Lumen Technologies Inc at Bank of America Leverage Finance Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ana Goshko - Bank of America - Analyst : Yeah. Okay. Great. Okay. So let me just start with a big picture question. So you and Kate, CEO of the company, have said that your best dollar of investment spent is an enterprise. While residential, I think you've effectively said, is like noncore and an area that you want to exit. But what we, from the investor side have seen, has been a series of increasingly high transaction multiples on residential ILEC assets that have particularly focused on fiber upgrades. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 3:10PM, LUMN.N - Lumen Technologies Inc at Bank of America Leverage Finance Conference So does this make you pause and rethink your capital allocation strategy? And even as you look to monetize your ILEC assets, should you be stepping

Question: Ana Goshko - Bank of America - Analyst : Okay. This is a question we had a chance to speak last night, and I posed this question. I thought your answer was interesting. So when you're having your C-suite meetings with Kate and the broader C-suite team, what are your key topics of conversation and key priorities?

Question: Ana Goshko - Bank of America - Analyst : Okay. So you bought up the PCF deals. So can you address the -- I think this is the main question that I think you're asked all the time is whether you have sold your future by agreeing to these dark fiber deals with what are likely to be the four largest users of AI-related bandwidth, who otherwise would have paid you a lot more if they were buying recurring capacity than buying these conduits and fiber strands. And how do these PCF deals set you up to sell core enterprise services on a recurring basis?

Question: Ana Goshko - Bank of America - Analyst : Okay. So we've already seen a lot. So it's $8.5 billion of announced deals so far. We've already seen a big amount of upfront cash, maybe like roughly about $1.6 billion come in the third quarter. I think per your guidance kind of estimate, another $200 million to $400 million in the fourth quarter to really get $2 billion of upfront cash in 2024. But you haven't increased your CapEx guidance for 2024. So obviously, it means your CapEx is really going to start in '25. So can you just help us think about kind of what the ins and outs on the cash flow and the CapEx is going to be? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 3:10PM, LUMN.N - Lumen Technologies Inc at Bank of America Leverage Finance Conference

Question: Ana Goshko - Bank of America - Analyst : Okay. I'll come back to guidance. But -- so you've said on these PCF deals, customers are asking you to move faster. Are you facing any labor or material constraints in your time to market? And then also any issues with these conduits being so old any kind of degradation that you're --?

Question: Ana Goshko - Bank of America - Analyst : Okay. So on the additional PCF deals, I think you've said like $3.5 billion-ish of opportunity. But these next round of deals, they're going to largely be new routes that really don't leverage the existing conduit. So this first round, the 8.5% were really not even competitive because you had the conduit that really no one else could compete with. So this next round of deals, a couple of questions. One, is it now more competitive? Are other guys coming in to compete? Is it -- are you really marketing largely to the same customers, but just in areas where they want to expand? And does that actually give you an inside edge?

Question: Ana Goshko - Bank of America - Analyst : Is there -- can you talk a little bit about your deal with Corning? You had already referenced it. And how does it provide you an ability to maximize the new fiber strands being deployed while you're out there like blowing fiber through these conduits?

Question: Ana Goshko - Bank of America - Analyst : Okay. So outside of the PCF deals, PCF deals, I think you recently mentioned seeing some increased demand for waves and IP with large enterprises in the mid-market segment. Just anything you can tell us about is that momentum continuing, accelerating, and what you're generally seeing on grow? And how could the new environment we're going to be in with a new administration impact you, in particular, with regard to your public sector exposure?

Question: Ana Goshko - Bank of America - Analyst : Okay. I want to pivot now to the resi business. So are there any updated thoughts on the best way to separate and exit what you consider to be this like the noncore residential business? So you mentioned various possible scenarios -- JVs, wholesale arrangements, only selling the fiber upgraded assets, retaining copper. I think what would be cleanest would be an approach the way that the company monetized the eastern part of the footprint, which would just be like a wholesale sale of the ILEC. Is that your preferred approach? And is that even possible in this environment?

Question: Ana Goshko - Bank of America - Analyst : If you were to break it up into pieces, would it really be more like a -- you're talking about the copper asset, but is it really like on a state-by-state basis, so you would take a state that's much more rural and doesn't have the density and is that fiber upgraded? And then you take like a state like where you have a major NFL city and like a fiber hub. And is that way to separate --?

Question: Ana Goshko - Bank of America - Analyst : Okay. Want to touch upon just the $1 billion of planned cost saves. So that's really in the business segment. And all of that is really the duplicative systems, the order systems, the billing systems and as a lot of that really all just kind of headcount related because process was still very manual. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 3:10PM, LUMN.N - Lumen Technologies Inc at Bank of America Leverage Finance Conference

Question: Ana Goshko - Bank of America - Analyst : Okay. So I want to -- and since we're at a credit conference on some debt questions, I know maybe on the equity side, people's eyes glaze over when we start talking about different -- had different debt silos and secured, unsecured, et cetera. But I think an important point for everybody is you actually have quite a bit of cash even though some of those cash, a lot of it has to go to CapEx, but you have cash profitability that you're going to retain from the PCF deals. You also had proceeds from, I think, the European sale that you still haven't deployed. So you recently just did a debt tender, a cash tender effectively for all of your debt that was due through 2028. Some people hit that offer, some people -- some investors didn't. But nonetheless, you've sent a signal to the market that you can address maturities through 2028. You're going to have like a big tower in '29, but that's kind of definitely down the road. So you guys have runway. What are the plans from here? And one question we get a lot is on your equity. So obviously, the equity is like multiples and multiples higher than it's been for a long time. You had asked about, would you issue equity or could you issue a convert and use like a low coupon convert to help take out higher cost debt -- but just kind give us a vision from --

Question: Ana Goshko - Bank of America - Analyst : Is it fair to say that you're probably looking at what the outcome will be for the residential business before you make any kind of major decisions on the capital on the debt structure?

Question: Ana Goshko - Bank of America - Analyst : Okay. And then the tax basis on that business is low --

Question: Ana Goshko - Bank of America - Analyst : Even pay taxes. But I think you've been pretty clear about saying that you would need it to be a delevering deal. You need to have to pay down debt.

Question: Ana Goshko - Bank of America - Analyst : Okay. We have like two minutes. Are there any -- I just have -- any burning questions from the audience? No? Okay, I guess we're doing a good job up here. Talent. So there's been just a lot of talent brought to the company by Kate. Do you feel like you guys have the people you need, both at kind of the upper levels, but also like in the sales organization?

Question: Ana Goshko - Bank of America - Analyst : What are the economics on the pros and cons on the sales partner side?

Question: Ana Goshko - Bank of America - Analyst : Okay. Great. So I'd like to leave a minute to allow you to highlight anything you believe it's important that maybe we didn't cover, any sort of key takeaways.

Question: Ana Goshko - Bank of America - Analyst : Okay. Great. Okay. Chris, thank you so much for being with us.