Lumen Technologies, Inc.

Greetings and welcome to Lumens Technologies' third quarter 2020 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, simply press star 0. As a reminder, this conference is being recorded. Wednesday, November 4th, 2020. It is now my pleasure to turn the conference over to Valerie Finberg, Vice President, Investor Relations. Please go ahead, Valerie.

Thank you, France. Good afternoon, everyone, and thank you for joining us for the Lumen Technologies Third Quarter 2020 Earnings Call. Joining me on the call today are Jeff Story, President and Chief Executive Officer, and Neil Dev, Executive Vice President and Chief Financial Officer. Before we begin, I need to call your attention to our safe harbor statement on slide two of our 3Q20 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 in the risk factors in our SEC filings. During today's call, we will be referring to certain non-GAAP financial measures which are reconciled to the most comparable GAAP measures and can be found in our earnings press release. In addition, certain metrics discussed today exclude transformation costs and other special items as detailed in our earnings materials, all of which can be found on the investor relations section of the Lumen website. Finally, I want to remind everyone that the FCC's quiet period rules are in effect for the Rural Digital Opportunity Fund Auction 904, which began last week. Therefore, any comments we make around RDOF will be very limited. With that, I'll turn the call over to Jeff.

Thanks, Valerie, and thank you to everyone joining us today for our first earnings call as Lumen. On today's call, I'll take a few minutes to touch on the third quarter highlights and then go into the launch of Lumen and the opportunities we see ahead. After that, Neil will review our third quarter financial results, and then we'll open up the call for your questions. We delivered another solid quarter, improving our year-over-year revenue performance, and delivering sequential EBITDA as we continue to transform our business. Customers rely on Lumen to enable their digital transformations, and we're seeing that in our sales trends. Following a strong second quarter, sales for IGAN and enterprise segments were good, and sales for S&B customers were in line with our expectations. We're encouraged by the steady demand we see, but expect sales cycles will continue to be affected by the uncertain environment, particularly for SMB customers. We delivered another strong quarter for consumer broadband revenue with both year-over-year and sequential revenue growth, and recorded our 11th consecutive quarter of growth in broadband R2. This quarter, we added 46,000 gigabit subscribers, surpassing the record we set last quarter. Our results confirm our thesis for the consumer business. We win customers where we invest in fiber, simplify the experience, and use micro-targeting in selecting the areas we serve. We believe our consumer fiber offering is the best in the market, and our customer satisfaction results are showing consumers value dedicated and reliable bandwidth. As you've heard me say many times, our operational improvements lead to highly satisfied customers, more durable revenue, and they allow us to reduce the cost of our operation. Our relentless focus in these areas is delivering results you can see in two ways this quarter. First, despite higher seasonal expenses, we delivered sequential adjusted EBITDA growth. Second, we were recently recognized by Newsweek on their 2021 list of top customer service brands, scoring the highest of all named Internet service providers. We've made a lot of progress and see additional opportunities to improve. Overall, I am pleased with our results this quarter. We are focused on improving top-line revenue and driving EBITDA growth. We also remain committed to the capital allocation strategy summarized on slide four and the leverage targets we set at the beginning of last year. Our first priority is to invest in the business, driving growth, transforming our customer experience, and improving our operating costs. Our second objective is to reduce leverage, and we further strengthened the balance sheet this quarter through several capital market transactions, continuing to reduce both leverage and interest expense. Finally, we remain committed to returning capital to shareholders through our dividend and are very comfortable with a dividend payout ratio in the 30s, one of the lowest payout ratios compared to our large peers. We believe the balance we achieved through this three-prong capital allocation has served us well through the COVID pandemic and the uncertainty in the economy, giving us ample liquidity to continue to invest for growth, reduce debt, and return capital through our dividend. Within the company, our mostly work-from-home team continues to excel as a distributed workforce. We have maintained small, dedicated teams to drive speed and collaboration on our key product and operational initiatives and continue to use data-oriented technologies to operate at the highest levels in service delivery and service assurance. In fact, we've been using this time and our own experience to understand and develop solutions for the fourth industrial revolution and a work-from-anywhere mindset. Turning to the launch of Lumen, a couple of years ago, we challenged ourselves to chart a bold vision for what kind of company we wanted to be. During that effort, it became obvious that the company was firmly in a position to successfully help our customers acquire, analyze, and act on their data. Lumen does this through the use of applications securely delivered across a hybrid cloud from massive data centers all the way to the edge. In that moment, Lumen was born with the goal of delivering the fastest, most secure platform for next-gen applications and data. In September, we rebranded to Lumen Technologies to introduce this new vision to the market. Lumen is more than just a new name and logo. In a world that is rapidly changing, it signals a new era for our company where we combine an all-digital delivery model, software-defined networking, and one of the very best fiber and network infrastructures into a platform of capabilities designed to drive our customers' success. Although we've been in a rapidly changing industry for the past 30 years, with the advent of the fourth industrial revolution, the pace of change is accelerating. And I believe Lumen is uniquely positioned to enable and benefit from this rapid change. The Lumen platform. grounded on a broad fiber-based foundation, and delivering virtualized network, cloud, security, and voice services continues to be essential to customers as we see them augment their capabilities to support new work environments and emerging technologies. Women's capabilities lie at the heart of enabling that demand. And as you can see on the slide five, The Lumen platform is designed to bring together all of our assets, IP, services, and expertise to deliver the world-class experience customers expect from Lumen. We give our customers access to cloud-edge facilities, hosting critical applications within five milliseconds of digital transactions, enabling IoT and other next-gen use cases. Software-defined networks that can create new connections around the world in seconds. Network-based threat intelligence that protects our customers' data and proactively stops malicious actors. and massive network infrastructure with long-haul fiber and IP networks providing connectivity to private data centers, public data centers, cloud service providers, 5G operators, and the array of global networks serving end-users. As amazing as our capabilities are today, we continue to invest to ensure our platform offers the fastest, most capable, and resilient fiber-based services to support our customers' application and data needs. This approach enables us to deliver a continually improving platform that will help improve our revenue trajectory and take advantage of the growing addressable markets for these services. I'm also very pleased with the pace at which we are simplifying and digitizing the way businesses purchase and consume their networking, cloud edge, and security solutions from us. We are driving a digital first culture that allows our customers to configure, order, and rapidly deploy our services through an all-digital self-service set of tools. We are certainly known for our fiber infrastructure, but over that infrastructure, we deliver digital services like Lumen Hyper LAN, Lumen Dynamic Connections, Lumen DDoS mitigation that are completely transforming how we serve our customers, allowing them to consume our platform services in ways that are flexible and easy. Beyond enabling fast, secure connections and simplifying our customer experience, Lumen is also enabling partners to use our platform to deliver best-of-breed capabilities while also speeding our time to market. As an example is our partnership with Zoom. With the COVID-19 pandemic, we have seen an explosion in demand for Internet-based collaboration services. Zoom is a market leader in this space, as well as a longtime valued customer of Lumen. We are delighted our platform supports the amazing services they provide. In late September, we announced a new partnership to incorporate Zoom into Lumen's portfolio of voice and collaboration services and are excited by the early commercial traction we've already seen. Long term, we think we can develop enhanced customer experiences by further integrating Zoom's technology with the rich capabilities and deep reach of the Lumen platform. The second example is the partnership we announced with VMware, a significant collaboration covering edge compute, networking, and security. Utilizing the VMware SD-WAN by VeloCloud solution and the recently announced VMware Secure Access Service Edge platform, we have the ability to integrate VMware services to deliver a work-from-anywhere platform on our global edge infrastructure to create solutions for businesses of all sizes across a variety of industries. As I've mentioned, customers need to move processing capabilities from remote data centers or the core of the cloud to the very edge of the network, close to where the data is generated. Whether providing bare metal as a service or full-blown edge computing resources, the cloud edge and network as a service capabilities of the Lumen platform are integrated into a single experience for the customer and deliver low latency connectivity to more than 95% of the U.S. enterprises within five milliseconds. The edge computing market is forecasted to be anywhere from $10 billion to $40 billion this over the next several years, and we are very focused on leveraging our widely distributed fiber and edge data facilities to aggressively pursue this opportunity. I'm pleased to say that we're already making great progress on our cloud edge plans. We just turned up the first block of cloud edge nodes, and subsequent blocks are well underway. Even before we officially launched the product, a major media company began using our Cloud Edge platform to deliver live sporting events, and it is providing them exactly the capabilities and performance they hoped. A very different type of enterprise customer already deploying on the Lumen Cloud Edge is CyberReef. CyberReef provides remote learning solutions for public school systems And the COVID pandemic is driving tremendous growth for their services. Cyber Reef's KID Internet Defense Shield required highly distributed compute resources combined with high-capacity network connections and deeply peered Internet infrastructure, placing their security tools close to the school systems they support. In other words, Lumen's Cloud Edge platform and the Lumen network were a perfect fit for this customer and a great example of how high-performance networking combined with distributed compute can deliver next-generation services. Lastly, in the quarter, we turned up our Lumen Cloud Edge Experience Center in Denver, where customers, partners, and vendors can remotely deploy edge compute technologies on our platform and test them with live networking under real-life conditions. Within a couple of days of the launch of the Experience Center, a major cloud service provider loaded their cloud extension software to begin testing, and we are working with other partners and customers to begin testing their applications as well. As a result, and in partnership with multiple cloud service providers, software as a service providers, and other key partners, we expect to deliver capabilities like artificial intelligence, machine learning, and distributed analytics for enterprises over the Lumen platform. As you can see on slide six, while Lumen is the name of our company and our flagship brand for serving the enterprise and wholesale markets, we also launched Quantum Fiber, Quantum Fiber is our brand for serving fiber-based services to small business and consumer customers. And just as with Lumen Enterprise customers, we are offering our Quantum customers a simplified, highly digital customer experience with expanded tools for managing the Quantum platform with mass market efficiencies. As we continue deploying quantum fiber services to the small business segment, we intend to utilize our more than 170,000 on-net fiber-fed buildings as a starting point, targeting small businesses in tens of thousands of existing buildings. We know that bandwidth is critical for these customers, and our simple, resilient, all-digital quantum services are well-positioned to meet those needs. while lumen's primary focus is enterprise we have a dedicated leadership team whose sole focus is to leverage our quantum investments to grow the consumer and small business markets finally the century link brand will remain in place for our consumer and small business customers who receive traditional services over traditional hybrid fiber copper networks as a quick recap Lumen is more than just a new name. We are more excited than ever about the opportunity in front of us and the work we've done over the past two and a half years to capture that opportunity and to launch Lumen. As our customers embrace the fourth industrial revolution, the Lumen platform delivers adaptive, secure, and resilient capabilities over one of the world's best fiber infrastructures. We are focused on enabling our customers' success and integrating those capabilities within their own operating environment. We are very excited about the future. With that, I'll turn the call over to Neil.