Lumen Technologies, Inc. (LUMN) Earnings Call Transcript & Summary

Good afternoon, everybody. Thanks for joining us. I'm Mike McCormack, Senior Vice President, Investor Relations at Lumen Technologies. I'm pleased to welcome you to the 2023 Lumen Investor Day. Thank you for joining us. There's a couple of slides I want to refer you to before we get started. First is our safe harbor statement. And the second is our non-GAAP measure statement. Please review these carefully. They're also available on the Lumen IR website. And with that, I'm going to turn it over to Kate.

Thanks, Mike. Thanks, everybody. Thanks for joining today. We're super excited to share our plans for Lumen's future with you. When I started last fall, I met with as many customers, partners, employees, as I could. And of course, analysts and investors, many of whom are here today. And I heard you loudly and clearly, you want more transparency into our business. You want to understand how we're operating today. You want to understand why our change plans are different, and you want to understand where we're headed in the future. And that's what today is all about. We're going to give you a clear understanding of this company. And I think it starts with our principles, our principles that we use to guide our work and guide our decision-making. And it starts with a deep focus on monetizing irreplaceable assets, assets that are already in existence today. They are a part of our portfolio. Think our fiber network. There is so much pent-up value in this company, and everything we're doing is all about unlocking that value for our customers and our shareholders. We're making deeply intentional investments aligned to growth markets. We're focused on efficiency and cash, and we're staying agile in our approach. And to me, what that means is as the market dynamics change and as the results of our efforts and our change plans bring results that we can actually measure, we'll modify our approach to optimize impact. And we're leveraging an experienced team. You'll meet many of them today, they're presenting. But it's really a philosophy about the right talent and the right role across the company. We're going to be focused on bringing skills into this company and upscaling our existing workforce to ensure that all the changes we drive are enduring in the digital age. And finally, great execution, great execution to deliver fundamentally better financial outcomes. This is how we're thinking about our work. But we're realistic about our challenges. We know we need to be something different than we are today, and we've already had a fast start to that end. The first, and probably the most important thing, is we made the incredibly difficult but the right decision to reallocate capital away from the dividend and into our business. Essentially, we're funding our future. I get asked all the time, what's different about your change plans? That's the answer right there. We are funding our future. Now we've implemented a new mission for the company to digitally connect people, data and applications quickly, securely and effortlessly. We've brought in a new leadership team and rebuilt it, and we set clear strategy and priorities for this company with detailed operational plans that we've rolled out to our 29,000 people. We stood up an evergreen simplification process that basically has identified 400,000 person hours of low-value work that we're redirecting to support our priorities, and we'll continue to do so. And we've made really smart balance sheet moves so far, and you can expect more from us as we address our debt maturities. Second most frequently asked question that I get is, who the heck is Lumen? Who are you guys trying to be? And I want to be really, really clear about that with you today. We are a telco that is expanding our portfolio to include technology solutions that capitalize on adjacent markets, that are growing. So if you think about, hey, define your market, this is how we see the market at Lumen. It's big, and it's growing at 5%. Now aggregate growth rates really never tell you very much of anything. You have to unpack it to understand the markets and our strategy. And when you do, you're going to see markets that have healthy growth and those that are declining. And today, we play in both spaces at Lumen. But our strategy addresses this head-on by intentionally changing the mix. We intend to migrate customers from legacy telco offerings in declining markets, think voice, to faster-growing markets on modern platforms, think VoIP and UC&C. And we're going to lean heavily into markets with nice growth like SD-WAN, edge cloud, security, SASE, et cetera. Growth with tailwinds that this team deeply understands. We're all about technology. We're all about partnerships. We're all about customer lifetime value and product life cycle management, and I want to take you through a couple of these trends so that you can more deeply understand our strategy. Let's talk about managed security first. $2 trillion of lost value, that's quadrupled the amount since 2015. Huge problem with cybercrime. There's not a CISO, a CTO, a CIO, a CEO that doesn't obsess about this problem, and they're calling Lumen for help. They want us to help protect their business, their data, their processes, their customers. And we've got game here. Black Lotus Labs and our managed security offerings, best kept secret in the industry. This team is going to make sure it's not a secret anymore. Huge opportunity. Gen AI. Gen AI is creating a huge demand for compute, and it's one of the fastest diffusing technologies in the history of mankind. So think about our customers are trying to figure out, "How the heck do I move huge volumes of data from data center to data center?" The answer is, "I need a 400-gig wavelength footprint that enables me to do that." And Lumen's got the largest one in the United States. We're excited about that opportunity as well. Edge cloud, Internet of Things, it keeps driving demand for bandwidth upstream of the edge. And if you take our edge cloud nodes and our fiber network, it's a latency sling superpower that will deliver fundamentally better and more business outcomes than ever before to our customers, and we're going to lean into it. And then finally, network cloudification. This is all about digitizing the physical network, right? And every customer wants to be able to effortlessly -- our new mission is to digitally connect people, data and applications quickly, securely and effortlessly. When you think about effortless, it's really about any port, anywhere, anytime, like that. And we're going to deliver on that dream for them. Okay. So how the heck do we take advantage of these 4 trends? I think it really starts with the crown jewel of our assets, our fiber network. And this right here, this is why I joined the company. Talk about pent-up value. It's right here. It would take as much as $150 billion to recreate this asset and a whole lot of proprietary knowledge. It's got state-of-the-art fiber. It's got broad coverage. It's got unmatched route diversity and scalability. It is a superb asset in a major strategic, competitive advantage that, frankly, we haven't fully commercialized to the greatest extent possible, and we're going to do exactly that. Let me talk about the 3-pronged approach that gets us there. Three things. The first, we talked about declining markets. We have a whole pillar of work around securing the base. This is about thinking about the customer experience and providing a fundamentally better one to all of our customers. It's about intentionally migrating them from legacy to modern platforms and leaning into partnerships, you'll hear about those in just a bit, like never before. And it's going to yield happier customers and that are more valuable to Lumen. Second, driving commercial excellence. This is about intense coverage in the marketplace, but also about deeply understanding the value proposition of our products and services. We're going to have competency here, and we're going to invest here materially. It's about getting the right skills into the company. It's about building world-class digital marketing capability. It's about infusing our platform with artificial intelligence to support our go-to-market so that we know the next best thing to deliver to a customer. And it's about world-class enablement from front to back. The way to measure success here, we'll be delivering at market or better growth rates in every market that we compete in. And the last pillar, innovating for growth, 2 pieces to this one. First and foremost, we're going to digitize everything, right? When I talked about digitally connecting people, data applications quickly, securely, effortlessly. That effortless is about digital experiences for the customer, for our partners and for our employees. In today's world, your product is the experience, which is why it has to be digital. And second, speaking about your product is digital and it is the experience, the second part of innovating for growth is about cloudifying telecom. We're going to digitize our physical network. We're going to cloudify telecom. Lumen is going to be the first and the leader in this space. And it's going to enable us to take share from telco traditional markets, and it's going to accelerate our growth in adjacencies. We're excited about all these plans. But look, I know why you're all here. It's about the numbers. We've already given you 2023 guidance. But today, you're going to hear us talk more about the out years. We're going to talk about revenue and adjusted EBITDA, how they stabilize through '24 and begin to grow from '25 on. We're going to share our plans to almost quadruple our cash flow in 4 years, and we're going to provide an opportunity for you to see that we can get net leverage in check to 3.3x. Now I get a little excited when I talk about team. And you say, "Why?" Because team is the most important ingredient in any transformation, and we have a world-class team already I'm incredibly excited by it. I'm a little bit of a team dynamic and a psychology geek. So I'm just going to share with you team trust transparency. That's how you build a culture that enables change. Teams are made up of a human beings who deeply collaborate with each other. There's no hero culture. We have no room for heroes here. It's about deep collaboration, and it's a team sport. Trust, it's about having each other's back, especially when things aren't going well so that you can build systemic resilience and transparency. I've never met a problem that this team can't solve as long as we know where it is and what it is, and that's what transparency is about. It's about the ability to talk about the hard things, and transformation is hard. And the leaders that you'll meet today on the stage, some of the ones in this audience and the ones on the webcast, they deeply understand the culture that enables change in these 3 components. Now the people on this stage have skills and experience that are incredible. You can read about them on LinkedIn all day long. It will blow your mind. I see them in a certain way, and I want to kind of describe that to you here now. So Ashley Haynes-Gaspar. She's going to talk to you about securing the base. And when I think about Ashley, I think Transformer. She's transformed businesses in both the industrial and the software context at GE and Microsoft, deep, deep, deep transformation acumen here and more than a little customer obsessed. Jay Barrows, he's going to talk to you about driving commercial excellence. This man knows the enterprise sales life cycle better than any human on the planet. He knows how to get the flywheel going, and he's probably the best sales life cycle coach in the history of mankind. He's also got energy and intensity that has earned him the title of enterprise sales [ bunny ]. Okay. Innovating for growth. Sham and Andrew are going to talk to you about digital enterprise and about our network and plans to innovate there. When I think about Sham, here you are. I think Inventor entrepreneur. He leads our product and technology group. He personally has a few patents, and he's driven change with technology in big spaces and small. We're thrilled to have him on the team. And Andrew, he's our builder, 25 years building that crown jewel our network, and we've asked them to build the future with NaaS. Maxine. When I first met Maxine Moreau, who's going to talk to you about mass markets. She told me that she'd spent a couple of decades and went through every function that she'd worked in. It turns out it was every function in the company. And when you actually know a company left to right, top to bottom and you've been involved with M&A and divestitures, you can build a factory. You know how to make things work together. We've asked her to build that factory, and she's doing exactly that. And Chris, Chris Stansbury, C. Stansbury. The C stands for clarity. He's our synthesizer. He has deep financial acumen, but he can take the incredibly complex and he can simplify it for you. He has more than a little transformation expertise as well, and he knows how to build team. So he's been incredibly helpful in making this magic happen. I have to tell you, I've been doing this for a long time. This team is special, and there's an energy and a creativity buzz and something that's happening that I think is going to drive our performance. It's what gives me the confidence that we're going to win and that the future is incredibly bright for Lumen. Okay. Before I turn it over to Ashley, I'm going to ask the team to roll a video that shows exactly how Lumen is bringing value to our most strategic customers. [Presentation]

Those are always so much fun to watch, but I want to talk to you about what we are doing to secure our base here at Lumen. Now having led large-scale transformations, I know the magnitude of change that can happen when we drive surgical focus. And when it comes to securing our customer base, we are driving surgical focus in 3 critical ways. The first is high-impact reinvestment. Stopping low value-added programs, redirecting those people, those resources and those funds into ones that drive higher impact for the company. The second is around customer lifetime value and customer experience. I'm going to talk to you about 2 specific examples in the voice and the VPN space. And then the third is really about reimagining partnerships to expand our funnel and accelerate progress together because I know when we take these 3 things in combination with surgical execution, we move from defense to strategic offense, and that is what I'm excited about. It is what I love to do, and it's why I'm here at Lumen. So let me take a moment and unpack each of these, respectively, really starting with refocusing our spend on high-impact reinvestment. We are making the hard but necessary choices, finding our own fuel to reinvest in securing our customer base. We started this process with a clean sheet analysis, we looked across the business end-to-end, identifying cost and opportunities to rationalize it. And to date, we have been able to eliminate 100 processes, which accrues to the 400,000 hours that you heard Kate referenced in her opening. And the way to think about that really is internal capacity that is being redirected to higher priority programs that drive higher return. Now what's important to know is that we are not stopping here. This is an evergreen process, and we will continue to reevaluate the business and refocus our dollars into programs that drive EBITDA and continue to reduce our overall cost to serve. Now you may be wondering what's an example? What are you doing with these dollars? I would tell you we are using these savings in part to reinvest in customer experience and customer retention. And we know customers leave Lumen for a couple of reasons. They may be looking to optimize their network. They may be looking to reduce cost. We also know that our complexity has made us hard to do business with, and resolving that complexity is a priority. We are hyperfocused on creating a strong and sticky customer experience, not only because it's the right thing to do, but because it makes business sense to do it, and there are 3 proof points that I want to share with you. The first is our focus on cost, process optimization in combination with digital tooling, and a recent pilot drove a 90% reduction in order validation time, 90% reduction. Not only does that reduce our cost, it provides a better customer experience and improves our time to revenue. We feel really good about that. The second thing is around customer success, where customer success is involved with customers, they are difference makers. Customers who have customer success representatives in their accounts are less likely to churn, which is why we're taking some of our reinvestment, and we're increasing it in the customer success function by 15%. And we are pointing it specifically and surgically at the mid-market because we know that is where customers have the highest propensity to churn. Last but not least, we also know that it's more cost effective for us to keep our existing customers than it is to go acquire new ones. And our data tells us that satisfied customers spend 5% more with us over time. So I'd like to talk about 2 examples that live at this 3-way intersection of experience, retention and lifetime value. Let's start with VPN. VPN is projected to decline from a market perspective, 5% per year, and we are migrating customers to products and solutions that are growing at over 20% per year. We have a competitive advantage in doing this. Our competitive advantage is we own the network and the access. We can bundle it with software solutions like SASE. And then the third is we can wrap it beautifully with a managed service, which is an integrated customer experience and an integrated solution that our customers like. We also know that customers on modern IP or IP plus SASE have a customer lifetime value that is 3.4x greater than VPN-only customers, and that is math that we like. Let's talk about voice. Customers are shifting from legacy voice systems to integrated solutions, creating a more profitable growth path for us. Again, our advantage is our network bundled with leading platforms like Microsoft Teams and Zoom with our services results and a customer lifetime value that is 1.8x greater than voice alone. Over the next 3 to 4 years, we anticipate across these 2 motions, an opportunity of $180 million in incremental revenue, and this is our focus, and this is why we are committed to securing our customer base. So let me talk about a quick example, let me bring it to life. We had a long-standing relationship with an energy customer. They were a legacy voice customer, tens of thousands of employees and had outgrown the solution that they had with us here at Lumen. We migrated them to a modern UC&C solution. Through that, we improved user experience, we improved speed to deployment, and we helped them realize their ROI on Microsoft Teams investment that they had already made. Our ability to act as a one-stop shop provide flexible technical solutions and partnerships for key differentiators and us winning that customer and that migration. And that migration not only combated churn, but it led to a 2.4x increase monthly revenue. Okay. Let me hit the third pillar. Partners make more possible. We had an exciting press release that tips and nods to the strategic direction of where we're headed. We are forming important, strategic partnership with companies that matter. We're doing this to help secure our customer base. This morning, we talked about one of those exciting partnerships with Microsoft, where we're working together to build sales funnel, close deals and increase expansion with our customers. Though we're a few weeks in, we're focused on 500 accounts together with precision growth plans and voice migration solutions. And now it's early days, in our recent [ Kosovo ] [indiscernible] event, we were able to create 70 opportunities together, which is something that we're really deeply excited about. So in summary, we are focused on providing a great experience to protect, nurture and grow our customer relationships to increase our retention and win more business and monetizing our incredible customer base by going deeper in our relationships in more meaningful ways is the name of the game. We are doing this through hard but necessary choices, reinvesting in higher impact and prioritizing lifetime value with partners, which helps us move from defense to strategic offense to really secure the base in our business. So with that, I want to hand it over to Jay Barrows, who's going to talk about how we are driving commercial excellence to continue to drive growth in Lumen.

Thank you, friend. So like Ashley, I'm fired up to be here, in part to move from being -- playing defense on our heels to leaning in and playing as she talked about strategic offense. This is an opportunity of a lifetime. I see it and it's materializing in front of us. Today, I want to talk to you about 2 big things: one, how we're going to grow and really how we're driving commercial excellence across 3 really important pillars. So think about it, how we're monetizing our existing products like never before. Two, how we optimize our sales channel. But as you talked about Ashley and you talked about Kate, how we're optimizing our partner channel and then increasing focus on priority markets at speed. I thought what I'd do is just start with a quick primer. Before we talk about my initiatives, think about this page, right? So think about definitions and how we think about our products. So you've heard us talk about grow, nurture and harvest. Really important distinctions for us to drive focus, to drive investments from a growth standpoint, voice over IP, UC&C, SASE, SD-WAN, IP, Waves and managed security. You can see as these markets grow, we grow. And that's why my team, our sellers wake up every morning and we focus on this bucket. But you also heard Ashley talk about what we're doing to migrate our customers from harvest to grow, just like you talked about in voice. This is critical for us because you'll notice that, a, we'll be able to retain our customers, which is clearly critical. We're future-proofing our revenue. And as these products grow, they contribute a significant amount to our future revenue. Both Kate and Ashley talked about customer lifetime value. This is critical. So we find that customers in this category tend to spend 10x more with us, 10x more with us during their lifetime than those in harvest, nurture, VPN and Ethernet, yes, you can see that these markets are declining, but these customers spend 3x more with us during their lifetime than those in harvest. So it's critical that we maintain these products in the short term, so we can preserve this revenue. And harvest is legacy voice, managed hosting and private line. And so our strategy, you're going to continue to hear us talk about moving these customers up to the grow bucket. So now I'm excited to spend time talking about how we grow inside of that grow product -- that grow category of products, monetizing underutilized products. So I arrived in February of this year. So some of the things they observed and some of the things I heard were about how we've monetized products in the past. So we would build great products. We took a very inside-out approach, and we waited for customers to come to us. We have fundamentally changed how we're monetizing our products today. A great example is what we're doing around security. So rapid threat defense is a differentiator, but it was by itself. So we brought it together. We bundled additional security capabilities around it in the last 2.5 months, and it put us in an amazing position to be able to grow this market at speed. Kate, you talked about edge, being critical. We have absolutely overhauled how we're bringing edge to market. We have 5 co-innovation teams working with customers now in a customer-obsessed way, taking a genuinely outside-in approach, defining with our customers what they need, and that's going to put us in a position to absolutely monetize edge in new ways. We're making early wins -- early moves to win in the network-as-a-service market. Andrew, you're going to talk about what you're creating to allow us to win and grow. This is a $25 billion to $35 billion space. So we have a dedicated team right now focused on education, focused on sales with me and focused on implementation. And something else we're doing that is truly different is we're taking our partners and we're bringing them in the middle of the NaaS boat with us now. They have relationships. They have insights. They have partnerships. They give us insights about how we can grow in the NaaS market. And this may seem odd, but I think one of the things I'm most interested in about is refining our IP, Waves and Dark Fiber sales engine. So these markets are absolutely growing. And when you sit down with our customers, which I'm doing on a weekly basis, and it will be daily soon, it's undeniable. When you ask them, tell me about the proprietary gifts that Lumen has in IP, Waves and Dark Fiber. And they will look you in the eye and say it's different, it's unique, it's special. And we have arguably decades of IP, intellectual property, from a go-to-market standpoint inside of our sellers about how to commercialize these products but, or and, we are changing both from a sales enablement and a sales tooling standpoint, putting us in a stronger position to win. But here's what's also new. Today, right now, in seller 360, I can see by seller, by account, by product, by day, by activity, by new persona, think CISO, CIO, CTO, by new funnel add and by new sale. How is that seller doing? Is she focused on the right customers with the right go-to-market, with the right enablement, with the right product. That is allowing us to bring the commercial intensity that Kate talked about, the rigor, not to be punitive at all, but to put us in a position to better win. We're absolutely refocusing our sales efforts on the grow products. Ashley, we sat together, and we took smaller customers, and we moved them to customer success. So think about what customer success is exceptional at. Building relationships, retaining customers, they're renewing contracts will -- with and for us, they're teeing up upsell and cross-sell. So what does that do for my team? It allows us to have more sales capacity to focus on grow products and bigger opportunities. I talked about this intensity and rigor. If you thought about what I said that I can see, that sellers can see and sales directors can see about what they're doing, that's important. But we also, for the first time, changed how we pay our sellers. We have quotas for the first time in 2023 on these grow products. So what does that do? It absolutely drives focus, and we're paying them in fundamentally different ways. So there are multipliers. So as they sell more, they make more money. So we've had some green shoots, greater than 20% funnel ads across the enterprise in these grow products. So initial green shoots but absolutely critical for our success. Increasing focus in growth across 3 big lanes. Kate, you talked about intentional focus to grow in important key markets, large enterprise, mid-market and public sector. Obviously critical for us. So large enterprise continues to be mission-critical for us, and we are investing in new sales enablement, new tools. We're also investing in new talent and additional capacity. And it's absolutely paying green shoots for us. We had a quarter over -- 40% quarter-over-quarter increase in large enterprise in the growth funnel. We also had approximately 5% quarter-over-quarter increase in sales in large enterprise in the grow product category. Really important for us today and tomorrow. So mid-market. It's undeniable also that we underinvested in mid-market. We're changing that in big ways. Some of the things we're doing. Sham, you and I are bringing AI and analytics inside of the mid-market. We had not segmented our mid-market, PERIOD. And we certainly hadn't segmented in surgical ways. We've done that to allow sellers to wake up and focus on the right customers with the right products at the right time. We're bringing AI and analytics inside of our funnel, which is helping us drive productivity. We've -- we ring-fenced a team inside of mid-markets that, every day, they wake up with single-mindedness of purpose. And their job is to secure new logos. It's the first new logo team we've ever had. And so what does that do? That allows us to land at speed. And then we have an expansion team, they wake up and they focus on upsell and cross-sell. We've also had 4 new incentive programs for our indirect channel partner. They're a critical part of our growth strategy in our future and our alliance partners in new ways. You're going to hear me talk about Fortinet on the next page. These areas of focus and investments are producing green shoots. We had a 30% increase in quarter-over-quarter sales in new market, new logos. And then finally, the public sector, maybe one of the parts of our business I'm most proud to be part of. We are absolutely expanding that funnel. So when you sit down with public sector decision-makers, they are worried about their zero trust mandate. They're worried about security. And so at the beginning of this year, we did something new as well. We have a dedicated specialized team focused on security. That's paying green shoots as well. We had an 8% quarter-over-quarter increase in the public sector grow product revenue. Three weeks ago, I was with the CIO of the USDA with his Deputy CIO. So I would tell Nate Edwards was with me. Nate Edwards, you may not know, he own service delivery. So we spent 1.5 hours with these 2 executives, and they talked specifically about the importance of our partnership. We are moving them across 10,000 locations from their legacy infrastructure to SD-WAN, VPN, managed security and hosting. And so what they talked about in their words, not mine, they said this, they think, is the most strategic technology transformation happening across the U.S. government. Kate, you and I met with the General of DISA, and he was specific, and he talked about the relevance and importance of his partnership, DISA's partnership with us and how excited he is and how appreciative he is that we're all in to drive value with DISA. Sham, we are working hand in glove to create a modernized stack. You've heard us talk about AI, analytics. I've got intelligent quoting, auto pricing. So why are we doing this? It really is about productivity. It's about precision. It's about ensuring that our teammates are spending the right time with the right customers, with the right products to win and grow at speed. I'll end, I could continue to talk a bit about commercial excellence. But Huitt Zollars, this is a customer of ours. They're a full service multidisciplinary design firm. They have 20 locations across the U.S. They have a large tranche of federal customers. So you know like we just said security is mission-critical for them. They went to the market because they needed a new WAN environment to deliver value for their customers, and they picked us. It happened to be an important win back for us. But I'll tell you how we want it is what I'm most excited about. And quite frankly, it represents our future. We focused on their outcomes. We talked about the capabilities they needed, not the individual products that we have. We talked about how they define value, how they define ROI. And they picked us. DIA, SD-WAN, SASE, integrated with Rapid Threat Defense, and here's another important part of our future, Fortinet was at the table with us, collaborating with us, helping us ensure that we won that opportunity and we deliver value. So same customer, fundamentally different approach with how we engage and how we delivered and delighted and greater outcomes for everybody involved. So here we are driving commercial excellence. We've got this wonderful path in front of us to bring commercial intensity inside of our business, and we're innovating for growth. And what I'm excited for you to hear from Sham and Andrew is about how they're paving our path to our future success with innovation for growth. So with that, Sham.

Great. Thank you very much, Jay. Hello, everyone. My name is Sham Chotai, and I'm responsible for product and technology at Lumen. So you heard from Ashley, and she talked to you about how we're moving away from the declining markets and securing our base. You just heard from Jay, and he's talking to you about how we're growing and driving commercial excellence. What I'd like to talk to you about is how we're digitizing for growth and how we're expanding our security systems and offerings so that we can vertically build them into our incredible asset that Andrew is going to talk to you about, and that's our network and also how we're cloudifying it with Network-as-a-Service. So when Kate asked me to join the organization several months ago, I asked for a couple of weeks so that I can go research the company. Now while I admire Kate and I used to be customers of Lumen's, I wanted to check out the company and understand what the current state of the company was. And here's what really stuck out. As a customer, I knew we had an incredible network. And what I found is that our network had even gotten better. When I talk to customers and partners, they really talked a lot about they needed Lumen to be easy to do business with. And I know you guys have never heard that comment about the telco. Some of our customers and partners actually were really passionate about sharing with me here are the opportunities that we had to get better. And then when I look at the P&L, I saw that we were being weighted down by past acquisitions, and our technology costs were off. Look, the overriding sentiment that I heard from our customers and partners is they loved Lumen's core assets, right? They love the fiber network, and they wanted Lumen to win. Now I've led a few digital transformations at scale, and here's a deep lesson that I learned. I learned that when you take an incredibly talented team and you focus maniacally on customer, partner and employee experiences on a modern digital platform, you start to monetize your incredible core assets, right, not just our fiber, but also a lot of the services that we provide. And that gives you the right to go into growth markets. And that's what I love to do, and that's why I met Lumen. So I want to talk to you about how we're digitizing for growth. Now the first thing you need to do is set a foundation on a modern digital platform. Kate talked to you about being intentional about our investments aligned to growth markets, and you've got to be mindful of your cost while you do that as well. That's what you're doing when you're simplifying your IT landscape, right? You're setting the foundations for growth. Now you can also save a lot of money. And so what we found is with the plans that we have, we estimate that we'll be able to save about $100 million in annualized savings through productivity. Now here's what we're doing. So how are we doing that? When I first joined, I saw that we had 170 systems, right? These are major systems, and we just accumulated them over the years through all of our acquisitions. So we're decommissioning 70% of those systems, right? We're going down to a core set of key systems that are going to help us drive the productivity we need with our teams. The other thing that I noticed is that we have -- we're being weighted down by really complex business processes, and we also have legacy on-premise systems that were dragging us down. And so what we're doing is focusing on those complex business processes. We're leaning them out and then we're using AI and machine learning to go automate that. Now this is a big deal, right? This is going to touch every part of our company from sales to operations, to marketing, to customer success and finance. And this is really important so that we can be a better competitor in the market. We're also moving towards a cloud-based infrastructure, right? What that allows us to do scale and keep our costs in check. Now it's really hard to get a single version of truth when you're dealing with 12 data platforms. So what we're doing is consolidating down to one data platform. We're bringing in telemetry from the entire enterprise. So every piece of data is going into that cloud data platform. And why that's important is that democratizes access to data, analytics, AI and machine learning for all of our employees. Okay? And that drives insights that helps us make sure that we are securing the base and driving our growth into the future. We're also simplifying our product portfolio. We have thousands of SKUs. And what we're doing is we're eliminating about 60% of those SKUs. They were non-revenue producing, and we're working on more. What we're also doing is looking at our product portfolio, simplifying it down, so it's easier to consume and bundling it so that we drive growth with our customers and it's easier for our customers to understand what we have and start to consume it. Now this may sound like I'm talking about plumbing. But there's poultry in this plumbing, and it's going to unlock a lot of value, and I'll talk to you about that next. Now when you've laid the foundations with a modern enterprise architecture, right, you've earned the right to go to the next step. And when you focus maniacally on your customer, partner and employee experiences and you do it on a modern architecture, you're actually creating a digital execution engine. And when you do that, you drive a lot of productivity. And so we estimate that we can get $50 million in EBITDA uplift over the next few years. And that productivity will help us drive not just productivity improvements for Jay and Ashley, but there's -- that excludes all the top line revenue growth that we expect, right? And so when we think about sales productivity, Jay talked to you about that we're working together to go modernize the sales stack. What does that mean? Well, what we're doing is we are creating a single pane of glass, a digital cockpit that allows Jay and the sales team to focus on those prospects that are likeliest to convert. But when you look at sales tools like the next best action, it's actually AI-based tools. And what these tools allow Jay and his team to do is to do that deep inspection, right? And it helps our sales teams focus on those prospects and get a lot of leverage on our pipeline. One of the biggest feedback that we've gotten from our customers, partners and our sales teams is that our quoting and pricing systems are the biggest barrier to be easy to do business with. And so what we're doing is we've consolidated our quoting systems. We put in intelligent quoting. We've automated our pricing system so that we get these quotes out quickly and start to close our deals at scale. We've also heard from our customers that they want us to be more reliable operationally, right? They want us to set and meet their expectations and communicate with them on a frequent basis. So what we're doing is working with Andrew and his operations team. We're putting in place a centralized order management system. The operations teams are leaning out their processes and using AI and machine learning to drive greater efficiency and consistency in how they're delivering the services. Now what we're also doing is automating communications with our customers. So as we make it through the fulfillment process, they're getting regular communications for us. We're also putting in a lot of self-service capabilities. So our customers and partners want the ability to go and modify and change and look at their services and maybe add to those services, and so we're putting in place portals and marketplaces to allow them to do that. Billing request and billing questions are the greatest or one of the top support requests that we get. So what we're doing is consolidating our billing systems. We're looking at the upstream systems and also our data systems, and what we're doing is using AI to drive up the quality of those billing experiences. Now what this allows us to do is that our customers and partners can actually start to trust us. We're also driving innovation in our security products. Once you built that execution engine, now you have the right to grow and scale in adjacent markets, and that's what we're doing by vertically integrated both Lumen and partner security solutions into our world-class fiber network. We see security as a $180 billion market and is growing rapidly. Ashley talked to you about how we've created world-class SASE solutions with a market-leading partners like Fortinet, Cisco and Versa. Well, it turns out that on our network, we see the majority of Internet traffic today, and we've got this tool called Rapid Threat Defense that's being built by our Black Lotus Labs teams, the teams that are going to be known very soon to all of you guys. And what we found is that this tool is really good at using AI and machine learning to look at all of that Internet traffic, start to spot threats that are emerging in the marketplace. And then it starts to deploy automated responses that isolate those threats. Now Jay talked to you about how we quickly took Rapid Threat Defense and integrated it into our SASE solutions, right? We were able to do that within weeks. Now these are solutions that our customers want and our competitors can deliver. Now we've got other innovations that we're working on. I'm really excited to share those with you in the future, but I'm going to turn it over to Andrew so he can talk about how we're expanding our network and cloudifying it with network-as-a-security -- Network-as-a-Service, sorry.

All right. Thanks, Sham. So I hope it's clear from Sham's presentation that we're enabling innovation and we're investing for the future, and that's true for our network also. And I'm going to talk about the investments that we're making in our fiber network and our optical network, and I'm going to also talk about why we're cloudifying the consumption of our network through our Network-as-a-Service capability. Kate showed this map earlier in the presentation and mentioned that it's one of the reasons that she joined Lumen. And I really connect with that because it's also the reason that I'm at Lumen. I've worked with this network for 25 years, and I continue to be excited about the innovations that we're doing within the network and the investments that we're making. Our network differentiates us in the market. The map shows the coverage that we have across the United States. But also within that network, we have really high fiber density, and we have new fiber. I'm going to talk about the density first. On many of our routes, we have 432 fibers. And on our highest density routes, we have 864. And that's an impressive number. And the reason that it's impressive is that the last time that full national networks were built in the United States was about 20, 25 years ago, and there was a lot of investment in the market. And when those networks were built, they were built with 96 fibers or 144 fibers. So when you're comparing 432 or 864 fibers to those networks, competitors really don't match the level of density that we have. But we're not only differentiated in that density. A lot of this fiber was installed in the last few years. And it's a lot lower loss, higher performing fiber than the networks that were installed 20 to 25 years ago or even 35 years ago for some. But why does age matter? Age matters because the manufacturing process and the materials that are used to make fiber have changed in the last 20 years, and the newer generations of fiber perform better. And I'll give you an idea of how much better they perform because we do testing of optical equipment in our laboratories all the time. So we're testing the latest generation of optics that are coming out. And what we find is when we compare the older generations of fiber to the newer generations of fiber, some of that optimal equipment can produce as much as 60% more capacity on a fiber over a given distance or other pieces of equipment can carry the highest-performing optical signals, the highest speed up to twice as far. So the newer generation of fiber matters. It matters to Lumen, and it matters to our customers because it allows us to build high-performing, lower-cost networks. Although we're already the most modern network out there, we're not resting. We've got a project to install an incremental 12 million fiber miles across our intercity fiber network. We've already finished about half of that. And within that build, we've already produced highly favorable cash flows from that construction. Not only have we produced highly favorable cash flows, but we have consumed less than half of that fiber that we've installed. We've got 60% more fiber from what we've installed available for additional cash flow generation. And we've received orders that justify the remaining 6 million fiber miles from that construction project. And we continue to take orders, so that 12 million number will continue to grow over time. So more capacity, longer distance means a lower cost to build. And that lower cost comes from the fiber network, but it also comes from the conduit network. We've got a significant multi-conduit network that we leverage, and we use it to deploy incremental fiber at a much lower cost than it cost to build a greenfield network. So although our customers -- our competitors can try to catch up, it's going to really cost them if they try to build a network that competes with this network. And in addition to building out our fiber network, we're also building the largest 400-gig wavelength footprint in the United States. Our fiber enables us to build higher capacity, lower cost network on a broader footprint. So we've been building this network for a while. But 5 to 6 months ago, we launched our 400-gig wave product officially, and we've generated more than $25 million of annualized revenue on that 400-gig wave product. And as technologies continue to evolve, things like Gen AI that require significant amount of data to be produced and consumed, our customers are going to need these higher-capacity services. And our network is extremely well positioned to serve those customers. And by choosing optical platforms that are upgradable, we're future-proofing this network to be able to support higher and higher speeds over time. And in addition to the coverage that we have, we're making sure that it's well connected. We've already got 240 data centers connected to our 400-gig footprint. I want to talk a little bit about Network-as-a-Service. This is the cloudification of our network. This is the next great evolution in our network for Lumen. So as a part of our development process, we work with our customers. And related specifically to NaaS, we interviewed almost 1,000 customers and potential customers. And we ask them about their buying experience with network services. What do they like, what do they struggle with, what would they like to see. And by the way, working with customers like this is pretty rare in a telecom world. And collaborating with them on the design of services is also pretty rare. So that's pretty exciting to see. But what we found from the survey is probably not too much of a surprise, and they were talking about the industry generally. This wasn't a Lumen-specific survey. What they said is that telecom services are hard to buy. That there's long cycles between the quote and the delivery process. That they're hard to manage. Customers lack visibility into how networks are operating. That they're hard to use because they're difficult to change and adapt to the changing environments that our customers have. And as a result, it's hard for them to build reliable and secure networks. So with our NaaS strategy, we're taking a massive change to that experience with consuming and using networks. We're digitizing that experience and cloudifying and making it easier for customers to consume network. Sorry, I'm just going to grab a little bit of water. And with this capability, we're going to enable it so that our customers within a few clicks can activate new services on our network. Imagine having an Internet connection being able to add a DDoS service to it with just a single click. That's what we're enabling. Customers will be able to easily scale up and scale down capacity. They'll be able to add new connections to their network with a few clicks, and they'll be able to do all this through a self-service digital portal or through an API. And by doing this, they're going to be able to build a highly reliable and secure network because they're going to be able to adapt it to the environment -- their changing environment. So NaaS represents a massive opportunity for us, a market opportunity. We think the serviceable, addressable market for NaaS, and this represents customers that are going to want to shop for, consume and use networks with a digital experience, a cloud-based network experience to be $25 billion to $35 billion by 2027. And Lumen is uniquely positioned to do that because we own the high-performing network. We have the ability to automate it, control it and do that as customers want. We have a large installed base of customers that we can leverage. We can educate them on this capability, we think those customers want to consume this capability today. And we have the ability because we can control the network to integrate it with cloud capabilities and build an end-to-end software experience for those customers -- I'm sorry, I got something in my throat -- but those -- to be able to build those end-to-end software solutions, we're going to better be able to solve the application problems that our customers have. And then with the modernization program that Sham talked about, we're going to be able to deliver that digital experience that our customers want, that they're going to want to need. So we're pretty excited about the market opportunity that NaaS has for us here. And we think that with our network capabilities and our software capabilities that we can win more than our fair share of this $25 billion to $35 billion market. And before I turn it over to Maxine to talk about our mass markets business, we're going to show a video that covers the powerful set of products that her team is building for our Quantum Fiber. [Presentation]

Hello, everyone. I'm so excited to be here today to share with you what's going on in mass markets and how we're doing our part to drive growth within Lumen. Andrew has talked about our amazing network. What I'm going to talk to you about is how we're expanding that network. We are going to expand our fiber footprint. We're going to do it in markets that matter, markets where we can drive penetration that have high barriers to entry because of the urban and suburban nature of the markets. We've streamlined our operating model. I'm going to talk about what that means and what it's showing up, where it's showing up in our results, and what we're doing to increase our fiber penetration. We have a superior product, a superior offer and a superior service to that of our competition, and I'm going to show you how that's going to drive financial growth for -- within mass markets and ultimately within Lumen. So let's get started. By the way, before I move on, I've been in this industry, as Kate said, for many decades, 4 actually. I'm coming up on my 4 decade anniversary in telecom. And what I can tell you is I have never been more excited to be a part of this company and this team because of the opportunity we have in front of us to grow our business. All right. So what are we going to do to take share? Like we -- this is ours. This is ours to take back. Our penetration in our copper assets are about 12%. So we have a lot of upside potential as we overbuild our network with fiber and take back that market share. We will be doing this by overbuilding as well as participating in the new greenfield developments within our footprint. So during the first quarter, you can see we added about 120,000 living units to our fiber footprint. We have plans to add over 500,000 locations throughout 2023. And we expect to build to over 8 million to 10 million locations in total or 5 million to 7 million incremental locations, and that doesn't include our participation in the BEAD program, which we will look at with the same disciplined approach that we did with both CAF II and with RDOF. We expect to build this network at an average cost of between $1,000 and $1,500 per location, and we expect to reach an ending penetration of over 40%. And all of these things, as we execute against this plan, we expect to drive broadband revenue growth and subscriber growth by 2025, an overall total mass markets revenue growth, EBITDA growth and free cash flow growth by 2026, which is super exciting. You heard Kate talk about driving commercial excellence. Well, how we're doing that within mass markets is by streamlining our operating model. So when Kate joined the company last fall, one of the first changes she made was this organizational realignment she spoke about. What we did is we took planning, engineering, construction and field operations, and we brought that together with the mass market sales, marketing and customer service engines. And as a result of that, we're seeing improved operating performance. We took our planning, engineering, construction, kind of end-to-end processes, retooled them. And what we're seeing early on is a significant improvement in our yields. We took our network planning and went from -- or now at yields of over 90%. Meaning we've planned it, and now it's going into the construction -- engineering and construction factory. We were as low as 10% last year. So significant ramp in our planning yields. In addition, we combined our field sales, marketing, operations teams together. We're also expanding our sales distribution. And what we're seeing as a result of that is shortened sales to install cycles as well as reduced order cancellation rates. And then finally, we're expanding our marketing. So we're going to market with the new Quantum Fiber marketing campaign that's going to drive home the unique capabilities of Quantum Fiber and why it is a superior product and service for our customers. And we're doing that, leveraging various national and local platforms. And we're increasing our investment. We've talked about it up here for a bit now about funding our future. We are investing in our marketing. We expect our marketing spend to be up 85% this year to get the quantum fiber brand awareness as we're expanding our network. So what are we doing around innovating for growth? Well, you probably read this morning, we announced that we are expanding our gig and multi-gig services across 18 cities across the U.S. What I will tell you is those markets are primarily focused on the 6 major metro markets in the Western part of the U.S., within our 16-state footprint as well as our major markets within Florida. The reason we're doing this is because we can -- we have scale in these markets. We can go very dense, which is also why we have a range of what it will cost us in each of our go-to-market areas to construct this fiber as it's not just the construction of the fiber, it's also the penetration of those assets and having an efficient go-to-market engine. We also expect to add approximately 125,000 net adds this year as we ramp our production factory and as we provide a superior product. Our product is a symmetrical multi-gig offer that is simple and easy and straightforward. It's 100% subscription-based billing; 100% prepaid, which by partner and finance loves; 0 bad debt as a result of that; and the pricing is simple and easy to understand. Our new go-to-market pricing is $75 per 1 gig. We believe that, that is a superior value proposition to that of the competitors, especially when they roll off their promo pricing from the competitors. And Andrew talked about our network. Our speeds of 8Gig symmetrical are 40x faster than the U.S. average download speed. So clearly, way more than customers need today, but we're future-proofing our network. And we're doing it in a way that's providing a superior customer service. So we talked about customer obsession. When we built Quantum Fiber, we did it intentionally to be a 100% digital, everything from shopping to buying to installation. And what our customers are telling us for Quantum Fiber is we are easy to do business with and it is effortless. And we're seeing it in our NPS score of greater than 60, plus 60. That is industry and world-leading for broadband services. We believe -- I believe, that when you couple our network expansion, our low existing copper fiber penetration of less than 12% with a new go-to-market offer of $75 and an average ARPU of fiber today of $60. We believe we've got tremendous upside both in driving ARPU growth as well as driving increased penetration. But this is why I'm here. When I look at this slide, it really, really, really makes me excited and the team excited. So you can see we're ramping our factory. We expect to build over 500,000 locations this year. We expect to ramp that to approximately 750,000 locations next year and start to ramp to 1 million starting in 2025. In addition, when we do that and we execute on those things I just described, we expect to provide significant positive future financial results for Lumen. We expect to reach broadband subscriber and revenue growth in '25, overall revenue, cash flow and EBITDA growth in 2026. We believe this investment in Quantum Fiber will provide a significant and solid annuity stream for this corporation for many years to come. Chris is going to talk about that in just a few minutes. So with that, I'd like to hand it over to Chris, our CFO, to walk through Lumen's overall financial outlook. Thank you very much.

Thanks, Maxine. 14 months ago today, I started at Lumen. And today is a really exciting moment for me where we get to share our plans on our pivot to growth, and I'm going to take you through that in more detail in a second here. But when Kate started, she talked about how eliminating the dividend allow us to start focusing on funding our future. And then Ashley, Jay, Sham, Andrew and Maxine all talked about how. But the biggest single change that I've seen since I've been here is chemistry. This team is aligned and intensely focused on driving performance improvements at Lumen, and what we're showing you today is our commitment to ourselves and our commitment to you. That's driving a culture change inside of Lumen and that should not be underestimated. Growth is a mindset now. We're playing to win, and that matters. So let's talk about the numbers. We strongly believe that the initiatives that we've got in place today, the team we've got in place today will drive us to revenue and EBITDA growth by 2025. We'll grow free cash flow over the time period that we're talking about today. And importantly, we don't have any major debt maturities due until 2027. I'll talk about that more in a few minutes. Now I'm going to talk about the business segment first, then we'll talk about mass markets and then total Lumen. And in the business segment, you see a fundamental shift that's taking place from 2023 to 2027. Today, over half of our revenue is in legacy products. That's going to invert, and over half of our revenue in 2027 is going to be in newer growth products where the market is growing. A huge shift. That's going to be driven by the enterprise segment, where we're projecting about a 3% compound annual growth rate, not heroic, right, a reasonable growth rate. And as we exit 2027, we think we'll be more in the 4% range. We're not assuming growth in wholesale to get us there, and that's important. The other really important thing on this slide is that, that growth does not have to come at the expense of margin. The direct margins that we forecast from this shift get us to about the same place as we are today. Now when we talk about the financials, 4 key metrics that we'll talk about today: revenue, adjusted EBITDA, CapEx and adjusted EBITDA minus CapEx. So that last one is obviously a surrogate for free cash flow when we're talking about the segments. And to be clear, the definitions that we're using here are consistent with our SEC reporting. So in the segments, it excludes unallocated costs. You can see we've given a range around revenue, and that obviously flows through the model, and that really depends on how quickly we can scale some of these initiatives that we've talked about today. And as alone, as we've talked about, is a $25 billion to $35 billion market opportunity, and how quickly we can capitalize on that will depend on how much of this we hit as we go through the next 5 years. A couple of other things. We're forecasting the capital intensity of the business segment to be about the same as it is today as we move forward. Now we think that's conservative. Obviously, as we shift to more software-enabled products, that should come down, but we feel it's a little premature to start forecasting that at this point. So you can see we've assumed the capital intensity remains the same. Overall, we get to revenue and EBITDA growth in 2025. We get to free cash flow growth in the business segment in 2026. Mass markets, similar but different. Similar in that we do reach an inflection point a little bit later. Maxine said, in 2026, we'll get to growth for revenue, adjusted EBITDA as well as adjusted EBITDA minus CapEx. The big difference here is just the sheer capital intensity. When you look at 2025, we're basically investing everything that we earn in this business back into the business, and we're doing that because of the long-term value that this project creates for our shareholders and our broader investors. And this chart really highlights that. This is a 10-year view. This is obviously a 25- to 30-year asset. It's future-proofed, as Maxine and Andrew talked about. But if you look at the green bar, you see that when we get to the end of '27 and move into 2028, over $1 billion in cash flow is freed up. We've moved beyond the heavy investment window, basically $6 billion to $7 billion over the next 5 years. And then the annuity, if you will, starts to flow, and we reap the benefits of that for many years to come. So this is the moment we're really excited about financially in the Quantum business, and that's why we're making the investments that we're making. So overall, what does that mean for Lumen? We're going to get to overall growth. We're projecting it to overall growth in revenue, adjusted EBITDA and free cash flow in 20 to 25. We expect to drive significant EBITDA margin improvement, 300 basis points. Now I talked earlier about how direct margins were not going to change a lot, which is a good thing. What that means is we're really driving operating leverage. We expect operating expense to come down a bit actually from 23 to 27. But what we're really doing here is putting more revenue through the model on slightly less OpEx and that's driving that operating leverage. Now some important assumptions here that we think are conservative. We're assuming that the $1.5 billion of proceeds from the EMEA sale are used to pay down debt. And I can tell you today that we found out late last week that the European regulators have approved that transaction to proceed, and we expect it to close later this year. The second thing is, because this is a commitment to each other, to you, we haven't left any stone unturned. So even things like pension obligations, we've assumed they're funded in this. And lastly, we're assuming that all of our debt is refinanced at par at current market rates. So this does not assume any reduction in interest rates going forward because the economy improves. We haven't built that into the assumptions. So overall, this allows us to drive significant cash flow improvements, as Kate has mentioned, over the 5-year period and beyond that even more as the Quantum build comes to a close. So let's talk about leverage. You can see here the clear path we have to 2027 to really focus on driving business improvements. Now when I said that we were going to be assuming that we were refinancing the 27 tower and other debt maturities at current interest rates, what I didn't assume is that as we drive the performance that we're projecting today, that we would actually get more favorable treatment in the debt markets. So we fully anticipate that by delivering against what we talked about today, we would do better than the assumptions we've got in the model. Even with that, we'll drive improvements in leverage, and we'll drive the improvements in leverage because the underlying operating improvement that we're driving. Last point on all of this is that this is the way the picture looks today. We've done some opportunistic things as we did with the debt exchange. We'll continue to do opportunistic things. So I don't think the shape of this curve is going to look like this by the time we get to '26 and it's time to refinance the '27 tower. In conclusion, we're confident that we can deliver against what we've projected today. The leadership team is maniacally focused on our performance, and we've got the right initiatives that are funded to get us there. So with that, I'll turn it back to Kate for some closing comments, and then we'll go to Q&A.

Thanks, Chris. Thanks, everybody. I hope you see that we're excited about our plans. If you think about what we've talked about, we're focusing on getting more out of what we already have. We're investing in markets that are aligned to growth and being mindful of outcomes that matter, efficiency, cash, et cetera. We're leveraging this experienced team and all of the people that want to be a part of Lumen that are in Lumen already excited to up their games. And we're focused on greater execution. Great execution is going to drive a fundamentally different financial outlook for this company. So with that, I'll conclude, and we're going to take a couple of minutes to redo the stage so we can stand up here or sit up here actually and give you time for questions. [Break]

Okay. I think we're back. Thanks, everybody. We're going to start Q&A now. We've got a couple of folks out here with the mics that are going to roam in the room, Matthew and David. Just raise your hand, and they will find you. And if you don't mind just identifying who you are and what firm you are with, that would be great. We'll start in the back there with Simon Flannery.

Simon Flannery, Morgan Stanley. First of all, thank you so much for the detail in the presentation. I think a lot of great new disclosures there. So I think that will be very helpful. Chris, at the end, you were talking about the OpEx trend, and you're trying to hold that flat over the time period. At the same time, Maxine, you were talking about investing in the marketing side of things. So could you dive a little bit deeper if inflation is running 3%, 4% over the hurdle period, you're consolidating IT systems. But presumably, there's cost to achieve and so forth. So give us some of the big buckets to the extent you can talk about headcount because I think one of the perceptions amongst investors is that previous managements have cut aggressively into the cost structure, and that is there more efficiency to come? So how can you hold the cost flat? What are the big drivers of that? And is there any investment you need to make to say that much?

No, good question. I mean, obviously, this year, we took up our OpEx investment to help to start to deal with some of those simplification efforts. And in the prepared remarks today, there was information shared about the kind of efficiency we can drive. So those things help us achieve that goal. We'll also be able with the IT simplification and with some of the TSAs rolling off from the divestitures as we move through this window of time, that allows us to get after the dissynergies. And so the combination of those things are really the driver. I think to your point on headcount, of course, there will always be some level of efficiency. But what's very clear to us is that at this point in time, the ability to go in and take out large quantity of headcount to fund our future is not the path forward. We have to invest in the underlying technologies inside of the company to get us there. And that's why we've had to step up the investment this year to put us on that path.

And Simon, I'm sorry, I can't see you, so I'm going to walk over. When I talked about the marketing investment increase, and the sales expansion and our investment in fiber across the board, all those numbers were included when Chris did the outlook guidance at fourth quarter earnings. So all those investments were included.

Great. Over here. Greg Williams at TD Cowen, just echoing the gratitude for sharing all your insights today. One of the things among many I took from today was partnerships in going after this new growth total addressable market. Obviously, it can accelerate growth, but partnerships generally can come at a cost. Just trying to understand how you balance the transfer value to your partners when you're selling to these markets and not be relegated towards the connectivity platform?

Yes. So I'll take that one, and I'll probably ask Ashley among others to share. So it's interesting because I have from tech. And in tech, we think about partners in 2 ways: Number one, more intense coverage of the markets, right? More feet on the street because you're never going to have enough to meet your growth aspirations from a headcount direct selling perspective; and the second is intellectual property. And as we continue to expand into adjacencies, it's a better together story from a product perspective, but then they have relationships that we don't, we have relationships that they don't, we go together. So what we're doing is we're completely increasing the size of the pie and that's what's really interesting. So I think a great example is with Microsoft. Do you want to share that, Ashley?

Yes, I'm happy to. I mentioned it in my remarks. That one of the things that we're doing with Microsoft, specifically in the voice migration space, as we're targeting 500 strategic customers together. In some cases, Microsoft has that deep relationship. In some cases, we do. And when we find we have our assets plus their assets and the team's platform, combined with our services, we have the ability to expand that customer lifetime value on the voice side of the house by 1.8x greater than if they were a voice customer alone. So to Kate's point, our ability to go together extend reach in the C-suite for both partners, making us both more effective and also gives us access to each other's technology to win the solution with the customer.

Just to add to that, one other thing, Rapid Threat Defense, we've talked about. And -- yes.

We've got our own guests, right? We've got software solutions that when we combine with SASE and others, makes it a lot better, right? And now we vertically integrate into the network, which they can do on their own. So I think there's a synergy there that you should really think about.

Also the dynamic. So we did it with one partner. Everybody else called and wanted us to integrate our humans in theirs, too. Now I've got all their sales forces selling our stuff.

Voice is a great example of that I think. Yes.

Thanks, Greg. I think Dave Barden here in the front row is next.

Dave Barden from Bank of America. Thank you again for the presentation. Kate and team, nice to see you, meet you. I guess my question is for Chris. The equity story, as you and I have discussed, is really contingent on the credit story. And you showed this chart where you've got $9 billion in 2027 maturities. And in this midpoint free cash flow presentation for 2027, the team's collective view is $400 million a year in cash flow. Is that -- how do you kind of think about commencing the credit markets that $400 million is enough to get to a point where that $9 billion is refinanceable?

Yes. It's a great question, and it's that question, right? That's the exam question. The key is delivering on the projections that we put out today, I think, builds enormous credibility because delivering that, year 1, year 2, year 3 starts to build trust that ultimately, that big payoff, right? One, the pivot back to growth, which starts to put us in a very different track than where we've been. And quite frankly, where most of telecom is. And two, it positions us for the big cash flow moment, which is when were done with a significant build phase of Quantum and that $1 billion comes out. So I'm confident that in delivering against the projections we have here, we're having a very different conversation with debt ratings agencies and credit investors around our ability to perform and drive future cash flow based off of our ability to deliver this. And I think that's the key thing.

Mike Rollins right there, Mike?

Thanks for all the information and sharing all the detail. I'm curious just to learn more about the way you're looking at the revenue segments to perform over the multiyear period of time. So I think the growth CAGR, you're looking for is moving to 8% from like 6% year-over-year in the first quarter. And then the Harvest, Nurture, if I remember the numbers correctly, it's coming down like a 3% or 4% rate of decline average versus something that's closer to double digits on the first quarter. So if you can give us maybe some of the big pieces that drive the improvement in grow and the improvement in Nurture and Harvest? And within that, are there some customer numbers or penetration rates or things that we should think about in terms of how much of the improvement is customer-driven versus wallet driven?

I'll take a swing at it and then I'm sure Ashley and others want to jump in. But the key thing here is how we look at the value of a customer, right? And I think we were guilty. I think the industry is very guilty of this unspoken secret of don't talk to a legacy customer because they might wake up and go away, right? And so we're leaning into that. And it's not one size fits all. But there's a real opportunity for us to slow the churn by managing it, right? And getting them to the newer technologies where we can drive more growth overall. Typically, I think the way it's been handled is rerates, right? We're just going to rerate until they go away, and we're going to grab whatever we can. And while that's certainly a piece of this, you've got to look at but at a much more segmented level. I don't know that we're ready to give details around that because we don't want to tell our competition what we're up to. But I think Ashley and Jay can give some more color.

Let me talk a little bit about commercial productivity for a second, and then I'd love you to talk about some of the comp things that we've done perhaps from a sales perspective. Coming in, it was really interesting to look at how our customer success and our sales teams work together. And there was a tremendous opportunity for us to figure out how to be more productive and help brake span for one and other in all the right ways inside customer accounts. So one of the key things that Jay and I have been working on together, he mentioned the dollar thresholds. How do we ensure that customer success people go pursue deals that are below a certain dollar threshold to create capacity for sellers? But we're now also starting to look at that across the grow Nurture and Harvest buckets of products as well. Where you're going to see customer success folks creating more sand for sellers to go hunt proactively in that growth space, with customer success professionals really helping to carry that Harvest and Nurture bucket of products. So that we have better shared productivity across the organizations. And Jay and the team have done some interesting things from a comp perspective to ensure we're driving the right behavior.

Yes. I think when you pay sellers to go after and move customers to a certain product they do, that's different than waiting and being worried. So we are being preemptive. We're being more focused. And we also are taking data to our sellers in a fundamentally different way. So we've dissected VPN customers as an example. So we are starting to create enablement programs specifically designed for our VPN customers, the ones quite frankly, that are most at risk, that we want to proactively go to now with customer success and sellers when you combine that with a compensation plan, you do drive urgency in a new way, and we're starting to see some of those green shoots if that helps. Yes. Thanks for the question.

I think Nick is next?

Nick Del Deo with MoffettNathanson. You talked a lot about edge and security. Those seem to be 2 products that you're really trying to drive in the future. Any chance you can share what they contribute to the business today so we can put the lift that you're expecting in context? And then as it relates to security, it's probably a product area that a lot of us in the room are less familiar with than the edge side. So maybe talk a bit about what makes your security product different or better than peers and how you can do that.

Do you want to -- I mean, we don't disclose [indiscernible] by the products.

Yes. And look, I want to be really clear about something. We want to give you guys as much disclosure as we can. But I also don't want to tell our competitors what we're up to, right? We've already disclosed a lot more than our peer group. And so we've got to be careful with some of that. I think what we would all say is that the edge opportunity has been under-monetized today because that's a really good example of a great product that was built, and then we ask customers if they wanted some rather than really being customer focused and obsessed around where that has a use application, but...

And then either one of you can talk about security and what's different?

Yes. Do you want to start?

Yes, I'll start. Yes. So from a security perspective, what's different for us is that we have the network, and we've got visibility into the network. And I'll give a couple of examples. So DDoS. DDoS by its very nature is volume metric attacking against customers. The way you protect against that is by protecting in a very distributed protection mode in the core of the network, trying to protect against DDoS at the edge of the data center to the edge of the network, just gives another point for the network to get overwhelmed. So having the core of the network to do that protection is -- and the largest Internet network has an advantage. So we've got an advantage with stuff like that. Another huge advantage we talked about is the visibility we have because of that Internet network. We collect data of that network and we analyze it for threats. We identify who the bad actors are on the Internet. And we can block those threats. Again, in the core of the network but also push those out to the security products that we offer. We've integrated our Rapid Threat Defense capability into our SASE product portfolio. And that's what Kate and others talked about how we're able to take that intelligence that nobody else has and push it out into our products to better protect our customers. So those are just a couple of areas where we differentiate ourselves.

Yes. What I'd add is, look, it's not just about using AI and machine learning to understand what the threats are that are coming in. It's how do you rapidly -- it's a cat and mouse game, right? So how do you rapidly react to those threats? And we're really focused on that. And when you think about edge, right? you've got AI and machine learning. Kate talked about the Internet of Things, right? You're seeing a lot of these workloads start to appear at the edge. We work with the hyperscalers as well. And so there's some really interesting opportunities not just for security, but bringing those workloads on to our networks. And when you start thinking about 400-gig, you can start to do things that you couldn't do before. So I'll stop there, but there's a lot of opportunity out there.

And I would just say in terms of how we're changing our approach with our customers, if you think about Rapid Threat Defense as a bit of a framework with a methodology that includes human beings inside of Lumen, inside of Black Lotus Labs with specific products, we're actually bringing that to our customer. Jason Lich is our CISO. And so we're starting to engage, not in tactical like one-off products, we're starting to talk about what's your security roadmap look like? How are you thinking about your framework? How are you thinking about your methodology? What kind of skills do you have on staff right now? And what do you need from us? Because we're -- so as we start to bring that to our customers, not just dialogue, but a solution approach, it's changing from tactical transactions to much more, much more strategic conversations and quite frankly, partnerships. Thank you.

Matthew, you got somebody back there? Frank?

Great. Frank Louthan with Raymond James. Two questions on the IT side. With all the systems that you're eliminating, how long will that take? And are you changing or adjusting any billing systems with that? And then secondly, on the managed security, is there anything you need to build or buy to make yourselves a more significant player in that space.

I'll give until Friday on the system...

Kate's not known for her patience.

Welcome to our world.

How about now?

And intensity. So look, what I'd say is we've said, we committed that we would do this over the next few years. And obviously, I think a lot of this work will take us into '24 and then '25. There's work to be done when you decommission something, right? And then you've got to be really mindful about making sure that you don't disrupt your business. And so we're investing to do that. But we're also moving very aggressively, right? So we've already pitched the Board. They understand they know the investment that we're making. We've got a modern architecture, we know what we want to go do, and I shared some of that in terms of the data platform. So the way we think about that our architecturally is you've got our amazing network at the bottom. You've got that data infrastructure. And then really, technology is a means to an end, not an end in itself, right? So it's the value that we deliver to sales, to customer success in our operations is what really counts. And we're really focused on value creation, okay? And so what that means is that we don't fund things over 5 years anymore. In fact, we do it over a 3-month rolling period. And what we're actually doing is making sure that we're driving the value and creating the value that we expect. If we don't, we stop and we move on. So that's being really mindful of how we're spending our dollars. But we're moving very agilely and very quickly.

Yes. But then, I think it's important that I am terribly impatient. My husband would probably say the same. But what's most important is that you have value realization that starts, I think it was like 2 weeks ago. And there are continuous drops that all the functional leaders get to enjoy along the way. So it's a couple of years end-to-end, but it's all oriented around leveraging the enterprise architecture to deliver value in situ, which...

Yes, we're delivering this summer, so starting this month. We've already started delivering. We have a roadmap that takes us into Q3, Q4 and then into '24 and '25. So we've mapped out where we're going to go do.

I would just add quickly don't underestimate the impact of going in and literally stopping over half of your IT projects that are in the queue as well. So we have literally ceased activity on a number of the things that were in the pipeline that were consuming CapEx, OpEx, a lot of humans time, and that's allowed us to refocus and move faster. To your billing question, though, Frank, it's going to come in steps, right? So obviously, longer term, the vision is a more seamless digital journey for the customer. We're not going to get there overnight. There are some things that we're doing as part of our ERP that allow us to show more of a one invoice to the customer kind of approach without necessarily having all the plumbing fixed. Think of it as an overlay. So that's one of the first steps on that journey. And that's something that will be out in the next 18 months or so.

And I would add one more thing for mass market, which is millions of customers, we are already on a single platform for our prepaid for Quantum Fiber, and we will be on a single postpaid platform this year. So that conversion will be complete. So a lot of experience in doing massive billing migrations.

Okay. And on the managed security side, anything to build or buy there? Where do you feel you are with the capabilities you have?

Yes, I'll take that one. Yes, so we've got a managed security officer -- offer where we'll do managed services and professional services to help customers secure their environment. In that environment, there are tool sets that we have and that we continue to enhance that allow us to collect data from their environment, analyze that data using AI and other techniques, pre-actionable results from that analysis that then either our SOC engineers respond to or we notify to customers. In that environment, yes, there -- we're continuing to evolve that tool set. So we're continuing to develop it, but we do have a base tool set that we're working from.

Eric Luebchow?

Eric Luebchow from Wells Fargo. A couple on Quantum Fiber, if I could. I think you talked about 40% penetration. So maybe you could talk about kind of what goes in the algorithm in terms of your cost per home pass? Obviously, that looks like it's inching a little higher. How much of that is really due to just labor cost inflation, higher equipment costs versus a mix of more underground construction? And then what type of returns you are planning to underwrite to? It looks like you do have some room on your ARPUs over time, particularly as you get more customers migrating up to gigabit type services?

So I'll start with the range of the 1,000 to 1,500 per location. The reason we provide a range is because, as I said earlier, we plan to go deep in these dense urban markets and provide a tremendous amount of coverage. We obviously won't share those specific numbers for competitive reasons. And we know that there are certain supply chain challenges with labor and labor costs. And we are -- we have a very significant supply chain management practice within our finance organization because we're building in dense urban markets. We have tremendous scale. We were able to provide multiyear commitments to our major suppliers. And we're looking and are bringing in certain of the construction functions in-house, where we can be in control of what our labor cost are and provide the kind of capacity we need as we ramp the factory. I don't know if you want to add.

Yes. So we haven't disclosed rates of return for the project. I can tell you it's above our cost of capital even in today's environment, which is obviously critical. The reason we gave the wider range on construction is, that's exactly what we see. It's what I see crossing my desk. It's what Maxine sees crossing hers for approval. It depends on what market, what the conditions are. And in any given quarter year, you could see variability in the number. Now one of the things that we've been really clear on is I don't get too hung up on construction cost. I get more hung up on, is the penetration achievable and what does the ARPU opportunity look like? And I think we're in the more conservative grouping of companies when you look at those variables. The ARPU expectations that we've got, I think, are lower than a lot of our competitive set. And our ability to go capture the kind of penetration we're talking about, we think is very high because of where we're starting from, right? We're not driving a lot of cannibalization, obviously, with 12% copper penetration. So those things are the things that give us confidence. We continue to look at it. We're not going to build to market if we don't think that the return is there and we're disciplined about that.

And the reason we're comfortable with that range of cost to enable because we make it up on the back side because it's much more efficient as we go to market and as we market and advertise and sell and install by having that densification.

I think there's one up front here. I can't see you...

Brett Feldman with Goldman Sachs. I'm going to stick with the Fiber to the Home and just a couple of follow-up questions. So first, just for modeling purposes, how do you think about the variable cost of success? In other words, is there a cost to connect that we should be modeling once you win a location that has been enabled? Then to your point on ARPU, you talked about the conservative ARPU assumptions you're using. Your product is better than what your competitors offer. So what -- where do you need to be in this fiber investment cycle to maybe push pricing a little more to get paid for what the quality of the product really is? And then the last question is, what is your business plan assume for the outlook for your non-fiber markets? And are you considering any type of partnerships or other strategic approaches to managing those?

We'll probably go back and forth on this one. So pricing strategy is obviously strategy, right? What I would say and why I'm so confident in our ability to have upside in our ARPU is, today, we have about 12% of our market covered with fiber. We're going to -- that's going to significantly change over the coming years. And as we get more and more enablement in a market, more and more brand awareness, we have the ability to do different things with pricing and more around adding on other products and services like what we already offer today, the 360 in-home WiFi with superior WiFi coverage, more to come on that. And the security services, all wrapped together with a world-class, no one can compare to customer experience. So that's why I'm confident sitting here today that I believe that our go-to-market ARPU has some runway in it. We don't know what competitors are going to do. So we're going to have to watch it. We're going to have to watch it market by market. We're going to have to watch it year by year. But what I will tell you is in markets where we're over 40% enabled already -- so the take rates much quicker, and we have more pricing flexibility. So it varies market by market.

Yes. So on the cost to connect, we typically say a truck roll is a truck roll. But I would also say that scale begets scale, right? To the extent that we're hitting these markets in scale, and we're building them out efficiently, it allows Maxine to market at scale. It allows us to connect that scale. So those things, I think, will continue to drive improvement as we go forward. We have spent -- actually, both Maxine and Kate have spent a lot of time with the tech community on how we can do better. And there's some great stories in there and Kate could share a little more, just around things where we were getting in our own way, which ultimately was making that cost to connect inefficient, where there was multiple -- in some cases, multiple visits to the customer to get something hooked up because we were in our own way, and we've dealt with that. So we continue to make those improvements, and we feel good about that. As it relates to the copper markets or other investors, I mean the answer to that is, I think we've been really open about looking at opportunities where we think there is value to be extracted and we'll continue to do that. Now that said, I want to also be clear in saying that some of the value we were able to get, for example, out of the 20 state ILEC sale was the ability to capture some tax loss carryforwards, right? And that ultimately helps drive the return there. We're through that, right? So those tax loss have been consumed. And so now the bar goes up. Now those markets, those remaining markets are better performing markets and more stable. Yes, they're in decline, but the EBITDA is generally more stable than what we sold off. So we feel pretty good about that.

Then we have one from Ana.

It's Ana Goshko from Bank of America. So just a quick follow-up on the question. So other than the copper markets, is there anything now in the portfolio of the business that's considered potentially noncore? And then Lumen's history really is a history of consolidation. Is potential consolidation on the network side or within the industry, something that's kind of on your radar screen or that you think about as potential?

Sure. So I would say that on any additional divestitures, I'm sure there'll be things that we prune, but don't think of it in terms of major markets or big things. It's more fine-tuning at this point and probably more around product as an example. I don't want to go further than that at this point. And sorry, the second question -- sorry, more -- the answer is never say never, but that's really not the focus of today, right? We're not assuming that more network consolidation is what's going to ultimately carry us there. If the right opportunity is there, then we'd look at it. It's our responsibility to look at it. But what we see as the bigger opportunity is expanding. If I go back to Kate, I forget which chart it was, but the chart -- the stacked bar chart, right? So much of what this industry talks about are those 2 bars at the bottom, legacy voice and VPN that are declining. And we end up in a circular conversation talking about those 2 LEGO bricks rather than everything else above it. And that's really the focus of today because that's where we think the bigger opportunity is.

Right. We're good stewards of capital. We're going to deploy it where we can get the highest return. Right now, making both of these business as mass market and business healthy and getting to grow is the primary focus. But that doesn't mean we won't consider all the alternatives every day.

We've got time for just 2 more.

David Hamburger from Morgan Stanley. You talked about building credibility in the credit markets. I think a lot of credit investors would like to hear a little bit about Level 3's balance sheet. And earlier this year, you did a debt exchange using Level 3's balance sheet to refinance the majority of the proceeds, I think, were used to refinance debt that matures in 2028 and beyond. You do have $11-plus billion of debt that matures between now in 2027. Can you talk a little bit about how that balance sheet, how you utilize balance sheet and debt incurrence at Level 3 to rebuy those maturities and maybe the thought process a little bit about the debt exchange? Albeit we know there was -- you captured discount, we're able to reduce additional debt. But when you think about front-end maturities and the heavy lift between now and 2027, how you plan to approach that?

Sure. So today, we probably won't get too technical on the debt side around silos and whatnot. I'm happy to have some follow-up conversations on that. Really, if you think about the debt exchange, and this is a very high-level statement. We viewed it actually as a win-win, right? Because it allowed Lumen to capitalize on some discount and delever. And in return, collectively, that investors got more return than they were getting on a dollar basis because of the coupon rate that we gave and with more security. So that was a unique opportunity that we thought was the right thing to do, and that's why we did it. As we go forward, if you think about the chart that I showed, obviously, we talked about the EMEA proceeds being used for debt repay down. It's no secret that the revolver is something that matures in 2025, and that's obviously something that we've got to be talking about and we'll be talking about. Beyond that, there's obviously a lot of different things that we could do. Too early to really talk about those as we're evaluating them. But the goal here is to make sure that investors broadly, right? Are earning good returns whereas to Kate's point, we're stewards of the capital. And so we'll look at that in a very balanced way and keep you guys informed as we go forward.

Last question is from the back, Tom?

Tom Egan, JPMorgan. Two questions, two parts. First is, when I look at the revenue that you put forth, it shows a nice growth rate. But in talking with many of your peers, it looks like when they migrate enterprise customers from legacy services to newer software-defined and cloud-based services. But generally speaking, the price per unit of capacity goes down significantly. So I wondered if you could talk a little bit about what you're -- if you're seeing that too and what you're doing differently if you are seeing that to cause the revenue to rise? And then the second part is, when you're looking at your growth categories, some of that, I assume, is just natural movement of your customers from older services to newer services because they grow out of older services or maybe on their own migrate from the legacy services. So what -- I saw you had some pretty conservative growth rates in there. But what's the right growth rate to think about ex the migration of your existing customers to the newer growth services?

So let's do the first one first. And Ashley, can you talk about the walk to customer lifetime value improvement without disclosing too many of our proprietary tricks. Because we think the way that our competitors think about the market is a huge advantage.

Yes -- and I think it goes back to the LEGO bricks that Chris talked about around what is core versus how we're defining our company and our business moving forward. So if you think about VPN as an example on the VPN migration, the example that I offered earlier was a migration where we were going from VPN bundling it with security solutions like SASE that are growing at 20-plus percent. Because of the security threats that exist in the market, every single person in the C-suite is thinking about it, they're trying to figure out how to combat it. So part of the sales motion that Jay and I have worked on together is how we go out and we surgically target with partners. Every single VPN customer with a migration opportunity that is inclusive of SASE. So I think part of the net differentiation that you're seeing is in a motion that we've defined in that migration solution. Jay, is there anything you want to add?

I would say the mindset is fundamentally different, right? We were concerned about opening that door. Now we have a variety of options to include renewals. Renewal is not a bad thing. We keep them. And if they want to move to DIA and SASE, we help them do that. So rather than waiting, we are proactively engaging, and we're excited about everything from renewal to retain right now and then strategically work with them to buy additional capabilities to get them to their digital roadmap in the future.

And what these 2 just described is the difference between playing to win, which is what we're doing versus playing not to lose, which is what we used to do.

That's right.

Yes.

Okay. You had a second question and I think Chris going to answer.

We hear the same thing a lot, right? And that's, I think, one of the messaging things that we have to overcome as it relates to what our competitors are saying. What is the truth? Is that if you go from a legacy product to its exact product replacement is you're very likely to get margin dilution? The issue is, and it goes back to the customer lifetime value data that we shared earlier today is, that's not what we're interested in selling. We're interested in selling the complete solution around that. That could involve DIA, Wave, SASE, for example, if you're moving to -- from voice to a UC&C application because it's going to work better. So it's about selling the full solution to the customer and looking at it through that lens, that's how we maintain the margins.

Great. With that, we're going to wrap. Thank you so much for joining us. As I said, if we could just leave 5 minutes sitting down from the leadership team to make their way up, and then we'll continue upstairs. Thank you.

Thank you.

Thanks.