Lumen Technologies, Inc.

Third 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 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Tuesday, October 31st, 2023. I would now like to turn the conference over to Mike McCormack, Senior Vice President, Investor Relations. Please go ahead.

Thanks, Circe. Good afternoon, everyone, and thank you for joining Lumen Technologies' third quarter 2023 earnings call. On the call today are Kate Johnson, President and Chief Executive Officer, Chris Stansbury, Executive Vice President and Chief Financial Officer, and Rahul Modi, our treasurer. Before we begin, I need to call your attention to our Safe Harbor statement on slide two of our third 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 on the investor relations section of the Lumen website. With that, I'll turn it over to Kate.

Thanks, Mike. Good afternoon, everybody. I'm excited to share a summary of the material progress we've made in our efforts to reposition Lumen for growth. I'll start with some major structural accomplishments. First, we've made significant progress in simplifying Lumen with two divestitures. We expect to close the sale of our EMEA business to Colt tomorrow, November 1st, earlier than planned. This transaction will generate approximately $1.5 billion in net after-tax proceeds, which we anticipate will be used for debt reduction. Second, two weeks ago, we announced the sale of the majority of our CDN contracts, a transaction that will enable us to continue to focus our resources on businesses where we can differentiate ourselves in the market at scale. Next, the balance sheet. We successfully reached a broad agreement with creditors that holds over $7 billion of the outstanding debt of the company and its subsidiaries. The transaction will extend a large portion of our debt maturities and remove questions regarding the company's compliance with its debt covenants. The creditor group will also provide $1.2 billion of new financing. The closing of the transaction is subject to the satisfaction of certain conditions, including completing work with our banks to extend our revolver and term loan A, and getting approval from other creditors as needed. In addition to restructuring the balance sheet, we've made the difficult decision to reshape and right-size Lumen for Growth. We're taking immediate actions, which will result in about 4% fewer people inside the company. This reorg, along with additional optimization initiatives, will generate annualized savings of approximately $300 million. As you might expect, this is a difficult but necessary decision given the revenue pressure we felt from the noise in the market regarding our creditor discussions as well as global macroeconomic pressures. These proactive steps to address our balance sheet and lower our cost base will reduce the noise, it will improve our agility and efficiency, and it will enable us to better compete in the markets we serve. Now I'd like to talk about some of the operational improvements we're seeing in our business segment. As we've shared, we have a three-pronged strategy to transform this business. One, secure the base. Two, drive commercial excellence. And three, innovate for growth. And we're making progress against all three. Securing the base boils down to five things. Minimizing disconnects, maximizing installations, driving increased usage, renewing customer contracts, and migrating our customers to newer technologies. If we get these five things right, we reduce churn. So let me share this quarter's sequential performance for these five metrics in our North America large enterprise and mid-market sales channels. We saw a 4% reduction in disconnects, a 9% increase in installs, a 5% increase in usage, a 4% increase in VPN customer renewals, and a 21% increase in voice migration. With heavy use of data and analytics to understand customer behavior and an agile approach, We created a win formula to address churn and delivered improved business revenue performance this quarter. Obviously, a lot more work to do here, but we do see a path to success. Let's look at driving commercial excellence. This is about sales execution that ultimately yields growth. Simply put, there's just two ways to grow. You either sell to net new customers or you sell more product and services to existing ones. we're making progress against both of these growth vectors. First, we added more than 2,500 new logo customers so far this year across large enterprise, mid-markets, and public sector segments, despite the headwinds I described earlier. Year over year, we've seen 47% more grow products sold to existing customers, or 16% normalized for a large deal that I'll talk about in just a moment. Finally, We achieved 14% higher seller productivity year over year, a very impressive metric given how many new sellers we have. A big part of driving commercial excellence is going after net new markets. For example, we see huge potential in the digital inclusion market, which presents an opportunity for Lumen to help states bring reliable broadband connectivity to unserved and underserved markets. We won our first large multi-year deal in this space, representing over $400 million of revenue when the state of California chose Lumen as a key strategic partner. We're now bringing the same commercial framework for public-private partnerships to other states as they seek to bridge the digital divide. All right, the third prong of our business strategy, innovating for growth. This is all about bringing net new capabilities like network as a service, or NAS, to the market and gaining access to new profit pools. We've made great progress driving adoption of our first NAS offering called Lumen Internet On Demand. This new digital capability is now generally available and has light house customers in 13 industries including healthcare, technology, insurance, retail, manufacturing, and public sector to name a few. In addition to selling NAS directly to customers, Lumen is also leveraging our partner ecosystem to drive scale. Customers can buy Lumen Internet on demand through 136 enabled data centers in 10 different markets across North America through our great partners Digital Realty and Equinix. Our NAS product roadmap is industry defining. So we'll be adding, soon we'll be adding API capability to allow customers to activate NAS in their own business applications. Then we'll layer in security with DDoS. and then we'll offer dynamic bandwidth capability for ultimate usage flexibility. Now, together with our Edge Fabric and ExaSwitch, Lumen NAS is setting the table for a new market category for the modern communication infrastructure platform, one that optimizes application performance across hybrid architectures, the on-prem, at the edge, and multi-cloud, and one that makes room for rapidly changing network needs as Gen AI becomes mainstream. We are cloudifying telecom. It's going to be disruptive to the industry, and we are playing to win. All right. Turning to mass markets, we had strong growth in quantum fiber enablements where our construction factory is operating well. Now, that said, our subscriber ads this quarter were below our expectations. During the quarter, we took significant steps to improve operations as we combined CenturyLink fiber with quantum fiber. Maryann D' merging all inventory and field tech systems into one and vastly improved order to install commitments. Maryann D' While we believe these operational activities, coupled with lower move activity dampen subscriber ads this quarter, we do know that we need to do better selling and penetrating existing built. Maryann D' Therefore, as we face a more constrained capital environment ahead will prioritize sales and marketing investments over enablement growth. While we will still build at a healthy pace, we should see greater penetration rates and a higher return on capital spent in mass markets. All right, to wrap up, I've often spoken about rebuilding Lumen starting with our people. We've been hard at work doing that for the past 12 months, and I'm proud to share that during the third quarter, Lumen was recognized by US News and World Report as one of the 2024 best places to work in telecom. It's our first time being named to the list. And I think it demonstrates the power of creating a culture that enables change. Transformation is messy business. And despite extremely challenging headwinds, we've made big and important structural changes to the company. And equally important, we've made significant measurable operational improvements. There's lots more to do, but we're confident in our strategy to pivot Lumen towards stabilization and growth. And with that, I'll turn the call over to Chris.

Thank you, Kate, and good afternoon, everyone. Kate spoke about our progress in transforming and disrupting telecom and playing to win. She also spoke of our success in reaching an agreement with a group of creditors to extend our debt maturities. On our Q2 earnings call, we said we viewed the formation of the creditor group as an opportunity to both fund our future as well as address our challenging maturities profile. The agreement we announced today meets both of those objectives. and will allow us to continue our transformation journey and the disruption of telecom. Before covering our third quarter results, I would like to take a few minutes to discuss several items which will impact our financial trends going forward. As Kate mentioned, we closed the CDN sale earlier this month and we expect to close the sale of our EMEA business tomorrow, November 1st. The CDN sale will not have a material impact on our financials. We estimate that these CDN contracts contributed roughly $20 million in revenue and 10 million in adjusted EBITDA to our third quarter 2023 results. Keep in mind that these CDN contracts were part of our harvest portfolio and have received little capital investment in recent years. The valuation, while not disclosed, reflects the declining nature of the revenue of these contracts. We plan to wind down the remaining CDN contracts in 2024. For the pending divestiture of our EMEA business, our 2023 outlook assumed a full fourth quarter contribution of approximately $140 million in revenue, $50 million in adjusted EBITDA, and $30 million in capex. Separately, we're expecting a tax refund of approximately $900 million previously not included within the financial outlook. Approximately $200 million of the refund will be applied to pay 2023 estimated taxes, and we are expecting a cash refund of approximately $700 million in the first quarter of next year. While we expect to receive a near-term cash benefit, this is in part due to an accelerated use of our NOLs. Some of the benefits will reverse over the next few years. There are counterbalancing impacts related to the CDN contracts and the pending EMEA transaction that make us comfortable keeping our full year 2023 free cash flow guidance of $0 to $200 million. As Kate mentioned, the macro environment and the overhang of our creditor discussions has resulted in revenue headwinds which will pressure our results over the next few quarters. With the creditor agreement reached today and continued execution against our plan, we expect to see sustained improvement in revenue trends in mid-2024. In addition, we expect the cost actions that Kate mentioned earlier to help address near-term pressures on adjusted EBITDA. Additionally, We've been clear that in the wake of transactions over the last year and a half, our organization needs to be more nimble and continue to work through transaction related to synergies. I'll now discuss in more detail the financial summary of our third quarter. As I've done throughout this year, I'll reference our financial performance primarily on a sequential basis for better comparability as the year ago period included the impacts of our divested LATAM and ILEC 20 state businesses. Keep in mind, when the impacts of divestitures and commercial agreements are excluded from results, our year-over-year growth rates are substantially better than the reported rates. Our third quarter total revenue declined 0.5% on a sequential basis to $3.641 billion. Adjusted EBITDA was $1.049 billion in the third quarter with a 28.8% margin. Free cash flow was $43 million in the third quarter. Next, I'll review detailed revenue results for the quarter. On a year-over-year basis, reported revenue was down 17.1%, with the impact of divestitures and commercial agreements representing approximately 73% of the reported decline. Within our two key segments, business revenue declined 0.1% sequentially to $2.894 billion, and mass markets revenue declined 2.2% sequentially to $747 million. Within our enterprise channels, which is our business segment excluding wholesale, revenue grew 1.1% sequentially. Be aware that much of this strength is driven by growth in other products, which tend to fluctuate quarter to quarter. However, excluding other products and the impact of divested businesses, our subtotal of grow, nurture, and harvest revenue declined at the slowest rate we've seen in years. That said, we continue to expect near-term variability in the revenue trends. Our exposure to declining harvest revenue is now less than 18% of enterprise channel revenue and was down approximately 70 basis points sequentially. Large enterprise revenue grew 0.3% sequentially in the third quarter. Large enterprise revenue trends improved compared to the second quarter year over year when excluding the impact of divested businesses driven primarily by continued strong trends in the grow product segment due to demand for IP, dark fiber, and co-location and moderating declines in nurture and harvest. And moving on to public sector, revenue grew 7.2% sequentially, excluding the impacts of our divested businesses. Public sector trends improved year over year, primarily due to higher other revenue, which includes non-recurring equipment and IT solutions, improvement in grow revenue, and moderating declines in nurture and harvest products during the third quarter. Mid-market revenue declined 1.8% sequentially, excluding the impacts of our divested businesses, Third quarter revenue trends worsened year over year. Strength and growth products were driven primarily by IP, UCNC, and enterprise broadband, which is more than offset by lower VPN revenue within Nurture. Wholesale revenue declined 3.4% sequentially. We expect our wholesale channel will likely continue to decline over time, as it is an area we manage for cash. Now moving on to business product lifecycle reporting. Growth products revenue declined 1.1% sequentially. Excluding the impacts of our divested businesses, this quarter's results showed moderating year-over-year growth. While results can vary in any given quarter, we expect sustained strength in this area as we execute on our turnaround. Grow continues to represent approximately 39% of our business segment and carried in approximately 82% direct margin this quarter. Within nurture and harvest, we expect or we continue to expect headwinds in these categories. as we take proactive steps to migrate customers to newer technologies. This improves our customers' experience and provides an uplift in the lifetime value of those customers for Lumen. As Kate mentioned, we continue to see positive leading indicators that our initiatives are working and it will take some time to be reflected in our results. Nurture product revenue declined 0.5% sequentially due to continued pressure in VPN and Ethernet services. Nurture represents about 30% of our business segment, and carried an approximate 69% direct margin this quarter. Harvest products revenue declined 3.8% sequentially. Recall that harvest is an important part of our business as it generates cash to fuel our growth initiatives. Harvest represents approximately 24% of our business segment and carried an approximate 80% direct margin this quarter. Other products revenue grew 23.7% sequentially. Our other product revenue tends to experience fluctuations due to the variable nature of these products. Moving on to mass markets, revenue declined 2.2% sequentially. Our mass markets fiber broadband revenue grew 3.2% sequentially and represented approximately 32% of mass markets broadband revenue. Also note that our exposure to legacy voice and other service revenue continues to improve with a nearly 20 basis point reduction sequentially. During the quarter, Total fiber broadband enablements were 141,000, bringing the total fiber enabled locations to approximately 3.5 million as of September 30th. During the third quarter, we added 19,000 quantum fiber customers. Fiber ARPU was flat sequentially and increased on a year-over-year basis to approximately $61 in the third quarter. At the end of the quarter, our penetration of legacy copper broadband dropped below 11%, and our quantum fiber penetration stood at approximately 25%. The agreements with our creditor groups have given us runway to execute against our turnaround plan, but those agreements will result in interest expense increasing sooner than our forecast had anticipated. This leads to a choice of higher enablements or higher returns for the mass market business, and we are choosing higher returns. We will continue to build at a pace similar to what we're doing this year, but will increase our focus on driving penetration and ARPU and growth. As I've said many times, our best use of incremental investment is in our business segment where we see faster and better returns. Turning to adjusted EBITDA for the third quarter of 2023, adjusted EBITDA was $1.049 billion compared to $1.688 billion in the year-ago quarter. The third quarter of last year included $332 million related to the divested businesses and the third quarter of this year included a negative impact of $40 million from divestiture-related commercial agreements. These items represent approximately 58% of the year-over-year decline. Special items impacting adjusted EBITDA this quarter totaled $33 million. Our third quarter 2023 adjusted EBITDA margin excluding special items was 28.8% as we lean into growth and optimization efforts. Capital expenditures for the third quarter of 2023 were $843 million. In the third quarter of 2023, the company generated free cash flow of $43 million. Now moving on to our outlook. Our financial outlook for 2023, we are reiterating all guidance metrics. We'll provide our outlook for 2024 when we report our fourth quarter results in early February. With that, we're ready for your questions.

Thank you very much. If you'd like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. And our first question comes from the line of Simon Flannery with Morgan Stanley. Please proceed with your question.

Okay, great. Good evening. Thanks very much. Chris, I know the 8K just came out, but it'd be great if you could just give us a little bit more on the debt agreement, perhaps quantify the interest expense impact and what happens to your maturity schedule as well.

Yeah, so there's obviously a lot of work that needs to continue. What I would say, Simon, is I'd highlight that the agreement does address the maturities and our need for investment. Depending on participation rates, it really does clear a path largely to 2029, which gives us a more than ample time to execute the turnaround. And we do see a pathway to being able to execute against that agreement. And we've got the flexibility that we need as we move through that. As it relates to interest expense, again, it varies by year. Obviously, more impact nearer in. less further out given the way we modeled higher interest rates at the investor day. And the way I'd look at it is we will be cutting back on CapEx in the $200 to $300 million range over the next few years to compensate for that.

Versus the analyst day projections.

Correct.

And how do you think about BEAD in the context of today's news? Is that something you kind of de-emphasize at this point?

No, I mean, again, I think our feelings on BEAD are very similar to, you know, what we have said consistently, which is if there's an opportunity, we will participate. But, again, we're not resting a lot of hope on that. Those programs tend to get driven down in terms of returns, and we were very clear today in saying that our focus is returns. It doesn't mean we won't participate, but we're going to be selected.

Great. Thanks a lot.

Our next question comes from the line of Nick DelDeo with Moffett Nathanson. Please proceed with your question.

Hey, thanks for my questions. First, Chris, I was just scanning the AK. Like Simon, not time to go through everything in detail, but I think one of the bullets noted that You expect the cumulative cash flow that you had previously laid out at the analyst day to come in within the range you had targeted but at the low end. And if I'm reading it correctly, it would seem to include a cumulative $600 million improvement in your cash taxes over that timeframe and presumably some of the lower CapEx you just laid out. So I'm just wondering if you could help us understand the puts and takes there a bit better.

Yeah, I want to make sure I'm answering your question. I mean, the only thing that we've guided, obviously, is this year. We're still holding the guidance range. As we said, we expected a couple hundred million dollars to be used this year. But when you look at just the other expenses and whatnot that were occurring on some of the closed transactions and whatnot, that kept us within the guidance range. Going forward, go ahead.

Oh, sorry. Sorry, go ahead.

No, I was just saying going forward, we will have, all other things being equal, a free cash flow shortfall that will be addressed by pulling back on CapEx, as I mentioned in my earlier response.

Okay, so just to be clear, I was referring to the first bullet in the cleansing information where you talked about your expectations versus what you had laid out in the analyst day.

Oh, I see what you're saying, yeah. As we looked at current performance, which as Kate referenced, was impacted by the overhang from all the noise in the market around our debt structure and our ability to refinance it, it unquestionably had a near-term impact on sales that we expect will impact revenue. The way we offset that is the cost reduction program that Kate announced today. We have line of sight to being within that EBITDA guidance range we talked about at Investor Day. We've got work to do, obviously, to reaffirm that for next year, but that's why we did what we did. There's great stuff going on inside the business in terms of improving revenue trends, and we're excited about that, but there's no question that these near-term conditions have hurt the revenue trend more near-term.

Okay, okay. And on the pace of the fiber enablements, what's the magnitude of the change you're thinking? And is the CapEx reduction just a function of lower enablements?

Yeah, I think that's the way to think about it. It will come in the form of lower enablements. And directionally, I think it means that next year and coming years look relatively flattish to what we're doing this year in terms of enablements.

Okay. Okay, thanks Chris.

Our next question comes from the line of Michael Rollins with Citi. Please proceed with your question.

Thanks and good afternoon. Two questions I could. First, just curious if you can unpack a bit more of the EBITDA pressure in the third quarter relative to revenue, of course excluding the divested assets and the transitory items that you highlighted in the slide. And then just secondly, just in response to the last or follow up the last couple of questions, um, is looming considering other ways to try to fund the business and try to get back some of the CapEx and some of the investment opportunities, um, that you thought would be very productive when you laid out the original business plan goals of the analyst day. Thanks.

Yeah, sure. Um, so I'll, I'll, uh, and address both of those. So near term, I think we've heard our competition talking about a tough economic environment. There's no question that that's impacting us, although I would say on a relative basis we're pleased with our performance. And then as I said in my previous response, I think just the amount of noise in the marketplace over whether our turnaround disruption was gonna matter because we had this huge 27 tower that had an impact and it's it's hard to measure that but it undoubtedly had an impact and and that's why we're pleased with where we ended up with the proposed transaction today so I think that clears the way I'd say the third thing is again great things happening inside the company but as we said consistently it's going to bounce around as we as as we move through the transition and start to scale the things that are working. In my prepared remarks, I did say that we see line of sight to sustained improvement in revenue kind of starting mid-year next year. And that, you know, that remains. So we feel good about that. As it relates to other ways to fund TAPX, so more specifically, The asset-based securitization question, yeah, that remains an option, and we'll continue to do work around structures like that to see if there's an opportunity. So those remain, but my comments today do not assume any additional structures helping us fund CapEx. Thanks.

The next question comes from the line of Batya Levy with UBS. Please proceed with your question.

Great, thank you. A follow-up on the new deal, how should we think about the net proceeds of the new financing that you're announcing? And what should we think about the split in terms of how much of it will be used in terms of driving new growth versus debt pay down? And through this transformation phase, where do you think your maximum leverage would be?

Yeah, so I think on that last piece, I'd want to circle back with you because, again, that starts to get into what do we think guidance is for next year, so I don't think I want to go there today. What I would say, Bacha, is that, so first of all, the incremental raise, I think, was a really strong signal from our credit investors of their belief in our ability to turn the company around. These are... are smart, shrewd investors who represent the market. And the fact that they are willing to raise an additional $1.2 billion, I think, speaks to their confidence in this management team and our strategy. And so I think that's huge. We'll use the funds. It's all really part of restructuring the debt. It's not about using it to necessarily fund a specific piece of CapEx. Our CapEx is part of the thinking, obviously. This is about restructuring really everything between now and through 2027. I guess I will go so far as to say that on our leverage versus where we are today, we would expect through our turnaround story that leverage will decline. It will probably stay relatively steady. you know, in the near term, but then we would expect a decline. So I'll go that far. I'll give you that much today. Okay.

Thank you.

The next question comes from the line of David Barden with Bank of America. Please proceed with your question.

Hey, guys. Thanks so much for taking the questions. And I've got a million, Chris, but I know, I know. Thanks, guys. So, look, I'm reading this thing, and so we have this cumulative cash flow expectation from the analyst day in June, and now we've got this kind of mysterious tax refund that's showing up. Um, and yeah, there's going to be some offsets and maybe it's a net 600 million positive. And we're, we're, we're letting go some people, 4% of the corporation, that's going to be a $300 million benefit. We're going to cut CapEx. And even with all that, we're still at the low end now of, of the guided outlook from a few months ago. Um, and so what we haven't really heard is what is the actual cost, the dollar number that's going to get whatever it is that you've done with the debt structure accomplished? That's my first question. And the second question is, with respect to the third quarter specifically, as we try to, like, you know, in the interim kind of model out what we're looking at, what was kind of one time in nature? I know you called out something in the public sector that was in the revenue line. It sounded like it was kind of an equipment type of deal. You kind of call out all the one-timers that affected the third quarter as we think about fourth quarter and as we try to model out 2024. Thank you.

Yeah, so as it relates to the debt, and again, because you're right, I mean, this is a complex transaction, but to get into a lot of modeling on this call is not going to serve anybody well. What I would tell you is that when I said that we needed to cut between two and 300 million of CapEx, that really, I think, foretells that higher cost associated with the transaction. So think of it this way. You have some near-term revenue pressures improving as we get into mid-year next year. Those revenue pressures are being offset by the cost reduction that we're taking. The tax benefit, which really relates to a lot of hard work around how can we aggressively pull forward NOLs. So a bigger benefit nearer term, less of a benefit longer term. When you incorporate that into the model, which would include all the transaction costs associated with the debt restructuring and whatnot, that's what gets us to the math that says we've got to cut that $200 to $300 a year. I think that answers your question, not specifically by year, but that should give you the magnitude. And as it relates to the public sector, it really was IT solutions and equipment this quarter. And again, it fluctuates around. But yeah, we've given you all the key one-timers for the quarter. And those things fit in the other bucket, as you know.

Got it. All right. Thanks, Chris.

Our next question is from the line of Greg Williams with TD Cowan. Please proceed with your question.

Great. Thanks for taking my question. They're both focused on fiber of the home, and I guess you're focused on sales and marketing rather than the enablement for the next couple of years, actually. First question is, are you worried about encroachment of third-party overbuilders then coming into the space in your footprint if you're not investing in it? And second is, if you're not investing heavily in it, In the past, you said you didn't expect to do any further larger ILEC sales or sales of a large amount of homes. But now that you're not investing into the degree that you said you would, could a sale of a larger portion of ILEC be on the table? Thanks.

Yeah, so first of all, again, I want to be really clear on this. We're not walking away from the consumer bill. We're saying that we're going to stay – relatively flat to where we are this year. That is still a substantial investment in consumer. And I think if you look across the space with rising cost of capital, all of our competition has pulled back. So this move is actually not out of step with what's going on in the broader marketplace. I think there's a real opportunity, though, to improve returns. And as Kate mentioned, with an increased focus on subscription growth penetration, I mean, we've talked a lot about the fact that until we got to scale on enablements and getting that enablement factory running smoothly, which it now is, now we can scale marketing. So we haven't really started to ramp marketing until recently, and that's a real opportunity for us, and we're going to be very aggressive about that. So I'm not worried about encroachment because I think the market has already spoken as to its willingness to invest at this point. As it relates to... how we think about the business long term, I would say we remain open to any and all ideas. And again, the goal here is to build two great assets, an enterprise business and a consumer business. And what happens with those businesses over time, we're very open to considering what that looks like. So we remain of the belief that consolidation will continue to take place in the consumer space. And we would expect at the right point in time to participate in that.

Got it. Thank you.

Our next question is from the line of Frank Loughton with Raymond James. Please proceed with your question.

Great. Thank you. So a couple of sort of related questions. Back to lowering the fiber bill, why would you choose that as far as a place to save for CapEx given kind of the relatively low risk and success rate of those businesses? Why not target other areas of spending? Are you sure you're cutting the right part of the business? Because again, to the previous question, we'll invite some kind of competition. And then my second question, assuming you're going to tell me that, yes, it is the right part of the business. What exactly is the opportunity in the other part of the business, and why are returns higher there and presumably coming in sooner than, say, the fiber build would be?

Yeah, a good question, Frank. I mean, we've talked quite a bit about how the returns profiles of these two businesses couldn't be more different. The consumer business is one of invest a lot in capital, and then your payback period is is measured in high single-digit, low double-digit kind of territory. A very long time to return, even with great performance. Now, that asset, particularly given the quality and the fiber that we're putting in and the scalability of that, is about as future-proof as it gets. So the beautiful thing about that business is a very long tail of returns once you get to that payback. The enterprise business is one of higher margins and faster returns, where you're measuring your payback window in low to mid single digit kind of years. And when you look at the disruptive nature of the products and services we're bringing to market around NAS and ExaSwitch and our security offerings, that disruption and our ability to not just keep and nurture existing customers, but expand that customer base, has a much greater and faster return. So that's really why we see enterprise as the right place to spend. And again, I keep hearing about overbuild activity, overbuild activity, but we're simply not seeing it. The higher cost of capital that everybody faces right now is slowing down those bills. So what we're doing by continuing to invest in that $500,000 kind of enablement range every year is still, I would say, quite robust compared to what we're seeing on the competitive front. So we think overbuild activity is a much lower risk given today's economic environment.

All right. Thank you.

Cersei, we have time for just one more question.

Okay, thank you very much. And our final question comes from the line of Jonathan Chaplin with New Street Research. Please proceed with your question.

Thanks a lot. Since I'm last, I'm going to steal two, if I may. So I was fascinated, Chris, by your comment that you'd spend a lot of time talking to your creditors and the deal that they struck with you is a vote of confidence in the turnaround strategy. And I'm just... wondering what you shared with them in the context of those negotiations that's sort of incremental to what you've been able to share with the street. I'd love to get some sort of, if you could expand a little bit just on sort of, yeah, the, what you need to.

Yeah. I mean, that's obviously a very regulated space. And I would say that, What we shared with them that was different than Investor Day was what was included in the blow-up materials today. So you all have access to that. We gave full visibility, for example, around the tax issue that we talked about earlier, as well as the fact that in the near term we're seeing some impacts from revenues. When I say that they believe in the strategy, they believe in our ability to disrupt telecom. They believe in the innovation. They believe in what we're doing to migrate revenue from legacy services to new. And no one else is doing that. No one else is investing in this space, and it's a huge opportunity for us because of our focus. So that's, I mean, what we share with them is what we share with you, especially when you consider the blowout information.

Got it. That helps. And then my second question is, I mean, it's really just a continuation of the question that Greg and the question that preceded Frank's question, which is, it seems like you've got sort of two very different opportunities, one in mass markets, one in enterprise. They're on very different return profiles. And in fact, under the sort of the current circumstances, you don't have the resources to pursue both. And so you're going after the returns in enterprise, Given your circumstances, that totally makes sense. But isn't the right course of action in a resource-constrained environment like you're in to run a process to sell mass markets to somebody that has the capital to put into it at the moment, take full advantage of the opportunity there both sort of organically with the markets that are there plus the big beat opportunity that's coming and all of the rest of it? Wouldn't that just be a lot more valuable in someone else's hands right now?

Well, look, I would say that that's a consideration that we look at regularly. But, again, I want to be clear. We're talking these last set of questions, and I'm going to challenge all of you kind of in your thinking about it. The questions would suggest that we're stopping our investment in consumer. We're continuing to invest at the pace we're investing at this year. We're going to continue to add, you know, in the range of half a million enablements a year to our 3.5 million enablements that exist today. We're focusing on penetration and subscriber growth and ARPU and returns. At the same time, we're continuing to build those 500,000 enablements. So very, very clearly, I want everyone to understand we're continuing to invest at a healthy pace in that business, particularly compared to what our competition is doing at this very moment, given the high cost of capital. So that's an important point. Now, the question you raised, though, is the right question. And we have been very public in saying that the consumer space is one that is ripe at some point in time for consolidation. When that happens, we don't know. Our job is to improve the EBITDA and the return profile of the business that we have, continue to invest in its future, and if and when the right time comes, then we'll consider those options. But our focus right now is on continuing the pace of bills that we're at today and driving improved returns.

Got it. Thanks, Chris. I really appreciate it.

Thanks, Jonathan.

Thank you very much. And we'd like to thank everyone for your participation and for using the Lumen conferencing service today. This does conclude the conference call, and we ask that you please disconnect your lines. Have a great day, everyone.