Ladies and gentlemen, thank you for standing by. Welcome to the CenturyLink third quarter 2018 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Thursday, November 8, 2018. I would now like to turn the conference over to Valerie Finberg, Vice President of Investor Relations for CenturyLink. Please go ahead, ma'am.

Thank you, Melody. Good afternoon, everyone, and thank you for joining us for the CenturyLink third quarter 2018 earnings call. With us on the call today are Jeff Storey, President and Chief Executive Officer; and Neel Dev, Executive Vice President and Chief Financial Officer. Unless otherwise noted, prior periods are provided on a pro forma basis, assuming both the sales of the legacy CenturyLink data centers and co-location business and the acquisition of Level 3 occurred as of January 1, 2017. Adjusted EBITDA, capital expenditures, free cash flow and net debt-to-adjusted EBITDA discussed on the call today exclude integration-related expense and other items as noted in our earnings materials. All of our supplemental earnings materials, including the presentation we will review on the call, can be found in the Investor Relations section of the CenturyLink's website at ir.centurylink.com. You can see our forward-looking statements on page 2 of the 3Q 2018 earnings presentation, which says that the presentation and remarks contain forward-looking statements. As such, they are subject to risks and uncertainties and may result significantly from those statements. Additional information is available in our filings with the Securities and Exchange Commission. Finally, the reconciliation of our non-GAAP financial measures to the most comparable GAAP financial measures can be found on our Investor Relations website. With that, I'll turn the call over to Jeff.

Thank you, Valerie, and thanks, everyone, for joining us on the call today. A week ago today marked the one-year anniversary of CenturyLink's acquisition of Level 3. To date, we're pleased with our integration progress. On our third quarter's earnings call last year, which was just a few days after the acquisition closed, I told you that the combined company is focused on a few things; profitable revenue growth, operational excellence to reduce costs and drive a great customer experience, and increasing free cash flow per share. We made good strides on all of these objectives over the last year. You can certainly see the benefits of our initiatives to reduce costs and increase free cash flow per share in our strong synergy achievement, margin expansion and continued growth in adjusted EBITDA and free cash flow. I believe these results demonstrate the value of the acquisition. We are very focused on operating the business with discipline and efficiency, and you'll continue to see us focus on expanding margins and growing the bottom line. Additionally, with our focus on profitable revenue, we've taken a hard look at the business and stopped certain product lines, exited unprofitable contracts and changed our approach to how we sell things like CPE. While these decisions negatively affect revenue, they're the right decisions for the business to drive growth in adjusted EBITDA and free cash flow. We've made a great deal of integration progress this year, combining networks and systems, improving how we interface with our customers and making it easier for our employees to do their jobs. While we still have more integration work to do over the next year or two, our focus shifts more and more to transformation. On today's call, we'll follow our usual process. Neel Dev will provide an update on…

Thank you, Jeff. I really appreciate those kind words and I'm excited to take on the CFO role for CenturyLink. Good afternoon, everyone. I will start on slide 4 with some highlights for the third quarter. We achieved approximately $790 million of annualized run rate adjusted EBITDA synergies since the close of the Level 3 transaction. This compares to $675 million reported in the previous quarter. We generated adjusted EBITDA of $2.287 billion. On a pro forma basis, we expanded year-over-year adjusted EBITDA margin to 39.3% from 35.5% from the year-ago quarter. We generated free cash flow of $1.163 billion and we are reiterating our outlook for full year 2018 adjusted EBITDA of $9 billion to $9.15 billion, lowering our outlook for capital expenditures from 16% of total revenue to a range of $3.15 billion to $3.25 billion. And as a result, we are updating our outlook for free cash flow to $4 billion to $4.2 billion from $3.6 billion to $3.8 billion. Turning to slide 5, total revenue in the third quarter declined 3.6% to $5.82 billion, with declines of 3.2% in Business revenue and 4.6% in Consumer revenue. As we have mentioned each quarter this year, the company prospectively adopted the new revenue recognition standard, ASC 606, on January 1, 2018. Adjusting to exclude the effects of the revenue recognition standard, total revenue declined 3.8%, Business revenue declined 3.3%, and Consumer revenue declined 5.4%. I'll note that the remainder of my prepared remarks will discuss results excluding the effects of the revenue recognition standard, except where noted. As Jeff mentioned earlier, we have refined our philosophy and financial guardrails around CPE sales to focus on opportunities with recurring networks services revenues. This is yet another example of our ongoing effort to focus on profitable revenue. To put this…

Thank you, Neel. I thought I'd start with giving a few highlights with integration progress over the last year and starting with a few examples of initiatives we completed this quarter. For North America, EMEA, and Asia Pacific, we've completed our enterprise resource planning, or ERP, and are now on a single instance of the system for all ERP functions. Latin America is scheduled for conversion some time mid next year. We've made progress in combining wholesale-oriented billing systems related to inner-carrier compensation and have moved the Level 3 business to the go-forward systems. Also contributing to our synergy attainment, we've continued consolidating real estate this quarter. As a reminder, over the course of the last year, we've made great strides in a number of areas, sales force integration, network interconnection, contract integration, migrating circuits from off-net providers to our on-net facilities and integration here can be very challenging. Employees transition to new roles, systems change, account reps are assigned new customers and our customers' interfaces to the company change as well. We seen these changes – challenges in many of the acquisitions we've completed before and I'm pleased to say that even in an acquisition as large as Level 3 we've managed the transition well. Neel and our integration teams did an excellent job during the integration planning process and since then in the execution of those plans. A few key metrics that we watch that demonstrate success are number one, legacy revenue churn has been in line with expectations. Customer retention has been strong, which can always be an issue in an integration year. And although the fourth quarter is typically the lightest sales of the year since the fourth quarter of 2017, we've now had three straight quarters of sequential Enterprise sales growth. While pleased with that…

Thank you. Our first question comes from the line of Philip Cusick with JPMorgan. Your line is open, please proceed.

Hi, guys. Thank you. Jeff, can you dig more into the state and local government customer, what the impact of that was, and what the underlying Business run rate was? The Business lines all seemed to be particularly weak this quarter. Thank you.

Yes, sure. I'll let Neel give the details, but it was a – we do a lot of business with state and local governments. And a lot of these deals are for voice services, legacy-type services. So this one in particular was a legacy voice contract. We look at that business and say how can we extend it, how can we take the contract and extend its life. And in this case, we gave them a re-rate, but extended the life of the contract by about seven years. Neel, if you want to add?

Yeah. So, Phil, I think for this quarter, it was in the mid-single-digit impact. And if you look at it quarter over quarter, it's going to be a high single-digit impact next quarter when you see the full quarter effect.

So high single-digit impact on the entire line?

Sorry. What was your question?

I'm not sure I understand. High single-digit dollars impact, is that what we're talking about?

Yes, high single-digit dollars impact only for the medium and small customer group.

Understood. And if we pulled that out, what would the rest of the business have done on a run rate basis?

So I think on that Business group, if you look at the second quarter, it was an especially strong quarter. Sequentially we grew 1.5%, and that was primarily driven by Pro Services and some back-bills in the state and local government area. This quarter it was down 1.5% compared to 1.9% in first quarter of 2018 and fourth quarter of 2017. So generally, that's been kind of the trend for that group.

Understood, thank you.

Thank you. Our next question comes from the line of Mike McCormack with Guggenheim Securities. Your line is open, please proceed.

Hey, guys. Thanks. Jeff, I guess just thinking about the investment in copper versus fiber. I mean that seems like a pretty obvious one and I know you inherited a lot of that business. But as you think about that network going forward and the losses in broadband, and obviously, more slanted towards the lower-speed customers, would there be any interests in investing faster? It seems like cable is going full speed ahead to get to gigabit speeds. Just thinking about the balance as far as you're seeing it. Thanks.

Yes, absolutely. Mike, you're right, we want to invest. We know that where we invest in getting high speeds, we do very well. If you look at our net adds, those are in all high-speed areas. And so we are very heavily trying to invest. It's part of my commentary around 5G. It's part of my commentary around adding buildings. I think we have something like 7,000 to 8,000 buildings that we've already approved to build into. And so we're going to continue to push fiber closer and closer to our Consumer customers, closer and closer to our Enterprise customers, because we know that when we can get to a high speed, we can create a very competitive product. We're also pulling back on some of the bonding and vectoring to get a lower-speed product. We know that at 20-meg and below, we're going to have trouble retaining the business. And so where it makes sense, we will invest where we invest, we expect to grow and we think that will be more and more fiber-based as opposed to copper-based.

As far as the customer base, Jeff, what percentage of the subscribers are above or below the 20-meg mark?

About 60% are below 20-megs and 40% and above 20-megs. So above the 20-megs, those subs are growing and the ones below 20-megs are declining.

And that's why we're using micro-targeting to figure out where to build and how to build and really working hard to drive the penetration and the footprint that we already have because we don't think we're fully penetrated in the high-speed footprint that we have.

Got it. Thanks, guys.

Sure. Thank you, Mike.

Our next question comes from the line of Batya Levi with UBS. Please proceed. Your line is open.

Great. Thank you. Two questions. One, CapEx is coming down about $500 million, but you're increasing free cash flow by $400 million. Can you help us with the delta? And then secondly, on the Enterprise side, can you size the unprofitable government contract that impacted in the quarter? Excluding that, how does the Enterprise trends look like? And do you still find more unprofitable revenue mixes in that segment that you think that will continue to impact Enterprise?

Neel, go ahead.

Sure. So on the delta between the CapEx and the free cash flow, Batya, what we did was also refined some of our working capital assumptions, so that's kind of the delta. So if you just think about AR alone, one day of AR for us is $65 million. So it's just a refinement of the assumptions there. In terms of Enterprise, there's a few things that impacted the quarter. And so I would kind of bucket them as sequentially CPE, the unprofitable contracts, one in government, one was a Global Accounts customer and then we also had FX impacts in our IGAM group, primarily from Latin American currency. If you lump all of those together, it was call it roughly about a $30 million impact sequentially.

And, Batya, when it comes to getting too granular in all of this stuff, we try to avoid getting too granular and looking at individual contracts or anything when we're doing earnings calls. But we're going to continue to be disciplined about things that aren't creating value for us. If it's a low-margin CPE and then we're having to implement it and do other things and not generating a good return, it's distracting our organization and it's not giving us anything, so we'll stop it. Same thing is true for low-margin contracts. We don't see a huge list of low-margin contracts out there, but there have been some and they tend to be kind of big ones when we find them. But there are also lower margin products and things that are not in our strategy going forward, things around maybe IT consulting services and some of those other types of products that are not network-centric. If they're not network-centric, we're going to focus on the network-centric things. So we look at our business very diligently and continue to try and make sure that we're just doing smart things.

Okay. Thank you.

Sure.

Our next question comes from the line of Nick Del Deo with MoffettNathanson. Please proceed. Your line is open.

Hi. Thanks for taking my questions. First, you mentioned that CAF II is ramping, up so I wanted to dig into that a bit more. How much have you invested this year? How much CapEx do you think remains to complete the program? And how many homes do you have left?

So I think on CAF-II, we're targeting getting to about 700,000 homes or so by end of this year and the overall program is about 1.1 million, 1.2 million homes or so. I'm not sure what the inception to-date spending is. This year we probably spent somewhere in the mid-200s and we're ramping up in the fourth quarter.

Okay. And to complete it, do you know what the CapEx would be roughly?

Well, one of the things we're doing is looking at different technology solutions going forward. So that numbers, we're trying to bring it down a significant amount with potentially fixed wireless and other option. So that is still in flux in terms of what we think is going to be required to finish up.

Okay. Got it. And then, Jeff, in your prepared remarks, you noted that Enterprise bookings have been growing throughout the year but you kind of caveated at the end that you can do better. Were you suggesting bookings were below expectations or just that you could do better? And I guess in a more general sense, what sort of steps you're taking to get them where you think they can be?

Yeah. So, look, I am pleased that we've grown bookings every – or sales every quarter since the fourth quarter. But, Nick, my team knows that I'm perpetually dissatisfied and I think we can always do better. And we're making sure that we're simplifying our product set. We're creating a uniform footprint in every building so that when our sales people go out, they know what products are available. They can have standard products there. We're simplifying the operating environment for our sales team, and trying to make that better for them, simplifying the operating environment for our installation team so we can turn revenue up quickly. We don't have any particular problems associated with integration for installs, but I think we can always do better there, too. And so, our goal is to get better every single day in every single aspect of what we can do. I look at our product set, I look at the market need, and I look at our capabilities and geographic footprint and I think we can do better. And so that's what my comments were about that, yeah, we're pleased with the fact that we've grown every quarter, but we're never satisfied with that. And we spend a lot of time internally looking and talking to our team, whether it's the product team or the sales team. How do we penetrate the market better? How do we win more business? What infrastructure do we need to be building in? It's part of the reason we have 7,000 – 8,000 buildings in our queue because we think those are great buildings to convert off-net circuits to on-net, but they're also great buildings to add new customers in.

Okay, got it. Thanks, Neel. Thanks, Jeff.

Sure.

Our next question comes from the line of Timothy Horan with Oppenheimer & Company. Please proceed. Your line is open. Timothy Horan - Oppenheimer & Co., Inc.: Thanks, guys. Jeff, can you characterize competitive intensity out there? And it seems like a lot of companies are missing Enterprise revenue growth. Maybe is it – just your thoughts on why do you think that's occurring in the industry and what might turn that around?

I can't comment on anybody but ours, and ours has to do with some of the decisions that we've been making about what we want to do, what products we want to sell, what products we don't want to sell, what customers we want to serve, what customers we – contracts we don't want to continue with. I think that we can do a better job of executing, again, just looking at CenturyLink, not talking about anybody else. If we do a better job of executing and continue to drive our product portfolio, where our customers are going, I think that's critical. If you look at our Dynamic Connections, we hear every day that our customers say, we want to manage the network like we manage our cloud capabilities. And that's what we're doing. We're giving them the ability to manage their network along with managing their clouds in a seamless way, scaling bandwidth up, scaling bandwidth down, redirecting it, allowing their SDN capabilities to interact with our SDN capabilities. So, it's about us making sure that we have the right products and that we execute on delivering those products. Again, back to Nick's questions, I think we can always do better than that, but I don't see any particular pricing intensity or competitive intensity out there that we haven't seen for a while. Timothy Horan - Oppenheimer & Co., Inc.: Just two quick follow-ups, so when customers do that transformation, are they growing the revenues they spend with you or are they shrinking? And secondly, longer term, can you update us on what you're thinking about for EBITDA margins? Thanks.

Sure. With respect to are they growing, first of all, we just launched this product, the one I was just talking about, in October. So it's a little early for us to really have much headwind on or much traction on selling that product, but we expect to grow revenue from it. We expect to expand our addressable market by being able to serve more customers. We expect to be able to use a variety of access technologies. So I mentioned a customer may have an MPLS site, they may have an SD-WAN site, they may have a broadband connection to us. We want to be able to use all of those different locations to pull content or interaction then with the cloud or cloud service provider. And so I expect it to grow revenue, and I expect it to really expand our addressable market for who we can sell to. And, Neel, do you want to take the second part of that?

Sure. So if you look at our EBITDA margins, we've already expanded EBITDA margins by 380 basis points or so from year ago. And if you think about all the comments Jeff made about digital cost transformation and we're leaning in on building fiber to more and more buildings, so we have major initiatives underway in terms of off-net to on-net. So those things will continue to expand our EBITDA margins, so we feel pretty good about continuing to expand EBITDA margins. Timothy Horan - Oppenheimer & Co., Inc.: Thank you.

Our next question comes from the line of Frank Louthan with Raymond James. Please proceed. Your line is open. Frank Garreth Louthan - Raymond James & Associates, Inc.: Great, thank you. So is there any investment that's required ahead of the digitization for the costs, any systems you've got to acquire or ramping up some head count? And then where did total company head count end up at the end of the quarter? And what was it, say, a year ago?

So, Frank, there's a ton of things that we have to invest in to make sure that we continue our digital transformation. Right now, what we're investing in on our Consumer business is doing that user-centered design effort that I discussed, where we're talking to customers, we're looking at how they want to utilize our products, we're looking at how they want to interface, and we're going to then build those capabilities into our system. So is there any particular thing? No. Are there a lot of things that we have to do? Yes. If you think about dispatching our field forces, I don't want somebody having to call a technician to tell them where to go. I want them pulling down their map and the system automatically routing them and looking at our workforce and where everybody is and predictive analytics to tell when they're going to be completed and route our people more efficiently. And so there are lots of things that will go into our digitalization and digital transformation as a company. Neel, do you want to take the second?

So in terms of head count, Frank, we were at 52,500 or so at close, and we're at about 46,000 now. Frank Garreth Louthan - Raymond James & Associates, Inc.: All right, great. Thank you very much.

Sure.

Our next question comes from the line of Simon Flannery with Morgan Stanley. Please proceed, your line is open. Spencer Gantsoudes - Morgan Stanley & Co. LLC: Hi. It's Spencer for Simon. Thanks for taking the question. Some of your wireline peers have talked about the success they're having with SD-WAN physically going after MPLS revenue. I think earlier this year, you said your MPLS revenue was growing around 3%. Is that still about the right rate?

I don't know the exact rate, but it's low single digits, and somewhere in there. And yes, it is still growing. So look, I've been very clear about this. I think SD-WAN is a great product for us in certain locations. MPLS is a great product for us in certain locations. It's the strength of the CenturyLink product portfolio that when it comes to networking services, it does not matter what type of networking application you're trying to build. We can provide services to do that. And I think that's a real strength because within every one of our customers, they have different sites that need different needs. It's not a, I need dark fiber to every solution or I need a wave to every solution. They need dark fiber to some locations, they need waves to some locations, they need SD-WAN to some locations. And so it's one of the strengths that we look at in our product portfolio. And the customer example I gave you today, there is a healthy MPLS portion of that network and there's a healthy SD-WAN portion of that network. Spencer Gantsoudes - Morgan Stanley & Co. LLC: Okay, and then just a follow-up to one of the earlier questions. The quarter-over-quarter revenue decline doubled to $80 million this quarter. Would you say the impact of grooming less profitable revenue was higher this quarter than 2Q?

Yeah, I think that's the math I just went through, $30 million of that was the impact from those contracts and CPE and FX. And in addition to that, keep in mind, if you're looking at Business markets, wholesale there was a settlement, a large settlement last quarter, and so you see just a sequential decline just from that settlement not happening again. Spencer Gantsoudes - Morgan Stanley & Co. LLC: Okay, thank you.

And look, I know when we have revenue declines coming from unprofitable contracts that that can cause questions. I'm telling you, this is a good thing from an EBITDA and a free cash flow perspective. And the things that we manage this business for free cash flow, free cash flow per share, these are good things to be doing. Spencer Gantsoudes - Morgan Stanley & Co. LLC: Great, thank you.

Sure, Spencer.

And our final question comes from the line of Michael Rollins with Citi. Please proceed. Your line is open.

Hi. Thanks for taking the questions. Two if I could. The first one is we look at your disclosed financials. What are the things that you would point investors to, to better understand when you could see an inflection in the aggregate revenue performance in terms of the opportunity for that to get better? And then the second question is just a technical question. I noticed that in the supplemental package, you didn't provide the net income to cash flow to operations reconciliation that I think you've historically provided. Is there any specific reason that you did not disclose that in the current package? Thanks.

I don't have any idea on the second one. I'll look to Neel.

Yeah. No, we'll look into that. If we missed something, we'll make sure that that gets posted.

With respect to the inflection point on revenue, we don't give revenue guidance and what we will do at the end of the fourth quarter, we will begin to look at 2019 and figure out what we want to be talking about throughout 2019. The main thing I would look at is EBITDA. Look at our EBITDA expansion that we've talked about. Look at our EBITDA guidance. We raised our EBITDA guidance in the last quarter. Look at our free cash flow. We raised our free cash flow last quarter. We raised it again this quarter because of lower CapEx, but that's also because we're being diligent and disciplined in the way that we spend capital, that we're not doing it just because we've spent it that way before or just because we spent it on copper technologies before, we're not going to do some of those things. And we're looking for how to deploy our capital very effectively and very efficiently. And so I look at EBITDA, I look at free cash flow, I would look less at revenue, but when it comes to the fourth quarter call, we will be thinking about those things again, and talk about what kind of guidance we'll give going forward for 2019.

Thanks very much.

Sure, Mike. Thank you.

I'd like to wrap up the call with a couple of key points. We've made great strides over this last year with the integration of Level 3 and we're really well ahead of our synergy objectives achieving $790 million in adjusted EBITDA run rate synergies through the end of the third quarter. Our focus on execution, financial and operating discipline and profitable revenue growth are providing us the results we envisioned with the continued margin expansion and the growth in adjusted EBITDA and free cash flow per share. We shifted our focus to transform CenturyLink to enhance our business for effectiveness, cost efficiency and customer experience, which will move us to where we want to be as a company. Thank you for joining today's call and for your support at CenturyLink. Melody, that concludes the call.

Thank you, Jeff. We would like to thank everyone for your participation, and for using the CenturyLink Conferencing Service today. This does conclude the conference call. We ask that you please disconnect your lines. Have a great day, everyone.