Lumen Technologies, Inc.

Greetings and welcome to the Lumen Technologies second quarter 2023 earnings call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Tuesday, August 1st, 2023. I would now like to turn the conference over to Mike McCormack, Senior Vice President, Investor Relations. Please go ahead.

Good afternoon, everyone, and thanks for joining Lumen Technologies' second quarter 2023 earnings call. On the call today are Kate Johnson, President and Chief Executive Officer, and Chris Stansbury, Executive Vice President and Chief Financial Officer. Before we begin, I want to call your attention to our safe harbor statement on slide two of our second quarter 2023 presentation, which notes that this conference call may include forward-looking statements subject to certain risks and uncertainties. All forward-looking statements should be considered in conjunction with the cautionary statements on slide two and the risk factors in our SEC filings. We will be referring to certain non-GAAP financial measures reconciled to the most comparable GAAP measures, which can be found in our earnings press release. In addition, certain metrics discussed today exclude costs for special items as detailed in our earnings materials, which can be found in the investor relations section of the Lumen website. With that, I'll turn the call over to Kate.

Thanks, Mike. Hi, everybody. Thanks for joining us today. In a few minutes, I'm going to turn the call over to Chris as usual. But first, I just want to give you a quick overview of our transformation progress. This quarter, we added two big leaders to the Lumen executive team. Kai Prigg, an experienced telecom exec steeped in both driving large-scale network transformations and leading big teams, joined us last month as EVP of enterprise operations. And Anna White, An experienced CHRO with an impressive track record of culture, renovation, and tech companies joined us as our Chief People Officer. These additions round out what I believe to be the most talented team in the industry, and I couldn't be more excited to see the positive impact that both of these two new kids bring to Lumen. All right, turning to the transformation work itself, I'm going to use the framework we introduced at Investor Day on June 5th to refresh your memory we're pursuing a three-part plan to deliver on our North Star. First, secure the base. Second, drive commercial excellence. And third, innovate for growth. Each of these three parts of the plan will require hard work, and they're going to take time to deliver results. But I'll share several positive early indicators which give us confidence we're on the right path. And I'm going to start with securing the base. This is about intentionally migrating customers from legacy telecom platforms to modern ones, to stem churn and deliver fundamentally better customer experiences. Success here drives higher customer lifetime value to Lumen. While it will be a multi-quarter journey to yield material financial results with this new motion, our recent results are noteworthy. For example, we've been building out the scaffolding for our voice migration program over the past couple of months. We've staffed up with great talent, significantly growing the dedicated team. Then we instituted a no-seller-left-behind enablement program, giving our reps a winning sales playbook, AI-enabled sales targeting, and digital tools to enable quick creation and delivery of customer-focused sales content. And we give our sales managers tooling to enable deep data-driven inspection of the funnel across the lifecycle with analytics to feed learning into the process. This newly dedicated team with their new digital tools and sales content they've only been in place fully since June 1st of this year and in less than 60 days we've seen material increases in pipe and close rates and probably more importantly a quadrupling of the dollar value of wins from June to July I'm happy to share that we also had two record-breaking voice migration deals in terms of dollar value they both closed in July and And they're basically confirming our hypothesis that we're likely to see our migration efforts yield greater customer lifetime value. We're also seeing material progress and learning from our focus on migrating customers from VPN to SD-WAN and SASE. Great customers like Nissan and WE Bowers are choosing to work with Lumen because of our new customer-centric approach and our long-term orientation around customer lifetime value. It just shows that when we focus, we win. Now move on to the second part of our three prong strategy driving commercial excellence, which is all about consistent execution across all of our core businesses and success here looks like growing at or greater than market rates, wherever we compete. In our mass market segment we've added approximately 250,000 fiber enabled locations year to date in 2023 and we're confident that we can meet or exceed our plan of 500,000 for the year. With the fiber enablement factory delivering nearly delivering predictable output. Now we're well positioned to nearly double our current quantum fiber footprint to over 7 million locations in the next four years. And as I've shared in the past, a couple of times, the federal bead program could potentially represent enablement and economic upside, but it's not currently forecasted in our model in our business segment. We're building a program to drive commercial excellence that uses all the same tools I just described in our voice migration program, and we've built a hiring engine to go after tech sales talent. We're using AI in our sales platform to drive more automated and informed seller activities, and we've used data and analytics to create win formulas to help our managers coach our salespeople. This programmatic focus is driving better results. In a small mid-market pilot where we deployed these tools and saw an 80% reduction in sales cycle time, and an 85% shortened customer onboarding time. Additionally, our opportunity win rates in this channel, they've increased 160% since the start of the year, and we've seen 50% year-over-year increase in new global acquisitions for our Grow products. One thing I mentioned at Investor Day was our belief that emerging technology trends, such as AI and data-driven services, will lead to large scale demand increases for our grow products. We are seeing early signs of this with second quarter wins in tech, retail, manufacturing, and financial services. Again, the consistent themes in these wins at customers like Quick Trip and Provident Bank is that Lumen's focus on customer experience and their business outcomes was a key differentiator in the selection process. We think this focus is part of the reason why our grow product sales trend returned to year over year growth for the first time in four quarters. Now let's talk about innovating for growth. And there are two key pieces to this part of our strategy to build a digital enterprise and to innovate new capabilities in our network to drive more value for customers. While we're making material progress in both areas, this quarter is all about two breakthrough innovations that we brought to market. The first is Exaswitch, our new on-demand 400 gig capable optical interconnection platform that we announced in mid-June. It's an amazing piece of technology that's strategically important as we position our network and infrastructure at the center of connectivity. Created in partnership with Google, Microsoft, and another large hyperscaler, this platform leans into the growth tailwinds that we talked about at Investor Day. Tailwinds like GenAI and Edge Cloud. By enabling the low latency and flexibility customers are going to need as network demands increase with explosive data growth. ExaSwitch is a great example of the new Lumen strategy coming to life. We're using our intellectual property and innovating side by side with customers and partners to create differentiated technology in an on-demand digital fashion to untap more value from our crown jewel, the network. The second big breakthrough innovation this quarter was announced yesterday. Lumen launched its flagship capability on its network as a services platform. It's called Lumen Internet on Demand. And it's offered in limited availability and is already oversubscribed. This is the first and a very important step toward the company's bold vision to disrupt the telecom industry. By offering customers radical flexibility in how they buy, use, and manage networking services, Lumen is cloudifying traditional telecom. We've been preparing for this moment for a long time. building a world-class telecom network with state-of-the-art fiber, broad coverage, and unsurpassed route diversity and scalability. Lumen's NAS offering takes that next step to deliver on our customers' networking dreams, the ability to fire up any port with any service at any time. It's your network, your way with the Lumen NAS platform. So I hope that it's clear we're playing a win here. The team and I are super excited by our position and progress.