CenturyTel Q2 2007 Earnings Call Transcript

Aug. 2.07 | About: CenturyLink, Inc. (CTL)
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CenturyTel Inc (NYSE:CTL)

Q2 2007 Earnings Call

August 02, 2007, 11:30 AM ET

Executives

Tony Davis - VP, IR

Glen F. Post III - Chairman and CEO

R. Stewart Ewing - EVP and CFO

Karen A. Puckett - President and COO

Analysts

Gaurav Jaitly - UBS

Michael McCormack - Bear Stearns

Frank Louthan - Raymond James

Timothy Horan - CIBC World Markets

Michael Rollins - Citigroup

Jonathan Chaplin - JP Morgan

Chris Larsen - Credit Suisse

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the CenturyTel's Second Quarter 2007 Earnings Conference Call. At this time all participants are in listen-only mode. [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.

Tony Davis - Vice President of Investor Relations

Thank you, Sayeed. Good morning everyone and welcome to our call today to discuss CenturyTel’s second question 2007 earning results released earlier this morning. During today's call, we will refer to certain non-GAAP financial measures. We have reconciled these measures to GAAP figures in our earnings release, which is available on our website at www.centurytel.com.

Your host for today's call is Glen Post, Chairman and Chief Executive Officer of CenturyTel. Joining Glen on the call today is Stewart Ewing, CenturyTel's Executive Vice President and Chief Financial Officer. Also available during the call today is Karen Puckett, CenturyTel's President and Chief Operating Officer.

We will be making certain forward-looking statements today, particularly as they pertain to guidance for third quarter and full-year 2007, selected information regarding 2007, and other outlooks in our business. So please review our Safe Harbor language found 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.

Our call today will be accessible for telephone replay through August the 8th, and accessible for webcast replay through to August 23. For anyone listening to a taped or webcast replay of this call or for anyone reviewing a written transcript of today's call, please note that all information presented is current only as of August 2, and should be considered valid only as of August 2, 2007 regardless of the date listened to or reviewed.

At this time, I will turn the call over to your host today, Glen Post. Glen?

Glen F. Post III - Chairman and Chief Executive Officer

Thank you, Tony. We appreciate you joining us today as we discuss CenturyTel's second quarter 2007 operating results and our guidance for third quarter and the full year 2007.

CenturyTel’s second quarter results reflect our legacy operations of the Madison River properties for two months following the April 30 and our transaction closing.

Diluted earnings per share excluding non-recurring items was $0.70 for the quarter, or $0.03 ahead of the upper end of our previous guidance, and First Call consensus of $0.67.

Operating revenues including non-recurring items for the quarter was $639 million or $1 million with $32.1 million of revenue contributed by Madison River propeties. Excluding non-recurring items, the revenues from acquired properties' operating revenues for the second quarter was $607.1 million, within the range of our previous guidance for the quarter. And we experienced strong data revenue growth of more than 18% year-over-year driven by more than 130,000 high-speed Internet subscribers added during the last 12 months, and that’s excluding the Madison River acquistion. Including the Madison River properties data revenues increased more than 28% year-over-year.

Additionally we achieved fiber transport growth of approximately 21% year-over-year, driven primarily by increased demand for fiber capcity to and from smaller cities in the mid-section of the counties. These revenues increases were more than offset by anticipated revenue declines attributable to access line declines and lower access revenues along with lower revenues associated with changes to the terms of our satellite TV [Technical Difficulty] equates to a normalized loss of 5.2%.

Demand for broadband services remained solid as we added more of 30,000 high-speed Internet customers during the second quarter. This represents approximately 7.4% sequential growth in broadband customers during the second quarter, while year-over-year our broadband customer growth was nearly 42%.

From an overall bundle standpoint, more than 31% of our residential customers are now served through one of our bundle offering up from a little over 25% a year ago. From a marketing standpoint, we've become focus on differentiating our offers to various customer segments. We're utilizing primary research, customer data and front line employee feedback and ensure that we have relevant messages for all of our customer segments. For example, we have created a different message and offers for different lifestyle segments such as young family versus a senior couple and of course on down the line.

From an access line inwards and gross add standpoint, we're continuing to expand our distribution channel such as door-to-door programs to residential developer programs.

Before I will turn the call over to Stewart, I want to breifely discuss our progess in integrating the Madison River properties and comment on the completion of our $1 billion share repurchase program.

As you know we completed the Madison… acquistion of Madison River on April 30. The intergartion on the properties into CenturyTel's operation is underway and is moving… is moving according to schedule. We expect to complete conversion of three of the Madison River properties by end of 2007, anticipate completing the integration of the fourth property in early 2008.

The Madison River acquistion increases CenturyTel’s access lines by more 8%, adding approximately 164,000 access lines, which is adjusted to conform to CenturyTel's line count methodology and about 57,000 high-speed internet customers we added with the acquistion. We're continuing to expect $70 million of net synergies along with additional incremental cost savings over time.

We also repurchased neraly 2.9 billion shares of common stock for approximately $136 million during the quarter, whicn completed our $1 billion share our repurchase program. And we continue to support returning cash to shareholders and more compelling uses of cash and not readily available to drive shareholder value. And of course our preference today has been to do so through stock buybacks. Board will address the use of free cash flow and the return of cash to shareholder during our meeting later this month.

With that I will turn the call over to Stewart and to provide additional detail on results from the second quarter and update you on our financial guidance for 2007.

R. Stewart Ewing - Executive Vice President and Chief Financial Officer

Thank you, Glen. During the next few minutes I will cover some highlights of our second quarter 2007 operating results and spend a few minutes to discussing CenturyTel's capital structure and liquidity. I will wrap up my comments this morning with the discussion of third quarter and full year 2007 guidance provided in our earnings release issued earlier today.

As a remainder all comments regarding actual results for second quarter 2007 and 2006, excluded those non-recurring items detailed on the financial statements accompanying the press release.

For second quarter 2007, operating revenues increased 5% to $639.1 million from $608.9 million in the second quarter of 2006. Excluding the $32.1 million in operating revenues contributed by the Madison River properties during the quarter, operating revenues declined slightly year-over-year.

Voice revenues for second quarter 2007 were $219.8 million versus $216.5 million in second quarter of last year. This increase in voice revenues was primarily driven by voice revenues by the Madison River properties which more than offset revenue declines associated with lower access lines in our legacy properties.

Network access revenues were $217.2 million versus $221.7 million in the second quarter 2006. This $4.5 million decrease resulted primarily from lower intra-state minutes of use and lower inter-state revenue requirements as a result of lower operating expenses, a decline in our rate base and a decline in achieved rate of return. Such decreases were partially offset by network access revenues associated with the acquired properties.

Data revenues increased more than 28% from $84.4 million in the second quarter 2006 to a $108.2 million in the second quarter of this year, primarily driven by strong high speed internet customer growth during the last 12 months along with data revenues contributed by the Madison River properties.

Fiber transport and CLEC revenues increased nearly 13% to $40.7 million in second quarter 2007 from $36.1 million in second quarter 2006 due to growth in our fiber transport business and revenues from the acquired properties.

Other revenues were $53.2 million compared to $50.3 million in the second quarter a year ago. This increase was primarily driven by revenues contributed by Madison River that more than offset lower satellite video revenue due to the change in the terms of our satellite television agreement which was effective January 1 2007.

Operating expenses increased 4.1% from $443.9 million in the second quarter 2006 to $462.2 million second quarter 2007. This increase in operating expenses was primarily driven by the acquisition of the Madison River properties and growth in high speed internet customers which more than offset lower personnel related cost due to workforce reductions in 2006, lower bad debt expenses, lower depreciation expense associated with fully depreciated assets and again lower satellite video expenses due to the change in the terms of our satellite video agreement, which again was effective the first of this year.

For second quarter 2007 we generated an operating cash flow margin of 48.7%, in line with the 48.8% in the second quarter of 2006.

Operating income for the second quarter 2007 was $176.9 million, a 7.2% improvement over second quarter of 2006 operating income of approximately $165 million. This increase was due to lower depreciation expense discussed a moment ago and incremental operating income from the acquired properties.

Other income for the second quarter of 2007 was up $3.3 million primarily due to a one-time positive adjustment to our minority interest participation in a wireless partnership. Net income for the quarter rose 6.9% to $78.4 million compared to $73.4 million in the second quarter of 2006.

Our legacy markets added more than 30,500 high speed internet customers during the quarter. Including Madison River’s approximately 57,000 high speed internet customers, we ended the quarter with more than 500,000 high speed internet customers or nearly a 27.5% penetration rate of high sped enabled lines.

As of June 30, 2007 CenturyTel’s debt to equity ratio was 1:1 and net debt to annualized second quarter of 2007 operating cash flow was 2.6 times. As of the end of March 31 of 2007 or the end of the first quarter these ratios were 1.1:1 and 2.1 times respectably. As you would recall CenturyTel issued $500 million of 10 years 6% Series N senior notes and $250 million of 6 year 5.5% Series O senior notes in late March to fund the Madison River acquisition.

While the debt to equity ratios for the two periods are comparable, the net debt to annualized operating cash flow increased from first to second quarter due to the closure of the Madison River acquisition on April 30.

Also, on July 12th, CenturyTel announced a call for the redemption of its Series K 4.75% convertible senior notes. Under the terms of the indenture, holders may elect to convert their debentures into shares of CenturyTel common stock versus redeeming them. And holders have until August the 10th to make their election. Whether holders elect redemption or conversion, the process is scheduled to be completed on August 14th. With the expected conversion of the debentures and current forecast of the operating performance, we now expect year-end 2007 net debt to operating cash flow to be 2.2 to 2.4 times.

So, CenturyTel remains solid from a financial standpoint, and with a solid balance sheet. Additionally, we believe our strong cash flows and excellent liquidity position us well to meet competitive pressures in our markets and execute our growth and investment strategies into the future.

Finally, I would like to discuss the third quarter and full year 2007 guidance provided in our press release this morning. Let me begin by reminding you that our guidance excludes any non-recurring items that may occur during the third quarter and remainder of 2007. However, third quarter guidance and full year 2007 guidance does include profit [ph] revenue settlements we expect to recognize in the third quarter and previous discussed with you during our last two earnings calls. We also expect the Madison River properties excluding one-time severance and integration cost, which are estimated to be $7 million to $10 million to be slightly accretive to both free cash flow and diluted earnings per share in 2007.

Finally, third quarter and full year 2007 guidance are based on shares outstanding as of June 30th, 2007, which reflects all shares repurchased pursuant to our $1 billion share repurchase program.

For third quarter 2007, we anticipate total revenues in the range of $690 million to $700 million. We expect diluted earnings per share for the third quarter 2007 to be in the range $0.87 to $0.92. This increase from second quarter is primarily due to anticipated revenue settlements related to prior periods which will positively impact third quarter earnings of approximately $0.23 a share. This item has been included in our 2007 guidance discussions with you since late last year.

For full year 2007, we expect diluted earnings per share to be in the range of $2.90 to $3, an increase over our previous full year 2007 diluted earnings per share guidance of $2.75 to $2.85, primarily due to second quarter actual results exceeding our expectations, higher than previously anticipated revenue from long distance and high speed internet products. The expectation of expenses for the remainder of 2007 will continue to be lower than our earlier forecast and share repurchases completed after April 31. Finally, we now expect 2007 capital expenditures to be between $300 million and $325 million.

We work hard to get our telco wireline and capital expenditures in line with the changing fundamentals of declining access lines and high speed internet growth. We will continue to remain disciplined in our telco maintenance capital, while we continue to evaluate opportunities to produce our network for higher bandwidth.

That concludes my prepared remarks for today. At this time, the operator will provide further instructions for the question-and-answer portion of our call.

Question and Answer

Operator

Thank you, sir. [Operator Instructions].

First question comes from Simon Flannery from Morgan Stanley.

Pardon me sir. Your line is open. [Operator Instructions].

Our next question comes from Gaurav Jaitly from UBS

Gaurav Jaitly - UBS

It’s Gaurav Jaitly, UBS. Couple of questions. First, yesterday Citizens mentioned on their call that they were seeing some aggressive promotions in their, rest of the [ph] markets from Charter. Just curious given your relatively large overlap at Charter, if you saw the same… we saw access lines kind of pick up a little bit to 5.2% from just in the 5% in the first quarter.

And then secondly, just wondering if you had any thoughts on the upcoming 700 MHz auctions, if you would consider joining a coalition or just bidding on your own, that would be great, thanks.

Glen F. Post III - Chairman and Chief Executive Officer

Yes, Gaurav, we have seen Charter pick up the promotions in recent weeks and months. And this did have a slight impact because we have access line losses, we do have about 25% overlap with Charter today and… 23% I think overlap with Charter today. And it’s, they’ve been very aggressive, but we don’t see unusual impact. It will be some tough competition, increased competition in some of those areas, but we don’t expect major impacts right now. But they are being more aggressive than they have in the past.

Regarding the 700 MHz, we’re still evaluating whether to participate in this 700 MHz auction in some way. This week the FCC meeting provided clarifications of some key issues surrounding the auction. We don’t really have any major issues with their proposal. However, the Commission has not released the order containing the final draft of the rules, which we will want to study before we determine our best course of action. So we have not made any decision. We are talking with partners about the possibility of bidding. And our focus would be to acquire spectrum covering our current operating areas on a regional basis. But we have not made any final decision.

Gaurav Jaitly - UBS

Okay, thanks. And can you just update us on where your cable-VOIP overlap was at the end of the second quarter?

Glen F. Post III - Chairman and Chief Executive Officer

Yes, based on the analysis of public sources, we estimate our cable-VOIP overlap is in the 30% to 35% range. We’ve seen additional rollout of VOIP by some of the competitors. This past quarter expect additional rollout in the quarters, in the months ahead. We’re not including Madison River in our numbers for the VOIP competition. It is currently very low.

Gaurav Jaitly - UBS

Okay great, thanks.

Operator

Our next question comes from Mike McCormack from Bear Stearns.

Michael McCormack – Bear Stearns

Hey guys, maybe a couple of questions on the guidance for the back half, I think you were mentioning sort of unanticipated reduction in costs. Maybe you could give us a little sense for whether that’s synergies or some other cost reduction that you had not anticipated earlier in the year. And then maybe connected with that, the long distance and internet revenue, why is that you think trending higher than what you thought a few months back? Thanks.

R. Stewart Ewing - Executive Vice President and Chief Financial Officer

Mike, the original guidance that we give included our budgeted operating expenses and our folks have just done a really good job of taking headcount out through attrition more or less, and just been real careful of what they’ve been spending. So, I think we’re more comfortable now that we’re going to come in under budget from an expense standpoint in the latter half of the year. And we’re in turn building that into our guidance.

In terms of long distance and internet revenues, you know we… just our internet customer base has grown faster than we had originally projected. And from a long distance perspective, we’re having some incremental price increases for folks who are not on our unlimited plans.

Michael McCormack – Bear Stearns

Hey Stewart, with respect to the headcount is there… are there other cost reductions as well and if you can, maybe quantify the number of headcount reductions?

R. Stewart Ewing - Executive Vice President and Chief Financial Officer

Yes, there are other items that are lower than what we budgeted, but it’s just kind of all across the board in terms of the amounts. And from a headcount standpoint you can’t really count it but--

Karen A. Puckett - President and Chief Operating Officer

Yes, this is Karen. In general, I would say that the team is doing a very good job through reduced attrition and we’re managing as we have vacancies very well.

Michael McCormack – Bear Stearns

Okay, thanks guys.

Operator

Our next question comes from Frank Louthan from Raymond James.

Frank Louthan – Raymond James

Great, thank you. Just a couple of things, kind of on the broadband. What are sort of your plans going forward? I have again seen some weakness kind of across the board. But what are you seeing, are you seeing any more aggression coming from your competitors? And do you have any particular plans trying to continue to move the ball forward there.

And an update on your CLEC activity out of the fiber business, what are you seeing as far as demand there from both carriers on the wholesale side as well as demand from the enterprises that you are serving. Where do you see that going for the back half? Thanks.

Glen F. Post III - Chairman and Chief Executive Officer

Frank, on the broadband side, there is more competition… primarily it's coming from the triple play as the… of course the cable companies roll out their voice-over-IP. So it's obviously more to competition. We don't think we will see an acceleration in our adds. We don't expect major declines for the rest of the year with our broadband adds as well.

For the fiber business, we are still seeing consistent demand there. We don't see any major changes for the rest of the year. We've seen really good growth, over 20% growth first half of the year. And we expect, at least to the end of the year to see similar growth.

Frank Louthan – Raymond James

Great. Thank you.

Operator

Our next question comes from Tim Horan from CIBC.

Timothy Horan - CIBC World Markets

Thanks, guys. A couple of questions, one the other income was kind of strong last quarter and this quarter. Is this a good run rate? Can you maybe talk about what's going on in there? And then kind of delve into the operating expenses a little bit more, can you talk about fundamentally what is really driving down your expenses, because you do a great job there. Maybe what you are doing with technology or other things that will continue to drive down our expenses maybe on a longer term basis, and how you feel about expenses over the long-term. Thanks.

R. Stewart Ewing - Executive Vice President and Chief Financial Officer

Tim, the other income is not a good run rate, going forward. Two things this quarter that will not reoccur. One, we participated in a cellular partnership where we are a minority interest owner, and that partnership had some adjustments that they booked this quarter that increased this quarter's operating income from that partnership, about our share of it, about $2.9 million. So that was in this quarter, contributed about a penny and a half or so to EPS this quarter.

Additionally, we financed, we sold the bonds to finance Madison River before… a month or so before we closed. So we had, if I remember right, about $1 million of interest income in that line item this quarter too that will not reoccur next quarter.

Glen F. Post III - Chairman and Chief Executive Officer

And regarding the operating expenses, we have done some automation workforce management in the last couple of years that our middle management people have done a really great job, where the employees overall have done a great job in working. We have to reduce our costs there. We did some reorganization in Karen's group last year that really was effective, we've linked [ph] and enabled us to reduce headcount and reduce our costs. So we've made some changes that have been effective for us.

Timothy Horan - CIBC World Markets

And do you think this is… we're going to see it kind of continue over the next couple of years, productivity improvements in this sort of magnitude or was it just a more one-time event?

I also just wanted to touch base on the leverage ratio. It seems like you're kind of getting down to… you're at a really reasonable leverage. I'm just curious how you guys look at that or think about it. Thanks.

Glen F. Post III - Chairman and Chief Executive Officer

Yes, regarding the maintenance of this kind of a cost containment, obviously the more you, the more efficient you get, the more difficult it becomes. We will continue to work at it, more automation and just training employees to a greater extent in a lot of areas. So we see some ways to maybe reduce some costs. But I'm not sure we would be able to maintain this level of cost reduction.

R. Stewart Ewing - Executive Vice President and Chief Financial Officer

Yes, part of what we're seeing in this year is the benefit of some changes that we made coming into 2007 related to our employee benefits. We eliminated our ESOP which was… we were contributing about 4% of compensation for our non-bargaining unit employees to, we increased, we offset that with some increase in the 401K contribution. And also we, our medical cost we're trying to control those as best we can and pass it along. A little bit more of that than usual, starting the first of this year as well.

Timothy Horan - CIBC World Markets

And on the leverage?

R. Stewart Ewing - Executive Vice President and Chief Financial Officer

Well, in terms of leverage, I mean we feel like we're in really good shape from a liquidity standpoint. And our, assuming the convertibles get converted in the next couple of weeks which we expect at this point, that'll put us in real good shape, and then we'll talk with our board in August and figure out what to do with our free cash flow going forward or discuss that with them at least.

Timothy Horan - CIBC World Markets

Thank you.

Operator

Our next question comes from Michael Rollins from Citigroup.

Michael Rollins - Citigroup

Hi, good morning. I was wondering if you could talk a little bit about what USF was for the quarter, state and federal. And then if you look into 2008, do you expect any transitory or adjustments, positive or negative that you could see so far? Thanks.

R. Stewart Ewing - Executive Vice President and Chief Financial Officer

Michael, our USF revenues for the second quarter, the state revenues were about $8.9 million and the interstate high cost revenues were $41.4 million. So we had a total of $50.3 million that’s versus about $50.7 million in the first quarter this year. And we really, at this point at least, don’t really expect any changes for the remainder of this year or early next year.

Michael Rollins - Citigroup

And from a... you had a number of settlements this year hit the numbers. Do you expect any more settlements over the next 15 to 18 months heading into 2008 from what you can tell, any negotiations that are ongoing on that front?

R. Stewart Ewing - Executive Vice President and Chief Financial Officer

No, we don’t, Michael. This settlement is really the local last one that we had related to window closing on access revenues. And at this point we book at our access revenues based on the earnings. It depends on whether our tariff is deemed offered or not but at this point at least, it has been deemed offered and so basically we are booking what we build.

Michael Rollins - Citigroup

Great, thank you.

Operator

Our next question comes from Jonathan Chaplin from JP Morgan.

Jonathan Chaplin - JP Morgan

Hi, thanks, just a couple of quick ones on the access lines. I noticed the access lines declined to down year-over-year which is... given that the second quarter is seasonally tough, A and then B, you have got incremental cable competition in newer markets this quarter. I am just wondering what's driving the improvement in your sort of legacy CenturyTel access lines?

And then getting back to the question that Tim Horan asked earlier on the leverage, in terms of thinking about a potential additional share repurchase program in the second half of this year, should we really be thinking about your available cash to return being the sort of $200 million to $250 million that you will generate in the second half of the year in cash or is there an opportunity to use your balance sheet to that end?

And then finally, on the guidance, the $0.23 in settlement revenues or settlement impact that you expect in the third quarter, I think the comment on the call was that that was included in the guidance. I just want to make sure that that would imply EPS of $0.64 to $0.69, which is down a little bit from what you reported this quarter. And I am just… if that’s correct, I am just understanding why the pressure in 3Q? Thanks.

Karen A. Puckett - President and Chief Operating Officer

Jonathan, Karen Puckett, in terms of the access line loss we reported 29,300 losses this quarter. A year ago we had 24,117, that was normalized. So now we had some true-ups with some reporting and the sale of the Arizona access lines. So our normalized would have been 24,111. So we did have an increase year-over-year.

Jonathan Chaplin - JP Morgan

I think in terms of the rate of decline, it's 5.2% versus 5.6% last quarter on a year-over-year basis. It seems like it's improving on a year-over-year basis.

Karen A. Puckett - President and Chief Operating Officer

I don’t know if the… I understand what you are saying. I think the adjustments might have played in there a bit.

Jonathan Chaplin - JP Morgan

Okay.

Glen F. Post III - Chairman and Chief Executive Officer

And Jonathan, regarding the free cash flow use in the operating leverage, we don’t expect to lever up with the program right now. That’s not in the numbers that are given. We do expect to be able to, if we decide to go that route, there will be cash available obviously for stock repurchases. Our de-levering, and our board will meet in August later this month and we will decide at that point what… how we want to approach the rest of the year with use of free cash flow.

R. Stewart Ewing - Executive Vice President and Chief Financial Officer

And lastly, the pressure on EPS in the third quarter, if you take the revenue settlements out of guidance that’s consistent with basically that the partnership that we participated in this year, the adjustments to that, the positive adjustments to that, in the second quarter generated about a penny and a half or so of EPS, and then the remainder of the decline between the second and third quarter would really be due to just continued… expected continued access line losses, and access minutes.

Jonathan Chaplin - JP Morgan

Okay. Wouldn’t a lot of the cost savings that you had gotten during the course of this quarter kind of roll through on a full quarter basis for next quarter as well offsetting some of that pressure there?

Glen F. Post III - Chairman and Chief Executive Officer

Well, really it's built in.

Jonathan Chaplin - JP Morgan

Okay.

Glen F. Post III - Chairman and Chief Executive Officer

Really already built in.

Jonathan Chaplin - JP Morgan

Thanks very much.

Operator

Our next question comes from Patrick Ryan [ph] from Lehman Brothers.

Unidentified Analyst

Hey, guys thanks for taking the question. Real quick one on CapEx guidance, I think you said $300 million to $325 million. And I believe that was previously at $325 million, not including Madison River, which is I think about $20 million a year. Just wondering why the decline there?

And then secondly, if you could discuss maybe your IPTV trials in LaCrosse and how that’s coming? Thanks.

Glen F. Post III - Chairman and Chief Executive Officer

Yes, Patrick, the CapEx, as we said should be in the… we expect it to be $325 million range for the year. We are seeing some decline, we had some amount in the budget for broadband wireless, and some special projects that I feel that we don’t expect to complete. And we have, Madison River will be about, I don’t know, $8 million during the year. So all that combined, we still think we will come in around $325 million level for the year.

The IP trials in LaCrosse and in Columbia continues to go well. We started our door-to-door efforts in LaCrosse, having good results there. Some communities after a year in service there we are seeing 15% penetration levels and that’s without DVR and without HDTV, which we hope to have both of those by year end in LaCrosse. And in Columbia we have a little over 100 customers in our second phase of our trial, it's going very well and it's being well received by those who have it. And we are on schedule to roll out to the full market by year-end in the city of Columbia.

Unidentified Analyst

Great. And one quick follow-up. Could you just break down maybe what percent of your lines are at a length that’s capable of receiving IPTV now, and what should we need to get that too [ph]?

Glen F. Post III - Chairman and Chief Executive Officer

Well, it's very, very small today. It's just only, we have about I think about 15,000, 16,000 homes passed in LaCrosse and we will pass about 35,000 homes in Columbia. So they are a very small percentage of our total lines.

Unidentified Analyst

Okay thanks.

Operator

Our next question comes from Chris Larsen from Credit Suisse.

Chris Larsen - Credit Suisse

Hi thanks. Just one quick one. You mentioned uses of cash, but you didn’t mention anything about an acquisition pipeline. Are you seeing anything out there and is there any sort of... now that Madison is sort of… well it is completed, you are getting through the process of integration. Anything else that you are seeing out there, and what you might be looking for?

R. Stewart Ewing - Executive Vice President and Chief Financial Officer

We can’t talk about anything we are looking at today, but it has really been pretty quiet out there. We are still very interested in acquisition opportunities. We think there will be opportunities in the months ahead. You never know when something rolls out. But we are interested and will be looking at the right opportunities. We believe the future cash flows can really drive long term shareholder value and we're continuing to look at those opportunities.

Unidentified Analyst

Is there a perfect sized number of lines that you are looking for, or you'll do anything from 10,000 lines to whatever?

Glen F. Post III - Chairman and Chief Executive Officer

I don’t think there is a perfect size of lines. There’s some maybe that the effort's too great, for a very, very small situation. But we are looking at every opportunity and it just depends on a lot of factors. So, basically the returns you can drive over time, things like plant condition, demographics, regulatory situations, those are all factors we have to consider.

Chris Larsen - Credit Suisse

Thank you.

Operator

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

Glen F. Post III - Chairman and Chief Executive Officer

Thank you. In closing, CenturyTel continues to achieve solid financial results in what is obviously competitive and challenging environment. We are pleased to have completed the Madison River acquisition. I believe these assets are excellent additions to our existing operations. We're moving forward with integrating these assets into our operations. Additionally we are committed to continually evaluating the best uses of our strong cash flows to drive shareholder value over the long-term.

I appreciate your participating in our call today and we look forward to speaking with you in the weeks and months ahead. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program for today. You may now disconnect and have a nice day. Thank you.

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