Q1 2021 Lumen Technologies Inc Earnings Call
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Greetings and welcome to the Lumens technologies first quarter 2021 earnings conference call.
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As a reminder, this conference is being recorded Wednesday may 15 2021.
It is Tom my pleasure to turn the conference over to Mark Stoutenburg from Investor Relations. Please go ahead Sir.
Thank you France.
Good afternoon, everyone and thank you for joining us for the human technologies first quarter 2021 earnings call.
Joining me today on the call are Jeff storey, President and Chief Executive Officer, and Neel Dev Executive Vice President and Chief Financial Officer.
Before we begin I need to call your attention to our safe Harbor statement on slide two of our one Q2 thousand 21 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 and the risk factors and our SEC filings.
We will be referring to certain non-GAAP financial measures reconciled to the most comparable GAAP measures that can be found and our earnings press release.
In addition, certain metrics discussed today exclude costs for special items as detailed in our earnings materials.
All of which can be found on the Investor Relations section of the aluminum website.
With that I.
I'll turn the call over to Jeff.
Hello, everyone and thank you for joining today's call I'm going to take a few minutes at the outset to share my perspective on the quarter and some of the key value drivers IC, not only and our business, but also with respect to our capital allocation and inorganic strategies after that I'll ask Neil to walk you through the details of the quarter.
And key drivers for the remainder of 2021, and we'll open it up for your questions.
Before diving into our results for the quarter I wanted to discuss a few points coming out of our Investor day in April and I Hope those of you who were able to join us and a better understanding of the markets products and services, we believe will drive our future growth as well as a sense of our conviction that we have the right asset.
People investment plans and execution strategies to grow both revenue and shareholder value over time.
In the past we reviewed during our analyst day, it's pretty straightforward. We are combining one of the world's best fiber infrastructures, our deep global interconnections to eyeball networks, and our increasingly robust lumen platform to build the infrastructure necessary to support a full range of fourth industrial.
Pollution applications and use cases, including artificial intelligence machine learning augmented reality, Iot and unified communications.
As of today more than 85 per cent of U S enterprises are within five milliseconds latency of our edge cloud facilities, we are well on our way to reach our end of the year goal of 95 per cent of U S enterprises.
Our fiber enabled edge infrastructure together with our embedded security capabilities and adaptive networking services allows lumen to deliver a differentiated solution set for expanding market opportunities and we're excited about the growing market for these services and our ability to meet those.
Yes.
And those who are unable to join our Investor day I invite you to go to our website to review the information we share.
And personally bullish on our approach and Leverages, our greatest most unique asset one of the world's largest and most powerful fiber based networks to drive growth and both core fiber based network services as well as adjacent services, such as security and edge computing that are greatly.
Enhanced by our fiber network.
The demand for these services is growing and we are investing into and are well positioned to grow with that Martin and I believe it is a compelling pieces.
At the same time I understand our business needs to deliver topline revenue improvement today, while we delivered strong EBITDA and free cash flow and the first quarter revenue results don't yet and meet our expectations Neel.
Neel will go into details and I don't want you to hear directly from me that we are not satisfied and are focused on growth.
As we've mentioned on previous calls COVID-19 related lengthening in sales cycles across both public and business sectors continues to create near term revenue uncertainty.
For example, public sector sales at the end of <unk> 'twenty and the first couple of months of <unk>, 'twenty, one where light where market share takers and the public sector and government slowdowns have created fewer opportunities to win New awards. This especially affects the onetime revenue, we often see at the beginning of the new contracts.
And which typically includes professional services and equipment sales and installation charges.
Similarly, the state local and education and customers have naturally focused on all of their resources until with response, we believe the pause in these sectors will prove to be simply one of timing.
Well, we all began to learn about COVID-19 and the first quarter of 2020 and nature of our business and sales cycles makes the effect of COVID-19 more of a 2021 event for us as we see the U S. Beginning to come out of the pandemic, we expect to see improvement and the second half of the year.
And also you these details to provide color on the quarter not to rationalize. The result, we are very focused on revenue and expect to accelerate growth, where we invest but thus far our growth is not at the pace required to overcome the declines in voice and legacy data services.
We have the assets the products the people and processes in place to drive higher levels of revenue growth and now it comes down to execution.
Beyond revenue, we are continuing to do a lot of great work to improve the fundamentals of our business and to drive long term growth. We have continued to expand the reach the power and reliability of our world class fiber infrastructure and fiber network is at the core of who we are and as the engine that will drive both our.
And our customers success is among the best and the World and we make it better every day.
Our lumen platform allows the enterprise customers to seamlessly deploy the connectivity the infrastructure and the applications they need to transform their businesses to the new realities of the force I R.
We have enabled key products and partnerships that drive full service solutions for our customers and integrate the network within their cloud applications.
We have begun to deploy the automation and customer experience that will define our future.
Our business. These changes have driven both higher levels of customer satisfaction and enabled us to maintain strong EBITDA margins.
These initiatives are ongoing and I believe demonstrate we're doing the things required to drive long term growth and revenue EBITDA and free cash flow and shareholder value I'm proud of this work and believe it will define our future success as I said earlier, though we have a strong sense of urgency to accelerate.
Top line growth, we are seeing positive results and our customer interactions and early success with our edge cloud efforts as an example, our S. E. T Alliance has led to the on boarding of major bar customers on the lumen platform bars like our customer Christine rather than hear my views, though I thought I'd just share and <unk>.
And that quote from the customer.
Through the entire process, we've been impressed with the alumina offering their insight into our business demand and the quality of their team, resulting in a packaged offering that targets the key challenges facing value added resellers and our market space.
Obviously I liked to hear customer quotes like this but I also want to point out that this is the exact intent of our entire lumen platform.
We understand the focus on near term revenue, but believe to singularly focus on that topic overshadows. The many other positives and our business.
And I'm going to belabor. This point, we shared with you our view of the sum of the parts of our business last year that information is still on our website and I would encourage you to give it another book.
I think that the simple and straightforward analysis speaks for itself and the market value for assets such as ours continues to support that basic view on market cap less than five times, the midpoint of our free cash flow guidance and our current EBITDA multiple and does not reflect our extensive fiber infrastructure or the growth.
And so we highlighted in our analyst day. Moreover, we have a strong balance sheet enabled by our deleveraging initiatives.
Given our conviction around our growth initiatives and our equity valuation I'd like to share a few thoughts on capital allocation of course, our first capital allocation priority is to make the investments required to drive healthy growth and returns within our core business. These investments are not linear from one quarter to another.
And we expect 2021 capital investment will accelerate from first quarter levels.
I'm confident we are investing and an appropriate level to support our growth expand our fiber network and enabled the systems and programs that will continue to drive higher levels of sales customer satisfaction and operating efficiency. We are committed to investing in growth beyond the investing and the business were also very.
Focused on our dividend as a key element of our capital allocation strategy, we still get the occasional question or comment about the sustainability of or our commitment to our dividend.
We believe this positively as I'm sure you can appreciate it's difficult for any company to make completely unqualified statements about their capital allocation policy, including dividends and we're no different and.
That said I think we've been clear that we look at our current dividend level as both an appropriate capital allocation approach and an important proof point about our confidence and the future of our business.
And with the current payout ratio and the third is as a percentage of free cash flow I think the question about sustainability answers itself.
We believe the dividend is an important element and our delivery of value to shareholders and that the current level of dividend is supported by sustainable payout ratios.
Two we've been focused on strengthening our balance sheet and reducing our interest expense and we've done a lot of good work in this space since announcing the deleveraging plan, we've reduced 4 billion and debt refinanced more than 20 billion and improved our maturity profile and reduced cash interest expense by almost 600 million.
Per year.
This obviously enhances the financial position of the company and is very beneficial to our free cash flow profile.
We did what we said we were going to do here and there is no question in my mind and it was the right thing to do to sustain long term value in terms of interest cost savings coverage ratios and credit profile, we have largely achieved the outcomes. We targeted with our deleveraging plan, we are maintaining our debt to EBITDA target range and <unk>.
Spec to get there over time with a combination of EBITDA growth and debt pay down.
Our cash flow profile and balance sheet improvements give us the flexibility to reassess our capital allocation after investing and the business and supporting the dividend given our conviction around our some of the parts analysis fiber asset valuations and our business plans, we believe our shares trade at a.
<unk> discount to their true value as we continue to progress toward our leverage targets. This naturally leads to discussions with the board about share buybacks. We've made no decisions and are not making any specific announcements, but it is certainly part of our discussion.
Finally, I'd like to talk about our approach to inorganic opportunities to grow or unlock value. You've heard me say before that we are constantly evaluating alternatives to enhance shareholder value and are open minded including divestitures.
I know you hear that phrase from virtually every CEO and that he can just sound like CEO talk and and I understand that point of view, but I want to be clear that we are actively looking at selling non core assets to unlock value and our business further accelerate deleveraging and implement potential buyback programs.
That said, we have been and will remain disciplined we have confidence and our future and don't feel compelled to undertake any specific transaction. If we find transactions that are positive to shareholders, we wont hesitate to move forward.
Let me summarize before I pass it over to Neil we understand we must improve our revenue trajectory. We are focused and then flinching and our assessment of what we must do to drive that change and does not happen overnight and a business such as ours, but we know must improve at the same time I have strong personal conviction that we are doing that.
Things required to position lumen for the future we are expanding the reach and capacity of our already powerful hybrid network, we are improving our product set and transforming our customer experience and reducing our cost of delivery.
And again I will highlight that we have a strong cash flow profile and an improved balance sheet that allows us to invest in the future of our business.
While we reposition ourselves for long term growth via the lumen platform for enterprises, and quantum and fiber from mass market. We will also continue to maintain the discipline required for us to deliver value to our equity holders not only through growth, but also through inorganic options the return of capital through dividends.
Ongoing reduction of leverage and should we decided as a better way to allocate capital and the possibility of share buybacks.
With that I'll turn the call over to Neil to review some of the details from the quarter Neel.
Thank you, Jeff and good afternoon, everyone. Let me begin with our financial summary on slide four for the first quarter of 2021, we delivered solid adjusted EBITDA.
And expanded adjusted EBITDA margin on a sequential and a year over year basis. We also generated solid free cash flow based on our progress on the first quarter, we remain confident and our financial performance and are reiterating our outlook for the full year 2021.
Turning to revenue on slide five total revenue and the fourth quarter declined three eight per cent grew 5.029 billion.
Adjusting for the sale of a significant portion of our Correctional facility business and the third quarter of 2020, our revenue would have declined three six per socket.
Business revenue in the first quarter declined three 8% to 3.59 and $5 billion or three 5% adjusting for the business that I just mentioned.
Our overall business segment revenue performance was impacted by lengthening sales cycles and the current environment that we mentioned during the last few earnings calls and our recent analyst day.
Within our business segment or Gam revenue decreased two seven per cent compared to roughly flat and the year ago quarter.
In addition to lengthening sales cycles, our revenue performance. This quarter was impacted by some CDN re rates and a large customer disconnect.
Large enterprise declined 3% compared to a growth of two 3% and the year ago quarter.
As Jeff mentioned revenue performance was impacted by lower sales and completion of several projects and public sector.
Within computer on application services, we had a few COVID-19 related projects winding down.
Sequential decline and fiber infrastructure services category was a result of nonrecurring revenue ramping down from completion of several network deployments without the corresponding benefit of similar revenues ramping up from new sales.
Midmarket and enterprise declined five 9% compared to six 5% and the year ago quarter.
On the Correctional facility business L. I mentioned impacted mid markets, but was largely offset by a strong quarter for nonrecurring revenues for equipment and professional services.
Our wholesale channel declined four 1% on a year over year basis compared to six 6% in the year ago quarter.
This quarter benefited from nonrecurring revenue from a few carrier settlements.
Moving to slide six computer and application services for enterprise channels declined two 3% year over year.
As I mentioned performance was impacted by CDN rebates and the large customer disconnect and our OEM channel.
Along with completion of COVID-19 related projects and the public sector.
As highlighted in our analyst day. This category includes cloud edge and a number of our newer capabilities and we expect it will take some time to get market traction.
IP and data services for enterprise channels declined two two percentage year over year.
Performance was impacted by lower sales for hybrid networks.
Enterprises deal with uncertainty related to the future of work.
While churn remains relatively stable for traditional VPN networks, we continue to see delayed decision, making for new SD Wan and hybrid network sales.
Fiber infrastructure services for enterprise channels grew one point and 5% on year over year.
As I mentioned and my channel remarks sequential performance was impacted by completion of several large projects and all.
Our public sector vertical within large enterprise.
We continue to manage voice and other services and.
And the wholesale channel for cash.
Turning to mass markets on slide seven first quarter of 2021 revenue declined three 8%.
Within the mass market consumer broadband revenue grew one two per cent and SPG broadband revenue was flat.
We are very focused on the continued rollout of our quantum fiber product for the quarter, we saw sequential growth and fiber customers by approximately 40000.
We exited the quarter with about $2 5 million homes enabled with fiber and 715000 broadband customers on fiber.
From a mix perspective about 15% of our mass markets broadband customers are now on fiber.
As we have mentioned before we expect that future performance will be largely driven by our continued success based investments in our fiber to the home and small business and execution around driving penetration of our competitive assets.
Turning to adjusted EBITDA on slide eight for the first quarter of 2021, adjusted EBITDA was 2.1 and six 5 billion.
Compared to 2.209 billion from the year ago quarter.
We continued to expand adjusted EBITDA margins during the quarter, which grew to 43, 1% compared to 42, 3% in the year ago quarter.
We continue to invest and all the product channel and customer experience initiatives, we highlighted at our analyst day, but we're able to more than offset those investments with our continued focus on transformation savings.
Capital expenditures for the fourth quarter of 2021 were $716 million.
As we have mentioned a significant portion of our Capex is success based.
The lower sales from delayed customer decision, making also resulted in lower success based capital spending during the quarter.
We also continue to see benefits from our capital efficiency programs.
In the first quarter of 2021, the company generated free cash flow of $850 million.
During the first quarter, we continued to make progress on our deleveraging initiative by reducing net debt by more than $460 million.
In January of 2021, we also issued our first sustainability linked bond, resulting and interest cost savings and highlighted our strong ESG program.
On a year over year basis, we have reduced net debt by $2 1 billion.
As Jeff mentioned, we are pleased with the progress we have made towards strengthening our balance sheet and credit profile over the past couple of years.
Turning to the business outlook on slide nine we feel good about the progress to date and we are reiterating all of our 2021 financial outlook measures.
Specifically, we remain confident about our adjusted EBITDA target of $8 four to $8 6 billion and expect future cash flow of 2.823 billion for the full year 2021.
In summary, we continued to deliver solid EBITDA and free cash flow with a strong balance sheet, we are investing and the business with the objective of improving revenue trajectory and delivering long term EBITDA and free cash flow per share growth.
With that we'll open it up for your questions.
France would you please explain the process.
Thank you if you would like to register a question. Please press the one followed by the four on your telephone you were here with three Tom prompt to acknowledge your request for.
And for your question has been answered and you would like to withdraw please press the one industry.
Our first question is from the line of Betcha Levy with UBS. Please go ahead.
Great. Thank you a couple of questions.
Maybe first on trends that youre seeing in terms of lengthening the sales cycle.
Has that been getting worse and we are looking at the over the last few months any change recently that gives you the confidence that we could see some improvements and the second half.
And maybe a question.
Sure Neel.
A few one time items that you highlighted could we get some numbers around that maybe the nonrecurring benefits in the wholesale segment or the contribution of the large customer disconnect and I again.
And maybe and final question and.
On the non core assets could you know potential noncore asset sales and just talk about what you would consider it could be now thank you.
Thanks, Pat here and.
Let me talk about sales cycles first.
Don't know that they are lengthening anymore than we've talked about over the last.
A couple of quarters and during our analyst day back in April.
We saw sales towards the end of the year lighter than we liked and and sales at the beginning of the year lighter, but we had good sales in March and so we're starting to and we've got a good strong channel.
The market for our products and services are there, we're seeing better better sales in March I don't know, if thats and overall changed yet and the sales cycles and those things are starting to close again.
And then with respect to non core assets jumped to the middle question and let Neal answer that.
And I don't want to get into specifics about about.
From parts of our business and which ones that I would call core and non core I think there's probably a pretty good sense.
And what those are.
But if you look at where we invest we're investing heavily and certain markets and certain capabilities and certain products and those are the things that we think are core so our fiber infrastructure our.
Edge computing, our platform that we're building our customer experience quantum fiber all of those things. We think are core to us and core to the products and services and that we sell and so we'll continue to focus our investments there.
Neel.
On the on the question on some on that.
One time items and.
In terms of <unk>.
And I called out a couple of things.
One is we had some rebates for CDN, we typically see that.
For some of our large customers just to get the rights to market and.
Overtime, we will see volume growth and we also had a large customer disconnect. It has a cost.
And one of that we've had for seven plus years, we just couldn't get to the right commercial terms going forward and combination of those two things.
Roughly it was $13 million of impact sequentially for four again.
In terms of a large enterprise.
And was primarily public sector.
And there was some COVID-19 related projects winding down like I mentioned and.
And also like Jeff referenced in his remarks, and I mentioned as well.
Fiber infrastructure related projects complete completing and.
And those two things and aggregate was roughly a $40 million impact sequentially.
Our next question is from from the line of Eric <unk> with Wells Fargo. Please go ahead.
Great. Thanks, and I appreciate you taking the question.
Jeff I just wanted to follow up.
I know you said that you would look at potential divestitures.
You did have a strategic review and consumer.
Tumor footprint recently.
Just wondering if maybe you could comment on that as maybe an area you would look at and related to that is that business sufficiently separated from a network perspective from kind of your core enterprise business.
Potentially could consummate such a deal and relatively near term.
And opportunity did arise and then my second question was on your quantum footprint.
To see fiber penetration and almost 30% maybe you could just talk about where you're winning share and that footprint is it coming from more new accounts or are there a lot of existing customers, who are upgrading from legacy technologies, and then any reasonable target and your more mature fiber markets in terms of penetration and thank you.
Sure and and I'll try and.
I'll provide a little more color to add to this question, but not too much.
And you look at core and noncore and yes, there is.
Looking at Denver, and the network that we operate here in Denver and theirs.
A strong tie between some of our commercial business and some of our mass market business. If you look and other markets that's not as strong.
So we will look at.
With respect to the consumer copper network that type of thing we'd be looking at markets that we don't think are necessarily core to our five quantum and fiber strategy.
And I haven't I don't want to be very specific about what those could be or might be.
But I do want to emphasize and we're open to looking at and divestitures and we actively pursue them now I'm not ready to announce any deal because we don't have one and.
But I do want to.
Reinforced that this isn't just CEO talk it isn't just me, saying Oh, yes, we're open to whatever and we sold.
The majority of our corrections business and we've looked at other parts of the business and we'll continue to do that.
And make sure that and we're focused on the core of what's going to drive success for women and back to the fiber network back to our platform capabilities things like edge computing dynamic connections, we've recognized with the change coming for our customers and the fourth industrial Revolution.
Those are the core assets that are going to drive our growth and if it's not core to us and we're open and and.
Opportunistic about considering other alternatives Neel would you.
You take the second half.
Sure Jeff.
In terms of your question on quantum Flybe or.
What we see is our micro targeting approach is working.
And from an aggregate level I know award from 28% penetration and that's because you know as we are driving up our penetration. We're also.
Adding more units, but if we look.
Certain neighborhoods and certain markets.
And where we've been there for a while.
And we track penetration by aging of those deployments and some markets were up 40, and 50% Zip code.
So we clearly think there is a fair amount of opportunity to continue to drive on.
Retraction up so we will continue with our focus on adding.
On more fiber to the home and small business and driving up those penetration rates.
Great. Thank you.
Our next question is from the line of Simon Flannery with Morgan Stanley. Please go ahead.
Alright, Thank you very much on good afternoon.
And Jeff can you just talk about the buyback program and.
And what the triggers would be you talked about getting down to the leverage target do you need to get to the top end of the range to start the buyback programs. The three to five what do you need to have a deal that gets you there.
And you could always startup program and how even if you didn't necessarily use it and then Neel you had a very impressive performance on the Opex side, particularly sequentially, we saw a big drop and things like SG&A I know there was some kind of changing and your allocations, perhaps you could talk through any of the cost.
Cost saving items that were driving that.
Do you.
Thanks, Simon and as I said and the kind of prepared remarks, we've made no decisions about whether we will institute a buyback program or not.
It's a topic of discussion for our board.
The size duration parameters all of those types of things are the triggers that you referenced would be part of our discussion with our board and so we will continue to have those those discussions and I don't have any specifics to share at this time that our purpose and raising it with you today is to signal that we believe our shares are undervalued.
And then considering buyback as a potentially attractive capital allocation approach that we might take and want to be clear that it is something that we're considering.
Great.
And in terms of the Opex savings.
I'd say, a big part of what you see it and this quarter is.
The run rate the full quarter benefit of the.
On a run rate savings that we achieved and the fourth quarter. So if you recall we.
And we achieved the goals that we had for the transformation program and.
And so we see that benefit flowing through and in addition to that we add incremental savings.
We achieved during the quarter as well so that'll be an ongoing thing for us we will be focused on taking cost out of the business and part of that we're investing back and all the things that you heard us talk about on the analyst day.
The overall transformation program will continue for us.
Great and any sense on the how it flows through the rest of the year or are there other big sort of step functions and the cost savings or is it pretty linear from here.
And you know like always we will be very milestone based about it and.
So some of the things that we're doing from a customer and experience perspective.
You've heard a lot of our leaders talk about some of the automation initiatives as we deploy those we can take cost out of the organization at the same time and enables us to scale.
So no I think linear is probably a pretty good assumption, but overall I would say and net of.
Investing in the business and driving those savings we feel pretty good about our full year EBITDA guidance of $8 four to 8.6.
Great. Thank you.
Our next question is from the line of Frank Louthan with Raymond James. Please go ahead.
Great. Thank you.
And I want to go back on the potential divestitures, you said you do sit and consider it positive for shareholders can you give us a little more color on on how you see that I mean, I think some of the issue in the past has been buyers pay a price, but theres a lot of overhead and so forth. It doesn't necessarily go away now you've got cash going away.
And some markets as well is there a materiality threshold of for a sale price that makes it positive I mean I'm sure you could do a 10 or $20 million deal with it may not be worth the time give us a thought on how you think about sort of the magnitude and and that statement you made Jeff about considered if its positive for shareholders.
Thanks.
And I won't get a I won't give any comment on on the magnitude, but I will tell you with positive looks like and what will trigger a decision is that we think it's and the interest of our shareholders to do that price certainly has something to do with that our ability to to separate the business.
From from Lumen has something to do with that.
And our ability to to.
To.
Capture and and make sure that we don't have dis synergies I mean, there are all sorts of things that go into our our valuation metrics that go on with that and and frankly are we going to invest and if we're not going to invest in it and.
And then it's obviously not something core to us.
So all of those types of things go into the decision matrix for for any deal that we do.
Okay, and just a quick follow up do you have an idea of maybe how many customers are and impact do you think you might be coming from the EVP plan and that's that's come in and that's I guess going into place maybe starting next week.
No I don't have any kind of customer count and I will tell you that just like we did with the keep America connected work with the FCC that we're working with them and we support the idea of helping our customers are impacted customers. During this difficult time and and and so we will continue to work with.
The SEC might have some update later in future quarters about what that really means for us, but right now it's too early to say.
Alright, great. Thank you.
Sure.
Our next question is from the line of James Ratcliffe with Evercore ISI. Please go ahead.
Thanks for taking my question.
Understanding the potential for divestitures and gear.
A few on the value of the business. So can you give us any color on.
Why something substantive hasnt happened yet.
But you've had these conversations.
And what has been the barriers and the issues that have prevented cash.
<unk> sales are different et cetera to this point and you just price or are the other things going on.
Neil why don't you take a shot at that.
Sure I think one of the key things that Jeff highlighted.
We're being very disciplined about it because we want to make sure that.
Net is.
Accretive to our shareholders that it really creates value for our shareholders with all the deleveraging that we've done and the strengthening of the balance sheet that we've done we don't really have to do anything as such but we think there are things that we could do that enhance shareholder value and.
And so we're on it and are harder to get something done just for the sake of getting something done. It really is about doing something that creates more shareholder value and that's why it's not a time line driven initiative that we have to de lever or we have to do this.
Really is about creating more shareholder value.
And we spent the last couple of years is working on and improving the fundamentals of our business those things that even if we don't think theyre core long term.
We've improved our customer experience, we've reduced churn, we've we've stabilized things across the.
Operating costs and will continue to do those things if you look at the mass market business. As an example on the consumer side and we grew something like 40000 broadband <unk>.
High speed broadband adds over the last quarter and so we've been making investments to.
And different parts of our business.
And to improve them up until this point.
Great. Thank you.
Our next question is from the line of Nick and they'll deal with Moffett Nathanson. Please go ahead.
Hey, Thanks for taking my questions.
First are you confident that you can accelerate revenue growth.
And without having to backpedal on the profitability and return metrics that even force for the business.
Since the deal closed.
The market moving at all such that those metrics may need to be adjusted or is that and that's something you are saying.
And next so you know one of the things that you don't see yeah, and our revenue line, but you'll hopefully see that and our profitability metrics as our focus on on that and our focus on profitable revenue. So if you think about our business every month, you have China and Europe.
Replacing that with newer services and.
And we focus on profitable revenues and <unk>.
So as we've managed the business over the last couple of years, the revenue has become more durable and more profitable.
And if you think back to all the plans that we share.
At the analyst day.
On fiber is foundational to all of that.
And so being on that is a big part of our value proposition and.
And so we don't think we have to sacrifice profitability in fact, we think our approach.
And as a better customer experience when we have low customer on that and all of the higher layer services really leverages, our infrastructure and it is a better experience for the customer when there is automation there is self service, which drives a very different margin profile.
We're seeing that on the consumer space and we're seeing that on the enterprise space. So yeah. We don't need to we don't think we need to make that trade off now in terms of investing.
And to get some of these things going in terms of sales and marketing.
Some of the investments, we're making with our partnerships the ecosystems.
<unk> brand et cetera, we're leaning in and making those investments but over time.
Underlying product profitability. We don't think you don't have to we don't have to make any tradeoffs there.
Okay. Okay. That's helpful. And then maybe one one bigger picture question on revenue.
And as I think back over the last several years you've made some very as you know, it's a very substantial and positive changes to the business.
I think the sales force customer service new products. They should've all helped the revenue trajectory. If we set aside this quarters results, specifically and instead think about the multiyear growth trajectory you've had how is that compared to your expectations from from years past and what do you think the primary variances had been attributable to.
So you know I would point you towards.
You know some of the categories that we've laid out for our reporting.
In terms of our expectation.
No, we're not where we need to be.
And part of that is the environment that we're in and some of the delayed decision, making and sales cycle lengthening that we've highlighted.
But Jeff mentioned.
We had a good sales month in March but going forward I think you'll look at our reporting.
And sellers that we'll manage for cash.
On the enterprise channels voice and other will continue to decline and we'll manage that for cash and what else.
As we look at the areas that we're investing.
And whether it's compute on application services IP and data services on our fiber and infrastructure services, we expect to improve.
Continuing to improve our Roe.
Revenue trajectory just to give you an example on like IP and data services.
Right now we're seeing.
Churn, which is pretty much in line with our historical.
Averages, but we're not selling and a lot of large new networks, but we expect that to.
As we look at and look forward.
So those would be the categories that we would expect to see improvement.
Okay. Thank you.
Great.
A question. Thank you. Our next question is from Brett Feldman with Goldman Sachs. Please go ahead.
Yes, thanks for taking the question and Jeff You know you noted during your remarks earlier that in the areas, where we're making significant investments you are seeing good growth and while we can see that there are pockets of growth across.
Across portions of your business based on your reported in aggregate and most of your revenue streams are still experiencing a degree of pressure. So it certainly would suggest that there are areas, where you could see a positive response and stepped up investment so with that and sort of context, I guess I'm intrigued that.
<unk> are now and sort of under evaluation.
Board looks at the opportunity to potentially start repurchasing shares and what are the alternatives that you're going to be comparing against what are the criteria to to make additional direct investment in the business, whether it's a capex from that sales force or product or maybe even going out and pursuing acquisitions that might be complementary to the business versus the returns that you might.
Get from from purchasing and your shares thank you.
Sure and I think you answered your own question, a little bit and that those RV alternatives can we invest and the business are there parts of the business will run and investing more heavily.
We have not yet started growing our edge computing.
The level that we want now.
That's not unexpected because its a brand new product set and a brand new market.
And so we're very focused on it and pleased with the reception and the market, but we think it can be great big and so if we think it can can be big we would obviously.
Continue to invest and that if we get the market traction Neel mentioned in his comments that we tend to be success based and our.
Our capital investments and so we'll we'll make sure that we can continue to accelerate growth by investing and does and I'll put the point to mass markets for quantum fiber and we set out a couple of years ago.
We're investing heavily in.
On.
Bonding and Vectoring and and upgrading the copper plant we've stopped all of that we invest and fiber. We are focused on fiber for that business. So opportunities to increase there are also things that it would be.
And on the table investing and our sales force all of the things that you mentioned to drive revenue because we are very focused on driving revenue improving the revenue trajectory and and driving that performance going forward.
Okay.
The one thing I would add is that if you look at the mid point of our free cash flow or $2 9 billion, our dividend of $1 1 billion leaves us $1 8 billion of discretionary free cash flow right. So there is a question of.
Obviously allocation and timing and sequencing and.
And so those are all going to be parts of the discussions that we continue to have with the board.
Okay.
Our next question is from the line of Michael Rollins with Citi. Please go ahead.
Thanks, and good afternoon, a couple of follow ups and then and then just a larger question. So first you mentioned some of the headwinds you quantified some of the headwinds and your earlier question and IBM and I think relating to.
On the public sector and I was just curious if you could share the size of the revenue benefits you also disclose.
On the settlement payments that you referenced and the initial commentary.
Second just curious if theres any currency impacts sequentially or year over year that we should be mindful of.
And then just a larger question you mentioned in a market like Denver and you see.
Synergy between the commercial and the mass market side.
And I'm curious if you take that top 10, Denver's your top 10 markets, where you see that synergy between commercial and mass market.
What does that look like in terms of the number of homes or population that you're serving and how upgraded those networks are from the context of fiber and the quantum product. Thanks.
So I'll start with the easy one currency was not a factor either sequentially or year over a year.
In terms of wholesale you'll notice.
The business was roughly flat sequentially and.
And like I mentioned, there was a benefit.
From some carrier settlements, which are roughly about $15 million and.
And in mid markets.
You have to keep in mind couple of things going on one is as you look at mid market year over year. We did have the sale of the correctional facility business or a significant portion of that and third quarter of last year and.
And.
If you look back to force corridor last year that was roughly $15 million or so and that was offset during the quarter. What we did have some good wins on the mid market segment and there are some one time revenues related to that which included equipment and pro services. So if you look at the percentage change year over year.
You don't really have to normalize for that if you are normalizing for nonrecurring revenues.
In terms of your question on top 10 markets I can take a shot at that or Jeff just went up yes.
And I'll try and then you can you can fill and the blanks.
We don't I don't have any numbers to quantify the questions you have about what our top 10 markets. How many homes. There are how many fiber homes and any of that but let me tell you about the strategy and those top markets and that is when we build fiber down the street to go to a residential home. We also pass small business customers we have.
Mid market customers, we passed enterprise buildings, we pass wholesale locations and and government locations and so so we know that as we build infrastructure in those top markets Theres a lot of synergy that comes from the network that we built and the people that we used to operate it and the way that we deploy it.
And that's not going to be true and I'm always hesitant to pick markets by name and I think Denver, because that's where I'm sitting today.
But.
If you look at some rural small town, we don't have those same opportunities and so theyre not going to be as attractive to invest and in addition, we flow when it comes from the consumer business a.
A very diligent.
Diligent.
Micro targeting strategy, where we look at the cost to build and we look at the density the average penetration rate. What we think we can accomplish and the market the need for the services and we use those types of levers.
<unk> or triggers.
<unk>, where we want to build and where we don't want to build those typically are pretty good in our dense urban clusters like a denver.
Neel I don't feel on that.
I don't really have anything to add.
Thanks, Mike Thank you for and for the next question.
Our next question is from the line of Phil Cusick with Jpmorgan. Please go ahead.
Hi, guys. Thank you.
First.
And we've talked about activity and sales ramping and the second half do you think that that means that revenue can ramp and the second half as well or did the sort of typical.
Typical sales cycles, and we're really looking at and improvement in 2022.
And then second Jeff I apologize for coming back to this the selling of non core assets, but it seems like it's something that we've been through before.
<unk> is this a new effort or a continuation of the strategic review that you went through a couple of years ago and since then has there been any change in your view of what assets you would be willing to sell or what appropriate structures might be thank you.
And we take the second one first.
It's not a new initiative I've been saying for the last couple of years that we were working on looking at how we maximize shareholder value.
Sure.
With the assets that we have.
It is our opinion and change over time potentially.
Lending on.
And what's the market prices for those assets and and how well we're performing with them. So so you are the calculations can change over time, but this isn't something new and the thing that I'm trying to address here is I get comments from time to time, let's say.
Yeah, everybody says that.
Sure, but it does say that I just want you to know and we are serious about it and then we are looking.
And continue to look and non core assets and net.
And we will continue to focus on how do we look at all of our assets and generate the best shareholder return with all of those assets and how do you want and take the first part.
Phil on our commentary on the second half.
I would say we're fairly optimistic.
But there is also a fair amount of execution and for.
Front of us.
And like Jeff mentioned, we had good sales month in March.
If you think about typical timelines for us in terms of sales to installs and turning into actual revenue.
And we need very good yourselves and.
And the second quarter, so we need to execute on sales and the second quarter.
Need to execute on driving up usage on a lot of our usage based products and services.
And we are leaning into a lot on new initiatives that you heard us talk about.
Those are emerging opportunities and we need to see market traction on those initiatives.
We have also <unk> seen a number of and announcements from us in terms of our partner Eco ship systems, we're very optimistic about those partnerships, we're working well with our partners. They are we're going to market together.
And we will need to see good traction on those partnerships ecosystems.
And so yeah, it's all about execution and if we do execute and we expect to see.
Not only just sales order ramp, but also revenue improvement.
Thanks, guys, Jeff if I can follow up.
A ton of interest in and.
Fiber to the home and I apologize I keep coming back to this theme, but but would you consider taking direct investment and in an acceleration and that business.
If we thought that it was and our shareholders' interest absolutely.
Okay. Thanks again guys.
Thanks, Phil ramps, we've got time for one last question.
Thank you our last question and then will be from the line of David Barden with Bank of America. Please go ahead.
Hey, guys. Thanks, so much for squeezing me in.
I guess, Jeff.
And wanted to ask you about kind of the <unk>.
Competitive landscape.
Starting with <unk>.
Horizon kind of renewed interest and the business segment as a platform for selling their <unk> network, and obviously AT&T being the market leader and that.
You recently announced a partnership with T. Mobile has the is the landscape changing in a way that.
Kind of.
Necessitates.
Our mobile product at this stage or is that more of that.
From a prophylactic measure.
Just in case and then.
The second question Neil could you.
Remind us and the context and this stock buyback conversation.
The leverage target is when you want to achieve it and have you floated this by the rating agencies and what if they said thanks guys.
With respect to T mobile and and.
That's five G.
Really excited about the Tivo and T mobile relationship that we have we think that theres a great opportunity to marry their five gene network with our fiber network and take the <unk>.
Deliver the advantages of both to our mutual customers and so we're super excited about it, especially as it as it relates to edge computing, and we will continue to invest and that I don't.
I don't have.
Yes.
Specific use cases that things like <unk>.
<unk> manufacturing robotics, all of those types of things will really be able to leverage I think we'll be able to leverage the five gene network of T mobile with the fiber network.
And now I always believe that wireless means exactly what the word says.
Just a little less wire and then communications wants to get to the fiber optic very quickly and that's where the strength is the lunar and network is a.
And the fiber backbone that we have the fiber connectivity the deep peering interconnection and all of those types of capabilities and I think theyre very competitively placed and the market.
And David in terms of your question on leverage target.
Jeff mentioned, we haven't changed the target the target is $2 seven and five to three point and two five but the key point is.
From a timeline standpoint.
Don't see.
And a real urgency to get there.
Right away it will get there over time because that is just one data point.
Have to look at Holistically.
And where we stand and some of the outcomes that we've achieved in terms of our interest cost savings.
On the coverage ratios that we have our access to markets on our maturity profile et cetera. So overall.
We are very comfortable with getting there over and over time.
In terms of the rating agencies were on constant conversations with them and we provide them rivaled on our updates.
In terms of our business and like Jeff mentioned, we don't have anything specific you have to share with them and when we do we'll obviously have that discussion.
Okay Alright.
Alright wonderful thanks.
For joining us today I appreciate everybody, taking the time I guess I will summarize with a couple of thoughts first of all we're focused on revenue and profitable revenue and we never talk about anything but a.
Profitable revenue.
And free cash flow. So we've continued to stay focused and as a company on the free cash flow that we generate but driving that through profitable revenue growth that we're excited about the capabilities that we talked to you about a few weeks ago at the analyst day, We think we are bringing the products and services and the capabilities over the lumen platform.
The market needs and that the fourth industrial Revolution demands and so we're really excited about our partnerships like the one that you asked about with T. Mobile because we think that helps us and augments our capabilities to deliver that and we're starting to see success with some of those partnerships.
We continue to invest and growth we are.
Skimping on capital we are focused on growing our business, where we think the market will go and we're focused on and continuing to augment what we believe is one of the world's most powerful fiber networks and we'll continue to do that both on the mass market side and on the enterprise side. Now. We also think that our shares are under.
And and.
And that brings up the questions for our board about what's the best capital allocation approach and so we wanted to to mentioned that to you that we are having those discussions.
With the board and then lastly.
We are we've got a lot of questions on this.
Our serious about looking at the best way to maximize all of our assets.
For our shareholders. Some of those that are core invest heavily and then those that are non core look if there are opportunities to them.
To divest them or or take cash out of them. We will look at what we think is the best strategy for each of those types of assets from maximizing value with.
I'll wrap the call. Thank you for for your attendance today. Thank you for your interest and we appreciate.
David.
Thank you we would like to thank everyone for your participation and for using the lumen conferencing service today.
This does conclude the conference call. We ask that you. Please disconnect your lines have a great day everyone.
[music] growth.
And <unk>.
Okay.