Lumen Technologies Inc Q3 2024 Earnings Call Transcript

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

Question: Michael Rollins - Citi - Analyst : Thanks and good afternoon. I wanted just to ask on some of the PCF disclosures. There were three new customer announcements over the last few weeks. Did those specifically relate to these new sales in this quarter or did that relate to the prior initial $5 billion? And then Kate, you mentioned at the beginning of the call, some details where you're seeing improvements in the business sales and just curious where that's coming from. If you give us maybe an update on the marketing and distribution. And are these PCF sales also providing you with a magnet to get additional wins from these hyperscale customers? Thanks.

Question: Sebastiano Petti - JPMorgan - Analyst : Hi, thank you. Quick housekeeping on the incremental PCF announcement. Should we think about that broadly as having a similar timeline to what was discussed last quarter as we're thinking about contribution in the IRU construct that you kind of laid out last time. I know you kind of said they're similar to the last deals, but just try to think about timing as they kind of come on because it does seem as though part of that cash was probably reflected in the free cash flow upgrade, just want to -- just housekeeping there --

Question: Sebastiano Petti - JPMorgan - Analyst : Oh no, go ahead, Chris and then I can follow up.

Question: Sebastiano Petti - JPMorgan - Analyst : Okay. That's helpful. And then thinking about, I mean, just you did guide to the lower end of the 2024, your guidance range, does imply a pretty decent acceleration sequentially even to kind of get to that point anything specifically that we should be thinking about there as it pertains to just maybe cost coming cost cuts kind of coming online or anything that we should be thinking about from a timing perspective? Thank you.

Question: Sebastiano Petti - JPMorgan - Analyst : Thank you.

Question: Batya Levi - UBS - Analyst : Great. Thank you. In terms of the incremental PCF sales that you signed. Should we think that they're mostly big tech or are you starting to see a little bit of enterprise demand as well? And just to confirm, I think you mentioned that this new mix will be on the existing construct that you're building for the original PCF deal. Does that mean the CapEx requirements would be pretty much included in the original deal? And how should we think about the prepaid revenue mix of the incremental sales? Thank you.

Question: Batya Levi - UBS - Analyst : Got it. Thank you.

Question: Jim Schneider - Goldman Sachs - Analyst : Good afternoon. Thanks for taking my question. I was wondering if you could maybe just clarify on the incremental $3 billion of the, of the $7 billion you talked about. Does that mean that there's $4 billion of pipeline left to go, as you mentioned or is there an incremental pipeline above and beyond the first $7 billion that you had seen before to sort of extent that the law beyond the $12 billion total pipeline? And then maybe as a second question, can you maybe just kind of comment on your mass market business and given the amount of deal activity there maybe clarify whether you're seeing any kind of firm indications of interest and potential interest in acquiring that asset? Thank you.

Question: Jim Schneider - Goldman Sachs - Analyst : Thank you.

Question: Jonathan Chaplin - New Street Research - Analyst : Thanks guys. A quick follow up on that Chris and then I've got just a network question as well. So on the sort of thought process around the sale of mass markets, one thing I think you have been considering was separating out the fiber business from the rest of mass markets. And I'm wondering if you could give us just a little bit of context for how you would sort of accomplish that the physical separation of those networks and how that would work? And then maybe a little bit more of a difficult question, but it would be great to get some context for the network overall and how much of it has been consumed by these PCF contracts. So, from memory, I think level three initially had 12 conduits put fiber into. And we've heard that some of the conduits have been sold or have been sort of given the rights to them have been given away in these new PCF contracts. I'm wondering how many have gone, how many you've got left that would be -- yeah, thank you.

Question: Jonathan Chaplin - New Street Research - Analyst : Chris, does the [ziply] transaction change what you think that asset is worth?

Question: Jonathan Chaplin - New Street Research - Analyst : Great. Thanks, guys.

Question: David Barden - Bank of America - Analyst : Hey guys, thank you so much for taking my questions. Appreciate it. So two, if I could, the first is on the $3 billion Chris, you kind of elaborated that this is going to look a lot like the $5 billion deal that you did before. And you gave us a lot of math that we could do around that $5 billion. And the net of it was that about 15% of that or $800 million of the $5 billion came in over a three to four year construction period. And then another 5% came in over a further 20 years in terms of hiring maintenance and stuff. So there's $3 billion that looks like that, would be about a $500 million cash contribution over the build period, which would be [26, 78] or so. And then another, amount that would come out over the next 20 years and you suggested that there's a lot of wiggle room that's been created that new deal to address balance sheet issues and it doesn't sound like it from the numbers that they're related to the $5 billion. But what is clear is that you did get a lot of upfront money before you have to spend it from these partners. And I'm wondering if that's what you're talking about. Are you using some of this upfront payment money to do things with the balance sheet before you then come back and spend it to go do the buildout projects. That, that would be my first question if I could.

Question: David Barden - Bank of America - Analyst : Got it. Thank you. And then I guess my second question is maybe a little bit of a housekeeping question as we think about your comments about the obvious need to step up the EBITDA on the fourth quarter at a minimum, it's got to be about $1 billion as a jumping off point for 2025. And you've talked to us about how 2025 is going to be down. I guess I'm trying to figure out how far it's down and I'm looking at the 4Q, 2023 EBITDA, do I know that that there's a lot that was in there that was extracted right? That they came out because of all the deals. Could you give us a starting point for thinking about from a kind of apples and apples 4Q '23 to 4Q '24? What that might look like and, and would that be an appropriate kind of trajectory to think about how the 2025 down year plays out? Thank you.

Question: David Barden - Bank of America - Analyst : Yeah, I understand. I appreciate the question. Thank you guys.

Question: Nick Del Deo - MoffettNathanson LLC - Analyst : Hi, thanks for taking my questions. First you shared metrics that suggest, much better sales in North America enterprise over the last several quarters. When should we start to see that flow through into the P&L in a more noticeable way? And then Kate, you had also mentioned that you had over 400 NaaS customers signed up, which is good to hear. I mean, obviously it's early, but I guess to what degree is NaaS contributing incremental revenue? Either because those are new customers that came to you because of NaaS or their existing customers that are spending more because of the product. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 05, 2024 / 10:00PM, LUMN.N - Q3 2024 Lumen Technologies Inc Earnings Call

Question: Greg Williams - TD Cowen - Analyst : Great. Thanks for taking my questions. Just back on the potential mass market sale. We're splitting the fiber and the copper. Just wondering if you can provide an update on potential dissynergies. I remember when you guys sold off the asset to Brightspeed, you mentioned that there were some dis energies there, but there wasn't a lot of enterprise overlap. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 05, 2024 / 10:00PM, LUMN.N - Q3 2024 Lumen Technologies Inc Earnings Call In this situation you'll have six or seven markets where you're heavily overlapped with enterprise and just wondering if there's going to be a greater level of disties as a result. Second question -- on yeah, I'll go ahead and I'll have a follow up.

Question: Greg Williams - TD Cowen - Analyst : So the second question is actually separate. It's on the North American enterprise. I noticed that the nurture bucket was actually declining faster than the harvest bucket. You mentioned that VPN and Ethernet had some impact, but, I found that, kind of interesting and just wondering if you can help us understand that dynamic.

Question: Greg Williams - TD Cowen - Analyst : Got it. Thank you.

Question: Frank Louthan - Raymond James & Associates, Inc. - Analyst : Great. Thank you. Can you give us an idea of the annual revenue on wavelengths and what the margins are on those relative to your other products? And then contracts of this nature tend to see some expansion over time. They're already telling you to go faster. What do you think is the potential for some upside to this $8 billion. And over what time frame do you think you'll start to see some of that creep? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 05, 2024 / 10:00PM, LUMN.N - Q3 2024 Lumen Technologies Inc Earnings Call

Question: Frank Louthan - Raymond James & Associates, Inc. - Analyst : All. And on the so on the back of the building -- Thanks.

Question: Eric Luebchow - Wells Fargo Securities, LLC - Analyst : Great. I appreciate you squeezing me in. So just to follow up on the mass markets business, as we've alluded to on the call, a lot of recent announcements and deal activity from a lot of private overbuilders. So as you look at your footprint today, I think you have roughly 18 million homes -- copper homes, how does some of this recent competitive activity or announcements play into how attractive you think that future growth opportunity is either by you or a partner and how you think about, what could be built out with fiber at attractive economics.

Question: Eric Luebchow - Wells Fargo Securities, LLC - Analyst : Appreciate that and just, just a follow up. You touched on the funding GAAP is closed and now you have more flexibility is that another way of saying, you think Lumen will be kind of consistently free cash flow positive from here? I'm just trying to think about obviously, a lot of puts and takes in the next year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 05, 2024 / 10:00PM, LUMN.N - Q3 2024 Lumen Technologies Inc Earnings Call You talked about EBITDA-low, or presumably CapEx a bit higher from some of these PCF sales ramping. And then, obviously kind of a wild card on PCF contributions next year, but just any kind of directional help you can provide on what free cash flow could look like?

Question: Eric Luebchow - Wells Fargo Securities, LLC - Analyst : Thank you.