Good day ladies and gentlemen and welcome to CenturyLink’s First Quarter 2014 Earnings Conference 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. (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, Saeed. Good afternoon, everyone, and welcome to our call today to discuss CenturyLink's first quarter 2014 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. Now turning to slide 2, you'll find our Safe Harbor language. We will be making certain forward-looking statements today, particularly as they pertain to guidance for second quarter 2014 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 these 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. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on our earnings release and on our website at ir.centurylink.com. Now turning to slide 3. Your host for today's call is Glen Post, Chief Executive Officer and President of CenturyLink. Joining Glen will be Stewart Ewing, CenturyLink's Chief Financial Officer and also available during the question-and-answer portion of today's call will be Karen Puckett, CenturyLink's Chief Operating Officer; Bill Cheek, President of Wholesale Operations; and Jeff Von Deylen, President of CenturyLink Technology Solutions formally Savvis. Our call today will be available for telephone replay through May 14, 2014, and the webcast replay through May 29, 2014. Anyone listening to a taped or webcast replay or reading a written transcript of this call should note that all information presented is current only as of May 07, 2014 and should be considered valid only as of this date, regardless of the date heard or viewed. Now as we move to slide 4, I’ll turn the call over to Glen Post. Glen?

Thank you, Tony. Good afternoon everyone and thank you for joining us today. I'm pleased to report that CenturyLink achieved strong financial and operating performance for the first quarter and we continued effectively execute against our objectives and make investments that we believe will drive an improved trend and profitable growth overtime. Now turning to slide 5, we achieved total operating revenues, operating cash flow and adjusted diluted earnings per share that all exceeded our guidance for the quarter. For the first quarter of 2014, total operating revenues of $4.54 billion increased by $25 million compared to the first quarter of 2013. This revenue growth was significant improvement from the 2.1% decline in year-over-year revenues in the first quarter 2013 and 2.7% decline in year-over-year revenues in the first quarter of 2012. Data integration revenues were approximately $35 million higher in the first quarter of 2014 than in the first quarter 2013 primarily due to increased CPE or customer premise equipment sales. Core revenue for the quarter which represents strategic and legacy revenues combined was $4.11 billion and was nearly flat from the year ago period reflecting the commitment and dedication of our employees to meet the needs of our customers. This compares and also represents a significant improvement from the 2% and 3% declines in year-over-year core revenues in the first quarter of 2013 and 2012 respectively. As anticipated our wholesale segment revenues continue to be negatively impacted by the lower access revenues due to the implementation of lower access rates under the CAF Order and the declining [voice] minutes of use. Excluding our wholesale segment, our core revenue grew approximately 1.2% or $38 million compared to the first quarter 2013. This compares to a decline of 0.9% or $28 million in the first quarter of 2013 compared to…

Thank you, Glen. I’ll spend the next few minutes reviewing the financial highlights from the first quarter and then conclude my remarks with an overview of the second quarter 2014 guidance. We included in our earnings release issued earlier this afternoon. Beginning on slide 10, I’d like to review some of the highlights from our strong first quarter results. I’ll be reviewing the results excluding special items as outlined in the earnings release and associated financial schedules. As Glen mentioned earlier, we generated solid operating revenues and cash flows in the quarter. Operating revenues were $4.54 billion on a consolidated basis, a six tenth of 1% increase from first quarter 2013 operating revenues. Core revenue, which we defined as our strategic revenue plus our legacy revenue was $4.11 billion for the first quarter, nearly flat from the year ago period. Our strategic revenues grew 5.4% year over year and now represent 50% of our total revenues compared to 48% a year ago. Strength in strategic products such as high speed internet, high bandwidth data services, Prism TV, and managed hosting services continues to drive this growth. Additionally customer growth was strong in the first quarter. We added approximately 66,000 high-speed internet customers and 24,000 Prism TV customers during the quarter. In line with our prior experience, we expect HSI net ads to be seasonally weak in the second quarter as certain of our markets will experience increased disconnects from snowbirds and college students. Despite this we do continue to expect positive HSI customer additions in the back half of the year. We generated strong consolidated operating cash flow of approximately $1.79 billion for the first quarter and achieved an operating cash flow margin of 39.4%. The year-over-year decline in operating cash flow and operating cash flow margin was primarily driven…

Thank you. (Operator Instructions). And our first question comes from Phil Cusick from J.P. Morgan. Your line is open. Please go ahead.

Hi guys. A couple of things I guess. First, as you look at the buyback, you’ve got some left to go in the original and then the next billion kicks in. Given one or sort of moving on to the next segment and second of the shares of rebound quite a bit, do you think that the pace of buyback slows if not in 2Q than beyond that? Thanks.

First of all, I’ll let Stewart to answer later, but as far as the pace, it depends on a lot of things and the stock price whatever, the stock price and depends on other alternatives because we’re committed to drive dividend. We think it’s well protected by our free cash flow. We look at other opportunities, debt reduction. But right now we expect to continue to complete the -- that $1 billion stock buyback in the timeframe we’ve talked about. We know the pace may not be quite as fast. Stewart, do you want to add.

Glen, I think you answered it, as of stock price increases, we spend less and of course bought your shares.

And then if I can one on the business, you mentioned that colocation churn price erosion is being a headwind to revenue. Was there anything notable there or new or is that just the business running the way it typically does?

We had a couple of large businesses that were pure colo companies. We’ve actually been especially in the elected Qwest data center so that was the biggest impact. I’ll let Jeff address.

Yes. And that’s right Glen, there was a couple of customers kind of large Internet companies but we did have higher churn in Q1 we have one customer in the kind of same range for Q2 that will put some pressure. I would say that the Q1impact just of that to us from a revenue standpoint is about $10 million annual, so it was -- and that was just three customers, so those three were pretty big impact to us. So there are some headwinds into near term growth. We are obviously focused on fill rates and filling those customers and the good news couple of customers had very aggressive rates. So, as we sell more to the enterprise, we think our yield and margins are going to be in good shape.

Got it, thanks guys.

Thank you. And our next question comes from Simon Flannery from Morgan Stanley. Your line is open. And please go ahead.

Thanks very much. I wonder if you could expand a little bit on the operating efficiency actions; what is sort of the timing on that and anything you can do in terms of sizing it? And then I think there was a comment in the release around some delays and some fiber to the tower build by some of the carriers into ‘15, can you just expand on that as well, please?

Simon, so the delays in the fiber to tower builds were really just by customer pushing certain towers that they had initially expected for us to build fiber to in 2014 and they delayed that out into 2015. So we think they will ultimately get built by us but it’s just a matter of timing. They decided, they wanted to spend capital elsewhere this year. In terms of the operating efficiency, actions -- I mean if you look at our guidance for the full year, our operating cash flow margins would be about 9.7% at the mid-point of the guidance. So we really need to keep expenses somewhat flat between now and the end of the year to hit the mid-point of the guidance. And there are just a number of different programs that we are looking at to take cost out of the business as we change our processes and get more efficient. I know Karen has on the sales side, a lot of work being done to make our sales people more efficient, to make our back office people or sales support people more effective. So I think just this some of these programs mature over the next couple of years. We will be able to take some cost out.

Great. Thank you.

Thank you. Our next question comes from Batya Levi from UBS. Your line is open. Please go ahead.

Thanks. Can you talk a little bit about the trends you are seeing in the business segment. I think you mentioned the sales pipeline is strong for the second quarter. How should we think about the business driving growth for the remainder of the year? Also I believe CPE revenues were higher than expected in the quarter. Can you talk about what drove that and was that a positive breakthrough for network services for the remainder of the year? Thank you.

Yes. So I will address the CPE sale. I think Karen is going to address the first question. CPE sales were really a sale that we expected to book in the second quarter. In our original guidance that we provided and it just got pulled forward into the first quarter. That was the primary item and then we had a large enterprise customer that we had a CPE sales to them in the first quarter as well. So that really drove -- and there will not be really much MRR pull through with us to sales. I mean we have MRR associated with the large customer, which was a tech refresh that we did. Their MRR will not change but we just basically refreshed all of their equipment. The other customer is more of a one-time CPE sale, but there is some network associated with that, but it wouldn’t be that significant.

This is Karen. In terms of the overall, just business segment, we have a strong [funnel] obviously going into the second quarter with strong MPLS, Ethernet growth has been and continues to be the story, the team has done an extraordinary job of executing on that and really taking from competition. And then you come over kind of commercial mid-markets, the managed office, as well as the business GPON as we get into they are kicking and make it different, as well as the efficiency that you had talked about making our reps giving it back more time for selling. So we're very encouraged about the year in front of us.

I might just add to that, this is Glen. In spite of a difficult economy they continue or our solutions, our go-to-market solutions-based approach, we think is really accepted well by our customers. We are very pleased with the growth we're seeing our solutions-based approach MPLS and Ethernet, we're seeing crossover selling cloud hosting into the network customer base, managed service is driving a lot of interest from customers as well. So we are very pleased with the response we're seeing throughout our marketing efforts and sales efforts in the business segment.

Great, thank you.

Thank you. (Operator Instructions). Your next question comes from David Barden from Bank of America. Your lines open. Please go ahead.

Hey guys. Thanks for taking the questions. Congrats on a good quarter. I guess two questions if I could just kind of looking at the segments; consumer flat, business growing, hosting growing, sorry this builds there, but it kind of looks like wholesale really is the piece that we're trying to manage and the piece that’s declining there is kind of that last $292 million of it. Could you kind of talk just about how that wholesale will trend over the course of the year, because obviously we're not going to have that carrier comp production like we did for the last two years. So expect it should kind of smooth out and that will get us to that stronger end of the revenue guide for the year? And then the second question I had was, we have the SEC finished their modeling process on the Connect America Fund and it's going to mean big things I think for the sector. Maybe starting next year, could you talk a little bit about what the model changes mean to CenturyLink and how you think you will kind of be dealing with these forces as they change over the course of this year and next? Thanks.

David, unfortunately Bill is here to hear you. We’ll let him address that.

David you are right, it has been a challenge on the legacy revenue as that phasing down that has really been a challenge for us. We had a number of issues that head us this year when you compare back to ‘13 first quarter, we had some one-time items, we of course had the ICC rate changes, Intercare comp rate changes. They are flattening out as you said, but we still have a phase down that's coming as we continue to phase that down to effectively zero overtime on the terminating side. The good news there is we do have an offset with some access recovery charges on the retail side that we pick-up some of those ICC pay down cost. So, it's more of a phase from wholesale over the retail. And then of course our LDE volumes and access volumes have in fact declined. We do expect they will start to mitigate somewhat, but minutes of use obviously will continue to climb along with access line loss and wireless substitution, internet substitution only 800 business. And the UNI business for us has been flat and that's in legacy, so the -- while they are not gaining traction, not gaining share, they are not going away at a very rapid rate, but they are declining slightly.

And David on the third part of your question on the CAF2, as you know, the SEC has decided to modify the CAF2 proposal as initiated in those rulemaking. This will involve a several rounds of SEC comments and industry discussion over the next 90 days or so. So there is a lot of work to do here. And one of the key changes that they’re proposing is the requirement increased development deployments from 4 megabits to 10 megabits; we’ll see how that discussion goes. Once we have more time to address the no proposed rulemaking and discussed issues with the SEC and industry, we’ll be able to provide more guidance on this issue. But previously we have -- our projections range from $470 million to $500 million of support annually. We could, paying from CAF2 right now we don’t know what that will be based on the latest changes. But we do think it’s important that if we move to the higher bandwidth there is enough support there to justify to make it practical for us to provide that level of service.

Got it.

And David on the strategic revenue side on wholesale I think important to note we were only down $1 million, $571 million a year ago, $570 million in the first quarter of this year which really is a reflection of the fiber-to-the-tower bills that we’ve done over the last two or three years and the Ethernet and growing bandwidth that we’re having experiencing with those customers and it’s offsetting the disconnects of the DS1 and DS3 that we’re seeing that are also included in that strategic revenue line.

David, this is Bill again. I just want to add we are very encouraged by the bandwidth growth we’re starting to see. If you look at over the last really six months or so we’ve seen a 4% migration up bandwidth and over the last 12 months that’s up to 6%, certain carriers are over 8%. So we’re starting to see some improvement in that trend and just recently we got a really large order for a number of upgrades from one of the major carriers. So think that that will continue.

Great. Okay. Thanks for the color. I appreciate it.

Thank you. And our final question for today comes from (inaudible) Bank of America. Your line is open. Please go ahead.

Hey, thanks very much. I wanted to ask on the cash flow items outside of the definition on for cash flow. Last year, there was a pretty big use of cash, it was about $340 million for retirement benefit, but I noticed that and in the first quarter it’s really down a lot year-over-year, it’s looks like it’s only [28] use of cash versus 178 in the prior year period. So wanted an estimate of what you think that is going to be in terms of the use of cash for this year?

So I may need to get back with you on an estimate for the year but it’s really our pension contribution that we made last year. I think our pension contribution was in the neighborhood $300 million or so; pension contribution this year will be less than that, about $125 million range.

Okay, and then any other items that we should be cognizant of that are outside of the company to find free cash flow definition in terms of expectations for working capital used, are any remaining integration expenditures or anything like that?

No, not really. In the first quarter we did make the payment on the litigation that Qwest had, KPNQwest litigation which if I recall was about $235 million, it was fully accrued. But that was a cash payment that we made in the first quarter.

Okay, and then on the uses of free cash flow outside of the dividend, it did sound like in the prior question that you may slow the pace of buybacks with the stronger stock price. So, I am wondering what the other uses of the free cash flow would be. And I did note that looks like you had another small revolver draw and that revolver is probably around 750, so buying, additional share buybacks; would you look to pay that debt down?

Yes. We’ll just have to see, where the stock price goes and the really the level at which we repurchase shares and go from there, but our debt level at the end of first quarter was essentially flat with where we were at the end of ‘13.

Okay, great. Thank you very much.

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

Thank you, Saeed. Overall, we are very pleased with our strong first quarter results and both operating and financial and especially the continued improvement in our revenue trend. We believe investments we are making in our business continue to position us to effectively compete in a marketplace and drive revenue growth from our strategic products and services in the months ahead. Thank you for joining our call today and we look forward to speaking with you in a week I guess.