Lumen Technologies, Inc.

Greetings and welcome to Lumen Technologies' first quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct the question and answer session. If you would like to register at any time, you may press the 1 followed by the 4. If you require operator assistance, please press star 0. As a reminder, this conference is being recorded today, Wednesday, May 4, 2022. It is now my pleasure to turn the conference over to Mike McCormack, Senior Vice President of Investor Relations. Please go ahead.

Thank you, France. Good afternoon, everyone, and thank you for joining us for the Lumen Technologies first quarter 2022 earnings call. Joining me on the call today are Jeff Story, President and Chief Executive Officer, Chris Stansbury, Executive Vice President and Chief Financial Officer, and our Senior Vice President and Treasurer, Rafael Martinez-Chapman. Before we begin, I need to call your attention to our safe harbor statement on slide two of our first quarter 2022 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 to the most comparable GAAP measures that can be found in our earnings press release. In addition, certain metrics discussed today exclude costs for special items as detailed in our earnings material, all of which can be found on the investor relations section of the Lumen website. With that, I'll turn the call over to Jeff.

Thanks, Mike, and good afternoon, everyone, and thank you for joining us. I'd like to begin the call today by welcoming Chris Stansbury to the Lumen team as our chief financial officer. Chris joins us from Arrow Electronics and brings over 25 years of finance leadership experience. I'm confident that Chris's skills and knowledge will prove invaluable to our organization and as we drive toward profitable revenue growth. Chris joins limited and exciting time for our company and its stakeholders. We continue to anticipate closing two major transactions this year, which will provide a significant improvement in our revenue mix and generate over $7 billion of net cash proceeds. Within our business segment, we see strong momentum in our forward indicators like sales and churn, which provide us confidence in achieving our growth objectives. In addition, our quantum fiber build plan is ramping and we expect momentum to continue to accelerate as we drive toward our expectation of hitting 1 million or so new fiber enablements in 2022. On today's call, I will provide some thoughts on our first quarter results as well as the opportunities we see in the year ahead. Chris will discuss the first quarter in more detail and will reserve time after Chris's remarks for your questions. As we mentioned last quarter, Our first quarter revenue performance tends to be seasonally weaker compared to the fourth quarter, and this year was no exception. We continued strong performance in security, cloud, unified communications, and IP products, offset by anticipated declines in voice and other, as well as lower non-recurring equipment revenue. We are managing through supply chain constraints that have caused some delays in our install intervals and significantly slowed our CPE sales. Although CPE has little impact on EBITDA and free cash flow, it has a larger impact on revenue on a year-over-year and sequential basis. We continue to advance the Lumen platform. Last week, we launched our new Lumen Marketplace feature. The Marketplace provides our enterprise customers the ability to self-serve a number of our key products and services. No phone calls, no order tickets. The customer selects the services they need from the Marketplace, and the system takes it from there. This self-service capability resonates with our customers, improving their experience while also improving our speed of delivery and reducing our cost to deliver services. As we continue to execute on our transformation plan with capabilities like the Lumen marketplace, we believe Lumen is well-positioned to drive top-line growth in the enterprise market. We continue to win large enterprise and public sector contracts, driving long-term growth in the consumption-based services like security, application delivery, and managed services through our edge capabilities and built-in security across a world-class fiber network. These capabilities are complemented by the increasingly all-digital experience of the Lumen platform and supported by very relevant and capable professional services. While these large, complex deals take longer to turn up, they come with tremendous upside as we push more and more applications to the customer edge, leading to profitable and durable revenue for years to come. Coupling our edge facilities with our dense fiber infrastructure provides machine-to-machine level latency for approximately 97% of U.S. enterprise locations, allowing customers to implement cloud-based solutions as if all the processing and storage were located within their facilities and increasingly critical capabilities. We see traction across traditional industry verticals like retail and healthcare, but also opportunities for new use cases of our edge compute infrastructure, like we're seeing from leading crypto platforms. With the strong sales environment for large enterprise, we expect revenue trends to improve as we install the solutions called for in these more complex deployments. On the other hand, we remain dissatisfied with the mid-market enterprise performance. but expect improvements as these customers return to more normal operations post-COVID. We have confidence our products and services serve these customers well and can execute better in this channel. As you've heard me say before, our path to growth will not be linear, but we are excited about the market's appetite for our new and existing services. Our enterprise product expansions and the steady increase in the depth and breadth of our platform will will continue to open new addressable markets for Lumen. Within our mass markets group, the team is energized as we move deeper into our accelerated ramp of quantum enablement, increasing our addressable footprint and subscriber opportunity. Quantum fiber is the growth engine for mass markets, and we're excited to update you on our progress. Our most recent net promoter score, which is above 50, demonstrates that quantum fiber is delivering a very high-quality product with unmatched symmetric capacities within all digital experience. We continue to enhance the quantum experience, including the deployment of our multi-gig fiber capability, which will be commercially available to mass market customers later this year. While it's very early in the adoption phase of this type of capacity, we know there is an insatiable appetite for bandwidth. Our fiber expansions and the architectures we're now deploying with our accelerated build factor in multi-gig services from the beginning and position us for growth coming from VR, AR, gaming, work and learn from home, and other high bandwidth services. We expect the quantum capital investment to be concentrated over the next several years, but we believe the capabilities we're enabling will sustain our quantum product for years into the future. Chris will share more details about our enablement in a minute. But the short answer is that having accelerated our engineering and pre-construction work processes in the first quarter, we expect our build pace to continue to accelerate throughout the year, putting us on track to achieving our goal of 1 million or so enablements in 2022. As we see it, we're in the first inning of this exciting expansion and are laying the foundation for what we believe is a very large growth opportunity. As with our enterprise business, we are managing through supply chain constraints within mass markets, but we believe our strong supplier relationships provide support for our build plan. We expect continued strong revenue growth as we ramp enablements and execute on our penetration targets. Quantum delivers a best-in-class service as highlighted by the very positive NPS scores I mentioned, and we're excited to provide this experience to a growing number of mass market locations, both consumer and small business. Beginning this quarter, we are providing the investment community with enhanced mass market disclosures regarding our retained 16-state footprint, as well as other important metrics. Overall, we are pleased with our accelerating build pace and look forward to taking meaningful market share as we continue to gain scale. I'd like to provide a quick update on our previously announced transactions. We continue to expect the transaction with Stone Peak to close early in the third quarter, and our confidence is building that we will close as early as July 1. Separation planning is well underway on the Apollo transaction, and we're working closely with various regulatory bodies. We recently received our completeness determination from the Department of Justice. That said, the process has not moved as quickly as we had hoped, resulting in our pushing back the expected close to early in the fourth quarter. This delay has no impact on our confidence in deal closure. In a few minutes, Chris will provide a financial update related to the revised closing. But essentially, we will raise our EBITDA and free cash flow guidance based on a presumed SIN 1 closing. As you will hear from Chris, we're passing through the effects of the adjusted closing date but are making no other changes to the outlook we provided last quarter. As these deals close in the second half of the year, It's very important to us that we are a strong partner to both Stonepeak and Apollo as they drive further success and serve these valued customers. Beyond the financial effects, these transactions allow Lumen to focus on the ripest opportunities for growth while improving our pro forma revenue mix. These transactions also highlight the value of the Lumen asset portfolio, and we will continue to opportunistically evaluate further portfolio optimization. As always, we'll be disciplined. While there is no urgency for us to divest additional assets, we will pursue transactions that provide clear strategic and economic benefits for Lumen. Our first priority remains achieving profitable revenue growth, and we're actively deploying the assets, personnel, and investments across our entire footprint to achieve that goal. Growth is the principal long-term driver of improved shareholder returns. but we believe shareholders should be rewarded as we transform our company to drive that growth and believe returning cash to shareholders in the form of a dividend is a very important part of our overall value proposition. We do continue to expect an elevated dividend payout ratio as we execute on our quantum build plan, but also expect it to normalize over time as growth improves and quantum investments normalize in the out years of the plan. We remain committed to a healthy balance sheet and expect a meaningful reduction in our outstanding debt as we prudently utilize over $7 billion of net proceeds from our announced transactions. We continue to believe our market value does not reflect the exciting growth opportunity we are driving toward. And while investing in growth and supporting our dividend are paramount, our board remains prepared to authorize a share of purchase on short notice if they believe a buyback provides the best return for our shareholders. I would like to end my remarks by thanking Neil Dev for his finance leadership as CFO over the past three years, as well as his contribution to Lumen and its predecessor companies for over the past 18 years. We thank him and wish him continued success in the future. With that, I'll turn the call over to Chris to discuss our first quarter results in more detail.