LUMN - Earnings call transcript Q4 2021

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Operator

Greetings. And welcome to Lumen Technologies’ Fourth Quarter.2021 Earnings Conference Call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, February 9, 2022. pleasure Vice the President, my Mike over now Senior McCormack, Investor is to conference turn to It Relations. Please go ahead.

Mike McCormack

Thank thank you Lumen afternoon, everyone. us Good XXXX the quarter Technologies you, for fourth call. for France. joining earnings And

Storey, on Executive and Vice and Officer; Joining Officer. Executive Chief Chief Dev, President Financial are Neel call today President the Jeff and

conference our forward-looking we statements the risk call and and notes statement on Harbor our begin, our to Safe which statements forward-looking filings. I in Before include be the two uncertainties. factors presentation, two may need in fourth of subject attention that risks cautionary XXXX to with slide conjunction this statements call your certain considered quarter slide on to should All SEC

non-GAAP that GAAP financial most comparable be can certain to earnings to the reconciled referring press measures measures, in be found our release. will We

costs Relations metrics in the can Jeff. certain Investor today over our discussed I with to the will turn materials, that, addition, be all earnings detailed the In special which call section website. Lumen of exclude items And as on of found for

Jeff Storey

impact is afternoon, The Good for today’s our growth. is Neel field you financial and invest aggressively change the company fourth On customer the our objective. provide quarter techs, XXXX care, and and discuss joining will in two be for review long-term timing positive with growth. position is assets transactions. want our to believe a announced which plans, capital rapid our sales an we thoughts team, of and update XXXX on team update provide our key our I focus turning this quarter will as clear, and detail, profitable streamline our in topline energized support for for our a on of fourth our announced investment priorities our of few results, revenue. beginnings drive more everyone, sustainable a will brings allocation Every organization, review expectations transactions, new employee call, outlook on focused the functions our us. for I thank we Lumen. on for to revenue

We remarks Neel’s questions. after reserve for will time your

Our quarter our once from quarter, long-term on the said us third forward basis, previously, quarter. provide our again pandemic bringing and the pre was their platform organic an are enabling Quarterly partners way compared to we cases stable revenue our third was to transformation strong technology business customers expertise stated indicators revenue transforming digital and revenue the expect hybrid Lumen, straight-line not Industrial achieve our can sales enable we fourth world-class that growth, Revolution trend well the approach unchanged to succeed. and workloads were levels. confidence that We Lumen a as goals. and new funnel The our is Enterprises as are use the remains necessary adjusting the to Enterprises. businesses for needs, above delivering best-in-class for solutions Fourth do

position for Quantum major can is the you excitement as Lumen As our acceleration. within Fiber high platform a we imagine,

with for meaningful resonating penetration new the At the launch drive and operating time, customers. Markets we the Quantum lower Quantum our provides same is revenue Our experience drive us incumbency costs of and advantage, business. markets will the robust improving symmetric, all-digital durability and segment, a gains. build as help profitability Mass growth cost and

legacy have have footprint, product, supported with in penetration doubling the of our markets. expectation Quantum areas. copper the well by the limited is marketing achieved existing more the in Quantum as performance we strength Even nascent fully activities, penetration XX% penetration Our than long-term for in as we our our

The invest superior we for as of drive market opportunity product a for customers we and attract retain more is to existing future to targeting expect micro from to our new I excitement aggressively. Lumen, our hope and able you feel to pivot can growth. we Quantum and based to Enterprise Fiber the As approach, capabilities significant. be much Quantum

Let’s transactions. transactions our focus poised areas are to business us few announced our we best that These to thoughts growth. the on previously about allow a shift believe of quick for

overall As you pro does improve, Not one-third revenue discounted will forma mix, remains Markets by valuations, the Mass delivered think over but asset about supporting revenue exposure strong revenue be also voice and deeply divested. that mix transactions of to legacy view these market. the the only our other our portfolio our

with delivering. we there’s we and execution. one valuation, current We focused true our While value, get our disagree on are realize it market only way to

both We are impacts. toward expected provide on timing our update good an progress financial will closing making deals Neel and and

have to I flow valuable partner I both five clear growth We we and employees to foundation position onboard strong deploy great a position free in we and top to to our are the we is are hope for help feel priority cash be our the allocation our both as they as success. as capital Apollo, in we lay our been and we in and these quarter, Stonepeak from CapEx investing provided achieve I our significant OpEx proceeds utilize customers invest always transactions. a them and entering and you highest XXXX. that priorities, Last will working goals.

as There’s Fiber. engine. tremendous Let Quantum at here amount up activity Lumen me the rev start we a with of Quantum

our long-term that the the and confident locations for the more coming million readying our year-over-year XX% growth provided will opportunity by revenue our Quantum Quantum to very from our to XX Quantum deliver deliver to are Quantum Fiber and sustainable significant more resulting Mass years. in on our We Fiber from Markets grew business stance. plan much investment. aggressive a over see we than to look forward growth platform terrific remain the opportunity come experience revenue We and

quarter. As of we enabled retained outlined X.X line of the expectation quarter, within fourth the in end XX approximately our million locations had the states, with last

we X with a XXXX, plan year with hitting the that exit pace of million million our as enter rate run to X to million accelerate XXXX. as to locations, ramp and builds Our we of X.X enablements new aggressively goal excitement over per enablement

plan will Our enable will to best-in-breed customer product fully-funded value. believe Quantum higher and we Quantum our experience XXXX lifetime of customer ARPU, and significant experience locations drive lower capability millions that Fiber churn

to our will Quantum objectives. We risk closely suppliers our heavily in Markets and chains and our to Both brand bring experience working stressed, and initiatives. diverse continue Enterprise sales are to product invest very marketing, with we growth valued execute on as the of supply development, customers, areas we and mitigate Mass especially go-to-market the

this pricing pressures do expect to addition, environment, through are In our goals. managing impede exceptions, inflationary we with and some not

compute storage Quantum understand, excited we platforms, we to continue managed for easy service aggressively is and our our are and as Enterprise excitement SASE Our business, Fiber in invest equally but about edge offerings, our security our products. to

deliver network drives over Our bare-metal in customer’s our metro many and human solutions customers infrastructure our existing of competitors without extensive Along which and cost interaction. advantages and customer successfully experience. ultrahigh unique storage digital latency, is we our including minutes and first self-provision digital a with services, We fully capacity launched provide long-haul lines, experience those the across and posture. system, and to self-service ultra-low for believe success new our ordering dense customer powerful need our a compute networking allows core services have edge

contract our is announced recently our for value proposition, Department early $X.X seeing services the that and understand of example. great signs that customers win network are a billion We U.S. Agriculture

and related services the Trust list EIS the As access, XX,XXX a networking, managed country more USDA includes I products to XX-year platform. sales solution, mentioned earlier USDA This over we task remote the services and center quarter of equipment services.\ billion this that IP, had engineering across of broad than computing, security, our Ethernet contact the are the part UCaaS, offered XQ. secure edge program, to cloud locations of another in or under order Enterprise Zero $XX SD-WAN, but and on abroad. illustrative wavelengths, the Solutions delivering we Lumen data, and is managed connectivity Infrastructure strong and voice range solutions VPN, is long Awarded MTIPS, and

sector, in public within deal America year-over-year. our sector, USDA other the public and our expertise up sequentially which Enterprise, highlights include were While North do not the sales both

was for this we December month fact, In sales several area. highest years in have seen the

to growth, very a sustainable and driving part and strategy we long-term. that Lumen returning the shareholders is is the of attractive important Beyond believe share level cash per $X

multiyear said, our which near-term to time. phase, will in we growth, the we think coupled rise for the as topline should our phase, a As ratio us with viewed payout build Quantum payout accelerated ratios over The normalized likely return of more during completion build be discrete project. expectation should the

of to Fiber To we EBITDA of but X.XX reach manage X.XX to neutral deployment be only neutral We inclusive leverage leverage clear, relatively do the II extended. net the times but time adjusted target expect leverage line sheet Quantum plan, to our CAF impact will through to the balance remain continue also is not our ratio relatively transition. to the RDOF times transactions be will of our

to our appreciated. our portfolio hope is and optimization continue asset also will open to but I evaluate asset We opportunistic, approach fully

opportunities no assets both valuation be me only us that clear, Let and clear urgency compelling additional a offer a and benefit. for strategic we will divest pursue to

going shares to reflect that and forward. opportunity we we the want continue do discounted I emphasize tremendous deeply not Lumen our for Lastly, believe to are see

best notice, and if buybacks quarter we over Our prudent Neel return most shareholders. Board results. that, for Neel? remains the believe prepared a to With turn our further I to provides short discuss our buyback to the call authorize will fourth on

Neel Dev

and $X.XXX over transactions a on XXXX financial to executing year Jeff, I expanded points basis will of basis margins significant entered We closing our We billion adjusted drive generated XXXX. you, and year-over-year. focus EBITDA for good our with with XXXX begin in Thank on growth. on full and future summary by afternoon, two XXX a everyone. clear plans

We remaining foreign to and quarter of on revenue sequentially. of sale the last continue adjusted improving during the to our business, in returned through with trajectory, progress flow stock X.X% quarterly declined $X.XXX billion. year again When of quarter, objective for repurchase down the our program. correctional our We facilities our during billion our shareholders currency We make fourth free payments quarter. revenue X.X% sequential the solid cash and delivered dividend fourth $X.X

XXXX with leverage at X.X Additionally, $X.X by the during year exited billion times. reduced we and debt net

We transactions announced aggregate very at also $XX an over billion. attractive value significant with of multiples two

customer X.X% and On declined X.X% decline compute and X.X% the On impacted cloud Within $X October disconnect declined currency facilities Within business, sold impacted been the the sequentially for services, year-over-year a sector services, quarter. basis, declined Normalizing The on the declined the and in flat the on $X.XXX X.X% improvement to sale to basis, year-over-year. of in foreign declined on We full quarter on in revenue total sale third currency benefits for year-over-year in revenues billion. declined declined sequentially. revenue quarter, basis. this was was line sequential showing a revenue fourth a Year-over-year and revenue sequential the impacted business X.X% on driven saw on be the I fourth a and services. sale, year-over-year the we the X.X% correctional X.X% flat the our both have in rate sequentially versus for the Enterprise, with in third primarily managed on revenue XXXX and by which revenue a revenue and which and surge communication declined facilities usage services business. with IT $X.XXX in Mid-market non-recurring by strength in declined X.X% trends in was year-over-year year-over-year sequentially to security have application channel. XXXX. Wholesale a public basis, revenue, large grew and constant sequentially quarter third a a our about to due correctional year-over-year COVID-related COVID-related previous basis, We of X.X% sequential iGAM business, billion. and The in from basis. onetime fiber the of headwinds iGAM at declined and demand the quarter. basis items. year-over-year of declined benefited solutions million. basis. from had the by basis the demand our X% quarter. metrics X.X% by X.X%, sequentially driven to on by calls. large Normalizing X% about X.X% compute fourth in basis would and application few to compared impact in measures fourth and was Wholesale remainder end sequential sequential services. of X.X% continued Enterprise cloud Year-over-year decline year-over-year a large quarter decline the referenced of a a Business revenue million total Turning $XX our were timing essentially quarter, infrastructure Enterprise and On

services, application sequentially, manage these equipment sequential for non-recurring to for but by X.X% for Fiber X.X% the this and declined and services channels channels, services services Enterprise continue data voice network showing revenue is year-over-year. have deployments. professional in year-over-year mentioned and driven services. channels We declined our customers previously and services by declined to year-over-year. customer as fewer We be deployments. we decline sequentially Computer across growth for in sequentially year-over-year year-over-year and declined The Enterprise these saw areas business continued other usage variability cash. both demand SD-WAN Enterprise the basis, year-over-year infrastructure all fourth transition significant grew to due Voice is X.X% increased large VPN by products to iGAM which network and quarter new driven The ago sequentially and X.X% IP environments. higher comparisons impacted hybrid These work The disconnect. IP manage and primarily channels the related as both legacy for to and complex year continued for a primarily include on quarter. COVID-related services, cash.

to revenue fourth quarter X.X% Turning declined Mass Markets, sequentially. XXXX

revenue quarter. fiber Mass broadband Markets grew this year-over-year XX% Our

added XX,XXX we the XX,XXX fourth up customers, During from year the quarter, prior adds Fiber Quantum in quarter.

quarter billion $XX for EBITDA, million activities. special transaction the Special items $X.XXX quarter. adjusted were totaled quarter adjusted separation billion, to EBITDA, compared items to year-ago this related to fourth $X.XXX Turning and primarily was excluding XXXX, of and the in

quarter to continued Capital $XXX drive about XXXX XX.X%. by healthy during of quarter, million. EBITDA growing We margins fourth were year-over-year points for basis the to XX the expenditures

and to continue increased both Quantum as capital we spending efficiencies, the accelerated year-over-year Fiber invested plan. success sequentially focus based and in While on we spending capital build was up

generated to external reporting our of management with of XXXX, make At flow quarter the capital our reporting Broadband and revenue these platform XXXX, our our of and reporting going $XXX Mass increasing focus each million. Fiber Markets the drive our Quantum product of the categories to adjusting we we Other the financial forward importance CAF free two Fiber reasons expect Voice expenditures for changes our In increase build are better year, ramps. as company lot We Fiber completion fourth and Other. and to the the evaluate key Quantum business. In of beginning program. The and align Broadband, are of II cash adjustments

the small our impact, in subsidy be and RDOF Given not in changes its reporting the structure. relatively revenue additional at will time. making our any reporting to category included do this contemplate new Other Voice We

several XXXX, business will rationalization Moving we on portfolio and outlook on the for to the have that comparability. will we complicate as business, transforming pieces year-over-year moving focus

will Before of touch I factors. financial get into I guidance, on those some

million. divested spending to $X.X million When assets are with the We the of reminder, expect close $XXX about of to year. early adjusted as about of year-over-year by third quarter CAF will the this billion all, XXXX. II combined, generate EBITDA a $XXX in expected of ended capital now impact about First XXXX, EBITDA in which in subsidy transactions two

For simplicity results. this assumed half variance deal material. timing we have are to our of we results included related guidance, don’t close first point, be consolidated expect in At

bridging be to divested in are the keep guidance, other expect in year $X.X the the mind. billion. drivers II EBITDA EBITDA, a full our billion to EBITDA and business adjusted few full XXXX, in year adjusted CAF completion to we there addition obvious of to $X.X For When XXXX range to

up Fiber we business. and Enterprise and have scaling our initiatives investments Quantum growth significantly As our for stepped Jeff mentioned,

divestitures, results. impact have the which for separation near-term will and we costs dissynergies, As will

initiatives our As and we divestitures expect lower prior years. we prioritize transformation growth in than supporting to be XXXX, our savings

during capital total the Within on to range of capital $X.X For in billion billion. Quantum XXXX. of $X.X expect full we billion year we spend XXXX, $X to the about that, expenditures expect

expect billion to XXXX. billion full flow range $X.X We in free for cash year the generate $X.X the of to

not required For guidance XXXX, any pension contributions and have we free discretionary flow does not do our any fund, include cash the to contributions.

timing reminder, payments a use, bonus quarter higher typically our prepaid has other As working of by and driven capital expenses. first

range cash the expense We $X.X in billion interest expect XXXX. billion to for of net $X.X

stay close we mentioned, to as transactions Quantum Jeff the business. our and neutral, Fiber expect leverage As we scale

other special for for reimbursement The the In ramp income, growth be and terms services to Quantum fuel transition executing flows. will Fiber Enterprise support about platform return the expect of to that for scaling items XXXX XXXX, services a growth. all these we net closing, our significant for our with third-party prior driven up compared years, to no our impact business Lumen cash on costs is primarily material in initiatives dedicated in divestitures. In our costs to by

costs. addition our from cash business business, from a rationalization in Jeff for and transaction With the questions. the proceeds generated from ready priorities to capital about of free The in As expect we cash are discretionary and the flow reminder, the highlighted. transfer proceeds billion efforts $X free debt transactions support allocation after portfolio we from combination of flow that your that, cash

Operator

ahead. with question of Thank line from Instructions] first Our you. is Please Michael [Operator Rollins Citi. go the

Michael Rollins

Thanks afternoon. and good

As that in you and revenue X just your sales? separately, changes performance? your with priorities revenue evolution and opportunities have year-over-year, in And mentioned the beginning changes trying of the you the relevant? other earlier sequential to then annual sometimes look of more one sequential in where the should to the to investors call, focus Or in curious, revenue, thinking out the the item. customers much changes the Page housekeeping as versus at of is the lay XXXX more year, you in price Is charts and updates are as some about the you think of kind like improve about X just on year-over-year

I think that there were in items. some there wholesale, was a earlier mention one-time

of the you can one-time wholesale Just amount items revenues. curious the impacting if those unpack Thanks.

Neel Dev

Sure.

So I settlements In the onetime. things channel, will the with like that. have you carrier and start wholesale wholesale always

but always just $XX see. there’s more So than back, million million, one-time, we $XX roughly typically what stepping

So that’s wholesale.

question In fair our we obviously, services. year-over-year, terms driven of a COVID amount by XXXX, revenue sequential on legacy versus of in had in your

have we to So first sequential contract to when think meaningful. sequential more and both generally have cetera, pressure, highlighted, be Nothing that, seasonally rebates, highlight, going tend are large always to and to that’s become going tends et -- you quarter cetera. quarter, specific I but and Having et we said forward, as year-over-year rerate the the strong. some fourth some

So we will a call to specific nothing other of that, But out. that have seasonality. little bit than

The the as a I mix transactions, so in the move amount significantly close that is transaction. on will is Jeff highlight other there’s other fair with will voice that improve, revenues we of thing touched remarks his the legacy and

positive a be will impact in mix of terms going that So the forward.

Michael Rollins

Thanks.

Neel Dev

Michael. Thanks, All right.

question. Next

Operator

with Our Fargo. next from Luebchow Eric is ahead. go Wells Please question

Eric Luebchow

split the think help you then investment CapEx that through cost could get I Hi. recurring not, wanted you Thanks flow up how fully it’s more, size year coverage for capital some covered. sense, taking Obviously, Neel, of onetime talk if the priorities. spending. even how fiber on will capital this you about as second, if tightening in business as fiber allocation is up that cycle? we the ramp I just should wondering question. dividend And your And about up free think be wanted even and this dissynergies. cash about just versus to should to that the expansion the And the intensity we if year, Quickly, ramp a beyond between

out $XXX is year. year if II think assets, level EBITDA guide half take contribution, that the of decline get your I divested to billion of CAF about and and $X for from the million you you $XXX about million for the the full

outlook am just I about you. year? should think those how So we wondering full impact the the -- how Thank for

Jeff Storey

and the second then let Neel take I the question. will Sure. Eric, part take first

we value said before, and is comfortable We proposition. Fiber, we few be build, also years. million the we that this of at and have an think the ends and years, it’s starts the the look few $X a ratio, investing our attractive complete to we in we expect as is very think dividend years that the you viewed XXXX sustainable, and are coming part with payout and I dividend growth, already the in As and think to said the shareholder investors mentioned Quantum that a share Fiber in XX project have are should the dividend with next discrete per as we important Quantum over that there. that, the going we so be that enablements and I

think while over with also more it to those And rising we return that We normal expect to those two two the see will payout the near-term, do levels ratio revenue things, growth. things, time. topline in return with to we

Neel Dev

So and if Eric, I think about your think dissynergies, to question on back you if those basis you are will. bit a just deal step on little EBITDA, transaction EBITDA, the

allocated So et costs shared we have for function, cetera.

an the just we investments we it’s we focus focus little think so o terms cost in so of I what already separation go costs are will we to rightsizing is working do of as the IT a going all moving about know bit resources. thing but target be to the those in growth, opportunity we on forward. there mentioned XXXX, business is on our continue that of little for as a bit as we other are And a also and they n of the and And

We transformation. are much not focused on as

so lighter. And a be our will savings little

focus driving we factored will of on business. the the costs savings guidance. so to the out continue continue savings on be don’t those able transformation will our away, focus to and so And and into we go that we to all But of

Eric Luebchow

guys. Thanks,

Jeff Storey

France, question? Eric. next Thanks,

Operator

is with Stanley. next ahead. Morgan question Simon from Our go Flannery Please

Simon Flannery

Good you. evening. Thank Great.

are -- and as this about we doing We Quantum should on hear is did to million think loaded, I the question plans, plans. year build that you So not funding. -- the $X very will it that good faster? you a have or guess build to guess, bill I infrastructure lot on mean, And Fiber the being the still guess much of seen year. -- half the XXX,XXX go this second million? growth revenue X award get we think Should obviously to the about I $X.X million linear to I fairly the why is

seen We some fixed gain traction here. wireless have

see you here, if the So potential. of opportunity a got have you lot with obviously homes

So are cash pace? you transactions that Neel, go hundred think, as of the few get taxes, you from one sort of as taxes. highlighting, of a I what -- cash ongoing $XXX Thanks. should once what’s Does run-rate keeping a And accelerating taxpayer? But XXXX? million and taxes just a to then, I the on complete saw we be about in terms of full up out XXXX that million we thinking

Jeff Storey

the Quantum a plan be make place. while got construction capabilities, we engineering, going to on to Fiber, build ramp linear. it’s Simon, the not have resources to It that in So ramp to takes these sure do to for -- the

be not be either. fully to it’s to loaded linear back-end So going not it’s but going

We at homes, XXX,XXX are business homes call and it, already XXX,XXX, locations. XXX,XXX a pace of,

as starting year, full but get the there’s obviously. end million will going we be that point, to of the So to X toward the a

to but lot There’s a is to hard little going from What a This make We do us right. hard things of substantially. we that it’s it’s not want work. sure loaded So faster? back-end keeps do. it work,

them to have chips. the vendors it want And and with will equipment we continue it’s challenges. work. don’t I we And the hard also that are to and remarks. but prepared supply chain chips with networks mentioned Quantum We and and it an I building build, that getting Fiber there’s do to in but at overemphasize exceptionally see issue, access we good

but manage a faster. also So factor accelerate on constraining that’s to we to will continue how that,

point X.X we by X to end the Now of is million point accelerate main million want a the to homes to year. the of

So run-rate can. into and And to we we to Neel, want fast that to do finishing possibly make cash that taxes? effort large as go the as do going XXXX. want be we on that’s take a really sure you year the

Neel Dev

to most on the cash will have a and Simon, NOLs combination mentioned taxes, part we that income our transactions. that at rate the close GAAP of of is you this Yes. guided what in pretty up past. to assumption. substantial assumption before, going And point, probably as we a the the is fairly a of the And will $XXX we to million our been good fairly has effective our year, cash this But is close good this year operating XX% can it be taxes. taxes see use forward,

Simon Flannery

Great. Thanks lot. a

Jeff Storey

a Thanks lot.

next Our please. question,

Operator

is question Phil Please go ahead. next Our with Cusick JPMorgan. from

Phil Cusick

Hi, guys.

if but this, talk the just of back to into I sort to go me Forgive back about of half. we pace the wanted sort acceleration that CapEx and

You that the be this need past in wouldn’t have an done network year like talked to projects offset. about as other transformation

pace that are exit growth spending this year And so the XXXX in might we I with wanted to the about to start think Can CapEx. that? going sort you of quantify what that and Thanks. to as us reduction be about think we as we help fiber

Jeff Storey

Yes.

footprint. let to certain to projects me keep-the-lights sense Neel me what we type edge year amount the then and give project-based that that talked on US stuff. We XXXX, computing, things or finished our building majority the funding capital coverage model edge the computing. about the milliseconds enterprises more XX of of -- for get but we ongoing and add want CapEx money pass Let XX% funding a spent not first are is a we it. There a project-based. our we let take with we But of lot a of have our than operational a I And is of you capital, of funding, into five don’t capital and on that discrete in success-based call fund. just within

not again year. next are money going that We to spend

being those that services. I what year is selling in because continue locations do, or and we means to successful the do densify in are equipment products I hope we in we Now what this our XXXX, hope

So we spend money XXXX. on that spent XXX,XXX a Fiber, substantial we enable in to amount homes of money success-based. Quantum

Simon’s answering run X We get to enable question. to I homes that and million the money in will about rate spend talked

continue to project really focus will and We on spend there. that

manage projects and that, Beyond out. we in

We starving do those activities. are to anything not

I in investing say OpEx. say also are CapEx. heavily We that I on And on growth. it

product growth investing make brand in have are the strategy, OpEx we effective we selling. We the sure go to things have that awareness, capabilities, of heavily to the all on that into the make sure go-to-market that

the the of in with all that results fourth benefit seeing quarter, are Neel? continuing seeing the are we We to company.

Neel Dev

Yes.

to the... Just underline

Phil Cusick

Yes. If ahead. follow go up could sorry, I --

Neel Dev

billion up we And more, permitting, up more be in means The for spending really just those going we and Quantum Fiber we faster, prepared be combination lean that constraint can underline constraint. think cash we I we that we we that ramp won’t mundane my will on anything. the Fiber. are look if you that Jeff Phil, extent remarks capital the if No. point is constraining I scale and guidance not into to things to things the that made to provided. we in the it our on scale construction, mentioned for of about that like it. Quantum easily can things scaling. spending proceeds, That free have and at end $X are the focused And getting deal built, flow the are we can those

Jeff Storey

are enablements and comment, then Phil, In other we driving ask million in the one we those. questions existing follow-up can meantime, on penetration our have you follow-up your X.X just And focused that

to but homes the make -- the We in penetration, that month. that to sure turned existing those driving just want XX% focus in penetration we existing up last about includes at on we that continue footprint. are We

Phil Cusick

this just quickly, can follow again, of Thanks. to If run think the I rate am year. exit trying up and I

it run are CapEx in that -- of Is You there the have Quantum. projects in still this away? sort $X million next Quantum? could about builds, fiber sort there we to I rate year in $XXX happening of, seems year about peak other next on am like are that talked about, I be mean, exit could should CapEx. also CapEx but of we dropping another thinking the being about think Or billion year of think

Neel Dev

every support not our year. Phil, is on the there think plan, so like capital that priorities same key Jeff point I we dynamic, So the is it’s said,

for say, And intensity. more lot the on a XXXX. year, function lower were at more example, the edge, I -- we investments lower of this success-based investments, step would a in it’s So much made,

rest you success-based. without that will a specifics discrete will Quantum We and but ramp the view I around are into project, the So of dynamic right, think as be will getting be plan do XXXX, up.

Phil Cusick

Good. Thanks, Neel

Neel Dev

Thanks, Phil.

Next question.

Operator

Our next Barden with of ahead. David go from question America. is Bank Please

David Barden

taking Hi, when we us the alongside out are maybe if about question, to you of the $XXX one any the give I guess dividend half the minus question. on of the of and divide a the that of first it Jeff, the about taking I free then that you half then second is model year, for million guess, cash is CapEx would million be, kind the And could color side. the it need covered, from flow we the in guidance, flow some guys. second barely if that so EBITDA, covered. shared Thanks of we the year thinking Neel, kind half revenue $XXX the the little much and billion second stuff be $X.X the the take cash subtract at says that of

buybacks from. buy it wondering if stock up about could elaborate talked got the mix that that if back to That you be with of you. kind about you helpful. You a little I bit money where would point? Thank that to on was Would would the Board. being in lever come

Jeff Storey

decide to David. might the unfulfilling to the do going not to Let one I growth. going investing decide hope and the for second not I very on first. being am very I priorities on I our -- capital be first the we Board speculate is answer, I clear. what and allocation clear me do going am am in question this to how an sorry, it. am might

So look the we investing as we in are Fiber. very at to committed CapEx, Quantum

very We SASE computing to and few those solutions investing of and we edge are significant years. over types where IT from can committed come the in and think things, next growth

by dividend and want to out reduced the dividend million the about our last talked we maintain a year. our have that about point will dividend. we Secondly, obligation $XX I buyback

am to additional it’s appropriate, what just we not want the to buybacks. not where on we maintain we I plan then maybe And Board will to the know if where exactly we plan are issue we leverage-neutral, by where that’s it. not come view how but or relatively going speculate But we are, are. up with So buybacks. to That meaning in that exclusive I also want the would that And factored think a roughly make would be you we is are that. an just roughly to to open dividend.

Neel Dev

But results. billion, I our you don’t David, on our is EBITDA, am to guidance know of have we our guidance EBITDA revenue consolidated for year’s so first into your half guidance on for $X.X get we provide not assumes assets. divested that question, like worth guidance And in said, expectation revenue going I and providing

Jeff Storey

point. one And other

We billion sources and are for are the there transactions two so of are getting doing that $XX.X other we funds.

David Barden

about Apollo could of the kind the follow-up. some that revenue margin it grow? quick of that will fair portfolio, higher Got in business on just, to And maybe a investing have of is than if this on say just margin the have, particular, this benefits be the the are be going portfolio of out which it. would getting you portfolio, that I Based mix you talked one to to kind you thing,

Neel Dev

are you our EBITDA a right. Yes, Generally, It’s margins. revenues higher business. legacy higher margin are

forward. also post have in So to a yes, going expand will will transactions, see opportunity the dip margins you we means margin, EBITDA our more which

Jeff Storey

Quantum Fiber also expect we successful. be And to

us. It at a moving us lower a of are we us We to opportunity those those you to And for are us in tech helps markets. higher a If build operate, that customers helps have moving incumbency of build. people them. cost, Most those have. incumbency. big lot all-digital the states markets. are we we at It have and and that markets sell. retain, More of us helps are experience helps the They markets see things we couple going growing look

so business. expect our things And from we Quantum good

David Barden

Thanks, it. guys. right. All Appreciate

Jeff Storey

next question. France,, David. Thanks,

Operator

ahead. with Batya go question Levi is UBS. from next Please Our

Batya Levi

left subsidy the equipment approved, subsidies in I subsidies. Great. and the And Thank model? the you should you. year extent remind think include this the Can get next you year in provide pacing that more you year? about would second color the in $XXX And the how foreign To and think maybe can much cash With Thank quantify the are applied million the could through planned that you. investment we and gone, dollars on some for question how it just guidance for how for does to come off that for network. you it? growth us specific replace you account

Jeff Storey

Batya. lot in there, a There’s packed

what our come investments. giving going Quantum could are plan Fiber to guidance investments in But So to XXXX? We ramp XXXX. make Fiber Quantum we XXXX do off in not that for are we

plan We and have is our we by said XXXX that. end said plan basis that year X run do at X the homes, million X.X to million in the rate for then year. the of million We to a

for giving million. we we an So but how expect expect not we on the Neel, indication we question what of we are forward-looking account you have build. take let guidance, will how $XXX you and given to I do

Neel Dev

Yes.

keep going to will CAF about that divested mind, million question is I -- roughly a part significant be II Obviously, million. is the but $XX in of to RDOF forward. CAF just that move assets, not year, II so your with think was the On other it’s going material RDOF. $XXX

we the of that. working reimbursement, on equipment details still terms In the through are

So on -- probably that’s there’s comment too that. premature to

Batya Levi

Got it.

in the could provide part the any way CapEx could around some this that? follow-up hit but on of quick investments. appreciate terms that is the color you one year, OpEx I Just there part,

Neel Dev

Yes.

we like all is that’s the and our in -- the to into those and little little trajectory EBITDA to but but half the different I of materially -- mentioned, step guidance. think a outer maybe making second be bit, years year. not going are of investments, Jeff EBITDA And to ramp start be So are revenue reason in it incorporated improved confident higher will But a we that. the whole quarter-over-quarter,

Batya Levi

Okay. you. Thank

Jeff Storey

France, Batya. question Thanks, next please.

Operator

Thank you.

Our Please Deo next Nick go Del is with ahead. MoffettNathanson. from question

Nick Del Deo

One Neel. target million we Are turn? things What sort understand about? for taking for coming And an talking quarter overstate your Or think of about staying half Thanks passings to it. relatively my chain? issue if you guess the if for stay means was supply could should but said you is what’s million one on think to the a help generally, for leverage-neutral? supply what more $X about Hi. Jeff, it’s improving? that better on in context I stressed? Neel, I your outlook supply you that on $X.X wondering turn, the guess, balance want in And then we I the achievable you chain chain, questions. is the didn’t of us a predicated relatively years, as and situation Jeff

Jeff Storey

Yes.

are of I really the to we orders, that year need. Months issue, that are fronts focusing something our and working full attention enterprise us. to that the on Nick. work them deliver the supply vendors Markets mitigation by ago, continuing don’t that take event side nine-month and are -- and closely side, and have unable general are we let in on with to the they and and orders Again, on sure and overstate consumer want that put I plans first we this, chain, the But where the vendors. most business. to in attitude we for to my closely to put get that we vendors that the So in all for of it me but with it’s Fiber on equipment we towards resources the the Mass one, don’t On vendors want chain, vendors we we often early supply queue we in making ensure the side and were monitoring on side, we paying got see

to companies it a orders. But And an some as We that, Neel? to then we one factored that are as plans highlight make working is our I starting we it’s sure to have off real on are we put hold mitigation issue taking plan. that our see build in new to mitigate. will see into

Neel Dev

transaction. think X The pretty since we the the since were business the On exited of Level the down roughly since look have played of -- at $X our plans, about point leverage good announced close Nick, you key been calibrating $X at about X.X, if to is And we X.X leverage, billion XXXX, profile. we about debt billion deleveraging I we we we our XXXX, around about

legacy fair though So divesting really we amount haven’t up. revenues, of levered even we are a

about If you and business. infrastructure going think to Quantum high-growth be business Fiber, that’s a

de-averaging to about our always think appropriate whether about you going leverage forward. and that’s So have think

now the is Our view right probably X.X assumption. a good is

Now have in that it be code. we that roughly will said zip

fluctuations. is that until it the some see going Jeff and changes several investment our any times It don’t to upgrading are fiber is copper it’s an is cycle this the But at change you a So might business network project. point. discrete truly and long-lived significantly, mentioned quarter-over-quarter, need asset. we see to like we profile through And has a

so little And fluctuating as as we we the do we bit okay leverage that that, a are fund build. with

Nick Del Deo

Okay. guys you, Thank

Jeff Storey

Nick. Thanks,

Next question for us.

Operator

from with Greg Please question Williams is next ahead. Our go Cowen.

Greg Williams

Thanks questions. for taking Great. my

dividend. the the goals Home the changing build is is we should builds to one of couple a Home XX%, your on the First staying just I markets up for your commitments and escalating rising you if Fiber to it’s and leverage-neutral rates. rate on Fiber think marketing. the question have you are environment? sheet nascent balance your and just through noted as How priorities mean, Second and your here, the you capital unlimited allocation amid penetration about and

growth terminal So engine, your just what penetration longer-term targets marketing cash as as in the that and about you years? revenue Thanks. or inflection flow free penetration think targets we your outer are ramp-up

Jeff Storey

Okay.

let So penetration. one rising Greg, and will will take I rates, the take third you Neel, was? sorry, I -- I am

Greg Williams

and Just flow. about think year the penetration inflection revenue cash the outer I as your free

Jeff Storey

the free can supporting federal willing flow to of are It’s on weren’t we be we side. are to why are driver That’s Quantum success. in investing blended initiatives It’s government. the our the retained average free why why after. a are we drive going with always long-term Okay. relationship that’s flow free XX% Fiber, -- think because Penetration we investing focused But we are divesting properties is states. is we primary or are divested Enterprise are divesting is that at but for investing think invested on have that we is sustainable they flow. we cash the expect new XX are added reach we be while. That’s it. in invest We cash indicator we the business cash business of flow. long-term homes, what that sustainable And why it ones always Markets all, steady just to when of to growth level a we the cash tolerate. that that have we for new today. with every been why Well, and why growth investing we first it’s That’s is are XX% But state, locations Mass they we we have marketing we at of for north will free

look effective in doubling you we symmetrical capacity our penetration If to marketing, just traditional our customers. with competitive product even limited far of at of and the very and we consumers a business like for are work-from-anywhere rates have, needs expand they And the have the the for areas. for And quality our are product businesses product we that continue copper environment. nature is the better

With bundling of is providers, video the of becoming abundance streaming less relevant. the

addition world-class rising our in NPS the customers, we that give all-digital of us factors in the lots of see factors that confidence XX%-plus lot on a experience offering see to we to high are so our Neel, And great we scores, rates? numbers.

Neel Dev

Yes.

debt about is One, points. XX% fixed. of So a couple our of

billion fact and combine years our the the have of in If you last we that going about three and look paying terms be very needs you that of a are tapping profile, refinanced maturity we significant at the fact minimal down market. we debt, the amount to in $XX-plus that with

So -- environment. in a our balance I well-positioned think negotiate terms of sheet for in to we are rising very rate

Greg Williams

you. Thank Great.

Jeff Storey

Operator, next question?

Operator

go Our with Please next James. Frank is from Louthan Raymond question ahead.

Frank Louthan

out ask of about to want Great. and the Thank growth Quantum you. to I I take topline Fiber it. wanted term longer

you side, struggled to the growth. enterprise some set going to will But to three close that the of sure goal the opportunity. That’s to these growth show for from revenue topline your effect great in two next I over XX-month you am to goals a a have topline hit aggressive for years post the you that or be change will can are many to deals, really have there. XX% what differently period. show be meaningful years able growth You which doing overall has business?

Jeff Storey

the that machine-to-machine US for to machine and as Well, of XX% customers. for Industrial I their our our control applications milliseconds AI applications talked about It’s makes data. all a XX%, analyze ability on That our the network. within makes like edge acquire, their that learning today computing, before, enterprises and Revolution real into customers act But and enter Xth some possible things possibility have are they SASE. X things XX% and -- of

customer to they It’s move a cloud to connectivity to Dynamic and IT of to which premise variety more it customers continue manageable enables and service. of and do helping -- for It’s security cloud a easier making that providers. connect capabilities secure an It’s things our really is use capabilities. and very at environment, will to like That’s the maintain solutions We more enabling technology, orchestration Connections, network it’s capabilities. software-defined for complex them network-as-a-service. access SASE it as customers but connectivity with networking our those in service their that us from buy of and their

launching host success showing are a of really it’s that things So and kind we of in.

Frank Louthan

are -- new products are bringing significant you the again, to sales has you but number of are of been going network with so about this competitors? a while, several are you opportunity hiring of these to change sort mean, products versus I that new what’s that market are that’s years? -- proximity a people that different saying for case ahead your are or new are So there the last you

Jeff Storey

different. so but there. of fundamental There’s products the the above, Well, nature nobody of else out all the are

proximity It’s of facilities has -- else out computing while there’s for few there that been of for within You of but while. network a for said the there a us, customers. edge couple the has milliseconds been nobody proximity there network a a

service that’s access integrate or solutions. are network a provide able to those been capabilities. into nobody different as there so security And out There’s really

and focus there’s nobody people we I’d in so continue that. helping will better build and on their argue And And Lumen. orchestrate connectivity manage needs to networks than

in so And experience. I’d we throw to all-digital the will continue also differentiate.

it’s hoc leave brings VMware Our partners ad world’s and I for machines, whether of through our different for feel we virtual want wireless I best bad not capabilities. exhausted partners And when anybody an the applications, customers But we list. ones Lumen I bringing for platform have start we great out. am partners But don’t I listing some to because to going or got partnered. always to go got those great types

And so solutions. package that And have think of are in the are don’t capabilities. think people thinking those that out right all there there I I you it’s other total

Neel Dev

Frank, Thanks,

Frank Louthan

Thank much. you very

Jeff Storey

more. France, one we have time for just

Operator

Very with be And Please the line Tim will last Oppenheimer. Horan our then ahead. good. go question from of

Tim Horan

and new of a I were predicated kind Thanks, guys. what use great?. about some The what of the seeing that cases? growth you would you for cases of can talk the on maybe edge be color there, compute out are areas product, new use Because guess infrastructure. uniqueness lot on Any

Jeff Storey

Yes.

different We of are lot seeing a use cases.

their storage. and capabilities are to storage very want of computing important. data. First store all, They Edge

at store their the process from want We all traffic can own they want that data of but proximity camera utilize close haul see and want And of in-house every how to their restocking? Our stores. those data they want exploring retail store the miles all benefit what facilities. cloud don’t customers compute can compute does. also they that they center and build Now the they They feeds, shelf shoplifting that’s want and want They remote resources, or some data our feeds their to to How take -- have resource. to information of that looking thousands center. don’t their edge in video to their it? to store their within for of their don’t watching take one to are to a for customers it own all of their

us market, very so and for looking slow to resources them -- very us hauling connectivity it they help take compute country to short aggregate across build within entire quick forth. the an and So very come to and

the are so some those And cases. of use

And be data is already If think the that And applications want about of Revolution, just exploding. I mean, the you said it’s is exploding. exploding. amount I to to use data fourth customers the and this, that data to our that act Industrial that data. that. are all to acquire is what to that They that’s And edge do and and helping effectively. they applications able on our quickly analyze want want about, them data compute

are metal. we with bare So starting

moved into have storage solutions. We

all will to We the edge continue and sorts other capabilities. machines with augment computing of virtual

on manage that changes. will agile of environment, that We hybrid that can orchestration in managing effective be and customers helps. really layer be have top their they environment so our really cloud the that IT their IT to Hope response in

Tim Horan

Thank you.

the for homes that side, What you enable be? subsidies homes. fiber XX help percentage million infrastructure maybe will million to bill the here that of or that get does XX expand On your And homes?

Neel Dev

to have that it’s too million, Tim, transaction. But gets XX urban we $XX mean that’s million the bill. of infrastructure large the kind The the $XX doesn’t about post But the on total think, million Yes, opportunity. early I the areas.

different continue we to we evaluate the to reduce build will of continue we look build and kind cost. at footprint As also the out, technology solutions

will we continue so as it evaluate that aspect well. And to of

Tim Horan

Thank you.

Jeff Storey

have Lumen. wrap-up. call of all, today, the sense hope get we me here that you let on the a at excitement that So I

We creation value the our and are poised deliver our and not strong in for expect also growth earnings growth give but business investments in to for revenue stakeholders. only

will the your for we our are progress so I see we today. joining interest We of results. thank all what call, excited about end you appreciate Lumen. doing. in that, in And we So are all With

Operator

call. to We everyone ask disconnect a the does using everyone. lines. Lumen please that service your This you like would conferencing for day, We thank conclude the Have for and conference great participation today. your

Lumen (LUMN) 10 Feb 222021 Q4 Earnings call transcript