Q4 2023 Lumen Technologies Inc Earnings Call
Greetings and welcome to Lumen technologies fourth quarter 2023 earnings call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session and at that time. If you have a question. Please press star followed by the number one on your telephone.
Operator: Greetings and welcome to Lumen Technologies' fourth quarter 2023 earnings call. During the presentation, all participants will be in a listen only mode.
Operator: Afterward, we will conduct a question and answer session. And at that time, if you have a question, please press star followed by the number one on your telephone. Similarly, if at any time during the conference, you need to reach an operator, please press star followed by zero on your telephone to get direct attention from them.
If at any time during the conference you need to reach an operator. Please press star followed by zero on your telephone to get direct attention from there as a reminder, this conference is being recorded on Tuesday February six 2024.
Operator: As a reminder, this conference is being recorded on Tuesday, February 6th, 2024. And I would now like to turn our conference over to Mike McCormack, Senior Vice President, Investor Relations. Please go ahead.
I would now like to turn the conference over to Mike Mccormack Senior Vice President Investor Relations. Please go ahead.
Mike McCormack: Thank you, Aaron. Good afternoon, everyone, and thank you for joining Lumen Technologies' fourth quarter 2023 earnings call. On the call today are Kate Johnson, President and Chief Executive Officer, and Chris Stansbury, 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 fourth quarter 2023 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 in our SEC filings. We will be referring to certain non-GAAP financial measures reconciled with most comparable GAAP measures, which can be found in our earnings press release. In addition, certain measures discussed today exclude costs for special items as detailed in our earnings materials, which can be found in the investor relations section of the Lumen website. With that, I'll turn it over to Kate.
Mike McCormack: Thank you Aaron good afternoon, everyone and thank you for joining Illumina technologies fourth quarter 2023 earnings call on the call today are Keith Johnson, President and Chief Executive Officer, and Chris Stansbury, 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 fourth quarter 2023 presentation, which notes that this conference.
Mike McCormack: <unk> 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 in our SEC filings, we will be referring to certain non-GAAP financial measures are reconciled to the most comparable GAAP measures, which can be found in our earnings press release. In addition, certain metrics discussed today exclude costs for special items as detailed in our earnings materials, which can.
Mike McCormack: Can be found on the Investor Relations section of the <unk> website with that I'll turn it over to Kate Thanks, Mike Jeff.
Kate Johnson: Thanks, Mike. Good afternoon, everyone, and thanks for joining us today. I'm excited to provide an update on the significant progress we're making on Lumen's business transformation. A year ago, I shared that 2023 was a reset year for this company, with a new mission and vision, a new executive team, and a newly redesigned culture. And importantly, we aspired to restore confidence in Lumen, not only with improved financial results but with execution excellence that delivers on our commitment. We outlined big multi-year strategic priorities, including strengthening our balance sheet, executing on key programs to turn the core business around by 2025, and igniting new growth by delivering disruptive innovations that help our customers solve their next-gen networking needs. And now I'm pleased to report that we both delivered on our 2023 EBITDA and free cash flow guidance, and we made material progress on our strategic priority. I'll start with the balance sheet.
Kate: Hi, everyone and thanks for joining us today I'm excited to provide an update on the significant progress, we're making on lumens business transformation a.
Kate: A year ago I shared the 2023 was a reset year for this company with a new mission and vision, our new executive team in a newly redesigned culture and importantly, we aspired to restore confidence and looming not only with improved financial results.
Kate: With execution excellence that delivers on our commitments.
Kate: We outlined big multiyear strategic priorities, including strengthening our balance sheet.
Kate: Executing on key programs to turn to core business around by 2025.
Kate: And igniting new growth by delivering disruptive innovations that help our customers solve their nextgen networking needs.
Kate: And now I'm pleased to report that we both delivered on our 2023, EBITDA and free cash flow guidance.
Kate: And we made material progress on our strategic priorities.
Kate: I'll start with the balance sheet.
Kate: As we announced in late January we entered into an agreement with a significant number of our creditors that clears the path for our turnaround the deal expense most of our debt maturities to 2029 and beyond injects one $3 billion to $5 billion of net new financing into the business and gives us access.
Kate Johnson: As we announced in late January, we entered into an agreement with a significant number of our creditors that clears the path for our turnaround. The deal extends most of our debt maturities to 2029 and beyond, injects $1.325 billion of net new financing into the business, and gives us access to a new approximately $1 billion revolving credit facility to support our operation. It's a strong indication of the confidence of our bondholders and the broader debt markets that they have in our strategy, and it allows us to focus our energy on executing our business transformation.
Kate: To a new approximately $1 billion revolving credit facility to support our operations.
Kate: As a strong indication of the confidence of our bondholders and the broader debt markets.
Kate: We have in our strategy and it allows us to focus our energy on executing our business transformation.
Speaker Change: Alright so.
Kate Johnson: So how is the pivot to growth going? While we have a lot of work left to do, we're seeing progress, as evidenced by our North American business performance compared to other industry competitors. While two large legacy telco companies saw Q4 revenue declines in their business wireline segment of roughly 8-10% year-over-year, Lumen's business Q4 revenue decline was only 3.5% year-over-year, breaking away from the others for the second straight quarter. We believe our positive peer group performance is due both to our strategy and our turnaround execution. Simply put, Lumen stands alone in how we think about the industry. In today's digital economy, technology environments are complex and multilayered. Whether it's hybrid or multi-cloud or edge compute or emerging technologies like Gen AI, businesses need fiber networks with digital services that deliver blazing fast speeds, ultra-low latency, massive capacity for growing data workloads, and proximity to widely distributed users, all in a secure environment.
Speaker Change: So how is the pivot to growth going.
Speaker Change: While we have a lot of work left to do were seeing progress as evidenced by our North American business performance compared to other industry competitors.
Speaker Change: While two large legacy telco companies saw Q4 revenue declines in their business wireline segment of roughly 8% to 10% year over year Lumens.
Speaker Change: Lumens business Q4 revenue decline was only three 5% year over year breaking away from the others for the second straight quarter.
Speaker Change: We believe our positive peer group performance is due both to our strategy and our turnaround execution.
Speaker Change: Simply put lumens stands alone and how we think about the industry in today's digital economy technology environments are complex and multilayered, whether it's hybrid or multi cloud or edge compute or emerging technologies like Jan AI.
Speaker Change: His need fiber networks with digital services that deliver blazing fast speeds.
Speaker Change: Ultra low latency massive capacity for growing data workloads and proximity to widely distributed users all in a secure environment.
Speaker Change: While our competitors harvest their business wireline segments for cash <unk> is building a fully digital platform to deliver important new capabilities to these customers.
Kate Johnson: While our competitors harvest their business wireline segments for cash, Lumen is building a fully digital platform to deliver important new capabilities to these customers. And, importantly, we're tailoring our go-to-market approach to get them there. So let's dig a little deeper into that go-to-market execution progress. I'll start with our commercial excellence efforts in the business segment, which is all about driving better sales execution, securing our base of customers, and creating a world-class digital customer experience. In 2023, we tailored our go-to-market approach to each customer segment.
Speaker Change: And importantly, we're tailoring our go to market approach to get them there.
Speaker Change: So, let's dig a little deeper into that go to market execution progress.
Speaker Change: I'll start with our commercial excellence efforts and the business segment, which is all about driving better sales execution, securing our base of customers and creating a world class digital customer experience.
Speaker Change: In 2023, we tailored our go to market approach to each customer segment. This focus is allowing us to meet customers, where they are and provide unique and tailored passed to our modern communication infrastructure and not surprisingly, it's driving better sales execution.
Kate Johnson: This focus is allowing us to meet customers where they are and provide unique and tailored paths to our modern communication infrastructure. And, not surprisingly, it's driving better sales. This year, with the North America Enterprise, we added over 3,000 customers and increased new logo sales by 13% sequentially in Q4. Specifically, our public sector segment grew double digits quarter over quarter and year over year in Q4, powering our strong revenue performance. Year over year, we sold 29% more growth products to existing public sector customers in Q4, and we increased seller productivity by 18% for the full year. With this momentum, we expect this segment to be the first to bend the revenue curve back to growth, and we think that other market segments will follow suit. Since establishing the dedicated go-to-market team for bid markets last June, 10-year direct sales productivity increased 26% while we simultaneously grew the sales force by 15%.
Speaker Change: This year with the North America Enterprise, we added over 3000 customers and increased new logo sales by 13% sequentially in Q4 spin.
Speaker Change: Specifically, our public sector segment grew double digits quarter over quarter and year over year in Q4, powering our strong revenue performance.
Speaker Change: Year over year, we sold 29% more growth products to existing public sector customers in Q4, and we increased seller productivity by 18% for the full year with this momentum. We expect this segment to be the first to bend the revenue curve back to growth.
Speaker Change: And we think that market segment will follow suit.
Speaker Change: Since establishing the dedicated go to market team forbidden markets last June tenured direct tenured direct sales productivity increased 26%, while we simultaneously grew the sales force by 15%.
Kate Johnson: Importantly, we exited 2023 by outperforming market growth rates and taking share in both SASE and IP. In our large enterprise segment, we're winning business with sophisticated, digitally-native companies like Uber, who recently chose Lumen's 400-gigabit wave service to ensure that they can scale and accelerate their company's growth with greater agility. Okay, now let's turn to securing the base.
Speaker Change: Importantly, we exited 2023 by outperforming market growth rates and taking share in both SaaS and IP.
Speaker Change: In our large enterprise segment, we are winning business with sophisticated digitally native companies like Uber, who recently chose Lumens 400 gig wave service to ensure that they can scale and accelerate the companys growth with greater agility.
Speaker Change: Okay, let's turn to securing the base. This is all about install disconnects renewals migrations and usage. This program is the most challenging part of executing lumens turnaround for sure.
Kate Johnson: This is all about installs, disconnects, renewals, migrations, and usage. This program is the most challenging part of executing Lumen's turnaround, for sure. The good news is we're making progress in mid-markets and large enterprises, as shown by our sequential results for the second half. Installations were up 13%, migrations were up 4%, renewals were up 50%, and in Q4, usage was up 3%, helping us end the year strong. Now, that said, we're just not satisfied, and we'll be focusing on improving performance here in this part of our turnaround, using data and analytics and AI to help determine the right action for each unique customer at the right time. The third piece of commercial excellence is all about customer experience.
Speaker Change: The good news is we're making progress in mid market and large enterprise shown by our sequential results for the second half.
Speaker Change: Installations were up 13% migrations were up 4% renewals were up 50% and in Q4 usage was up 3%, helping us end the year strong.
Speaker Change: Now that said, we're just not satisfied and we will be focusing on improving performance here in this part of our turnaround using data and analytics and AI to help determine the right action for each unique customer at the right time.
Speaker Change: The third piece of commercial excellence is all about customer experience the alumina operations and it teams did a fantastic job building the digital CX Foundation in 2023, redesigning our processes from order to cash starting to implement new state of the art systems, and infusing AI into our service delivery and <unk>.
Kate Johnson: The Lumen operations and IT teams did a fantastic job building the digital CX foundation in 2023, redesigning our processes from order to cash, starting to implement new state-of-the-art systems, and infusing Gen AI into our service delivery and assurance. And while we're still in the initial stages, we're seeing signs of impact. And for example, in our North American business pilot... We were able to reduce order processing time by 70% for dedicated internet access, or DIA, one of our highest volume products. And across all products for large enterprise and public sector customers, we're already seeing a 17-point year-over-year improvement in net promoter scores based on our process improvement work. It is time to talk about innovation.
Speaker Change: <unk>.
Speaker Change: And while we're still in the initial stages, we're seeing signs of impact for example, in our North American business pilot.
Speaker Change: We were able to reduce order processing time by 70% for dedicated Internet access or DAA, one of our highest volume products.
Speaker Change: And across all products for large enterprise and public sector customers, we're already seeing a 17 point year over year improvement in net promoter scores based on our process improvement work.
Speaker Change: Tom to talk about innovation innovating for growth as we announced last month.
Kate Johnson: Innovation for growth. As we announced last month, Dr. Satish Lakshmanan joined Lumen as our Chief Product Officer.
Dr. <unk> <unk> joined <unk> as our chief product Officer.
Tom: <unk> comes from US comes to us from AWS and brings a highly valuable combination of cloud artificial intelligence and product development experience that will be an important part of fueling our innovation engine.
Kate Johnson: Satish comes to us from AWS and brings a highly valuable combination of cloud, artificial intelligence, and product development experience that will be an important part of fueling our innovation engine. And just this morning, we announced that Dave Ward is joining Lumen as our Chief Technology Officer. David has a long history of successful executive leadership, having served as CTO for Cisco Systems and, most recently, as the CEO of Packet Fabric, a network as a service provider.
Tom: And just this morning, we announced that Dave Ward is joining lumen as our Chief Technology Officer.
Tom: Dave has a long history of successful executive leadership, having served as CTO for Cisco systems, and most recently as the CEO of packet fabric and network as a service provider.
Kate Johnson: Talented visionaries like Satish and Dave are joining because they see the potential for Lumen to innovate, disrupt the industry, and create major value for customers and, therefore, major value for investors. And I'm delighted to report that we are well on our way. In 2023, Lumen will co-create with customers and launch several new digital services that take advantage of our world-class cyber network. Our vision is to empower enterprises to leverage the Lumen digital platform, as we are calling it, enabling customers to digitally consume our secure network services. This innovative platform will help customers build AI-powered applications across on-premises, colo, and cloud environments seamlessly, while also simplifying network onboarding and management to save costs.
Tom: Talented visionaries like cities and Dave are joining because they see the potential for alumina to innovate disrupt the industry and create major value for customers and therefore major value for investors.
Tom: And I am delighted to report that we are well on our way in 2023 Lumens co created with customers and launched several new digital services that take advantage of our world class fiber network. Our vision is to empower enterprises to leverage the lumen digital platform as we're calling it enabling customers to digitally consume our secure network services.
Tom: This innovative platform will help customers build AI powered applications across on Prem Colo and cloud environments seamlessly, while also simplifying network Onboarding and management to save costs.
Kate Johnson: In the latter half of this year, we'll share new reporting for Lumen Digital to allow you to better understand our growth trajectory. Now, let me highlight a few important capabilities in the Lumen Digital platform. First, Network as a Service, or NAS.
Tom: In the latter half of this year, we will share new reporting for lumen digital to allow you to better understand our growth trajectory.
Tom: Let me highlight a few important capabilities in the lumen digital platform versus network as a service or NASS, we continued to enrich our NASA offering with more capability and just last week, we announced the availability of two new <unk> solutions with private connections as.
Kate Johnson: We continue to enrich our NAS offering with more capability, and just last week, we announced the availability of two new NAS solutions with private connections. As a recent customer, Element Materials, remarked, Lumen's NAS solution was not just timely but transformative, highlighting the untapped potential of such innovative network solutions. Another Lumen digital breakthrough capability is ExaSwitch, our high-capacity optical switching platform originally conceived for direct inter-cloud peering.
Tom: As a recent customer element materials remarked.
Tom: Lumens NAV solution was not just timely, but transformative it highlighted the untapped potential of such innovative network solutions.
Tom: Another lumen digital breakthrough capability as excess switch our high capacity optical switching platform originally can see for direct inter cloud peering.
Tom: It's performing extremely well in the market and is Microsoft shared.
Kate Johnson: It's performing extremely well in the market, and as Microsoft shared, they highly value the ExaSwitch platform for the fast and scalable interconnections that it provides, and they're eager and excited to expand ExaSwitch to new metros in 2024. Lumen sees ExaSwitch as the soon-to-be must-have solution for any corporation needing simplified, low-latency, high-capacity, direct cloud connectivity. Finally, Lumen Security. You may have read in the Washington Post that the Department of Justice announced it had disrupted the Volt Typhoon botnet used by a major Chinese government-backed effort to hack U.S. critical infrastructure.
Tom: We highly value the <unk> switch platform for the fast and scalable interconnections that it provides and they are eager and excited to expand <unk> switched to new metros in 2024.
Tom: <unk>, which is assumed to be must have solution for any corporation needing simplified low latency high capacity direct cloud connectivity.
Tom: Finally, lumens security.
Tom: You may have read in the Washington post that the department of Justice announced it had disrupted the volt typhoon botnet used by a major Chinese government backed effort to U S critical infrastructure.
Kate Johnson: I'm incredibly proud of our Black Lotus Labs team for identifying this threat and being credited by the DOJ for helping to keep the United States safe. Soon, you'll see Black Lotus Labs powering the Lumen digital platform with some highly valuable security services. Now, the initial capabilities in the platform give Lumen access to around $40 billion in net new available market. And to be clear, we're just getting started.
Tom: I'm incredibly proud of our black Lotus labs team for identifying this threat and being credited by the Doj for helping to keep the United States Safe soon.
Tom: Soon you'll see black Lotus labs pairing of alumina digital platform with some highly valuable security services.
Tom: Now the initial capabilities and the platform give alumina access to around $40 billion in net new available market and to be clear, we're just getting started.
Kate Johnson: We're bullish on the impact that Lumen Digital will have on helping pivot our company to growth. Finally, let's cover mass markets. We're executing our strategy to deploy capital where we see the greatest opportunities with the goal of continuing to evolve our business across a portfolio of markets, investing wisely, and driving fiber market penetration. Some quick notes to share about 2023 in mass markets. We delivered on our commitment to grow our fiber network by more than 500,000 locations and intend to maintain that similar robust rate in 2024. While we weren't happy with our net ads performance in 2023 overall, our sales and marketing engine is now gaining momentum as we close the year strongly with record-high December sales, and we continue to see this pace hold through January. Quantum Fiber is the best multi-gigabit product in the market, and to maintain that status, we know that constant innovation is a priority.
Tom: We're bullish on the impact that lumen digital will have on helping pivot our company to grow.
Tom: Finally, let's cover mass markets.
Tom: We're executing our strategy to deploy capital, where we see the greatest opportunities with the goal of continuing to evolve our business across our portfolio of markets investing wisely and driving fiber market penetration.
Tom: Quick note to share about 2023 and mass markets, we delivered our commitment to grow our fiber network by more than 500000 locations and intend to maintain that similar robust rate in 2024.
Tom: While we weren't happy with our net adds performance in 2023, all up our sales and marketing engine is now gaining momentum as we closed the year strongly with record high December sales and we continued to see this pace hold through January.
Tom: Quantum fiber is the best multi gig product in the market and to maintain that status. We know that constant innovation is a priority that is why we made sure. We were the first company in the industry to achieve Wi Fi seven certification and.
Kate Johnson: That's why we made sure we were the first company in the industry to achieve Wi-Fi 7 certification. And finally, Quantum Fiber customers continue to be delighted, as shown by our Q4 Net Promoter score of plus 64, improving both quarter-over-quarter and year-over-year customer satisfaction. One last exciting note.
Tom: And finally Kwan on fiber customers continued to be delighted as shown by our Q4 net promoter score of plus 64, improving both quarter over quarter and year over year customer satisfaction.
Speaker Change: One last exciting note.
Speaker Change: I've talked about rebuilding this company from the people up and how important culture changes to supporting our transformation.
Kate Johnson: I've talked about rebuilding this company from the people up and how important culture change is to supporting our transformation. In just the fourth quarter alone, we won four different culture awards, most notably U.S. News & World Report named Lumen Technologies one of the 2024 best telecom companies to work for. Our culture is helping us attract new talent as well as supporting our current Lumen workforce through a pretty intense time for this company. To sum it up, 2023.
Speaker Change: In just the fourth quarter alone. We won four different culture Awards, most notably U S News and World report named Lew and technologies, one of the 2024 best Telecom companies to work for.
Speaker Change: Our culture is helping us attract new talent as well as supporting our current lumen workforce through a pretty intense time for this company.
Speaker Change: To sum it up 2023, we.
Kate Johnson: We've made great progress building Lumen for growth. We believe our strategy is the right one, and we're executing well. So our plan is to hold steady on that strategy through 2024, and we'll continue to strengthen our balance sheet. We'll drive commercial excellence to return the business to growth by 2025, and we'll co-create innovative new capabilities that delight customers and give Lumen access to net new profit pools. And we'll do all of that while keeping you apprised of our progress, being transparent about our wins and our struggles, and delivering on our commitments every step of the way. And with that, I'll turn the call over to Chris. Thanks, Kate. And good afternoon, everyone.
Speaker Change: We made great progress building lumen for growth, we believe our strategy is the right one and we're executing well to our plan is to hold steady on that strategy through 2024 will continue to strengthen our balance sheet.
Speaker Change: We will drive commercial excellence to return the business to growth by 2025 and will co create innovative new capabilities that delight customers and give lumen access to net new profit pools.
Speaker Change: And we will do all of that while keeping you apprised of our progress.
Speaker Change: Being transparent about our wins and our struggles and delivering on our commitments every step of the way.
Speaker Change: And with that I'll turn the call over to Chris.
Christopher David Stansbury: Thanks, Keith and good afternoon, everyone Kate spoke about our progress and how we are disruptive disrupting an industry ripe for change as women transforms into the leading digital enterprise solutions provider. She also spoke of our success in reaching agreement on an amended TSA with a broadened group of creditors to extend our debt maturities.
Christopher David Stansbury: Kate spoke about our progress and how we are disrupting an industry ripe for change as Lumen transforms into the leading digital enterprise solutions provider. She also spoke of our success in reaching agreement on an amended TSA with a broadened group of creditors to extend our debt maturity. On our Q2 earnings call, we said we viewed the formation of the accreditor group as an opportunity to address a large part of the capital structure in a very efficient way, and the amended agreement we announced in January accomplishes that. The amended TSA has support from a broadened group of creditors and, when finalized, will address approximately $9 billion of outstanding indebtedness, including more than 77% of debt maturing through 2027
Christopher David Stansbury: On our Q2 earnings call. We said, we viewed the formation of the creditor group as an opportunity to address a large part of the capital structure and a very efficient way and the amended agreement we announced in January accomplishes that the.
Christopher David Stansbury: The amended TSA has support from a broad group of creditors and when finalized will address approximately $9 billion of outstanding indebtedness, including more than 77% of debt maturing through 2027.
Christopher David Stansbury: The TSA transactions will extend debt maturities to primarily 2029 and beyond provide $1 $3 billion to $5 billion of new money and provide access to a new approximately $1 billion revolver. This agreement and the broad support for it speaks to the confidence our banks and creditors have in our plan and provides.
Christopher David Stansbury: The TSA transactions will extend debt maturities to primarily 2029 and beyond, provide $1.325 billion of new money, and provide access to a new, approximately $1 billion revolver. This agreement and the broad support for it speaks to the confidence our banks and creditors have in our plan and provides Lumen ample runway to execute on our business turnaround. In short, our capital structure is no longer a limiting factor in our transformation. We expect to complete the transactions contemplated by the TSA in the first quarter, subject to the satisfaction of limited remaining closing conditions.
Christopher David Stansbury: <unk> ample runway to execute on our business turnaround in short our capital structure is no longer a limiting factor in our transformation.
Christopher David Stansbury: We expect to complete the transactions contemplated by the TSA in the first quarter subject to the satisfaction of limited remaining closing conditions.
Christopher David Stansbury: Before covering our fourth quarter results I'd like to take a moment to discuss some changes to our 2020 for financial reporting to enhance comparability with prior periods and better align with how we manage the business.
Christopher David Stansbury: Before covering our fourth quarter results, I'd like to take a moment to discuss some changes to our 2024 financial reporting to enhance comparability with prior periods and better align with how we manage the business. First, we're updating our business sales channel reporting by breaking out a new international and other channel, including CDN. Secondly, given the sale of substantially all of our CDN contracts during the fourth quarter of 23, we are updating our business product category reporting to move CDN from Harvest to Other within the International and Other channels. And finally, with the sale of our EMEA business and select CDN contracts completed in the fourth quarter of 2023, we have updated our financial training schedules to provide the historical contributions of these sales, as well as the associated commercial agreement impact. Keep in mind, when these impacts are excluded from results, our sequential and year-over-year growth rates are substantially better than the reported rate. I'll now discuss the financial summary of our fourth quarter. Our fourth quarter total reported revenue declined 7.4% year-over-year to $3.517 billion.
Christopher David Stansbury: First we're updating our business sales channel reporting by breaking out our new international and other channel including CDN.
Christopher David Stansbury: <unk> given the sale of substantially all of our CDN contracts during the fourth quarter of 'twenty three we're updating our business product category reporting to move CDN from harvest to other within the international and other channel and.
Christopher David Stansbury: And finally with the sale of our EMEA business and select CDN contracts completed in the fourth quarter of 'twenty. Three we have updated our financial training schedules to provide the historical contributions of these sales as well as the associated commercial agreement impacts keep in mind. When these impacts are excluded from results, our sequential and year over year.
Christopher David Stansbury: Both rates are substantially better than the reported rate.
Christopher David Stansbury: I will now discuss the financial summary of our fourth quarter, our fourth quarter total reported revenue declined seven 4% year over year to $3 $5 7 billion.
Christopher David Stansbury: Approximately 39% of the decline was due to the impact of divestitures, commercial agreements, and CDN. Adjusted EBITDA was $1.099 billion in the fourth quarter, with a 31.2% margin. Pre-cash flow was $50 million in the fourth quarter.
Christopher David Stansbury: Approximately 39% of the decline was due to the impact of divestitures commercial agreements and CDN.
Christopher David Stansbury: Adjusted EBITDA was 1.0 99 billion in the fourth quarter with a 31, 2% margin.
Christopher David Stansbury: Free cash flow was $50 million in the fourth quarter.
Christopher David Stansbury: In 2023, we delivered on our expectations for both adjusted EBITDA and free cash. Next, I'll review our detailed revenue results for the quarter on a year-over-year basis. Within our North America Enterprise channels, which is our business segment excluding wholesale and international and other, revenue declined 0.1%.
Christopher David Stansbury: In 2023, we delivered on our expectations for both adjusted EBITDA and free cash flow.
Christopher David Stansbury: Next I'll review, our detailed revenue results for the quarter on a year over year basis within our North America enterprise channels, which is our business segment, excluding wholesale and international and other revenue declined 1%.
Christopher David Stansbury: This quarter, we had a public sector benefit in our other product group. As a reminder, our other category tends to fluctuate quarter to quarter, given the nature of these revenues. Overall, our North America business declined 3.5%.
This quarter, we had a public sector benefit in our other product group as a reminder, our other category tends to fluctuate quarter to quarter given the nature of these revenue streams.
Christopher David Stansbury: Overall, North America business declined three 5%, we again significantly outperformed our two largest historical competitors in the fourth quarter.
Christopher David Stansbury: We again significantly outperformed our two largest historical competitors in the fourth quarter. While results can vary in any given quarter, we expect this trend of divergence between performance at Lumen and the legacy business wireline providers to continue to widen over time as we expand our digital service offerings. Large enterprise revenue declined 3.6% in the fourth quarter.
Christopher David Stansbury: While results can vary in any given quarter. We expect this trend of divergence between performance at lumen and the legacy business wireline providers to continue to widen over time as we expand our digital service offerings.
Christopher David Stansbury: Large enterprise revenue declined three 6% in the fourth quarter large enterprise revenue was impacted by lower other product revenue and also the timing of large infrastructure revenue benefit in the year ago quarter.
Christopher David Stansbury: Large enterprise revenue was impacted by lower other product revenue and also the timing of large infrastructure revenue benefiting the year-ago quarter. Our year-over-year growth rate was in moderated. We expect continued variability in trends as we drive toward overall stabilization. Now moving on to mid-markets, revenue declined 6% year-over-year.
Christopher David Stansbury: Our year over year growth rate within grow moderated we expect continued variability in trends as we drive toward overall stabilization.
Christopher David Stansbury: Now moving onto mid markets revenue declined 6% year over year mid markets is a very important channel for us and one where we had lost considerable share prior to our focus and investment in this important area.
Christopher David Stansbury: Mid-markets is a very important channel for us, and one where we lost considerable share prior to our focus and investment in this important area. We are leaning into this channel with products and buying tools to make ordering and provisioning more frictionless. As Kate mentioned, we're seeing improved leading indicators and are taking share in both IP and SASE products. This is a channel that we expect will be extremely interested in our NAS offering given the flexibility and ease of provisioning it provides. Public sector revenue grew 14.8% year-over-year.
Christopher David Stansbury: We are leaning into this channel with products and buying tools to make ordering and provisioning more frictionless as Kate mentioned, we're seeing improved leading indicators and are taking share in both IP and sassy products. This is a channel that we expect will be extremely interested in our <unk> offering given the flexibility and ease of provisioning. It provides.
Christopher David Stansbury: Public sector revenue grew 14, 8% year over year trends improved driven primarily by continued strength and grow revenue moderating declines in nurture and higher other revenue as mentioned earlier.
Christopher David Stansbury: Trends improved, driven primarily by continued strength and growth in revenue, moderating declines in nurture, and higher other revenue, as mentioned earlier. Over the past 12 to 18 months, investors have asked us when we will start to see the benefits of the big contracts signed with the USDA, the U.S. Postal Service, the Department of Defense, and other public sector wins.
Christopher David Stansbury: Over the past 12 months to 18 months investors have asked us when we will start to see the benefits of the big contracts signed with the USDA U S. Postal service the department of defense and other public sector wins as our results demonstrate we are seeing revenue strength in part due to those in other deals ramping as we work diligently to deploy these.
Christopher David Stansbury: As our results demonstrate, we are seeing revenue strength in part due to those and other deals ramping as we work diligently to deploy these mission-critical services. Given our visibility to sales bookings and the longer install cycles related to the complexity of the solutions we're deploying within the public sector, we have high confidence that we'll be the first sales channel to return to sustainable growth. Wholesale revenue declined 11.2% year-over-year.
Christopher David Stansbury: Mission critical services.
Christopher David Stansbury: Given our visibility to sales bookings and the longer install cycles related to the complexity of the solutions, we're deploying within public sector. We have high confidence that we'll be the first sales channel to return to sustainable growth.
Christopher David Stansbury: Wholesale revenue declined 11, 2% year over year.
Christopher David Stansbury: The majority of wholesale represents the balance of trade with other carriers as we negotiate with each other on buy-side and sell-side arrangements. The historical industry behavior between carriers has been to leverage pricing and rate changes to drive results instead of delivering incremental value to customers. In our opinion, these actions are often to the detriment of the industry's customers and are also generally unhealthy for the industry while also creating volatility in our and others' results. Within wholesale, approximately 39% of our revenue comes from harvest products, which declined 15.9% year over year in the fourth quarter and contributed to a majority of the 11.2% decline. Our harvest product revenue will likely continue to decline over time and is an area we will continue to manage for cash.
Christopher David Stansbury: The majority of wholesale represents the balance of trade with other carriers as we negotiate with each other on buy side and sell side arrangements.
Christopher David Stansbury: Historical industry behavior between carriers has been to leverage pricing and rate changes to drive results instead of delivering incremental value to customers in our opinion. These actions are often to the detriment of the industries customers and is also generally unhealthy for the industry, while also creating volatility in our and <unk>.
Christopher David Stansbury: Those results.
Christopher David Stansbury: Within wholesale approximately 39% of our revenue comes from harvest products, which declined 15, 9% year over year fourth quarter and contributed to a majority of the 11, 2% decline our harvest product revenue will likely continue to decline over time and is an area. We will continue to manage for cash <unk>.
Christopher David Stansbury: International and other revenue declined 43.5% year-over-year, driven by the divestiture of our EMEA business and the sale of select CDN contracts in the fourth quarter of 2020. Moving to our business product lifecycle reporting, I'll reference results based on our North America enterprise channels, which represent our core strategic category. Grow Products revenue increased 5.7% driven by strength and IP across all enterprise channels, cloud services, and infrastructure product growth, particularly within co-location and dark fiber. Roe represented approximately 40% of our North America enterprise revenue and for our total business segment carried an approximate 80% direct margin this quarter.
Christopher David Stansbury: Our national and other revenue declined 43, 5% year over year, driven by the divestiture of our EMEA business and the sale of select CDN contracts in the fourth quarter of 'twenty three.
Christopher David Stansbury: Moving to our business product lifecycle reporting I'll reference results based on our North America enterprise channels, which represent our core strategic categories.
Christopher David Stansbury: Grow products revenue increased five 7% driven by strength in IP across all enterprise channels cloud services and infrastructure product growth, particularly within co location and dark fiber pro represented approximately 40% of our North America enterprise revenue and for our total business segment carried an approximate 80% direct margin.
Christopher David Stansbury: This quarter.
Christopher David Stansbury: Within Nurture and Harvest, we continue to expect headwinds in these categories as we take proactive steps to migrate customers to newer technology. These actions improve our customers' experience and provide an uplift in customer lifetime value for Lumen. As Kate mentioned, we continue to see positive leading indicators that our initiatives are working, and it will take some time for these results to be reflected in our results.
Christopher David Stansbury: Within nurture and harvest, we continue to expect headwinds in these categories as we take proactive steps to migrate customers to newer technologies.
Christopher David Stansbury: These actions improve our customers' experience and provide an uplift in customer lifetime value for women as Kate mentioned, we continue to see positive leading indicators that our initiatives are working and it will take some time to be reflected in our results.
Christopher David Stansbury: Nurture product revenue declined nine 7% year over year pressure within VPN and Ethernet services drove the decline.
Christopher David Stansbury: Pressure within VPN and Ethernet services drove the decline. Nurture represents about 30% of our North America enterprise revenue, and for our total business segment, carried an approximate 69% direct margin this quarter. Harvest products revenue declined 10.4% year over year.
Christopher David Stansbury: <unk> represents about 30% of our North America enterprise revenue and for our total business segment carried an approximate 69% direct margin this quarter.
Christopher David Stansbury: Harvest products revenue declined 10, 4% year over year harvest continues to be negatively impacted by declines in tdm based voice and other legacy services.
Speaker Change: Now I want to take a minute to discuss harvests in more detail. We have a very tactical approach to our harvest portfolio, which contains a mixture of customers that are on net as well as off net.
Christopher David Stansbury: Harvest continues to be negatively impacted by declines in TDM-based voice and other legacy services. Now, I want to take a minute to discuss Harvest in more detail. We have a very tactical approach to our Harvest portfolio, which contains a mixture of customers that are on net as well as off net. These off-net customer contracts carry a much different margin profile and, in some cases, are margin dilutive. We utilize re-rates to manage the margin, and in some cases, this can result in non-regrettable churn. In other cases, we will seek to migrate customers to our newer growth technologies. Another set of customers within Harvest are quite profitable, and their needs can be met with existing services. Our data-driven approach drives our product migration and pricing strategies for each of these customers, enabling us to optimize our return profile. Harvest represented less than 17% of our North America enterprise revenue in the fourth quarter, an improvement of approximately 200 basis points year over year.
Speaker Change: These off net customer contracts carry a much different margin profile and in some cases are margin dilutive, we utilized re rates to manage the margin and in some cases. This can result in non regrettable churn and.
Speaker Change: In other cases, we will seek to migrate customers to our newer grow technologies. Another set of customers within harvest are quite profitable and their needs can be met with existing services. Our data driven approach drives our product migration and pricing strategies for each of these customers, enabling us to optimize our return profile.
Speaker Change: Harvest represented less than 17% of our North America enterprise revenue in the fourth quarter, an improvement of approximately 200 basis points year over year.
Speaker Change: For our total business segment carrying approximate 81% direct margin this quarter.
Speaker Change: Other products revenue grew 31, 7% as I mentioned earlier public sector showed particular strength in this product set now.
Speaker Change: Now moving on to mass markets revenue declined eight 3% year over year, our mass markets fiber broadband revenue grew 11, 5% and represented approximately a third of mass markets broadband revenue.
Christopher David Stansbury: For our total business segment, it carried an approximate 81% direct margin this quarter. Other products' revenue grew 31.7%. As I mentioned earlier, the public sector showed particular strength in this product. Now moving on to mass markets, revenue declined 8.3% year over year.
Speaker Change: Also note that our exposure to legacy voice and other services revenue continues to improve with an approximate 200 basis point reduction year over year.
Speaker Change: During the quarter fiber broadband enabled location adds were 126000.
Christopher David Stansbury: Our mass markets fiber broadband revenue grew 11.5% and represented approximately a third of mass markets broadband revenue. Also, note that our exposure to legacy voice and other services revenue continues to improve with an approximate 200 basis point reduction year over year. During the quarter, fiber broadband enabled location ads were 126,000, bringing our total to approximately 3.7 million as of December 31st.
Speaker Change: Our total to approximately $3 7 million as of December 31 is.
Speaker Change: As Keith mentioned, we intend to maintain the same 500000 build pace this year and during the fourth quarter. We added 20000 quantum fiber customers and this brings our total to 916.
Speaker Change: <unk> was flat sequentially and increased on a year over year basis to approximately $61 in the fourth quarter.
Speaker Change: At the end of the quarter, our penetration of legacy copper broadband was approximately 10% and our quantum fiber penetration stood at approximately 25% or 12 month frozen penetration of our 2022 enablement cohort was 18% at December 31, while our 24 month frozen penetration of our 2021.
Christopher David Stansbury: As Kate mentioned, we intend to maintain the same 500,000 build pace this year. And during the fourth quarter, we added 20,000 quantum fiber customers, and this brings our total to 916,000. Fiber ARPU was flat sequentially and increased on a year-over-year basis to approximately $61 in the fourth quarter.
Speaker Change: A woman cohort was 25%.
Speaker Change: Turning to adjusted EBITDA for the fourth quarter of 2023, adjusted EBITDA was 1.099 billion.
Speaker Change: Compared to $1 $3 93 billion in the year ago quarter.
Christopher David Stansbury: At the end of the quarter, our penetration of Legacy Copper Broadband was approximately 10%, and our quantum fiber penetration stood at approximately 25%. Additionally, our 12-month frozen penetration of our 2022 enablement cohort was 18% at December 31st. Our 24-month frozen penetration of our 2021 enablement cohort was 25%. Turning to Adjusted EBITDA, for the fourth quarter of 2023, Adjusted EBITDA was $1.099 billion, compared to $1.393 billion in the year-ago quarter. The fourth quarter of this year included a net headwind of $13 million related to the divested EMEA business, a net benefit of $3 million from divestiture-related post-closing commercial agreements, and a net headwind of $16 million from the sale of select CDNs. These items represent approximately 9% of the year-over-year decline. Special items impacting adjusted EBITDA this quarter totaled $211 million.
Speaker Change: The fourth quarter of this year included a net headwind of $13 million related to the divested EMEA business.
Speaker Change: Net benefit of $3 million from divestiture related post closing commercial agreements and a net headwind of $16 million from the sale of select CDN contracts.
Speaker Change: These items represent approximately 9% of the year over year decline.
Speaker Change: Special items impacting adjusted EBITDA this quarter totaled $211 million, our fourth quarter 2023, adjusted EBITDA margin was 31, 2%.
Speaker Change: Capital expenditures for the fourth quarter of 2023 were $821 million.
Speaker Change: And the company generated free cash flow of $50 million in the fourth quarter.
Speaker Change: Moving to our financial outlook for the full year 2024, we expect adjusted EBITDA to be in the range of $4 one to $4 3 billion.
Speaker Change: Our EBITDA guidance includes <unk> expect it.
Speaker Change: 2% to 5% organic decline a significant and.
Speaker Change: And roughly 600 basis point improvement from the organic decline included in our 2023 outlook as our transformation initiatives take hold.
Christopher David Stansbury: Our fourth quarter of 2023 adjusted EBITDA margin was 31.2%. Capital expenditures for the fourth quarter of 2023 were $821 million, and the company generated free cash flow of $50 million in the fourth quarter. Moving to our financial outlook for the full year 2024, we expect adjusted EBITDA to be in the range of $4.1 to $4.3 billion. Our EBITDA guidance includes an expected 2 to 5% organic decline, a significant and roughly 600 basis point improvement from the organic decline included in our 2023 outlook as our transformation initiatives take hold. Moving to capital spending and our other outlook metrics, for the full year 2024, we expect total capital expenditures in the range of $2.7 to $2.9 billion. We expect to generate free cash flow in the range of $100 to $300 million for the full year 2024. And this includes an approximate $700 million tax refund received during the first quarter of this year.
Speaker Change: Moving to capital spending in our other outlook metrics for the full year 2024, we expect total capital expenditures in the range of $2 7 million to $2 9 billion.
Speaker Change: We expect to generate free cash flow in the range of $100 million to $300 million for the full year of 2024.
Speaker Change: And this includes an approximate $700 million tax refund received during the first quarter of this year.
Speaker Change: We expect free cash flow to be impacted by higher interest expense related to our new TSA agreement and based on our initial analysis. We have included an incremental $125 million to $225 million of.
Speaker Change: Cash interest in 2024 versus 2023, we.
Speaker Change: We do not have any required our planned discretionary pension fund contributions in 2024.
Speaker Change: In terms of special items for 2024, we continue to expect dedicated third party cost to support transition services for the divestitures. The reimbursement for these services will be in other income with no material net impact to our cash flows. In addition in the first quarter of 2024, we expect to recognize meaningful charges.
Speaker Change: Related to the negotiation and execution of our TSA agreement.
Christopher David Stansbury: We expect free cash flow to be impacted by higher interest expense related to our new TSA agreement. And based on our initial analysis, we've included an incremental $125 to $225 million of cash interest in 2024 versus 2023. We do not have any required or planned discretionary pension fund contributions in 2005.
Speaker Change: Before we move to Q&A, just a couple of housekeeping items.
Speaker Change: First please remember that the first quarter typically has seasonally higher expenses related to the timing of bonus payments and other prepaid expenses. Additionally, while we are happy to discuss the recent TSA announcement in further detail. Our focus is now on our business and the financial results as we move forward Accordingly, we would prefer to be oriented.
Christopher David Stansbury: In terms of special items for 2024, we continue to expect dedicated third-party costs to support transition services for the divestiture. The reimbursement for these services will be in other income with no material net impact on our cash flow. In addition, in the first quarter of 2024, we expect to recognize meaningful charges related to the negotiation and execution of our TSA agreement. Before we move to Q&A, there are just a couple of housekeeping items. First, please remember that the first quarter typically has seasonally higher expenses related to the timing of bonus payments and other prepaid expenses.
Speaker Change: Two questions around the business.
Speaker Change: Yes.
Michael: <unk> over to Michael.
Michael: Aaron we're ready for questions.
Michael: Yes.
Ladies and gentlemen, if you would like to register a question. Please press the star followed by the number one on your telephone you will hear three tone prompt to acknowledge your request and if your question has been answered and you would like to withdraw. Your question. Please press star followed by the number one well one moment, while we gather the first question.
Michael: <unk>.
Michael: And our first question for today comes from the line of Simon Flannery with Morgan Stanley.
Simon Flannery: Your line is live.
Alright, Thank you very much and good evening. Thanks for all the color I was wondering if you could just help us with the update or trajectory of revenues through the quarter I think in the past you've talked about a second half.
Christopher David Stansbury: Additionally, while we are happy to discuss the recent TSA announcement in further detail, our focus is now on our business and the financial results as we move forward. Accordingly, we would prefer to be oriented to questions about the business. Thanks for your time.
Simon Flannery: Acceleration after some first half noise you didn't really talk to that during your prepared remarks, so any updates there would be great and then.
Operator: Thanks, Rich. Aaron, we're ready for questions. Ladies and gentlemen, if you would like to register a question, please press the star followed by the number one on your telephone. You will hear a three-tone prompt to acknowledge your request.
Simon Flannery: Thanks for the color on Q1, Opex, how should we think about some of the opex savings from some of the severance and other actions that you've recently been taking how does that flow through the quarters in 2024. Thank you.
Simon Flannery: And if your question has been answered, and you would like to withdraw your question, please press star followed by the number one as well. One moment while we gather the first question. And our first question for today comes from the line of Simon Flannery with Morgan Stanley. Your line is live. Great. Thank you very much. And good evening. Thanks for all the color.
Speaker Change: Yes Simon.
On the revenue side we.
Speaker Change: Would expect the public sector.
Speaker Change: Implementation and the conversion from sales to revenue to accelerate as we move through the year.
Speaker Change: And to Keith's point, we continue to see improvement in the other.
Christopher David Stansbury: I was wondering if you could just help us with the updated trajectory of revenues through the quarter. I think in the past, you've talked about a second half acceleration after some first half noise. You didn't really talk about that during your prepared remarks, so any updates there would be great. And then thanks for the color on Q1 OPEX. How should we think about some of the OPEX savings from some of the severance and other actions that you've recently been taking? How does that flow through the quarters in 2024? Thank you. Yes, Simon.
Speaker Change: The channels as well, but mid markets, we expect to continue to improve over the course of the year as well, obviously wholesale can be a little more choppy. So thats a harder one to predict as it relates to opex.
Speaker Change: Most of the savings that are related to the actions we took last year.
Speaker Change: We will be realized this year and I would expect that would be fairly even quarter to quarter.
Speaker Change: It's a full year impact.
Speaker Change: Great and just on the public sector I mean to what extent was the Q4 number including I don't know if CPE sales or other things that may not recur.
Christopher David Stansbury: On the revenue side, we would expect the public sector implementation and the conversion from sales to revenue to accelerate as we move through the year. And to Kate's point, we continue to see improvement in the other channels as well, but mid-markets, we expect to continue to improve over the course of the year as well. Obviously, wholesale can be a little more choppy, so that's a harder one to predict. As it relates to OPEX, most of the savings that relate to the action we took last year will be realized this year, and I would expect that to be fairly even quarter to quarter. It's a four-year employment contract.
Speaker Change: Next quarter.
Speaker Change: So we did say that other product revenue impacted the fourth quarter and Thats thats. The bulk of it I would say that our commentary around our confidence in public sector really relates.
Speaker Change: Two.
Speaker Change: The revenue recognition associated with the installs from those big deals, we announced over the last 12 to 18 months.
Great. Thanks, Mike.
Amit: Thanks, Amit next questioner.
Amit: Thanks for your question. Our next question comes from the line of Matt <unk> with UBS. Your line is live.
Matt: Thank you.
Matt: On the enterprise trends earlier, you had mentioned that you were concerned about.
Christopher David Stansbury: Great. And just on that public sector, I mean, to what extent was the Q4 number including, I don't know, CPE sales or other things that may not recur next quarter? So we did say that other product revenue impacted the fourth quarter, and that's the bulk of it. I would say that our commentary around our confidence in the public sector really relates to the revenue recognition associated with the installs from those big deals we announced over the last 12 to 18 months. Great, thanks a lot.
Matt: Some of the upcoming maturities on the conversations where Andrew with enterprises were kind of on a hold can you provide more color on maybe recent conversations with some of those larger clients and how the sales funnel is shaping up.
Matt: And maybe.
Matt: Maybe just another follow up on the on <unk> can you quantify the seasonal expenses, we should think about for the for the first quarter.
Matt: Lastly tax.
Christopher David Stansbury: Thanks, Simon. Next question, Eric? for your question. Our next question comes from the line of Batya Levi with UBS. Your line is live.
Matt: Taxes, how should we think about tax range is bonus depreciation or other Greg it's our extended thank you.
Batya Levi: Great, thank you. On enterprise trends, earlier you had mentioned that you were concerned about some of the upcoming maturities, and the conversations with enterprises were kind of on hold. Can you provide more color on maybe recent conversations with some of those larger clients and how the sales funnel is shaping up? And maybe, just another follow-up on one question: can you quantify the seasonal expenses we should think about for the first quarter? And lastly, taxes; how should we think about the tax range if bonus depreciation or other credits are extended?
Greg: Thanks, a lot yeah, I'll handle that one and get into two pieces to Chris.
Greg: The clarity of having this TSA updated and amended is has been great for our customer conversations it basically shifts the maturity to 2009. It provides the ability to focus on our transformation efforts and have conversations with customers without <unk>.
Greg: That question and so we've really been relishing that Tom.
Greg: Our pipeline and conversations with customers are.
Greg: Positive and growing and a lot of that has to do with the sales excellence.
Kate Johnson: Thank you. Thanks, Batya. I'll handle the debt one and give the two pieces to Chris. The clarity of having this TSA updated and amended has been great for our customer conversations. It basically shifts the maturities to 29.
Greg: We've put in place in terms of supporting our people with world class platforms and.
Greg: Driving AI for sales productivity and things like that so I think we're in a good spot Chris yes.
Greg: Yes.
Greg: Taxes.
Kate Johnson: It provides the ability to focus on our transformation efforts and have conversations with customers without that question, and so we've really been relishing that. Our pipeline and conversations with customers are positive and growing, and a lot of that has to do with the sales excellence that we've put in place in terms of supporting our people with world-class platforms and driving AI for sales productivity and things like that. I think we're in a good spot. Yeah, and on taxes, our guidance, we gave a cash tax amount that we feel is the best way to look at it. Obviously, with the one-time expenses and special charges associated with a debt transaction, the impact from an ETR standpoint on net income can be really sensitive.
Greg: Our guidance, we gave a cash tax amount that we feel is the best way to look at it obviously with the.
Greg: The one time expenses and special charges associated with the debt transaction.
Greg: The impact from an ETR standpoint on net income can be really sensitive. So that's that's why we chose to guide the cash tax amount as it relates to.
Greg: Legislation.
Greg: Again, we're really pleased with.
Greg: The momentum around that.
We would expect that if everything was enacted that that's out there that the benefit to us could be in the 3% to $400 million range on an annual basis, but we'll have to wait and see.
Christopher David Stansbury: So that's why we chose to guide the cash tax amount. As it relates to legislation, again, we're really pleased with the momentum around that. We would expect that if everything was enacted that's out there, that the benefit to us could be in the $300 million to $400 million range on an annual basis, but we'll have to wait. Thank you.
Speaker Change: Got it thank you.
Thanks, a lot Jeff. Thanks next question please.
Speaker Change: Our next question comes from the line of David Barden with Bank of America. Your line is live.
David Barden: Hey, guys. Thanks, so much for taking the questions I guess.
David Barden: Two if I could the first would be.
Christopher David Stansbury: Thanks, Batya. Next question, please, Aaron. Our next question comes from the line of David Barden with Bank of America. Your line is live.
David Barden: Just Chris.
David Barden: Chris.
David Barden: How you could maybe put some guardrails around how successful TSA conclusion would impact the free cash flow guidance outlook that you're presenting here today, which does not appear to have it in there and then and the second question would be I'm, sorry to go back to the to the public sector, but given that this is kind of the tip of the iceberg of the growth.
David Barden: Hey, guys, thanks so much for taking the questions. I have two, if I could, the first would be, just Chris, how you could maybe put some guardrails around how a successful TSA conclusion would impact the free cash flow guidance outlook that you're presenting here today, which does not appear to have it in there. And the second question would be, and sorry to go back to the public sector, but given that this is kind of the, you know, the tip of the iceberg of the growth turnaround, you know, third quarter to fourth quarter was up 30 million; third quarter to fourth quarter is up another 50 million. Most of all of that was attributed to kind of one-time items. Where, when you say it's going to be the first to return to growth, from what number should we assume that growth begins?
David Barden: Turnaround.
David Barden: Third quarter to fourth quarter, it was up $30 million.
David Barden: Fourth quarter, it's up another $50 million most of all of that was attributed to kind of one time items, where we can say, it's going to be the first to return to growth from what number should.
David Barden: Should we assume that growth begins thank you.
Speaker Change: Yes, so I'll answer the last part first.
Speaker Change: Again Youre right. We did we have said over the last couple of quarters. There were some onetime benefits that have repeated themselves and certainly helped us but as we look into the year from here forward. David We should continue to see growth in public sector as as the installs around those big contracts.
Christopher David Stansbury: Thank you. Yeah, so I'll answer the last part first. Again, you're right.
Christopher David Stansbury: We have said that over the last couple of quarters, there were some one-time benefits that have repeated themselves and certainly helped us. But as we look into the year, from here forward, David, we should continue to see growth in the public sector as the installations around those big contracts build their pace. So we do expect public sector revenue to be increasing as we go forward from here. And as it relates to the free cash flow guidance, it does include all of the TSA costs.
Speaker Change: Built their pace. So we do expect public sector revenue to be increasing as we go forward from here.
Speaker Change: And as it relates to the free cash flow guidance. It does include.
Speaker Change: All of the TSA costs. So successful closure means closing in Q1, and we've got line of sight to doing that we'll certainly give more.
Christopher David Stansbury: So successful closure means closing in Q1, and we've got line of sight to doing that. We'll certainly get more commentary around that as that gets finalized, but it is contemplated. And I think part of the confusion may be that included in that free cash flow guidance is the $700 million tax refund impact that hit in Q1.
Speaker Change: Commentary around that.
Speaker Change: As that gets finalized.
Speaker Change: But it is contemplated and I think part of the confusion may be that included in that free cash flow guidance is the $700 million tax refund impact that hitting alright, great that will be offsetting forces perfect alright. That's all helpful. Thank you Chris.
Christopher David Stansbury: Right. Right. Those are the offsetting forces.
Christopher David Stansbury: Perfect. All right. That's all helpful.
Speaker Change: Yes.
Speaker Change: Thanks, David next question please.
Michael I. Rollins: Thank you, Chris. Yep. Thanks, David. Next question, please. Our next question is from the line of Michael Rollins with Citi. Michael, your line is live. Thanks and good afternoon.
Speaker Change: Our next question is from the line of Michael Rollins with Citi.
Michael I. Rollins: Your line is live.
Michael I. Rollins: Thanks, and good afternoon couple of questions. The first one is if we go back to the analyst day slides from a few months back.
Michael I. Rollins: A couple of questions. The first one is, if we go back to the Analysts' Day slide, the EBITDA guidance range is lower at 4.1 to 4.3 versus the 4.3 to 4.6. Can you remind us of just some of the influences?
Michael I. Rollins: The EBITDA guidance range is lower at four 1% to four three versus the four three to four six can you remind us of.
Michael I. Rollins: Just some of the influences.
Michael I. Rollins: And some of the developments that got you to the current range and then.
Christopher David Stansbury: some of the developments that got you to the current range. And then, can you also give us an update on how the revenue range should look? After all this time, I think it was originally at 14-1 for 24 hours.
Michael I. Rollins: Can you also give us an update on on how.
Michael I. Rollins: How the revenue range should look.
Michael I. Rollins: After all this time I think it was originally at 13, 6% to 14 one four.
Michael I. Rollins: 2024.
Speaker Change: Yeah. So a few things so what's what's changed versus Investor day, obviously.
Christopher David Stansbury: Yeah, so a few things. What's changed versus Investor Day? Obviously, the EMEA sale, the CDN sale, and last but not least, just the impact of the debt discussions and that overhang in our business. We were pretty clear, I think, on the Q2 and Q3 calls that customers were concerned, and certainly the size of the 27 debt tower and our ability to execute the turnaround in time to refinance that, particularly the Lumen debt in that, was of particular concern. So we adjusted for that, and with the negotiations behind us, we see positive momentum. As it relates to revenue, we're not guiding revenue at this point, and I would say that's conscious because the revenue piece is going to be choppy as we go forward, and we want to be really transparent about that. It's hard to predict what totals will do, but it's easier to predict channel by channel than when we would expect to see a turnaround. But to try to give that with some level of confidence at this point is just a little too early.
The EMEA sale the CDN sale.
Speaker Change: And last but not least just the impact.
Speaker Change: Of the debt discussions and that overhang on our business.
We were pretty clear I think on the Q2 and Q3 calls that.
Speaker Change: That customers were concerned and certainly the size of the 2007 that tower and our ability to execute the turnaround in time to refinance that.
Speaker Change: Particularly the women that and that was of particular concern so.
Speaker Change: We adjusted for that and with the.
Speaker Change: With the negotiations behind us.
Speaker Change: We see positive momentum there.
Speaker Change: As it relates to revenue.
Speaker Change: Not guiding revenue at this point and I would say thats conscious because.
The revenue piece is going to be choppy as we go forward and we want to be really transparent about that it's hard to predict.
Speaker Change: What totals will do its easier to predict channel by channel that when we would expect to see a turnaround but to try to give that.
Speaker Change: With some level of confidence at this point is just a little too early.
Kate Johnson: So we've chosen to stick to EBITDA, where we obviously have more levers to pull and more control around. And just a second. In the past, we've talked about the... Co-Actors, who churned some of the legacy records. Birkbeck, share maybe some additional details or developments of Being Able to Migrate Customers More Under Pressure. So a couple things. Number one, using AI to reach out to customers in a programmatic fashion at scale to drive the productivity of the outbound calling that we do is the first step. And so we've made a lot of progress there putting the platform together. Number two, taking a migration factory approach, so for each legacy platform that customers are on, understanding the behavior signals that drive likelihood of churn and approaching them in cohorts, then meeting them where they are in terms of what they have and the best solution that we can migrate them to and doing as much of that in an automated fashion as possible. All of that is the chassis that we built in 23.
Speaker Change: So we've chosen to stick to EBITDA, where we obviously have.
Speaker Change: More levers to pull and more control around that.
Speaker Change: And then just second in the past you've talked about the opportunities to proactively.
Speaker Change: <unk> some of the legacy revenue and convert that into the strategic revenue can you share maybe some additional details or developments, where theres, some numbers, where you're able to show the financial benefits.
Speaker Change: Of being able to migrate customers more quickly to fresher strategic services.
Speaker Change: So a couple of things there number one.
Speaker Change: Using AI to reach out to customers.
Speaker Change: And in a programmatic fashion at scale to drive productivity of the.
Speaker Change: Outbound, calling that that we do as the first step and so we've made a lot of progress there putting the platform together number two.
Speaker Change: Taking a migration factory approach so for.
Speaker Change: For each legacy platform that customers are on understanding this.
Speaker Change: The behaviors signals that drive.
Speaker Change: Our likelihood to churn and approaching them in cohort and then meeting where they are in terms of what they have and the best solution that we can migrate them to and doing as much of that.
Speaker Change: In an automated fashion as possible all of that is the chassis that we built in 'twenty three now we're starting to and in Q4, we had some pretty significant progress numbers. We don't report on but in terms of doing the reach out and making progress with migrations et cetera. So we will continue.
Kate Johnson: Now we're starting to, and in Q4 we had some pretty significant progress, numbers we don't report on, but in terms of doing the reach-outs and in making progress with migrations, et cetera. So we'll continue to monitor it, and as we get to a place of growth and stability and productivity of those teams in a way that we can share, we certainly will. Thanks.
Speaker Change: To monitor it and as we get to a place of growth and stability and productivity of those teams in a way that we can share we certainly will.
Speaker Change: Thanks.
Speaker Change: Thanks, Mike next questioner.
Eric Lubchow: Thanks, Mike. Next question here. The next question is from the line of Eric Lubchow with Wells Fargo. Your line is live. Great, I appreciate it.
Speaker Change: Next question is from the line of Eric <unk> with Wells Fargo. Your line is live.
Eric: Great I appreciate it.
Kate Johnson: Maybe you could touch on the mid-market a little bit. I know that's been a big focus of the company in terms of new salespeople and new logo generation. I mean, when do you think that is more of a 2025 story when we start to see the revenue lines really turning in that segment? And then, secondly, maybe you could just touch on your interest in additional asset sales or divestitures as you look out. I think you've been pretty open about the consumer or mass market business potentially making sense being separate from the enterprise segment. Is that something that you would actively evaluate?
Eric: Maybe you could touch on mid market, a little bit I know that's been a big focus of the company in terms of new salespeople in new logo generation I mean, when do you think that more of a 2025 story when we start to see the revenue line.
Eric: <unk> turned in that segment and then secondly, maybe.
Eric: Maybe you could just touch on your interest in additional asset sales or divestitures. As you look out I think <unk> been pretty open about the consumer and mass markets business potentially making sense being separate from the enterprise segment is that something that you would actively evaluate thank you.
Kate Johnson: Starting with mid-markets, this is actually the first market segment, customer segment that we set up, you know, our squads, our scrum teams to go after. And that's everybody from sales, marketing, customer success, IT operations, you know, finance, billing, etc., all kind of circling around the customer segment to say, what are the offerings that we need? You know, what's the price we need to win?
Eric: Okay.
Eric: Starting with the split.
Eric: Mid market. This is the this is actually the first.
Eric: The market segment customer segment that we stood up.
Eric: Our squads are scrum team to go after and Thats everybody from sales marketing customer success operations finance billing et cetera.
All kind of circling around the customer segment to say what are the offerings that we need what's the price we need to win what does the marketplace look like.
Kate Johnson: What does the marketplace look like? You know, how do we swarm them and cover the markets, both direct and indirect, because that's, you know, we want to continue to leverage our ecosystems for more feet on the street from a sales perspective. And all of that work happened in 23.
How do we swarm them and cover the markets, both direct and indirect because that's we want to continue to leverage our ecosystem for more feet on the street from a sales perspective, and all of that work happened in.
Eric: In 'twenty three what's most remarkable about that is it.
Kate Johnson: What's most remarkable about that is it set the tone and context for how we then do turnarounds in the other segments because we got this learning mojo thing going where, you know, the teams are meeting with daily stand-ups and weekly stand-ups and reporting back on the challenges that they are experiencing. And then using an agile methodology, whether it's building a piece of IT functionality, or it's working with the product team to say, we need these new capabilities, or, you know, the marketing team to say, how can we do, you know, better account-based marketing, etc. And that method of working, you know, across functions with no silos in an agile, you know, rapid fashion has set the context for basically how we treat all the other segments. So that's thing number one. Thing two is, you know, internally, there's a bit of camaraderie and healthy competition. And I call my mid-market teams the sandbaggers because basically, you know, they're always coming in a little bit better than they say they're going to, and I think they're starting to get their chops.
Eric: It set the tone and context for how we then do turnarounds in the other segments because we got this learning Mojo thing happening where the teams are meeting with daily standup to the weekly stand ups and reporting back on the challenges that they were experiencing and then using an agile methodology, whether it's building a piece of it.
Eric: Functionality or it's working with the product team to say, we need these net new capabilities or the marketing team to say how can we do better account based marketing et cetera, and that method of working.
Eric: Across functions with no silos in an agile rapid fashion has set the context for basically how we treat all of the other segments. So that's thing one thing too is.
Eric: And internally, there's a bit of a <unk>.
Eric: <unk> and healthy competition and I call my mid market teams the sandbaggers.
Eric: Because basically.
Eric: There are always coming in a little bit better than they say, they're going to and I think they are starting to get their chops and so.
Kate Johnson: And so, you know, we're excited about our improvement in productivity. We're excited about our improvement in sales and revenue, et cetera. I think what we'd like to do next and where you'll see us sort of, you know, target the guns is on the ecosystem side, making sure that we have a platform that is partner-friendly so we can drive sales productivity indirectly because we all know that that's what we need for total coverage. So you want to handle the other one?
Eric: We're excited by our improvement in productivity, we're excited about our improvement.
Eric: In sales and revenue et cetera, I think what we'd like to do next and where you'll see us sort of targeted the guns is is on the ecosystem side, making sure that we have a platform that is partner friendly. So we can drive sales productivity indirect because we all know that that's that's what we need for total covered so you want to you want to handle that.
Christopher David Stansbury: Yeah. I mean, and on asset sales, we'll obviously continue to evaluate the entire portfolio. But what I would say specifically about the mass markets business is really just a few things.
Eric: Yeah.
Eric: And on asset sales, we will obviously continue to evaluate the entire portfolio.
Eric: I'd say, specifically about the mass market business is really a few things one that's an enormously valuable asset and.
Christopher David Stansbury: One, that's an enormously valuable asset, and we know that, and that's why we're continuing to invest at the pace that we're at right now in getting more fiber in the ground and pushing really hard to drive subscriber growth. That said, you know, we've been very public about saying that that's a space where consolidation is necessary, and we will not be the consolidators. And I think you've seen, you know, in the last few days...
Eric: We know that and that's why we're continuing to invest.
Eric: At the pace that we're at right now and getting more fiber in the ground and pushing really hard to drive subscriber growth.
Eric: That said, we've been very public about saying, that's a space where consolidation is necessary and we will not be the consolidator, so and I think you've seen.
Eric: In the last few days some some noise in the industry as people are taking more active positions around what happens next with that sector. So we're going to keep our heads down continue to focus on execution and building out the value of that asset and we will evaluate as we go.
Christopher David Stansbury: There's some noise in the industry as people are, I think, taking more active positions around what happens next with that sector. So we're going to keep our heads down, continue to focus on execution and building out the value of that asset, and we'll evaluate as we go. All right, thank you. Thanks, Eric. Next question, Eric? Our next question is from the line of Nick Daldeo with Moffett Nathanson. Your line is live. Hey, thanks for taking my questions. I've got two guidance-related ones for Chris.
Speaker Change: Alright, thank you.
Speaker Change: Thanks, Eric next questioner.
Speaker Change: Our next question is from the line of Nick del Deo with Moffett Nathanson.
Speaker Change: Your line is life.
Hey, Thanks for taking my questions I've got two guidance related ones for Chris The first one on Capex.
Nick Del Deo: The first one on CapEx. So it looks like, you know, your midpoint for CapEx this year is $2.8 billion. It was about $3 billion in 23X EMEA. Your five home passings are about the same in 24 versus 23. So it seems like the CapEx for everything else is ticking down some. I was just wondering if you could talk a little bit about what's behind that reduction, assuming that observation is correct.
Speaker Change: So it looks like.
Speaker Change: Your midpoint for Capex. This year is $2 eight build billion and it was about $3 billion in 'twenty three X EMEA.
Speaker Change: Your fiber to the home pass seems about the same in 24 versus 23, so it seems like.
Christopher David Stansbury: The capex for everything else is ticking down some I was just wondering if you could talk a little bit about what's behind that reduction assuming that observation is correct.
Christopher David Stansbury: It's really driven by our continued focus on efficiency, and so we continue to push on both OPEX as well as CAPEX, and we will continue to do so. But don't view it as a signal of us pulling back anywhere. We are investing aggressively and will continue to invest aggressively in both enterprise and mass markets, as well as just the broader simplification of Lumen as we go forward. There's an enormous amount of effort that's taking place, in particular this year, around financial systems as well as operations, that will dramatically improve the customer experience. So you'd say you get a similar bang for your buck, or more of a capex bang for your buck this year than last year, and that kind of explains it? That's right.
Speaker Change: It's really driven by our continued focus on efficiency.
Speaker Change: And so we continue to push on both.
Speaker Change: Opex as well as Capex and.
Speaker Change: And we will continue to do so, but but it's not don't don't view it as a signal of us pulling back anywhere.
Speaker Change: We are investing aggressively and we'll continue to invest aggressively in both enterprise and mass markets as well as just the broader.
Speaker Change: Simplification of alumina as we go forward.
Speaker Change: There's an enormous amount of effort that's taking place in particular this year around financial systems as well as operations.
Speaker Change: That will dramatically improve the customer experience.
Speaker Change: Okay.
Speaker Change: You're getting similar Bang for your more of a Capex Bang for your Buck this year than last year and that kind of explains it.
Speaker Change: That's right.
Speaker Change: Okay, and then second on cash taxes.
Nick Del Deo: Okay. And then second on cash taxes. It looks like cash taxes paid, excluding the refund, are going to be in the four to five hundred million dollar range, which is a pretty big number. I guess, barring any change in the tax code, is this a reasonable starting point to think about for the next few years, or, you know, are there debt transactions or other things kind of throwing it off? Yeah, I don't want to try to..., you know, estimate what 25 is right now.
Speaker Change: It looks like cash taxes paid excluding the refund are going to be in the 4% to $500 million range.
Speaker Change: Which is a pretty big number I guess barring any change in the tax code is this a reasonable starting point to think Thats for the next few years.
Speaker Change: Or like are there debt transactions or other things kind of thrown it off.
Speaker Change: Yes.
Speaker Change: Don't want to try to ask.
Speaker Change: <unk> about 25% is right now, we're obviously not doing guidance there.
Christopher David Stansbury: We're obviously not doing guidance there. You know, as I said earlier, we gave the guidance, the cash tax guidance we gave this year. I'm going to give you a little bit here, though, on interest, because I think it's important. I think the cash interest in 25 will not be materially different than it is in 24.
Speaker Change: As I said earlier, we gave the guidance the cash tax guidance. We gave this year just because of the sensitivity and.
And net income with all the other special charges hitting this year.
Speaker Change: <unk>.
I will.
Speaker Change: I'll give you a little bit here, though on the interest because I think it's important I think the cash interest in.
Speaker Change: In 25 will not be materially different than it is in 'twenty four.
Christopher David Stansbury: And the key thing there is, just for your modeling, is while we don't have a full year impact under the TSA in 24, at the execution of the TSA, we do basically have to pull forward interest expense. So when we look at it, that variable is going to be roughly the same in 24 and 25. I think that I'll give you that much on 25.
And the key thing there is just for your modeling is while we don't have a.
Speaker Change: Full year impact under the TSA in 24 at the execution of the TSA, we do basically have to pull forward.
Speaker Change: Interest expense so when we look at it that variable is going to be roughly the same $24 25, I think that I'll give you that much on 25.
Speaker Change: Okay, but I guess, maybe maybe I'll phrase it differently or are there kind of onetime tax items that we should bear in mind.
Christopher David Stansbury: Okay, but I guess maybe I'll phrase it differently. Are there kind of one-time tax items that we should bear in mind that are baked into that guidance? Yeah, no, not materially.
Speaker Change: That are baked into that guidance.
Speaker Change: Yeah, no not not not materially no.
Christopher David Stansbury: Okay, okay. Thank you, Chris. Thanks, Nick. Next question, Aaron. Our next question is from the line of Greg Williams from TD Cohen. Your line is live.
Speaker Change: Okay. Okay. Thank you Chris.
Speaker Change: Thanks, Nick next questioner.
Speaker Change: Next question is from the line of Greg Williams from TD Cohen.
Greg Williams: Your line is live.
Greg Williams: Great, thanks for taking my questions. Chris, I realize that you typically guide EBITDA in that $200 million range. And I'm just wondering, you know, if there's any particular puts and takes to consider what's driving that range this year? I know you mentioned some levers that you can pull.
Greg Williams: Great. Thanks for taking my questions, Chris I realize you typically guide EBITDA in that $200 million range and I'm just wondering if theres any particular puts and takes to consider what's driving that range.
Greg Williams: This year I know you mentioned some levers that you can pull.
Christopher David Stansbury: And then the second question is, just on the ABS debt markets, if you're looking at that in the year now that you've got the clean runway from the TSA, and, you know, maybe you can leverage some of these fiber homes. Thanks. Yeah, we'll continue to look at the capital structure and for ways to make it more efficient in the future. So we're not done. That was a big one, but we're not, And sorry, repeat the first part of the question. Just the EBITDA range, if there are any puts and takes to consider and levers to pull.
Greg Williams: And then the second question is just on the ABS debt market, if youre looking at that in the year now that you've got the clean one way from the TSA and and you know maybe you can leverage some of these fiber homes.
Greg Williams: Yes, we will continue to look at the capital structure and for ways to make it more efficient forward. So we're not done.
Greg Williams: That was a big one, but we're not done.
Speaker Change: And sorry repeat the first part of the question.
Speaker Change: But just the EBIT range, if there's any puts and takes to consider and leverage the poll.
Christopher David Stansbury: Yeah, I know. We just felt that the plus or minus, you know, 100 million was the way to go. The comment that I made earlier on just the levers we have, obviously, we're doing a number of things, right? The primary objective is to get revenue growing as we shift aggressively from kind of legacy services to Digital Service Offering. But at the same time, we are fixing the internal workings of Lumen.
Speaker Change: Yes no.
Speaker Change: We felt that the.
Speaker Change: Plus or minus 100 million was the way to go we the comment that I made earlier.
Speaker Change: On just the levers we have obviously, we're doing a number of things right. The primary objective is to.
Speaker Change: <unk> revenue growing as we shift aggressively from kind of legacy services to digital service offerings, but at the same time we are.
Speaker Change: Our fixing.
Speaker Change: The internal workings of alumina.
Christopher David Stansbury: I mean, multiple billing systems, multiple GLs, inventory. Frankly, a really poor customer experience.
Speaker Change: <unk>.
Speaker Change: Multiple billing systems multiple GL.
Speaker Change: Inventory, frankly, a really poor customer experience and Kate spoke to some of the progress we're making there so as those things get fixed.
Christopher David Stansbury: And Kate spoke to some of the progress we're making there. So as those things get fixed, that obviously gives us the opportunity to drive more efficiency in addition to a better customer experience. And that also has an EBITDA effect. So the EBITDA, we get the double benefit, obviously, of the revenue as well as those efficiencies. That's helpful.
Speaker Change: That obviously gives us the opportunity to drive more efficiency. In addition to a better customer experience and that also has EBITDA effect. So the EBITDA, we get the double benefit obviously of.
Speaker Change: The revenue as well as those efficiency plan.
That's helpful. Thank you.
Greg Williams: Thank you. Thanks, Greg. Next question, please. We have another question from the line of Frank Louthan with Raymond James. Your line is live.
Kate: Thanks, Greg.
Speaker Change: Question. Please.
Speaker Change: We have another question from the line of Frank Louthan with Raymond James.
Frank Garreth Louthan: Great. Great. Thank you. I just wanted to go to slide six and the different opportunities you have there.
Frank Garreth Louthan: Your line is life great great.
Frank Garreth Louthan: Great. Thank you.
Frank Garreth Louthan: Wanted to go to slide six and the different.
Frank Garreth Louthan: Opportunities you have there.
Kate Johnson: Can you characterize that as what sort of potential revenue that is? Is that a multi-billion dollar opportunity for Lumen? How should we think about that? And then you mentioned something about the recognition of revenues for the public sector business. Is there some sort of timing difference in the cash flow of some of those that we should be aware of?
Frank Garreth Louthan: Can you characterize that as look toward a potential revenue that is is that a multibillion dollar opportunity for lumen, how should we think about that and then you mentioned something on the.
Frank Garreth Louthan: The recognition of the revenues for the public sector business is there some sort of.
Frank Garreth Louthan: Timing difference in the cash flow some of those that we should be aware of thanks.
Christopher David Stansbury: Thanks. Why don't you do the cash flows, and I'll do the portfolios? So really, in the public sector, Frank, that's the longest kind of sale to installation interval of anything we sell. They're big, complex deals. Obviously, we're working with government agencies, and they've got to go through their processes, and that takes time. So you can have a 12- to an 18-month lag, as I mentioned, until that starts to get recognized in revenue. And as it relates to the cash flows around that, it will increase as time goes on because, obviously, the pace of the installs increases. But in terms of... It's a book-to-bill difference is what you were talking about, not a cash recognition difference.
Frank Garreth Louthan: Once you hit the cash flow.
Frank Garreth Louthan: So really on a public sector Frank.
Frank Garreth Louthan: The longest kind of sale to install interval of anything we sell their big complex deals. Obviously, we are working with government agencies and they've got to go through their processes and that takes time. So you can have a 12 month to an 18 month lag as I mentioned until that starts to get recognized in revenue as it relates.
Frank Garreth Louthan: To the cash flows around that.
Frank Garreth Louthan: It will increase as time goes on because obviously the pace of the installs increase.
Frank Garreth Louthan: But.
The book to Bill book to Bill differences of what you were talking about not a cash recognition exactly and Theyre just massive cottage, okay. So yeah, but I'll turn it back to Kate for the first part of your question sure on page six we.
Christopher David Stansbury: Exactly. And they're just massive contracts. So, yeah, but I'll turn it back to Kate for the first part of your question. Sure. On page six, just for everybody's edification, this is the Lumen Digital Platform, and we have the portfolio outlined with a totally digital customer experience wrapped around two important things. The first is our network, our core network services, because none of these digital services are relevant without total integration into the network. Customers are demanding left to right, top to bottom integration, quick, secure, and effortless. It needs to be exactly that in order to be relevant in the digital economy. And I think you can look at other companies that have some of these digital services, and they don't have the fiber network, and they just can't get the economics, and they can't get the customer service.
Kate: Just for everybody's edification used alumina digital platform and we have.
Kate: Unfortunately lines.
Kate: With a totally digital customer experience.
Kate: Wrapped around two important things the first is our network our core network services.
Kate: None of these digital services are relevant without total integration into the network customers are demanding left the right top to bottom integration.
Kate: Quick secure effortless.
Kate: It needs to be exactly that in order to be relevant in the digital economy.
Kate: And I think you can look to other companies that have some of these digital services and they don't have the fiber network and they just can't get the economics and they can't get the customer service right. So we're kind of excited about it there are four core.
Kate Johnson: So, we're kind of excited about it. There are four core capabilities that we have right now for Lumen Digital. We're just getting started, as I said. The ones that we have here represent a total available market of around $40 billion. But I think that's actually understating it because we have a couple of really interesting opportunities emerging that we'll talk about as we get a little bit closer to shaping them. Think of it this way. NAS is... you know, cloudifying the telco. It's digital everything, any port, any service, anytime, anywhere. ExaSwitch is the center of connectivity, you know, a fast path into the cloud, any cloud, and across clouds.
Kate: Capabilities that we have right now for lumen digital we're just getting started as I said the ones that we have year represent a total available market of around 40 billion.
Kate: But I think thats actually understating it because we have a couple of really interesting opportunities emerging.
We'll talk about as we get a little bit closer to shaping them.
Think of it this way NAV is.
Kate: Quantifying telco it digital everything any port any service anytime anywhere access switches and center connectivity.
Kate: Fast path into the cloud any cloud and across clouds.
Kate Johnson: The edge is becoming more and more relevant, especially with a totally digital network and high-capacity switching because users are everywhere. And the expectation is that I'm going to process all of that data that's generated at the speed of thought, and so proximity really matters. And then the last thing is security, and we have huge muscle here that's totally under-commercialized. So we're excited about the future, and right now, we're just kind of calling it a very big opportunity for net new profit pools, which is going to really help our growth curve. All right, great. Thank you. Thanks, Frank. I think we have time for just one more question. Perfect. We have one final question here for today that is from the line of Jonathan Chaplin with Newstreet. Your line is live.
Kate: Edge is becoming more and more germane, especially with a totally digital network and high capacity switching because users are everywhere and the expectation is that I'm going to process all of that data that's generated at the speed of thought and so proximity really matters and then the last thing in security and we have huge muscle here thats totally under commercialized so where.
Kate: Excited about the about the future and right now, we're just kind of calling it a very big opportunity for net new profit pools, which is going to really help our growth curve.
Kate: Yeah.
Speaker Change: Alright, great. Thank you.
Speaker Change: Thanks, Greg.
Speaker Change: Just one more question here.
Speaker Change: Perfect. We have one final question here for today that is from the line of Jonathan Chaplin with New Street. Your line is live.
Jonathan Chaplin: Thanks. Thanks for squeezing in the end guys. Actually, two very quick ones.
Jonathan Chaplin: Thanks, Thanks for squeezing me in guys actually two very quick ones.
Kate Johnson: So, Chris... Given that it may make sense at some point to separate mass markets out, could you give us a sense of the EBITDA that you're generating in that business today? And then maybe a more conceptual question for you guys. As you sort of run through the trends in the business, which seem to be improving in a lot of areas, and it seems like you're taking share in the core segments that you're focused on, and you're struggling against a sort of, an industry backdrop that's just really, really tough, um, it strikes me that the end of the business segment in aggregate is just fragmented, and that's part of the problem, and I'm Yeah, so I'll take the second part of the question. It's an interesting one, for sure.
Jonathan Chaplin: Chris.
Jonathan Chaplin: Given that it may make sense at some point to separate mass market's out could you give us a sense for the EBITDA that you are generating in that business today.
Jonathan Chaplin: And then maybe a more conceptual question for you guys.
Jonathan Chaplin: As you sort of run through the trends in the business, which seemed to be improving a little in lot of areas and it seems like you are taking share in the core segments that you were focused on and youre struggling against us.
Jonathan Chaplin: And the industry backdrop, just ready.
Really tough.
Jonathan Chaplin: It strikes me that the <unk>.
Jonathan Chaplin: The business segment in aggregate is just fragmented not part of the problem and I am wondering if there is.
Jonathan Chaplin: Consolidation opportunity, there and whether you would be a consolidator.
Jonathan Chaplin: A big consolidation transaction would just give you exposure to revenue streams that you're looking to move away from.
Jonathan Chaplin: Yes.
Speaker Change: Yeah. So I'll take the second part of that question. It's an interesting one for sure and I think you should think of us as being huge opportunity in the business segment.
Kate Johnson: And I think you should think of us as seeing huge opportunities in the business segment by providing digital services that are integrated into the network and getting smarter and smarter about how we can take advantage of these really, really complex environments, hybrid cloud, multi-cloud, generation AI, et cetera. We have not only the right team, as I've talked about, but we've got a world-class network, which I've talked about. And we've already got a head start with a lot of intellectual property protected by patents that sort of uniquely positions us to take advantage of this. That's where our focus is. We're maniacally focused on delivering value to customers and obsessing about their needs because that's how we grow as fast as possible.
Speaker Change: By providing digital services that are integrated into the network and getting smarter and smarter about how we can take advantage of these really really complex environments hybrid cloud multi cloud Gen AI et cetera.
Speaker Change: We have not only the right team as I've talked about.
Speaker Change: We've got a world class network, which I've talked about and we've already got a head start with a lot of intellectual property.
Speaker Change: Protected by patents that sort of uniquely positions us to take advantage of this that's where our focus is we're maniacally focused on delivering value to customers and obsessing about their needs.
Speaker Change: Because that's how we grow as fast as possible if there are opportunities.
Kate Johnson: If there are opportunities to integrate vertically or horizontally as time goes on, we will strategically look at every single one of those as is our fiduciary responsibility and as makes sense. We'll go after him. Okay, and on that, on the EBITDA, you know, we don't, we don't guide to that. It is in our filings. So I think that that's where I would point you in terms of the splits between mass markets and enterprise.
To integrate vertically or horizontally as time goes on we will strategically look at every single one of those as is our fiduciary responsibility and as they make sense. We'll go after them.
Speaker Change: Okay.
Speaker Change: Okay, and then on that on the EBITDA, We don't we don't guide to that it is in our filings so I think.
Speaker Change: That's where I would point you to in terms of.
The split between mass markets in enterprise, but as it relates to a potential split of the businesses, what I really want to emphasize this.
Christopher David Stansbury: But as it relates to, you know, a potential split of the businesses, what I really want to emphasize is that we're not looking to fire sale any assets; we're investing in good assets to make them great. And that's our focus, first and foremost, because that's how we see the path to maximizing value as we go forward. So definitely on the radar screen, but we've got a really dedicated group of people who are very focused on the quantum fiber buildout and the great customer experience that it brings.
Speaker Change: We're not looking to fire sale any assets, we're investing in good assets to make them great and.
Speaker Change: And Thats, our focus first and foremost.
Speaker Change: Because thats, how we see the path to maximizing value as we go forward. So definitely on the radar screen, but we've got a really dedicated group of people who are very focused on the quantum fiber build out and the great customer experience that it brings and we are.
Christopher David Stansbury: And we're going to continue on that path. Great to hear. Thanks, guys. Thanks, Jonathan. Thank you. All right. Thank you, ladies and gentlemen, this will conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone. We'll see you next time, and ask that you please disconnect your line. Have a great day, everyone. We'll see you.
Speaker Change: To continue on that path.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, guys.
Speaker Change: John Thank you Barry was that we're going to end the call.
Speaker Change: Thank you ladies and gentlemen, this will conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.
Speaker Change: Great day, everyone. We'll see you next time.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: And ask that you. Please disconnect. Your line have a great day, everyone. We'll see you next.