Lumen Technologies, Inc.

Greetings and welcome to CenturyLink's first quarter 2020 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct the question and answer session. At that time, if you would like to register for a question, please press the one followed by the four on your telephone. If at any time you require operator assistance, simply press star zero. As a reminder, this conference is being recorded Wednesday, May 6, 2020. I would now like to turn the conference over to Valerie Finberg, Vice President, Investor Relations. Please go ahead.

Thank you, France. Good afternoon, everyone, and thank you for joining us for the CenturyLink First Quarter 2020 Earnings Call. Joining me on the call today are Jeff Story, President and Chief Executive Officer, and Neil Dev, Executive Vice President and Chief Financial Officer. Before we begin, I'll note that all of our earnings materials can be found on the investor relations section of the CenturyLink website. I will call your attention to our safe harbor statement on slide two of our 1-2-20 presentation, which notes that this conference call may include forward-looking statements subject to certain risks and uncertainties. All forward-looking statements should be considered in conjunction with the cautionary statements on slide two in the earnings press release and in the risk factors in our SEC filings, including the new cautionary statements and risk factors related to COVID-19. Today, we will be referring to certain non-GAAP financial measures, which are reconciled to the most comparable GAAP measures and can be found in our earnings press release. Please note that effective as of the beginning of 2020, We elected to change the presentation of certain taxes related to specific revenue producing transactions, including federal and certain state USF regulatory fees to present all such taxes on a net basis. In addition, our 1Q20 results reflect changes in customer and cost assignments among our business units. All changes are reflected in our supplemental schedules, and on today's call, Comparisons to prior periods reflect these changes. Finally, certain metrics discussed on the call today exclude transformation costs and other special items as noted in our earnings materials. With that, I'll turn the call over to Jeff.

Thanks Valerie and thank you everyone for joining us. I hope you and your families are staying safe and in good health. Obviously, this isn't a normal earnings season. With the COVID-19 pandemic sweeping the nation and the world, we at CenturyLink have adjusted our priorities and even our approach to the business. On today's call, I'll spend a few minutes on our first quarter results, but during the majority of my time, I'll discuss the impact of COVID-19 on our company and my thoughts on the industry in general. After that, Neil will provide an overview of the quarter and outlook for the rest of the year. Then we'll open it up for your questions. I want to start by highlighting the incredible efforts of our employees during this crisis to support each other, our customers, and the communities where we live. In early March, we sent 75% of our employees to work from home. Literally overnight, they implemented processes and tools to remain effective in the new environment and did so without missing a beat. But not all of our employees can work from home. We have nearly 10,000 essential workers whose jobs supporting our customers and enhancing and maintaining our network require that they continue to work from work. While I am proud of all of our employees, I am especially proud of the work from work employees who remain in the field and in our network control centers delivering for the emergency needs of our customers and operating our global network so effectively. Our team has responded to every obstacle with determination, dedication, and resiliency, the same characteristics they bring to their work to transform and grow our business. I can't tell you how proud I am of our employees, and I feel very fortunate to be part of this team. For those of you on the call who are shareholders, your employees are doing a great job, and I wanted to start the call with a huge thank you to all 42,000 men and women around the globe. Before I get into the details of our response to the ongoing crisis, I'll make just a few comments about the quarter. During the quarter, we remained focused on profitable growth, transformation of our service delivery platforms and cost reduction initiatives, and we continued to expand adjusted EBITDA margins. As you know, at the beginning of 2019, we modified our capital allocation strategy to focus on investing for growth and reducing leverage while continuing to return more than a billion dollars a year to shareholders through our dividend. Slide four in the presentation. We believe this was the right decision for the long-term health of the business and to give us flexibility to weather future economic environment changes. As a result, Our liquidity position is strong. We are in a good path to reach the leverage target we established, and we feel good about our dividend payout ratio. While we are confident about our liquidity position, given the difficulty in predicting the shape and timing of an economic recovery, we have withdrawn the guidance we provided for EBITDA, CapEx, and free cash flow. Slide five provides a summary of our response to the crisis. I'll start with the measures we put in place to support our employees and how they've been responding. From the beginning, we have been clear in our approach that the employees' safety is our number one priority. Well ahead of government recommendations to adopt social distancing guidelines, we limited meeting sizes, eliminated travel, and canceled company events. Ultimately, in early March, we transitioned the vast majority of our staff to work from home. halting the spread of the virus among our employees and the communities in which they live was our primary goal. We implemented an emergency paid time off program and extended short-term disability coverage to all U.S. employees to allow those directly touched by the virus greater flexibility and an increased sense of financial security. Protecting our essential employees, whether in the field or in our offices, was a special focus. Although now resolved, initially we were challenged to meet the ever-changing recommendations for personal protective equipment. Our principal concern was protecting employees and customers during face-to-face interactions. As a further protective step, we accelerated the implementation of a customer self-service model, allowing a higher percentage of our customers to install and repair their own connections. But the main thing we did to protect our technicians was to reinforce that they had full authority to make their own safety decisions. If our technicians don't feel they can perform a specific task safely, they know they have the right to say no with no second guessing of their decisions. If you know anything about the culture and work ethic of the network tech community, you'll not be surprised to hear that these men and women have taken on the special challenges presented by this crisis with the same customer focus that has long been their hallmark. Finally, we've been clear with our employees that we will be very deliberate in our plans to return to our offices. That means returning to many of our locations will likely extend beyond government timelines. Frankly, I doubt we ever go back to the way things were before. As a manager, I was hesitant about embracing a distributed workforce, but the performance of our employees over the past two months has demonstrated that we can remain highly effective when working digitally from home. That performance allows us to be deliberate in our return and more broad-minded about how we work together in the future. We will take our time and accelerate our own digital transformation as we look at the future of work in CenturyLink. As proud as I am of our employees, I'm equally proud of our customers' responses to the needs of their employees and customers and communities. Across both the public and private sectors, our customers have moved quickly to upgrade their digital infrastructure, to enable distributed workforces, and to meet the emergency needs of their communities. We have seen remarkable agility across our entire customer base, from insurance companies to healthcare providers, from government agencies to financial services companies, from video and audio conferencing companies to individual consumers. We have been proud to support customers as diverse as the Social Security Administration, State Farm, Blue Cross Blue Shield, the Hazelden Betty Ford Clinic, Banner Engineering, and M&T Tech, just to name a few. Our customers move quickly to increase capacity, deploy more robust VPN capabilities, and add security services, and for our consumer customers to establish or improve the connectivity required to adapt to what we now all appreciate to be the shocking reality of working from home and homeschooling children. CenturyLink has taken broad steps to support these efforts, including some instances turning up connectivity in a matter of hours, and extensive capacity increases for our enterprise customers. COVID-19 will affect every aspect of our business, but I'm especially concerned about the financial health of our smallest business customers. These businesses form such a critical part of our local communities, and they may lack the resources to weather disruptions of this magnitude. For small businesses with fewer than 50 employees and our consumer customers, we have currently suspended usage limits and committed not to disconnect or charge late fees. Recently, we extended our commitment to the FCC's Keep America Connected pledge through June. We will continue to assess how we can help support customers who need assistance to sustain themselves until the economy returns to more normal conditions. By working to support all of our customers as they work through their own challenges, our actions and performance reinforce that CenturyLink is a trusted partner. I've been inspired to see how our customers have met the demands of this crisis. We should all be encouraged that the commitment, energy, and creativity seen in these responses will carry us forward as we begin to reopen the economy. We've also stepped up our community support efforts. We've donated bandwidth to frontline locations across our footprint, such as the USNS Mercy hospital ship in California and other temporary health care facilities across the country. We've established corporate and employee giving campaigns. We will continue to seek ways to support our communities, but we believe the most important relief we can provide is to continue to ensure our customers have the connectivity they need to respond to the demands of this crisis. The global pandemic has highlighted and accelerated the digital transformation we and our customers were already experiencing in how we live and work together. But over the past two months, we have seen a step function increase in the speed of those changes. I am very proud of our employees and our network's ability to meet that accelerated demand. Compared to typical traffic levels, we have seen 30% to 40% growth in Internet backbone traffic and a correspondingly significant increase in average usage across our CDN, end-user IP, voice, and conferencing platforms. While the daily growth in traffic has leveled off over the last few weeks, usage remains high. Not all of that growth translates to revenue, as contracts often include unlimited usage, but the overall increase in traffic is a positive leading indicator for us. The good news here is that the CenturyLink network was purpose-built as a platform of capabilities to handle the growing consumption of bandwidth that is brought about by digital transformation and the fourth industrial revolution. You've heard me talk about the benefits of fiber. It is faster, more secure, and far more scalable than other infrastructures. Our network is built to flex in response to in-the-moment traffic increases. But when those increases begin to reach beyond the limits of our ability to flex, The robustness of our technology and the scope of our fiber and conduit infrastructure allows us to quickly and economically augment to handle the ever-increasing demand, ensuring a great experience for our customers around the world. We are also seeing changes in the way we conduct business and an acceleration toward digital selling and customer care. However, I want to be clear. We do expect delays in decision-making from our business customers as they reassess their priorities and determine what the future of work looks like within their companies. We believe the critical nature of our services and the renewed importance of digital transformation means this will only be a pause and that our capabilities, close relationships with customers, position us well for the economic recovery. We are watching our small business segment closely. While not yet seeing an increase in churn, this is an area of concern and attention. With our consumer customers, particularly in the early days, we received requests for speed upgrades along with a rise in overall order volumes. This increased activity demonstrates something we've discussed before. Where we invest in fiber and providing higher speeds, we take share in the consumer market. Broadband is a utility you don't want to live without these days. However, given the rise in unemployment numbers, we are watching consumer churn carefully. Acceleration of digital transformation driven by COVID-19 presents a wide range of opportunities for CenturyLink. Our far-reaching and powerful fiber network, together with services like embedded security, edge computing, IT enablement, and managed services, make us a key enabler of digital transformation across our economy. In fact, virtually all of our services have been designed for the digital economy. This crisis has reinforced the value of those services to our customers, and our response has highlighted our ability to meet their evolving needs quickly and effectively. We believe all of this validates the value of our business going forward. At the same time, legacy communications spend will continue to decline, and we know we have to adapt to a lower-cost, more customer-friendly digital support model to meet the demands of the future. Our response to this crisis has accelerated some of those plans, and later in the call, Neil will discuss our progress against our transformation efficiencies. The digital transformation is about far more than reducing cost. It is fundamentally about eliminating the barriers of distance and enhancing how people interact, both with each other and with the data that is relevant to their businesses and lives. We believe the current crisis, along with the broader deployment of AI, machine learning, the Internet of Things, edge computing, and the like, will accelerate the march toward digital transformation and that CenturyLink is well positioned to support and benefit. To be clear, we anticipate a negative effect on our near-term results. We have seen some increased demand, but our business is ultimately only as successful as the businesses of our customers. Nonetheless, we believe this crisis has highlighted that the services we offer are at the very heart of the digital economy. We are financially stable, investing in the capabilities our customers need, continuing to digitally transform our own customer interactions, and facilitating and assisting our customers as they seek to realize the benefits from these ongoing technology trends. I'll now turn the call over to Neil to provide an update on our detailed financial results and our revised outlook for 2020. Neil?