, I think we've basically been able to consolidate, do more from the standpoint of consolidating some of the networks and getting more efficiencies there, getting off of third-party networks. With respect to RMG, I think they were just able to basically reduce some of the expenses associated -- that are really -- they're not headcount-related, but they're related to getting out of some buildings and things like that. And then with respect to the finance group, basically we were able to reduce some of our insurance costs more than we thought and then just some of the other costs, actually building-related costs, too, that were financed -- that were related to their...

And some contract labor.

And some contract labor. Contract labor reductions as well, both in the finance group and in RMG.

Our next question comes from Dave Coleman from RBC Capital Markets.

Just on your revenue guidance for 2012, if I take the midpoint of the 2Q and the full year revenue guidance, it suggests a material improvement in the rate of decline in the second half of the year, almost to the point of flat revenues existing -- I'm sorry, exiting 2012. So I was wondering what your revenue trend expectations are for the year and when you would anticipate achieving revenue stabilization. And then just on the broadband side, you continue to post pretty good broadband subscriber numbers. Just wondering what the source of these new subscribers are, if it's new to category or switchers from cable or another broadband provider.

Yes. So basically, on the revenue guidance, I mean, we do expect revenue to continue to improve throughout the year. And the reasons that it will continue to improve is, one, on the RMG side, basically we'll continue to add customers with our Prism TV service. We also expect to add additional broadband customers. And our folks are doing a really good job on the business side as well, attracting new customers and data revenues from our business customers. On the -- and we expect Savvis revenues to continue to grow throughout the year. So we believe that will help revenue growth as well during the year or help improve the reduction that we've been seeing in the past. Yes, we're not ready to call yet that we'll get to revenue stability in the fourth quarter, but, hopefully, we should see some continued improvement throughout the year.

And on the -- this is Karen Puckett. On the high speed, really there's 3 categories. One, our local model. General managers and the local engagement from the team having quota kind of by market has been extremely helpful in visibility into that. Secondly, I would just say the continuation of the change in the go-to-market. So first off, our Price-Lock, 5-year Price-Lock, as well as our Bundle Your Way [ph], which is something we've had in the market for a couple of quarters now, have continued to play extremely well for us. Our call center continues to perform. Their Sales Per 100 [ph] continues to go up, especially in the legacy Qwest centers that we were attempting to get up to the legacy CenturyLink levels. And then we've initiated quite a few contact kind of retention strategies that has helped us on the churn side. So all 3 of those really gave us a great quarter. Relative to second quarter, I would just be mindful that there is seasonality always in second quarter pretty significantly right around Snowbirds. And so typically, that had been [indiscernible] for us. Now we have Arizona and other areas as well as college students.

Our next question comes from Batya Levi from UBS.

For the BMG unit, I believe that you mentioned some personnel increases that caused some pressure on expenses and on margins in the first quarter. Have you reached the scale that you want now? Can we expect margins for that unit to continue to improve from here? I understand those organizational changes are going to change the overall outlook, but would you -- just for that segment, would you expect margins to improve?

Batya, yes. We believe that the -- now we're going to be changing segments next quarter, so it's going to be awfully -- and we're going to have to go back and restate what is BMG segment today because some of their -- all their customers that are in -- for the most part, their customers that are in the legacy local exchange areas are going to be moving over to the RMG group. So we'll have to see what impact that has on margins. But just from the standpoint of where the sales force is, I mean, we think the expense associated with the sales force is where it needs to be at this point and don't really expect any continued expansion there in the BMG.

And our next question comes from Scott Goldman from Goldman Sachs.

Couple of questions. Maybe, Stewart, just going back to one of the previous questions and talking in reference to the margin trajectory, but help us think through how some of the costs layer in throughout the year. What would be the timing of that? With the Qwest markets, are you still planning on doing 2 Qwest markets throughout the year? And what might be the timing of that and perhaps the timing of some of the other initiatives around hosting and cloud to help us think through that? And then secondly, maybe, Glen, maybe you can help us think about or your latest thoughts on M&A. Clearly, with the synergy guidance hike today, I think that suggests you're more comfortable with the Qwest integration progress. So maybe you could talk a little bit about your appetite for further M&A and what types of assets could be of interest.

Yes, so cash expenses, we would expect to be up marginally in the second quarter over the first quarter, again just due to mostly seasonality, and then marginally up again in the third quarter, partially due to seasonality there in the utilities and the expectation that we would be increasing cost associated with the Prism TV service, and also Savvis where we're adding some data center capacity throughout the year. And then, hopefully, costs would flatten out somewhat between third and fourth quarter as those seasonal increases start declining somewhat as the weather cools off.

And Scott, regarding the Qwest integration, but it is going well. We're on target there. We successfully completed the SAP conversion. We have selected all the major systems now. We're going to be converting in the months ahead. So it's going well. We have more visibility than we had. So we're feeling good about it. But there still has to be a lot of focus on integration. We have to get it right. So we're not letting up there. Also, we have still Savvis coming in and really the reorganization, a lot of focus there. However, as we see these -- the integration really come to fruition like we expect, we will continue to, first of all, focus on our 4 key initiatives, like we've talked about: the broadband expansion, fiber-to-the-tower, our Prism TV and Managed Hosting and cloud services. That being said, we will continue to look at opportunities for inorganic growth and drive shareholder value but more so the further we move down the road with the Qwest integration. So I'm not ready to tip our hand on what our favorites would be there, but we'll be looking at opportunities that we think can drive long-term shareholder value. And that will be our goal as we look at inorganic opportunities.

Yes, Scott, it's not really a cash flow item, but we would expect depreciation expense to increase marginally each quarter as well as we continue to make investments for growth in the future.

All right. And just following up on that, Stewart. Is it -- can you help us or remind us how much incremental IPTV costs you'll see on the OpEx side this year?

Yes, I think it's about $70 million over last year, over 2011.

And our next question comes from Frank Louthan from Raymond James. Frank G. Louthan - Raymond James & Associates, Inc., Research Division: Can you talk to us about the Connect America Fund money that you've been offered and what your thoughts are there and when we might see some announcement of how much of that you might be able to put to use? And then maybe a question for Jim. Looking at having all of BMG and the Savvis units together, how differently will you be going to market? And how should we think about your approach in the enterprise space with those combined assets as opposed to maybe the way Qwest and Century were operating before?

Yes, Frank, so we were allocated about $90 million of the Connect America Fund. And in very rural areas where we really have the greatest need for support, this amount, on a per-location basis, will not be enough to allow us to really do an economic build-out. So we're still in the process really of evaluating our opportunities with respect to that fund, and we'll make a decision within the 90-day period and talk with the FCC. And Frank, on the enterprise, the new enterprise approach, clearly we'll still keep focus on network because we have a large base to maintain there. But more importantly, and the reason we brought these together is a very small percentage of the Qwest and BMG customer base today are using any level of Savvis hosting services or even competitor hosting services. So the opportunity to go to that customer base and leverage our services is very high. So we'll have a focus on hosting, we'll have a focus on network and we'll bring products and services together. In fact, we'll be announcing some in the next few weeks that combines network capabilities with hosting capabilities and cloud capabilities that we can take to that large Qwest base that we think will afford some significant growth opportunities. Frank G. Louthan - Raymond James & Associates, Inc., Research Division: That's great. One quick follow-up, do you have the Qwest data center assets? I think those are under Savvis now? What are the -- what is the outlook for those assets? Were they underutilized? And should we expect to see any -- when should we expect to see that sort of impact the Savvis numbers?

We do have those data centers, and those were relatively high utilization. And so we're in the process of, one, kind of refocusing those. And also, they -- in several cases, they weren't up to the Savvis level of data center quality that we need for true enterprise markets. So we've been upgrading those. That'll probably take until the end of the year. And so we'll hopefully be able to expand that by the end of the year. And one of the reasons we brought it under Savvis was to be able to get it under the Savvis umbrella and then leverage those assets. So I would say in the second half of the year you'll see some growth from those Qwest assets.

Our next question comes from Armintas Sinkevicius from Morgan Stanley.

You guys engaged in a significant amount of debt refinancing this quarter. What sort of visibility do you have with...

Yes, we're having trouble hearing you, I'm sorry. Could you speak up? Much better.

So you guys have engaged in a significant amount of debt refinancing this quarter. And just wondering what kind of visibility you have into the rating agencies and how you think about buybacks or dividend increases as we go towards the end of this year and beginning of next.

Yes, so basically, we'll have our normal conversation with the rating agencies after today in the next week or 2. And -- but we do plan on really fully executing on the $1.5 billion to $2 billion debt payback that we committed to by the end of the year. And then the board will talk at the end of the year or early next year about what to do with free cash flow in 2013. So we can't really make any commitments there now. It will take the rest of the year really to fulfill the commitment that we have.

Our next question comes from Kevin Smithen from Macquarie.

I noticed there was no change to free cash flow guidance despite the upside in Q1. Maybe you could talk about the sort of progression of CapEx and working capital puts and takes over the remainder of the year and how you view that. Are you -- are there anything I'm missing aside from the CapEx? Because even if you keep CapEx flat, with the upside in Q1, you should see higher free cash flow for the year.

Yes, so the range of guidance that we've given for CapEx is a couple of hundred million dollars. And we were just -- we really wanted to get further into the year before we adjust free cash flow guidance just to see where we think we're going to end up from a CapEx standpoint. If we end up towards the top of the CapEx guidance or from the mid to the top, then basically we wouldn't be able to raise our guidance on free cash flow. So we wanted to give ourselves another quarter there to let that flush out a little bit.

So we should think of your CapEx progression as more along the lines of AT&T and Verizon seeing a sequential acceleration versus Frontier who seems like they front loaded more of their CapEx given the warm weather?

Yes. We'll see. It'll really be pretty -- I would imagine pretty steady for the rest of the year. We had -- we probably -- our CapEx was unusually high the first quarter this year, the cash CapEx, because of really a lot of money that we spent and invested at the end of last year and the -- just our payables didn't get paid until after the first of the year. So that's why the cash CapEx number was higher than it normally is in first quarter. And expect it to be pretty flat next quarter.

Any further thoughts on Prism TV CapEx for 2013? I had in my notes that you were going to get back to us with some more color at some point as to sort of success-based CapEx there for next year.

I think we need to get through 2012 or further into 2012 and get one of the Qwest markets turn to see if we continue to have the success that we've experienced in the 8 markets that we have today and also get one of the Qwest markets up. And then I think we'll be able to give some guidance on 2013.

This concludes our question-and-answer session for today. I would now like to hand the conference back over to Mr. Glen Post for any closing remarks.

Thank you, Sayed. CenturyLink's first quarter financial results and operating metrics reflect a solid start toward achieving our 2012 objectives. We're improving our top line revenue trend, slowing the rate of our line loss and driving product penetration of our broadband services, including Internet and Prism TV and high-bandwidth services. Our integration of the Qwest and Savvis acquisitions are proceeding well and, as a result, we've increased the annual synergy run rate to $650 million. Our operating group restructuring announced in late March became effective April 1, which we expect to drive additional benefits in the integration of Qwest and Savvis. And we believe this enhances our ability to leverage our asset portfolio to serve our business and government customers. We expect to continue to invest in our key strategic initiatives as we believe these investments continue to strengthen CenturyLink's ability to compete on a local, national and a global scale. Finally, I'd like to invite all of you and the investment community to our Analyst Day that we have scheduled for June 12 at the New York Stock Exchange. The invitation and registration information will be sent out this week. We hope you'll be able to attend and meet members of our executive team there. Thank you for being on our call today, and we look forward to speaking with you in the months ahead.

Thank you, sir. Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect and have a wonderful day.