Lumen Technologies, Inc. Q4 FY2024 earnings call

• Strengthened financial position with $1.6 billion debt reduction in 2024 and redemption notices for another $200 million. - Established as trusted network for AI with $8.5 billion in PCF closed sales with big tech companies. - Made progress in corporate functions: improved customer sat scores, delivered large private network projects, 15%+ sales growth in North American enterprise channels, marketing evangelized fiber networking, delivered unified network architecture, embedded play-to-win culture, and Mass Markets Quantum Fiber team had growth in fiber net adds while reducing expenses.

Total reported revenue declined 5.3% to $3.329 billion. Business segment revenue declined 5.1% to $2.659 billion. North American enterprise sales were up over 15% in 2024. Grow products revenue in North American enterprise channels increased 15.3% year-over-year, representing over 47% of North America enterprise revenue. Nurture products revenue decreased 16.2% year-over-year, and Harvest products revenue decreased 7.3% year-over-year. Mass Markets segment revenue declined 6.3% to $670 million. Fiber broadband revenue grew 18.9% year-over-year, and Lumen added 105,000 fiber homes passed and 42,000 Quantum Fiber customers during the quarter.

• 2025 EBITDA guidance: $3.2 billion to $3.4 billion. - 2025 free cash flow guidance: $700 million to $900 million. - Anticipate 2026 EBITDA to be greater than $3.5 billion with growth in future years. - 2025 total capital expenditures expected in range of $4.1 billion to $4.3 billion.

• Re-rating in the wholesale TDM space from select smaller off-net connectivity providers could impact public sector revenue in the first half of 2025. - Legacy networks not built for multi-cloud world pose challenges for enterprise connectivity. - Potential near-term risks of massive scalable AI causing hyperscalers to rethink plans, though no pause seen yet.

Q: Michael Rollins asked about North American enterprise sales progress in verticals like large enterprise and mid-markets and the recurrence of wholesale Harvest and Grow product revenue.

A: Chris Stansbury mentioned Grow product revenue is nearly half of sales, and the quarter was positively impacted by the State of California PCF initiative, with focus on customer experience and Grow products going forward.

Q: Sebastiano Petti asked about top-line dynamics, public sector, and revenue inflection.

A: Chris Stansbury said revenue inflection is expected in 2028-2029 window, with market declines against Nurture and Harvest buckets and growth in IP and waves, and public sector is challenging with disconnects in first half but team focused on growth.

Q: Batya Levi asked about network utilization assumptions and incremental costs for 2025.

A: Chris Stansbury said no new PCF deals assumed in EBITDA or free cash flow, and Kate Johnson explained utilization chart relates to fiber miles and capacity/innovation. Chris also detailed $200 million incremental cost in EBITDA guide and $300 million special items not included.

Q: David Barden asked about free cash flow, PCF deals, and fiber financing.

A: Chris Stansbury said no new PCF deals assumed in guidance, and fiber financing is on B list of priorities versus A list. Kate Johnson mentioned no new PCF deals assumed in current guidance.

Q: Jim Schneider asked about DeepSeek announcement and PCF market competition.

A: Kate Johnson said DeepSeek accelerates AI democratization, increasing total available market, and Lumen has a head start with platform investment. Kate also discussed competitive dynamics in PCF market, emphasizing Lumen's network coverage, unique routes, and platform differentiation.

Q: Jonathan Chaplin asked about fiber cell progress and copper decom.

A: Chris Stansbury said fiber cell sale is open to discussions based on valuation, and copper decom is market-driven, part of modernization and simplification for cost takeout. Kate Johnson added it's a major tenet of operational excellence.

Q: Nick Del Deo asked about public sector revenue recurrence and fiber deployment utilization.

A: Chris Stansbury said PCF for State of California was one-time, and fiber deployment utilization growth is from IP and waves sales growth, driven by platform layer for enterprise connectivity.

Q: Greg Williams asked about inference phase materialization and DeepSeek kick-in risk.

A: Kate Johnson said no slowdown in PCF conversations, with major cloud companies asking to accelerate implementation, and inference phase is early with industries starting to ask for network upgrades.

Q: Frank Louthan asked about public sector risk and IT system progress.

A: Chris Stansbury said public sector revenue impact in 2025 is from rerate activity, and IT system progress involves rolling off old systems as new revenue moves to modernized system. Kate Johnson added IT progress is on ERP implementation with first phase early second quarter and second phase later in year.

Q: Sam McHugh asked about intercity fiber mile vision and Mass Market fiber homes.

A: Kate Johnson said 47 million intercity fiber miles are based on existing PCF deals, and fiber miles and Mass Market fiber homes are considered separately.