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

All right. Welcome back from lunch, everybody. Thanks for joining us. While people kind of filter in, but we'll get started to stay on time. Thank you so much. I'm Dave Barden. I head up telecommunications and comm infrastructure research for Bank of America here in New York for the U.S. and Canada. I'm really pleased to welcome Lumen back to the Bank of America Communications Media Entertainment Conference in 2023. Again, Chris Stansbury, Executive Vice President and CFO, is with us today. Thank you for joining us, Chris.

Thanks, David. Good to be here.

Do you have to do any safe harbor stuff?

It's available on our website.

That's right.

So people can go read that because otherwise it would take 17 minutes of the 35.

For those of you at home, that was Mike McCormack from the audience.

So I guess I have to start with this question. I've been -- we have to talk about it with all the wireline companies. What's the deal with the lead situation now?

Yes. We feel we're in pretty good shape on that. The -- we disclosed on our Q2 call that the amount of our copper network that was lead sheathed was under 5%. It is under 5%. We -- like a lot of companies, getting to that precise inventory number is challenging, but...

Roughly what mileage is that? Do we know?

Yes, of 700,000 -- 5% of the 700,000. And the reality is majority of that is subterranean or conduit-based. And so our view on the whole thing is this has to play itself out. We obviously take employee and community safety seriously. We've actually had, over the years, very, very few medical claims. So I think there's good evidence there that it hasn't been an issue. But ultimately, as we work with the various authorities that will investigate, we're happy to obviously participate in that, and we'll see where it ends up. But I think there's a real debate as to whether things that are subterranean should even be disturbed at this point. So we'll see where that goes. But it will take years to figure out, and again, with the divestitures that we've done, the amount of the footprint that's impacted is quite small.

So just for the sake of argument, I was asking Verizon and AT&T the same kind of question. Verizon's put some of the EPA and New York State analysis on their website for people to come in and take a look and see that everything seems to be in compliance with applicable laws and regulations and such. I think AT&T said that they've done the same thing. Are you -- is there a place where people can go to kind of see what...

That's a good question. I don't know if we have done that. We can certainly follow up on it. But again, it's -- for us, it's a much smaller impact than some of the other players, so...

Have you reached out to the EPA? Or have they reached out to you to kind of talk more about it?

So we've been engaged where they've had questions, but we're at early stages, so...

Okay. And the second kind of headline would be that a bondholder group has formed. They have one interpretation of a particular covenant related to use of proceeds from the LATAM sale going towards unsecured debt repurchase, which was a value accretive action for Lumen to take. I won't get into it. I don't think people need to kind of get into the very specifics of it. But I think what -- the existence of this smaller group has attracted a larger group, and it's created an opportunity for Lumen to engage with the bond market on conversations that could be win-win or could be a nothingburger. Where are we in that process right now?

Yes. Sure. It's, so first of all, we -- when all this started to boil up, we went back. I didn't -- none of us wanted to just rely on internal viewpoints. We actually engaged an outside party. We worked with Wachtell Lipton, who tore everything apart. And the conclusion we came to is we are in compliance and there is no breach. That said, we are where we are. So as long as there's noise in the market, it doesn't benefit anybody, it doesn't benefit the bondholders. It doesn't benefit us. So the group is formed. We have been quite clear, we said set it on the Q2 earnings call and we've said it since, that this is an opportunity. So rather than moving through the playbook that we have, dealing with the 27 maturities in particular and everything between now and then, and doing that over a multistep process versus taking the opportunity to work with the group and hopefully deal with this in a bigger bite, that's the opportunity. And so now for that to work, you need an outcome that deals with the entirety of the debt structure, and the good news is there's a lot of cross holding within that group. So that's good. It's obviously got to be at a cost that's reasonable and it's got to give us the flexibility to continue to fund the turnaround that we're well underway on. So those are our guardrails. And I would say so far, the conversations have been constructive, but it is early.

So I guess I'm a dumb equity guy when it comes to topics like this. I've got much more smarter colleagues like Ana Goshko and [indiscernible] who I ask how this stuff works. But for me, what it seems like is all the bondholders, whoever comes to the table to be a part of these negotiations is going to be greedy in their own little bucket. They're going to want more higher rates or greater security or a combination of those 2 things. And there's a finite amount of stuff to go around, and it's like, I think, $100 million of free cash flow. There's really not that much meat on the bone to kind of hand out to incentivize people. So what -- how could this really work?

It's a good question because you're right. And there's so many different variables. I don't want to try to predict what an outcome would look like, but certainly, higher coupon is a risk. And I think part of what we need to be really clear on is that at Investor Day, we did incorporate into our model higher coupon, but as debt matured. So yes, there's exposure, but there's really exposure between the time an agreement is reached and when that debt would have ultimately matured. So it's a window we're talking about. From our standpoint, the most important, and I think it's a big reason why we're even having the conversation, is performance. And it is about executing against the turnaround. I think we're making great progress on that. It's going to take a while for that to show up in the numbers, and we can talk about that in our time today, but that's where we have to stay focused. And the feedback that we've broadly gotten from investors is if there's a trade-off to be made, managing to free cash flow neutral, and delaying -- if there is higher coupon, delaying that recovery or maybe going a little bit free cash flow negative, and staying on track to get to turnaround, it's choice B. That's what we consistently hear. Now that's got a whole bunch of assumptions in it because what will the outcome be from a negotiation? It also assumes that all other things are equal. And I will tell you that we're hard at work trying to see if we can move faster on things like productivity. And so I don't have answers on that yet. But ultimately, by the time we get to the other end of this, we'll have clarity on some of those other things and can provide a complete picture as to what some kind of a net impact would look like. But we're a long way from that.

I guess what I'm hearing would be that if there were a way to maybe like take a big chunk of 27 off the table, it might be worth being free cash flow negative in a short amount of time while continuing to progress on all the transformation initiatives because that would just be the right answer.

That's a possibility.

Right. An answer, not the answer.

Exactly. And again, there's just so many outcomes to this. But -- and we're not in a position where we have to do something now. It really is looking at this opportunistically. And again, so far, the conversations have been constructive. It is early, so I don't want to suggest that we're close to an agreement because we're not. But I would say that both sides have been very constructive in the dialogue so far, and that's good.

Fair to say you're not as reported weeks away, maybe more like months away?

Yes. I don't quite know where the weeks away came from. It's -- this is not a quick process. I think we all know that.

Got it. So let me start here, which is in the first half of the year, you're run rating at a $5 billion adjusted EBITDA number. Your guidance midpoint is $4.7 billion. At the very beginning of the year, when that $4.7 billion got announced, it surprised people that how conservative it was. As a matter of fact, it was so conservative that people felt you might be BS-ing a little bit. And so as we look into the second half, are you BS-ing us? Or if not, what, in fact, is going to change between the first half and the second half when it comes to the EBITDA line?

So we're not BS-ing you. Kate and I -- obviously, Kate's newer to the scene than me, but when I came in, I made it very clear that we were going to be as transparent as we could. And transparency is an easy definition in our minds. It's we're going to tell you what we can tell you when we can tell you, right? And that's all of it. The reason why we're running hotter in the beginning part of the year, if you annualize that, is a lot of the investments that we are making to turn the company around really started to hit in the second half. So by way of example, and there are many, right after Investor Day, we finally got our voice migration team staffed, okay? That wasn't in run rate in the first half. It's fully in run rate in the second half. And again, that's one of many things. We're doing, obviously, work around mid-markets, we're doing work around VPN catch. So that's why. And the good news is that, look, we knew we had to do a better job of stemming the declines on legacy products. That was the problem that needed to be solved. We didn't have all the answers at Investor Day as to how that was going to happen. Obviously, a new management team on board. I would tell you today, we do know how we need to execute against that. The factory has been built. Now we have to focus on scale, and we'll continue to improve. But that's really why. We're going to see more OpEx in the second half as a result. Now what I have said recently, and I think this is fair, is because we're making a lot of investments, CapEx and OpEx, right now, and because we remain focused on productivity, I think we're getting close. And again, we're not -- we haven't given any guidance, firm guidance, for next year beyond Investor Day, and I think that's still good guidance. But I think we're getting to the point where we're pretty much nearing peak OpEx run rate. Because from here, we should start to see operational benefits and productivity that we can get out of the organization as we fix things like operations, for example. So hopefully, we're, in the second half, nearing a point where we're close to full load.

So I guess that was -- I guess maybe a follow-up question for -- as we kind of think about the exit rate from '23 into '24 from a cost standpoint, we might be at that kind of run rate, and then whatever kind of residual revenue pressure in '24 to get to the growth in the end part of 2025, which is the core plan.

Yes. And that's what we laid out at Investor Day is that we -- to get to growth, you've got to stop declining. And we said we'd get to growth in '25, which by default means we will see further declines in '24. But we should, late this year, early next year, start to see a decline in the deceleration rate, right? So you see -- because that's the only way you get to growth. And so as we -- the focus is really on getting the core business stabilized through the actions I just talked about, things like voice migration, VPN migration. It's about executing and building an execution engine. Think about that as new pipeline, new customers, new products being sold into customers. And then it's about innovating for growth, and that's things like NaaS and ExaSwitch.

So kind of the way I'm thinking about it is that there's kind of a front of the house and a back of the house initiative. And the front of the house, where I think churn and gross adds are almost kind of linked because what I think the plan is, is to kind of take these legacy products, and instead of pretending like they're not legacy, accept that they are and then try to manage those people into new products. So let's -- these new expenses, let's start with what are we spending the money on that's causing expenses to go up? And then let's start talk about what those expenses are supposed to do from a top line perspective?

Yes. A lot of it surrounds people. So things like voice migration, there's internal people we've hired who are dedicated to that motion. And what we've done with that team is we're using AI model. So we're immediately -- right, as we stood that team up, collecting data on what's working with customers, what's not working with customers. And it's refining the offer on the fly. And so we've been tracking metrics weekly. We'll start to disclose more around that because part of it is what are the right metrics, right, to share. But there's a lot of measurement around that so that we know we're making progress. And the good news is we are making progress.

What's the name of the product, the sales product, that you're putting?

So the it's legacy voice, and it's going to more modern solutions, but it could be a number of different things, right? So it could be a VoIP solution. It could be something that's more Teams or Zoom-based, but it's not about a one for one. Because one for one, we -- obviously, we lose, right? We go from very high margin, great cash, to lower margin. It's about selling the bundle around connectivity, security that goes with that solution. And that, I think, we've done a really good job of refining. The key next step, and it's the big one, is scaling it. And so that's where we turn our focus to with voice. The learnings on voice we're now applying to VPN, that's a trickier one. It's more complex to execute against. But again, I think we've got some really good information there, and we should get to scale quickly. Part of the people is also external, right? We have brought in third-party help, consultants, to help focus on specific areas to get us to speed more quickly. That's not going to stick around, but I would expect that next year there's less consulting dollars and more internal labor focused on those initiatives as we go forward. And then as we move through time, when we stand up new ERP, we address a lot of the IT issues that exist in operations. There'll be opportunities for more efficiency as we go forward. So again, I think that's why we get close to peak as we exit this year.

So I think the plan kind of has two parts, right? It's go to the legacy services, kind of evolve them into a new platform or product suite, and then the second is kind of go get new customers with new products in the business. And I think that when Kate came in -- but what I heard was really that the business had been focused very much on the network for a long time. Jeff, you used to talk about the latency and all these things that we take -- so now we start with that and then she wants to kind of layer these capabilities on top of it. You give more arrows in the quiver for the sales force. And so this is the thing I've been struggling with a little bit on that piece of it, which is that in order to add capabilities to your quiver, you can do a couple of things. You can try to develop them internally. That hasn't necessarily worked historically well. You can try to acquire them. That hasn't necessarily historically worked very well. Or you can buy them from others and those others tend to take the lion's share, the value out of it, so it doesn't really do you a lot of good from a margin standpoint. And for all those reasons, guys like AT&T have said, "I don't want to do services anywhere. I just want to do the connectivity," and you're going in the opposite direction. So can you kind of explain that? Why is that the right direction to go?

Yes. And it is the exam question. And so I think spending some time on that is a good idea. There's a few layers to it. The key thing is, first of all, as it relates to partners, partners increase the size of the ecosystem. They increase the points of connectivity. They expand the footprint that we can play in. And so leveraging partners across enterprise, I think, is a critical piece of the strategy, and you'll see us continue to do that. But as it relates more specifically to product, you're right. The focus was on the network. And by the way, we would refer to the network as our proprietary gift. That network is enormously valuable. It would cost a fortune to replicate that network. 6 million miles of 400 gig waves and another 6 million to come. I mean that's really valuable stuff. In a world where we see -- and just listen to what the hyperscalers are saying. The tidal wave of an explosion in the amount of data is here now, right? GenAI is an example. So we play very well in that given the low latency, high efficiency, high reliability network that we have. That's a good thing. But if it stopped there, if that was the end of the story, then ultimately that gets commoditized, and we're not interested in that. We'll continue to participate in waves, and -- it's a big part of our growth story. It's part of our grow bucket, but where there's unique ability is to make the consumption of the network easier. So that's where NaaS and ExaSwitch come in. No one has ever said, including an enterprise -- none of us say it as consumers, but enterprise has never said they love their telecom company. And so we do have a network today as we've been building out those waves where we have enabled along the way the way NaaS-enabled ports. So we don't need to do a bunch of truck rolls today to allow a customer to access Network as a Service. We can give them their inventory and say, these are all the NaaS-enabled ports on your network today, and it's giving them the dashboard so they can self-provision, which is wildly efficient for us. They can turn up, turn down, move, and ExaSwitch enables a lot of that movement.

And just for the second, can you explain ExaSwitch?

Yes. So, and because I'm a layperson, that's all I can give you. It's an optical switch, and we have IP around that optical switch to use within telecom. All it does is it reroutes simply a light signal from one direction to another direction. Why is that important? Because when coupled with NaaS, it puts the power in the user's hand to move massive data workloads quickly. And so this was done in conjunction with the hyperscalers, and the reason it was done is because they need to move data around the system. It's wildly efficient. No one else has that IP. So part of it is that. On the core -- and by the way, there's other products and services that can come behind that, because we built, as you know, edge of network compute, low latency, turn it on, turn it off. This is how users can finally access that easily and efficiently. So it's an unlock. On the core business, there's also assets we never monetize. So Black Lotus Labs is an asset that Lumen bought years ago. The U.S. government and governments around the world rely on that asset. They are based in the Valley. They've got a deep, deep algorithms around identifying new threat vectors in the Internet. And we see most of the world's Internet traffic because of the peering relationships we have and the size of our footprint. So that's something we can charge for. So you think about moving from VPN to SD-WAN and SASE, the question we get asked is, oh, so now you're reselling something, right? Isn't that lower margin? Well, it is, until you layer a bundle around it with connectivity, which is enormously valuable. But now let's put Black Lotus Labs on top of that. Because the value prop for a CIO is Black Lotus Labs will now automatically populate those SD-WAN and SASE devices with blocks as they identify those threats rather than the CIO in the enterprise having to have their own internal team that's populating those devices with blocks manually. So there's capabilities we have. There's more that we can add. So the core is about execution and leveraging some of those tools, NaaS, ExaSwitch, edge fabric and security that follows is really, I would say, more the disruptive side, and that's where we think we can change the rules. It's about the cloudification of telecom. Pay by the drink.

So one of your competitors was here yesterday and was making the argument that your move into services is essentially, at the same time, creating an opportunity for your competitors who do focus on connectivity to bring that to market, that you're distracted, or kind of exiting some of the more basic connectivity parts of the market. Specifically wavelengths, I think, was mentioned. Can you kind of elaborate on whether that's true or not?

It's not true. In fact, there was a number of mistruths spoken yesterday.

Fighting words.

And look at -- that company spends a lot of time talking about us. We don't spend much time talking about them because we don't bump into them. I think there's value to a subset of customers and what they're doing. The waves that they're selling today is based on product that we are pulling out of the ground as fast as we can pull it out of the ground. We've got 6 million miles of 400 gig waves in the ground today. If not the biggest in the world, certainly right up there. It's a critical part of our growth strategy. It is in our grow bucket, contrary to what was said yesterday. It's a key piece of what we sell. We are not abandoning the sale of connectivity. We are a major player in that game. The biggest users of data are relying on us to transport that because they need the speed and the reliability that only that product can bring. What we're talking about is that and the services that allow the consumption of that to be easier. So there's a real share-taking opportunity if we get this right, because we do have customers enabled today. There was a comment also made that while we've got to do a bunch of truck rolls to make NaaS work, no, we don't. As we've been rolling out those waves, we've been enabling ports along the way. So we're already a long way through that journey. So I guess I would encourage investors that if they've got questions about what Lumen is offering to the market and what our strategy is, you rely on us, not somebody else.

Okay. So let's talk a little bit about the grow bucket to start, and then maybe we'll kind of shift gears a little bit. But just for the sake of argument, is the wavelength market growing?

Yes.

What rate is the market growing at?

Okay, you got me on that one, because I don't know off the top of my head. But if you go back to Investor Day, there's a bar chart in those materials where we showed what was growing, what was declining, and waves is definitely a big piece of the growth.

Is it -- so I guess my question was more along the lines of are you so large in the wavelength market that you can only grow if the market's growing? Is there places for you to take share in the wavelength market?

There's huge opportunities to take share because, as we said, we put 6 million miles to 400 gig waves in the ground. There's 6 million miles more to go. We're not doing that as a science project. We're doing it because large enterprise hyperscalers are demanding it. It's the only way we're going to be able to transport the data loads that are here now and only going to explode from here. The way we take share is by having that infrastructure. But again, putting the power in the user's hands on how to access that network, how to turn it up, turn it down at 3:00 in the morning, I can move data loads from A to B, I don't need trucks to roll, I can do it myself, that's something that telecom has not executed against in the past. We do have IP around it, and we're going to go big. So it's going to take a little while to scale. There's customers that are rolling in each quarter. We'll talk about that as we go forward, but it's real.

And I guess the whole argument -- a large part of the argument would be that most of that market is 10 to 100 gigs. We're moving to 400 gig at the margin, which is about twice as lucrative as the 100-gig market on a dollars per wave basis. And so that whole market could re-rate upward, I guess. So that's an attractive opportunity in the growth bucket. And then what are the next two biggest opportunities in the grow bucket?

I would say that the security, unquestionably. I mean we're in a world where there's no secret that security continues to be an issue, particularly in the network, around the network. We have great security product today. We will continue to invest in proprietary security tools.

How much money does Black Lotus make, revenue-wise?

We haven't disclosed that. But what I will tell you is it's underutilized. It's low, because we haven't charged for it, right? We have this great asset. We never monetized that. And so therein lies the opportunity. And that can be a feeder to bigger things.

It could be a calling card for a lot of new stuff.

Yes. And I'd say that it's not necessarily one product, David, but the combination of edge, ExaSwitch and NaaS created different experience for the user, where it's not just about transport. It's not just about speed of transport. It's also about compute because, as you know, right, one of those other things that we built thinking that people would come and they didn't was the edge of network platform. It's there. It exists. This is a pathway to consuming it. So I would say that that's the other really big opportunity for us in the grow bucket.

We used to call it bandwidth on demand. Do you still do that?

I mean I guess it's effectively the same, but this is actually real because it's not about, as I said, having to do truck rolls. It's putting the power in the user's hands.

Okay. Cool. Maybe switch gears a little bit to the mass market business. We've had this conversation before. Why bother, right? I mean you're spending $1 billion. When you're putting 1 million homes past for $1 billion and it's consuming all this capital and arguably, the return on putting that money in the enterprise market would be higher, faster, better. So why bother?

So first of all, agree with everything you said in terms of kind of dollars spent here or there. Look, we have a great opportunity to monetize the consumer network. The only way that really gets monetized is if there's fiber in the ground. And I think if you look to...

When you say monetized, what do you mean exactly?

It can take any one of a number of paths. There's a lot more EBITDA to be generated from the consumer business.

With fiber.

But that comes with fiber. We've only got 10% market penetration because it was ignored for years. And we have markets. We have good markets where we have operations on the ground, which is critical to obviously getting subscriber growth. So there's an opportunity there. The void will be filled. I think the overbuilder syndrome is behind us because...

When you say they [indiscernible], like AT&T, specifically?

Others will enter those markets if somebody doesn't fill it with fiber because consumers want fiber. So that's the opportunity. And when you look at what one of our major competitors did with the securitization offering, you look at the underlying valuation of asset. It was high. You're exactly right. The return profile of that business is fundamentally different. It takes longer to get to pay back, it's a very long-lived asset, whereas in enterprise, you're looking at 3- to 5-year life cycles, right, but much higher returns near term. So to get to that EBITDA, whether we keep it, whether we partner with somebody, whether we sell it, who knows. That will get answered in time. But the only way we get there is fiber in the ground. So what I would say is this. We're committed to the build-out plan that we laid out at Investor Day. But if I have an incremental dollar, if Kate has an incremental dollar, it's going into enterprise. It's not going into another fiber enablement to speed that up. We're going to stay on pace with the consumer fiber plan and every extra dollar we have is going into enterprise because that's where we see the most disruptive opportunity and the thing that will drive differentiated returns.

Do you look at the AT&T BlackRock Gigapower partnership, maybe the coming BEAD, and all the people that are going to come out of the woodwork to take advantage of that, is that an existential threat to this business or more of at the margin?

It's not a threat. It's at the margin. The reality is when you look at footprints, there's really not a lot of overlap. Our competition is cable pretty much in every market that we're in where we're investing in fiber. I think what's interesting about those things are, there's so many different constructs that have existed on how to finance that build, and all of those are things that we continue to evaluate, including ABS as an option.

We had -- so we've had this conversation actually with all the wireless companies and all the cable companies, and it's about the importance of putting mobile and broadband and wireline broadband together. And people are kind of wondering if cable can really make money in mobile and people are wondering if cable being in the mobile industry is like an existential threat to the wireless business. And you're kind of in a unique spot. You're a very large wireline broadband player. You're making these large investments in fiber. Is there any part of you that wonders if you're at a deficit, irrespective of having fiber versus coax? If they can bring a mobile component, are you at a disadvantage?

Today, no. We don't believe we are. We continue to evaluate that. We've got a great scoring product in Quantum. And by the way, last week, a couple of months ahead of schedule, we're now only selling Quantum Fiber in the market. CenturyLink Fiber is no more. So that's a big deal. We can scale marketing now. Look, the reality is we'll continue to evaluate it. I do think nearer in, when we look at the 16 states where we still have a copper business, we know that's in decline. I think there's a possibility perhaps for some kind of a partnership around fixed wireless getting to some of those locations. That could be something that we look at in time. Broader wireless needing to bundle for -- in fiber markets to drive consumption, we're not there yet. So we'll continue to look at it. We keep looking at it, but...

Okay. And just with respect to kind of the -- so then the fiber overbuild, A lot of, for instance, what we're watching happen at AT&T, for instance, is that it's more about recycling the copper customer at a 15% to 20% higher ARPU as opposed to maybe really kind of winning major share because there obviously hasn't been a lot of switching. Cable companies complained about this too. When you're kind of making these strides in fiber, how is it coming to you as an add?

Well, I mean, this is the good news of not having invested in the business for a year and ending up with 10% market share, right? Everything is upside. And arguably, when we talk about 10% market share, that's across the whole footprint. I think in the metro areas where we're building fiber, we're very low. So the -- with a product that fights very well, has very high NPS scores, again, prepaid, no contract, you can turn it up, turn it down, all taxes and fees included, and a fully digital experience where you can scale up and scale down through your phone, we think we play very well. So our assumptions on penetration, we think, are very achievable. We'll obviously continue to measure that. We've taken up our entry price point from $65 to $75, and so we'll continue to look for opportunities there as well. But it's playing very well.

How does that $75 compared to the back book of the copper broadband business right now?

I think our average ARPU across the whole system is probably, I don't know, the mid-60s. We do disclose what the average ARPU is. I just can't remember off the top of my head, but it's lower than that. So this is definitely an uptick. Now that's obviously for gig, symmetrical gig, but there's an opportunity there. Where we have weakness, remember, those are lower in copper. Those are lower data consumptions. It's a much lower demand for capacity, and that's why there may be other options that better serve those markets, and we'll look at opportunities there.

I guess my last question on that was in the prior regime, the pullback in fiber was more a function of trying to be as targeted into, say, the new housing developments or the MDUs as you possibly could be, but you made a point earlier about the kind of markets that you're in, the great markets that you're in. Tacoma and Seattle and Minneapolis and Las Vegas and Denver and all these other markets. Is that another focus? This is kind of an urban fiber.

It really is. So there's 6 major metros. You rattled off most of them. And I would add Florida to that just as a market because obviously, we still have that. But these are dense, growing markets where there is a demand for fiber and there is a demand for the symmetrical nature of fiber. And that's why we're focused on it. This isn't about building fiber to every place we have copper today in those 16 states, because in a lot of places, it just doesn't make sense.

And just my last question on that is, so is the cost for deployment still in that kind of $1,000, $1,100 type of...

Yes, we gave a range, a broad range, at Investor Day. Part of it is because of inflation. That's more than offset by the pricing that I just talked about. The bigger issue is, if we're in Florida, we're building in sand. If we're in Seattle, we're building in rock. And so depending on where we're building that year, where we're getting permits sooner than other places, it will fluctuate around. Again, given the very long life of this product, that's really far less sensitive on the IRR. It's really about the penetration of the ARPU.

So I guess just wrapping it up then, coming off the Analyst Day, it's been about 3 months. We're going to have the quarter reporting coming up. Fair to say that you're satisfied that the plan is unfolding as expected, even though there were pieces of it that you might have not known what were they were supposed to look like when you told us what the plan was?

Yes. Well, I'll refer back to a tweet that Tom Brady sent to Deion Sanders' son after they beat TCU. "Don't be satisfied." So we're not satisfied. I would tell you that we're on track. We're never satisfied. We've got to stay aggressive. It's really about now that things are starting, we're getting them to scale. So as we said at the end of Q2, I don't think you're going to see a big trajectory change in Q3. It doesn't come that fast. But we should start to see those sequential improvements as we go into next year, because that's the only way we get to grow. So it's about getting to scale. But I would tell you this. I answered a question last week at another conference. A year ago, when I was at your conference, behind the curtain, I was having conversations about eliminating the dividend. And we had nice values on the debt. We had a $10, $11 stock price. I wouldn't trade that for where we are today in a minute. The valuations I don't like right now, we're not satisfied with those valuations, but this management team, what they've accomplished in the 9 months since Kate's been there, it's absolutely staggering, and I know it's going to yield results. So more to come.

Great spot to leave it. Thank you so much, Chris. Really appreciate you being here.

Thank you. Yes. Appreciate it.

Thank you everybody for being a part of it. Appreciate it.