Q2 2024 Lumen Technologies Inc Earnings Call
Cost for special items as detailed in our earnings materials, which can be found on our Investor Relations section of our aluminum website with that I'll turn the call over to Kate Thanks, Tim Good afternoon, everyone. Thanks for joining.
Speaker Change: Cognizant of the timing of this call because over the past two days the markets have been a bit noisy with lots of uncertainty about the health of the economy in the next six to 12 to 18 months.
Speaker Change: In contrast, the announcement, we made last night about Lumens pivot to growth is all about building critical infrastructure to support the NII economy for the next several decades and.
Speaker Change: And to netted out there are three key takeaways from our call today.
Speaker Change: Lumens enterprise operational turnaround is progressing well with continued sales momentum across our growth portfolio and further improvement in customer satisfaction. We are also executing extremely well and our quantum fiber business.
Speaker Change: Second <unk> has been anointed as the trusted network for AI by some of the most important technology companies on Earth with over $5 billion in major partnerships ink to date and visibility to nearly $7 billion more and opportunities we see the market for lumens private connectivity fabric as providing a major <unk>.
Speaker Change: Positive momentum shift for this company.
Unknown Executive: Once again, every one of our enterprise customer channels shows significant year-over-year improvements, which should manifest in lower churn, higher growth sales, and improved overall revenue growth over time. But the real breakthrough to share with you is how we're repositioning the company for the future in the growing market of AI. To summarize what's happening, the dramatic rise in AI innovation is spurring explosive growth in data center build-outs, and data centers simply have to be connected.
Speaker Change: With you we think are likely to be three distinct phases. The first phase as evidenced by our closed deals is with huge technology companies cloud providers, social platforms et cetera.
Speaker Change: Or a I thought leaders and are building and training AI model model is responsible for the explosive growth in data Center Buildout.
Unknown Executive: They were the first to recognize that today's Internet simply won't serve tomorrow's AI economy, and they're partnering with Lumen to massively expand their connectivity infrastructure. Let me provide just a little bit more color on the impact of the plan. Our target is to ensure that the majority of our new services are on this unified network fabric by the end of 2025. This will enable massive simplification in our product portfolio, enabling us to significantly reduce our product count from thousands of product codes to a target of around 300, a massive simplification enabler across Lumen and our ecosystem.
Speaker Change: They were the first to recognize that today's internet simply won't serve tomorrow's AI economy, and they're partnering with lumen to massively expand their connectivity infrastructure.
Speaker Change: We think the next tranche of demand is likely to come from the AI model inference space, probably with forward thinking enterprises, who see AI as a way to transform their businesses I think financial services health care and retailers to start.
Speaker Change: Finally in the third phase, we suspect breakout growth in demand for connectivity and digital on demand network services will come when AI starts talking to AI in rings and exchanges.
Speaker Change: We're in very early discussions with strategic partners, who are helping shape our view in this space.
Speaker Change: Please note that these recent announcements which were not included in our 2024 guidance fund the necessary upfront opex and capex to ramp and scale. These new AI workloads. Additionally, these deals provide funding for continued innovation and strategic cost take outs.
Speaker Change: And that leads me to my next important piece of news today.
Speaker Change: Today, we're announcing that we see a path to creating a $1 billion and cost take out by the end of 2027.
Unknown Executive: And we secured access to over $2.3 billion in new liquidated First, we believe the progress we've made on driving PCF sales these past few months is just the beginning of a vast new TAM, which brings long-term sticky revenue, offsetting higher churn legacy product declines. As Kate mentioned, our sales growth engines within our large and mid-market enterprise channels in our business segment, along with our mass market segment, showed solid performance this quarter, with large enterprise and mid-market sales both up over 26% year-over-year. While consolidated revenue and adjusted EBITDA still feel the impact of legacy declines, we are encouraged by improvements we're making in the business. Now, let's move to the discussion of financial results for the second quarter.
Speaker Change: Yeah.
Speaker Change: To $5 $77 billion and approximately 42% of that decline was due to the impact of divestitures and commercial agreements.
Speaker Change: S markets segment revenue declined eight 2% to $691 million.
Speaker Change: Adjusted EBITDA was $1.011 billion with a 39% margin and free cash flow was negative $156 million.
Next I'll review, our detailed revenue results for the quarter on a year over year basis.
Speaker Change: Within our North America Enterprise channels, which is our business segment, excluding wholesale international and other revenue declined three 6%.
Speaker Change: We continue to expect public sector to be the first channel to pivot to sustainable growth. Later this year, followed by mid market and then large enterprise overall, North American business declined five 5%.
Speaker Change: Large enterprise revenue declined six 9% in the second quarter, our grow revenue was approximately flat year over year with continued pressure and nurture and harvest product revenue.
Unknown Executive: We expect continued variability and trends as we drive towards overall stabilization. Moving to our business product lifecycle reporting, I'll reference the results based on our North America Enterprise channel. Additionally, we will continue to pursue opportunities for cost optimization when we help customers migrate from off-net legacy and TDM-based services onto Lumen's network. Fiber ARPU with $62 was up slightly both sequentially and year over year. Importantly, we reached a significant milestone of 1 million fiber broadband subscribers in July.
Speaker Change: We expect continued variability in trends as we drive towards overall stabilization mid.
Speaker Change: Mid market revenue declined approximately 7% year over year with improvement in grow offset by near term harvest.
Speaker Change: <unk> sector revenue increased 8% year over year, driven by strength in our grow and other product revenue and partially offset by declines in nurture and harvest. We continue to see traction with large bookings in this space, which take time to ramp to revenue and these wins give us continued confidence that public sector will be the first sales channel to return to sustainable.
Speaker Change: Growth this year.
Speaker Change: Wholesale revenue declined approximately 10% year over year, the harvest portion of the wholesale portfolio, which is comprised of products like Tdm voice in private line saw revenue contract by 17, 9% year over year in the second quarter.
Speaker Change: This is primarily driven by telco partners that are selling legacy services, our harvest product revenue will likely continue to decline over time and is an area that we will manage for cash.
Speaker Change: International and other revenue declined 67, 1% driven primarily by the divestiture of our EMEA business and the sale of select CDN contracts in the fourth quarter of last year.
Speaker Change: Moving to our business product lifecycle report reporting I'll reference to results based on our North America Enterprise channel.
Speaker Change: The three 6% year over year decrease was due to declines in our nurture and harvest segments, partially offset by growth, particularly enterprise broadband dark fiber and IP.
Speaker Change: While results can vary in any quarter, we expect sustained strength in the grow product revenue as we execute on our core turnarounds.
Speaker Change: Within nurture and harvest, we continue to expect headwinds in these markets declining categories. However.
However, we continue to take proactive steps to migrate customers to newer technologies and these actions improve our customers' experience and will provide an uplift in customer lifetime value for lumen. Additionally, we will continue to pursue opportunities for cost optimization. When we help customers migrate from off net legacy and Tdm based services onto <unk>.
Speaker Change: Lumens network.
Speaker Change: Within North American enterprise channels grow products revenue increased one 5% year over year.
Speaker Change: Grow now represents approximately 43% of our North America enterprise revenue and for our total business segment carried an approximate 80% direct margin this quarter.
Speaker Change: Nurture products revenue decreased 12, 1% year over year nurture represents 30% of our North American enterprise revenue and for our total business segment carried an approximate 66% direct margin this quarter.
Speaker Change: Harvest products revenue decreased 10, 6% year over year and continues to be negatively impacted by declines in tdm based voice and private line.
Speaker Change: Harvest represented approximately 16% of our North America enterprise revenue in the second quarter and.
Speaker Change: For our total business segments, they carried an approximate 77% direct margin this quarter.
Speaker Change: Other product revenue improved 18, 5% year over year as a reminder, other product revenue tends to experience fluctuations due to the variable nature of these products.
Speaker Change: Now moving on to mass markets, our fiber broadband revenue grew 14%.
Speaker Change: 14, 6% year over year and represents approximately 38% of mass markets broadband revenue.
Speaker Change: During the quarter fiber broadband enabled location adds were 136000, bringing our total to over $3 9 million as of June 30, and pacing towards our targeted annual 500000 build target this year.
Speaker Change: We also added 40000 quantum fiber customers, which is our best fiber net add quarter reported to date and this brings our total to 992005.
Speaker Change: <unk> was $62 up slightly both sequentially and year over year Importantly, we reached a significant milestone of 1 million fiber broadband subscribers in July.
Speaker Change: At the end of the second quarter, our penetration of legacy copper broadband was approximately 9% and our quantum fiber penetration stood at approximately 25%.
Speaker Change: As we look ahead, we will continue our market by market assessment of the mass market business as we explore a range of strategic options to maximize its value. Those options include potential joint ventures, wholesaling arrangements or future divestitures to generate incremental cash.
Speaker Change: Now turning to adjusted EBITDA for the second quarter of 2024, adjusted EBITDA was 1.011 billion compared to 122 9 billion in the year ago quarter.
Speaker Change: Second quarter EBITDA was positively impacted by our strong first quarter sales bookings as well as efficiency improvements from our second quarter cost actions and overall margin management.
Speaker Change: Special items impacting adjusted EBITDA totaled $136 million.
Speaker Change: The majority of special items in the quarter were related to severance for.
Speaker Change: For the second quarter of 2024, our adjusted EBITDA margin was 39% capital expenditures were $753 million and free cash flow, excluding special items was negative $156 million.
Unknown Executive: As we've previously stated, we're leaning into our network investments to support the rapid growth and demand our customers are facing. As Kate mentioned, we're moving full speed ahead and investing in our transformation, which includes additional spending on network and systems unification that will ultimately lead to more efficient operations and a better customer experience. With the investments in transformation and costs associated with recent PCS sales and in conjunction with continued legacy revenue declines, directionally, we see 2025 EBITDA below 2024 levels, with a significant rebound in 2026 and growing thereafter.
Speaker Change: As we previously stated we are leaning into our network investments to support the rapid growth in demand our customers are facing.
Speaker Change: Now before I provide an update on our 2024 financial outlook I'd like to provide some color around the near term impacts of our <unk>.
Speaker Change: Tcf sales and the additional liquidity and flexibility we have.
Speaker Change: As Kate mentioned, we're moving full speed ahead and investing in our transformation, which includes additional spending on network and systems unification that will ultimately lead to more efficient operations and a better customer experience.
Speaker Change: Given our improving liquidity profile, we intend to pull forward some expenses from 26% and 27 into 'twenty five accelerating the timeline of our cost takeout goals.
Speaker Change: The investments in transformation and costs associated with recent Pts sale and in conjunction with continued legacy revenue declines Directionally, we see 2025, EBITDA below 2024 levels with a significant rebound in 2026 and growing thereafter, we.
Speaker Change: We will provide more detailed 2025 guidance on our fourth quarter 2024 call in February.
Speaker Change: Now moving on to our financial outlook, we now estimate fiscal year 2004, EBITDA to be in the range of $3 $9 billion to $4 billion.
Unknown Executive: We now estimate fiscal year 24 EBITDA to be in the range of $3.9 to $4 billion, CapEx in the range of $3.1 to $3.3 billion, cash interest in the range of $1.15 to $1.25 billion, and Free Cash Flow in the range of $1 to $1.2 billion.
Speaker Change: Capex in the range of three 1% to $3 3 billion.
Speaker Change: Cash interest in the range of 1.15 to 125 billion.
Speaker Change: And free cash flow in the range of 1% to $1 2 billion.
Speaker Change: This guidance includes some incremental opex capex and cash flows associated with our PCM sales growth the gain on a sale of an investment as.
Speaker Change: As well as incremental spending to ultimately improve our cost structure and margins.
Speaker Change: This additional opex and Capex will be fully funded upfront by incremental PCF cash flow and with that I'll turn it back to Kate for closing remarks. Thanks, Chris.
Unknown Executive: Thanks for... This is Lumen's moment. We are playing to win. Operator, we're ready for questions.
Kate: Before we open up the call for questions I wanted to pause to acknowledge where we are AI.
Kate: AI represents one of the most significant technology shift in history every person in every organization on Earth will be impacted.
Speaker Change: These data data needs data centers and data centers need to be connected.
Speaker Change: What was once an overbuilt fiber network is shifting from commodity to something much more valuable.
Lumen: Lumen, we are streamlining and digitizing our operation to try to find growth in legacy telco market. Instead, we are building a digital platform to help us become the trusted network for AI. So we can capitalize on the market that will likely see explosive growth for decades. This is aluminum.
Speaker Change: A moment.
Speaker Change: We are playing to win.
Speaker Change: This is a business that we are in.
Operator: Operator, we're ready for questions.
Speaker Change: Okay.
Speaker Change: Thank you the floor is now open for questions.
Speaker Change: Dialed in and we would like to ask a question. Please press star one on your telephone keypad Shire Johan and joined the queue.
Speaker Change: I would like to withdraw your question Kinky breast star one again, if you are called upon to ask question and our lithium wind loud speaker on your device. Please pickup your handset and thank you for that.
Speaker Change: That your phone is not on mute when asking your question.
Speaker Change: And our first question comes from the line of Michael Rollins with Citi. Please go ahead.
Michael Rollins: Thanks, and good afternoon.
Michael Rollins: First with respect to the $5 billion in sales.
Michael Rollins: I'm curious.
Speaker Change: Some additional color.
Speaker Change: Competitiveness of that process.
Speaker Change: Are your customers using <unk>.
Speaker Change: Ingalls vendors or the solution or multiple vendors. So this is something that will help them looming, but maybe the ecosystem.
Speaker Change: And then for <unk>.
Speaker Change: Women, specifically can you share the mix.
Speaker Change: <unk>.
Speaker Change: Assets under existing fiber and conduit leveraging assets that are already out there from U.
Speaker Change: Versus what.
Speaker Change: You are building a new infrastructure.
Speaker Change: And do you consume some of those.
Speaker Change: Fiber inventories such that investment mix or margin mix might look differently over time as you continue to sell within the new PSB segment. Thanks.
Mike: Hey, Mike.
Speaker Change: I'll take the first part I'll, let Chris handle the second part so first part of it what does the competitive landscape look like look obviously, I'm a little bit biased, but here's my observation. Our network is the crown jewel that we always thought it was it's got great coverage unique routes is diverse and it's got state of the art fabric fiber because we've been taking care of it for you know for a long.
Speaker Change: Time, and giving us great positioning with our customers, they're looking at some time building some routes by themselves.
Speaker Change: The time to understand that we can get them, there faster with higher quality and better service and that's the observation across the deals we've won so far.
Speaker Change: Yes, and just on the economics.
Speaker Change: It's a really good question and then I'm not going to be evasive with you, but the reality of that is really complicated. So if a deal to deal every deal is different in terms of where they want to go from <unk> to how much capacity they need.
Speaker Change: And inevitably you will end up with a combination of.
Speaker Change: Existing fiber new fiber.
Speaker Change: Existing conduit new conduit.
Speaker Change: It really does vary deal to deal now.
Speaker Change: Now on that we'll never disclose it because.
Speaker Change: Yes.
Speaker Change: These are.
Speaker Change: <unk>.
Speaker Change: Called private.
Speaker Change: Connectivity fabric for a reason.
Speaker Change: And our customers want to keep it private because it's competitive.
Speaker Change: A secret that they have.
Speaker Change: Is it a competitive secret for us so.
Speaker Change: It will vary deal to deal, but the video that we released I think gives a good flavor on average.
Speaker Change: Thank you.
Speaker Change: Next question.
Speaker Change: Your next question comes from the line of Sebastiano Petti. Please go ahead.
Sebastiano Petti: Hi, Thanks for taking the question just had just had a quick question on the free cash flow guidance can you help us think about it is that fully just driven by the customer deposits from the private custom fiber fabric AI or does that also.
Speaker Change: Reflective of the I think Chris you said gain on the sale.
Speaker Change: And then in addition to that can you help us.
Speaker Change: We think does the free cash flow uplift that you're seeing here is that something that we should expect to stay on the balance sheet in 2024 or is this something that will probably get spent as you can probably just funding increase in capex that you've guided to today just trying to help think about the commencement of the buildout.
Speaker Change: And pacing. Thank you I'll give you a credit because yes that you ask one of the great questions on the call earlier.
Speaker Change: So.
Speaker Change: The cash flow guidance for this year is driven by both.
Speaker Change: Some of the upfront cash received we haven't received all of it obviously.
Speaker Change: For the PCF deals and it is also related.
Speaker Change: Through the asset sale that we did so both of those things contributed to the free cash flow.
Speaker Change: As it relates to where we go from here and again I want to get really be really careful.
Speaker Change: We're not giving 2025 guidance yet.
Speaker Change: But we haven't received all the cash yet that'll be received.
Speaker Change: Some this year some next year some of the following year because again these are massive construction projects they take time.
Speaker Change: And.
Speaker Change: And we will start to spend the capex as evidenced by our guidance this year and have more next year, but the point is on these deals.
Speaker Change: We're not we're not financing to build so we get paid in advance of the construction and the only thing that is kind of hanging.
Speaker Change: As you go out to 12 months is we pay tax on the cash received so even though the revenue is amortized the IRS likes to get paid on a cash basis for these deals so.
Speaker Change: That will be something that we deal with and we will give more color on that as we move through but high level I would say that next year free cash flow looks good.
Speaker Change: Thank you.
Speaker Change: Next question.
Operator: Your next question comes from the line of Batya Levi from UBS. Please go ahead.
<unk> Levi: Your next question comes from the line of <unk> Levi from UBS. Please go ahead.
Batya Levi: Great, thank you. Looking at the EBITDA guidance change for the year, is that purely related to the incremental OPEX for getting ready for these networks, or is there any change in terms of the underlying trend? And can you just go over the $1 billion cost savings you expect over the next three years, the pacing of that? I think you mentioned some of the expenses will be pulled forward. And then, is there any incremental cost to achieve that saving through the next three years? Thank you. Yeah, so as it relates to
<unk> Levi: Great. Thank you.
Speaker Change: The EBITDA guidance change for the year is that purely related to the incremental opex for getting ready for the <unk>.
Speaker Change: Oh, sorry.
Chang: Is there any change in terms of the underlying Chang.
Chang: <unk>.
Speaker Change: Can you just go over the 1 billion cost savings.
Speaker Change: Thanks over the next three years.
Speaker Change: The pacing of that I think you mentioned some of the expenses will be pulled forward.
Speaker Change: And then is there any incremental cost to achieve that savings through the next two years. Thank you.
Unknown Executive: Yeah, so as it relates to this year, the vast majority of the, there's obviously a lot of things that go on inside of Evita, but the main driver here are the TCF deals and the OPEX investments we need to make. And that is, you know, a legacy that exists today that needs to be cleaned up because it just drives a much more seamless customer experience as we go forward.
Speaker Change: Yeah. So.
Speaker Change: As it relates to this year the vast majority of the it was obviously a lot of things that go on inside of EBITDA, but the main driver here are the PCF deals and the Opex investments, we need to make to get that construction factory up and up and running in a more scaled way. It's a group that is.
Speaker Change: Existing it's one of Lumens core competencies, but the size of that group needs to get substantially larger to support just the quantum of these deals.
Speaker Change: And so that's the key driver.
Speaker Change: As it relates to the.
Speaker Change: The $1 billion cost takeout.
Speaker Change: We haven't again I want to stay away from 25 2025 guidance as much as I can were not expecting those savings to start until next year. There will be some investment next year and we'll we'll disclose that.
Speaker Change: When we give guidance for next year, but my comments on just trying to Dimensionalize, where we go from here are really around the fact that we're taking the opportunity.
Speaker Change: Near term balance of this year and 25 to really pull forward investments, we were going to have to make in 'twenty six 'twenty seven.
Speaker Change: To get to a place where our it systems as Keith mentioned.
Keith: Are more consolidated simplify to drive our customer experience and I would say if there is one key driver in that it's going from what are for enterprise networks today to one.
Speaker Change: And that is all.
Speaker Change: A legacy that.
Speaker Change: That exist today that needs to be cleaned up because it just drives a much more seamless customer experience as we go forward.
Speaker Change: Got it thank you.
Speaker Change: Next question please.
Speaker Change: Your next question comes from the line of David Barden from Bank of America. Please go ahead.
David Barden: Hey, guys. Thanks, so much for taking the question.
Speaker Change: Sure.
Chris: Chris I guess it's.
David Barden: Not so much a question I'm going to put forward.
Speaker Change: Our hypothesis.
Speaker Change: And I want you to tell it would be super helpful for people to share. What you think is right or wrong about it. So we've got this $5 billion.
Speaker Change: Deal.
Speaker Change: But the majority of the cash is coming in in the next three to four years.
Speaker Change: And the majority of the cash of that kind of she is also going out the door in the next three to four years. So.
Speaker Change: Any kind of cash inflow, we're getting is kind of a timing benefit realm.
Speaker Change: Relative to the Capex.
Speaker Change: Required under the contract and if it's a $5 billion contract and the majority of it is related to the construction piece.
Speaker Change: Let's just call it 3 billion round numbers.
Speaker Change: That means that the actual iron <unk> steel piece is about $2 billion and as you shared in your video.
Unknown Executive: That REU revenue doesn't start until after the bill is done, which would be probably year four or five, over a 20-year period.
Speaker Change: <unk> revenue doesn't start until after the builds done which would be probably years.
Speaker Change: Four five.
Speaker Change: Over a 20 year period.
Speaker Change: $2 billion $100 million in revenue a year very high margin, maybe $85 million in EBITDA.
Speaker Change: <unk> as you mentioned in your video maybe again, the taxes will be timing related, but let's just call it $65 million of.
Speaker Change: Tax affected cash flow over a 20 year period.
Speaker Change: $5 billion deal announcements.
Speaker Change: Turns into $65 million of cash flow five years from now.
Speaker Change: What's right and what's wrong.
Speaker Change: About that.
Speaker Change: Matt.
Matt: I'd say most of it's wrong.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: I think David here, Here's where I would go so so again, it's multiple deals that added up to the $5 billion.
Speaker Change: Not not just one.
Speaker Change: And.
Speaker Change: And in <unk>.
Speaker Change: The video we talked about our cash contribution margin.
Unknown Executive: Which is effectively EBITDA less CAPEX pre-tax, which is roughly in the ballpark of our existing EBITDA margin. So you do the math on that, and that will give you the pre-tax free cash flow associated with these deals. And that cash flow, to your point, does come largely at the front end. Now, there are ongoing payments for space and power, for operating and maintenance. If they want us to run the networks for them, that gives us nice cash flow over the years. But the tax would also be front-end loaded.
Speaker Change: Which is effectively the EBITDA less the capex pre tax that's roughly in the ballpark of our existing.
Speaker Change: EBITDA margin.
Speaker Change: So you do the math on that that will give you the pre tax free cash flow associated with these deals.
Speaker Change: And that cash flow to your point.
Speaker Change: Does come largely at the front end now, there's there's ongoing payments for space and power for operating and maintenance if they want us to run the networks for them that gives us nice cash flow over the years, but the tax would also be front end loaded. So the key thing here is that in one set of deals and those 5 billion.
Unknown Executive: So the key thing here is that in one set of deals, in those $5 billion deals, the net after-tax cash generated from that fully funds the liquidity gap that we've talked about for so long on these calls. It's over. It's behind us, and we're not done. So, as we said, there's another $7 billion of discussions underway right now, and this trend will continue. The demand isn't one and done.
Speaker Change: Dollar deals.
Speaker Change: The net after tax cash generated from that.
Speaker Change: Fully fund the liquidity gap that we've talked about for so long on these calls it's over it's behind us.
Speaker Change: And we're not done so as we said there is another $7 billion of discussions underway right now.
Speaker Change: And.
Speaker Change: This trend will continue the.
Speaker Change: The demand isn't one and done.
Speaker Change: So.
Speaker Change: That's the key differences so there's more cash in the deal then you've laid out.
Speaker Change: And.
Speaker Change: And theres more to come and Additionally, it's not one deal.
Speaker Change: 5 billion represents multiple customers and each contract is very different and I think that's important to stress.
Unknown Executive: Thank you. So, I just want to follow up on that, Chris, if I could. So, just to make sure that if the majority of the cast net is significant and fully funds the liquidity gap that you and your peers have modeled over the next number of years, that's now fully addressed.
Speaker Change: Thank you. So I just wanted to follow up on that Chris if I could.
Speaker Change: So the majority of the cash.
Speaker Change: He's coming in have you seen in the press release in the next three to four years.
Speaker Change: And it's also going out.
Speaker Change: Three four years. So then you've got this.
Speaker Change: Minority of the $5 billion.
Speaker Change: Then.
Speaker Change: Realized over.
Speaker Change: Just following 20 years is that whats.
Speaker Change: So theres a net zero.
Speaker Change: And then there's this tails of income is that how is that not what.
Speaker Change: You said in your question.
Speaker Change: I guess I'm not following you we can do it in the after call Im not following the net zero.
Speaker Change: The net is.
Speaker Change: Is significant and fully funds the liquidity gap.
Speaker Change: That you and your peers at models over the next number of years, that's now fully addressed.
Unknown Executive: So, and you're right, then, yeah, the revenue bleeds in over a much longer time frame. But that cash allows us to fund the transformation, it allows us to pay down debt and start to attack the debt structure. And again, that's what these first bundle of deals totals $5 billion, and there's more coming. And so my last, and this is my last follow-up, Chris, so when you say in the press release that the majority of the cash comes in the next three to four years, and there's a roughly equal amount of disbursements related to the deal, it's smaller than, so if I add the deficit and the capex necessary So said another way, David.
Speaker Change: So.
Speaker Change: And Youre right then, yes, the revenue bleeds in over a much longer timeframe.
Speaker Change: But that that cash allows us to.
Speaker Change: Fund the transformation it allows us to pay down debt and start to attack the.
Speaker Change: The debt structure and again, that's what these first bundle of deals that totaled $5 billion and there's more coming.
Speaker Change: And so my last and this is my last follow up so when you say in the press release that the majority of the cash comes in the next two to four years and there is roughly equal amount of disbursements.
Speaker Change: And then the Capex.
Speaker Change: Related to the deal.
Speaker Change: It's smaller than this.
Speaker Change: If I add the deficit.
Speaker Change: And the capex necessary to win these deals.
Speaker Change: That gets us to the breakeven the liquidity that you're talking about.
Unknown Executive: That's right. So said another way, David, the cash contribution, the $5 billion, let's use the OpEx to support it, let's use the CapEx to support it, leaves us with an amount of cash. We pay tax on that cash, and the after-tax impact of that fully funds the liquidity gap that we have modeled over the next few years.
Speaker Change: That's right. So said another way David the cash contribution.
Speaker Change: <unk> 5 billion less the opex to support it less the capex to support it leaves us with an amount of cash we pay tax on that cash.
Speaker Change: And the after tax impact of that fully funds the liquidity gap that we had model over the next few years.
Speaker Change: From this firsthand.
Chris: Thank you Chris.
Speaker Change: The next question please.
Speaker Change: Your next question comes from the line of Jim Schneider with Goldman Sachs. Please ask your question.
Unknown Executive: Good afternoon. Thanks for taking my question. I was wondering if you could maybe give us some color on within the $5 billion of closed deals, the diversity of customers within that? Is that a few large hyperscale type customers? Is it a much longer tail of customers, including corporates? And then, if you could give us any kind of sense about the same kind of color on the additional $7 billion you're pursuing now?
Jim Schneider: Good afternoon, and thanks for taking my question I was wondering if you could maybe give us some color on within the $5 billion of closed deals the diversity of customers within that is that a few large hyperscale type customers is it a much longer tail of customers, including including corporate and then if you could give us any kind of sense about the.
Speaker Change: The same kind of.
Speaker Change: Color on the additional 7 billion you're pursuing now.
Speaker Change: Yeah.
Unknown Executive: So the first 5 billion is that first tranche that I talked about. It's hyperscalers, it's social platforms, it's huge technology companies, the cloud companies, it's everybody building the AI models, right where they are. They're building them, and they're training them, they're seeing the data flows, and they're saying, holy cow, Current Networks simply don't serve where the data growth is going. So they're building out their data centers because data needs computing power.
Speaker Change: So the first 5 billion is that first tranche that I that I talked about hyperscale or its social platform. It's huge technology company in the cloud companies as everybody building the AI model right.
Speaker Change: They are building them and they are training them theyre seeing the data flows and theyre, saying Holy cow.
Speaker Change: Current networks simply got serve.
Unknown Executive: And that is driving, you know, the requirements that they bring to us about, hey, can you get me from here to there? And, by the way, can you connect me back to, you know, the main internet highway so that I can continue to serve my customers there as well. So that's the first part. The second tranche is, and we're just at the really early phase of that, which is enterprises that are using AI models. And frankly, we're one of them.
Speaker Change: Where the state of growth is going.
Speaker Change: So they are building out their data centers, because data needs compute and and that is driving the requirements that they bring to us about hey can you get me from here to there and by the way can you connect me back too.
Speaker Change: The main internet highlights that I can continue to serve my customers there as well. So that's the first time. The second tranche is is that and we're just at the really early phase of that piece, which is enterprises that are using the AI models and frankly, we're one of them who are using AI models to transform our business.
Unknown Executive: We're using AI models to transform our business. You know, we have great partnerships with all these guys to try and take cost out, drive efficiency, gain insight, and provide more intelligent services. And those enterprises that are leading the way are in healthcare, retail, and financial services, for the most part. And they're doing it in a different way. It's not necessarily an end-to-end custom private network per se, but it's a little bit of fiber and some advanced services on top of it, dramatically increasing their bandwidth and performance.
Speaker Change: No we have great partnerships with all of these guys.
Speaker Change: Try and take cost out drive efficiency gain insight and more intelligence services and those enterprises that are leading the way our in health care retail and financial services for the most part.
Speaker Change: And they're doing it in a different way, it's not necessarily an end to end customer private network per se, but it's a little bit of fiber in some advanced services on top of it dramatically increasing their bandwidth and performance needs.
Unknown Executive: And then maybe just relative to the network buildout itself, I believe at your analyst day last year, you referenced that you had 6 million inner city fiber route miles in the network and you were planning on doubling that, which is, I think, the same commentary you made in one of your earlier announcements. So with the pre-funding and the revenue associated with this deal, is that simply accelerating the buildouts you already had contemplated and pulling them forward in time, or is there any change to the profile or complexion of that build plan?
Speaker Change: Thanks, and then maybe just relative to the network Buildout itself I believe your analyst day last year, you referenced that you had $6 million.
Speaker Change: Inner city fiber route miles in the network and you were planning on doubling that which is I think the same commentary you made on one of your earlier announcements. So is it would be.
Speaker Change: The pre funding and revenue associated with those deals is that simply accelerating the buildup you already had contemplated and pulling them forward in time or is there any change to the profile of complexion of the build plan.
Unknown Executive: You know, it so I'm I'm I struggle to figure out where the baseline is from from your question. I'll just give you contextually what's happening.
Speaker Change: So.
Speaker Change: I struggled to figure out where the baseline is from from your question I'll just give you a contextually what's happening.
Speaker Change: We are increasing connectivity both inside the metro areas as well as in the long haul networks.
Speaker Change: And that's with new routes and pulling more fiber on existing routes and so it's a combination of all of it and each deal is a bit different when you overlay them. All together what you see is a doubling in that trial and a significant increase in long haul.
Unknown Executive: We are increasing connectivity both inside the metro areas as well as in the long haul networks. And that's with new routes and pulling more fiber on existing routes. And so it's a combination of all of it. And each deal is a bit different when you overlay them all together. What you see is a doubling in metro and a significant increase in long haul.
Speaker Change: Okay.
Unknown Executive: I would just add to that the fiber that we put in the ground already and the fiber that we're adding today supports 400 gigabytes of data per second. And over the next two years, that will scale to 800 and 1.6 terabytes. So the fiber that's going in the ground has enormous expandability. And I don't think, at least I'm unaware of anyone else who's investing at that rate to meet the needs of customers
Speaker Change: I think I would just add I would just add to that that the fiber that we've put in the ground already and the fiber that we're adding today supports 400 gig waves and over the next two years that will scale up 801 six terabyte.
Speaker Change: So the fiber that's going in the ground has enormous expand ability and I don't think at least I'm unaware of anyone else who's investing at that rate.
Speaker Change: To meet the needs of customers.
Speaker Change: Thank you very much.
Speaker Change: Next question please.
Speaker Change: Yeah.
Operator: Your next question comes from the line of Jonathan Chaplin with New Street. Please ask your question.
Speaker Change: Your next question comes from the line of Jonathan Chaplin with New Street. Please ask your question.
Jonathan Chaplin: Great, thanks for taking the question, guys. First, just to follow up on David's question, I'm wondering if you can help contextualize the recurring revenue piece that comes on the back of these massive transactions that you're doing. How should we think about these transactions sort of driving growth in the growth segment? Presumably, this is sort of all large enterprise at this point. And then, you know, given how important this sort of transformative event for the business is, I'm kind of embarrassed to be asking about mass markets, but you did really well on net ads and mass markets this quarter.
Jonathan Chaplin: Great. Thanks for taking the question guys.
Speaker Change: Just to follow up on David's question.
Jonathan Chaplin: I'm wondering if you can help contextualize the recurring revenue piece that comes on the.
Speaker Change: Back of these these massive transaction that your that Youre doing how should we think about.
Speaker Change: These transactions driving growth in the in the growth segment, presumably this is sort of a large enterprise at this point and then.
Speaker Change: Given how important this.
Speaker Change: A transformative event for the business is unlike embarrassed to be asking about mass markets that you did really well on net adds and mass market this quarter.
Speaker Change: It's been a.
Speaker Change: Pretty dramatic acceleration in the business over the course of the last two quarters I'm wondering if you can give us some context for what's driving that.
Jonathan Chaplin: It's been a sort of pretty dramatic acceleration in the business over the course of the last two quarters. I'm wondering if you can give us some context for what's driving that. And also just speak to sort of the strategy around ARPU a little bit. It looks like ARPU is well below peers. I assume that's sort of a conscious decision to drive penetration.
Speaker Change: And also just speak to sort of the strategy around <unk>, a little bit it looks like <unk> is.
Speaker Change: Well below peers, and I assume that sort of a conscious decision to drive penetration I'm wondering if you if there's sort of a time to close the gap over time. Thanks.
Unknown Executive: I'm wondering if you have any sort of plan to close the gap over time. Thanks. Yeah, there's a lot in there. I'll, I'll try to
Unknown Executive: As it relates to the PCF deals, we did say in the video that once you get the scale, and again, as David pointed out, it's, you know, it's anywhere between that three and five year window. In some cases, not all, customers will ask us to run the networks, and they will also provide space and power. So again, if you're powering a signal from San Francisco to New York, along the way, you're going to need huts where you can put racks, you can put all the equipment that powers those signals.
Unknown Executive: Yeah, there's a lot in there. I'll try to remember.
Speaker Change: Yes, there's a lot in there.
Speaker Change: I'll try to remember as it relates to the the PCF deals we did say in the video that.
Speaker Change: Once you get to scale and again as David pointed out it's.
Speaker Change: We were between a three and five year window.
Speaker Change: In some cases not all.
Speaker Change: Customers will ask us to run the networks will also provide space and power. So again, if youre if youre powering a signal from San Francisco to New York, along the way.
Speaker Change: Youre going to need hot.
Speaker Change: Where you can put racks, you can probably equipment that.
Speaker Change: The powers those signals.
Unknown Executive: And we said that, on average, think about that as roughly 10% of the total contract value, and that revenue and cash will be earned in the year the services are provided. So that's, I think, a good broad guideline.
Speaker Change: And we said that on average think about that as roughly 10% of the total contract value and that revenue and cash will be earned in the year. The services are provided so that's I think a good broad guidelines.
Unknown Executive: As it relates to mass markets, yeah, could not be more proud of the team. They're killing it. There's been an intense focus on driving marketing execution and really a focus on both enablement and penetration. And they kept the enablement machine chugging along, but where we're just super pleased is the growth and penetration. They're executing flawlessly right now. On ARPU, that's part of the strategy, yes. I mean, we're not trying to over or under price.
Speaker Change: As it relates to mass markets, yes could not be more proud of the team they're killing it.
Speaker Change: There's been intense focus on driving.
Speaker Change: Marketing execution.
Speaker Change: And really.
Speaker Change: <unk> focus on both enablement and penetration and.
Speaker Change: They kept the enablement machine chugging, along but we're just super pleased.
Speaker Change: Is the growth and penetration there executing flawlessly right now on <unk>.
Speaker Change: That's part of the strategy, Yes, I mean, we're not trying to over or under price. In fact, we have raised prices, where we see the opportunity to do so and we will continue to do that.
Unknown Executive: In fact, we have raised prices where we see the opportunity to do so, and we'll continue to do that. But we're pleased with the way everything's working in combination, ARPU penetration, et cetera. So, you know, more to come.
Speaker Change: But we're pleased with the way everything's working in combination of our boot penetration etcetera. So.
Speaker Change: More to come.
Chris: Thanks, Chris.
Speaker Change: Next question please.
Operator: Your next question comes from the line of Nick DelDeo with Mossett Neesonson. Please go ahead.
Speaker Change: Your next question comes from the line of Nick del Deo with Moffett Nathanson. Please go ahead.
Nick DelDeo: Hi, thanks for my questions. Um, you know, first, Chris, the comments you've made around the cash contribution margins associated with these deals seem to apply mostly to the five billion in signed deals. As we think about future deals, you know, like the seven billion you have in the negotiation, would you expect those to have more favorable cash economics by leveraging some of the fiber being put in the ground for these earlier deals, or should they be kind of in the same ballpark?
Speaker Change: Alright, thanks for taking my questions.
Speaker Change: First Chris the comments, you've made around the cash contribution margins associated with.
Speaker Change: With these deals seem to apply mostly to the $5 billion in signed deals.
Speaker Change: As we think about future deals like the 7 billion you have under negotiation would you expect those to have more favorable cash economics by leveraging some of the fiber being put in the ground.
Speaker Change: These earlier deals or should they be kind of in the same ballpark.
Unknown Executive: Yeah, I would say, on average, I think the guidance we gave is pretty good. Again, it's hard to say. So I mean, I can tell you that we've had discrete decisions that we've made along the way of whether we make some incremental investments now on routes where we may have slightly less capacity to try to help in the future, and that would obviously be a benefit, to your point, but then we don't know yet the full scale of what all of the customers want, and that may require us to do additional things that we don't have today.
Speaker Change: Yes, I would say on average I think the guidance we gave is pretty good.
Speaker Change: Again, it's hard to say, so I mean, I can I can tell you that.
Speaker Change: We've had discrete decisions that we've made along the way of do we make some incremental investments now on routes, where we may have slightly less capacity to try to help for the future and that would obviously be a benefit to your point.
Speaker Change: But then we don't know yet the full scale of what all of the customers want and that may require us to do additional things that we don't have today. So it's just.
Unknown Executive: So it's just, again, given the quantum of the deals and the complexity, it's hard to answer right now, but I would tell you that I think the guidance we gave is good general guidance around how to think about it.
Speaker Change: Given the quantum of the deals and the complexity.
Speaker Change: It's hard to answer right now, but I would tell you that I think the guidance. We gave is good general guidance around how to think about it.
Unknown Executive: Okay, so we're not trying to get too far ahead of signed deals in terms of capital commitments and whatnot.
Speaker Change: Okay. So it's not trying to get too far ahead of signed deals in terms of the capital commitments and whatnot.
Unknown Executive: Right, I mean, look, we will continue to invest in our network as we have for years, and I view that more as kind of a baseline responsibility. As it relates to big CapEx expansions, we will be very measured in how we do that. This is not a gamble.
Speaker Change: Right I mean look we will continue to invest in our network as we have for years and I view that more as kind of baseline responsibility as it relates to big Capex expansion.
Speaker Change: We will be.
Speaker Change: Very measured in how we do that this is not a gamble.
Unknown Executive: We will, if we see a route where we know there's going to be demand in the future and we're already pulling fiber, we may pull more. But if it's a route where we've got lots of capacity, we won't. So it really is route by route, mile by mile that we do those analytics, and it's actually really impressive what the team is doing as they model this out. That's a core capability, and, quite frankly, I think it's one of the reasons, in addition to the digital services that we can offer these customers, that customers come to Lumen.
Speaker Change: We will if we see a route where we know theres going to be demand in the future and we're already pulling fiber we may pull more.
Speaker Change: If it's a route where we got lots of capacity we want so it really is route by route mile by mile.
Speaker Change: When we do those analytics and it's actually really impressive what the.
Speaker Change: What the team is doing is they modeled this out.
Speaker Change: It's a core capability and quite frankly, I think it's one of the reasons. In addition to the digital services that we can offer these customers the customers come in alumina.
Unknown Executive: Okay, okay. And then, you know, Chris, you quickly alluded to it in your prepared remarks, but I was hoping you could expand a bit on how you're thinking about the cannibalization risk. You know, whether current revenue or revenue that you otherwise might have generated, you know, so for example, if you're selling someone dark fiber, I'm guessing you're not selling them waves on that route going forward. So, think about it.
Speaker Change: Okay, Okay and then.
Speaker Change: Yes.
Speaker Change: Christine you quickly alluded to it in your prepared remarks, but I was hoping you could expand a bit on how youre thinking about cannibalization risk.
Speaker Change: Current revenue or revenue that you otherwise might have generated so for example, if you're selling someone dark fiber I'm guessing you're not selling them weighs on that routes going forward.
Speaker Change: So think about it.
Unknown Executive: Think about it this way. Private Connectivity Fabric is a bundle of everything from dark fiber to waves to IP. It's your network, your way.
Speaker Change: Think about it this way.
Speaker Change: Private connectivity fabric is a bundle of everything from dark fiber to waves to IP. It's it's your network your way.
Speaker Change: And these these first deals happen to be very large infrastructure dark fiber right kind of deals with some of the other things mixed in as time goes on.
Unknown Executive: And these first deals happen to be very large, infrastructure, dark fibery kind of deals with some of the other things mixed in. As time goes on, I would expect that mix to continue to evolve. And so it depends on what the customer wants, where they want to get, as to whether we've got some of that fiber already in the ground or whether we need to pull more.
Speaker Change: I would expect that mix to continue to evolve and so it depends on.
Speaker Change: What again, what the customer wants where they want to get.
Speaker Change: As to whether we've got some of that fiber already in the ground or whether we need to pull more.
Unknown Executive: I'd also like to add, you know, as a person coming from the tech world into telecom, there's this proclivity to worry about cannibalization rather than evolution of the portfolio. And I think that's how we got to a place of being quite overbuilt. And as I look at the demand for these services and our strategy moving forward, we are going to prioritize penetration of our assets to deliver return to our shareholders, and I think that that's going to be very accretive in the long term. Yeah, this is not true.
Speaker Change: Also I'd like to add you know as a <unk>.
Speaker Change: Person coming from the Tech World into Telecom Theres. This proclivity to worry about cannibalization rather than evolution of portfolio and I think that's how we got to a place of being quite overbuilt.
Speaker Change: And as I look at the demand for these services and our strategy moving forward, we are going to prioritize penetration of our assets to deliver return to our shareholders and I think that that's going to be very accretive long term.
Speaker Change: Yeah.
Unknown Executive: Yeah, this isn't to be very clear. We haven't even talked about cannibalization. This isn't cannibalization of legacy at all. This is about net new and where we're going. And this is why we see the upside that we see in our ability to drive returns for shareholders.
Speaker Change: Yes, this is not to be very clear.
Speaker Change: We haven't even talked about cannibalization this isn't cannibalization of legacy at all.
Speaker Change: This is about net new and where we're going and.
Speaker Change: And this is why we see the upside that we see.
Speaker Change: And our ability to.
Speaker Change: To drive returns for shareholders.
Speaker Change: Next question please.
Operator: Your next question comes from the line of Greg Williams with T.D. Cohen. Please go ahead.
Speaker Change: Your next question comes from the line of Greg Williams with Didi Cowen. Please go ahead.
Greg Williams: Great, thanks for taking my questions. You know, we're all trying to size the total adjustable market for AI, and Kate, you did a good job sort of articulating those three phases. Maybe we'll start just with that first phase.
Greg Williams: Great. Thanks for taking my questions.
Greg Williams: We're all trying to size the total addressable market in AI and you did a good job sort of articulating those three stages, maybe we'll start with that first phase.
Unknown Executive: And all these deals are more dark fibery, as Chris said. So really, I think the adjusting market would be, how many new data centers are they creating? And you know, we were taking a stab at it earlier this week in some reports, and maybe the better way of asking it to you guys is, how many new data centers are you feeding roughly 45 billion in deals? Is it like 10? Is it 30? We're just trying to get a sense of that, and it will help us with our scope. I mean, we're not tracking that.
Speaker Change: And all these deals are more dark fiber Lee.
Speaker Change: So really I think you've got some lumpy how many data centers or the green and you have to decide that it earlier this week and some important maybe the better way of asking is do you guys. How many new data centers are using heating roughly 45 billion of deals is it like 10, 30, and I'm just trying to keep.
Speaker Change: And it helps us with our still thanks.
Unknown Executive: I mean, we're not tracking that, really. What we're tracking is across the group of technology companies that we're speaking to, which is, at this point, you know, in the dozens. What do their needs look like? What are the synergies between their requests so that we can drive economies of scale? And how can we drive to closure as fast as possible so that we can group them in those ways by, you know, route?
Speaker Change: I mean, we're not tracking that really what we're tracking is across the the group of technology companies that we're speaking to which is <unk>.
Speaker Change: At this point.
Speaker Change: And then doesn't.
Speaker Change: What are their needs look like what are the synergies between their request. So that we can drive economies of scale and how can we drive.
Speaker Change: The closure at the fastest possible that we can group them in those waste spot buy route.
Unknown Executive: And, you know, by how operationally we can deliver on these. The one thing we do look at when we model it out is, "Where's the power?". Data centers need power, space, cooling, and fiber. And I think, you know, the energy piece of the equation is where can you build a data center that, you know, that you can deliver a green footprint because there's also that piece of it as well. And so it's pretty complex.
Speaker Change: And by how operationally we can deliver upon these are the one thing we do look at when we model. It out is whereas the power data centers need power space cooling and fiber and I think you know the energy piece of the equation is where can you build a data center that are.
Speaker Change: You know that you can deliver a green footprint because there's also that piece of it as well and so it's pretty complex.
Speaker Change: Next question please.
Operator: Your next question comes from the line of Frank Louthan with Raymond James. Please go ahead.
Greg <unk>: Your next question comes from the line of Greg <unk> with Raymond James. Please go ahead.
Frank Louthan: Great, thank you. Maybe you can give us a little more color within this sort of $5 billion group. Can you give us an idea of the largest deal as a percentage of revenue? And then, as it relates to the $5 billion in bookings here, what is your average annual bookings? And how much is it up this year, including the PCF deals? Thanks.
Greg Williams: Great. Thank you maybe you can give us a little more color within this sort of $5 billion group can you give us an idea of the largest deal as a as a percentage of revenue and then as it relates to the $5 billion in bookings here. What are you, what's an average annual bookings and how much is it up this year, including.
Speaker Change: The PCF deals thanks.
Unknown Executive: So, yeah, in terms of the biggest one, again, that starts to get close to, um, really starting to disclose stuff about customers, because then it's, if I give you that, then it's just a guessing game as to which customer it is, and that's not fair to the customer, and, and frankly, it's sensitive information for us, so, so, we're not going to give that. Uh, as it relates to the bookings, I want to make sure I understand, uh, are you asking that once we get to scale, how, how much, or how does that relate to what we're selling today?
Speaker Change: So yes in terms of the biggest one again that starts to get close to.
Speaker Change: Really starting to disclose stuff around customers because if I gave you that then it's just a guessing game as to which customer it is and that's not fair to the customer.
Speaker Change: And frankly, it's sensitive information for us. So so we're not going to give that.
Speaker Change: As it relates to the bookings I want to make sure I understand.
Speaker Change: Are you asking that once we get the scale, how how much or how does that relate to what we're selling today is that the question.
Unknown Executive: Well, maybe I'm misusing the terms here, but it seems like you've done $5 billion in sales here, which sounds like a Bookings number, not necessarily something hitting revenue in the income statement. I'm just getting an idea of what the incremental upside from Bookings is in 24 versus, say, 23, inclusive of this bump from the PCF deals.
Speaker Change: Well it seems it may be.
Speaker Change: Using the term here, but it seems like you've done $5 billion in sales for here, which sounded like a bookings number not necessarily something hitting revenue in the income statement.
Speaker Change: I'm, just getting an idea of what the incremental upside from from that from bookings is in 24 versus <unk> 23.
Speaker Change: <unk> of this bump from the PCF deals.
Unknown Executive: Yeah, I would say from a modeling standpoint, I would think about that as largely all incremental. We always sell dark fiber. And I think the dark fiber run rate, I'd have to go back and check, Frank, because I don't know off the top of my head, but actually deals, dark fiber is obviously in the growth bucket, and we continue to grow that segment. But this, yeah, and we had the state of California in the fall that we mentioned, right?
Speaker Change: Yeah, I would say from a modeling standpoint, I would think about that as largely all incremental we always sell dark fiber.
Speaker Change: And I think the dark fiber run rate I'd have to go back and check frame I don't off the top of my head, but ex these deals.
Speaker Change: Dark fiber is obviously in the <unk> bucket and we continue to grow that segment, but yes.
Speaker Change: We have the state of California in the fall that we mentioned right.
Speaker Change: So so that was a big deal but.
Speaker Change: Again, we've done we've done over the past and we'll do other deals like that going forward.
Unknown Executive: So that was a big deal, but again, we've done those in the past, and we'll do other deals like that going forward. This shift that we're seeing right now, which quite frankly, I don't think it comes as a surprise, right? There's been so much research and communication around the amount of investment required to support AI, and everybody forgot about the fact that data doesn't originate in the data center and stay in the data center. It has to get in, and it has to get out. So what we're really seeing is that now finally being realized, and I'd say that's largely incremental.
Speaker Change: This this shifts that we're seeing right now which quite frankly.
Speaker Change: I don't think comes as a surprise right theres been so much research and communication around the amount of investment required to support AI and everybody forgot about the fact that the data doesn't originate in the datacenter and stay in the data center right Scott to get in it's got to get out.
Scott: So what we're really seeing is that now are finally being realized and I'd say thats largely incremental.
Unknown Executive: Okay, and one quick thing. Can you clarify the split in the increase in free cash flow between the asset sale and the upfront cash? The asset sale was, I think...
Speaker Change: Okay and then one quick thing did you can you clarify the split and the increase in free cash flow between the asset sale and the upfront cash.
Unknown Executive: The asset sale was, I think, after tax, $190 million.
Speaker Change: The asset sale was.
Speaker Change: After tax of $190 million.
Speaker Change: Okay. Thank you.
Speaker Change: Next question please operator.
Operator: Your next question comes from the line of Eric Luebchow with Wells Fargo. Please go ahead.
Eric <unk>: Your next question comes from the line of Eric <unk> with Wells Fargo. Please go ahead.
Eric Luebchow: Appreciate you taking the question. Thank you.
Eric <unk>: I appreciate you taking the question. Thank you.
Eric: So you talked about getting back to EBITDA growth in 2026 after a step down next year, how should we think about the visibility of getting back to revenue growth given the trajectory of bookings you've had and it sounds like these PCF deals since there'll be amortized over a very long contract duration will certainly help.
Unknown Executive: So you talked about getting back to EBITDA growth in 2026 after stepping down next year. How should we think about the visibility of getting back to revenue growth given the trajectory of bookings you've had? And it sounds like these PCF deals, since they'll be amortized over a very long contract duration, you know, they'll certainly help revenues, but I don't know if they're enough to really get you back to revenue growth by 2026 as well, if you kind of talk through the moving parts there. Thanks.
Speaker Change: Revenues, but I don't know if theyre enough to really get you back to revenue growth by 2026 as well if you could kind of talk through the moving parts there.
Unknown Executive: Yeah, so, again, I don't want to get too close to guidance here. As we've said, revenue will obviously lag the EBITDA turnaround because of our ability to drive significant cost takeout as we fix what's broken, right? And we go from four networks to one. So the timing on the revenue, I guess what we've said most recently is that it's going to lag by at least a year, and I think that still holds in this situation.
Speaker Change: Yeah, So again I don't want to get too.
Speaker Change: The guidance here as we've said revenue will obviously lag the EBITDA turnaround because of our ability to drive significant cost takeout as we fix what's broken right. When we go from four networks to one.
Speaker Change: So.
Speaker Change: The timing on on.
Speaker Change: On the revenue I guess, what we said most recently as is asking to lag by at least a year and I think that still holds in this situation, but again the comments that I made I want to be really clear about this around kind of directionally 25, and 26% to be very clear that excludes the $7 billion.
Unknown Executive: But again, the comments that I made, I want to be really clear about this, around kind of directionally 25 and 26. To be very clear, that excludes the $7 billion set of discussions we're having right now. We don't count that until it comes in because, just like this first batch of deals, they're very hard to predict, one, what's required to deliver them, and two, what the timing is.
Speaker Change: Set of discussions, we're having right now right.
Speaker Change: Don't count that till it comes in because.
Speaker Change: Just like this first batch of deals they're very hard to predict.
Speaker Change: One what.
Speaker Change: What's required to deliver them and to what the timing.
Unknown Executive: Yep, understood. And just one follow-up, you know, these new data center deals, the ones you've announced, and then the ones that are in your pipeline, you tied them to the inner city fiber investments where you'll double your fiber capacity over the next handful of years. We've heard a lot about data center deals moving to more rural locations given power constraints in a lot of markets. So can you talk at all about splits between middle mile long haul fiber versus metro fiber that's in your pipeline to support these types of deals given that data center deals are being done in more rural locations, it seems? Yeah, what we've seen. Thanks. What I'll say is this: our
Speaker Change: Yes, understood and then just one follow up you know these new data center deals the ones you've announced and then the ones that are in your pipeline.
Speaker Change: You tied them to the inner city fiber investments that we're you'll double your fiber capacity over the next handful of years.
Speaker Change: We've heard a lot about data center deals moving to more further out rural locations given power constraints at a lot of market. So can you talk at all about like splits between middle mile long haul fiber versus metro fiber. That's in your pipeline to support these types of deals given.
Speaker Change: Data center deals are being done and further out locations. It seems beyond what we've seen.
Unknown Executive: What I'll say is this, our network, one of the reasons why it's so attractive, by the way, when I say network, it's fiber. And in some cases, it's conduit, right? It's this vision that was built 25 years ago. And now, because of the advances in fiber technology, we have the ability to monetize it. So it's both. It's both of those things.
Speaker Change: But what I'll say is this.
Speaker Change: Our network one of the reasons why it's so attractive them by the way when I say network.
Unknown Executive: And so I would say it's the strength of both the inner city and the metro that customers, broadly speaking, are wanting to access. And as we continue to invest in things like Waves, it will be to deliver on both of those. Waves customers want two things. They want to get where they want to go, and they want to get there quickly. And I don't know of anyone else in the state who is investing the kind of money that we are to make sure that happens.
Speaker Change: Its fiber and in some cases it is.
Speaker Change: Can't do it right.
Speaker Change: Yes.
Speaker Change: This vision that was it.
Speaker Change: <unk> built 25 years ago.
Speaker Change: And now because of the advances in fiber technology, we have the ability to monetize it. So it's both it's both of those things and so I would say, it's the strength of both.
Speaker Change: The inner city and Metro that customers broadly speaking are wanting to access and as we continue to invest in things like ways. It will be to deliver against both of those ways customers want two things if you want to get where they want to get and they want to get there quickly and I do.
Speaker Change: Don't know of anyone else in the space, who is investing the kind of money that we are to make sure that happens.
Speaker Change: Next question please.
Speaker Change: Okay.
Speaker Change: Okay.
Unknown Executive: Since there are no more questions, I will now turn the conference back over to Kate Jensen, CEO, for closing remarks. Please go ahead. Thank you so much.
Speaker Change: Since there are no more questions I will now turn the conference back over to Keith Jensen CFO for closing remarks. Please go ahead.
Unknown Executive: To wrap up, it's an exciting time for Lumen as AI charts the course for our pivotal growth, and our future is very, very bright. Thanks for joining us today. We look forward to meeting you at the upcoming conferences and updating you on the significant progress we're making in transforming our company. Have a great night.
Keith Jensen: Thanks, so much to wrap its an exciting time for lumen as AI chart. The course for our pivot to growth and our future is very very bright thanks for joining today and we look forward to meeting you at the upcoming conferences and updating you on the significant progress we're making in transforming our company have a great night.
Speaker Change: Okay.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.