CenturyLink Executive Insights: Restructuring, Change in Guidance

On Wednesday, CenturyLink Inc (NYSE:CTL) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with investors and analysts.


David Barden – BofA Merrill Lynch: Congrats on the quarter. 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 are going to be taking over a larger swathe of responsibilities. What is the specific benefits that are supposed to come out of that into that part of the synergy guidance change? Then second, Stewart, could you refresh us or remind us where your net operating loss tax carry forward now stands and as you look out into the future how many years are you now thinking that you will be shielded from taxes under the current regime?

A Closer Look: CenturyLink Earnings Cheat Sheet>>

Glen F. Post, III – CEO and President: First of all, regarding the rationale for the organization change, first of all, we have a lot of common customers between legacy BMG Group and our Savvis Group, number one. Secondly, we are finding that virtually all of our enterprise customers now are asking and talking about, wanting to talk about cloud and hosting services, and we believe that bringing those sales group together, managing those groups together will enhance our ability to bring value to those of enterprise business customers. So that’s a major factor there and we believe that (ultimately) will grow in the months ahead. Of course, we have a lot of training to do, cross training to do with our BMG sales force on cloud and some network training in the Savvis Group but we will get that done over time and it also consolidates how we approach the enterprise customers with one contact, now with coordination, we will have leads and of course, experts in different types of services, but it makes a lot of sense to us. Secondly, the business that we moved to RMG that’s in territory there are some large businesses that we have – where we have a local presence and (if you like) region manager, our general managers, we can bring more personalized, build better relationships in these cities and markets where we have our local operating (indiscernible). So we think it makes a lot of sense and really will drive value for us and for our customers over time.

R. Stewart Ewing, Jr. – EVP, CFO and Assistant Secretary: David, as of the end of 2011 we had $6.2 billion of NOLs, and we would expect to be a full tax payer probably in 2015. Also on the synergy question, David, we did not include the reorganization synergies as part of the synergy increase we are talking about with the Qwest transaction.

Change in Guidance

Mike McCormack – Nomura Securities: Stewart, can you just address the change in guide. It looks like the benefit on both ETS and OCF was reached in Q1. Just trying to get a sense for how we should think about margins as the year progresses. It looks like again (it looks like it was) already captured. And then may be 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?

R. Stewart Ewing, Jr. – EVP, CFO and Assistant Secretary: 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 costs increase with cooling rather in the summer and things like that. So, most of it was really captured in the first quarter. With respect to margin, I would 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.

Mike McCormack – Nomura Securities: Qwest comments? You mentioned those non-personnel. I’m just trying to get a sense for what the moving parts were on the upside?

R. Stewart Ewing, Jr. – EVP, CFO and Assistant Secretary: So basically in the network side, I think we basically better 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 are not headcount related, but they are 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 the our interest cost more than we thought and just some of the other costs, actually building-related cost too that we were related to there.

Glen F. Post, III – CEO and President: Contract labor?

R. Stewart Ewing, Jr. – EVP, CFO and Assistant Secretary: Some contract labor reductions as well, both in the finance group and in RMG.