Lumen Technologies, Inc. Aktie

Good afternoon. Welcome to day 1 of our 54th Annual TD Cowen TMT Conference. My name is Greg Williams. I cover cable, wireless, telco and fiber here at TD Cowen. Joining me this session is Chris Stansbury, CFO of Lumen Technologies. So Chris, thanks for joining us.

Thank you. Great to be here.

So Lumen has a lot on its plate, including recently closing the AT&T fiber-to-the-home deal, PCF execution now, ramping up digital revenue, the Alkira deal and cost savings initiatives. Where are your priorities at the moment?

Our priority is really on the inflection of the business. And so this year, we inflect EBITDA. There's a lot of focus on that. The cost savings help drive that before revenue inflects, but the revenue inflection is right behind that. And we're doing everything we can to try to accelerate that. As we said at our Investor Day, we expect revenue to inflect in 2028. I think -- at that time, Alkira was not contemplated in those economics. And so that -- we think that will accelerate our revenue growth, but we've got to dimensionalize that. But first, we got to close the deal. So -- but it's really about inflecting the business.

Okay. And looking forward to that. Part of the inflecting the business is PCF demand, at least from a cash flow perspective. You now have $13 billion in PCF deals to date. As a leading indicator for fiber demand, we're tracking data center leasing because these data centers are eventually going to need photons, if you will. And we saw another massive step-up last quarter, 9.4 gigawatts of leasing in the past quarter alone. So should we, in turn, see a similar step-up in PCF wins? Or is your $13 billion in wins already capturing what we just saw in -- data centers?

I think we have to think about them in different buckets. So PCF is really largely consumption for the hyperscalers internal use to train their AI models. There is more demand there. We see more demand. I think we will do more. But it's really not the big growth opportunity for Lumen. The big growth opportunity when you think about DC growth is it goes back to what we've been talking about for a few years now, which is data is getting further and further away from the point of consumption. And in a world of AI, that's a huge problem because as you have agents interacting with customers or running smart factories or whatever it is, those agents are looking for data in real time, trying to make decisions as fast as a human would make them.

And if that data is across the country, you cannot have a data lag or any kind of interruption in getting it there. So what we see with the data center growth is really the growing demand in what a network engineer would refer to as east-west traffic. And that's the movement of data from anywhere to anywhere through a single pane of glass in a very programmable way. And that's what we're building, and that's what Alkira brings. So I think our enterprise focus, which is something our competitors have not had, it's really starting to show as an advantage as AI starts to move more into an inference phase.

Right. So PCF is good for the cash flow, but the programmable network is the future of...

Exactly. And so when you think about that, the PCF deals have largely been focused on just the training of AI, right? And so now we're moving into inference, and that's where the programmable network.

And when does inference really start to overcome training and maybe...

I think it's starting now. How fast it builds is hard to say. I mean I think the latest thing as we all learn our way through AI is, I think the phraseology is tokenomics, right? So you've got -- where does AI make sense and where does AI not make sense? And I think the companies that ultimately will win the day are the companies that rewrite business processes and use AI to fundamentally transform the way they go to market. It's not about taking a bad process and putting AI on top of it. It's about completely rewriting business rules and moving into the next phase of growth.

And while inference will be a huge opportunity, higher margin perhaps, lower CapEx since a lot of the conduits in the ground. On the flip side, a lot of inference will be done perhaps in the availability zones, where there's other fiber providers. So do you see more competition? Do you see pricing risk because you'll be going up against...

I don't. So let's break it down a little bit. Historically, legacy telco, enterprise telco has been focused only on North-South traffic. North-South is defined as premise to somewhere. It can be another premise, it could be a DC, it could be a cloud. That market in the U.S. is about a $12 billion market, and its TAM is growing at 1%, okay? The amount of data growing every year in that is much, much greater than that. So what is that? That's price compression. That is the cloud that has hung over legacy telcos head forever is you sell to the procurement department and it's a race to the bottom on who's going to have the lowest price the next time that the contract comes up for renewal. East-West traffic is what changes all of that because it's about the movement of data between clouds, between DCs. It never touches the prem. That TAM is a global TAM because you don't need to own the network.

If you think about what happens with the closure of the Alkira deal, we will be the first telco on the planet that has married North-South and East-West traffic together. The point of intersection is multi-cloud gateway. It will work on-net or off-net, in a very programmable way, meaning through one pane of glass, I want to move data from here to here right now, you design your own network, you push go and it works. There is no one else who's doing that. And that is what is absolutely critical in terms of giving enterprise the ability to reduce their total cost of ownership because networking has only been thought of in a very static way. This turns it into a very dynamic asset. And that's where we see we can win.

And with Alkira, since you brought it up, it's nice to see them moving back on the acquisition path again. It's a healthy sign. And you acquired them for $475 million. Can you just provide -- you just already did a little bit for real-world examples, like the enterprises have a pane of glass and they can ramp dynamic capacity, but a lot of it could be off-net as well as on-net.

Exactly.

It depend on -- you have SLAs, so you'll depend on other carriers, they put you on broadband here.

So if you think about a global solution, think about a large multinational bank, we could license this technology to a provider in Europe, to a provider in Asia with standards. I mean part of what the value is of marrying that incredibly powerful software layer with our network is the privacy of our network. A lot of what gets moved around for enterprise today is done over the public Internet. more network hops, slower, less secure, and that privacy element is critical from a security standpoint. If we can find partners who will provide that same level of privacy on their footprint where they have it, the orchestration layer is what Alkira brings, and that's ultimately what gets monetized. So I think ultimately, you will continue to see Lumen invest in fiber where it makes economic sense to invest in fiber. But the reality is we don't have to lay one more foot of fiber to have a global footprint that allows the complete orchestration of AI networking needs.

And the deal rationale is I feel like you needed to do or build an orchestration platform anyway.

Correct.

And maybe this is going to cost you a little bit more, but you're ready day 1 at the right place...

Yes. I mean our estimates are we were going to spend in the next couple of years, $100 million to $200 million to build a lot of what Alkira brings. And it's ready effectively day 1. I mean it's -- our team would -- our technical team would say that this builds the entirety of the foundation that we need. It integrates very easily, and then we can innovate from here. So there's already a lot of innovation that has happened with things like direct cloud on-ramps, multi-cloud gateways, the plumbing that's required to move these big workloads around. The orchestration layer now makes that very programmable through one pane of glass.

And look, what do I mean by programmable because this is really important. The math that matters isn't the cost of a wave. That is no longer a point of conversation. What matters is the total cost of ownership. I need to move petabytes of data from clouds into GPU clusters to be processed. The math that matters is the cost of a GPU cluster, $2,000 an hour. If I've got 10-gig connectivity and it's slow and it's clunky or I've got 400-gig connectivity, it doesn't matter what that cost of that wave is. It matters how long it's going to take me to transport that data. And so we're talking hundreds of thousands of dollars in terms of cost differential for a petabyte of data over 400 gigs versus 10 gigs.

Right. The network cost is so small compared to...

It's so small. And so when we talk about a programmable network, think about a situation where data is trying to get into a region of the country to be processed by GPU clusters and it's reached a capacity limit. And it's reached a capacity limit either because the GPUs are already running at capacity or because there's an energy cap and the local providers are putting a cap on how many of those GPUs can be running.

You route that traffic...

What does the programmable network do? It automatically reroutes it where there's capacity. You don't have to have a telco go out and dig a trench and build connectivity from A to B. You literally log into a screen and you move the workloads or the network does it for you. So that's what we're talking about. And that's the power that we unlock with Alkira and Lumen married together.

Got it. And the network topology where data goes is a great segue to my next question, which is the edge. We recently got back from Connect (X) a few weeks ago, and the edge or the topic of the edge was all the rage. It felt like the 5G edge all over again 8 years ago. Lumen stand to win big because I remember in the older days of Lumen, they had a lot of edge connections, certain amount of milliseconds to every customer. Investors were naturally skeptical, why spend the extra millions of dollars just to shave off a couple of milliseconds. Just curious to hear your thoughts. It seems like there's some validation even yesterday when I Squared bought some of these smaller edge data centers from Cogent. So just curious to hear your thoughts of where the edge is going to go and where data gravity is going to go with AI?

So edge will continue to grow because, again, think about East-West traffic, where you've got data sitting in multiple cloud environments and you need to do API development, you can pull that data down to the edge, manipulate what needs to be done and send it back wherever it needs to go, the data wherever it needs to go rather than trying to pull it all on to a campus somewhere and do it yourself. So it's -- that proximity matters. And latency really matters in a world of AI. I can't think of a better example than, say, a smart factory or how about a customer service agent where you are engaging with a voice agent or a chat agent. What happens if it takes 90 seconds for it to respond, right, versus if it's responding instantaneously as it sources data from everywhere to answer your question that matters. And so latency is a huge, huge issue for AI. It is -- it's ultimately limits AI's capacity. And so we talk about our network being within 95% of U.S. businesses within -- under 5 milliseconds. And that benchmark needs to continue to tighten.

And then I want to talk about the NaaS and digital revenue that you spoke of. Your digital revenue was, I think, $37 million, so en-route to the $500 million to $600 million target.

That just in the quarter, yes.

Yes, just in the quarter alone. And you're assuming a linear ramp in your projections, but you actually think it might be more of a J-curve. So help us envision the scenario and the rationale for this J-curve adoption. Like is it one of the situations where a couple of companies do a proof of concept and they see it and then the adoption of skyrocketing like can you help us time the J-curve, any insights...

Well, I would love to time the J curve, but it's a hard one to call. I mean, look, we're developing a new category. I think the best reference point that we have is what happened in cloud. And if you think about cloud adoption when these -- when cloud companies came into existence, what an enterprise say, well, I don't need that, right? I can -- I've got my on-prem data centers. And then what ended up happening is over time, people realize, hey, wait a minute, the variable nature of that capability, the ability to provision compute and storage on demand, all of a sudden exploded. That was the J-curve.

So we think that's ultimately what happens here. Alkira could be a J-curve moment. We'll see. I can tell you this, we're doing everything we can to make it a J-curve moment. So we've got to obviously close the deal, but we're already thinking about the types of engagements that we can have with customers. We obviously can't do much until the deal closes. But at that point, we will have a target of companies in various industries that we want to go into and use as use cases that we can then share with other customers. Because the selling motion is very different, we're changing the inside of enterprise as we go and sell these solutions, right? Again, today, you sell to procurement departments and network engineers. What do procurement departments and network engineers not want to happen? They don't want you to move their cheese. They don't want you to say, you know what, we don't need you guys doing this anymore. We don't need you to figure out how to cobble together a network solution to move data everywhere. We don't need you to figure out if you can get a lower cost on a wave. It's a very different selling process...

Evangelize it.

Well, and it's C-suite driven. When we talk to CTOs about the capabilities that we're bringing, they're like, wait, what, you can do this when. This changes everything. And so they will rewire the inside of their organizations to adapt to the capabilities that we can bring. But the way the network works today, the network architecture never envisioned AI. And the way companies access cloud data today through neutral third-party facilities with cross-connect fees and slower speeds, that doesn't serve AI, and it's expensive. So it's slower, it's expensive, it's less secure. Our belief is we come with a solution that addresses all of that, and they start to rewrite the way they buy and manage network services inside of their company. So it's very much going to be a C-suite sale.

Right. And you mentioned cross connects are expensive on the on-ramps and the meeting rooms. So speaking of expensive or not expensive, how are you envisioning pricing the NaaS services then?

So I think it's going to look very much like the way cloud prices, right? You will -- depending on what your commit level is, you'll get varying degrees of price discount, right? So...

Based on data like...

Based on volume. Exactly. And by the way, that's not just connectivity because there's other services that we'll continue to bring to the market that can be delivered digitally through this motion. So that will be a primary component. But again, one of the beauties of what we have available is the ability to turn up and turn down capacity on demand as you need it. So there'll be kind of base levels of volume that every enterprise needs, but there's also going to be those peak moments. You don't have to buy to peak anymore, right? You can scale up, you can scale down. And so our belief is because of that flexibility of that as we do more East-West volume with corporations and fix their networking problems, we actually start to take share in North-South.

On Analyst Day, you talked about the P times Q scenarios. I think your balanced view was like $1,400 per port. Is that where we are today? I'm just trying to understand.

We haven't disclosed that. What we've said is, look, if you really think about the full use case of NaaS, right, in the combination of North-South and East-West traffic, we were talking about as much as $5,000 a port. We're obviously at the very early stages. But again, Alkira accelerates a lot of that. So the answer is we don't know. I wish we did know. I wish I could give you better modeling information today. But what I can share is that as we talk to more enterprises about the capabilities we will have once the deal closes in the second half of the year, they're very excited about the kind of problem solving we can bring to their enterprise.

And what's the margin profile versus like traditional telco margins on these services?

It's much higher. If you think about traditional telco, one of the reasons why there's really been a lack of innovation in the space is everything is infrastructure-based. So every service required its own infrastructure layer, its own set of ports, people driving around in trucks, plugging in the next thing. And because that was so capital-intensive and expensive, it really thwarted innovation. What we're bringing to market is software-based. So as Alkira is a software layer that will be able to talk to multiple ports. As we install more NaaS ports for connectivity into Lumen's network, those ports can receive more services. Those services get delivered digitally. No more trucks, no more infrastructure layers every time you come out with a new service. So it's a very scalable model. So what you will see over time, and we committed to this in Investor Day, I think Alkira only furthers that is significant margin growth in the coming years as well as much lower capital intensity.

And do you see competition flowing to the NaaS market? Who is your competition? I feel like it could make a Megaport, but they only have the network or the telcos, but they're doing fiber-to-home and wireless.

It's a good question, and it's one that is always difficult for us to answer because we don't mean this in any kind of an arrogant way. There isn't a pure-play competitor. There is no other competitor that owns the network and has the software connectivity. Megaport is a good example of a provider that can bring a software layer to a company, but it's limited in a couple of ways, their ability to scale is driven by how much network they have to buy to support the customer, right, because they don't own the network. And the second piece of it is that they can't deliver services deep in the network. You can only deliver it at the highest levels of the network. So think about all the layers of the network, our ability to digitally bring services over time to every layer of that network architecture is meaningfully different. So it's really the marriage of the 2 that makes this incredibly powerful.

Got it. I want to switch gears and talk about some finance stuff, the CFO of the company. The cost savings plan for one. You went from $400 million of savings at year-end. I think the goal is $700 million by the end of this year and $1 billion by year-end 2027. Can you elaborate on the efforts, what you've done so far? I think you've flattened the network and the systems. And then what's in store for the next...

It's really more of the same. So again, like a lot of others that have been in the historical space, the way these companies grew is through acquisition. So there's an enormous amount of tech debt. There's things that were never addressed. The efficiency of any kind of M&A activity historically has really been limited to spans and layers, right? It's not about fixing the underlying problem. And we're dealing with that. So we've just completed our ERP. We went from over 30 GLs to 1. We went from multiple procurement systems to one. There's efficiency that comes with that. We still have work to do on things like CRM as an example, that will allow us to unify order entry systems. So that work will continue.

But ultimately, what we're doing is all of the digital products are being built in go-forward systems, one system. The old stuff, we're not going to try to lift and shift. It's just too much work for too little benefit. We're going to slowly retire those products. And as those products retire and convert to a digital product, the IT systems retire with it. So a lot of the work is really around that. And then again, just driving more efficiency. The remaining copper assets in consumer are being managed by the same operations team that manages enterprise. There's a lot of efficiency there. There's copper mining. There's a number of activities. So it's really across the board.

But copper decommissioning that's not part of the plan? Or is that...

It's part of the plan.

It's part of the plan. And any updates to sizing that savings in particular, even the timing of that?

No, we haven't -- it's small today. And over time, I think it will take us well into the future and therefore, isn't contemplated completely in the $1 billion because it's going to -- I mean, that decommissioning is going to take place over many, many years.

Right. Well, interestingly, would LEO threats actually accelerate copper decommissioning and then fixed wireless too?

I don't know. I mean the reality is, I think on the copper side, we're going -- barring something completely unforeseen, I think we're going to continue to see that business kind of attrit at the levels that it has been. And it's just a long, slow decline. Now one of the things that we continue to look at is are there opportunities to more aggressively create that churn by converting customers to a digital product that we can deliver in a much more efficient way because we would love nothing more than to not have those customers attrit, but to cannibalize them ourselves and have them stay in the family and be able to consume other services from us longer term. So as we go forward, we may do some things very intentionally to take some of that legacy business and convert it, but we'll obviously communicate that if and when we do that.

Got it. I want to talk about the EBITDA cadence for the year. You usually beat EBITDA in the first quarter, but you had the help of the $32 million sort of onetime PCF help. 2Q is typically flattish. But then again, in the first quarter, you had a month of fiber-to-the-home. So a lot of moving parts here...

A lot of moving parts...

Third quarter is typically higher spend, maintenance OpEx. And then the fourth quarter is that large step up. But then you have cost savings going through the whole entire balance of the year, just layer that on top of it. So just with all that said, help us with the general puts and takes as we think about the balance of the year?

So in the first quarter, it would be a mistake to model the first quarter by -- and then forward by just seasonally adjusting it because between the onetime nature of some PCF revenue as well as the consumer business, between those 2 things, you're talking between $60 million and $70 million of really kind of high-margin revenue. We also had -- and not prepared to call this as an ongoing benefit, a little better performance in legacy than we thought. And what we think is going on there is that as customers are buying more digital services, they're keeping the old for a little while to make sure everything is working the way they want it to. So I mean, again, we'll take that. That's a nice tailwind, but I don't think that's a trend line change.

And we've also -- we're seeing some higher medical costs like everybody else is. So I think you need to adjust first quarter pretty heavily. Where we see it is we will inflect EBITDA this year. We said it wasn't going to be a significant inflection. Next year is where we start to see, I think, a more significant build in the EBITDA, and that's our guidance. We feel good about the guidance for the year.

Got it. And you did mention input costs are up. The cost of resin is up, optical equipment and DRAM within that is up, I think, as much as 70%, cost of fiber, we've seen reports up to 75%. So your deal with Corning is proving out excellent.

Yes.

Still, could we see higher input costs or cost pressuring the operations...

I mean, yes. But again, a lot of that we're able to pass to customers where it truly exists, and we'll do that where we can. So I'm not as concerned about input costs as we are really about making sure we drive the inflection in revenue. And that's the key focus.

And then how about labor? I mean how much of is insourced versus outsourced?

A lot of the labor is outsourced, and we've got great partners. Two of them are publicly available. They've been very public about what they do, but it's really a West, Central and East. They kind of meet each other where those boundaries touch as we're building these networks for ourselves and for others. And they've been fantastic partners. They've really helped us keep things on time and on schedule.

And then just moving to the balance sheet. You've done a tremendous job on the balance sheet. You paid down the super priorities as promised. I think pro forma leverage is now below 4x. So what's next? Are there any other balance sheet initiatives from here?

The big one is it's publicly, it's out there right now. I mean we've -- there's a few things that we needed to do on our capital structure. The first is reduce the quantum of debt that's happened. We've gone from $20 billion in debt to under $13 billion. The second is fix the maturity curve, right? 50% of our debt due in 1 year a few years ago, 2027 is what it was. And now we've got a maturity curve that looks normal and boring. And quite frankly, we really don't have anything to do for the next number of years.

The last thing was to simplify the structure and not have 3 borrowing entities. So when we close Q2 with the debt exchange that we're doing right now, we will have one reported entity. So equity investors, credit investors, management, everybody is going to be looking at one balance sheet and one P&L. And beyond that, I think it's just more regular course of business. It's nice to be here. There's been a lot of hard work, but the focus is on growth.

Got it. And at the last minute we have, I just want to bring it all together when I think about Lumen a few years from now when the PCF dust settles and then your revenue does inflect in 2029. When I look at your long-term targets from Analyst Day, I'm trying to put them together and extrapolate from what I saw, it seems like you'd be like a $500 million free cash flow company. And there's a lot of numbers here, but EBITDA maybe [ $3.6 billion ] there's some $400 million in noncash EBITDA in those slides, $2 billion in CapEx, $700 million in interest. So is that directionally correct?

Yes, let me answer it this way. So first of all, we think -- what we said at Investor Day was business revenue growth in '28, total Lumen in '29. And again, we'll see how much Alkira can pull that forward. We'll get back to the market on that after we close. What the model showed us at Investor Day was that even if you strip out PCF, the investments we need to make are fully funded.

And we would hit at the end of a 5-year window, a leverage target of 3.25 and we'd have extra cash flow beyond that. So we're in a very healthy spot where we are generating great free cash flow. EBITDA inflects this year, and now it's a question as to how fast we can inflect revenue, and it's happening. I mean just look at the rates of decline on revenue, obviously, just saying that out loud has a negative connotation. But look at those rates of decline vis-a-vis others in the space. And we are way, way ahead because our business mix is already over half of that in growth buckets versus legacy declining buckets. And nobody else can say that. Yes, so it's that -- we're not looking back on that.

Great. With that, we're out of time. Thanks, Chris.

Great. Thanks a lot.

Good morning, everyone. I'm Sebastiano Petti, and I cover the telecom, cable and satellite space for JPMorgan. I want to welcome Chris Stansbury, President and CFO of Lumen. Chris, thanks for joining us this morning.

Great to be here.

I think you have a safe harbor perhaps.

We do have a safe harbor, and it's on our website. I'm not going to try to recite it for memory, but take a look. And obviously, we'll have a good conversation today, but I'm not making any comments on forward-looking stuff.

I don't want Jim to get mad at this one.

Exactly. Thank you for that reminder because I always forget and he does get angry at me.

So Lumen has had a busy start to the year. So you closed on the fiber-to-the-home sale to AT&T. Just a couple of weeks ago, announced the acquisition of Alkira. So let's start at the top. As you look at the rest of the year, what are your biggest priorities? How do you see those priorities fitting together to set up Lumen for success long term?

Yes. As we gave our annual guidance, we said this is the year that we're going to inflect EBITDA, and we are going to do that. We remain committed to that. It's a big step forward for us. And ultimately, that leads to revenue inflection in the next couple of years and growth thereafter.

So we feel very good about that. The sale of the fiber-to-the-home business to AT&T was very strategic for us. I mean it's a space where convergence is real, and it's a space where others are much better suited to grow that business. But when you look at the Alkira announcement, I think that really speaks to where we have a right to win and where we have an advantage. And Alkira, once we close that deal, marrying that with the physical network we have, really opens up enterprise networking in a way that has never existed before.

And we're seeing a lot of interest and traction from customers because it allows us to deliver what is a fully programmable enterprise network. It's not about just the fiber anymore. It's not about point-to-point. It's about the ability to program movement from anywhere to anywhere, and we're going to be able to do that in short order.

Great. And I guess just thinking about the digital transformation and NaaS adoption, at the Investor Day, you talked about expecting linear digital revenue growth, but also, again, leaving the door open to a potential J-curve. So with port growth running around 35%, what are the real-world signals that you're watching that tell you the J-curve is actually starting? And I guess, what do you need to have in place operationally so that you -- the growth doesn't outpace?

Yes. Good questions. And again, what we said at Investor Day is we're going to plan linear because we don't know any better, but we did expect there to be a J-curve moment. We're not calling that now, but I would say that certainly the quarter-on-quarter growth we're seeing in customers' ports and services per port in that 30% range is very encouraging.

To your question on operationalizing that, there's an enormous amount of effort going on inside the company to shift resources from the old to the new. The ops team is all over it. We continue to ask them to plan for more so that we are ready, and we don't delay the adoption of those NaaS ports any longer than we have to.

So we're very encouraged by that. And that, again, if you think about networking in network language, right, a lot of that is north-south, right? And that think of that as premise to a location, right? It could be another on-prem location. It could be to a DC, it could be to a cloud. What Alkira brings is the east-west traffic. And that's where the vast majority of the TAM is.

The north-south traffic is very commoditized, and it's important, but it's not where the growth is in dollars. The growth in dollars is the east-west, the ability to move data between clouds, between DCs, never have it touch a premise and do that in a fully programmatic way in the power of your own hands. And so when you bring our strength in North-South and those NaaS ports to the East-West with Alkira and the connection point really is our multi-cloud gateways that we've announced, that's where we really unlock this.

Great. And then I think you described Alkira as accelerating the consumption flywheel, which you kind of alluded to and meaningfully completing the architecture for where you want to take the platform. So how should we think about maybe the integration time line? What gets integrated first? Are there investments required? And then I guess, when should we see these benefits showing up in revenue in a material way?

Yes. So obviously, we got to close the deal first. We think that will be sometime in the third quarter. And as you just said, the reality is the bulk of what has to be built to enable this is already built. And so it's going to be integration light. We're actually very focused on making sure that the innovation engine that exists at Alkira is preserved. And so that makes the upfront a lot easier. It's really about integrating with the sales force and how we approach customers. And part of what we're dealing with here is we're building something that hasn't been done in networking before. And as we spend more time in the C-suite and they realize the capabilities that we have or will have and our ability to execute against that quickly, there's enormous excitement.

So there's a shift that's going on. I mean I think if you look at enterprise networking historically, it's gotten a bad rap because it's been very kind of telco-centric, declining price per bit, you're selling to the procurement department. Those days are quickly coming to an end. And the reason it's shifting is AI will not work with latency. And it's not about the cost of the wave. It's about the total cost of ownership. And when you're running GPU clusters that cost $2,000 an hour to operate, that's what matters.

And so your ability to move data from anywhere to anywhere to keep those GPUs spinning to allow your AI agents to communicate with a customer in real time by sourcing information that is getting more and more dispersed, that's the math that matters. And so the big piece is really going to be the education at the C-suite that's already underway. And I think that's probably the toughest leg of the journey, but we feel good about the plans that we've got around that.

Great. And then one of the other things I think you brought up was about $100 million to $200 million of CapEx savings. I guess just -- I mean, where does that come from, I guess, in practice? And I guess maybe just help us think about time line there.

Yes. So when we did our Investor Day, inherent in the CapEx estimate that we had was development work to build the software platform that Alkira, frankly, has already built. And so in acquiring Alkira, we estimate that we'll save $150 million to $200 million in total over the next few years. What Alkira does is accelerates that software delivery, the ability to truly have one pane of glass that you can control all of your network flows from anywhere to anywhere, literally every cloud, one network, it's carrier agnostic globally, and it will allow us to do that day 1. So this is an acceleration of a couple of years.

All right. And then just sticking with East West for a minute here. So zooming out, I guess, to the market, so you previously sized the East-West opportunity, I think, at about $11 billion, right? And then -- but now after Alkira, you see that TAM as maybe I think, $58 billion. And so growing at about 20% compound annually. So I guess, who do you view as the real competitors in that market? And I guess, what gives you confidence in your ability to kind of take share and participating in the growth there?

So there are competitors at different points in that total cycle of data movement. There's no one pure-play competitor. So you will -- I won't name them, but there are companies that provide network access overlays. It's a screen of glass. But what they don't have the ability to do is provide a level of service as deep into the network as a company that owns the network, right? And so when you take Alkira's capabilities, you take our multi-cloud gateway, which is what? It's the ability to literally connect. We have direct cloud on-ramps, others have them too, into all the major clouds.

Multi-cloud gateway, though allows you to move data between those cloud environments and between DCs. It's extraordinarily powerful. And so there is no pure-play competitor. And I think the beauty of where we are is you've got this really unparalleled physical network in North America. We can partner with people globally who can provide that kind of service in other areas of the world.

But if somebody wanted to be a pure-play competitor in North America, it would take a long, long time because, one, they'd need to build a physical network that has the depth that ours has. And I think what we've seen over the last couple of years in terms of the differentiation of Lumen's network, that's really exemplified by the PCF deals. No one's been able to keep pace. Yes, there are other people building now, but no one has been able to keep pace with what we've done because we have capacity that no one else has. And so you take that footprint, you digitize it and Alkira is a big piece of that, and you've got something, frankly, that doesn't exist anywhere else.

So sticking with PCF for a minute here. On the -- I think you've said you've signed $13 billion or nearly $13 billion in deals so far. And you've noted that your hyperscale partners aren't talking about a bubble. They're talking about -- they're asking for more capacity faster in many cases. The contracts include incentives, I think, tied to speed, right, speed to market. So from where you sit, how much incremental opportunity is there beyond what's already been signed?

There's definitely more opportunity there. I don't want to size it. I would say that it's actually -- it's something that as time goes on, we're going to be really thoughtful about, right? Because the conduit that's in the ground has a lot of value because it provides customers with the ability to deploy faster than constructing from new and we can sell a resource that -- the one resource they don't have, which is time. But that obviously doesn't last forever. And so we want to be really thoughtful about that.

I think what's interesting is when you think about the strategic growth opportunities here, we actually don't have to lay one more mile of fiber to grow in a really explosive way because Alkira unlocks all of that. Will we build fiber? Yes, of course, we will. But we're going to do it in a way that makes economic sense for our investors because the objective isn't fiber anymore. That's old telco. The objective is one pane of glass, complete control, the ability to move data from anywhere to anywhere, and we will have that with the closure of Alkira.

And an interesting topic, and I spoke with your Chief Technology and Product Officer, Jim Fowler, recently. I think he made a comment to the effect of -- in some of your deal conversations around PCF, you guys say no more than you say yes to deals, which I thought was interesting. And so are you seeing deal structures evolve or conversations around economics evolve at all? Because one of the points you've always made and Jim also made was economics is what drives a lot of the PCF considerations, right? And so maybe help us think about how those conversations have evolved recently.

I would say structurally, the deals haven't changed. I think the value of a specific route can change depending on what capacity looks like. But the underlying conversations haven't changed. If anything, that makes it easier, frankly, because there's a lot of time in legal, if you will, getting the contracts right on both sides of those agreements. But now they've become more regular course.

So I think today, the conversations that I'm involved in are really focused on execution and how quickly can we go. I mean this is -- you said it really well. This isn't about an AI bubble when you talk to these customers. It's about what's coming, the demand is real. And again, they're building to a demand signal that's 2 and 3 years from now. And today, they're asking us to go faster. So I think that speaks to where the demand will be as we go forward.

Got it. And then any update? And so as we think about from a proprietary route perspective, still, again, a lot of the same considerations, I guess, it's nothing new to kind of call out?

No, nothing new. I mean we obviously announced a new route from Minneapolis to Seattle. That's a corridor that, as you can imagine, has a lot of demand. That's something that we've been working on for a while now. It's been part of our capital plans. There are others that we're working on as well. We keep that close to the vest, but that gives us the opportunity to sell into those as well.

So again, those are good examples of high-density, meaningful routes that we can monetize in a very favorable way for our investors, we'll build those routes. We're not going to build routes so that we can try to drive the price of waves to the bottom. That's -- we'll leave that for others.

The other thing that's interesting is as we focus more on the east-west traffic flows because that really is where all the value is, because customers are going to be able to consume that through one pane of glass, our belief is that we will very likely take share in the North-South, that more commoditized space because we're going to be really easy to do business with. It will truly be point-and-click. I need connectivity from here to here, okay, I have it. It will be up and running in a very short period of time. So we'll see how that plays out, but that's certainly our hypothesis.

So I guess just sticking with waves for a sec here. There was a clear call out that strategic waves. I think what you defined as 100 gigs or greater?

Yes.

Were a standout driver in the quarter. There was also a mention of material uptick and rapid routes adoption. So I guess, I mean, what's changed in terms of customer demand or in your product that's driving that momentum?

So 2 things. I think on the supply side, we've now been talking about it for over a year. But as we've been deploying these large fiber networks for hyperscalers, we're also pulling fiber for ourselves. And 2 specific areas that we've highlighted are rapid routes. So these are clusters of 16 markets at a time. And it's basically on-demand 400-gig connectivity so that customers can be up and running really quickly. And so we've got the first 2 clusters done.

The third one, I think, is close to being done. We've also done a metro expansion so that in the dense metros, there's more capability there. So that's the supply side. The demand side is that, again, I think we're starting to see the early stages of inference where enterprise is starting to consume AI in a more meaningful way. And again, latency matters. The example that I share is just think about it, all of us have, in one way or another, already had some kind of an interaction with a customer care agent. What would that experience be like if it took 30 seconds for that agent to respond, right, either through chat or voice. It would be horrendous.

And remember, that agent is answering questions by going and looking for data, and that data could be anywhere. It could be in Texas. It could be in Virginia, it could be in North Dakota. It could be in all those places. And it's putting together its response in real time so that, that customer experience is a good experience. We have that today where customers can get information on inventory or on an outage. Outage is a really good example, right? Outage just happened. That agent is trying to answer that question with real-time data, and we don't know where that data is. We know what sits in the cloud, but I couldn't tell you physically where it is. And so the latency is what matters. And that's why I think we're starting to see an uptick in the demand in these kinds of connectivity.

All right. Maybe touching on some other areas here. I think one of the more interesting points from 1Q was a call out on cannibalization. I think you said that NaaS adoption is not cannibalizing the legacy revenue as much as expected and that I think over 60% of existing customers, existing customer NaaS customers are choosing to expand rather than simply just migrate. So I guess what's driving that behavior from either a product, packaging, sales motion, customer economics perspective? And do you think it's durable?

So it's a really good question. I think there's more hypothesis there than fact because we're at early stages. I think our running hypothesis is customers want to make sure that they're comfortable with the new before they let go of the old. And so do we think that it's permanent? No. I think that's foolish. And frankly, we don't want it to be. We want people to adopt the new as fast as possible. We'll take the fact that they're going to run the old with the new for a while. That's a great problem to have.

But I don't think it is durable over time. I think you'll start to see customers as they experience NaaS want to run with it more permanently. Now the flip side of that is that in consuming NaaS, they will be consuming more services. So we're seeing that service growth. And again, remember, what is a NaaS port? It is a port that allows us to deliver all future services digitally. No more truck rolls, right, and no more fixed infrastructure. It's delivered as software. And so the faster that they start to consume those ports as their daily motion, the more likely it is that they'll start to consume more and more services on top of that. And that's the scalability that we've been looking for.

Got it. And then just closing the loop on Alkira. As you think about, does it help you sell more into the same customers? Is it help you expand into new segments? Is it about improving retention, wallet share, all of the above?

It's all of the above. I mean, look, Alkira, as we said earlier, it really, once we close, is the fast path to where we ultimately want it to be. There's more innovation though that can come behind that. And again, we can use fancy words like programmable network, but let's just talk about what that means for a second and why it's important.

Networking has always been just the necessary evil, right? The reality is in today's world, it starts to become a vehicle by which you can unlock additional value. And think about energy, right? There's a lot of conversation around energy. Well, if you've got a bunch of data that's headed to Virginia to be processed, and again, GPU cluster, $2,000 an hour, and you reach an energy limitation in Virginia and that data is just sitting in a parking lot waiting to be processed, that's huge cost.

Now what happens in a world where you've got GPU capacity and energy capacity in North Dakota or Texas or somewhere yet to be determined because people continue to build data centers. What happens if the network could automatically repair itself and reroute those workloads to where there is energy and GPU capacity. That's an enormous unlock for enterprise. That's the network that we're building. That's the network that Alkira will help us deliver faster, and that's a network nobody else has today. That is huge, huge unlock, and that's why we're so jazzed about this.

Great. And shifting gears to 2026 guidance expectations and EBITDA. So just some -- I want to get a little bit more color, I guess, on some of the puts and takes around the EBITDA guidance for the year, which you reaffirmed. But the first quarter was stronger than anticipated, which implies a pretty big step back or step down in the back half of the year. I guess help us think about the puts and takes that we should be considering to help understand the EBITDA trajectory for the balance of the year?

Yes. We've had this question a lot since earnings. Remember, in first quarter, a few things that you need to adjust for. So we sold the fiber-to-the-home business halfway through the quarter. We also had onetime revenue, high EBITDA from publicly disclosed state of California that doesn't repeat itself. Those 2 things combined are about $60 million. And then you've got this legacy thing that we just talked about, where legacy ran a little hotter and certainly not something we're going to plan for.

So I really think you've got to adjust down Q1 for those kind of items. And I think you get to a number that's a lot more reasonable in terms of run rate, the $770 million, $780 million kind of run rate. And I think that's what we'd see as baseline as we go forward. Now what we don't know yet, and we haven't changed our annual guidance as a result is when will Alkira close and how quickly can we start to monetize that. So that's what we're working on right now.

And then I think there's also some seasonality we need to kind of keep in mind, right, in the third quarter.

Absolutely. Yes. Yes. There's a lot of construction work and whatnot that's done in the third quarter because of weather and whatnot.

Got it. And then underlying a lot of this is your cost transformation program, right? You hit $400 million run rate in 2025 -- exiting 2025 rather. And you're targeting, I think it's $700 million exiting 2026 and then ultimately getting to the $1 billion level in 2027. So maybe help us think about what are the next major cost takeout -- cost work streams that are coming out, I guess? And where do you see the biggest incremental savings coming from within the program?

So it's really -- it's across the whole company. I would say that, again, we have, as a lot of folks in the space have a lot of old IT systems. We actually just launched the final phase of our ERP, which is huge to have behind us. Team did a tremendous job with that. But ultimately, that allowed us to turn off, I think, what was in the neighborhood of 30 to 35 different GLs. The second phase now -- that was first phase.

The second phase is procure to pay, which will unlock more value, right, as we go forward. We still have work to do around CRM and whatnot. So there'll be savings in that. Operationally, we continue to drive savings. So with the sale of the fiber-to-the-home business, the remaining consumer business that we're managing for cash is being absorbed into our enterprise ops team. So one management structure there, so more savings there. But you'll continue to see efficiency across the network itself as really being the core driver. And that's everything from real estate and utilities and whatnot. It's also going to be labor efficiencies as we get better at what we do.

Got it. And do you see -- is there a credible path to exceed the $1 billion target? Is the focus more on execution certainty rather than trying to stretch that headline number?

So we are very confident in the $1 billion. We'll see if we can go further. But the answer is go faster, go bigger if we can. And so there's a lot of focus on that.

Okay. That's great. And then on free cash flow, you raised the '26 guidance to $1.9 billion to $2.1 billion. There's about $729 million of fiber-to-the-home proceeds that flowed into OCF. So if we strip that out, though, how should we think about the organic free cash flow growth in 2026? I guess, what's the shape of that trajectory as we maybe lookout?

It's still going to be spiky because of the PCF flows that move around quarter-to-quarter. I mean, again, the headline messages are that all in, we're generating, to your point, organically some great cash flow this year. And over the next 5 years, the financials we laid out at Investor Day, which were pre-Alkira, we're fully funded. So we should see leverage over the next 5 years come down into the low to mid-3s. And a lot of that at this point is going to be driven by, frankly, EBITDA growth versus absolute debt reduction.

The cap stack is in great shape. We're just finalizing a few things now, but the reality is that should largely be behind us by the time we close this quarter.

Okay. And that's a great transition. As we think at the Analyst Day, you also talked about organic growth first, then inorganic, then debt reduction and then finally, buybacks as your capital allocation priorities. As you just said, now that you're fully funded, I guess, what are the milestones you want to hit or what we should be thinking about from outside looking in perspective? What should we be thinking about before capital returns begin? And I guess, how should shareholders think about potential timing?

Yes. So I think -- look, back to those priorities, I think we actually just did that with Alkira, right? We paid cash for that. And again, when you look at the CapEx that's avoided, we think that acquisition cost us on a net basis, somewhere call it, $275 million to $300 million, all paid for with cash. The jobs #1, #2, #3 and #4 are get to revenue growth. And again, what you're seeing inside of Lumen today and what you're seeing in our results is a revenue performance that is still declining but dramatically better than our competitive set.

So everything that we can do to accelerate that return to growth is what we're doing first. So to try to give an estimate on time in terms of when we would start to return capital because we think we've exhausted those growth avenues, it's just too early to call that, especially with Alkira in the mix. I think if anything, our opportunity right now is to hopefully pull in that point of inflection on revenue sooner. When that is, hard to say at this point. But we had said that revenue would inflect on the enterprise business in '28 and total Lumen in '29.

And so once we close, we'll try to give a perspective on what we think that is. But all of our energy right now is on how we can light that up as quickly as possible as soon as the deal closes.

So maybe on the other side of Alkira, we could get revision or maybe updated viewpoint and how you're thinking about the revenue trajectory?

Yes. So the answer, yes, but we're also going to learn as we go. I mean, again, we're creating something that hasn't been created before. The good news is, is I think we can look to some of the growth curves of things like cloud as a reference point. But we'll continue to update the market as we move along this journey. I mean it's super exciting. I think if anything, we are shielding some of our enthusiasm for this because we don't know how quick it will go, but there's a lot of internal excitement about this being big for Lumen. And so we're going to try to make that happen.

And then do you have a -- well, do you have a preference for the method of capital returns?

If we got to that point, it would be, I think, share repurchases likely. Look, we've made the tough decisions around things like a dividend. I don't think you're going to see us return to that at the first possible chance because the reality is this is an area in terms of networking in an AI world that continues to evolve. And until we've exhausted the investment opportunities that we think drive differentiated return for shareholders, it's way too early to make that call. And candidly, we don't even know what all those pathways are going to be yet.

Yes. And I guess, a great segue. Just thinking about -- so Alkira opportunity, right, kind of unveiled itself, it could be interesting, but there could be multiple paths here. So how are you thinking about potential M&A going forward? I mean, you've emphasized in the past discipline and reasonable valuations and Alkira fits that framework. But as you look ahead, how should we think about your appetite for additional acquisitions? What could be strategic? What could be compelling?

Yes. So I think it would be more things like Alkira, things that further the digitization of the network. Those would certainly be our priority. But again, with Alkira, we're not just buying software. The management team and then quite frankly, deep below the management team on the Alkira side are super excited about this transaction because it has the ability to bring their dreams to life.

So there's an innovation pipeline that exists. There are other ideas that exist inside of Alkira. And so I think it's highly likely you'll see more coming from that, and it just gives us more organic pathways to grow as well. But look, if there's something else that would further the strategic agenda, we'll look at it. And -- but time will tell. Nothing on the books right now.

All right. Well, nothing to announce here today, unfortunately.

Exactly. Nothing to announce here today, other than the fact that we're super excited, and we think this is going to be big.

Well, Chris, thank you, as always, for joining us, and thanks, everybody. I think that's a great place to end it, and everybody, enjoy the rest of your day.

Thanks.

Greetings, and welcome to Lumen Technologies' First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, May 5, 2026. Your speakers for today are Kate Johnson, CEO; and Chris Stansbury, President and CFO.

I would now like to turn the conference over to Jim Breen, Senior Vice President of Investor Relations. Jim, please go ahead.

Good afternoon, everyone, and thank you for joining Lumen Technologies' Q1 2026 Earnings Call.

Before we begin, I'd like to remind everyone that today's presentation will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect our current expectations, assumptions and projections about future events and financial performance. Actual results may differ materially from those expressed or implied in these forward-looking statements due to a number of risks and uncertainties. A detailed discussion of these factors can be found in our most recent filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, our quarterly report on Form 10-Q for this quarter and any subsequent filings.

We undertake no obligation to update or revise any forward-looking statements made today, whether as a result of new information, future events or otherwise. Today's presentation may also include non-GAAP financial measures. Reconciliations are provided in our posted materials.

I'll pass it on to Kate.

Thanks, Jim, and thanks, everybody, for joining the call and also for your feedback following the Lumen Investor Day. In addition to hearing your perspective about our strategy and new business model, we're tweaking the format of our earnings call by shortening our prepared remarks and leaving more time for your strategy-oriented questions.

So let's get to it. Lumen delivered a solid performance during the first quarter, with revenue and EBITDA in line with expectations. I'll let Chris handle the detail in a few minutes after I provide an update on our strategy and execution.

Enterprises are facing a huge challenge. They're trying to build an AI-driven future on infrastructure that simply wasn't designed to support it. It's no longer about point-to-point connectivity, it's about whether you can move massive amounts of data securely, predictably and in real time across highly distributed environments.

And just as importantly, it's about whether you can control and orchestrate that movement dynamically. Lumen is solving that problem. We're bringing together 3 core assets: world-class physical infrastructure, a programmable network and a connected ecosystem of clouds, applications and partners. And individually, each of these assets matter. But together, they solve the complexity problem by forming a comprehensive platform designed for AI and rooted in simplicity.

The whole industry now recognizes the need for better networking, better performance and better economics. It's not just Lumen talking about disruption anymore. But we believe it is Lumen who stands alone in our readiness to deliver game-changing capabilities to meet the needs of enterprise customers in an AI-driven world.

And it starts with the physical layer. Lumen already has one of the largest fiber networks in the world. We're making significant investments in long-haul capacity, metro expansion, data center-interconnect and cloud adjacency. And we're on track to deliver all of the commitments we shared in detail at Investor Day.

This physical foundation is table stakes that supports the proliferation of data workloads, but alone, it's insufficient to capture the full value of opportunity that we see. That's where the programmable network comes in: a single pane of glass where enterprises can control and orchestrate connectivity across their entire technology footprint of clouds, data centers, applications and partner networks. Lumen has made strong progress in capturing the North-South part of this market with Lumen Connect and NaaS, giving customers API-driven on-demand access to our network.

And today, we announced our intent to acquire the software company Alkira. Alkira is expected to extend and enhance our programmable network into the fastest-growing segment of the enterprise networking market, the East-West part, establishing the control plane for cloud connectivity. After close, our combined capabilities will enable us to provide comprehensive coverage of North-South and East-West connectivity, whether on-net or off-net, with game-changing innovation, including direct cloud on-ramps and Multi-Cloud Gateway, and all of this in a single programmable system. We'll also be able to provide digital marketplace access to a myriad of ecosystem partners, simplifying network purchase and deployment experiences.

Together, Lumen Connect and Alkira will significantly accelerate time to value for customers operating in a complex multi-cloud and AI-driven architecture world. Strategically, this acquisition will substantially complete our digital architecture. And post close, it's all about integration and continuing our first- and third-party service innovation to deliver new value for customers and growth for Lumen.

As you know, we've also had some exciting recent announcements. AWS and Lumen partnered to launch AWS Interconnect - last mile, a service allowing enterprises to establish fast, secure, private direct connections from on-prem to the AWS cloud. And Google just announced the availability of private connectivity discovery through Google Cloud Marketplace, with an upcoming preview of API provision prem to cloud connectivity offering, all powered by Lumen.

These two new offerings are another example of how we're innovating to help enterprise customers deliver on their AI ambitions while simultaneously giving Lumen an opportunity to capture some of the over $2 billion in annual revenue currently served by carrier-neutral facility cross-connects. And it's Lumen Multi-Cloud Gateway that makes these direct on-ramp offerings possible, enabling customers to connect any cloud and any data center in any combination over our private network rather than the public Internet. It's how we bridge North-South and East-West connectivity domain securely and consistently.

Now after closing the acquisition, Multi-Cloud Gateway and Alkira together will turn direct cloud on-ramps into more than just access points into clouds and data centers. They will become programmable entry points into a broader digital fabric.

And speaking of that digital fabric, let's spend a minute on our Q1 adoption metrics. We're continuing to see strong adoption of our NaaS services with strength in off-net and large enterprise adoption this quarter. In the first quarter specifically, customer adoption grew 25% quarter-over-quarter, active ports grew 35% quarter-over-quarter and active services grew 32% quarter-over-quarter.

What's more, in Q1, we had two landmark wins. A leading global financial services firm committed to a more than 600-site branch upgrade with Lumen NaaS. Their goal is to drive deposit growth with faster new branch activation and deliver AI advisory and fraud detection services across all of those sites. And a large global logistics firm is deploying Lumen NaaS at 300 sites to ensure faster activation of acquired service centers, directly accelerating freight capacity and revenue. Both customer wins tell the same story: Programmable networks are essential in delivering AI-powered business transformation.

Back in February at Investor Day, we shared a multiyear road map for how we plan to drive digital service innovation, adoption and revenue growth. And since then, we've made meaningful progress in execution, and we have some encouraging buying pattern data that we'd like to share. Starting with basic NaaS. We now have nearly 2,500 NaaS customers, with more than 30% of them being repeat purchasers. What's more, over 20% of first-time NaaS adopters in Q1 were customers who are brand new to Lumen. They weren't doing any business with us before they bought our NaaS ports and services.

Now the remaining NaaS first-time adopters this quarter were existing Lumen customers. But what's interesting is that more than 60% of them were expanding their footprint with Lumen NaaS, not migrating from the old services. These trends are encouraging, as they suggest market share gain, and we'll continue to track them as we grow the business.

In the second scenario, upselling services, approximately 25% of all NaaS customers are attaching more than one service per port, primarily DDoS and Lumen Defender, another positive indicator of growth. And in the third buying scenario, Multi-Cloud Gateway, it's already in-market, enabling innovation with tech titans like AWS and Google, as I shared. And after we close the Alkira transaction, it will be the bridge between East-West and North-South traffic, giving our customers the feeling of one network, any cloud, total control globally. And the fourth and fifth buying scenarios, direct connections into SaaS providers and dynamic East-West cloud interconnects, that will be our focus post-Alkira transaction close, as we believe there's material growth potential there.

Now let me finish up by sharing what we think this acquisition means to Lumen, our customers and our shareholders. Alkira is a bull's eye in terms of strategic alignment and value creation. For Lumen, we expect it to dramatically accelerate our road map execution from years to months. It will reduce execution risk. It will give us an injection of talent, and it will give us a partner platform that's expected to be marketplace-ready on day 1.

Our customers will get the value they deserve: ample bandwidth, control, simplicity and accelerated time to value. And our investors will get what they deserve: better economics across the board from Lumen. Lumen has firmly entered a growth phase, and our future is very bright. Chris, over to you.

Thanks, Kate. I'm pleased that Lumen has delivered another quarter of positive momentum towards our financial and operational goals. First, we transformed the balance sheet by closing the fiber-to-the-home sale to AT&T, reducing leverage below 4x and reducing annual interest expense by nearly $300 million.

Second, we recently simplified our capital structure by refinancing our revolver with a new $825 million facility. We also simplified our reporting structure this quarter, moving from 3 quarterly filings to 2, and we expect to move to a single parent company filing beginning next quarter after completion of the Qwest exchange offer.

Now this is a big deal. Why? For the first time in over 15 years, our equity investors, our bond investors and management will be aligned on one financial view of Lumen. Finally aligning those 3 together, we'll all be looking at the same information at the same time.

Third, we further aligned our operating systems by implementing Phase 2 of our ERP platform and are now on a unified ledger. This positions us to retire legacy systems and drive additional efficiencies over time. Fourth, we delivered solid financial results in line with our expectations and above consensus, with strategic business revenue for the first quarter at 51% of our total.

And last, today, we announced our acquisition of Alkira. This is an important moment for Lumen. As our balance sheet has become a strategic asset, we've been asked about potential M&A. We've said that we'd be interested in technology assets only if they enhance our product portfolio, only at a reasonable valuation and only if accretive to the broader financials, and Alkira checked all those boxes.

We believe that the Alkira acquisition will enhance Lumen Connect and expand our digital offerings across the East-West TAM, with the potential to accelerate digital revenue as adoption scales. We plan to finance the $475 million transaction with cash on hand. Once closed, we estimate the transaction will be immaterial to financials and neutral to margins in the near term, but accretive to both as the platform scales. We estimate the deal will close sometime in the third quarter, and we look forward to welcoming our new teammates.

Now moving on to our financial performance in the first quarter. Before I start, we provided additional detail on the fiber-to-the-home sale impact in the financial trending schedule. Total revenue was in line with our expectations and ahead of consensus as our revenue mix continues to improve. Total business revenue declined 3.2% year-over-year to $2.44 billion as our revenue mix continued to improve in North America. Total business was down 2.8% year-over-year. North American enterprise revenue, which includes wholesale, was down only 0.8% year-over-year. In short, as Kate mentioned earlier, we believe Lumen is taking market share.

Strategic revenue was 51% of total business revenue in Q1, up from 49% in the fourth quarter, even with legacy results slightly ahead of internal expectations. Digital revenue in the first quarter was $37 million, in line with our expectations. And as a reminder, included in that digital revenue number is NaaS security products and cloud voice services. We're still early in the adoption curve, and the shift to consumption-based revenue will take time.

Quarterly results can be variable, and the key signals are customer adoption and expanding consumption. Our projections assume linear growth, but we believe there will be an inflection as the consumption flywheel gains traction, and we believe Alkira will be a tailwind to that timing. We're encouraged by the increased interest we're seeing from both existing and prospective customers.

First quarter PCF revenue was $78 million associated with the nearly $13 billion in PCF deals that we've announced to date. Roughly $32 million of that was a delivery milestone payment that was anticipated in our Investor Day projections for 2026 PCF revenue, but won't reoccur in Q2. Our long-term PCF revenue projections shared at Investor Day do not include any incremental PCF deals beyond those already announced. We remain opportunistic on additional accretive opportunities. And while PCF is a key pillar, we believe that our differentiation comes from monetizing the network through a programmable digital layer and partner ecosystem to drive durable, higher-quality digital revenue.

Adjusted EBITDA, excluding special items, was $849 million in Q1 compared to approximately $929 million in the prior year quarter. The year-over-year decline reflects expected revenue trends, higher [ healthcare ] costs and the sale of our fiber-to-the-home assets. Special items impacting adjusted EBITDA totaled negative $430 million this quarter, and this includes a gain on the fiber-to-the-home transaction, severance, transaction and separation costs and our modernization and simplification initiatives. This onetime gain from the sale of the fiber-to-the-home business was $596 million in the quarter. And with that sale now closed, we expect the transaction-related special items to decline throughout the year.

Capital expenditures, excluding special items, were approximately $859 million, in line with our expectations and full year guidance. That included approximately $161 million of CapEx associated with PCF deals.

Now we're raising 2026 free cash flow guidance from $1.2 billion to $1.4 billion to $1.9 billion to $2.1 billion as a result of $729 million of the proceeds from the fiber-to-the-home deal being classified as cash flow from operations. As such, free cash flow in the first quarter was $756 million, excluding special items. The cash proceeds from the divestiture have been primarily used to pay down debt in the first quarter of 2026. We received roughly $870 million in cash associated with the PCF deals, and we expect free cash flow will continue to be lumpy quarter-to-quarter, but trends remain in line with our full year guidance.

Now to wrap up. We remain on track to meet our full year guidance, and we'll continue investing in our transformation to serve customers in a multi-cloud AI world. We've meaningfully strengthened our balance sheet, which allows us to make strategic investments like our anticipated acquisition of Alkira, all while keeping leverage below 4x.

We're focused on building credibility through execution and transparent disclosure, highlighted by one -- sorry, on-time and on-budget PCF builds, improving digital revenue visibility and continued ERP and modernization progress. We're pleased with our progress towards our key financial goals. We're operating with agility across the company, and we will continue to put in the hard work, fortifying our position as the premier digital enterprise services provider. Back over to you, Kate.

Thanks, Chris. Look, the big takeaway for today, the vision for Lumen and Alkira is all about simplifying the customer experience, providing them quick, secure and effortless connections between people, data and applications. We're going to deliver one network, any cloud, total control globally. It's an exciting time.

So with that, we'll take questions, operator.

[Operator Instructions] Your first question comes from the line of Michael Rollins with Citigroup.

So I have a strategic question and an operating question. So on the strategic side, with the acquisition, can you frame the opportunity to accelerate and the speed at which you can go to market with the capabilities that you're acquiring? And then on the operating side, if you could unpack a bit more of the Business segment revenue performance in the quarter? And particularly in the North American enterprise, where -- if you could frame maybe what went better for certain of the verticals and products and maybe what -- if there's anything that didn't contribute as much as you were hoping?

Yes, I'll start with the strategy, and Chris, will turn the revenue question over to you. Mike, thanks for the question. Alkira is pretty exciting because it gives us access into data center-interconnect and cloud-to-cloud connectivity, which is the fastest-growing part of the market, growing, we think, 20% CAGR, which is pretty darn exciting. If you take our installed base of customers all up, legacy and strategic revenue, and you offer that to the commercial engine that we're going to create for Alkira, it becomes a pretty exciting accelerant. It gives us new access to much more significant TAM growing at a much faster rate.

I think what's more is that we now enable in a CapEx-efficient way, international expansion. Because it's carrier- and cloud-agnostic. And so that's what we plan to do. We don't plan to absorb Alkira. We plan to enable and accelerate them by bringing our network as an underlay and making sure that they have the very best of our pipeline pointed right at their value proposition. So we're pretty excited about the growth trajectory. And obviously, we want this to accelerate our path to growth.

Yes. And just on the operational question, if you look at kind of key drivers to total, I would say one standout was strategic waves. And again, those are waves that are 100-gig or greater. We saw some nice growth there, and we expect that to continue. And as Kate mentioned, more broadly, we're just seeing strength in the broader digital portfolio.

The part that was a pleasant surprise, and it was really highlighted in some of the data Kate shared, is that as customers are lighting up NaaS services, we're not seeing as much cannibalization. And I think that's one reason why legacy did a little better than we anticipated. And look, we'll take that all day long as we drive the conversion to our digital future.

And just one last thing on that point. Is that a temporary benefit of -- that, that cannibalization may be just further down the road? Or do you think that it just represents that the customers just need to invest more, and so the aggregate outcome is better?

I think the end game here is, yes, eventually, the new does replace the old and we fully cannibalize. I think as customers -- it's early. So we're still trying to read all these signals. But as customers are driving to the new, at least in the near term, they're maintaining the old. And again, I think that's a bit of a tailwind that we hadn't anticipated. We'll see if it continues. But again, the cash that, that business provides is welcome, and we'll use it to continue to invest in the transformation.

Your next question comes from the line of Frank Louthan with Raymond James & Associates.

One question on some of the costs that you called out, some of the modernization costs and so forth. I assume some of those are related to the transaction with AT&T. Is there a total amount of that? How long will those types of costs go on?

And then on the wavelength business you just called out, you mentioned that outperformed. Are you seeing any customers having issues making installations or having any issues with availability of memory or chips to -- for those products?

Yes. So the transaction-related costs were about $50 million in the quarter. And as I said in my prepared remarks, we would expect that to go down significantly in future quarters. So you'll continue to see that special items number get a little smaller.

As it relates to waves, I mean, again, I'm going to touch a nerve here. It's not about just selling on price anymore. And we've been saying that for a long, long time now. It's about solving a customer's problem. And the speed to dial up waves is important, but it's really around the broader problem that customers are trying to solve, which is the ability to move data all over the place. Our RapidRoutes investment and the ability to light up high-capacity, low-latency waves very quickly, we think is certainly a driver of that strategy.

And saw a material uptick in the adoption rate on RapidRoutes specifically in the quarter, which is great because it hasn't even been in production for very long.

Your next question comes from the line of Gregory Williams with TD Cowen.

Great. I also have one strategic and one operational question. On the strategic side, with Alkira, it sounds like it enables the [ cross-side ] platform to off-net customers. And Kate, you mentioned international. I just remember last September, you unveiled Project Berkeley, and that was supposed to deliver off-net service as well. So does this replace that? Or it sits on top of that? Or are they not related? I'm just trying to understand the two.

So -- yes, go ahead. Second part?

On the operational side, I was just thinking about EBITDA by the Street by about $50 million. You did not raise guidance. Curious, if you expect some sort of step down through the balance of the year? And how much of that EBITDA was from the cost-saving initiatives?

Chris, do you want to hit EBITDA first? I'll just...

Yes. We're not disclosing the cost-saving initiatives by quarter. But again, we remain on track and are super positive about where we're headed for the year. Remember that the first quarter also had effectively, a month of fiber-to-the-home EBITDA in that. So you do need to adjust for that. All that said, it was a strong quarter, but we remain firm on the guidance for the year and our ability to inflect at this point.

Yes. And strategically, your question about fabric ports is actually a really good one. So remember, fabric ports is about enabling building on-prem to be able to connect to the cloud and to be able to grow those services in a cloud economic way. And the Alkira platform really focuses on the East-West interconnect. So that's data center-to-data center, cloud-to-cloud, et cetera.

So they operate with more of a virtual port kind of a model, and it's better together. So our fabric ports are really -- Project Berkeley is really the Lumen Connect platform all up. It's not just a piece of hardware. And when you put Alkira and Lumen together, you get coverage of all the different interconnection possibilities.

Your next question comes from the line of Michael Funk with Bank of America.

You mentioned a bit earlier that you don't intend to absorb Alkira. But I am wondering, what will be an evolved integration process with Alkira even in terms of some of the back-office systems like billing, customer onboarding?

And then second question, more numbers-based. You mentioned the milestone payment in 1Q. Any help thinking about other milestone payments projected in 2026? And the tracking to -- I think you talked about $1,650 to $1,850 in PCF cash flow for the year?

Regarding the integration, when I said we won't absorb it, of course, we'll look to take whatever capabilities on a single digital platform [ post cash procure ] to pay. Which, by the way, we're pretty proud of the fact that we've implemented and upgraded a brand-new ERP system, Phase 1 and Phase 2 at Lumen as of this week. So we're making huge progress, and we'll leverage all of that technology platform.

What I was referring to when I talked about not absorbing it, I'm very cognizant of a big company swallowing or suffocating the smaller company. I have a bunch of experience in the tech world of doing a bunch of acquisitions. And we need to make sure that Alkira stays Alkira in this transaction because we love what they do. They're customer obsessed. They have an amazing engineering team, an incredible platform, and their speed is incredible. So I think what you'll see is more of Lumen integrating into Alkira rather than the other way around.

Yes. And on your question of kind of the onetime benefits, there was about $32 million in PCF in the quarter that won't recur. I think in the third quarter, we're expecting a smaller one. And so we'll give some more color at that time.

While I don't think it will impact 2026, I mean, one thing with the Alkira transaction is we do expect our CapEx in the coming years to be reduced by somewhere in the $100 million to $200 million range. And so after we get a little more time to inspect that, we'll give everybody an update.

Okay. And that's an aggregate, the $100 million or $200 million, or that's per annum?

Yes. That's aggregate.

[Operator Instructions] Your next question comes from the line of Nick Del Deo with MoffettNathanson.

First, just another little clarification from Chris on the performance payment in PCF. Is that what drove the sequential step-up in public service revenue? Or was something else going on there?

No. It wasn't driven by that. And the -- and again, it wasn't performance-based. It's just the way that, that contract was delivered that we were...

I'm sorry, the delivery pay. I used the wrong term, sorry.

Some of it [ was in ] public. Yes.

Okay. Anything else we should be aware of in public sector as we think about the coming quarters?

I think in the current quarter, legacy performed a little better. And in the coming quarters, again, it's -- there's tremendous opportunity in that space. It's just a very long decision cycle. So it's hard to predict when decisions will get made, but we feel very good about our position and ability to deliver to those customers.

Okay. Okay. And then maybe one on Alkira. Are you able to share anything regarding its current revenue or EBITDA? Or if not, can you share anything to help give us a sense of its market presence or its customer base or its traction in the market today?

Yes. So we aren't sharing anything. They do have a number of customers today. Their revenue is relatively small, I will say that. Look, I think that the powerful combination here is that we bring a customer installed base and scale that Alkira didn't have on what is, in an unparalleled way, the strongest enterprise network on the planet.

And what Alkira brings to Lumen is really the brain of that control plane and the ability to connect those things together and move workloads from anywhere to anywhere, right? As Kate said, one network, every cloud, total control globally. That's a big deal, and nobody else is doing that. So that's where we see the power of these things coming together, and frankly, delivering much faster, what our vision has been for the last 3 years. And so it was a great opportunity, and we're excited to share more after we close.

Your next question comes from the line of Batya Levi with UBS.

Just a follow-up on the public sector. Was part of the $32 million booked in there? And what else drove the sequential strength in that line? And can you just talk in general about your expectations for Business revenues for the full year?

So again, we don't guide revenue in total. What I would say is that on our path to inflecting EBITDA this year and ultimately, revenue over the next couple of years -- and again, we'll get back to you with how we see Alkira can help us accelerate that -- is you will continue to see kind of a rate of decline that is better than our competition and one that improves year-over-year in total. So there will be fluctuations quarter-to-quarter, but we feel very good about the fact that we are clearly differentiating ourselves in the marketplace, and the performance is going to show that.

As it relates to public sector, as I just mentioned previously, yes, part of that $32 million was in public sector. And public sector also benefited from lower legacy churn than what we've been previously experiencing.

Do you expect that to continue?

Look -- and I think we can't look at strategic and legacy as two separate and distinct things. I would love nothing more than to tell you that legacy declines in public sector accelerated because a number of new strategic initiatives were signed, right? So what's the objective here? For everything to be strategic over time.

And so yes, we do expect that to happen at some point in the future. I hope we actually see some faster decision-making that would allow us to drive more strategic. And in part, that would be driven by turning off some legacy product. That would be a great thing.

There are no further questions at this time. I will now turn the call back to Kate Johnson for closing remarks.

Thanks, operator. Just a short note to say thank you to all Lumenaries for your amazing work and helping get us here. The transformation is going so well because of all you do every single day.

Our future is very bright. And with that, thanks for joining the call. Have a great night.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

Great. Thank you all for joining us. And Chris, thanks for being here. We know you've had a busy couple of weeks with the Investor Day a few weeks ago. So we appreciate spending the time today.

Yes. Great to be here.

So let me start with a similar, if not the same question that I started with last year at this conference, which was last year, in this case, 2025 was a real pivotal year for Lumen. Closed on the sale of the assets to AT&T, dramatically improved the balance sheet. What's next? When you look forward towards 2026 and beyond, what gets you really excited?

The reality is that Chapter 1 of the transformation is done, right? We've built a company that's stable. It's got a great capital structure that's no longer a liability. It's an asset. And we have optionality. And so our focus really is on the execution of building the trusted network for AI and really being AI's data supply chain.

And so the way I closed the Investor Day last week is the first thing we had to do was disrupt ourselves. Now we're going to go disrupt an industry. And so this is where it gets fun.

And what are the data points investors should be looking at as you kind of click towards the next metrics of success?

So what we really talked about last week is that with some, I would say, fairly conservative assumptions in terms of what we see happening with the traditional way of selling and its impact on revenue by folding in what we see coming from only the $13 billion of PCF deals that we've signed, nothing more and then some digital revenue that we get back to revenue growth by 2028. We're reflecting EBITDA this year, revenue growth by 2028. But underneath all that, what's really important is margins are expanding considerably. We see margins going from the mid-20s to mid-30s.

We see capital intensity going from mid-20s down to mid- to high teens and maybe below that. So cash conversion improves. The model to do all that is fully funded, including things like pension contributions. So we've actually got ourselves in a situation where there's excess cash flow to do other things with.

And so I think all of those metrics and the clarity around that have really struck its own with investors.

So taking even a further step back, you've got some great metrics of success with your investors. Stock is up, whatever it is, 40% over last year. I know it's not where you want it to be, but it's still up 40%. Most of the debt complex is trading close to par.

Your multiple has actually gone up over time, which has been a really tough run for some of your peers and competitors. What do you think investors are missing as you look back over the next 12 to 18 months? What are they underestimating the opportunity here?

I think what people are underestimating is that what we have, no one else has, and it can't be replicated. That's the fundamental thing. And what makes all that meaningful is AI. So if you think about AI in an enterprise context, you need to move massive quantities of data from anywhere to anywhere on demand. Period. And the way networking has historically worked is not that. Right?

I need point-to-point connectivity. It's going to take 90 days. The way we talked about it last week, we use the language that network engineers used, and they talk about 2 kinds of traffic, North-South traffic and East-West. And they don't mean geography.

North-South is traditional telco networking, and it is a gain to be lost because it is literally prem to cloud, prem to prem, prem to DC. And it's a $12 billion TAM growing at 1%, but it's not growing at 1% because people aren't consuming data. They're consuming massively more quantities of data every year, but the price per bit is going down.

That's where telcos would sell to the procurement department, right? Okay, your 3-year contracts up for renewal, how much are you going to lower the price? There isn't value in that. That's what got us into trouble. That's what's getting many of our competitors who focus on basic connectivity into trouble right now as we speak.

The value is in the East-West traffic. And AI is what's creating the demand environment for that. That's where you need to move data from cloud to cloud, from DC to DC, from DC to edge, from cloud to edge to do all of your operations and push it back with really low latency.

The only way that works is if you have the network capacity to do that, and we're the only ones that have the network capacity to do that. So we're the only ones with the network capacity to accomplish that, and we're the only ones that are building a digital layer on top of that where you can consume that data on demand.

That's where I think investors are starting to wake up to it. We see more growth investors coming in, but we're still at the beginnings of that. So people are just starting to understand that.

And how do you see your competitive set different between North-South and East-West?

So the North-South competitors would be the traditional competitors, and they would be...

From the telcos.

They would either be the large telcos or they would be the smaller connectivity providers that like to talk about the price per wave, right? The East-West competitor, the largest would be there's a company out of Australia that provides East-West services, but they don't own the network. So they have to buy network.

They have to buy network from us and from others, and they can't scale because as fast as they sign a customer, they got to buy more network. They don't have owners' economics. And they also can't provide services as deeply in the network.

So one of the things that we've built as we've done these PCF deals is we now have proximity to the largest -- large language model companies on the planet. And we can, in our facilities because of that proximity, build things like multi-cloud gateways, direct cloud on-ramps.

We're at 400 gig soon to be 800 gig, 1.6 terabyte, you get direct access to cloud. You're not paying cross-connect fees. You are in a secure connection and able to move your data really quickly over huge pipes.

Got you. Turning to customers a bit. You talked on the Investor Day a lot about demand from customers is accelerating. Talk a little bit about the relationship you now have with the enterprise companies and the hyperscalers now that's changed with the new Lumen.

Yes. And again, we're at the front end of it. But I would say the biggest change is that as we think about that shift from North-South to East-West, we're talking to the CTO now, the CIO. We're not talking to the procurement department. And it's about the total cost of ownership. And in a world of AI, the biggest cost that you face as enterprise are GPU downtime, right?

And how do I load balance where I've got energy issues. I mean one of the things that we're starting to realize is the power of this very dynamic programmable network that we're building, we don't even fully understand yet, where companies that are doing a lot of AI development work can use the network to load balance where there's energy concerns, right?

I have a cluster here. I'm running at 100% of peak energy, and I can either keep a bunch of stuff in the queue waiting for it to go in or I can rapidly on demand move that data to another location where I do have power available. And so it's just cool.

And how does that sales proposition work as you move towards more of a strategic partner relationship from a connectivity relationship speaking with...

It really is about solving business -- and so we're at the forefront with AI. I mean we've seen this before, right? We've seen what happens and what happened when the hyperscalers created cloud. And all of a sudden, there was this understanding of the value that, that brought and there was a rush to that. I think what we're seeing in AI is that, but it's happening much faster.

And it's happening faster because whoever isn't on the leading edge is going to get left behind. And if I go back 18 months and I think about my conversations with peers, it was about how are we using some of Microsoft's capabilities with Copilot, which are really powerful.

But now wind the clock ahead to where we are today, and we're talking about how we're using AI agents to engage with customers on a service outage or whatever it is, where that learning agent is literally accessing data in the network and providing it in real time to the customer. It's happening so fast. And so companies have to get on board or they're going to be behind.

And so the proposition is more of a consultative approach as opposed to kind of a connectivity approach and 100,000 problems...

100%. And right now, we got to do both. But I think we'll see that pivot. And our belief is that the more we're solving problems in East-West and our network is easy to consume because it is programmable, that ultimately, we win in North-South because it's just going to be easier to buy from us. Period.

So I think we are -- as I said, we've disrupted ourselves. I think we're really going to disrupt the enterprise telecom landscape.

And you talked about on the Investor Day again around returning to business revenue growth in 2028. Can you just double-click on that a little bit as to how you're going to get there, what that means and some other signposts along the way.

Yes. It's really based on some basic assumptions. And the assumptions are that everything that we sell today in a traditional manner grows or declines with market. Market is defined by companies like IDC and Forrester, right?

And the only exception to that is that we layer in the revenue impacts of the $13 billion of the PCF deals we sold to the hyperscalers already. We're not counting on more. We know what that delivery curve looks like, so we can commit to that revenue. That's a low-risk assumption.

And then the second incremental assumption is that we go from $117 million in digital revenue in '25 to between $500 million and $600 million by '28. We do those things, we get to growth. And those aren't huge aspirations.

Again, the $13 billion we know and the $600 million in digital revenue, if you look at that as it relates to our current network footprint in terms of number of customers, number of ports, it's low single-digit kind of comparability. So there's a huge opportunity.

And I mean just again, one more level deep, the mix shift itself with PCF you articulated other than digital revenue, what else is kind of driving this thing long term?

So we're at a point today. We talked -- we used to talk about Grow, Nurture, Harvest. We simplified that to strategic the things that are growing and legacy to things that are declining. In 2026, over half of what we sell is going to be strategic. By the time we get to 2030, that's going to be over 70%.

So the reality is we're now at the point where the declines of the legacy business are actually a tailwind because they continue to get smaller and smaller and less important and the growth items continue to get bigger. And we're much further ahead of our competitors on that than I think people understand.

And when you look at the rate of business decline in total in the business segment today versus others, you would see that. We're declining at about half the rate because of the size of that strategic business.

And that's what gets you to, I think you mentioned in the day that you'd be kind of mid-single-digit growth rate kind of 2030 and beyond.

That's the underlying assumption. Again, we'll have to see what happens. Our belief is if you think about every major disruptive technology that we've experienced, they see a period of growth and then they see explosive growth. We would think that this would follow a similar path. We just don't want to predict where that point of explosive growth is, right? That's playing with fire.

So we've assumed a relatively linear growth rate between '25 and '28, but we're doing everything we can to drive customer adoption. So even internally, the revenue isn't the thing we're most focused about with digital right now. It's about customer adoption, how many customers, how many ports, how many services.

Because when we get a port inside of a customer, they can then consume as many services as they want to consume. They're delivered digitally, which means the revenue is instantaneous. You don't have a delay. It's higher margin. It's lower churn. It's less capital intensive.

So candidly, on the mix, if we could accelerate the decline of legacy by taking a chunk of our existing legacy business and moving it into that digital selling motion, that would be a really good thing for our business. So we continue to look at that. That's not in the model, but those are the things that we continue to do.

Yes. And moving down the income statement, help us think through it translates into EBITDA via margin expansion. I think you've targeted kind of mid-30s by 2030 plus.

Yes. So the shift of legacy to strategic, but importantly, the growth of digital, the growth of PCF, those are margin accretive. And it's -- we talk about momentum. And on the way down the only thing you can do with momentum is endure, right?

On the way up, it has all kinds of positive benefits, right? So as we inflect EBITDA, as we slow the rate of decline on revenue and ultimately inflect that, we start to also drive operating leverage in the business. And so all of those things contribute to that margin expansion on EBITDA.

And then with lower capital intensity because more is being delivered digitally, we end up with great cash conversion. And oh, by the way, thanks to Morgan Stanley and some of our other partners, we've taken $0.5 billion of interest expense off the table between when we sat here last year and where we sit here today.

So those things all contribute to what is, I think, a very positive cash flow future for the company.

Let's do a deeper dive on the digital and the Network as a Service revenue. You talked about that briefly earlier. But maybe a bit more as to where the growth is coming from, how the customer relationships work because you're training behavior and people think about these type of things.

Exactly.

And how do you teach people to behave and think differently in this environment?

And that's why it's all focused on adoption, right? You've got to get it inside of the customers' facilities and they got to start playing with it. And Kate talked about this last week. There's some really great content on our website, if you haven't seen it. But it's really a land-and-expand motion, which is, okay, there's a couple of ports play with them. Oh, I can provision connectivity. I can provision security.

I can do -- it works. Wow, it's on demand. Okay, I'm going to take it from 2 facilities to 50. Now it's in 50 facilities. Now oh, wait a minute, now I need this other thing. Oh, I can have direct cloud on-ramps. I want that.

And so the goal ultimately, it really is the PxQ model, the scalable model for enterprise networking where the port can hold -- one port can hold thousands of services. And so you move the customer up the stack to more complex solutions where we showed an example where a customer could go from starting at maybe $1,000 a month of MRR to over $5,000 a month of MRR.

And so -- and by the way, between first deployment and the end of that, there's no truck rolls. Everything is consumed point and click through Lumen Connect to pane of glass. That's the magic.

And trick is kind the wrong word, but the trick is the land part, right, getting them to adopt this thing to let's try it. And once they try it, I would imagine the sell-through rate is pretty high, the upsell rate.

Exactly. We see very rapid conversion. Once they adopt, we see much lower rates of churn. There's just goodness across the board. So part of it -- and again, we're exploring multiple different approaches here because we are at the beginning stage.

We had 1,000 customers in August. We've got over -- we said last week, over 2,000 today. It's growing about 30% quarter-on-quarter. But we've got to think about how we're even more aggressive.

Like do we go into an existing customer who really, really, really wants us to add that old legacy VPN connection to building # 51 that they just built. And do we need to think differently and say, look, we know change is painful, but we're going to give you NaaS ports for those 51 buildings, and we want you to convert now, and we'll give them an incentive to do that because if we can drive that motion, we will drive that adoption even faster.

And so we're looking at a lot of different approaches right now. Jeff Sharritts, our new CRO, helps Cisco actually convert from that upfront license model to a consumption model, and that's why he's here.

So we're going to explore all the options and see where the biggest opportunity is, and that's what we're pursuing.

I need to address some of this. But is the initial pitch to the customer that you've got this capability remote the software? Or is the network that you have, which enables you to be more efficient than your competitors and more cost effective, I should say. Or is it all the above?

It's really all the above. And so I think that's what's so interesting about the model. It doesn't matter what the entry point is. You can either start to consume back upstream or you can go further downstream. It doesn't really matter where in that capability set, you enter your discussion with Lumen.

You can move around the system. So what we've heard, though, is -- and this has been really important is that when you look at our scores with customers, our customer service scores, it's a different Lumen than it was 4 years ago. And so even on kind of the old way of delivery, customers are telling us this is a totally different company than what existed a few years ago.

I mean I said this morning, I had an investor tell me when I first started at Lumen that Lumen's product was a dividend and networking was a hobby, right? And I think about where we are today, and it's fundamentally different. So fixing a lot of that internal stuff so that we can deliver was critical.

And now there's the credibility there. So now with easier to consume digital approach, there's validity in the fact that we're going to perform.

Okay. Okay. Moving to PCF a little bit. You've got, what, $13 billion of signed deals. Tell us a little bit about how those are working? And how do you think about these investments and kind of what's next.

Yes. As I said last week, we love PCF, right? This is monetizing conduit that was put in the ground a quarter of a century ago. And the reason it was never monetized was because just how fast optoelectronics technology has changed. At the time, they thought they would get 10 strands through a conduit. We're pulling as many as 1,728 strands right now and in the same conduit.

And that's 400 gig today that will very quickly over the next few years, turn into 800 gig, 1.6 terabytes. So each one of those strands over the next 3 to 4 years is going to get 4x bigger, if you will, right, in terms of its capacity. So that's huge. And that has allowed us to recapitalize the company in addition to selling what were nonstrategic assets for us.

But it's not what saves the company. What really puts the multiple into frame is this digital expansion and this programmable, easy-to-consume network that AI demands. And so it's both. We'll continue to do both. We love PCF. There's more opportunity there, but the future is all about digital. That's the thing that's going to move the needle.

But as a funding source, you don't really need stability anymore, but as a funding source and other relationship building, PCF still matters. There's more to do and more you can.

Absolutely.

But it's not your growth.

It's not our growth. We're not counting on it in our growth, and there will be more deals that we can and will sign, and that will be incremental cash that we can reinvest in our growth story.

Okay. You talked earlier about capital intensity coming down kind of the upper teens, excluding PCF. You can talk a little bit more about what's driving that and what gives you confidence you're going to get there over time?

So there's a few things. In our baseline CapEx today, we're still spending a lot of money kind of fixing the technical debt. And what do I mean by that? Lumen, like others in the space, did a lot of consolidation. So the way that legacy telco tried to scale was through consolidation, and it still didn't work, right? We're living examples of that, and thankfully, that's behind us.

But what happened in those acquisitions is there was never IT integration. And so you have got dozens and dozens and dozens of systems that are decades old where the people that service those systems are retiring, try getting Gen Z to go learn that code, right, forget it. And so we're modernizing.

We did Phase I of our ERP, Quote-to-Cash, Phase II, Procure-to-Pay is coming this year. We've got CRM to put in. There's just a lot of things to fix. There's also things -- again, when your remit is to focus on paying a dividend, what you do is you don't spend the money elsewhere, right?

And so there's literally generators that are 20, 30 years old that fail when there's hurricanes. That's a problem. And so a lot of our capital is in that right now. That's going to go down. As more is consumed digitally and you don't have truck rolls and you don't have literally a port for every service you provide because you have a port where services are provided digitally, you reduce CapEx. So that's really what's driving the reduction in capital intensity.

Okay. And where does kind of the network come into all this? I mean you've got probably one of the deepest, largest networks in the country. How does this play into the -- not just your capital needs going forward? How do you think about return on capital and investing?

Yes. I mean it really is, as we go forward about driving that free cash flow conversion between the inflection of EBITDA and revenue, margin expansion, the lower capital intensity, the reduced interest expense because of our ability to continue to borrow and borrow at better rates, that's going to drive, obviously, incrementally much better returns for shareholders from here forward. So we're excited about that.

And do you hear from customers? How do people think of the network that you have as a strategic asset? I mean it's one where it doesn't get a lot of press, doesn't get to talk about, but it's really deep and it's broad. It's been -- part of the acquisition history of the company has been the company has bought a lot of these assets over time. You've put together this fabric of connectivity that is maybe without peer.

It is without peer. And I think there's no greater evidence of that than the PCF deals, right? We don't have a competitor that would walk past $13 billion of opportunity if they could deliver on it. The answer is they can't because they don't have the footprint that we have. What's interesting is that within networking circles, they understand the power of that network.

What do you mean networking circles?

So the network engineers inside of enterprise, inside of government, our customers, they understand what we have. What they also complained about for the longest time is we were not easy to deal with, right? And that has changed. I mean, again, we've fixed a lot of those things. We continue to work on them, but now we can build on that and grow from here.

Okay. So let's move into the balance sheet. I think the term you've used, Chris, is financial freedom. So you've got tremendous amounts of flexibility today with lower leverage. You referenced lower interest expense, better credit rating. Tell us about what you can use with that flexibility, both organically and inorganically.

Yes. I mean, first of all, for the first time in the 4 years that I've been at Lumen almost 4 years, we're not looking at a 5-year forecast that has a solve in it. Right? And that solve ultimately was around cash flow, right? Our investment needs are fully funded. Pensions are paid, taxes are paid, and there's still excess cash flow after that. So really, our objectives are organic growth first because there's tremendous returns associated with that as we monetize this wonderful asset that we sit on top of.

The second thing would be we will scour our scouring, we'll continue to scour the market for opportunities where an acquisition could accelerate the digital conversion. So that's not in the model, but something that we would certainly consider.

After that, we've said that our leverage target, we're at about 3.8x right now is between 3x and 3.5x and when all is said and done, that still leaves us with excess cash. And if we can't find a growth opportunity to invest in, then at that point, I think you'd see us considering buybacks.

Got you. Okay. Okay. Taking a step back as we kind of close out here a little bit, tell us what -- where we started out, where you think the most compelling part of the Lumen story is today? Like what's kind of the key takeaway as to what really drives growth here really versus your peer group?

So the business answer is what I talked about, really an unparalleled network that no one else has that if money wasn't an object, and it obviously is, but if money wasn't an object and they started today and tried to replicate it, it would probably take 10 years, permitting and construction times and everything else. So this is a locked advantage. And on top of that, building a very programmable consumption layer to manage the data supply chain for AI, we're the only ones that can do it.

And that's not a solution trying to find a problem. That's a problem that exists and is real, and we're ready for it. So that's the business answer. The personal answer is different. What got us here is our culture. And as finance people, we don't talk about that enough. But when I arrived when Kate arrived, I remember when she and I first talked before she was hired, we talked about the mindset of telecom.

And we talked about legacy telecom being a space where winning was defined as dying last. Where playing to lose was viewed the same way as playing to win, and they are two completely different things. And so the focus on fixing the underbelly of the ship at the same time that we drove a massive cultural transformation, that's how Lumen is winning.

We are having fun. We are aggressive. We are playing to win, and we know that this space is our right to win and our right to own, and we're going to go do it.

And as part of that change in culture, you've made a lot of changes in the organizational structure and employees. Any data point you're willing to share or can share around that?

Look, I guess the first one is that I am the longest-standing senior leadership team member, and I've been there for not quite 4 years, right? The second would be that we have had some rotation of the senior leadership team, and it's very much, I would say, in a very positive way, think of it as a football team, right?

And it's about the best athlete in the position at the right time. And at some point, I won't be the right player for the right time. But we're building a team that is met for the needs of right now and where we need to go next and that the energy inside the company is palpable. We're starting to see a shift in our investor base, which is validation. We're obviously seeing the credit ratings improvements, which is validation. And so this is where momentum turns positive, and we're not going to let out.

Great. Thank you. Congrats on all the success.

Thank you.

Good day, everyone. Welcome to Investor Day. We're so excited to have you with us. So let's dive right in. Let's give a warm welcome to Lumen's SVP Investor Relations, Jim Breen.

Good morning, everyone, and thank you for joining Lumen's 2026 Investor Day. Before we begin, I'm going to read the safe harbor because I can't memorize it.

I'd like to remind everyone that today's presentation will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect our current expectations, assumptions and projections about future events and financial performance. Actual results may differ materially from those expressed or implied in these forward-looking statements due to a number of risks and uncertainties as detailed in our most recent SEC filings.

We undertake no obligation to update or revise any forward-looking statements made today, whether as a result of new information, future events or otherwise. Today's presentation may include non-GAAP financial measures. You'll find reconciliations to those on our website. And the presentation is available on the IR website as well.

So thanks for coming. Really happy to everyone here, given the weather and enjoy the short video before we begin.

[Presentation]

Let's a warm welcome to Lumen's Chief Executive Officer, Kate Johnson.

Good morning. Good morning, everybody, and thank you so much for coming today, getting through the snow, the hail to sleep the rain to hear our story. Thanks for taking the time to be with us. It's been a while, right, since we've done a deep dive, more than 2.5 years. And so much has changed. We're so excited to share that progress with you. And it really starts with a commitment that I made to our people and to the market that we would rebuild Lumen from the people up. And we've refreshed our people and our culture in such a profound way.

First and foremost, we took people who are in the company already, and we empowered them to show us the way. And that's been an important part of where we started. We imported industry leadership from telecom and from networking at all levels of the company across all functions. And wherever required, we retrained and upskilled and we're still committed to doing that, particularly as we build AI skills across the company.

We rebooted our culture, and I don't say that lightly. It's actually a very significant part of the reason why we've made so much progress. We were in survival mode, we were planning not to lose focused on trying to slow the decline, right? Harvesting cash to pay a dividend, and now we're playing to win. We're making intentional bets, and that takes a completely different mindset when you're playing to win, you have to constantly learn so that you can take feedback from the market to pivot. It takes a certain amount of agility you have to have courage to speak truth to power, to point to the problems, and you have to have the mindset of we can fix it, we can overcome.

And that's how we built the Lumen 8. It's the 8 behaviors that define our culture. And I think the important thing to know about them is these weren't random behaviors that we selected. There are actually 8 behaviors that are associated as common denominators with companies that have driven successful transformation. Big reason why we're here today.

Second, we rebooted our strategy fundamentally to become the trusted network for AI. We simplified the product portfolio, really getting rid of adjacencies that didn't make sense. We declared our major. We're going to focus on serving the enterprise in the world of cloud 2.0 and AI. We've driven a massive expansion of our physical network and continue to do so and probably most importantly, and a significant focus of our story today, we built a digital platform that's representing a very exciting and fast-growing organic platform -- organic growth platform for the company. The future looks bright.

Finally, we established financial freedom, two ways. Number one, we inked $13 billion of private connectivity fabric deals with the biggest technology companies in the world. Secondly, we sold our consumer fiber-to-the-home business to AT&T, huge injection of cash. We very wisely use that cash to absolutely reboot our capital structure and all of this put together has driven incredible feedback from the financial markets.

Our debt is trading at greater than 95% of par for the first time in a couple of years, up from a very low number before that. We've received upgrades from all of the agencies. We just announced on Monday. So that's pretty encouraging. Our equity price, equity investors have enjoyed a 400% return in the past 2 years alone. The average stock price given -- assigned to us by the community here that we're talking to today has risen from slightly above $1 to slightly above $7, which is also very encouraging. And we've seen a substantial increase in growth-focused investors.

We have had a lot of volatility. I think there are 2 parts to that story. The first is we are now a part of the AI trade and there's a lot of thought on one day, it's positive, the next day might be negative about what's going on in the AI economy. We're now a part of that story, and we see volatility as a result of it. Secondly, we need to make sure that the world understands our story. It's a very powerful one, and I think it will tend to moderate the volatility over time once that story becomes well known.

And finally, our trading multiple, up 25 points compared to the backdrop of other competitors in the industry, this is pretty solid performance. So today marks the line. The dark days are over. We've stabilized the company. We've driven a turnaround to both credit and equity investors and the future is very bright. We're going to focus on how we grow. We're going to give you great insight into exactly that path today and we're very excited about it.

The lineup for today is, I think, a very solid one and what we're talking about, I think it's going to be a lot of new content. I'm going to our strategy and the business model and I think that will shed a lot of light on our path to pivoting the company to growth; Jim Fowler, our new Chief Technology and Product Officer, is going to talk about building the stack to address this complicated market called Cloud 2.0 and the world of AI; Ryan Asdourian, our Chief Marketing Officer is going to take us through the Lumen difference and what we look like compared to the rest of the market; And Chris Stansbury, our CFO, is going to back clean up and take us through the financials and our guidance. Then we're going to open it up the entire Lumen leadership team. We'll be on stage 45 minutes of Q&A. And then I know you've heard that there's no such thing as a free lunch. But today, you're going to get exactly that. Okay.

All right. 2.5 years ago or 2.5 years ago plus, I started my presentation with this slide. And it's changed a little bit and refreshed, but it still provides the North Star for our transformation. Our focus, what we wake up to do every single day is to ignite business growth by connecting people, data and applications quickly, securely and effortlessly.

Now we've been connecting for decades, right? The difference here is the quick secure and effortless customer experience is defining in the telecom industry and much needed. We've established 5 core customer solution areas. This is that simplification I talked about, getting rid of the stuff that doesn't make any sense and really focusing on our assets and the value that we can deliver to customers. And that has proven actually very fruitful in terms of our focus, both slowing decline as well as accelerating growth.

A couple of years ago, I really focused on profitable growth, and that is what we're going to do. We've already talked about driving growth in revenue in our business segment by 2028, still a primary goal but we've added some things. We want to deliver the best experiences for employees, customers and partners that requires digital, that requires a fundamental reset of our IT backbone from quote to cash, which is underway. But this is new. I think this is new for telecom. It's new for Lumen and it's probably the most important thing on this page. We want to build products and services that customers love. We want to innovate to deliver true value to them. And I think the growth of our NaaS business, which we just announced on Tuesday, 2,000 customers or a doubling since the last time we quoted that a number for you. I think it's proof that we're on to something very special here.

The whole thing sits on top of that culture. These are the 8 behaviors growth mindset, courage, et cetera. These things, again, not random, but they're based on a very important thesis that our path to greatness lies by giving agency to the people who do the work at our company. And it's an incredibly virtuous cycle, the more we empower the more they deliver, as you can see in our results so far.

Okay. Who are we going to be in 3 to 5 years? This is an incredibly important line we're drawing in the sand. This is where we're headed. We want to be a digital network services company that delivers ubiquitous and universal connectivity to enterprises, right? You know, we're all about high bandwidth, low latency, secure resilience. These are words we've used for a long time, but intelligent fiber solutions as well. And we want to deliver them digitally and on demand to our customers to give control for a change. This is something that they've seen in the cloud space with compute and storage, and we want to give it to them from a networking perspective.

A couple of words that are new here and are essential to our build-out that Jim is going to take you through in a few minutes, this notion of ubiquitous. We want to be available everywhere that our customers are, which is everywhere. And we want them to have optionality to send their data from anywhere to anywhere. That's why we universally cover every combination, whether it's on-prem, at the edge, in any data center or any cloud because on-net or off-net, we want our customers to move data from anywhere to anywhere anytime.

Intelligent, we talk about being the trusted network for AI. This is incredibly important, this word because we want our products and services to be infused with AI as well. So it's not just about helping other companies use it we're on the hook to become masters of leveraging AI to reimagine what the networking business is, and that's well underway. And finally, on demand. This is a new business model. On demand, we know about this model from cloud. Bringing it to telecom is completely new. We're driving consumption patterns in our NaaS business that I'll talk about shortly. It's an incredibly important shift.

And again, it's about putting control in the customer's hands. You only pay to use. That's value. And this value is coming at just the right time because CIOs, they've got a real problem. As always, they're on the hook to drive insight at the speed of thought. But today, it's in the sea of complexity with Cloud 2.0 and AI. Cloud 1.0 was about the simple on-prem to cloud connection, static point-to-point analog. Cloud 2.0 is about intelligent application-centric serverless environments, and with explosive growth in data centers and clouds, it just makes moving your data more and more complex and the problem is becoming more and more intense with AI.

So I want to unpack the AI economy a little bit and how we see it and the role that we play in it. And it really starts -- I'm sorry, it really starts with the supply side, right? $2 trillion being spent on data center expansion over the next decade. Why? Because data centers are becoming AI factories. There where intelligence is being created. These are where the new knowledge worker the AI agent live. What do they need? They need chips, the fastest depreciating asset on planet Earth. That's why we think about TCO. It's because we're trying to add that value for our customers to help them with a very real and complex problem. And there's obviously the great search for affordable clean energy.

And third, and we think most critical, is you need networking because otherwise, those data centers are just bricks. And the biggest proof point that Lumen is critical infrastructure in the construction of the supply side of the AI economy is the $13 billion of private connectivity fabric deals that we've done. As big tech is building out the infrastructure to provide AI services to enterprises.

They've tapped Lumen as the trusted network for AI. But there's a demand side and the demand side actually is going to be the focus of today. It's where most of our growth lies. It's where the exciting part of our valuation will come into play. And there's a massive shift that's happening. Today, enterprises spend about 36% of their network spend connecting premise to cloud or [ premise ] to premise, right? And about 64% on what we call cloud core. That's the interconnection between all those net new data centers and cloud, multi-cloud over to prem, all of that interconnection and with AI corridors emerging, it becomes more and more important.

Over the next 3 years, we see that shifting pretty dramatically to 84% of their spend being there. Why? Yes, they have to connect those data centers. But probably more importantly, they also need services to help them move their data in an agile way between them. And that's the essence of our strategy because they need 5 things in order to do that quickly, securely and effortlessly.

It starts with massive amounts of bandwidth, extreme bandwidth and low latency. They need data center interconnect to happen, which were a fundamental part of that story. They need to take advantage of those AI corridors that are emerging. We have line of sight into that and are expanding into those quarters. And they need on-ramps. On-ramps in the cloud, on ramps into the AI quarters. Basically, we're investing, as Jim is going to say, in all of the right places. And all of that depends on one very, very important concept we are making our physical network programmable and API-driven.

It enables the whole strategy. It's an essential part of the story. We're going to tell you exactly what that means today. These are the things that we're investing in. And we've got a laser-focused strategy that is enduring and delivering results, 3 pieces. We will continue to be the undisputed leader as the backbone for AI. That's our commitment to constantly invest in our physical network to drive massive expansion for greater coverage in case of that ubiquity concept I talked about, but also investing in state-of-the-art fiber and equipment to make sure that it's a no-brainer to choose us as your backbone.

Second, on the digital side, making everything programmable, it's all about that customer experience. It's all about recognizing we have to make it easy for enterprises to move their data from anywhere to anywhere, anytime, in real time. The connected ecosystem, we're going to bring this to life today and show you why it's so important, a huge part of our growth strategy to bring third-party services to our customers via a very elegant implementation and we'll bring that to life with real stories and how our customers are doing it today, whole thing on the commitment to constantly address our technology debt, simplify our IT backbone from quote to cash, make sure we have state-of-the-art implementation of all core systems, ERP, CRM, ServiceNow, et cetera, all sitting on that culture that we continue to invest in because it helps us go fast.

So I'm going to ask Jim Fowler to come up to the stage in just a second, but I want to tell you about Jim and how Jim and I know each other. We worked with each other at GE a bunch of years ago. I was always impressed with Jim, smart, able to execute visionary, great to work with, incredible collaborator. So when the Board of Lumen had a chance to bring him on to the Board as a director I was gleeful, so excited. And the role that Jim played over the past 2 years is he represented the customer. He's been a CIO for a couple of decades and CTO and all the other labels that we put on people who care for the technology that makes our business possible.

And he always represented the customer perfectly, and he brought incredibly incredible value to our story. He helped shape this strategy, and he brought commercial truth to it. He would say, I'd pay for that. I wouldn't pay for that. That's invaluable for this company. So when we had a chance to bring them from the Board, to become our Chief Technology and Product Officer. We jumped up the chance.

Jim, come on up.

Thanks, Kate. Really appreciate it. As Kate mentioned, this year, I had the opportunity to make the transition from a Board member to management team and now I'm 52 days into the job. And the question that I keep getting all of the time is, was it a hard decision? And the answer I keep giving everybody is it's the hardest, easiest decision that I ever had to make. It was hard because one, I was leaving a company I love, the brand I love working for.

Two, I was rolling off the Board, and I'll tell you for the last 2 years, it has been A very interesting point of view to have to be able to watch the transformation that Kate talked about in the role of governance on the Board of Directors. But the easy part of it really kind of boiled down to 3 things. One, this is a spectacular management team. I can't tell you how well they work together and work off of each other. It feels very much like a start-up mentality and how they're thinking about the way the company gets run. The second is the culture of the company. Kate and the management team have really kind of taken this old telecom mentality, and they've taken out of the organization. When you meet the leaders across the organization, what you're going to find people are passionate, they're passionate about change, they're passionate about what they see the opportunity for.

But the third is kind of what Kate alluded to, after 30 years in enterprise tech, 20 years and some various role as either a CTO or a CIO in lots of different industries, the problem couldn't be more clear to me. Like I see it, like I was experiencing it as an enterprise technology leader. My first CTO role was 20 years ago and what seemed really complicated to me then is actually not that complicated. All of my applications and my data sat in 2 data centers, those data centers were about 300 miles apart. If 1 failed the other took over.

All of my users sat in about 100 locations around the world. They were connected by T1 and T3 lines back into those data centers. We had firewalls that protected us. The perimeter the perimeter was actually pretty easy to manage. But I would say all of that has changed in the past 10 years, the enterprise. The perimeter, the perimeter now is now the whole of the Internet, and it's really driven by a few things. One, there isn't one enterprise leader who hasn't moved to Software-as-a-Service. They're CRM is sitting in Salesforce. They're ERP is setting an and SAP's cloud environment. They're running MRP systems that are running in other companies' data centers that manage them for them, SaaS really started to expand the perimeter of the data and the applications that enterprise leaders have to manage that made it more difficult.

Those 2 data centers I talked about, we moved them to the cloud, right? So now they're not just sitting in 2 data centers, they're sitting in 20 data centers. And by the way, not just on cloud, they're sitting at AWS, some combination of AWS, Azure and GCP, depending on the workloads that you were trying to move, again, the perimeter kept expanding.

That workforce that sat in those 100 locations, well, now they're sitting in 20,000 locations because they're a hybrid workforce, and they're working from home periodically. And so that increased the edge of what you had to protect and how you had to think about data movement. And then I mentioned it was a global organization. When you think about data sovereignty laws, requiring you to keep data around the world, this perimeter issue really drove the problem that Kate unpacked for you earlier, which is AI-driven proliferation is real.

Data is sitting everywhere. Apps and data and users are widely dispersed and as an enterprise technology leader, that was a core problem that I was faced with how do you manage every day. As the perimeter expanded, the second thing that really happened is you ended up with a proximity issue of how you thought about data. From a proximity perspective, the perimeter breakdown really means that data, which is really the fuel for business is distributed everywhere. The days of having compute and data together, like those 2 data centers, I could have the data and the compute sitting next to each other, those days are over, and they're never coming back to us, quite frankly.

Compute and data are going to be sitting at the edge and the value of investments that we're making in things like artificial intelligence, they're really being throttled by the public Internet because that's really the way we've been connecting the data and the compute together as it sits in different clouds in different data centers around the world. And those hybrid architectures, they're not going away. They're only going to get more complicated and they're only going to continue to grow.

So the third problem that I clearly saw is kind of an enterprise technology one of reliability and resilience. There was a day last year where one of the major cloud providers had an outage in a region. We couldn't book product for the day. We couldn't service products for the day. So think about the complexity change that happened in 20 years from a resiliency and a reliability perspective, all my apps, all my data set and two data centers fill from one to the other, pretty simple. Well, today, a business process, not even a system, a business process can span multiple data centers and multiple cloud providers and how as an enterprise leader as an enterprise technology leader, can you really manage that?

Those are some of the key problems. And frankly, it was the key problem that I could see that really made it so easy to say yes to Kate and the management team. So okay, thank you for calling. It's going to be a fun ride. And you don't have to look far to see examples of this playing out today, data that you can look at to see this happening. The first one I'll call it is data center growth. Over the next 5 years, we're going to see a 10x increase in the number of data centers located in the United States as we build out the capacity for artificial intelligence and the world that we see coming at us.

Those data centers are not going to be in the same space as the data centers are today because they're going to follow the 3x increase in power builds that are going to move to rural America. They're going to move to where there's fuel, where there's capacity and where there's land and where there's tax abatements. And that perimeter that we've been talking about is going to continue to get worse as -- the enterprise is to really think how do you manage this dispersion of data and systems and processing.

The second is one of cost. I have a friend who's a CEO of a large bank and I was talking to them about what they're doing to build their own large language model. They're one of the few enterprises that I see doing this, but they recognize they've got 20 years of data about their customers, about the transactions they've made, and they believe that there's a financial planning capability that they can build in a specialized model.

And the problem that the CIO was faced with is to be able to get to the GPUs, which are in short need, they're having to go to Neo cloud providers that are providing GPU as a service. That's not where their data is at. And so here they are, they're paying $2,000 an hour for these chips to be able to build this model, but they got to bring petabytes of data from their data centers to get there. And so the problem they're faced with is the CPUs, the GPUs that they had to pre reserve to be able to get them are sitting idle at $2,000 an hour. So we just kind of give you a quick example here. If you think about moving a petabyte of data over what most companies have traditionally had a 10-gig circuit, that's 222 hours. That's 222 hours of potential downtime for that CPU while you're trying to get the data to the GPU to actually train it.

So this is why you're going to hear us talk about the need of the future is around high bandwidth, getting to 400 gig circuits, 800-gig circuits, 1.6 terabyte circuits, it reduces this from a 222 hour problem to a 6-hour problem, and that's worth almost $0.5 million of savings from a GPU cost perspective for that one customer in doing training. So cost, you're seeing this start to unfold as a big issue in idle time within the infrastructure driven by the capacity limits of the network.

And then the third thing you're going to hear more and more about, right? We're at this point where companies have moved on from experimentation of artificial intelligence to implementation, latency is going to matter so much. One of the biggest examples when I talk to my peers in the technology industry that most enterprises are going after is the call center. There's a lot of great new technologies that can be that first call receive either a text or a chat or a voice call. This isn't the voice systems of the past 20 years. This is going to seem and feel like you're talking to a real person that's able to talk to you, and you're going to have this issue of inference that's going to come into play for that application to matter, for that virtual agent to be able to talk to you clearly and plainly and be able to converse at the speed that you want to converse at, it has to be able to infer and get data from the rest of the system that's spread out.

If that doesn't happen for voice applications at a 5 to 20 millisecond level, it's not going to feel real and it's not going to work. Think about all of the different applications here, image recognition, 50 millisecond cycle time. You go to some more advanced capabilities like telesurgery, drones and robotics, you've got to be under 5 milliseconds. It's one of the big reasons that from a Lumen perspective, we've been really focused on making sure that our network is within 5 milliseconds of 85% of the hyperscalers or the data centers inside the United States. Latency is going to be the third big problem that enterprises are going to feel that they're going to need a new network, a new way of thinking about the network to be able to deal with.

So when Lumen talks about Cloud 2.0, this is what we mean. It's about helping customers unlock these value levers. How do they get to scalability without runaway cost, right, that first bucket. How do they get to bandwidth that keeps the GPUs, the XPUs, all of the new processing unit types for being productive and from being idle. And how do we get latency that is really low enough to enable an entirely new class of artificial intelligence-driven applications. This all starts with a network that's high bandwidth, this low latency and it is programmable by design. It's resilient and ability for our customers to be able to control that world.

Now Kate talked about supply and demand, and she started to find kind of 2 markets that we're focused on within Lumen, and I want to make sure everybody understands these 2 markets. The first we'll talk about is kind of the north-south. Think about North-South as an enterprise connecting their premises, their buildings to their data centers or to their cloud or their premises connecting to each other. This is the complex version of the world that I described, I was in 20 years ago. It's not new. It's about a $12 billion TAM for us. It's not growing, but it is getting far more complex whereas 20 years ago, I was connecting a set of buildings together within 2 data centers that I own, I now have to connect into 20, 30 different data centers to the SaaS providers, to the hyperscalers. The complexity of the North-South getting bigger. The market itself, though, is not.

The second market, the one that's the really interesting market for us is East West. As the world generates more data as data becomes the fuel for business, as we think about what's sitting in the data centers and the hyperscalers the east-west traffic of moving petabytes of data back and forth between hyperscalers to neo clouds, between neo clouds and on-premise data centers that's where a lot of the growth is going to be.

We believe this is -- we don't believe this is an $11 billion TAM for us today. It's growing at about a 13% CAGR. We expect this to be a $20 billion TAM for us by 2030. This is where AI training and inference really matter because you're moving really large amounts of data around. And what's important for all of you to understand is that most providers are focused on one or the other. They're either focused on that north-south traffic and how do I get my enterprise and my customers' enterprise connected to the cloud or there's a set of companies that are focused on cloud to cloud. Very few are building a platform that's designed to serve both markets.

Cloud 2.0 is Lumen's answer to that. We're building a network architecture that addresses both enterprise to cloud and cloud to cloud connectivity together at scale, with the bandwidth, the latency and the control that these workloads demand. Now here's the rest of the story. I told you that the North-South is static. It's not growing. But we also believe is the winner on East West is going to take share from North-South because what enterprise, right? This is me the customer 53 days ago, what customer wants to have to go to multi-providers to deal with the end-to-end issue that I have as an enterprise.

So from our perspective, winning East West is also about taking share from a North-South perspective. That's something I want to make sure everybody understands about our strategy here. It's not the fun stuff. This is the stuff that I geek about. This is where we get to get into how do we make it work. This is our road map. How are we doing this? This is the road map that we're going to really make Cloud 2.0 real.

In 2026, we'll invest about $500 million really to build a truly programmable network for AI-driven workloads. And we're doing this across 3 really tightly integrated layers of building blocks, and Kate kind of took you through this. The first is the physical network. We talked about large capacity, low latency networks. We need to do this at the inner city level. That's our rapid routes work that we're doing to get 400 gig circuits across the United States.

Once you've built intercity, you need to do within City, that's our metro work where we're doing a metro network that is able to be able to support high-speed Ethernet within the individual metro areas where our network exists. And then you've got to get it out to the data centers. How do you make sure that you can go from the metro to the data center again with that 400 gigabit band circuit. All of that supporting the work that we're doing to get to the cloud on ramps, the AI on ramps and making sure that we can get that enterprise connectivity from a wing-to-wing perspective in place.

We started, if you recall, with the PCF deals, that was about helping the hyperscalers to be able to build out the large language model capabilities within their clouds. What you see is the building blocks above that are what we Lumen are building out for our enterprises to be able to get their data from. This is very much a homogenous relationship between what we've done with the PCF and what we're now doing at the enterprise level to build out the physical network. Taken together, the second part of this -- sorry, the second part of this is the digital platform. Once we've given the physical network, we want to give control to our customer. It starts with how we go to market. That's Network-as-a-Service. Again, you heard our successes this week. We crossed the 2,000 port number as Network-as-a-Service. That is the motion that we will go forward to have one port and many services.

To make that work, we're building a platform called Lumen Connect. Lumen Connect is that digital skin that we're giving to our customers to be able to own their own connectivity their own connectivity, their own service addition and modification to be able to manage the network much the way they manage the cloud. The third is the fabric port. This is the physical device and the network components that make it happen that allow this all to get connectivity together. And then multi-cloud gateways is a way to give customers a 1 point of connection into all of the clouds all of the SaaS providers that we're building to make it easier for them to not have to build individual connections. And then once we've got the physical layer and the digital layer, the platform together, we know that we have partners that need access to the same level of connectivity.

So through Lumen validated designs and marketplaces, being able to use the underlying platform that we've built to allow our customers to get connectivity in. Taken together, this is how we turn the network into a programmable asset, a platform, one that supports both enterprise and cloud core use cases, both North, South and East West, it scales with AI demand as we go forward. And it really lets customers consume connectivity the same way they consume compute and storage in the cloud. All of the benefits that I got as an enterprise leader of moving to cloud. From a time-to-market perspective, we want to provide it to network layer as well.

And so I'm going to drill into a few of these just to kind of give you an idea of where we're at. The first one I'm going to start with this rapid routes. This is where we're looking intercity across the U.S. How do I make sure that they've got 400 gig circuits that run across the United States. The progress we've made, we've got 36 new routes high-speed can spin them up in just a matter of days for customers to be able to get 400 gig intercity capacity. By the end of this year, we'll grow that to 49 new routes, and we'll expand 18 additional routes to have that 400 gig capacity to be able to move large amounts of data between cities across the U.S.

So now you've landed in a city. We've got to make sure we're doing it there. That's our metro expansion. Metro expansion is where we're providing high-speed Ethernet services in key metro markets where we know a lot of these AI-enabled growth is happening. Today, we have gateways in 6 markets. And by the end of this year, that's going to grow to 35 gateways, 32 markets. It will be in over 248 of our wiring centers around the United States. So this is -- once you get into metro, how do I get to your premise and how do I get to the data center, which leads into the third big market for -- the third big component for us, which is data center expansion.

Data center expansion is, I got you to the metro, now need to get you from the metro to the data center with the 400 gig circuit. Today, there are 68 data centers that we have this level of connectivity to in 15 markets. By the end of this year, that will grow to 139 data centers in 28 markets. So now wing-to-wing, city-to-city within a city all the way out to the data centers I've provided that wing-to-wing capability for you to get high bandwidth services in place. And by the way, this is just 400 gig. We're building this out in a way to grow it to 800 gig into 1.6 terabytes of capacity as the demand grows over time.

And so this isn't an endpoint. This is a stopover point as we're building out that capacity. And then all of it focuses on this Recognizing that we need access to both the cloud on-ramps and the AI on ramps that are developed across the United States. Today, we have about 44% coverage of the on-ramps with this level of capacity. By the end of this year, of the existing on ramps will cover 90% of them.

Again, really focused on that enterprise need to be able to get to the large language, model capabilities that the hyperscalers have built on top of our PCF network we need to be able to provide the enterprise networking capabilities to be able to get them there. And so that's the physical layer. Now we're going to talk about the digital piece of this. Network-as-a-Service is how customers are going to consume our services going forward. What we're talking about is really a shift from a process where you contacted your salesperson, you put a manual order in place. They did some design work. We rolled a truck. We did a network configuration for you. And at its core, what we're trying to do is really shift that experience to have it be more like a programmable network for you.

Traditionally, this has been static. It's been manually procured. And in fact, if you estimate a change to your service today, the cycle time for us inside is about 20 to 30 days of average cycle time, from the time that you start that ordering process until we get it through our systems. It's just not acceptable anymore. And so what Network-as-a-Service does is it really flips that traditional telecom model on its head.

It turns connectivity into a software-driven configuration that can be provisioned, it can be scaled and it can be reconfigured really as the customer needs to it will behave like cloud infrastructure. Customers want flexibility. An example here in my last one, I had a large team of data scientists who sat across the United States. And one of the problems we uncovered is their day would start off by them coming in and saying, I need to move a large chunk of data from point A to our premise to be able to get it into the analytical models I'm running on my laptop and get it back out.

That was a 2-hour window of time to move data for them sometimes. And what NaaS gives us the capability to do is to be able to say, you know what, you're going to schedule that job between 6:00 a.m. and 7:00 a.m. and between 6:00 a.m. and 7:00 a.m., I'm going to dedicate more of the bandwidth that I have to those data movements so that we have standard times of moving data around the organization to reduce your downtime. So I don't lose 2 hours of data scientist today that's how we're thinking about this. This is what we want the capabilities of the programmable network to be.

So as you think about Network-as-a-Service and you think about Lumen, this isn't just a product shift for us. This is a business model shift. We're really thinking about how we monetize the programmable network, how we improve our capital efficiency, how we align the economics of how Lumen runs to how our customers actually want to buy and use connectivity going forward. So as you kind of anchor the digital story, it anchors off NaaS.

But the second part that this digital platform anchors off of is Lumen Connect. This is the front end of our programmable network. It's where customers go when they're using network as a service to replace the manual processes and give them on-demand control to change bandwidth to add services, to modify services over time. This is an evolution from a product we had called control center. This is not a reskin or a refresh. This is a brand-new strategic platform that will replace that and be the front-end of our NaaS product. It will let customers discover the services that are available to them and the capabilities that are on their network today.

It will help them provision new services. It will help them it will help them manage the services they have to scale up or down on demand. We're already seeing in NaaS customers who, on a nightly basis spin up or spin down the capacity they have in their network. Based on specific needs. We know we're going to see more of that. And we know that it's going to be API-driven, digital workflow driven. And Lumen Connect is the place where that's going to happen. And rather than me telling you more about it, let's show you a quick video about how Lumen Connect works.

[Presentation]

So I'd encourage you when -- after the meeting today, there's a booth outside. If you want to see more, they'll be happy to kind of share with you a little bit about Lumen Connect and get to see it. This is really what makes NaaS economically compelling because it really helps reduce the manual work that our customers have. It accelerates service delivery that allows us to scale revenue without really scaling the cost of how we operate the business at the same time.

Now underneath this, kind of the next layer of that road map I talked about is the fabric port. And some of you have heard us talk about this capacity -- this capability in the past is Project Berkeley. Berkeley was a development effort that we've been working on for the past year really to come up with the technical capabilities at the port level to be able to support what we're talking about.

Fabric port is the productized outcome of that work. And going forward, that's how you'll hear us talk about it. At the center of the Fabric port is a fabric network interface that is a single physical port that can support multiple services. So in the past in the old world, a port and a service we're pretty synonymous with each other, and they didn't have a lot of flexibility. It's what drove a lot of truck rolls, et cetera. Going forward, our technology will actually bring those together where you can have multiple services on that same port. It will make it more of a user-driven experience.

The fabric port also extends Lumen's network to the customer site. This allows them to add services, to modify them kind of locally, it allows us to issue APIs that will allow us to do a lot of the configuration work back and forth with the customer, all without new hardware roles. Hardware rolls out to the customer. The important part of the fabric part is really this is what makes NaaS scalable for us.

This is how the physical network of what we're doing really becomes programmable going forward, and it's really how Cloud 2.0 for us becomes a repeatable margin-accretive business. And so a lot of the work we've been doing in the last 12 months is to come up with this fabric port capability. And then the last piece of the digital building blocks that I'll talk about is really the multi-cloud gateway.

This is a self-service virtualized routing solution that really simplifies how enterprise get connections into the multi-cloud. My old world, we were in multiple clouds. Each one of those clouds was a separate physical connection that we had to design and build to be able to get into those cloud providers. At Lumen, we really want to eliminate that complexity of managing those individual connections and create a full cloud mesh capability that once you have the fabric port and once you are in the Lumen multi-cloud gateway, it's as simple as a service addition or change to be able to get you access to new clouds, new regions, new SaaS providers and their capabilities over a private network where you're not where you're not having to fight with traffic with the rest of the Internet.

That's how we think about what the multi-cloud gateway should work. We just announced this capability last week. This also opens up for us East-West traffic market I talked about because, yes, this helps with the North-South, but it also gives us a capability to allow those customers now to have a better way to be able to transfer data across those cloud providers. That's all part of what we're building within the multi-cloud gateway.

And then the last thing I want to talk about is now go up to the third element of the stack and talk about the ecosystem. When we talk about Cloud 2.0, the core idea is that the network becomes a platform, not just to transport anymore. We're building a programmable digital foundation that lets us integrate best-in-class solutions at the edge, in the core and across the multi-cloud environment without forcing customers to stitch together the network to make it work. And what we know is there are several partners who need that capability for their solutions to work for their solutions to be able to scale with the same capacity needs and latency needs that we're talking about.

And so that, we've kind of created this idea of lumen validated designs where we'll partner with other companies in this ecosystem for solutions that take the best of what we're doing from a network perspective and the best of what they're doing from a technology perspective and bring them together and just 2 examples to leave you with today. The first is meter. Meter is really thinking about within the facilities they manage, how do you really unify the local area networking capabilities that they're building out with the wide area network in a single AI-driven experience that really better unifies the connectivity configuration of their customers.

The solution that we're working on together as a Lumen validated design really simplifies that it creates a single place to buy it uses things like natural language processing to give them the ability to ask for what they're looking for, and it accelerates the deployment of those capabilities for both meter and Lumen. So that's one example of a partnership that we really believe comes out in the ecosystem.

And the second one I really love because I happen to be responsible for our own internal data, and this is a solution that we're using internally from Commvault. We're using Commvault for our immutable backup system. And the lumen validated design we're building with them is really to think about how do you integrate AI powered data protection directly into our programmable network. They're one of the largest data protection service providers. They are delivering policy-driven backups. This a mutable backup space. They're identifying identity resilience and they're focused on how to build ultrafast kind of clean rooms for recovery when companies do have losses.

When you think about the amount of data that has to transfer at real time to get a company back up and running, those 10-gig circuits aren't going to work anymore. So having a design where we can scale the network to their needs for these backup solutions, that's a marriage that we want to move forward with. And so those are two examples of what the ecosystem looks like I'll maybe leave you with one last video to unpack what the relationship with Commvault has looked like.

With that, thanks very much.

[Presentation]

Okay. Let's bring it all home. Lots covered. Thank you, Jim, for that overview. We're investing in 3 ways. We talked about the continued expansion of the physical network with upgrades, we talked about building a programmable network with our digital layer. And now we've talked about the connected ecosystem and how we bring third-party capabilities to enrich the offerings that we bring to our customer.

I believe that most of you have come here today to understand how does this pivot the company to growth? How do you get there? And so we wanted to take you through the path. And we thought the best way to do that was to give you an illustrative example of a company and how they will consume our services. And the whole story starts with the Fabric port, formerly known as Berkeley. This is the revenue socket for our business, think iPhone, think computer, a piece of hardware that hosts these services and the value of a fabric port grows with services, not with truck rolls, okay? So that's an incredibly important part of our story because we're delivering cloud economics in the world of telecom.

Increasing scaled revenue reduced marginal cost, incredibly important part of our value prop over time. So 5 different demand scenarios, let's call it a manufacturing company with 1 site. Very simple example, but brings a whole story to life. Starting off, this manufacturing company, the CIO says, we got to get out of TDM circuits. We've outgrown them. We want to modernize our communication capability and our Internet access let's buy a fabric port from Lumen. Let's put some Internet on demand on that fabric port and maybe some voice, some Lumen cloud communications.

And let's see how that works. One port, it might require a truck roll for that first instance, multiple services, get up and running, it's quick, it's secure, it's effortless. New [ CISO ] joins the company says, guys, we need some security protection here. He decides maybe he needs some immutable backup from Commvault, maybe firewall adds both of those services with Lumen Validated Design. Now you've got a secure connection, quick, secure effortless.

The data centers are aging. CIO is on the hook to migrate them to cloud, chooses AWS for the apps, chooses GCP for the analytics. Multi-cloud gateway, the capability that Jim talked about, that we just announced availability on Monday is essential to that storyboard. Same fabric port, more service revenue growing across every one of these demand point examples. 30-, 40-year-old ERP, time for an upgrade, want to go SaaS, by the way, this is starting to sound a little bit like our journey at Lumen. But we got our ERP in this year. So we're pretty excited or last year.

It's a tough scenario. First thing you got to do go to that marketplace, make sure you set up Lumen private data connection through the SaaS providers marketplace and get yourself access to a SaaS-based ERP and CRM platform. And then finally, maybe the CIO at this manufacturing company wants to build AI-powered services franchise. And to do that, they need some models. They're going to put those in Azure, and they need lots and lots of data, which just happens to be over in GCP. And they need a 400-gig intercloud connection that they're going to buy through Lumen Connect in order to do this.

Five different scenarios, starting at $990 monthly recurring revenue with Lumen and growing to $5,500 of monthly recurring revenue with the company. growing via addition of services on one fabric port over time, no truck rolls, remotely monitored through a single [ pane ] of glass, Lumen Connect.

At the bottom of the [ trip ] behind me, you'll see the first 2 scenarios are really about North-South connectivity. The simplest of the connection. The next 3 are really about the Cloud Core, Cloud 2.0 and all of that complexity and growth that we see on the horizon. It's important to note that a customer can start anywhere on this journey, right?

Any time they get the fabric port, they can add services first or third party in any order that they see fit. Last point on this chart that I think is incredibly important. How do you get the pricing, Kate? I want to say that the service prices that you see here are constant, but they reflect a discount providing a billing with a growing commitment with a customer, just like in the cloud world, right? You make a big commitment you get a bigger discount off your bill, but the service prices are the service prices. And that's reflected in this illustrative example that I just gave you.

Let's click on that box all the way over on my left, your left, right? Basic NaaS services. This is where we have 2,000 customers that have chosen Lumen and decided to standardize on our fabric. We have learned a ton in the past 2 years. First of all, NaaS became GA in January of 2024. And in August of 2025, we announced that we had 1,000 customers that had adopted the platform. It's only 6 months since that point that we've now doubled the business. That's a pretty phenomenal growth rate.

This is our organic growth platform inside the company. All of those customers now have fabric ports. All of them represent revenue sockets that we can sell into, first and third-party services. And we're learning a ton about the consumption business, right? Because that's different. It's different for telco, but we have many of us that came from cloud. We've seen this movie before, and we're applying the lessons. A couple of things that I want to point out. 2,000 customers have adopted it. We've actually sold 7,000 ports more than 7,000 ports of those customers.

When Chris gets up here, he's going to show 3,800 of those ports are active, there's consuming -- there's consumption happening across them, live services running. How does this work? A customer commits to the first port then they start expanding. They have multiple ports, but we have to help them get to the consumption point. We have to -- if it's a net new customer, maybe we've got to send a truck out to do the first fabric port. As we turn more services on the path to consumption gets shorter and shorter, but there is a moment where there's a purchase and then over time, they've got to implement and then they get to consumption.

And the reason why this is important is because the customer success function inside of our go-to-market team has traditionally been focused on stemming the decline of revenue. They're doing a pretty darn good job. If you look at our decline rates of the legacy business compared to our competition. We are pivoting those resources to say, okay, now that we've got the motions here. We want to add to your job that you're going to help our customers get to consumption faster, a faster path, more services and how do we turn it on as quickly assumingly possible to get that J curve going.

I thought it might make sense to take you through the consumption of a real customer. This is an example of an engineering design firm that's multi-site I did not give you the logo because these are real revenue consumption numbers. Land, expand, consume. That's the motion that we're driving with our organic growth engine to pivot the company to revenue growth. And it really starts with this customer decided they wanted one high end on net port to pilot their [ WAN ] modernization. They started using it. They turned it on quickly. They validated the design. And they said, this works. It's quick, secure and effortless as advertise, let's move forward.

They expanded to 20 sites. At those sites were satellites. They had a mix of bandwidth needs. They weren't all high end. They basically got to a point where all 20 of those sites were working, and they said, let's go out to all of our remaining sites. They just happen to have 60 across North America. Again, different bandwidth at all these different sites. And that's important because if you're thinking, Kate, you told me $990 million for a fabric port IOD and some voice on it, shouldn't that be $60,000 a month, if there are 60 sites? It depends. It depends on the service. It depends on the bandwidth they're going to consume, and it depends on the overall commitment that they make because they will achieve discounts if they go all in with Lumen.

This is a common pattern, and we're excited about the expansion, and it represents all the things. If you look at how many ports would this customer have that are active, the number will probably be right now, less than 60 because they've purchased 60, so that's our sales number, but what's active, they're right in the middle of this implementation. When they get to full steady state consumption, all of those ports will be considered in our active count.

How do we grow from here? $46,000 a month, like that number to be higher, it's about third party. And that's why the ecosystem is so instrumental to our growth story. This is new for telecom as well. This is a page taken out of the cloud book, right? That's why we're doing it. Because connected ecosystems represent opportunity, executives who are trying to grow their company, they expect their technology partners to be a part of an ecosystem. They want us to do the work with the technology partners to take the friction out of the system. They want that thing working. They want to validate a design, they want to snap it in place and get to value as quickly as possible. In ecosystems on average, deliver about a 2x accelerated path to a return on investment technology solutions, which is why 75% of executives favor them.

And finally, and I think this is a really important point because it too is new. Every dollar spend on our products and services inside of an ecosystem are likely to generate 6x to 8x those dollars in a services ecosystem on top. As we partner with the 17 companies on this page and the dozens more behind them, we are creating opportunity for services firms, consulting firms, to come advise, guide direct design, implement all the things that they do. We represent an opportunity for them to grow. And when they get interested, there becomes this heat, this energy around the ecosystem, that gives us a competitive advantage. Go with Lumen, they've got the service industry behind them. They've got a myriad of technology partners, and they can help you go faster.

And here to tell more about that Lumen Difference is Ryan, our Chief Marketing Officer.

Awesome. Awesome. Thanks, Kate. Thanks, Jim. Good morning, everybody. So you just heard the what, the how, the strategy, the build, the programmable network and the ecosystem. It's what we're doing to win in Cloud 2.0. So now I want to talk about what matters most, what's the proof? Because here's the thing, in our category, there are a lot of companies that can go and tell a story.

The question is, does the market back to customers, do analysts, do partners so they start seeing the same thing without us prompting them. And so I want to start with a simple customer rooted truth. In the AI economy that we're talking about, trust is becoming the product. Customers are betting their operations, their security posture, their AI ambitions their infrastructure that has to be fast. It has to be resilient. It has to be safe.

So when we say the trusted network for AI, that is not marketing poultry, it's actually a buying requirement. Because in Cloud 2.0, if the network doesn't match the moment, AI cannot thrive. So what we're doing is we're building these scenarios that have focus on the customer outcomes. Analysts are changing their language, partners are leaning in, Lumen is becoming recognized as different. These are things that reduce friction, improve performance and ultimately support the economics that you're going to hear Chris walk through in just a little bit.

So I want to start with some of the early indicators that show some of this, our brands, our reputational shift. What we did was in the beginning of 2024, we talked about how we are the trusted network for AI. It wasn't to be clever. It was to be very clear. And customers were waking up to a new requirement. You heard Jim talk about this. New requirements that they have to support AI changes the network demands and customers need a partner to build for it.

The market is validating the strategy. I want to talk about a couple of places that we see this. So if you first look at brand clarity, plus 12 points. Now it is rare to actually see double-digit growth in this category. But what we're seeing is the market is embracing the vision. It means more enterprise decision-makers understand the simple story about Lumin. What do we do? Why does it matter? Why are we different? And our brand helps clarify that vision so that those people that are telling the story that need to understand this, the CIOs, we can go have a clear conversation as they look end to end for their business.

Then as we think about the narrative shifts plus 63 points in media sentiment. And this is a sharp favorable move. The headlines tell you why we're seeing that kind of growth. AI infrastructure, partnerships, leadership visibility, it's credibility compounding in public. And then if you look at customer advocacy, plus 21 points in recommendations. I trust this metric a lot, and it means a lot. It means it's because ITTMs are trusting Lumen more with our conversations that we're having, we're having them with different decision-makers. It's not just the network operations person, it's the CIO because the CIO knows to have an AI strategy, you have to have a data strategy and you have to have a network strategy at the same time.

And we also know, you don't recommend a network partner unless they can go deliver. Delivery, reliability, security, responsiveness. So you see a couple of these awards of the year. Year-over-year NaaS leadership awards, cybersecurity accolades, these slogans are earned. And this is really about how can third parties recognize us also as this trusted backbone and having these capabilities. And the words are great, very happy to receive those, but it's about the customer. It's always about the customer and our customer experience is showing up in different market signals that are making a difference. We know that when customers win, brands strengthen analysts covered shifts and our recommendation rises, and that's what we're seeing happen here.

Now I want to translate this here into customer choice, why are customers picking Lumen. In Cloud 2.0, customers need 4 things at 1 time, capacity, performance, control and reach, and they need it without complexity. And so those 4 boxes you see at the top, they're not just labels, but their differentiators our customers can feel. If you first look at capacity, access to Corning's cutting-edge fiber technology, this benefits our customers with some of the highest quality and bandwidth glass available in the market and it's 4 Lumen customers.

If you then think about performance, 400-gig-ready less than 5 millisecond performance. Jim talked about this. This is AI era physics, and it changes the workloads that are even possible, telesurgery, drones, robotics, and there's so many emerging tech scenarios that require this.

Third, you've got control on-demand services, turn it up for your needs, take complete control. Our network becomes our customers' network and you get cloud-like controls. You get provision, you get scale, you get change. And fourth, Kate talked about this ubiquitous and universal design. It's a consistent experience across environments, connect from anywhere. You're going to get the same experience, on-prem, edge, cloud data center.

Now if you think about the other network players here, customers, as they're looking, typically see 3 main architypes. The Lumen is the one who's bringing them all together. And Jim also talked about, as a customer, you're looking for someone that can help you do this all together in the right way. If you think about legacy telcos, national scale, but oriented around wireless, fiber-to-the-home convergence, they have a different center of gravity. If you then think about cloud-based network providers, modern customer experience, but they don't own the physical network. And that limits the economics. It limits capacity. It limits control at scale. And then you also have fragmented fiber. You have the strong in pockets, but it's fragmented backbone. It's fewer on-net data centers, they're challenged to scale, and they're not built for the AI demands that we are talking about.

And it all comes back to what this means for customers. For the first time, customers have one place to get the 4 things at the top: capacity, performance, control and reach from one trusted partner. In other words, Lumen is here to build and lead that reset that we use because we've got the own physical advantage, digital programmability and a modern customer experience. We are focused on how we get ready to get our customers ready for the demands of AI. And speaking of customers, I want to take you through a couple because let's make it real with them.

In our mission we talk about igniting business growth by connecting people, data and apps. And how do we do that? How do we talk about it quickly, securely and effortlessly. This is the how that customers feel. So let's take how you can really translate these words. And I'll tell you, it's not something that has really been associated with telco ever. So we're going to work really hard to make sure our customers feel that every single day.

If I start with Pac-12 over here. long-time customer, legacy connectivity, longtime [ Vivics ] relationship, they are modernizing how live sports gets produced. Remote production, tons of live events, 0 room for failure. The broadcast lane needs are changing as well, and yesterday's networks won't -- here's the game changer that they were thinking about. They had to figure out a way to turn up gigabit capacity in minutes, especially when you think about multiple events, multiple sports happening, all simultaneously, and they started to run into these scenarios. They had real cancellation risk, time sensitive, high visibility revenue on the line.

What they did was they partnered with us, they looked beyond [ Vivi ], they looked at our NaaS capabilities, and they enable the fast way to turn this up that save the moment. They repeated it. They use us again and again for their live events. They were able to reduce that risk and ensure that we watching those sports never missed one of those critical moments that we get excited about. And that's what we mean by quick. If I think about Apex datacom, they're an IT consulting and software company. And it's really about trust that you can operationalize.

If you think about the rise of ransomware, DDoS, all these sophisticated attacks. It is hard to stay protected yet. Nothing could be more important. So they started with infrastructure at the edge. And as they thought about how they could build this platform, they really leaned into security in a different way using Lumen Defender Plus. And what we were able to do is we were able to take their solutions, stack these together and make it so that they could get this to their customer in a really quick and seamless way. Not adding it later, it's not a bolt-on. You can't think about security later. Customers want this embedded. They need the protection with fast deployment, less customer work.

And what was great about this platform that Apex Datacom was building, is that they're a customer. But they're also a channel seller. So they were able to take this and get it to their customers quick, easy, fast. And I want to talk about -- on the right side, you see Arctic Glacier. Now as we know, it's a bit too cold in New York this week, but I'm going to tell you a little story about a cool customer because one of the things -- you've heard of them before, you've been to your grocery store, you've been to a gas station and you've likely bought ice from them. And they should not be slowed down by IT.

But what they would tell you is that their IT was disjointed. They had outdated tools. They had strict compliance and they need it all to simply work. So what they did was they moved from a legacy connectivity solution into managed services. They got a knock, they have a service desk, and they're using something called customer premises equipment as a service. What this means is they get these new hardware upgrades without the upfront cost, they stay modern and they have a simpler, more reliable environment.

We change for them with fewer vendors, fewer handoffs, fewer steps, and that gave them better uptime and faster time to value. It means more cold drinks at the neighborhood party because here's the thing. When you distribute 2 billion pounds of ICE across 75 customer locations, I tell you, they're the ones with the cool network. So across all 3 of these, you've got quick secure and effortless.

Quick helps businesses be agile, which means they're more competitive, secure reduces risk and increases customer confidence and then effortless reduces cost and complexity. And that's how the strategy we've been talking about is turning into customer preference and preference, we're watching turn into momentum.

I want to close quickly with just some outside validation because it's what keeps us honest as well as we build this. Our customers that include the largest hyperscalers, the largest social networks, the Neo clouds. If you saw today, we just talked about anthropic as a customer of ours as well. They are choosing us because we are sharing a vision, we are pushing the boundaries of what cloud and network together those solutions can enable.

They're trusting us both on the supply side and on the demand side. Our AI ecosystem recognizes us as part of this infrastructure layer that customers need to become AI winners, which is what every customer is after right now. And it goes from building customer GTM plans with Palantir to security solutions with Microsoft, our analysts also recognize the shift. They're seeing us as revitalize new leadership, new culture. You heard Kate talk about this. You heard Jim talk about this, but when our management team works together, we are painting the picture of what this AI economy needs and thinking about our customers first, we're doing it a way that is ready to disrupt because we see this emergence of this new category for AI-ready networking.

Old telco playbook. It's cell contracts, it's compete on price, it's explained churn. Disruption is different. You sell outcomes, you remove that friction. You become a platform customers can trust with their own business because. The only way this changes is through the lens of the customer, and it is being customer-obsessed one of the behaviors that we've been talking about. It's the shift that we are seeing.

You have to go from connectivity as a commodity to the network as a platform. Our customers are seeing this benefit every day. We're working with them. And I'd love for you to take a look. Let's roll the tape.

[Presentation]

We will now take a break. Please be back by 10:20. Thank you.

[Break]

[Presentation]

We're thrilled to welcome to the stage, Lumen's Chief Financial Officer, Chris Stansbury.

Good morning, everybody. to be with everybody today. When Kate opened, she talked about drawing a line between our past and our future. And as I sat watching the presentations this morning and as I look around this audience today, I can't help but take a little walk down memory lane back to April of 2022 when I started at Lumen. And there's particular faces in this room, in particular moments that will be forever etched in my mind when I got what they call candid feedback. .

And when I think about our past and our future I think about 2 words. I think about trust, and I think about opportunity. And we're going to talk about both of those things today. I'm going to focus first a little bit on the past. And the reality is we had to earn your trust. And we have to continue earning that trust. But how do we do that? We had 4 objectives. The first was to return the company back to free cash flow growth. There was a crisis in the company. It was debt, and we're going to talk about that and unpack that a little bit more. But we had to show that we could get back to a future that had solid free cash flow. And we saw the opportunity in both digitizing the network, but also in PCF. And that's really what started to unlock our future.

The second was, and I just touched on it, we had to transform the capital structure. The capital structure sadly was the story. That's all we talked about. And I'll unpack that a little bit more in a minute. The third thing, got to get EBITDA back to growth. We committed to making that happen in our guidance this year, and that's really driven by our modernization and simplification efforts in the near term. But then longer term, the PCF revenue coming into the model and the growth of our digital and ecosystem platforms.

And then lastly, we've got to return to revenue growth. That's going to take a couple more years but there's really favorable tailwinds, and we'll talk about why our confidence in hitting that number is so high. I'm also going to give you the answer on what you need to watch for because there's some really simple assumptions in this that we've made, and there's only one big one. And I think the upside there is more significant than the downside, and we're going to show you that today.

So how do we transform the capital structure? Obviously, those PCF cash flows gave us fuel. But we entered the market at the beginning of last year, and over the course of the year, we did 6 transactions touching $11 billion of our debt structure. This is before the sale of the fiber-to-the-home business. We sold the fiber-to-the-home business to AT&T, as Kate said, paid down $4.8 billion of highly restrictive super priority debt.

And the combination of those 2 things reduced our interest expense burden by almost $0.5 billion. Again, more fuel. That lowered our cost of capital. As Kate touched on, our bonds are trading at all-time highs. And our job is to earn a return greater than our cost of capital, kind of hard to do when your cost of capital is north of 20%. So we had to get that fixed, and we did that. What we're seeing is we go through the simplification efforts on our debt structure, we've eliminated about 40% of the tranches that were out there. We're getting more covenant flexibility, ratings upgrades are starting to happen. And now we're in that cycle where we should see continued lower cost of capital, more opportunities for us to refinance, et cetera.

This is the last time I want to show this slide, but I think it's important. The upper left was the existential threat, right? When I arrived, when Kate arrived, we were looking at a situation where $20 billion of debt, that was a thing. But the real thing was almost half of that was due in 2027. And you all know the storied history that we went through as we renegotiated that debt, which had a lot of complexity behind it, that didn't fix the problem. It bought time.

And I'm going to remind you that many of you, frankly, many of our advisers, a lot of the media said, why on earth would you go through all of that effort? And the reason was, we knew that there was underlying demand for this incredible asset that has been on the ground for a quarter of a century, and that was our ability to deploy PCF we had the ability to sell the hyperscalers the one resource they don't have time because we could deploy those networks faster than building their own. And had we gone down a different path? Have we gone down a path like many of our predecessors in the industry and said, we're just going to go through a Chapter 11 kind of restructuring, we wouldn't have capitalized on what -- at the time, we thought it was a $12 billion opportunity. And as Kate said, to date, we've delivered $13 billion. That's why we did it. And now we're in a position to go digitize the industry.

The impact of the refinancings I talked about, the lower left or lower right is where we sit today post the sale to AT&T. We're looking at a normal capital structure with normal maturities and a leverage ratio that's below 4. So we're here, and I think we can stop talking about this now.

So where do we go from here? There's a few more things we can do. We're actually actively engaging in conversations right now to put a new revolver in place. That's just normal course of business. We will continue to focus on collapsing the number of debt silos. And reported entities so that we can simplify the way we report to you. And so that what you look at and how you look at evaluating the company is exactly the same way we're managing the company.

And then lastly, as EBITDA continues to grow, we will see continued deleverage, and we'll look for opportunistic ways where we can further reduce debt. So all of that really results in a near-term leverage target of 3 to 3.5x. We're at about 3.8 right now. And the good news is, is that I think the objective we set for ourselves, which is a really boring balance sheet we've achieved. Boring is good. And so now we can pivot to the future.

All right. Where do we go from here? You've seen a lot today. And I want to get into why the economics that stem from that strategy are so compelling. The PCF builds and the scaling of digital combined with what we see in the legacy business that continues on a dollar basis to get smaller and smaller are huge tailwinds and give us enormous confidence in that inflection back to revenue growth.

Our capital allocation around that, we're going to go through in a little more detail today. But what that results in is higher margins and lower capital intensity, better free cash flow. We're going to continue to focus on our modernization and simplification efforts, and I'll jump into that in just a second. And then free cash flow generation, as I said, is going to be really as a result of all of that. So on modernization and simplification.

Remember, last year when we gave our guidance, we said we thought we would do $250 million as we exited 2025 and are on our journey to deliver the $1 billion that we committed exiting 2027. We delivered $400 million last year. Our target for this year is $700 million. We're still targeting the $1 billion and are highly confident in that for 2027. But what I really want to focus on here is this isn't just about the dollars. This is not a traditional cost out program. This is truly about getting into the DNA of the company and fixing things that have accumulated over decades. This is about eliminating IT systems. It's eliminating real estate. It's consolidating to new and modern platforms. It's about using AI first in how we manage ourselves and there's savings that results from that.

But the big outcome is focus, the amount of effort that goes into trying to keep software live where the people that wrote the code have long since gone, and there's really no support left, it's enormous. And so every passing day, we're seeing more and more focus on the enterprise vision that we've laid out. So let's talk about CapEx. We talked about the physical, the digital and the ecosystem. But underneath all of that is basically the stuff I just talked about.

There are some things that have to be fixed. Phase 1 of our ERP went in last year. Phase 2 will be going in a few months. We got to do CRM. We've got to exercise against and execute against our North Star vision for IT, a much more simplified, modernized IT structure. We also still have a lot of success-based capital. We're still selling the old way where we pivot to the new. And so that's about half of our total CapEx. That layer, that foundation is about $1.5 billion.

PCF, another $1 billion. We've talked about that a lot publicly, and it's going to stay at that level for a while, and I'll get into some more detail in a second. The rest of it, the $500 million is really going into what we talked about today. That's the expansion of things like RapidRoutes and MetRON and DC to DC and Cloud Connect, but it's also about developing the digital layer in the ecosystem layer.

We promised we'd give you some visibility on PCF. Here it is. And we're giving you ranges for every year because we know what the numbers are. And we know what the numbers are because we're only sharing what's been contracted. We have been very consistent in saying we are not going to forecast PCF cash inflows based off of a deal that we might or might not get because they are really big and they're super chunky and they're hard to predict.

So what you're going to see as I close out with the economic model today is the assumption that we don't sign anymore. That's upside. This is just what we've signed. And so what you see is cash inflows, obviously front-end loaded. And for those of you that have already started your modeling, I see you -- you're going to say that doesn't add up to $13 billion. So I'll give you that answer now. It doesn't add up to $13 billion for 2 reasons. There were some inflows on the builds in '24. There will be some more inflows post [ '30 ] on the builds that are contracted. And then don't forget, roughly 10% of the contract value is for operating and maintenance really over the remaining 20 years of those contracts, and that will obviously be a huge piece that flows in after this time fared.

CapEx lags those inflows. And you've got those estimates here. Again, big, chunky, it's going to bounce around quarter-to-quarter. Last year, we were answering a lot of questions about whether we were going to come in under our CapEx guidance. There was obviously a lot of CapEx in Q4. That's this, right? That's what drives us. And then revenue, revenue is pretty simple. We know what the construction schedule is. And as those routes get delivered to the customer, that's when the revenue starts to get recognized. It moves off the balance sheet and into the income statement, and that's what you see here. So we've said that we expect to be between $400 million and $500 million in 2028, which is what you see here. And we would expect that with the recent signings to go up to about $550 million to $650 million by the time we exit 2030.

Okay, a quick refresher. Part of the very candid feedback that many of you gave to me when I first came into Lumen resulted in this thing called Grow Nurture and Harvest. And that was our best attempt to give more visibility to the market into what the heck was going on inside of enterprise. And it served its purpose. It really has helped us. It's allowed the market to track progress over the last few years. But it's also come of age. And it's time for us to simplify. And so really since the end of the third quarter last year, we've been talking about this.

This is a map on how you get from Grow Nurture Harvest to strategic and legacy. And what we did is we went 1 layer deeper. We said rather than saying all waves is grow, while 1 gig waves doesn't grow, right? That's moving more into the legacy bucket. This is finally about taking a product life cycle mindset to the way we manage the company financially. And so we pull those 1 gig ways out. The same is true in the other direction, not all Ethernet, which at a nurture is in decline. Ethernet on demand is a huge growth opportunity for us as we move to more software delivery and the digital motion. So that's what we've done here. And coincidentally, you get to a place where strategic is about the same size of growth.

So now one of my favorite charts. This is just gravity. This isn't big assumptions. This is saying, if we take what we sell today and we grow or decline it with market and we layer in only what's contracted under PCF based off of the delivery schedules that we are meeting with our customers today, and we layer in digital. This is where you get. And the reality is mix is finally a tailwind -- this year, strategic is going to be over half of what we sell. And by the time we get to 2030, because of PCF and because of digital coming into the model, and because of the absolute dollar volume of our legacy business declining, we get to over 70% that's strategic. And by the way, that legacy business isn't a bad thing. That's cash. That's what's allowing us to invest as aggressively as we are in our digital future.

Okay, digital. Let's talk a little bit about what's in digital. It's the first time we're disclosing a number here today, $117 million in digital in 2025 in digital revenue. As we said, we want to get to $500 million to $600 million by the time we get to 2028, Pretty good start. What do we know about digital? If you look at the shift to a consumption model across other areas of tech, all of them have experienced J-curve growth at 1 point or another, where you've got steady growth and then you hit an exponential curve. We think that will play out here. We don't know where that is.

So what we're not projecting, as I get into the numbers in a minute, is the J-curve. We're projecting linear growth. That's upside. What do we sell today? We sell infrastructure services, which is really edge fabric and fabric ports, connectivity services, that's where NaaS sits. Communications, security. But what I really want you to focus on is the right-hand side because this is where if you're really interested in the lumen opportunity forget about revenue.

You have to ground yourself in adoption metrics because if we drive customer adoption, we get more customers, they land and expand and consume, we get more ports, we get more services. The revenue will come. That's what ultimately leads to that J-curve moment. These are the things that we've been tracking. These are the things we've been talking to the market about for a number of quarters now, and we will continue to do so. So as Kate said, we sold a lot more than 3,800 ports. Now some of that are redundant ports because wherever you have a port, you need a lot of services on it, you're going to want redundancy.

But some of it is ports that have been sold that haven't been installed yet. So this is moving very rapidly. And while this doesn't look like a very big number in terms of services, the same thing is going on there, right? Services haven't been deployed yet. And in the example that Kate showed of the engineering firm and how they've grown, we're seeing more in the 3 to 4 services range today. Obviously, there's ability to grow that as more and more services come online. I do want to do 1 housekeeping thing though.

One of the competitors that provides this service kind of on top of networks, Ryan talked about earlier, they count the numbers differently. They assume the port, including a redundant port as a service sort of inflates those numbers. The way we're looking at it, we're really trying to give you transparency into this. The port is not in the service count. These are software services that are delivered on top of those ports. And here we are, [indiscernible] math. And if I were to use one word to describe this chart and [ board ] does it feel good, optionality. Haven't had too much of that in the past. And what it's showing you is that we have multiple pathways to get to $600 million. If you look at the assumptions that are underneath each of these scenarios, the key assumption is really the amount of North-South versus East-West traffic. And I want to drill in a little bit on something that Jim said earlier, that North-South bucket isn't growing in dollars.

You know what it is growing? The amount that's being consumed in that bucket. So what is that? That's the old enterprise telco feedback that we've gotten from many of you around, but it's a commodity. As fast as volume is growing, prices falling. That's North-South. The only North-South value-added that really has existed in the marketplace is what we've been able to do with PCF.

East-West is where the gold is. That's where the growth is, that's where the margin is. And as Jim said, there's a huge opportunity that as we capture more and more East-West traffic that we can capture more share in North-South. So what you're seeing here are 4 different scenarios. The first scenario is what's in our model, we picked one. And the reality is we will go where the market demand is. If there are 2 attributes of Lumen that I admire the most, it's the fact that we are nimble and we're agile. And we go where we need to go to execute. How we got here isn't necessarily what we thought the plan was when we started all this. And the same unfold here. So we'll deploy our resources, where we see the market moving. And again, the opportunities here are huge. -- really important number.

Okay. Look at these number of ports, you see somewhere between 20,000 and 40,000 ports. What is that as a percentage of the total footprint that Lumen has today, excluding TDM. That's a low single-digit percentage of our network today. So what am I saying? I'm saying the opportunity for scalability here is huge.

Okay. Let's talk about the key drivers of our long-term growth algorithm. I've already touched on a lot of this. Digital revenue, $500 million to $600 million. We've talked about that by '28, that obviously grows. By the time we get to '30 to more like $800 million or $900 million. PCF revenue, just touched on that a few minutes ago. Growth businesses in the base grow with market. Legacy businesses declined with market. What you see happening within strategic is that PCF early on gives us a boost in terms of revenue. But it's really digital. That is the bigger opportunity as we go forward. Both of those have upside as we talked about, but digital is really what becomes the growth driver for the company over the long run.

All of this leads to better margins, both PCF and digital. And PCF, if you think about what we've done, we've invested significantly in a fixed cost base to go deploy these things. So as more and more of that revenue scales into our model, you're going to see operating leverage benefits, which impact our margins. And digital, obviously, as we said, no truck rolls. On-demand, quicker time to revenue. All of those things help our margin structure.

Okay, so here's the algorithm. And what you'll see is our revenue growth last year, we were down about 4.5% in the business segment. We expect that to moderate a bit this year. We guided that. In '27, it's a much more significant impact. And it's a more significant impact because we see digital scaling because we see the deployment of those PCF builds scaling. We hit inflection in '28, and then we think we'll get to kind of low single-digit growth thereafter.

EBITDA margins rise substantially from the mid- to high 20s right now to the mid-30s. We're very confident in that. Cash interest stays about the same. And our capital intensity ex-PCF,[ YX-PCF ] because PCF isn't capital intensive, it's paid for upfront. Ex-PCF, our capital intensity goes down by 25%. So significant impacts. Now let me tell you what isn't on the page, but is in this model because it's really important. Everything is funded, everything. What do I mean? It means all the capital that we need to invest, to fix that foundational layer and get our IT environment cleaned up, it's everything that Jim talked about that we're building physically and digitally. It's PCF, it's all funded.

What else is in there? Things like pension funding requirements, all funded. Okay. What else? All of our tax liabilities. And we're assuming that as debt matures, it's paid down at maturity. Now whether we do or we don't, that's obviously a choice point at that time, given market conditions, given where our leverage is with EBITDA growth. But right now, the model assumes that. Why am I saying that? Because when you model all that out with those assumptions, you're going to get to a remainder that's positive. This business, after all of that, if you model this out, is generating free cash flow after all of those items. And so what are we going to do with that?

Well, as leaders of the company, we have a responsibility -- the first is growth. And so we'll invest in organic growth first always where we see a return. Second, inorganic growth. If we see an opportunity to acquire something that furthers our vision and accelerates our ability to convert to a digital consumption model and there's a return on that for shareholders, we'll do that.

The third thing, we'll continue to manage our capital structure really efficiently. And after all of that has been exhausted, if there's something left, then we'll consider share repurchases.

Okay. We're going to finish where we started. We've covered a lot today, and I want us to go back to where we started, which is our strategy. And I think the most important thing is we have turned the page on our past. This is not the Lumen that we walked into. This is not the Lumen that I got all that feedback on, right? And we couldn't have done that without the team that we have and the culture we have. And quite frankly, I don't think too many people thought we would be here today.

So what truly differentiates us, that physical network, the digital model that we're building, the ecosystem partners. This isn't a legacy telecom anymore. We're a digital network services company. And that's why you need to change the way you think about modeling because it really is all about those adoption metrics.

So how would I summarize it? The first thing we had to do is disrupt ourselves. Now we're ready to go disrupt in the industry. So we're going to go to Q&A next. But first, a quick video from some friends up the street.

[Presentation]

We're now opening the floor for Q&A. If you have a question, please raise your hand, and we'll bring a mic your way.

Okay. All right. Thank you so much for spending the time with us. I hope that was insightful. We're ready and open to answer any kind of questions. First thing I want to do is just quickly run through the paces that weren't on stage today. Integral part of our team. And we'll start with you, Mark, tell them who you are.

Yes. Thanks, Kate. I'm Mark Hacker, I've been with Lumen about 10 months now, and I'm the Chief Legal Officer I'm responsible for the legal team as well as the public policy team and also the public sector segment.

Hi, everyone. My name is Kye Prigg. I've been with Lumen for 2.5 years. Interestingly, my first day at Lumen was the last Investor Day here in New York.

And I can tell you, it is a completely different company compared to the company that I joined a couple of years ago. I'm the Chief Commercial Operations Officer. I look after the planning, the design, the deployment, manage professional service operations of the network. And as of a couple of weeks ago, also have the accountability for the remaining mass markets business.

Hi, everyone. Ana White. I'm the Chief People Officer. And I've similar to Kye, been here for 2.5 years, joined a few months after you and I head up HR and really drive the people and culture agenda to increase employee engagement and also work to drive business performance. .

Three extremely humble people. I think of Mark as the guy who helps us safely get to yes, in transforming a telecom into a digital company. I think of Kai as the person that took us from negative Net Promoter Score to positive across literally every single segment and did it on time and on budget. Thanks, Buddy.

And I think about Ana as the culture ninja literally inculcating everything about our culture into all of our processes, it's why we're here. So thanks to the 3 of you. There's a new kid in town.

I appreciate you call me a kid.

You got it. Anything by the way, return the favor. So Jeff Sharritts joined us 2 weeks ago, 3 weeks ago?

2 weeks, 2 weeks.

Have you sold anything yet?

Yes, we're working on it.

All right. So why don't you tell them about yourself.

Good morning. I'm Jeff Sharritts. I'm the Chief Revenue Officer, and I joined the company, like Kate said, about 2 weeks ago. I spent 24 years at Cisco Systems prior to coming to Lumen.

Awesome. Think connected ecosystem and think Cisco sales model, and you might be on to what we're trying to accomplish here. So we're super excited about that. You're the moderator, did I tell you that?

I get to moderate. So we've got mic runners.

Please wait for the mic to get there to ask a question because, we've got hundreds of people that are streaming in today for this, and we want to make sure they can hear your question. Also, please say your name and the company that you're with. But with that, why don't we get started?

Batya Levi from UBS. Thanks for all the information that you provided. Maybe stepping back, what we're really focused on this transition of digital revenues ramping and legacy base coming down. So can you set the stage in terms of where we are right now in terms of that [ MRR-990 ] of digital? What is the legacy piece? And where is the sort of the new digital customers, are they all new? Are they accelerating the legacy declines to take on these digital services?

And you have made assumptions that maybe legacy declines similar to market rate, but because you're accelerating the digital effort, does that accelerate the legacy decline. So that path would be helpful. And maybe just sort of what do you see as the biggest risk to this 5-year outlook.

I'll take the customer patterns, you take the rest of the -- you do take the hard stuff.

Sure.

Okay. Great. So if we think about who's buying NaaS and why? We really, again, kind of started this as a test. It was a little bit of a hobby. And what we saw were customers that were requiring a network upgrade and they wanted to modernize and do so quickly. were the ones that came. Lots of midsized companies. And frankly, the platform was tailor-made for them. As we started taking our store to large enterprise, there were a few things that we needed to do in order to cover their requirements, which I think we've gotten locked and loaded, and we've got some really exciting large enterprise multisite opportunities in the pipe right now. And it's a mix. These are companies that are in existence today, and they've recognized that their networks aren't big enough, fast enough smart enough or secure enough. And so they're making the transition.

Sometimes, we're doing a migration project and their services involved. Sometimes it's the beginning of the life cycle and it's just a test -- and once that test happens, we usually get to yes pretty quickly after there. I think we're going to have a hybrid environment, Batya, for a really long time. And I will just say, when we're -- cloud.

We've seen this movie before. Remember when we thought everything was going to cloud. And the first, nothing was going to cloud. I'm not putting my data in that thing. Then when CIOs got their head around moving data into the cloud, it was kind of like, okay, now everything is going to go. And that's just not the case. It's what's the most cost-efficient way for me to drive storage and compute. And now how can I have a programmable network that helps me achieve that cost efficiency curve, and that's going to be hybrid. They're still going to be on-prem. There's still going to be edge. There's going to be lots of multi-cloud and data center. And it's the opportunity for our company. We move data for a living, and it needs to be moved from anywhere to anywhere all the time.

So you want to translate that to numbers?

Yes. So first of all, in the model, the assumption on that $600 million is the incremental piece. Now with that, there isn't one of us on stage if granted one wish, who wouldn't wish for complete cannibalization of our legacy business because what we're seeing in the customers that consume digitally is a much lower rate of churn, a much higher rate of service adoption and a much faster time to revenue at higher margins.

So the reality is this is an industry, again, let's go back to that phrase, playing not to lose, protect the legacy, protect the legacy versus playing to win, playing to win is, I want to take all that share to myself. And if we can get customers on that platform, then we would expect the $600 million to be higher. So first of all, and second of all, we think that, that's got a much better lasting economics for our shareholders.

I think there's one more point to add. And Jim, I might ask for your help here. What we described today in the tech platform, the intelligence sits in Lumen Connect, right? Lumen Connect, the single pane of glass, the control panel for a programmable network is what makes a fabric port a fabric port.

And what we are testing, and we don't have this baked into our numbers is our ability to go into our installed base and remotely see legacy ports and convert them to become fabric ports. Now that wouldn't change the state of the customer. It would simply enable us to make that customer port into a port that could carry multiple services wouldn't require a truck roll and would become a point of growth. It's limited by several factors, including what's the bandwidth of that port where is it a bunch of different things that we're trying to figure out right now, but it's a potential accelerator.

Anything to add to that?

No, you got it. So kind of picture, if you will. We have a customer today that uses us for direct Internet access. Our vision is -- they go into Lumen Connect. They flip a switch, and all of a sudden, it is now a fabric port, and they have the ability to add additional services like multi-cloud gateway, which then gets them kind of one place across all their Meet-Me-Rooms to be able to route traffic east west across their cloud providers. That's how we see what we have as our installed base turning into a growth engine.

Bill Matthews from Global Credit Advisers. If you think about the kind of EBITDA margin expansion from 27 to the mid-30s and that $600 million revenue piece of it. Can you just help us kind of understand how much that margin expansion is driven from these new revenue additions versus kind of cost saves and maybe tying that to, if you think about this NaaS network up and down dynamic positioning where customers can dial up and back, how is that pricing versus existing long-term contracts.

So the margin expansion, I would say, is coming from 4 areas, right? The digital expansion, PCF onboarding and our modernization and simplification programs are all margin accretive. But as EBITDA starts to grow, we're also going to get operating leverage benefits because our fixed cost structure isn't going to change materially. And so all of those initiatives are feeding that. We're not splitting that out. And I think you probably understand that. I want to hand that to our competitors. But they're all high-margin services and they all benefit us over the long run. Do you want to talk about the pricing?

I'll let our Chief Marketing Officer and strategy and talk about it.

Yes. One of the things that we're doing is we are going across all of our products. We're looking at margin. The first thing we have to do is we have to get our customers loving our customer experience. So everything is rooted first in that customer experience. We're bringing those services to them. We're also making sure that they have value accretive services added to that and then we're able to go and deliver the experience thereafter and match the pricing where they're able to go in and have those bundles. And one view that a CIO can look at end-to-end to look at a real value-accretive solution together from a trusted partner where we're bringing it all together for them.

That's right. It's no secret. I came from a world of cloud from Microsoft. I learned a ton there. And wherever I can plagiarize from the playbook of the movie that we all saw in cloud, we're going to do so. and I think an extremely efficient pricing model that we are applying to our Network as a Service platform is the service price is the service price.

You make a bigger commitment to us, we're going to make a bigger commitment to you in terms of driving price efficiency. And I think that's new to telecom. It provides a little bit of resiliency in terms of the go-to-market offerings and the pricing and the way that we do it, and it drives loyalty and commitment. And work like term in the days of cloud. So we'll be copy pasting that one.

Bill [ Coler ] of Odeon Capital. I may be a little confused. So can you walk me through 2 things. They're both on the legacy side. What's going on in the legacy copper business that last time we -- you discussed it, it was worth like $6 billion as an NAV. And then is the $600 million that you're talking about incremental to is the way you're converting your legacy business revenues that are declining? And is that the business that you're talking about? Because like, I think we're all confused about where does this $600 million come in? And how does that fit in with the kind of growing orange bar?

Yes. So on the $600 million, Kate talked about over 2,000 customers. Many of those customers are new. Some of them are existing. What we're seeing is that as customers engage in a digital motion, they're buying more. They're buying it more quickly. It's getting deployed more quickly. It's a higher margin and they churn less. So that's really the path forward for growth across the entirety of our platform.

As it relates to legacy, our legacy business, when we talk about it, it's largely copper-based, and it's going away, right? That's -- those are the businesses that are naturally declining. That's what we forecasted in the model. they're cash rich, and there's a tremendous opportunity inside of that. There's an opportunity around how we expand the amount of cash that we can extract in that business. And there's also an opportunity to say, hey, customer, there's this new thing over here.

Now how we go about that, the timing in which we'll engage with a customer on that is going to depend. But Kai's really leading our efforts on how we manage the legacy business from a copper standpoint and maybe you could provide some color.

So the copper network, or the, we call it, the ILEC network supports a large enterprise base as well as a consumer base. So what we've been spending our time on is really mapping out the entire base, understanding each and every one of our wire centers. And of course, there's hundreds of wire centers across the country. we've been able to map the P&L for every single one of those wire centers. And so we know the direction of travel when one of those wire centers becomes unprofitable, that will be a trigger point for us to then work with our customers to move them to go-forward products, right? So go-forward products for consumer go-forward products for enterprise. We will then be able to shut down those wire centers methodically over the next few years as each and every one of those approaches that.

In the meantime, though, we have to care for those customers. And so there's a lot of work Obviously, that goes into maintaining the network, making sure that when the customers have outages that we're able to respond to those customers and look after those customers to the best of our abilities. So you'll see us working on the operations, on the maintenance, keeping the systems up and running, serving the customers that rely on those systems day in, day out. But then you'll see us taking action where we need to take action where we see the P&L of a particular area of the network is heading in that direction where it's cash flow negative, and then we'll be taking different actions with the customers and with the network in those areas.

Frank Louthan with Raymond James. So 2 questions. When we look out to your longer-term guidance of sort of mid-30% EBITDA margins. If we back out the MAR from the revenue and the EBITDA, what would that margin look like under that kind of scenario? And then for Jeff, just curious your vision for the organization and how long do you think it's going to take to sort of implement that to see the benefits from the changes you're going to make.

Yes. On the first one, we're not going to break it out that way. What I would just go back to the answer that I gave earlier. If you think about the key initiatives, right, growth in the digital and the ecosystem, growth in PC modernization and simplification and operating leverage, that's -- all those things individually contribute to the margin expansion that we're seeing. And again, let's not forget. And this is where I think a lot of people get wrapped around the axle is they're like -- but the legacy business is super high margin, Yes. So is this stuff. Okay? We're going to be okay. And so it's about when is the right time, as Kai said, to convert a customer from old to new, and we're going to be very methodical about that.

Yes. I mean I think from a go-to-market perspective, I mean, Kate talked about the transition in the cloud business, software going from on-prem or perpetual-based licensing into subscription-based licensing. I know that Cisco, we did roughly of our business was subscription. We moved that to north of 50%. So I've been -- we've kind of seen this motion and the transformation that's required in the go-to-market model to be able to deliver.

The good news is, I think there's some good foundational pieces in place, if you think about the work that's being done in the connected ecosystem. We have some good work and pilots going on around customer success in the new motion. But there is some work to do on how do we upskill our sellers as it relates to moving up the stack, delivering more value to clients, calling on a different buying center that's a little higher in the stack than what they're used to traditionally think about scaling customer success motion, scaling the connected ecosystem.

And then there's a significant opportunity to scale through general partners in the marketplace, as well. So if you think about VARs, resellers, SIs, et cetera, we think there's an opportunity to drive growth through an extended channel as well. So there's work to do, but I think there's a good foundation in place to build upon.

Jeff Harlib with Barclays. Chris, 2 things. First, on the revenue outlook slide, when you said a legacy decline in line with market grow in line with the market. Can you quantify that a little bit? And then the comment on opportunistic deleveraging, anything else you can say about that? Is that going to be through the free cash flow you expect in '26? I know you've pushed out a lot of your maturities to '28, '29, et cetera.

Yes. So on the deleveraging piece, we will be opportunistic. And it's really going to depend on what happens with things like our borrowing rates, right? That will be a market condition, it will also be based off of what happens with upgrades. And so if we see an opportunity where it makes economic sense to retire something earlier, then we'll do that. But again, the model assumes for now, nothing opportunistic, it simply assumes that everything is paid on maturity when it comes due.

And sorry, the first part of the question -- slipped in my mind.

The other one was on the revenue level grow versus legacy -- quantify...

Yes. So in terms of what defines the market rates of growth, and decline for strategic and legacy. That's really what you would see published by industry analysts. So the Gartners, the Forresters of the world, it's really those numbers.

Nick Del Deo with MoffettNathanson. Thanks for hosting the event. Two questions. First on NaaS, the slide with all the different logos, a lot of diversity there. So I was wondering if you could talk about some of the commonalities between those customers and why they came to you for the service and the education process required to get them to sign up. And then from an M&A perspective, a few months ago at your industry analyst event, Kate, I think you talked about potentially acquiring service capabilities. And I was wondering if you could expand a bit on that and whether that's still something that's of interest.

So we are looking actively for any capabilities that are available in the marketplace that will help us accelerate our path to growth period. And we have a very crystal vision about what a programmable network looks like, what Lumen Connect and single pane of glass looks like and the kinds of things that would help us leapfrog we're not looking for continued linearity that's expensive. That's not interesting. It's -- if we see a leapfrog, you're going to see us move to grab it. And when I say service, I want to make sure we're not talking about professional services. We're talking about digital services that we would be able to put on ports and grow that NaaS business through the J-curve, okay?

NaaS customers and themes. It's interesting because I took you through an engineering design firm with 60 sites. You think financial services, retail, hospitals, they're all multisite. They all have a need to move data in between these buildings. But it's not just about networking buildings anymore. It's about networking, workloads and agents and applications, and they all are seeing that fundamental need with this urgency around being the most efficient point of the cost curve, like CIO deliver insight at the speed of thought in a sea of complexity at a cost point that probably is less money than you were allowed to spend last year. And NaaS helps us do that in a number of different ways because operationally, it's easier to manage. Once you get that first fabric port in there, you can grow and expand without the traditional marginal cost associated with that. there's an efficiency of cloud-based solutions. You're counting on Lumen to do the innovation for you. So you get that by default, and we continue to give you more and more. So it's going to put a little bit of wind in your sales.

These are the kinds of things that the companies that first took a step into this thought about. And we are -- it's still pretty early but I think what you'll see is with the Lumen validated designs and with our technology partners, as technology companies mature, they start to really align by industry so that they can speak the language really have mastery over the business outcomes. And for the first time ever for this company and probably in networking link the value of the network to the business outcomes that our customers are trying to drive. That will be the next couple of steps that we take, and we'll do so as and when we can. I think Jeff and Ryan, who's jump in to add to this would obviously share.

Yes. The one thing I would add here is I talked about quick secure and effortless during the presentation. But when you talk to some of our customers, they are saying that what we've actually promised, we are delivering. And that is not something that always happens. They're surprised at the customer experience, you heard, as Kai talked changing our NPS scores and some of the metrics that our customer satisfaction plays a key role into. Some of the things that we're delivering with rapid routes where you're actually turning up some of these routes much, much faster than ever before. And then you're turning the bandwidth up and down as you need it.

That is not something that these customers have had before. And so we see this across industries and we are committed to what we're presenting here, actually delivering and exceeding that. And that's what we've been doing, which is why you see the growth of that customer -- of the customer count going up significantly in that manner.

It's a cluster in here, yes.

Dave Barden from New Street Research. Kate, I really like your presentation because he did something I've never seen before, which is try to create a P times V construct around this industry, something that I know Chris has been working on for a long time. So what I saw was customers, ports, active ports, services report and MRR per port. And if you could kind of continue to disclose that, I think that, that would strengthen people's conviction in getting to that $600 million number. Are you guys going to do that?

Don't answer that question.

She was waiting for you ask a question. Yes, and so it's certainly to begin with, it's number of customers port services. The MRR piece in time, I don't know that we'll do that right away. But yes, we will continue to share adoption metrics, so that you guys can see the pacing of what we're doing. I think what's really encouraging and gives us conviction is that if you just look back over the last few quarters, those rates of growth have been in the high 20s to 30s quarter-on-quarter. And so it's important that we continue to do that, and we will.

A follow-up for you. How does that long-term outlook slide change? If an old person like me wants to back out the noncash IRU revenue which seems to be a big part of the pivot in revenue growth and EBITDA margin but isn't really about what's happening in the business today. It's about what happened last year or 2 years ago.

That's a good question. And what we have said publicly about that is that if you get the model right, what you're going to see is that the PCF business generates a lot of free cash flow. And then everything else is effectively breakeven. Now it's a bit -- we're burdening that a little bit too much because we're assuming all the tax liability of PCF actually sits in the base. So we've got to do a little more work on that.

But the reality is that the non-PCF business is fully funding itself, including all the things that I talked about like pension and debt retirement and whatnot. We're not allocating any of that to PCF in our thinking. So we'd like for that lands right now because we're in growth mode. We're investing every extra dollar that we have from that business back into that business. So I think that's what you'd find if you split it up.

Mike Rollins from Citi. Thanks for hosting us, and congrats on the progress. I have 3 questions, if I could. The first is on the TAM, the second on strategy and third, a financial question. So on the TAM, you've gotten to 2,000 NaaS customers in a very short period of time. Can you help frame that relative to the number of customers that your company has captured over the past 25 years. And also how many customers are out there that you could go after that you currently don't have? So just trying to size that TAM.

The second, how much do...

We'll let you keep going. Well, this is hot. Let's...

Let's answer that, and then we'll come back to the other 2.

Yes. Yes. When you look at the TAM that we talked about for both North, South and East West and you look at our customer base and you look at the numbers that you -- that we showed you from Chris' presentation, it's a small single-digit percentage of the total capacity that we can go after. So we've taken a very conservative view on how we built out the financials and how we think about what the market is. But it is a small single-digit percentage of what we think the total market share is.

The thing I didn't cover is in my mind, we have access to both on-net and off-net for these services. So when we talk about NaaS, it's not just an on-net capability for us. We can do the same services for both on-net and off-net customers which increases the population we can go at even greater than what our existing installed base is.

And as I described earlier, I think that installation base -- is going to become an asset in the acceleration of our digital business as we figure out the ability to turn or convert legacy ports -- the ones that qualify to fabric ports.

Great. And then secondly, how much of your opportunity do you expect to go through network-neutral data centers, which have been a meeting place for a wide range of diverse networks and ecosystems versus how much of this can you bypass these neutral data centers, get it completely on the Lumen network or those of your customers, which could create a different experience, value proposition et cetera?

So I think I'll start. I'll let Jim finish. What I've learned from our customers is that they really want choice. And what I've learned from the ecosystem is that they're trying to figure out where everybody is playing and what constructs are going to endure versus which ones are going to change. My prediction, and it is only that, is that taxing constructs of the Cloud 1.0 era are going to become obsolete. And I think revenues associated with that, like cross connect fees, like egress fees are at risk.

Value with quick secure effortless connections to where you need to be without that taxing system. Any time we charge something for a customer will be because there's innovation behind it, whether it's multi-cloud gateway, whether it's the fiber solutions that we have in our physical network, whether it's on ramps, et cetera, et cetera. We will get fair market value for those capabilities, which oftentimes are net new.

But I talked to Batya about a hybrid world. It's not like every CIO is going to shut down their network and pivot overnight. These are sticky structural issues that if you go back to the cloud movie and you watch it, you know that it takes some time. But after maybe 5, 6 years, you hit this acceleration moment where there's critical mass leaning into the changes because there's value there. And so it's not a data center cross-connect model or ours. We think our customers are going to probably want both. Guess what? Those data centers, they need us to connect to those 400 gig on ramps as well. we get the business from both sides of the equation. The disruption is all about knowing that these models are actually going to have an impact on the old taxation system.

Do you have anything to add?

Yes, I do -- I get this question at the break, and I did a horrible job of answering it. And it's really around this multi-cloud gateway is where your question is really headed. And the Meet-Me-Rooms, you brought up, Meet-Me-Rooms are really a cloud 1.0 construct. They're a physical instantiation of a way to connect into the clouds. That's a 1.0 construct. There are thousands of them across the United States what our multi-cloud gateway does is it takes the inner cloud communications that go from Meet-Me-Room to Meet-Me-Room and we push it up into our network. It doesn't have to come back to your facility anymore. Our ability to facilitate the cross-cloud communications though the multi-cloud gateway, reduce the number of hops back and/or reduce the number of hops you're making on the public Internet to run your business versus over the private lumen connection framework we've built across all the cloud on ramps. So when you think meet-me room, that's Cloud 1.0, cloud 2.0 is our multi-cloud gateway that pushes that up into our commission framework.

And I would just add, the compelling event for the customer is also the new type of scenarios. We gave a couple of examples of the less than 5 millisecond scenarios. But as more and more of those come that's a compelling event that requires. There's also that financial benefit of ingress, egress fees and looking at cross-connect fees that could be at risk. But the customers may be compelled to move because scenarios will look different and perform differently for their customers when we can quickly move that into a service faster with a multi-cloud gateway.

And I think when all of that, we're starting to see new KPIs emerge fastest in the first token is a new metric that we are obsessed with because we have a right to win when it comes to performance against that. I think TCO is also something which Jim hit directly in his presentation. It's like you can have DPUs sitting idle. You can't. And so you need bigger fatter pipes washing those GPUs with data, and that's exactly what we bring to bear.

Very helpful. In fact, just follow up [indiscernible]. Just quick on the financials mass markets. So it looks like in the margin calculation, mass market revenue is in that revenue denominator. So it's total revenue, the margin on that. And the question is, if that's fair, what's the average rate of mass market revenue decline that is the base case for Lumen?

Yes. Yes. So the revenue forecast that I showed is business segment only, okay? Because what we've said is that the business segment we think in flex in 2028, total business is 29 because of that mass market's base.

As it relates to mass markets, our best guess is, again, basically continuing with market trends, which would put us kind of in the low double-digit decline rate territory. So it's going to take many years for that to go away, which then leads into what Kai said earlier. And by the way, part of the thinking with the mass market customer there is there an alternative service that we could provide through wholesale arrangement or something like that. So there's multiple pathways. But the reality is it is cash rich, and that's how we're going to manage it.

Remember, our locations where we have copper, broadly speaking, are more remote and the customer skews older and generally doesn't like change. And the proof point that is didn't move to cable 20 years ago, right? They've stayed on ESL and copper voice. So part of this is just going to be customer atrophy. But again, there's a long runway there for us to harvest that.

There's a long runway and we have transparency. I think what Kai has brought to us is rare for process, but also transparency of data. So he talked about when something goes cash flow negative, I used to surprise us, and now we can see it turn orange before it turns red. And the orange is the trigger point for activation for us to use all of our tools to exit that market, which is super cool.

Mike Funk from Bank of America. AWS and Google signed or formed a multi-cloud agreement in December, which makes me wonder if the PCF deal you're signing today, if you're potentially arming future competition for that east-west traffic that you talked about and why those customers could not provide that service.

So I'll take the first part of it. And one thing that we've been very clear about in that regard is that those pipes, the capacity is for their own internal consumption for model training. It can't be resolved period. But I don't know if...

Sebastiano Petti, JPMorgan. Just a quick question on Chris clarification on 2026 EBITDA growth. I think in the prepared remarks on the fourth quarter call, you talked about an inflection in 2026, but not necessarily each quarter. And then today, it's exiting the year. Is any kind of nuance there that we're reading into?

No, there's no hidden message there. EBITDA will inflect year. We're not predicting the quarter that, that happens in. But for the full year, EBITDA will be higher in '26 than it was at '25.

Okay. And then just a follow-up on cash interest expense. You're focusing on deleveraging, EBITDA's growing. Why should we assume cash interest expenses flat over the forecast period?

That's an inherent assumption on where market would go. So if you look at the debt that matures the soonest. It's pretty low coupon debt that was put into place years ago. And so when you replace that, you pay that down, and then there will be some replacement along the way. we would expect that we end up in relatively the same place. So there's -- you could argue there's some servertism in that. But I think for now, it's a fairly safe assumption.

Got it. And then I guess 1 last shot at EBITDA trajectory after 2027. But operating leverage makes sense, mix shift. Are there any other transformational kind of investments? Or is that basically embedded within the operating leverage you kind of see...

It's really -- the only other one that we've talked about extensively is really the modernization and simplification, that $1 billion run rate exiting '27. I mean, look, we've been really candid that, yes, we're going to inflect EBITDA this year. It's a huge accomplishment. It's not a huge inflection, right, because we're now getting kind of that trough where we move from a downward trend to an upward trend. From here forward, the growth rate gets more meaningful as those other things start to come online.

Jiten Joshi from BNP Paribas. This question is for Chris. When you announced the first set of PCF deals, you did the video that kind of explained the timing of the cash flows and then the back end on the IRU, could you mind just kind of quickly refreshing us on that? That's question one.

Two, do most of the PCF deals that you have signed subsequently and that you expect to sign going forward, will they look similar? And then lastly, I think more importantly, how do we think about sort of the embedded IRR in those PCF deals that Lumen is earning and that kind of would help us, I think, just sort of split out in the forecast, the PCF part of it.

Sure. Okay. I'll try to remember all those. But if we go back to what we said when we -- and the guidance on how to think about the economics, we really touched on a lot of it today. What we've said is as follows: cash contribution margins roughly 30%. That's net of the CapEx. We've said that roughly 90% of the contract value is cash received to fund the builds. And they're obviously a profit in that, that is what's remaining and that's what we talked about today and it's what's helped us get to what we got.

And then the revenue, that cash as it comes in, sits in deferred revenue on the balance sheet and it gets recognized as routes are -- deleted. So it's not the whole contract. It's the contract is broken down segment by segment. So as those segments are delivered -- to us team has been a essential we're on budget on time, then that starts to get recognized.

And then the 10% that is the operating and maintenance for the network, once that segment is delivered, generally speaking, that's where that comes into play. And that is cash in revenue and EBITDA that earned in the year from there through the remaining 20 years of the contract, okay?

In terms of IRR, it's interesting because technically to do an IRR, you have to have an outflow before you have an inflow. We don't. I mean, one of the beautiful things financially about what PCF is doing for us, is it's an investment that was put in the ground 26 years ago. In fact, we were within -- our first PCF announcement was within a month of the long time ago CEO being on the front page of Barron's talking about this vision to build this conduit network around the country.

And so what happened is, is that because of advances in fiber optic technology, there was a lot of that capacity that remain. And now it's met its time, and so we're able to monetize it. So the from an IRR standpoint, it's infinite. The way we think about it is we price those conduit based off of what the market conditions are. So we're earning our rightful value vis-a-vis what a market price would be or replacement cost would be and then the margin and whatnot flows from that.

Now in terms of the last part of your question, on what about from here. So first of all, I would say everything that's been signed, the $13 billion, you can fit into the framework I just laid out. What we're not going to do, is go do what they did 26 years ago. We are not going to go build a bunch of empty pipes around the country and wait for people to show up. That is not a playbook that works. And that's been proven. That's what almost bankrupted Lumen the first time.

So we still have and we disclose every quarter a lot of embedded capacity in our network today, and that can continue to be monetized. What's not on the slide that we share every -- we still have the opportunity to rip and replace from low count fiber to high-count fiber in the conduit that exists. So there is a lot of capacity in the network. If we did build something new, it's going to be like a new route, it's going to be because of a customer demands it, and we have a contract that backs that up.

You recently -- I haven't been on recent earnings calls, but have you talked about what the pipeline looks like right now for some of these bigger deals? Are you...

We aren't disclosing pipeline numbers anymore because the reality is, when we did that a few years ago, we were wrong, and we've now surpassed that. What we're seeing is more and more demand as the complexity gets bigger and bigger and people are trying to get more and more places with low latency and big pipes. And so that's why our initial estimate of a $12 billion opportunity for Lumen has turned into $13 million. There is more opportunity out there. There are conversations happening, but we're not going to try to frame how big that is. That would just be considered upside. And as we sign those, we'll announce them.

Greg Williams, TD Cowen. Following up on that. Is there a resource issue taking on additional PCF of the $13 billion pipeline? Obviously, the capital because the hyperscalers pay upfront, but how about your internal resources as you focus now more on digital?

He's got loads of time. And why don't you take that?

The short answer is we're not seeing any issues at the moment. We started a brand-new team about 18 months ago that we call custom networks. So that team was built with the sole purpose of serving the hyperscaler PCF contracts. There's a separate team that was started a program management, where we have a program management team that interfaces each and every hyperscaler. So there's a dedicated account team who are there to serve the customer and make sure the customer gets what they need. And then it's all executed through this custom network team.

So you think about the United States split into 3 different regions with the -- President, who heads that up with the construction management, the health and safety teams, the governance teams, planning engineering teams all highly scalable. So as we add more customers, we can easily scale those processes. We built new tools and systems. So it's all underpinned by a system that we call Lumen vision, partnered with a company called OneVision. That system enables us to do risk-based planning. So we have a 6-month, 9-month view ahead in terms of any bottlenecks and issues we see with materials with construction pets, with crew availability and so on and so forth. So we're able to kind of predict way in advance any kind of resource issue.

And then finally, we built an ecosystem. We work very closely with Corning. We have dedicated facilities. So we have certainty of the supply of fiber coming in. We built dedicated facilities with a company called Thermo Bond in South Dakota, who are producing all of the huts or the ILA facilities for us that are then shipped across country. We did almost 300 locations last year, which is a lot and then we've partnered with some of the bigger construction companies across the country as well, right? And so we have, I think, built tremendous scale across the country with multiple vendors, partners down to a very granular level. So we're -- we're in good shape, I would say.

And I'd just like to add to that, Kai, your team is doing a brilliant job partnering with all those partners you just mentioned, and I think you have a different way of engaging. And one example I would give is Kate mentioned the [ Lumenate ] culture in the very beginning. That culture goes far beyond our own 4 walls of lumen into when we work with our partners, and we get exceptional feedback from our partners on how we live different than some other companies as well.

I think we've got time for 1 last question.

Ana Goshko from Bank of America. So 2 questions. So first of all, I know Kate mentioned a preference on the inorganic front for services that would be accretive, especially on NaaS ports, et cetera. But what is the potential for kind of old school traditional telco consolidation, especially Well, especially among fiber networks where they're could be room for additional synergies? That's the first question.

That was the best nonverbal entree.

I don't know what else to say. So if we need it, we'll get it. We'll either build it or we'll buy it. But our commitment to driving utilization of our assets is first and foremost because that's what's going to generate the return to our shareholders. That's frankly long overdue.

Yes. Yes. We're -- I would just -- I would say that -- and I'm actually glad the question was asked. There's a -- we talked about the division between the past and the future. That's old playbook. New playbook is how we monetize the assets we have and how we create a different layer. So your question, if I think really specifically, is a North-South question, right? The real growth opportunity, the real economic opportunity the East West. And so if it fits into that model to Kate's point, and it furthers that, then yes. But if not, that's not a playbook.

And to your point, there's a line around the block of bankers coming to us with ideas for legacy consolidation plays. And I love that because we're looked at as a strong player now. And we could get acquisitive in that way, but it's only to serve the need of building a digital network services company. if we were to make any such moves, it would be in service of that.

Okay. Great. And then, Chris, I know hard to believe, just that you've gotten to this point, but I know you have an...

Is that a compliment?

I think it was.

[indiscernible].

In the past, you mentioned the potential or goal of reaching investment grade ratings on your debt. And -- but you also mentioned the fact that you do have some interest rates and your capital structure back from and money was free kind of a few years back. So it's going to be hard to kind of refi your way into reducing interest expense. As you simplify your capital structure, how much have you thought about going into the ABS market? Because I think virtually a lot of your peers really have been able to go in sort of investment-grade parts of their capital structure.

We will continue to look at all of those options. And if it makes economic sense, then we'll pursue it. I think the key thing for us at a higher level is the target on our leverage is 3 to 3.5. And I would include ABS as part of that. The one thing that we've got to be cautious about with ABS doesn't mean that it's a no, is that what is ABS right? You're basically selling EBITDA streams on your assets, which by default, means those assets now become less flexible.

And if you get underneath the transaction with AT&T, there's a number of different reasons, but a key reason why we sold from the edge of neighborhood into the neighborhood and kept the pipes is because we need those wire centers not all of them, but many of them to further our enterprise ambitions. This is where a lot of those on-ramps are going to set physically. So again, everything we do is around our ability to expand that. So absolutely would consider it if it's economically beneficial, but would look at those other factors as well and say, does this limit us in terms of our flexibility in using assets to do something bigger. So we're going to be very thoughtful about that.

Okay. All right. Number one, thank you so much for the time and the engagement, great questions, and this was fun for us to bring our story to you. Thank you for listening. We are going to stay there with you. Anybody who wants to stay who's in the room, we've got a box lunch for you and can take more questions at your leisure. Thank you so much for the time.

Greetings, everyone, and welcome to Lumen Technologies Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded Tuesday, February 3, 2026.

Your speakers for today are Kate Johnson, CEO; and Chris Stansbury, CFO. I would now like to turn the conference over to Jim Breen, Senior Vice President, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining Lumen Technologies on today's call. On the call today are Kate Johnson, President and Chief Executive Officer; Chris Stansbury, Executive Vice President and Chief Financial Officer.

Before we begin, this conference may include forward-looking statements subject to certain risks and uncertainties. All forward-looking statements should be considered in conjunction with the cautionary statements and the risk factors in our SEC filings. We will be referring to certain non-GAAP financial measures reconciled to the most comparable GAAP measures, which can be found in our earnings press release. In addition, certain metrics discussed today exclude costs for special items as detailed in our earnings materials, which can be found on our Investor Relations section of the Lumen website. With that, I'll turn it over to Kate.

Thanks, Jim, and thanks, everybody, for joining the call. We had a great 2025, laying a solid foundation to execute our strategy to become the trusted network for AI. And of course, the big news is that yesterday, we closed the transaction with AT&T. This marks a defining moment for Lumen, completing our pivot to become a simpler, stronger, enterprise-focused technology infrastructure company. The impact of the deal on our capital structure and financials is very significant. With the $4.8 billion in net proceeds and cash on hand, we've paid off all our super priority bonds in the last 24 hours. Recall that in the last month, we also paid off our second lien debt. Our total debt now stands at less than $13 billion, and our net leverage has been reduced by a full turn, now below 4x.

All of this capital markets activity has reduced our interest expense by roughly $500 million or nearly 45% down from 2025 levels. And lastly, this divestiture reduces our annual CapEx by over $1 billion, driving a significant reduction in capital intensity as we stop fiber-to-the-home builds and focus our capital on building a digital network services company. Closing this transaction marks a new day for Lumen. We're focused on serving public and private enterprises as the trusted network for AI. And our 2025 results clearly demonstrate the power of this focus. We reported strong 2025 financial results for revenue, EBITDA and free cash flow.

Our business revenue mix continues to improve with fourth quarter North American enterprise revenue, grow revenue totaling 52%, eclipsing nurture and harvest revenues. We continue to expect this trend to inflect our business revenue back to growth in 2028. EBITDA was at the high end of our guidance range, which included the RDOF giveback in 2Q, and free cash flow was solid even without the $400 million tax refund that is now expected to come in the first half of 2026. We exceeded our increased target for cost reduction, ending the year at over $400 million in run rate savings.

Exiting 2026, we're targeting another $300 million of cost out, totaling $700 million run rate savings, which positions us to hit our 3-year $1 billion cost-out target as well as our expected EBITDA growth this year as previously guided. Also noteworthy, we had a banner performance in PCF sales in the fourth quarter. You may recall that just over 18 months ago, we announced our first $5.5 billion in PCF deals with a goal of reaching $12 billion over time. As of today, we are now at nearly $13 billion with more deals in the pipeline. And we had another strong quarter of growth in our NaaS business, rising ports per customer show that enterprises are starting to standardize on the Lumen fabric as their programmable network control plane for Cloud 2.0.

Each additional port expands our platform economics by unlocking higher-margin digital services revenue accelerating cloud and AI on-ramp adoption and deepening ecosystem network effects for Lumen and partner-delivered services. Lastly, we added two amazing new executives to our team. Jim Fowler, our new Chief Technology and Product Officer, who is uniquely suited to help us execute our vision; and Jeff Sharritts, our new Chief Revenue Officer, who is uniquely suited to help us drive commercial scale. We're proud of the team we've built and all of their accomplishments throughout 2025, and we're pleased to see both the credit and equity markets rewarding the Lumen team for all of that work. Looking ahead to '26 and beyond, I'd like to reiterate our belief that there's an urgent need for structural change in network, architectures and business models to more closely align with customer needs in a multi-cloud AI first world.

This is the investment thesis behind our 3-pillar strategy as we build the backbone for AI, Cloudify and Agentify telecom and expand our connected ecosystem. I'll briefly touch on each strategic imperatives, starting with the backbone work. We successfully reached our 2025 goal of implementing 17 million intercity fiber miles. The roughly $2.5 billion of new PCF deals that we inked in Q4 will raise our total network expansion to a whopping 58 million fiber miles in 2031. And while simultaneously expanding our capacity for enterprise customers. But as we've shared, our physical expansion is about more than just the number of fiber miles. It's also about giving customers bandwidth expansion lightning fast implementation time lines, rich data center interconnect and investment in geographies where they need it most.

And as we all know, every fiber mile isn't created equal. That's why we're investing significantly in 3 major network upgrades, building 400-gig rapid route waves across 36 routes with more on the way, enabling 400-gig services for data centers across key markets, and focusing on metro expansion so that we connect the most needed routes, data centers and cities across America. To support this work, we've expanded our partnership with Corning, ensuring we have priority access to the newest state-of-the-art fiber technology, delivering the AI backbone for today's and tomorrow's most important customers.

In a world of Cloud 2.0, the largest tech companies are choosing Lumen to help construct the supply side of the AI economy, and that's because of our physical network prowess. Our network size, scale and quality position us to provide superior performance on three key metrics emerging in the AI race: Fastest time to first token, GPU idle time and interconnect latency. What's more, as data centers begin to decentralize to accommodate energy supply constraints, our vast network provides valuable proximity. Together, our capital investments and PCF deals create a strategic competitive advantage, and we're expanding and upgrading our network alongside the most influential companies in the AI race, making it easier for enterprises to consume AI. And speaking of the consumption side of the economy, this is where businesses are recognizing that yesterday's network doesn't support AI and Cloud 2.0.

They need quick secure effortless on-demand services to move their data from anywhere to anywhere in real time. That's why Lumen is Cloudifying and Agentifying the network. Think of it as building a programmable network platform that finally puts networking on par with compute and storage in the world of cloud. And our customers love it, as shown by another great quarter of adoption metrics, the number of active customers grew by 29% quarter-over-quarter.

The number of NaaS Fabric Ports deployed grew 31%, and the number of services sold grew 26% in that same period. Recall that in October, we announced NaaS Internet on demand, off-net. And while it's still early, we believe off-net growth significantly expands our addressable market for NaaS services. Great brands across industries are adopting this new capability with more than 900 off-net ports sold so far. The investments we're making in building a programmable network are driving significant growth in high-value digital revenues, which we believe will ultimately drive higher return for Lumen investors. And we'll share more on this and Project Berkeley at Investor Day.

Finally, let's talk about the progress we're making since launching the Lumen connected ecosystem 6 months ago. The team is fully staffed in building a commercial flywheel to marry AI-ready Lumen validated designs with partner cloud solutions enhancing joint value props and accelerating our collective time to value for customers. Not only do these partnerships give us greater commercial reach, they give us a seat at the table where business decisions are being made. Instead of networking being purchased by infrastructure procurement teams as an afterthought, our Lumen team is included in the entire life cycle of the sale elevating awareness of the critical importance of network and differentiating our company in the marketplace.

We've signed 16 connected ecosystem partnerships to date, yielding more than 180 potential sales opportunities so far. Recently, we've made a slew of announcements including at AWS Reinvent we shared a gated preview for AWS Interconnect to help AI workloads dynamically scale bandwidth while providing high availability and security. At Microsoft Inspire, we announced Lumen Defender with Microsoft Sentinel. And at meter up, we launched our joint network management offering to give customers preferred connectivity solutions and faster time to value. With every connected ecosystem partner, we're working to deliver scenarios and outcomes that transcend legacy telco capabilities.

We're uniquely positioned to do this because of our API-driven programmable network and digital services portfolio, all of which enable a new world of customer-obsessed partner-delivered technology solutions. All right. To wrap it up, it's a new day for this company. Lumen is separating itself from the traditional telecom pack. It's not a story about share take or price protection in a declining legacy market. This is about taking a once commoditized asset, innovating new architectures and capabilities and commercializing it through a modern business model so that enterprises can focus on using AI to reimagine their workflows and business models during the biggest technology shift in history. It's a strategy that for several quarters has helped us slow overall revenue decline more effectively than our peers.

And as our strategic revenues eclipse the size of our declining legacy revenue, it's a strategy that we expect will ultimately deliver new revenue streams that are both margin accretive and require less capital investment, ultimately improving overall margins and free cash flow even further. I'll hand it over to Chris to talk more about our financial performance and guidance.

Thanks, Kate. As Kate said, since the debt restructuring in the spring of 2024, we set out to achieve four major financial goals. Return free cash flow to growth, fix our capital structure, inflect adjusted EBITDA to growth in 2026 and return to business revenue growth in 2028 and total revenue growth in 2029. In 2025, our team executed numerous transactions and reached key milestones along our path to achieving these goals and Lumen's overall financial transformation. Over the past 12 months, we signed almost $4.5 billion in new PCF deals, taking the total amount of signed deals to nearly $13 billion. These deals provide us with cash to strengthen the balance sheet and invest in growth, cementing our place with the trusted network for AI and highlighting the value of our assets to customers in a multi-cloud AI world.

We reached over $400 million in run rate cost reductions on track for $1 billion exiting 2027. We launched Phase 1 of our new ERP system, streamlining our accounting processes and reducing long-standing systems complexity. And we continue to improve our revenue mix with 52% of North American enterprise revenue now coming from growth products, up from the mid-40% range in 2024, which supports our confidence in a return to business revenue growth in 2028. We successfully executed 7 debt refinancing transactions with a total value of over $11 billion, extending and smoothing our maturity profile while materially reducing our annual interest expense by more than $180 million.

Through these transactions, we also simplified our capital structure. We eliminated the second lien layer at Level 3 and reduced the number of debt tranches outstanding by 10 and at 16 when you include the recent super priority paydown. Almost a 40% production. These disciplined actions help to materially improve our financial flexibility. And today, our capital structure is no longer a headwind. It's a position of strength. And finally, yesterday, we announced the close of our fiber-to-the-home business to AT&T for $5.75 billion. The net proceeds and cash on hand were used to pay down the full $4.8 billion of super priority bonds which reduces annual cash interest expense by an additional $300 million. In total, annual interest expense has been reduced by nearly $0.5 billion in the last 12 months.

I want to give a little more detail on the debt transactions because we're particularly proud of what we've accomplished, and it levels no one outside of Lumen, investors, analysts, advisers and the broader media thought was possible over such a short period of time. We have that confidence in ourselves and we have delivered. After the AT&T close, we now have under $13 billion in debt. more than $5 billion retired since January 1 of '25. These actions have reduced our overall leverage to 3.8x trailing 12 months adjusted EBITDA, and we're not done. There are just additional steps that we can and will take to improve and simplify our balance sheet and overall capital structure. We'll share more details at our Investor Day on February 25.

Our team's hard work has delivered impressive results and created opportunities for Lumen's future through a transformed financial profile. This is what playing to win looks like. Now turning to results. Fourth quarter revenue and adjusted EBITDA were in line with our expectations and updated 2025 guidance. As we've mentioned at recent investor conferences, this quarter, we also introduced a new reporting view, strategic and legacy to better reflect how we run the business. It increases transparency by separating the growth engines we're investing in from the legacy revenues we're actively managing for cash and simplification.

Lumen's transition from grow, nurture and harvest to strategic and levity revenue segmentation reflects our commitment to driving sustainable growth by focusing investment and innovation on our most scalable future-oriented businesses. By simplifying our financial reporting and aligning with our enterprise First strategy, we're better positioned to accelerate margin expansion and deliver long-term value. Now let's move to the discussion of financial results for the fourth quarter and full year. Total reported revenue declined 8.7% to $3.41 billion. Business segment revenue declined 8.8% to $2.425 billion which includes over 350 basis points of anticipated downward impact from onetime dark fiber and elevated public sector harvest revenue growth in the fourth quarter of 2024. The Mass Market segment revenue declined 7.9% to $616 million.

Adjusted EBITDA was $767 million with a 25.2% margin percent margin and free cash flow was negative $765 million. Total business grow revenue was roughly flat year-over-year in the quarter. as expected and previously communicated, impacted by those onetime revenue items in the fourth quarter of 2024. For the fourth quarter and full year 2025, we recognized revenue of roughly $41 million and $116 million, respectively, associated with the nearly $13 billion in PCF deals we've announced to date. These prefunded deals have both strategic and financial impacts for women, allowing us to expand our capacity and build alongside the largest technology companies while also providing capital to fully fund our business plan.

We will provide a longer view of the PCF business at our Investor Day. Within North American enterprise channels, excluding wholesale, international and other, revenue declined approximately 8.9%. North America enterprise revenue increased slightly, driven by continued strength in IP. We saw expected and typical declines in nurture and harvest. And overall, including wholesale, the North American business revenue declined 8.6%. Wholesale revenue declined approximately 7.8% year-over-year, in line with our expectations. International and other revenue declined 16.3% or $15 million, driven primarily by managed services, VPN and voice declines. Now turning to adjusted EBITDA. For the fourth quarter of 2025, adjusted EBITDA, excluding special items, was $767 million compared to approximately $1.52 billion in the year ago quarter. Year-over-year declines were largely impacted by expected revenue trends including those onetime revenue items in the fourth quarter of 24%, increased health care costs as well as increasing cloud migration costs that we've talked about in previous quarters.

Special items impacting adjusted EBITDA totaled $280 million. This includes severance, transaction separation costs and our modernization and simplification initiatives. Lastly, capital expenditures were approximately $1.6 billion in the quarter as we expected and in line with our full year guidance. Free cash flow, excluding special items, was negative $765 million. As we discussed previously, fourth quarter free cash flow was negatively impacted by a delay in a $400 million tax refund, which we now expect to receive in the first half of 2026. Now moving on to our financial outlook for the full year 2026, which includes the impact of yesterday's February 2 close of the AT&T transaction, we estimate adjusted EBITDA to be in the range of $3.1 billion to $3.3 billion. We expect adjusted EBITDA to inflect the growth in 2026.

Our adjusted EBITDA guidance includes organic business revenue declines roughly 75 basis points better than 2025. And as we continue to focus investment on our growth products and manage our legacy portfolio for cash. Excluding from the guidance -- excluded from the guidance above, is roughly $400 million in transformation costs associated with the multiyear goal of reducing expenses by $1 billion by year-end 2027. As Kate mentioned, for year-end 2026, we now target a $700 million run rate associated with our modernization and simplification program.

And moving to capital spending and our other outlook metrics. For the full year 2026, we expect total capital expenditures in the range of $3.2 billion to $3.4 billion. The majority of the reduction in CapEx from 2025 to 2026 is associated with the sale of our fiber to the home business to AT&T. As a reminder, CapEx spent on the assets held for sale from January 1 until close was reimbursed at clubs. We estimate the CapEx associated with the nearly $13 billion in PCF deals to be approximately $1 billion. The majority of the remaining CapEx is associated with our core enterprise business. We expect to generate free cash flow in the range of $1.2 billion to $1.4 billion for the full year 2026. Additionally, we estimate net cash interest expense to be $650 million to $750 million, a reduction of over $550 million at the midpoint versus 2025.

Taxes are expected to be a cash inflow of $350 million to $450 million in 2026, inclusive of the aforementioned tax refund by exclusive of divestiture taxes. In terms of other special items for 2026, we continue to expect dedicated cost to support transaction services for the divestitures. The reimbursement for these services will be in other income with no material net impact to our cash. Additionally, special items include costs associated with Lumen's $1 billion in project takeout by the year-end of 2027. As we continue our journey in disrupting enterprise networking, will also evolve how we guide, measure and report our performance, especially around PCF impacts to our financials because it's a meaningful contributor but not the whole story. While the growth in the PCF revenue certainly helps it does not fully reflect the improvements you'll see in our core enterprise business over the next several quarters. We'll share more specific details at our upcoming Investor Day.

Now at the beginning of my remarks, I laid out 4 goals we set for ourselves 24 months ago. We've already successfully achieved the first two, free cash flow growth and fixing the capital structure and expect to deliver the third adjusted EBITDA inflection in 2026 and remain on track to the fourth returning business revenue to growth in 2028. We've achieved the goals we've communicated to investors over the past year, and we continue to see multiple paths to reaching business revenue growth inflection in 2028. We will continue to provide investors with adoption metrics and other proof points along the way to increase confidence in our ability to reach that goal. We're pleased with our performance in 2025 as we made great strides across all three layers of the business. physical, digital and ecosystem and the early results for our digital growth engine are encouraging.

Over the next few years, our cost structure optimization and increasing digital revenue are expected to help improve margins and free cash flow, reduce our capital intensity, further lower our leverage and borrowing costs and continue to increase our financial flexibility to invest in Lumen's growth. The future is bright. We look forward to providing you with more details on our long-range plan in a few weeks. And with that, I'll hand it back to Kate before we move to Q&A.

Thanks, Chris. Before we open it up for questions, I just want to say how proud we are of all the luminaries who continue to execute our strategy to build the world's trusted network for AI. Whether you're doing a PCF deal driving NaaS adoption, helping us do a major strategic divestiture, it takes every single function operating as 1 team from HR to operations to product, IT and engineering to marketing and sales into finance and legal, all of you matter deeply and it's because of your work that Lumen's future is still very bright. Moderator, we'll open it up for questions now.

[Operator Instructions]. Your first question comes from the line of Michael Rollins with Citi.

Wanted to focus on the PCF deals announced today. So with the $2.5 billion in this tranche, can you share with us how that business may be similar or different to the first $1 billion that you announced especially with respect to margins and returns? And then secondly, can you just help frame the timing of CapEx investments and cash received just given now the quantum of these deals maybe relative to the that you spent over the last couple of years didn't seem like there's more to go. So just curious if you could frame how that's going to pace out over the next few years.

Yes. Thanks, Mike. So the recent deals, the $2.5 billion or so, the structure is really the same as what we've experienced to date because we're doing these deals on existing network conduit, so they don't have new routes. So the economic profile is very similar. On your follow-up question, we will get into that detail at Investor Day. We're going to give you visibility into the PCF versus non-PCF impact on cash flows. I think the thing that I would definitely share with everyone today though is if you think about our capital intensity, I'm going to speak in rough numbers because it's easier $4 billion in CapEx last year, $1 billion of that went away with the sale of the consumer business without much of a loss in EBITDA.

So in effect, we've reduced our capital intensity by almost 25% right there. As I mentioned in my prepared remarks, $1 billion of the 3 or so that we're guiding for this year relates to PCS. And remember, those deals are prefunded because of the quantum of those dollars. So when you get to the underlying capital intensity outside of PC we're at about a $2 billion business. And so as PCF builds will eventually go away. Again, we're prefunding all of those we're really looking at a CapEx intensity profile is roughly half of where we were last year. So that, combined with the margin improvements really do drive an ROIC improvement for investors.

Your next question comes from Sebastiano Petti with JPMorgan.

I just wanted to quickly -- I mean, follow up on the, I guess, guidance for 2028 business revenue growth. I mean, with -- and I think last quarter, you kind of talked about, I think NaaS was supposed to contribute $400 million to $500 million in 2028 and PCF about $300 million to $400 million. Correct me if I'm wrong, but more or less in that quantum, or $400 million to $500 million rather on the PCF 300 to 400 on the digital, so 500 to 600 digital. Why is there not upside to that number, given what you guys have talked about today, right? PCF, I guess, TAM now is what, 25%, 35% margin than what we talked about exiting the third quarter call and the NASA digital adoption seems to be accelerating. And so, any kind of color, Christopher, or Kate, you could provide on maybe the shaping of revenue and maybe there's upside relative to last quarter's?

Yes. Thanks, Sebastian. I'll let Chris handle the financial side of it. I just -- let me talk about the structural side of change in the industry. So any sort of change to critical infrastructure takes a long time. And what we're doing just like the World less technology did in the transformation in the cloud era. A decade or 2 ago, it's same kind of thing. Everything changes. The product changes the way you deploy it changes the way you buy it changes the way you service it is going to change. And we're being, I think, pretty conservative in the way that we think about not just our ability to deliver everything, but the market's ability to absorb that change. We see the catalyst of AI and Cloud 2.0. Driving a clear and pressing need for that change. But we're being cautiously optimistic and making sure that we're doing everything we need to do to prepare and provide change management for our customers as well. And Chris, I don't know if you want to go to any financial guidance on top of that.

Yes. So Sebastian, you're certainly right that the additional $2.5 billion of deals does help. But keep in mind, we're in 2026, it's going to take 3 years for those routes to get built at scale. Will there be some revenue impacts in 2028? Yes, I would expect it. Does that impact maybe and pull forward in the year when we inflect the growth? Yes, that's possible. I think the more important thing as we move to Investor Day, we will, again, give you those -- the PCF math there.

But it's really on the digital side, to your point, and NaaS is obviously a big piece of that. But the other leading metrics that Kate talked about, right, not just the number of circuits and the number of ports and the number of customers, but the number of services and the fact that we now have the ability to have a significant off-net presence is really the opportunity we have to drive that digital adoption. And I will be very candid with you and give you a spoiler for Investor Day. We're humans. We are projecting kind of linear growth in digital. The reality is we all know that at some point, that's a J-curve adoption, but we're not going to try to predict where that J curve comes into play. So I think what we're showing is a middle of the fairway estimate with the possibility for us to overachieve. But time will tell.

Your next question comes from the line of Batya Levi with UBS.

Can you provide a little bit more color on bridging to '26 EBITDA? I think you mentioned fiber sold was contributing about $300 million of EBITDA. You exited the year with higher cost savings than planned, but it also looks like SG&A ramped up higher as you exited the year. So how should we think about these cost items in totality as we go through 2026 and maybe pacing of the EBITDA could be helpful as well. And I'm not sure if you mentioned this, but did you quantify the PCF sale contribution for '26?

Not yet. No. We'll give you some more visibility to that at Investor Day because we'll talk about how PCF is impacting revenue by your free cash flow. To your question, we are going to be releasing an 8-K tomorrow with the pro forma economics that will get specifically to your question, Batya. So I don't want to get into the details, but when you take out the EBITDA from the 25 base year, you take out a little bit of EBITDA that we would have generated in the first month of this year, and then you compare what's left, that's where you see the growth.

Okay. And the other cost items, how much should we think in terms of what's embedded in there for maybe higher SG&A as you exited the year? And then maybe the modernization spend that you've been incurring. Is that all done? Or do you anticipate more?

Yes. So the modernization is largely in special items. So we tried to separate that out in terms of its impact. We have projected in kind of the run rate that we're seeing on things like medical costs into the year. But the reality is, as Kate mentioned, we exited with our M&S savings at $400 million in '25. We're projecting $700 million in '26. So that's going to mute a lot of that. And again, we'll share 5 years of financials at Investor Day. I do want to -- again, I want to share one other thing that we shared with investors that I think is really important.

What that 5-year model is going to show is that we are fully funded. We are not required to borrow money to fund our future anymore. We have excess cash over the 5 years, and we'll get into specifics on that. And our objective is to: one, fully fund our growth initiative and our -- the transition of the company, and that is fully funded in that mode. The second thing would be to continue to reduce leverage a little bit. And after that, if there's nothing that achieves those first 2 objectives, then we'll look to start buying back stock.

Your next question comes from the line of Frank Louthan with Raymond James & Associates.

So on the slide where you list about a fiber that you have that you're building out, how much of that fiber are you retaining for your own purposes versus what you're building for the customers?

No, I'm not exactly sure the question. So we break it down into all the various consumers of it. We've got the hyperscalers connecting their data centers, that's the supply side. we've got enterprise utilization, that's the demand side of our role in the AI economy. And then we have available capacity for growth on the bottom line. And I think what's really interesting is in 2031, when we'll have 58 million miles of fiber installed in the ground, we will have more available for growth than when we started this journey in 2022.

Our next question comes from the line of Gregory Williams with Cowen.

Just on PCF since you announced all those deals back in August of 2024, have you completed any of those projects? I know you said it takes up to 3 years on these things. What I'm getting at is, is there any more -- is there any amortized PCF revenue running through the business at this point? And how much? Or is it still too early in seeing that revenue? Second question is just on the NaaS metrics on Slide 9 and alluding to the earlier Network as a Service or digital revenue question. So are you basically trying to say that you're conservative on your estimates for 2028 inflection and that the metrics I see on Slide 9, the new customers, Newport, you're pacing ahead of that or you're pacing in line with the sort of $500 million to $600 million in digital revenue.

Okay. So I'll take the first piece. So when I was talking about conservatism and structural change, I just want to be super clear. The pipes that are in the ground today that are running mission-critical applications for businesses. These are going to be very cautious in how they approach changing that infrastructure. And we think the buying patterns in NaaS represent exactly what this looks like. they buy a port, they test it. They buy a second port and they run an application against it. When they have success, they start to by 3, 4 and 5 ports to run more of their locations. It's a standard land-and-expand model. And it's still pretty early to draw the curve to figure out exactly what's going to happen. But we're confident in the numbers we've given to the Street with an over and an under on that.

And we've given you a range because it's very hard to predict the exact revenue outcomes for a massive change in industry, and that's what we are basically presenting. Regarding the PCF infrastructure sales, the ranges we've given you there are tied to whenever we finish construction, we light it up, and we start to recognize the revenue. And the $13 billion the builds go all the way out through 2031. And the ranges that we gave you for exiting 28 are not inclusive of what we just sold in Q4 because those builds won't be completed until after 2028. Chris?

Yes. And just a few more details. So in my prepared remarks, I said that in all of last year, we had $161 million of revenue recognized. Sorry, $116 million and $41 million of that was delivered in the fourth quarter. So you can see it's starting to scale and ramp now. but we are either on or ahead of delivery schedule at this point with all of our customers.

Your next question comes from the line of Michael Ng with Goldman Sachs.

I wanted to ask about the new segment reporting between strategic and legacy I think strategic is made up of a portion of Grow and NURTURE. Could you just talk a little bit about what's in strategic, what part of grow didn't make it in. I would assume it's like VOIP, but would love to hear a little bit more about that. And then what are your assumptions in terms of like the strategic revenue growth and the legacy revenue declines as we inflect to business revenue growth in 2028?

Yes. Yes, no problem. So the shift, what we did is the grow items that didn't make the cut, and again, grow really relates to the most modern forms of connectivity, everything from is delivered in a traditional manner to deliver digitally. But what we took out were specific product lines that are in decline. So when you think about lower capacity connectivity versus higher capacity connectivity, there are parts of those businesses that are in decline. And in effect, those are legacy businesses now. And by the way, this is something that is very rules-based internally.

And as we go forward because of product life cycle, you'll continue to see us move products through that life cycle so that we're giving you a very clear view the items that moved out of nurture and into strategic were really things like Ethernet on demand, right? VPN on demand. Those are digitally delivered products that are in demand and grow products, products that our sales team should be selling. Now to the second part of your question, we will continue to see the mix shift in our favor and that strategic bucket grow from the 52% from here forward. And we'll give you a better view of that in a few weeks at Investor Day.

Your next question comes from the line of Nick Del Deo with MoffettNathanson.

So you talked about NaaS sales being strong. Interest in PCF seems pretty strong. Can you talk more broadly about what you're seeing with respect to gross sales for the remainder of the business and maybe share some insights into churn trends? And then second, just a follow-up on Greg's question earlier. Thinking about the PCF revenue that you disclosed this year. Should we think of that as sort of a 90-10 noncash versus cash split akin to the overall mix that you originally described? Or was there a different noncash versus cash mix?

So in terms of the first part, Nick, we saw a particular strength in IP this quarter. But again, there's really across all connectivity solutions, there's demand right now. So no surprises there. Churn trends in total have remained fairly consistent with where they have been, which obviously was an improvement in '25 versus '24. But one thing we are seeing and we don't have numbers to disclose. But on our NaaS offering, the churn rates are dramatically less than what we see on traditional sales. It's a much stickier sale.

And Nick, what was the second part of your question?

So the PCF revenue that you disclosed, the $41 million in the quarter and the $16 million for the year. Should we think of that as being like 90% noncash, 10% cash? Or is there a different mix because you're kind of early in the process?

I think that's reasonable just to assume as we go forward because, again, to your point, our guidance has been that 90% of the cash is received upfront for the builds and then and then 10% as we like that fiber, we don't recognize the revenue until we lay the fiber. So I think it's a good assumption. And again, we will give you the 5-year outlook for the impact to revenue from those deals in a few weeks.

Your next question comes from the line of Michael Funk with Bank of America.

Yes, so first one, a lot of reports the construction blade briefly, specifically data center builds. So what are you doing specifically to avoid construction delays. And just trying to understand better in the contracts that you have with customers and revenue recognition for the PCF. Are they able to delay acceptance for delivery? Or once it's finished, you light adopt is to recognizing revenue at that point?

Couple of things. First, what are we doing to deliver on time? We have scale and scale across many different elements that really matter. So scale across the supply chain. So our contracts are very favorable in terms of first off the line priority status. We have scale in terms of workforce. So if you want to join a construction team that's going to be at this for several years, you want to join one of our partners because they're building the largest expansion of the Internet at large for Lumen. And so our scale really, really matters here and gives us the accessibility to all the things that we need to ensure that there are no constraints put on our ability to execute on time. Regarding demand and pressing pause, the general feeling in the market is how fast can you go.

And it's widely recognized that we can go fast because we're often times already there. and the amount of work that we have to do is about overbuilding and not building for the first time. I will tell you -- I can't reveal any names here, but we did a large deal with a company, a cloud company, and it was the first time that we've done work with this company and went so fast that we got a call from the head of operations that said we've never experienced this kind of speed before with the telco. Can we meet more regularly so that we can understand your true capacity and ability to go at this pace because we weren't quite ready for it. So that was 1 of the more fun phone calls I've ever gotten. I'm going to be very honest with you. And then, Chris, do you want to add something?

Yes, I'd say a couple of other things. On the first part of the construction, again, we've got a very special relationship with Corning. And we are doing very well in terms of access to fiber. I think the other point, though, and I'm going to kind of go with the nuance of your question, which is, can they hit pause because of concerns over a bubble? I can say consistently and in terms of our engagements with those customers. And you can hear it in the market. Hyperscalers are not talking about a bubble. They are talking about, they don't have enough fast enough. And I would also tell you that many of our contracts have performance bonuses in them for us to go faster. So that's the reality that we live with every day, and we're delivering against it.

Yes. And I think one of the final things I'll mention is that, the reason why we're able to execute it as swiftly as we are is the same reason why we get chosen and that's because a lot of the deals that we're doing are to existing data center areas where our network has proximity.

Your last question comes from the line of Sam McHugh with BNP.

I have a couple of follow-ups for you, Chris, if you don't mind. The first one was on the EBITDA guide. I think you mentioned about the growth in the $3.5 billion prior guide. I just wanted to clarify the range of $3.1 billion to $3.3 billion. Are we saying it's still growth versus 25 throughout the whole range or at the midpoint of the range. And then the second one, and I'll try but -- You go first.

Yes, yes. So, just to answer that. So the $3.5 million was when we still had the consumer business in there. And I think the estimate for 2026 at that time was about $300 million in EBITDA -- adjusted EBITDA. So that's broad numbers, that's really what's driving us there. As it relates to inflection, we're saying inflection on the year. It's not going to be in every quarter. And again, when you see the pro forma math in the 8-K tomorrow, that will help with that. But sorry, you had a follow-up.

And the follow-up was 1 on PCF. And I guess maybe we won't get an answer, but until the CMD, but rough math would suggest like working capital and PCS cash inflows are around 1.7 billion or something based on the guide. Can I miles off with that? And is there any reason why working capital could be massively positive or negative?

Yes. I mean working capital will definitely be positive. That's obviously the work we're those PCF inflows and outflows or inflows show on the balance sheet and then the outflows obviously show up in CapEx. So again, as we've said to the market, at some point, when PCF stops will have trailing CapEx that we've already received the cash for. But with $2.5 billion coming in and more demand in the pipeline. That's just not something that we're encountering right now. And that obviously increased our guide for next year. And I think that's why people are seeing that we're higher than consensus on that estimate.

There are no further questions at this time. I'll now pass it back to Kate Johnson, CEO, for closing remarks.

Thanks, moderator, and thanks, everybody, for engaging in today's call. We look forward to speaking with you more about the future of Lumen at our Investor Day in just a few weeks. Have a great night.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

All right. Good afternoon, everybody. Thank you for joining us. I'm Eric Luebchow, senior analyst on the Wells Fargo Communications Infrastructure and Telecom Services team. Thank you for joining us. We're very pleased to have Chris Stansbury, the CFO of Lumen. Thank you for joining us, Chris.

Yes. Great to be here today.

So maybe we could start off kind of at a high level. I think one of the critical components to your story is kind of the progression to revenue growth in the next few years. And maybe you could, at a high level, kind of give us some of the building blocks from the kind of mid-single-digit declines that we have in the base today to get back that glide path to growing revenues by 2028 or 2029.

Yes. I mean the transformation is well underway. It's working. And if you look at where we sit today, just this past quarter, in the third quarter, we announced that half of our revenue stream is coming from the items that are actually growing and the other half is from items in decline. So we're already from a portfolio standpoint in a very advantaged position versus our competition. And that's why you see our rates of decline at roughly half of what you see in the industry. If you play that forward, if you quite simply just take the industry rates of growth and decline by product and then you layer in the revenue impact from the PCF deals that we sold, the $10 billion of deals as well as $500 million to $600 million in digital revenue, you get to growth on the business segment by the end of '28. So roughly $0.5 billion in each of those 2 buckets, the PCF and the digital. So they're not crazy assumptions at all. Obviously, we'll work hard to go faster, but we feel really good about where we sit.

Yes. And if you think about the relative growth rates or declines in your business, like how should we expect legacy? Is that going to be declining at a faster rate than grow in the near future? Or do you think you'll kind of be able to eclipse that over the next couple of years when we think about the relative...?

I think it will continue to decline at rates that are a little faster than grow for the next year or 2. It really depends on how fast the digital adoption comes, and it is coming our way. I mean we're seeing incredible rates of adoption, albeit on a small base for our Network-as-a-Service offerings growing at 30% quarter-on-quarter consistently now. So it's just a matter of time, but you will definitely see the rate of decline improve as we move through that window. And we'll continue to give visibility around the components of that as well as the adoption rates around the digital product portfolio growth. But you will continue to see the growth items each quarter become a bigger and bigger percentage of the business as we go forward. So that's all positive.

In the Network as a Service growth category, from someone who comes from a more traditional telecom background, it's probably relatively misunderstood. And I'm sure you guys will help us along the way to understand it better. But maybe you could just talk about that platform. I think you have north of 1,500 customers today. You could talk about what makes that particularly unique to other players you're competing with in the telecom ecosystem that are primarily really just focused on the connectivity layer.

Yes. I'm going to hover here for a couple of minutes and walk people through it. If you look through enterprise telecom over history, its Achilles heel has been that it's not scalable, period. So every single provider when they provided a new service to a customer required a level of infrastructure to support that. If you want Ethernet, if you want VPN, if you want Internet on demand, it literally was truck rolls and boxes and things getting plugged into other things. It's very static. It's slow moving. And as a result, it stifled innovation. It also generated a lot of cash, which led to dividends, which led to declining rates of sales, which led to borrowing to pay the dividend, and we've seen that story repeat itself multiple times. Network as a Service for the first time, brings scalability to enterprise telecom.

Quite simply, it is one infrastructure layer, one port at a customer location that can carry thousands of services on it. Those services are delivered digitally. The customer can self-provision those services. There are no truck rolls or far fewer truck rolls. And so it's infinitely scalable. That's why it's so important. And we're the only ones investing in that infrastructure broadly. But that isn't just about consuming services at that location. It's also about the ability in a world where data is proliferating, both in its magnitude, but also in terms of where it sits as data centers to support cloud to support AI are chasing cooler temperatures, power, water. So the ability to access digitally all your data in all the places and move it through very high capacity, low latency pipes is absolutely critical. It's table stakes for AI, and that's why we're doing it. And the crazy thing is no one else is. So we feel really good about where we sit.

And as we think about kind of the PxQ math to get to the revenue run rates that you've talked about, how should we think about that? Is there kind of a base connectivity layer price that you'll charge? And then as they take more and more services, you can obviously drive up kind of your average revenue per user? Or how should we think about kind of the interplay of the PxQ?

Yes. It's -- the PxQ is exactly the way to think about it. We're going to give some more information on that at Investor Day because we're learning on the fly. We're learning a lot right now. But think about PxQ really being broken down into a number of subsets because there's DC to prem connectivity. There's DC to DC. There's DC to cloud. There's prem to cloud, right? There's all those different combinations. And depending on how you want to access that data and move it around, the PxQ will be slightly different for each of those. But we do think about at its most basic level, the number of ports per customer and the number of services per port and the price per port. We're still looking at that initial port. Do we charge for that port? Or do we just put that port in that location because then we're going to force adoption a lot faster and people start consuming services faster. So still TBD, but more to come at Investor Day.

And as you think about pricing that, when we think about the history of telecom, pricing compression was just a way of life forever, right? Obviously, you're building a platform that's different that none of your peers necessarily can or plan to replicate at least based on what they've said. So does that give you maybe a little bit more stickiness in the pricing you think you can achieve just given the fact your peers are not even trying to adopt something similar?

Yes, I mean look, if you think about the PCF deals, what is our durable competitive advantage? It is the network. It's that conduit that was put in the ground 25 years ago that has remained empty because of the advances in photonics. At that time, we were pulling under 100 strands of fiber through each conduit. Today, we're pulling as much as 1,728 and it's faster. So there's a lot of scalability there. And for anybody who wanted to compete with us, they'd have to replicate that. It doesn't exist. No one has the pipes. And by the way, if it did exist, there'd be a lot more noise about other people winning a lot of the $10 billion that we've won. There is no more definitive proof that we have an advantage than the fact that we have won $10 billion of PCF deals. There is more to come and others have not. But when you think about the digitization, it's so important. There's a -- I think it was Microsoft that actually had a really great clarifying metric that they're very focused on right now. And it's referred to as time to first token.

And that is the time it takes for data to be consumable in AI. And all of the economics are driven around how do you shorten that time. And the reason that's important is today, a GPU cluster costs about $2,000 an hour to run. And in order to earn a return on those clusters, you have to keep them fed and spinning as fast as they will spin. If you are using legacy telecom that say is a 10-gig connection, it would take 222 hours, almost $450,000 of GPU time to move a petabyte of data. If you're using a 400-gig connection, it's 6 hours. So the services that we're bringing are giving customers in the power of their hands the ability to move their data from anywhere to anywhere digitally on demand and shorten that time to token time frame. So the value we bring now isn't about, hey, I can sell you a cheap wave to the procurement department. We're talking to C-suite executives because they're rewriting their business models. based off of our ability to improve their total value of ownership.

And maybe related to that, Chris, we were talking about this a little bit before our discussion here, but there's been a lot of fear in the market, particularly the last couple of weeks around an AI bubble forming and inflated valuations in the sector. There have been parallels that have been drawn to the current AI craze with the telecom bubble that crashed over 20 years ago. So maybe you could kind of give your perspective on where we're at in terms of that -- the AI infrastructure build-out and how it may be a little bit different than what we experienced 20 years ago and how you're positioned relative to your peers?

I'd say 3 things. Point number one, 20 years ago when the Internet was developed, there wasn't a use case. It was just a thing. And the financing that drove that was a lot of private funding and highly leveraged companies. Today, the checks that are being written are by very extremely well capitalized, the best capitalized institutions in the world. And so this is just cash off their balance sheet. There's not a lot of financial risk in that. AI is real, okay? That would be the second point. And I don't know, we don't know, none of us know who's going to win or lose. But what is absolutely a truth is that as a country, we have to stay in the lead on AI or we will fall behind.

This is the great way to narrow the gap between nations, and we have to stay in front. and enterprise has to stay in front, and they're leaning into it hard now because they know it's the next wave of productivity. The third, last and most important point as it relates to Lumen is unlike those chasing data centers or GPUs, we're in the networking business. We are the only ones who are building a network ecosystem to support AI and multi-cloud. The network is not getting overbuilt. The big investments we're making in the network are prepaid by our customers. There is no financial risk. And so what I know with confidence, what we know with confidence is that while we don't know who the winners and losers will be, we know that the winners will be riding on our network.

And there's also been some skepticism in the market around the large hyperscalers building data centers, but a new wave of AI model developers, neocloud, GPU as a service, companies that have to take on more leverage are not necessarily that profitable today, driving a lot of the demand. I mean are they companies that you do business with today as well? And do you have kind of different terms and conditions when you do business with them versus a much more established hyperscaler?

It's really interesting because when we started the announcements around the PCF sales 18 months ago, things like neocloud weren't even in the decision set. We couldn't have predicted that at the time. Are they customers -- potential customers today? Absolutely. Every contract looks a little different, but broadly speaking, they behave the same. So I think that's what the mode would be. But we've actually said recently, we said on the last earnings call, we're not going to try to predict how big that TAM is anymore because we don't know, right? We wouldn't have predicted this a few years ago. We're at $10 billion. More is coming. We're involved in a number of conversations right now. But the demand is there.

And of that $10 billion of PCF, how much do you attribute that to more AI training in more remote locations versus kind of the next wave that Kate talks about that we hear about a lot, kind of inferencing more edge use cases that are going to require more metro fiber, locations that are closer to the end consumers. I know that's going to take place over a number of years, but where are we in that evolution?

It's a really good question. Really, over the last year or so, we've seen it shift quite a bit. You still have a lot of training going on, and the training will continue. I was at a at a conference recently and some of the AI experts were saying that over the next 3 years, AI is going to become 10,000x more capable than it is today. And so that will continue to evolve. But companies are definitely leaning into it. You've seen our discussion around Palantir and what we're doing. So we're definitely starting to see more inference now. And that's where our tools become so critical because it's about self-provisioned access to the network.

I mean we had an announcement yesterday, and it was really exciting. It's with a smaller company, but it's with Meter. And it's really the first example when we talk about ecosystem partners where tech providers are coming to us to build APIs into our network because it makes their product better. It's kind of a synonymous relationship. They're a LAN company. We have WAN. So today, digitally, you can provision your networking needs that allow you to move stuff to the edge, right, in a digital way. You're going to see a lot more of those announcements. And I think that is evidence of the fact that everybody is preparing for enterprise needing to, in a very flexible way, access those AI algorithms.

Interesting. As we look at the mix of the $10 billion today, maybe you could talk about where you're at in kind of the CapEx cycle to build out the rest of the infrastructure. I know there's kind of a combination of existing conduit and some new routes that are part of this deal. Has a lot of the capital spend so far really just been pulling through conduit, overpull work? Or there are a lot of new route builds as well that we should expect over the next year?

Most of it is actually existing conduit. So the CapEx is really about 2 things. It's about blowing fiber through those empty conduit, and it's about building the ILAs, the in-line amplifiers, the sites that -- where the fiber comes out of the ground for the signal to be repowered and sent on its way. So we're well on that path. We're meeting all the milestones with our various customers. In some cases, in some of the contracts, we're getting incentive payments because we're ahead of schedule and on or below budget. So that's all very good. At Investor Day, we will separate out the PCF cash flows from the non-PCF cash flows.

And what I can tell you is that even when you separate out the PCF cash flows, the business actually self-sustains over the next 5 years, right? So that is because the revenue trajectory is getting better. It's also because post the debt restructuring we did not yet 2 years ago now, once we close that sale to AT&T of the fiber-to-the-home business, our interest expense will be cut in half. So we'll be going from $1.4 billion down to $700 million. So the balance sheet is becoming a real point of strength, and it gives us a lot of options strategically. But -- so we will give you more of that. But what I can say for now is that with all the CapEx that is PCF driven with all the cash flows that are PCF driven, ex PCF, this business is self-sustaining.

And you've also laid out plans to materially expand your metro and long-haul fiber assets as well that I don't believe is really related to PCF, right? That's really just the core business. So maybe you could kind of outline the CapEx that's being spent in the core business, not related to the hyperscalers.

Sure, so if you look at our CapEx spend today and exclude the fiber-to-the-home business, we're spending about $3 billion. You should also exclude $1 billion from that because it's paid for upfront in the big builds, right? So there's really $2 billion of CapEx that we finance. $400 million to $500 million of that a year for the next few years is really going into maintenance. There's a lot of sins of the past that we're fixing generators that haven't been replaced in 30 years, things like that, a lot of tech debt.

But the balance is either funding equipment, the old way of selling that we will still do as we're transitioning as we sell deals to customers, but it also includes a few hundred million a year to do things like these metro expansions and rapid routes. That's all about increasing the capacity for things like DC to DC, DC to prem, DC to cloud, prem to cloud. The connectivity, think of it as a mesh, a fabric mesh where digitally, the customer will be able to go from anywhere to anywhere on demand in minutes. That's what that's building out. And again, no one else is building it. So that's why we feel very good that we're not impacted by a bubble.

What about some of the other products that are within your grow bucket that you don't necessarily strip out every quarter, thinking like wavelengths. We've talked a lot about that with one of your competitors or IP. Like what are kind of the growth trends there? We've heard about wavelengths, for instance, is growing pretty substantially, maybe 5% to 10% a year at an industry level. I think you're the largest provider in the industry. So I assume that's been a nice growth area for you. Maybe we could just kind of dive into some of those products.

Yes. Waves, definitely, we're growing pretty much with market. And we're seeing a transformation, right? There's 1 gig waves that are pretty soon going to be in decline because people are moving up the stack, right? They're moving 100, 400. And let's remember, the fiber that we're putting in the ground right now in the next 18 months is going to go to 80 and 1.6T as that equipment comes along. So the speeds and the capacities are just going to continue to rise. So we definitely see demand in waves. We see demands for security. We had an announcement with Microsoft today about that we can talk about. We see dark fiber, so non-PCF, smaller dark fiber deals with customers, a lot around connectivity, security, edge, compute. So.

Interesting. You had an announcement a month or 2 ago about how you're actually -- your provisioning times in waves have actually come down quite a bit. I know that was potentially a criticism from some customers that it took so long.

It absolutely is.

And it seems like you've kind of maybe fixed one of the pain points. Does that help drive incremental conversations activity with them?

Too early to say. I can tell you, though, that the response from customers has been fantastic because our ability to stand up waves as these rapid routes, these waves-ready routes are put into place. And we're doing clusters of 16 cities at a time. The first 16 are done, and we're well on our way on the second 16. You'll see us continue to do that as we move our way around the country. But the time to deliver is reduced substantially and customers have been very pleased.

And the mass market sale or the Quantum Fiber sale to AT&T sounds like that's going to come very soon in the first part of next year. Maybe you could just talk about some of the cash -- free cash flow accretion you're going to get from that sale. And then as we think about what you retain, really your kind of DSL and copper base, presumably, AT&T is going to try to overbuild that in a quicker fashion. I assume you will probably enable them to do that given the structure of the deal. Does that potentially give you the opportunity to take some cost out of the fiber network? We have heard about some of the large wireless companies or fiber companies decommissioning copper and taking out maintenance CapEx.

Yes. Really a few things. So really excited about that deal and excited about the construct of the deal. We, to your point, are selling only the fiber assets. And frankly, we're selling really from the edge of the neighborhood into the neighborhood. We kept those main lines because they're critical to our enterprise strategy. And so the structure of the deal really worked well for us. We'll use the proceeds from that sale, the after-tax proceeds as well as some cash on the balance sheet. And we will entirely shortly after closing, wipe out $4.8 billion of super priority debt, which is what we put in when we did the debt restructuring not quite 2 years ago. That will bring down our total debt from a little over $18 billion to just a little over $13 billion, bring our total leverage down to 3.7, 3.8. It will go down from there. And oh, by the way, over the course of the last year, we've significantly restructured the rest of the stack. So it's a much more smooth normal maturity curve. The team has done a phenomenal job.

So that's what we'll use the cash for. As it relates to the consumer business, there will be some overbuild, but I want to be really clear. The bulk of our footprint, we pass 17 million, 18 million homes. I think we've got a little over 1 million voice customers and about 1.4 million DSL customers. Most of those sit in very rural areas where I don't think they're building fiber. The opportunity though is -- and we're in conversations is I think there's a real opportunity between the 2 companies for us to use potentially AT&T's fixed wireless product. And to your point, when we think about areas where there's less penetration, the cost savings associated with turning that off, it could be substantial. So we have to get the economics right, but we will manage that business for cash. And I think it will be a long wind down because it does sit in those rural areas. We're probably talking 7-plus years. But there is a great cost takeout opportunity. Quite frankly, I think there's a copper mining opportunity, and that isn't even on our radar screens as it relates to kind of financial outlook at this point.

And the maintenance capital you spend on the copper network is a couple of hundred million dollars a year. Is that right? Something like that?

Yes, that's right. Just keeping things turned on, yes.

Yes. Yes. Got you. Okay. So obviously, there's some opportunity there. Okay. Great. And maybe we could just talk about broader cost transformation. I know you're in the midst of a broader cost transformation effort. I think ERP Phase 1 is the latest major initiative you're on, but I'm sure there's a lot more that lies ahead. And a lot of this within your guide to grow EBITDA in '26 and thereafter. So maybe you could talk about the main cost areas you're focused on today. Maybe any preview of what we should expect over time?

If you really think about the sector we're in and the landscape, the only way that scale -- go back to where I started the conversation, the only way that scale existed in enterprise telecom over the last number of decades is buying other companies. But when that happens, none of us, I mean, Lumen, I mean the other big guys, none of us ever consolidated the IT stack. So it is a dog's breakfast of tech debt. It's ugly. And the path to freedom isn't trying to consolidate all that. The path to freedom is selling all the new stuff that is replacing the old stuff on a clean new set of IT infrastructure and then turning off those old systems as those products retire. So a big, big piece of that modernization and simplification is really around addressing the tech debt. And so there's 2 paths, and we're running them in parallel.

One is the big investments that take years to get in place, ERPs, right, the ServiceNows of the world, those kinds of things. The other path, though, and I can't emphasize how much it's helping us, is the use of AI with companies like Palantir, where they can come in and their algorithms will find connectivity and data across multiple systems, that actually move us forward much faster. We don't have to wait for those systems to retire. Case in point, when you're running whatever it is, 16 different order entry systems, you end up with customer disputes, invoice disputes. We're now, after a 5-week test resolving half of those through Palantir's tools. So as we go forward, there's going to be a lot more of that. We're going to get more efficient, and that's what's driving the $1 billion of exit run rate by the end of '27.

And there's been some big announcements from some of the telcos as well about headcount reductions and people are always focused on the future of AI and what that will mean for the labor force. So as you look at your headcount today and think about the kind of productivity unlock you can get by enabling them with more AI tools, whether that's software stack, whether that's building new routes, like is there a lot more of that to come that's beyond the $1 billion?

I think we're -- as a society in a place where that's inevitable. And I think what our job is, as leaders is to make sure that we're preparing people for the future, right? I think the more that people can be exposed to AI and how it can change their lives, and yes, there will ultimately end up being reductions, those are skill sets you can take to your next role, right? And so -- but I think that is a reality, right? It's a reality that a lot of us face. I don't know how much of the other announcements across the sector are driven by AI versus just broader cuts. We're focused on doing things the right way and making sure that everything is focused on the customer and that as we improve that customer journey and we can drive efficiencies, that's where that comes from.

And maybe just touching back on the revenue equation again. I know we talked about some of the products. But as we think about the customer end users, so the large enterprise versus mid-market versus public sector, how you kind of expect those to trend over the next handful of years until we get back to this kind of revenue stability and revenue growth?

Yes. I mean there's opportunities across the stack. We're very strong in public sector. We'll continue to be strong in public sector. Wholesale has been a decliner for the last few years because, again, we sell to our peers, they sell to us. Everybody is pulling back on copper circuits. So that's been impacting that. But as we move into the future, and we're doing more digital, I think there's wholesale opportunities. And in mid-markets and large enterprise, different scale. I think Network as a Service is big in both of those. But you think about mid-markets and the ability to deliver services digitally to customers, what a great way to reach that audience.

In large enterprise, it's that and the end is extremely disruptive stuff like direct cloud on-ramps where very large users of data that need to feed those GPU clusters don't want to have to go through, for lack of a better example, county roads to get to the cloud, paying toll charges all along the way when they can get on the auto bond by connecting to the cloud directly through Lumen's network. And those are direct cloud on-ramps, 400-gig connectivity that is coming now. That is very disruptive to the space.

And maybe in the last few minutes here, we can touch on the balance sheet. We -- you alluded to it a little bit earlier, but you've reduced your annual cash interest expense by over $230 million, I believe, year-to-date. This obviously doesn't include the cash proceeds you'll get from the AT&T transaction early next year. So it seems like you're in a very good place. I guess -- and if you look at your maturity stack, you really don't have much at all until 2029. So -- but you alluded to on your call that there are still things you're looking at. So maybe you could just talk about what's kind of next on the agenda now that you've delevered so substantially.

It's been an extremely complex balance sheet. And I don't think that does any investor any favors, whether you're a credit investor or you're an equity investor. And so you will continue to see us simplify the structure, both in terms of number of reported entities so that we more closely align the way we run the business to the investors in those entities. But you're also going to see us simplify the structure. I mean we have 4 layers right now, right? You've got the super priority. You have first lien, you have second lien, you have unsecured. We can simplify that, too. Super priority obviously goes away. So we'll continue to do things in line with that in principle. And my goal is that our balance sheet is boring. I want to be boring. And I want to be the most boring guy at the credit conference, not the one that gets chased around the hallways.

Yes. No, that would be quite a transformation from many years ago. And I guess longer term, as we think about you returning to revenue growth, continuing to improve profitability, and you've talked about declining capital intensity, right? And how do you think about returning capital to shareholders? I mean it's a little bit premature to get into that today, but just a long.

Yes. No, we've talked a little bit about it. I mean, look, the #1 goal is to make sure that we are funding what we need to fund to execute the turnaround, and we're doing that. And that could be organic, which is where it's focused today, potentially. And again, I'm not signaling anything, nothing on the table today. It could be inorganic if the right thing comes along. The second thing is to bring leverage down a little more, so we've got some extra gun powder. And then after that, I think you're looking at share repurchases to the extent that there's excess cash flow because I think the stock remains well undervalued. We've seen obviously some nice valuation uptick. Obviously, the markets pulled back on the AI trade. Again, I think fears of a bubble that don't really exist for us. But I think that's where we go next.

And you've obviously pruned the portfolio significantly with mass markets, with some of the international assets being sold. I mean, do you sit here today, you think most of the kind of noncore asset sales are behind you? Or are there still some things on the margin that you can?

I think there's still some things on the margin. I mean, certainly, there's a copper mining opportunity, right? And there's a few other little things in there. Our real estate footprint will shrink over time. So we'll constantly be in the mode of getting rid of those things. Are they material to our outlook? No. But it's just good hygiene and a lot of costs tied in those assets, and it's a way to manage that.

Yes. Fair enough. And as we think about kind of longer term, where do you think kind of the right leverage level is for Lumen based on your current investment?

I haven't said it, but probably low 3s, somewhere in there. We'll give more guidance at Investor Day and more certainty. Look, there's 2 ways we get there, right? We get there by paying down debt. We also get there by inflecting EBITDA next year and growing from there. And one thing that we haven't talked about as we close is the ecosystem layer. And I think in our transformation, that may very well be the most important thing. And that's where I mentioned earlier, tech partners are building APIs into our network and pulling our network through with their products because it makes their time to revenue faster.

It makes their customer experience faster. The number of tech companies that have shown up and have started to build APIs into the network, it's staggering. We talked about Meter yesterday, the Microsoft announcement today where they're taking our Black Lotus Labs threat intelligence and building it into Sentinel. We talked about Commvault on earnings and automated backup and recovery, Zscaler, it's coming. So I think a big piece of how we delever the company is actually by growing the numerator, and we're super excited about that.

Well, great. That's a great place to end. Thank you, Chris, for joining us today.

Thanks a lot.

Greetings, and welcome to Lumen Technologies Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, October 30, 2025.

I would now like to turn the conference over to Jim Breen, Senior Vice President, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining Lumen Technologies on today's call. On the call today are Kate Johnson, President and Chief Executive Officer; and Chris Stansbury, Executive Vice President and Chief Financial Officer.

Before we begin, this conference call may include forward-looking statements subject to certain risks and uncertainties. All forward-looking statements should be considered in conjunction with the cautionary statements and the risk factors in our SEC filings. We will be referring to certain non-GAAP financial measures reconciled to the most comparable GAAP measures, which can be found in our earnings press release. In addition, certain metrics discussed today exclude costs for special items as detailed in our earnings materials, which can be found on the Investor Relations section of the Lumen website.

With that, I'll turn the call over to Kate.

Thanks, Jim, and thanks, everybody, for joining the call. We had a very productive third quarter at Lumen. First, we reported strong financial results with revenue, EBITDA and free cash flow all coming in ahead of Street consensus. And we're executing well on the essential operational components of our business transformation, including things like a successful phase 1 implementation of our new ERP system, delivering more than $250 million in run rate cost takeout through the end of Q3, on track for $350 million this year, continuing our balance sheet cleanup with an additional $2.4 billion debt refinancing and subsequent term loan repricing, and by making really good progress on our consumer fiber-to-the-home sale to AT&T, now targeted to close in early 2026.

But the real headline for this earnings call is the progress we're making to pivot this company back to growth -- revenue growth. We signed an additional $1-plus billion in private connectivity fabric deals since our last update, bringing the total PCF deal value to over $10 billion. We continue to scale the adoption of NaaS, reaching more than 1,500 enterprise customers since the launch of this platform. We launched our latest NaaS innovation, Internet on-demand or IOD off-net, giving us nearly 100x greater market reach to accelerate digital service sales and revenue growth. We're rapidly building a connected ecosystem with dozens of early adopter tech partners who see how Lumen's digital platform can accelerate their time to value with joint customers.

And while we still carry the weight of declining legacy telecom revenue, our growing revenue base now comprises 50% of North American enterprise revenue, up from 35.5% just 3 years ago. We're proud of the significant progress our team has made this quarter, and we believe our investment thesis and strategy are showing tangible results, and those results are being recognized in both the credit and equity markets. The advent of AI has created an urgent need for structural change in network architecture, and Lumen is uniquely positioned to take advantage of the moment.

So I want to share some quick thoughts on how we see the market to provide context for the rest of my remarks. AI workloads are pushing data center footprint to grow 10x by 2030, and public cloud spend is expected to eclipse $1 trillion in that very same period. Meanwhile, CIOs are on the hook to deliver insight at the speed of thought while efficiently managing explosive data growth across complex hybrid and multi-cloud environments.

But traditional network architectures, they were built for simpler times, and they just won't cut it anymore. They're not big enough or fast enough or intelligent enough or secure enough. Simply put, traditional networks led precious GPU investments sit idle, and Lumen is changing all of that, as Dave Ward, our Chief Technology and Product Officer, explained in his recent white paper. He advocates for a fundamental reset in networking to support the new era of Cloud 2.0 and identifies 5 essential networking capabilities required to thrive: extreme bandwidth and low latency, data center interconnect, expansion into AI corridors, distributed cloud on-ramps and programmable API first networks. These requirements are the underpinning of Lumen's 3-part strategy, including the physical layer, the digital layer and the connected ecosystem.

And today, I'll translate that into Lumen's evolving business model with some exciting updates starting with building the backbone for the AI economy. Now as I mentioned upfront, we closed another $1 billion-plus in PCF deals, bringing our total to over $10 billion with a healthy pipeline of deals remaining. Based on our current build schedule, the $10 billion of business in hand plus the existing O&M run rate business for PCF, we expect will yield a recurring revenue stream ranging between $400 million and $500 million by the time we exit 2028.

I'll add 2 important footnotes regarding this business. First, none of the remaining deals in the pipeline have been contemplated in this revenue guidance. They are purely upside. Second, we remain deeply disciplined in our approach by only inking deals that are value accretive to Lumen shareholders even if this means stepping away from an opportunity. And the teams are doing a great job building that backbone. As of the end of September, we had completed more than 3,200 miles of over pulls on 27 different routes, approximately 130% of our in-year '25 target with a full quarter left to go for the year. But building the backbone for the AI economy, it's not just about over pulls for our hyperscaler and neocloud friends. It also requires massive upgrades to our physical network to support Cloud 2.0 needs of enterprise customers.

And for this, we're investing in 3 major fabric infrastructure projects, including rapid routes, data center expansion and metro expansion. Market by market, we're upgrading capacity, increasing data center interconnects and improving service delivery experience and time frames to help our customers address the urgent needs of AI and multi-cloud architecture. These investments are how Lumen is creating a ubiquitous, high-capacity networking fabric that enables our customers to connect everywhere that matters quickly, securely and effortlessly.

Okay. Moving on to our digital platform update. We've created Lumen connectivity fabric and NaaS to address the need for programmable API first networks in the world of Cloud 2.0, and I think our growth metrics confirm the market need for what we're offering. The number of active customers in the third quarter grew by 32% since last quarter, and the number of NaaS fabric ports deployed grew by 30% and the number of services sold by 36% in that same period. Across all 3 KPIs, we're showing strong growth. Now I share these metrics with you each quarter because they're central to our new business model, which is different than traditional telecom.

I'll share more about that now, so we can all ground ourselves in a common understanding of how Lumen will pivot to revenue growth. At the center of our new PxQ business model is the fabric port. One digital port that delivers many services. And when we say Q, we mean total active ports or the number of net new ports in service. When we say P, we mean average selling price. Average selling price of each service purchase through Lumen connect and deployed on the port. And in early 2026, we're going to extend this model with the launch of Project Berkeley, a pre-provisioned cross-carrier fabric port that lights up first and third-party services on and off-net, AI ready from day 1.

Simply put, Berkeley enables intelligent and universal access no matter who owns the pipes. Customers will be able to install the port and light up standard kits of services, including IoD or Internet on Demand, Lumen Defender, voice, VPN on Demand, and a range of cloud on-ramps. Soon through our connected ecosystem work, they'll also be able to light up third-party services. The commercial motions to drive digital growth are simple and repeatable by both our direct sales force and our partner channels.

First, they land customers on new port with a mix of starter services and then they expand by attaching more services on installed ports creating a PxQ flywheel of sorts. And at an Investor Day next quarter, we'll share more about what we're learning as this new digital marketplace takes shape. Here's what we know. Growth will come through selling more ports and upselling more first- and third-party services. And that's why I'm so excited to share the next 2 announcements with you.

On October 20, we launched IoD off-net, expanding our addressable market by close to 100x and that's just in the United States. Since Lumen NaaS became generally available in January of 2024, the #1 piece of customer feedback has always been, hey, bring Lumen NaaS off to market, and here we are. It's early days, but the feedback so far has been very positive with great customers like Xcel Energy, noting how Lumen's off-net NaaS will help them achieve important business outcomes such as more resilient operations and more intelligent services.

Now the second announcement is about the Lumen Connected ecosystem, a major driver of commercial expansion for both ports and services. Last week, we announced a strategic partnership with Palantir where we not only agreed to buy services from each other, but we committed to bring those capabilities to joint customers. I want to call your attention to an article from The Street entitled "Palantir just signed a deal that could shift the AI power balance". The piece does a really nice job explaining how Lumen's network has become critical infrastructure in the AI race. The purpose of the connected ecosystem is to help more technology companies like Palantir gain competitive advantage by leveraging our platform and allowing Lumen to gain commercial reach.

We're excited to report that we're working with dozens of other companies that not only understand the power of our new business model, but they also understand that our AI-ready network enhances the delivery of their solutions. Just some of the marquee tech companies we're working with include, of course, Microsoft, Google and AWS, the big hyperscalers, but also data center companies like Digital Realty and QTS, AI platform companies like Palantir and Meter, data cloud services companies like Databricks and Snowflake, security companies like Palo Alto, Zscaler, F5 and Netskope, and backup and recovery and data protection services companies like Rubrik, Commvault and Cohesity and so many more.

Together, Lumen Connectivity Fabric and Lumen Connected Ecosystem offer a meaningful source of revenue growth. Our early read on growth from all of our digital capabilities includes NaaS, Edge Solutions, Security and the Connected Ecosystem is somewhere between $500 million and $600 million of incremental revenue run rate exiting 2028. And while it's hard to accurately forecast revenue, when you're creating a new market, we do feel good about these numbers, and we'll continue to be super transparent about all of our assumptions and learnings as we go.

To bring our revenue story home, PCF should yield between $400 million and $500 million of incremental revenue exiting '28. Lumen Digital should yield between $500 million and $600 million of incremental revenue in the same period. That's $900 million to $1.1 billion of incremental revenue exiting 2028, and that's the path for Lumen's business segment to achieve revenue growth. We're changing the game in networking by building the fastest open platform mesh network connected to everywhere that matters while delivering a digital on-demand experience so enterprises can quickly, securely and effortlessly move their data. It's what our customers need and it's what our investors deserve.

Chris, over to you.

Thanks, Kate. Lumen delivered another quarter of solid execution. We reported strong third quarter financials, implemented phase 1 of our new ERP system and continue to improve the balance sheet. Financially, revenue, adjusted EBITDA and free cash flow results were better than expected. Our total business grow revenue was up 7.7% year-over-year and our total business revenue was only down 3.2% year-over-year, well ahead of the competition. The launch of phase 1 of the ERP system quote-to-cash is a significant milestone for Lumen as we continue to transform the company by simplifying systems to support our future growth. When phase 2 is completed next year, we will be on a unified ledger and will continue to sunset old systems and drive additional efficiencies across the organization.

We continue to strengthen our balance sheet with multiple capital markets transactions during the quarter. In August, we successfully priced $2 billion of 7% first lien notes due 2034 at Level 3, which enabled us to extend maturities by approximately 4 years and delivered $48 million in annual interest expense savings. We followed in September with pricing a $425 million add-on to the 7% notes to redeem all the remaining 2030 Level 3 first lien maturities and repriced our $2.4 billion term loan, reducing the rate by 100 basis points.

Lastly, in September, we used cash to redeem both the $238 million of 7.25% quest notes and $350 million of 10% Level 3 second lien notes. The third quarter debt refinancing term loan repricing and debt reduction actions further reduces annual interest expense by approximately $135 million. Year-to-date, we reduced annual interest expense by approximately $235 million through proactive balance sheet management.

Looking forward on a pro forma basis and considering the early 2026 expected closing of the announced $5.75 billion sale of our fiber-to-the-home business the proceeds will allow for the paydown of approximately $4.8 billion in Lumen super priority debt. This action is expected to further increase Lumen's annual interest expense savings up to approximately $535 million. We will continue to work toward improving our debt profile ahead of the anticipated close of the AT&T transaction in early '26 as we continue to seek opportunities to further delever, extend maturities, simplify the capital structure and reduce our cost of capital.

Upon closing the AT&T transaction, we expect to have approximately $13 billion in debt, reducing our overall leverage before 4x adjusted EBITDA. And with that, I could not be more proud of the team's hard work to deliver such impressive results as well as the opportunities that a new financial profile unlocks for Lumen's future. I'm really pleased to say debt is no longer a headwind for Lumen. The balance sheet is quickly becoming a point of strength for us.

So let's move to the discussion of financial results for the third quarter. Total reported revenue declined 4.2% to $3.087 billion. Business segment revenue declined 3.2% to $2.456 billion. Mass Market segment revenue declined 7.7% to $631 million. Adjusted EBITDA was $787 million with a 25.5% margin and free cash flow was $1.7 billion. Within North America enterprise channels, excluding wholesale, international and other, revenue declined by approximately 1%. North American enterprise grow revenue increased 10.5% year-over-year, driven by continued strength in dark fiber and IP. We saw expected and typical declines in Nurture and Harvest. Overall, including wholesale, North America business revenue declined 2.8%.

As previously communicated, Grow will become a larger percent of our North America enterprise revenue base over time. We're pleased to share that Grow now represents half, I'll say that again, half of our North America enterprise revenue. This was driven by our core network Grow products with non-PCF driving the largest portion of the increase. The emerging growth of digital has yet to materially impact our revenue performance.

As Kate mentioned, when we first reported this metric, in early 2022, Grow revenue represented approximately 35% of our North American enterprise portfolio. So to those who are stuck to their thesis that our legacy portfolio will prevent our return to growth, or that our growth is over relying on PCF, the facts show that thesis is increasingly incorrect and frankly, irrelevant over time.

Wholesale revenue declined approximately 7.6% year-over-year, in line with our expectations. International and other revenue declined 13% or $12 million, driven primarily by managed services, VPN and voice declines.

Now moving on to mass markets. Our fiber broadband revenue increased 18.4% year-over-year and represents over 49% of mass markets broadband revenue. During the quarter, Lumen added approximately 122,000 fiber-enabled homes, bringing our total to approximately $4.5 million as of September 30. We also added 39,000 Quantum Fiber customers, bringing fiber subs to approximately 1.2 million. Fiber ARPU was $64. At the end of the third quarter, our penetration of legacy copper broadband was approximately 7% and our Quantum Fiber penetration stood at approximately 26%.

Now turning to adjusted EBITDA. For the third quarter of 2025, adjusted EBITDA, excluding special items, was $787 million compared to approximately $900 million in the year ago quarter. For the third quarter of 2025, our margin was 25.5%. Adjusted EBITDA margins were disproportionately impacted by anticipated declines in public sector Harvest revenue in the third quarter. Special items impacting adjusted EBITDA totaled $216 million. This includes severance, transaction and separation costs and our modernization and simplification initiatives.

Lastly, capital expenditures were approximately $1 billion. Free cash flow, excluding special items, was over $1.7 billion. As a reminder, we expect free cash flow to be lumpy quarter-to-quarter as we move through the large PCF builds.

I'll now talk about our outlook for the remainder of '25. As we saw in the third quarter, we expect fourth quarter revenue to be negatively impacted by additional declines in public sector Harvest revenue as that revenue returns to more normalized levels, similar to the third quarter of 2024. On a year-over-year basis, I would remind everyone that we had a positive onetime revenue item in the Grow bucket in the fourth quarter of 2024.

With respect to 2025 adjusted EBITDA, we reiterate that we expect to come in near the high end of our $3.2 billion to $3.4 billion guidance range despite the previously announced $46 million RDOF giveback in the second quarter. We expect increased costs associated with our utilization of cloud services to continue in the fourth quarter as well as a negative impact on EBITDA from the above-mentioned public sector Harvest normalization.

As a reminder, our adjusted EBITDA guidance assumes organic revenue declines similar to 2024 and excludes roughly $300 million in transformation costs to support our multiyear commitment to reduce expenses by $1 billion. We remain confident that we will achieve adjusted EBITDA stability over the next few quarters and see an inflection to growth in 2026 driven mainly by continued M&A savings as well as improving revenue declines.

We maintain our 2025 guidance for CapEx spending at $4.1 billion to $4.3 billion. As we previously communicated, we expect to be at the low end of that range, mainly because of build timing and increased efficiency from our team, offset by some strategic investments for growth. As we said, we expect our overall capital intensity to fall over time. Our 2025 cash interest guidance remains at $1.2 billion to $1.3 billion. We continue to expect to be at the low end of the range because of the improvements we've made to our debt profile.

Finally, we're reiterating our full year free cash flow guidance of $1.2 billion to $1.4 billion, mainly because of lower-than-anticipated CapEx spending, better adjusted EBITDA performance, lower interest expense and the expected $400 million tax refund. I would note, our free cash flow outlook reflects our expectation of receiving the $400 million refund from recent legislation in 2025. While the IRS has accepted our request for the refund, the receipt of this cash could be delayed by a prolonged shutdown of the U.S. government.

Now as I wrap up, I want to emphasize that as we disrupt the market for legacy enterprise telecom offerings with next-generation Cloud 2.0 connectivity digital solutions, we'll change the way we measure and provide insights into our business. The future is about digital scalability and growth, and this requires a different way of thinking, a different way of modeling. As we transform Lumen, we simply won't fit the models of yesterday's telecom. For those of you open to changing your models to track our journey, we appreciate your thoughtfulness and we'll provide as much guidance as we claim, including a deeper dive look at our upcoming Investor Day in February.

Kate talked about $500 million to $600 million in digital revenue exiting 2028. Digital includes NaaS, cloud on-ramp security as well as revenue from ecosystem partnerships. We see multiple paths to achieving those digital revenue goals over the next 3 years. We're still testing assumptions. But what we do know is we're seeing great adoption for NaaS as well as immediate interest from industry-leading tech companies as we build our ecosystem partnerships. More than half our North American enterprise revenue is coming from growing products today. And while we're still gauging the timing of the revenue on our new digital products and enterprise buying habits, the early trends we're seeing gives us increased confidence in our return to business revenue growth in 2028.

As we learn more, we'll be transparent as we introduce concepts to investors that will be highly correlated to our strategy and distinctly differentiated in the market relative to the backdrop of traditional telecom, but we believe will make sense as our business evolves over time. While there are a lot of moving parts over the next 12 to 18 months, we believe our transformation and innovation will lead to new revenue streams to satisfy the needs of customers in today's Cloud 2.0 environment. Our cost structure optimization and increasing digital revenue helped improve margins and free cash flow, reduce our capital intensity, lower our leverage and borrowing costs and ultimately provide the financial flexibility to invest in Lumen's future growth.

We're pleased with our performance this quarter as we make great strides across all 3 layers of the business: physical, digital and ecosystem. We're also pleased with the reaction from the credit and equity markets as our trading multiple is beginning to reflect the impact of our significant balance sheet improvements or improving revenue mix away from legacy to growing products and the early proof points for our digital growth engine. We're excited by what the future holds, especially given the financial impact of our digital future and that they're not materially reflected in our results today. We look forward to providing more updates along our journey.

And I'll now hand it back to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Mike Rollins with Citi.

Two topics, if I could. So first, on the PCF deals. How does this new $1 billion of bookings compare to the last set of deals or tranches where I think previously, you guided to an unlevered free cash flow margin of like 30% to 31%. Just curious if the margins from these are different from that. And if you can give us an update on how much pipeline is still out there for aluminum to pursue for these types of deals?

And then secondly, you mentioned a few times the Grow revenue being above 50% of the NAM business revenue. And the Grow revenue grew over 10% year-over-year in the quarter. So can you unpack a little bit more of what's driving that Grow revenue? And is double-digit growth in this Grow bucket a new sustainable level for Lumen to achieve?

Mike, it's Kate. I'll take the first one and let Chris handle the second one. On the PCF deals, the $1 billion plus, it was more than one deal and the composition of that portfolio of bookings is equivalent in margins to the prior tranches. And I think you can see us kind of approach this business with a very disciplined approach, as I referenced in my prepared remarks. We're only going to do the business that's deeply accretive, and we're in a kind of a -- we're going to remain focused on that.

Regarding the pipeline, it's a lot of different hyperscalers and neocloud providers. We're not going to commit to a number anymore. I think we're going to exceed probably our expectations as we said last year, only because this is not going to be an overnight sensation. This is turning out to be a fairly protracted phase of what we see as a 3-phase process hyperscalers and neoclouds connecting their data centers for training and for provisioning of services to their customers. And then the enterprise phase of it, where enterprises start consuming those models through inferencing and they need massive upgrades and to address all the needs of Cloud 2.0.

And then there's that third section, which is referenced in the Cloud 2.0 remarks that I made, which is basically AI corridors emerging, and you've got AI talking to AI. So it's a huge amount of data traffic and requires a massive expansion. We're still figuring out what the demand curve look like across all 3 of those cycles. But I think that gives you a sense for it.

Yes. And in terms of the overall growth rate, PCF has started to triple in but I emphasized in my prepared remarks that it's actually not the majority of that growth. So we still see a strong mid- to high single-digit growth in things like dark fiber, IP waves, connectivities -- traditional type connectivity solutions that ultimately will convert to digital. So in the near term, PCF is certainly contributing, but it's not driving the total growth.

I also want to remind everybody that over time, PCF is actually not a growth engine because those deals are static. And once completed, they don't increase every year. So when we're talking about getting back to growth, we know that eventually, there's a headwind as those builds come to conclusion and level off. So PCF is a great way to monetize the assets that are in the ground and this tremendous network that we have the opportunity to run. But they really aren't something that we believe are a significant part of our long-term growth trajectory.

Your next question comes from the line of Sebastiano Petti with JPMorgan.

Chris, maybe you could just -- given the run rate that you've outlined for not only the PCF but for the digital revenue buckets, against the backdrop of some of the transition and transformation costs that you're kind of wearing for lack of a better term in '25, can you maybe help us think through the piece parts or the puts and takes as we look out to the EBITDA bridge from 2025 through 2026? Obviously, the mass markets, that's kind of well understood. Maybe some of the other core or remaining part of this?

Yes. So a few different things. As it relates to revenue, you will continue to see that, that Grow bucket becomes an increasing portion of our business over time. So business mix continues to improve, which means the rate of decline continues to improve. So that's obviously a tailwind.

The -- but the big driver, I mean, let's be really straight about it. Kate called it out, is the modernization and simplification efforts as we navigate our way through the inflection point of EBITDA. So a lot of modernization and simplification as we close out the year. We've said that we're going to be above what we initially guided for this year and then more to come next year. So those are really the 2 key drivers, reduced rate of decline on enterprise and the modernization and simplification benefits that impact EBITDA.

And if I could ask a quick follow-up, Chris, I think you said that the balance sheet is no longer a constraint, but a source of strength. I mean, is Lumen strategically compete as you think about trying to attack some of these growth areas that maybe legacy telcos are not necessarily having their purview?

So I would say, number one, once we close the transaction with AT&T, that will bring us down to the high 3s, but we're not done yet. And there's a playbook to further reduce leverage over time. But the point is that when you look at the maturity chart and the curve that we've shared in the presentation, this is not the old Lumen. And this is a balance sheet and debt profile over time that allows us to do multiple things.

So what I wanted to be really clear about in today's reported remarks and it's exactly what I frankly shared at the Industry Analyst Day is it's time to stop talking about our balance sheet as a headwind because it's simply not true. It's time to start talking about our inflection back to growth.

Your next question comes from the line of Batya Levi with UBS. Please proceed with your question. And we will go to the next question. Your next question comes from the line of Frank Louthan with Raymond James.

There were 3 announcements this week, you touched on some of them. There was the announcement with the -- you touch of the 10 million business locations in the Palantir and the QTS network. Can you give us an idea of sort of the revenue impact from those items and the timing and magnitude of when those will start to hit?

Yes. I mean, all of them were a part of the connected ecosystem storyline, which if you think about it, has a couple of different tenants. So the first is continued connectivity with the hyperscalers. The second is connecting -- interconnect for all the data centers. That was the QTS deal. And the third being technology partners who are seeing value and integrating networking into the offerings that they bring to customers.

So we're starting the flywheel, Frank. It's really about a go-to-market partnership better together. I think networking has always been purchased separately. So you buy a cloud solution and then you go figure out if you have enough network. What we're doing is designing the network solution to support the specific cloud offerings of these companies and making them available in digital marketplaces to make it easy to buy and improve the velocity to value for the customer. And so you're going to see it over time in improved results of all the same things we're selling today. We're just harnessing the power of other people's sales forces to give network a seat at the table for the first time ever.

And any color on sort of the magnitude and timing of the revenue from those? Or are these just sort of kind of lumped in with everything else in growth?

Yes, I'll take that. Frank, it really gets back to my closing comments, which is we see multiple pathways to getting to our revenue objectives for digital. And the only thing that we're getting really good certainty around at this very early stage is tremendous NaaS adoption. But as Kate laid out in the PxQ map, it comes down to number of ports, number of services per port and price per service.

And so as we move through that journey, we'll definitely give investors a lot more visibility to that. And we'll certainly share our prevailing point of view at Investor Day. But no matter what we share, I guarantee, it's going to be different by the time we get to the other end. And so we'll constantly update the market, but the thing that gives me enormous confidence is when you got port services and price, you have multiple pathways to get to that outcome, and we feel really good about it.

Yes. And just to clarify, Frank, the connected ecosystem is a part of the storyboard of how we have confidence in getting to $500 million to $600 million incremental revenue exiting '28. So that's really -- it's one and the same. It's not a separate revenue stream. It is acceleration of the existing digital capabilities in flight.

Your next question comes from the line of Greg Williams with TD Cowen.

Chris, the stock has been showing some outsized strength in the last call it, 3 weeks. I know it's been volatile recently. But if it sustains up here at these levels, I mean, does it make sense to equitize some of the company and sell some shares and further bolster the balance sheet? Does it change the capital allocation calculus at all?

And then second question, Kate, you did mention the 3 phases of AI. Are we in a prolonged training phase 1 right now? And what I mean is a couple of the hyperscalers and AI companies are pushing now more towards AGI models, like bigger, larger models here. And I'm curious if that prolongs phase 1 of this journey.

I think it's a great question as to whether or not phase 1 is prolonged. I think it's definitely intensifying and the amount of capital being deployed is probably bigger than we even imagined last year.

So how long it takes? This isn't -- we're building critical infrastructure for the biggest technology shift in the history of mankind. So it's a multi-decade journey. I want to be clear that it's not linear. So phase 1 will overlap with phase 2. Phase 2 being as enterprises start to use all of these models, which is happening right now. I think that what -- it's really interesting to see the proliferation of neoclouds coming into the story to sort of offload a bit of the pressure on trying to find GPUs and commit to buying them.

So I think you're seeing the market change. And I don't know that anybody knows the answer or how long this is going to last. But right now, we're just focused on executing. And it's like -- obviously, we're delighted with the commitment of capital that our partners and customers are making to this incredible technology.

Yes. And on the stock price, I mean, look, obviously, tech has had a good run of late, and I want to make sure I say that clearly as a backdrop. But look, if you really dissect what's been going on with Lumen's stock price, there was a significant discount put on our stock price because of a few things.

One, perceived risk on the balance sheet side, I mean, again, look at that debt maturity chart. And two, and quite frankly, some of your peers still hold this view that we could never return to growth because of the legacy backdrop. I think what the market now realizes -- and by the way, the credit markets realized this 6, 9 months ago is that neither of those things are true. The balance sheet is getting healthy really quickly and is no longer something to be discussed as a risk. And our portfolio of business today, before we really start to pull in the digital upside associated with transforming enterprise telecom is half of that portfolio is growing.

So when you look at the stock price today and normalize the balance sheet post close, which we said today and AT&T said on their call, we expect an early first quarter, you actually get to a multiple that's pretty reasonable and comparable to better performing peers in our space. So I think we're now finally at the point where we're being recognized for what we've done. And we're now more fairly valued than we have been for the last period of time. From here, we've got a lot of work to do, but we feel really good about the upside as we drive digital adoption.

On the equity rate side, look, we'll continue to look at everything. And I would never say no, but I also want to be really clear. Our equity holders have stuck with us. We've done a lot on the debt side. Our creditors are obviously very pleased with what the return has been on their investments as we see bond trading values come up. And now it's time to focus on our equity holders, and that's why we're so pleased to see what's happening in the market.

Your next question comes from the line of Eric Luebchow with Wells Fargo.

Appreciate the kind of revenue color on the digital and NaaS ecosystems, $500 million, $600 million. Just curious if you could talk about some of the incremental work you have to do internally, investments you have to make to kind of be able to achieve that outcome, whether it's upgrading data centers, additional cross-connects, additional on or off-net locations. And whether that could show up in the OpEx or CapEx line to be able to reach that goal in a few years.

And then my second question would just be around disconnects of legacy services. It seems like those have been coming in a little better than expected. Just wanted to check if there's any kind of timing-related things to call out there that we should expect to roll off in the next few quarters? Or maybe you're just performing better than you previously anticipated?

Yes, I'll take the first part, and I'll leave the disconnect timing question to Chris. So the investments required to build the digital platform are definitely significant. They're already contemplated in all of our plans. They're in the operating plan, and we've got a very strong pipeline of innovation. It's just beginning with IoD off-net. We've got Berkeley coming to market in the first quarter and more enhancements to the platform after that.

I think it's important to remember that we talk about cloudifying telecom, which really means driving cloud economics for us and our customers. That's about scaled revenue growth with reducing marginal cost of hardware required to deliver these services and -- which is very, very exciting. Additionally, the old way for Lumen to grow was really sort of fixed to a level of capital intensity that I think is changing over time. That capital intensity required to deliver the digital portfolio over time, reduces. And I think that's an important part of our story over the next couple of years.

Chris, do you want to take?

Yes, on disconnects. It's really -- last quarter was an anomaly as we said around the public sector side and things that I would say, just returned to normal as we move into the fourth quarter. I think the bigger impact in the fourth quarter is what I mentioned in my remarks, which is, remember, we had a big onetime revenue enablement item and grow last year surrounding the state of California. So that's really the biggest thing that's out there.

Next question comes from the line of Nick Del Deo with MoffettNathanson.

The first one, Kate, you touched on this in your prepared remarks, but I was hoping you could dig in a little bit more. Can you talk some about the specifics of how you're promoting NaaS to customers and educating out the product and how you're incenting the sales force to sell it versus other services? And kind of related to that, if the off-net opportunity is 100x larger than the on-net opportunity, how are you prioritizing each? How are you resourcing each?

It's a great question and a hot topic for Lumen right now because we're going to relentlessly pursue our digital future. And that means allocating resources accordingly. And when NaaS was a bit nascent, we had to kind of do it as a hobby and now that it's becoming core and showing a very promising adoption curve, which will translate into a very promising revenue growth curve, we've got to dedicate more resource to it.

And for any company in transformation, Nick, you have to be ambidextrous. You have to take care of the old and you have to build the new at the same time. The trick is when do you move thing, resources from the old to the new, and we're right in the process of doing that. And there are many examples that I could go through. But at the highest level, we are -- where there's a NaaS capability being offered to customers, we will demote the old-school analog version of that service and prioritize it in terms of engineering resources, marketing resource, sales resource and operations resource. And so you'll see the sales team being more and more incented to go after it and the rest of the company in support of that sales force.

I think your other question about the availability of 10 million buildings, we still need to target. We still need to get aggressive in terms of aligning our sales efforts with the massive metro upgrades that we're doing. So our customers can take advantage of everything we're doing at the same time, the on-ramps network as a service, the capital improvements, the rapid routes, all of that stuff as we improve the capacity and bandwidth and performance market by market.

And so -- it's also important to note that if you think about most large enterprises, they have a mix of buildings in any geography that are on and off-net. And so we have to be very cautious about how to present this to customers. Now we can ask our entire sales force to talk to every customer about purchasing NaaS and about what the benefits are over agile, digital native experience digitally is going to be fundamentally different and provide a better customer experience to these customers. It wasn't available in totality in the past. Now that it is, it will actually be easier for our sales force to approach customers because they don't have to pick and choose on-net and off-net. They can just do a total network refresh.

Can I ask one clarification on the PCF front as well? A few minutes ago, you said that the margin on the PCF deals that you signed in this quarter was equivalent to what you previously outlined, the prior deals you signed rather. Last quarter, I thought you were suggesting that the funnel that you had, had some different attributes to it since they skewed more towards new builds rather than leveraging existing assets. Maybe could you just touch on that a little bit?

Yes. I mean, basically, new build construction projects much more complex, and there's pressure for lower margin over those projects as opposed to overpull or lighting up existing dark fiber. And the composition of the portfolio is incredibly important to us. We're not going to do bad deals. And there's an enormous amount of pressure from some of our partners to go back to the old telco ways of 0 margin for the promise of traffic of the future, and we're not really doing that. We're looking for much more creative partnerships with these builds to say, if it's a new build, we will share costs if there's existing traffic there.

Chris, do you want to add anything to that?

Yes. And so the $1 billion looks like the deals that we've signed so far because it's primarily existing conduit where we're doing over pulls. So it's a similar economic profile.

Your next question comes from the line of Mike Funk with Bank of America.

So I'm going to butt in your comment during the prepared remarks, I think you said that it does not fit the models of traditional telecom. So can you expand on that for me, if you could, please? Traditionally, telecom kind of being very commoditized from buying the same equipment, same service capabilities. So I guess how do you veer from that more traditional model? And what should you mean by the earlier statement?

Yes. So first of all, let's start with the fact that nobody is doing what we're doing. What I would clarify though is when Kate talked about our digital future, there were key words in there, which is one port, many services. So traditional telecom was a battlefield of every single services requiring its own infrastructure layer, its own set of ports. And so you have multiple players in the ecosystem go chase VPN or Ethernet or whatever it was, and you'd end up with massive amounts of hardware in the system and then everybody says, the only tool we have to compete against each other with is price. That's not what we're doing.

What we're doing is we're monetizing what is the most modern, the most high capacity, the fastest network by adding a digital layer in an ecosystem layer, and those are services to, Kate's point, whether they come from us or they come from third parties that allow us on and off-net. Off-net is not a disadvantage anymore because of what we're bringing to market where we can actually, for the first time in enterprise telecom bring scale.

So you'll see declining capital intensity because every service will not require its own infrastructure layer. You'll see increasing margins because those services increasingly will be delivered digitally. The whole model is changing. It's the PxQ math that Kate went through. So Lumen is not your mama's telecom anymore. We will not look like and are proud to not look like our competitors in this space.

And Michael, I would strongly encourage you to look at some of the slides that we prepared for today's presentation, specifically the essential Cloud 2.0 networking requirements. I challenge you to come up with another company that is doing the 5 things that we outlined on the page. We are massively expanding, bandwidth and reducing latency with our upgrades of rapid routes and data center interconnect and metro updates. We are connecting to everywhere that matters, especially with the data centers, which means we're bringing that higher level bandwidth and lower latency to all of those locations. We're expanding into AI corridors. We've connected with all of the hyperscalers for these on-ramps and we're delivering everything with a vision that is got to be programmable and it's got to be interconnectable through APIs.

This is a complete modernization of old telco. What's remarkable is that new architecture that we're building, not only gives better performance, more secure, higher bandwidth, higher performing, lower latency, all those things, intelligence. It also reduces cost because it takes the intermediaries out. And that's incredibly important when we're starting to talk about commoditization. Things get commoditized because there was a utility mindset and there is no innovation. This company is completely innovating and delivering a fundamental reset in networking in support of AI and making massive capital investments in support of that, and we're already seeing the uptake. So it's very, very different.

The only add that I would make is that when you look at PCF, that physical layer, the reason we're at $10 billion of business, and you're not hearing much from others isn't because they want to walk past $10 billion. It's because they can't do it. So if you were to normalize the underlying physical layer, it would be years and billions and billions of dollars until a competitor could close that gap. That's before we talk about the digital and ecosystems layer where we're making this consumable on demand by the customer. And so that's the differentiation. And that's why you continue to see our profile looks so different to our competitors.

And one more if I could, really quickly. I appreciate all that insight, and I'll definitely review the decks again for those facts. So you've given us some landmarks for the revenue and revenue growth, and I apologize if I missed it from the analyst, event you hosted or today. But what is the cash EBITDA CAGR look like over that same time period? You referenced in the call that the market is not giving you credit for growth rate relative to peers. It'd be helpful to have a thought on that to be able to better frame the valuation on cash EBITDA growth.

Yes. So I'll say 2 things. First, we're going to give you all of that at Investor Day. Second, in preparation for Investor Day, as we look at, again, only the PCF deals that are signed to date, nothing new, and there is more there. And we look at the capital investment to do the things that we're talking about. We have ample cash flow -- free cash flow over the next 5 years to the point where even post the AT&T close, we will continue to delever. So this is a business that will continue to generate free cash flow because capital intensity falls because margins go up and because ultimately, revenue inflects. So we'll give you more at Investor Day.

Your next question comes from the line of Jonathan Atkin with RBC Capital Markets.

Wondered if you could comment a little bit about off-net NaaS capabilities and any -- maybe just repeat or go to more detail on kind of what lies ahead around that capability and demand for off-net NaaS. Yes, that would be my question.

Yes, sure. So the exciting part about off-net NaaS is -- we feel off-net today in existing capabilities, right? It depends on who owns the endpoint. So if one of the other carriers had the endpoint into a building, but the customer wants to do a network with Lumen, we would have a wholesale relationship for that endpoint. The really cool thing about IoD off-net is that we now can offer on-demand Internet services to customers no matter who has the endpoint of the building. So if Verizon or AT&T or anybody else has fiber into the building, that customer can still run Lumen NaaS, and that's a great thing.

But what's more, and this is something that we reviewed at Analyst Day in September, we're going to bring a lot more detail when we launch Project Berkeley is we have a fabric port that allows us to make any pipe smart. We turn anybody's pipe into an intelligent and secure Internet connection. And what it does is, it really accelerates our commercial expansion capabilities.

What's more is that fabric port, Berkeley specifically, has a Swiss Army knife. So it's a cross-carrier mesh, if you will, that enables fixed wireless, satellite, fiber copper, 5G, whatever service you have can all go into that port, which is really cool because it's kind of like a control point for the Internet. And what that means is not only can we expand, but we can provide more services to our customers over time as they want to manage cross carrier.

Finally, the connected ecosystem, part of our story is exciting because our partners want to provide services on our network out of the gate. So just imagine the vision, and this is vision, we still have to get all the pieces together. But imagine that customer says, I want to have a Lumen network, we drop ship a Berkeley device, if you can plug it in Ethernet cable, you can make that device work. It shows a digital twin back in Lumen Connect, the mother ship, the cloud, so that we can remotely provision, we can remotely manage and service it under a single pane of glass.

But what's really neat -- and this is what I tried to tease out on the prepared remarks, is that customer can say, okay, I have a new building, I'm going to buy a Berkeley device and to put it in place, and I'm going to get some Internet on demand. I'm going to throw some voice on there. Maybe some Lumen Defender. I want to connect to 2 of the cloud directly without going through carrier-neutral facilities. And I want some of the security service from my favorite security provider. Click, click, click, and they can build that service remotely. It's a very forward-leaning vision, and we're bringing it to market in 2026.

Is there any external investment, tuck-in M&A or whatnot that makes sense either in regard to this direction? Or is there anything else around the broader business?

I'm sorry. Did you ask if there are any tuck-in?

Does [indiscernible] accelerate, does it make sense to do M&A to maybe accelerate capacity that you have going?

I really love questions about M&A. It really shows how different things are. Thank you so much for the question. Of course, we look at everything, constantly, the best use of capital. Is it to invest something new, is it to pay down debt, is it buyback equity, or is it to go buy something to tuck in? We're looking at all of it, and we'll bring it to you as soon as we have any changes in our current trajectory.

At this time, there are no further questions. I will turn the call back over to your host, Kate, for closing remarks.

Thanks so much, operator, and thanks to everybody for the remarkable time and attention that you spent and the great questions. We're so excited to share our progress and our journey ahead, and we couldn't be happier with what's going on at Lumen. A special shout out to the thousands of Lumenaries working so hard every day to make this progress reality. I'm so proud of you. And love working with all of you. See you in the field. All right. Thanks, guys.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

Ladies and gentlemen, please take your seats. Our program in 5 minutes. Good morning, everyone. I'm Al, your AI assistant for the Lumen Analyst Forum. We're so excited to have you with us today. So let's dive right in. Please join me in welcoming to the stage Lumen's Senior Director, Analyst and Consultant Relations, Claudine Ruscetta.

Hello, and welcome to the 2025 Lumen Analyst Forum. For those I've not met before, I'm Claudine Ruscetta, Senior Director of Analyst Relations here at Lumen. It's so great to see so many of our industry analysts here in person, and I'd also like to extend a warm welcome to those joining us virtually from around the globe listening into our main stage presentations. I also want to thank you for taking the time out of your busy schedules to be here with us this week, your insights, your engagements, your partnerships are invaluable to Lumen.

Our theme for this year's form is the trusted network for AI. Over the next 2 days, you will hear how Lumen is executing on a bold strategy, building out our physical network, cloudifying telecom, strengthening our financial foundation and charting a clear path to growth. We'll also provide an early look at some of the technology products we're pursuing to meet the enterprise demands of the AI era. When we last gathered, we introduced you to a company in the midst of a transformation. Over the next couple of days, you'll see just how far we've come. We have a very engaging and informative program lined up for you, just a few housekeeping items.

As you can see in your agenda, we'll start off each morning with keynotes from Lumen's leadership team. And at the end of the keynotes, we'll bring all of our speakers back up on stage for a Q&A session. By now, you should have downloaded the app. If you need any help with that, please let us know. That will house your afternoon agendas for your one-on-ones and breakouts. And we also encourage you to join the conversation online. Please follow Lumen and our incredible presenters on social media. You'll find the QR code on your table that will link you directly to all of their profiles for easy access. Feel free to capture and share moments from the day, the week, please just tag our corporate social accounts and use the tag Lumen AR.

And finally, before we begin, I'd like to take a moment to read the forward-looking statement. Today's presentations contain forward-looking statements, which are based on current expectations, assumptions and projections about future events and business performance and include, among other things, statements about our strategy, transformation initiatives, product development, market opportunities, financial outlook and operational plans. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. We undertake no obligation to update these statements, except as required by law. Please refer to our most recent SEC filings for a discussion of the risk factors that could affect our business.

Thank you again, looking forward to an amazing couple of days. And so now let's get started. Thank you.

[Presentation]

Please join me in welcoming to the stage Lumen's CEO, Kate Johnson.

I doubt it. I have been looking forward to this moment. It has been a minute. We have a lot to catch up on. So thank you for taking the time. Welcome to the Lumen Analyst Forum. We are going to be sharing so much with you, and I'm going to do you all favor and give you a little cheat-sheet. Three things to look for in all of the presentations over the course of the next 2 days.

Number one, this company is playing to win, and we're not being subtle about it, in any way, shape or form. It's very different than the old ways of legacy telco of playing not to lose, protecting the revenue, and it's very focused on leaning in and building a growth company. You'll see it in every presentation.

The second thing is this transformation? It's not a program. It's not an initiative. It is a fundamental reboot PAUSE of a company that's delivering value that's incredibly disruptive to an industry that's needed innovation for a long, long time. And our transformation is rooted in innovation. And that's very special. Because what it's doing is it's bringing more value to customers, and it's restoring our ability to have pricing power in a market that's been commoditized and is giving Lumen the control point at the most important time in networking during the greatest shift of technology in our lives.

Thirdly and finally, and this is really, really important, we can talk all day long about transformation. We can use fancy words. We can do all the marketing steel. But if it's not showing up in the financial results, then it just doesn't matter. And what I need to make sure we all are rooted in is this notion of we've been very clear: restore free cash flow health, restore growth to EBITDA and then pivot to revenue growth has always been the journey. We have done the restoration on the free cash flow side. We have guided EBITDA growth in '26, thanks to 2 things: modernization and sophistication taking cost out and an organic growth engine that we've been building, that's adding to that shift.

And today, we're going to give more clarity as we've been talking about over the course of the past month about restoring business segment revenue growth by 2028. It's a company that's been in decline for a long time, more than a decade. And here we are 3 years in, and we're calling the ball. So it's a super exciting moment. Thank you so much for sharing it with us.

Thanks, yes, thank you for that. I'm pretty sure our team started that one, but I'm okay with it. So all right, so let's talk about transformation, the elephant in the room. I'm sitting here in front of many industry analysts whose job it is to write about and research transformations of all kinds. And what you have told us and taught us is that 80% of them fail, right? They're complicated. They fail for all of these reasons, wrong leadership, wrong mission, bad funding, bad change management, bad program management, too much risk, too little risk. The list is really, really long.

So what gives us the confidence to say we're going to transform this company from a legacy telco to a modern technology infrastructure company and reposition ourselves as a trusted network for AI. What gives us that bold aspiration and the confidence that we can do that? It's a couple of things. Number one, the common denominator of all successful transformations is the right assets at the right time. We've got the best fiber network. I'm a little biased, but I think we can actually prove that out at precisely the right time multi-cloud and AI, the biggest technology boom in the history of mankind can't operate without fiber. And that's a really important point for us and something that we're leaning into.

The second thing, and I think this is really important. By definition, any company going through a transformation is an underdog. If 80% of them fail, that means only 20% win. And when the odds are stacked against you that high, you're by definition, an underdog, right? Well, guess what? Underdogs are special. They have a certain mindset. They're driven by passion, not glory. And we have built a team of the most amazing leaders that have that underdog mindset. They're driven by the passion to transform an industry, not the glory of sitting someplace where it's easy to grow.

And our dream to disrupt the industry and deliver new value and to power the AI economy, it's conceived really by Dave Ward, our CTO and Chief Product Officer. He designs the dream. We got Ryan Asdourian, our Chief Marketing Officer. His story tells and amplifies the dream and breaks it down so that all of us can really understand it. Chris Stansbury. This guy has transformed the financial position of Lumen, an incredible executor, and he's funding the dream for us. Ana White, our Chief People Officer. I've never seen anything like this. We are very, very passionate about our culture. It's rooted and playing to win. We focus on team trust transparency and a few other behaviors that are critical for driving transformation success. And somehow, she has made all of that tangible throughout our company. All of our processes, all of our moments are rooted in transparency around that culture.

And Mark Hacker, the newest kid to this team, General Counsel, I don't know how he did it. But he's showing the company that legal and compliance can help you go faster. It can help you show up in just the right way for customers. Ashley, our CRO, she's selling the dream. And she knows how to build scaled engines to drive revenue growth, machine like. That's how we're winning in NAS, by the way. And Kai, got the awesome responsibility of actually making it physically true every day out in the field, making sure our physical and digital dreams are coming true for customers and providing the value that we think they are.

Wes, he's not going to be here today because he's one of the master minds of the Mass Markets transaction, selling fiber to the home to AT&T. And he's focused on making sure that transaction goes through flawlessly, and we're super grateful for his leadership, by the way. This team is different. Underdog mindset, passion for transformation. And together, we see a deep need. And that's probably the third really important common denominator is there a problem that you can solve talked about assets at the right time. What is the problem that we're trying to solve. CIOs are on the hook to deliver insight at the speed of thought in a sea of complexity. That's a huge problem. AI is driving data proliferation. Users, apps and data are everywhere. Great news is there's choice for customers. 1 cloud, 3 clouds, 5 clouds, a bunch of data centers at the edge on-prem. You can put your data on your apps anywhere, and your people are geographically dispersed.

But if you have to deliver insight wherever they are in the most cost-efficient way, that choice becomes a huge amount of complexity and you need partnerships, companies to actually deliver the goods to make it easy. By the way, the ecosystems in networking for decades have been taking advantage of that emerging complexity and just taxing the system with no value. And Lumen is changing all of that.

Our vision is to remove the friction, collapse the layers, unlock the speed, deliver secure and cost-efficient solutions. Because there's money there. We can actually grow this company by focusing on solving that problem. That's exactly what we're doing. Just look at the cloud spend. It's going through the roof, more data in the clouds. And by the way, if it goes in that cloud has got to come out of that cloud. Data center is proliferating everywhere because there's a race for GPUs. By the way, all those data centers need to be connected, just like all those clouds.

And then you've got customers saying, oh my gosh, this data is going through the roof, what do I do? And there's an emerging part of the overall total available market for connectivity, around $15 billion that's growing very rapidly that says how can we quickly move data in any one of those combinations, cloud to cloud, data center to cloud, prem to cloud, et cetera. I'll spend money to do that. And that's the available market we're going after. We're already making progress in it as we're going to share with you today.

Before I go and start talking about our mission, vision and strategy, I need to set the context for what we've done. We've done an incredible amount of work in the 3 years that we started this journey nearly 3 years. And this slide depicts the big moments in the first 18 months of that journey. I started -- we started building a team. We had to cut the dividend. That was an incredibly tough choice. We restructured the balance sheet, that was unbelievably difficult and complicated. We divested from Europe to focus on getting healthy in the United States. We established a clear North Star for the company, which was important for all to rally behind where we were trying to go.

We launched a cultural reboot with there to lead. And then we did this little science project and we said, while we're doing all of these really hard things, let's go see if customers value really quick, secure and effortless experiences in networking. It was a science project, a bit of a hobby, a toe dip in the water, if you will. And when I look at this slide, the team presented it to me and said, we think you should start here, I was like what -- it doesn't tell the whole story. There was so much going on underneath. We were simplifying the ecosystems. We were building the scaffolding for program management. We were setting things in motion to build an organic growth engine.

None of that's on that page. None of it. What you see on that page are the moments that the world saw -- and if you recall, all of those headlines during that time, they were pretty rough. This is a very dark time for this company. We're under docks, we got this, and we used the underdog mantra. Actually, Geno Smith, former quarterback of Seattle Seahawks in his upset victory against Russell Wilson, was in a post game interview. And he said something really important and those who are giggling, maybe you know what I'm going to say, because I say it all the time to myself. When the world writes you off, don't write back, ignore the haters dig into the work, play to win and focus on executing. And that's what we did.

And guess what happened? Boom, we shot out of a cannon. Right after that restructuring, we knew what was going underneath the hood. We struck a deal with Corning, made a very lengthy commitment on a significant portion of their production because we knew it was going to be required to deliver on about $8.5 billion worth of contracts, which we signed in 4 months. We started breaking records on that new infrastructure, which was fun because we got noticed. So this legacy telco sleepy little thing all of a sudden was named 1 of America's most innovative companies by Fortune.

We then struck a deal with Google to rearchitect and provide value with direct fiber access on ramps on to the cloud and industry first. And then 2 more moments during this time, which we're really defining for us. Number one, we sold our fiber-to-the-home assets to AT&T, a massive delevering moment for this company after we execute it. And we surpassed 1,000 enterprise customers on that little science project that we started. Validating that, in fact, our declaration that we are an enterprise company was exactly the right thing. That's where we need to put our focus on our money.

We're chasing that $15 billion, and we've got a hell of a head start. All of this together, this is our momentum. And momentum is special because it's another common denominator of successful transformations, you get that ball rolling. Objects in motion, stay in motion, losing companies keep losing, winning companies keep winning. We were losing PAUSE -- the intervention, the exogenous impact to stop that is our play-to-win strategy and our transformation, our science projects, our deals and here we are. We have strategic clarity.

Everybody knows, this is our focus on the enterprise. We have financial freedom, which is pretty remarkable given where we came from, we have a very healthy balance sheet. Chris is going to talk about that. Some of the graphics in there really give you an idea of where we were versus where we are today and where we're going to be after the close of the transaction.

And then finally, we have an innovation engine. And it's pretty remarkable because it's pumping on intellectual property, that's pretty exciting. We're going to talk about that and actually make an announcement on that today. And it all started with the North Star. I was with the company for a week, and I said, "What's our strategy?" and they said, we need a new one. We're just going to jump right to it. And I said, great. Get the top 10 performing VPs and SVPs, put them in a room for a couple of weeks. I sat with them and I said, you have a clean slate. Let's portend, you've got nothing to worry about what's the company that you'd build based on the assets that we own. And our North Star was born. And the remarkable part of this story is that this North Star hasn't changed since they set that ball in motion in December of '22.

They said, "Look, we can unleash the world's digital power by focusing on what we do best, which is connecting people, data and applications quickly, securely effortlessly, Obviously, the quick secure and effortless is something we really need to work on. In telco, all up, but particularly at Lumen. And that became our mission statement. That's what we're here to do every single day. We established 5 core customer solution areas. We cleaned out a lot of the portfolio got rid of a lot of the stuff that didn't make any sense, we were kind of spreading our bets across everything instead of declaring majors and focusing where we know we can win.

We still have more work to do on that. But it's a remarkable amount of progress. And we conceived of a digital platform providing connectivity fabric, the ability to kind of permeate and shop everywhere and interconnect the world in an elegant way. We're very focused on delivering value for our customers, delightful experiences for employees, happy employees drive happiness with customers. We know that for sure and we're going to restore revenue growth, profitable revenue growth to our shareholders who deserve it.

The whole thing is culture driven. My first day I told the company, we're going to rebuild this company from the people up. And we have every single day, very focused team trust transparency and then all of the behaviors that are common denominators have successful transformations. Clarity of our communication, a growth mindset.

I need everybody to be able to make a mistake and know they can come in the office the very next day with their head held high because they're learning from it. They're not ashamed of it. And of course, customer obsession, something that's important, and it's driving all the innovation that Dave is going to talk about in just a little bit. And this is our long-term vision. We have work to do to construct this company, but this is who we want to be, a digital network services company that delivers ubiquitous universal connectivity to enterprises. Obviously, high bandwidth, low latency secure, resilient and intelligent fiber solutions are what we do, and we want to deliver digitally and on demand. There are a couple of words that really they deserve our attention. Ubiquity is key. That's being everywhere. We've been focused on on-net. We need to be available everywhere, and we have a plan to do exactly that.

Universal, what the heck does that mean? Remember that choice I talked about, data centers, clouds, on-prem at the edge, we cover all of the combinations of connectivity. We're the only company that does data center to data center, data center to prem, data center to cloud. We got it all covered. Not only that, we're innovating and driving new architectures to make that connectivity higher performing more secure than anybody else in the world. This is the company that we're building. It's our vision, and we've got a really, really tight strategy to deliver on that vision.

Three parts. You're going to hear about them all day today. The physical, which is continuing to build out the backbone for the AI economy. On the digital side, we're building a digital platform to cloudify and identify the entire experience with our fabric. And the third piece, which is relatively new, we've conceived of and started delivering against a connected ecosystem that drives more value for customers and technology partners and Lumen shareholders, which we're excited about. We're going to keep on modernizing and simplifying the company. It's just what we do every single day, and we're ahead of our cost takeout plan as a result of it.

And again, we're going to continue to nurture the way that we come together, the culture of the company Brené Brown, wrote a new book called Strong ground. And in the very first chapter, if you only read 23 pages of it, she likens the culture of a company to the core strength of an organization, okay? So if your core is not strong, you're just going to have entry after injury. And we have been developing our core strength for 3 years and I'm really proud of that work in case you can't tell.

Let me dig in just really quickly to a couple of these things. The physical network, this is our booyah moment, okay? We've got something that nobody else can replicate. Great coverage, unique routes, state-of-the-art technology, equipment and fiber. We've got a long lead. And what's most exciting is, we're dramatically expanding the physical network, all powered by these partnerships with the hyperscalers. No more field of dreams building we're building what everybody needs, which is super exciting. Kai is going to take us through exactly where we are on this. We're ahead of plan, which is super exciting, and he'll talk more about exactly what that means.

Digital. When I first started talking about cloudifying telecom, I got a lot of tilted heads like what are you talking about. I come from a world of tech. And in tech, we cloudified the world more than a decade ago. It was hard. There was a lot of structural change in the industry that we had to drive as a result of it. But basically, we said, okay, let's have density of innovation around infrastructure. And let's let companies do what they do and kind of let the technology companies deliver the technology, innovation and security for them.

But network got left behind, right? Network is the same as it was in 1990. Okay, maybe not. Dave don't get mad at me. But basically, there hasn't been a lot of evolution around the core pieces of networking to keep up with cloud. It's -- there's an asymmetry there. And we're basically promoting networking to the world of cloud. Dave is going to talk a lot about the second-generation cloud 2.0 PAUSE and how we're skating to that puck where it's going, right? We're going where the future is, we're not waiting for it to happen around us.

And in legacy telecom, there are a couple of things that really, really matter there's like this point-to-point analog static mindset where you have linear cost pin to revenue. You can't get cloud economics because one port carries one service, and it sits on one infrastructure. And we're changing all of that. With our digital platform. Our NAS capabilities provide cloud economics. So a fabric port can carry thousands of services. Not only first-party services from Lumen, but third-party services from our partner ecosystem, which is incredibly important because now we can drive scaled revenue growth with declining marginal cost.

Cloud economics. What's more is we've been selling IoD, Internet on demand into our on-net buildings, maybe 100,000, 110,000 buildings around the country, where NAS is enabled. Soon, we will be releasing Internet on-demand off-net. Why is that relevant? It's relevant because instead of having a total available market of 100,000 on-net buildings for NAS, we will have more than 11 million buildings available for this service. What's the magic that makes that happen? It's a couple of things. Lumen Connect is the management council for total life cycle management. Remember, A lot of that's available today, and we still have a lot of work to do to integrate to have one common experience, but the view is a single pane of glass to manage your networking needs, fire up any port, with any service anytime, anywhere on that or off-net.

And a big piece of the enablement of that we're going to announce today. It's called Project Berkeley. I'm not allowed to say any more than that because Dave Ward will get super pissed if I do. But I will tell you, that is game changing. There's a ton of intellectual property. It provides the control point for Lumen, and we're very, very excited about what it means to our disruption path. When you get more than 1,000 enterprise customers on a digital platform, you now have an innovation engine that you can model and scale for growth. And that's what we have and a good indication that this is real is, these are the logos of the companies, big brand names that are willing to stand side by side.

By the way, this is just a portion of them. We couldn't fit too many more on the slide or you wouldn't be able to tell it who they are. But when companies stand side-by-side with you, say, you can use my logo and I'll tell the story of the great experience that I'm having with your capabilities, you know you're on to something great. So we're excited about that. And I think I was reviewing over the weekend with the team, hey, give me some of the feedback that we're getting from customers, and they use words like it's simple, it's instant, it's elegant. It's innovative. And that's one of the major signals that tells us we're on the right path. That's what gives us confidence that we're going to deliver this transformation and return the company to growth.

The final piece, the ecosystem, what the heck does all this mean? Okay, we've got customers connected through NaaS platform. We've got all the data centers around the country connected right? And we've got the hyperscalers connected. We have a rich connected ecosystem. So where is the value. Very simply put, we are giving technology partners value by taking the long pole of design and delivery and provisioning of networking out. And our vision is to make it instantaneous.

So what is that value to a technology partner? We say, hey, we can actually accelerate your time to consumption because that's the metric that everybody cares about. Microsoft wants the fastest path consumption of their cloud. Commvault fastest consumption of their cloud solutions. And traditionally, the buying is done totally separate. The architecture totally separate and you get your cloud solution selected and you decide you want to deploy it and then you start working on that networking piece of it and you figure out how much bandwidth, what's the performance and speed, where is my redundancy? And then they say, oh, that's going to be 6 months.

In this vision, what we're doing with customers, we're making a huge amount of progress. Ashley is going to talk about some of these partnerships that we've already formed. We're saying we're going to bundle a Lumen validated design for this cloud solution and make it available in digital marketplaces. So when you're ready to buy it, you're ready to deploy it from a networking perspective. We are no longer the long pole in the tent. And that's defining because it accelerates time to value for everybody, for the customer, the technology partner and for Lumen because we've got what nobody else has got a quick, secure and effortless digital experience, integrated with those partnerships.

Super exciting. It extends our reach because we have technology companies selling this on our behalf, and it bolsters our conviction that we are the right company with the right assets at the right time. Let me wrap it up. I told you 3 things. Number one, we are playing to win and we're not being subtle about it, we're leaned in, we're focused. We're making bets. We're learning, we're pivoting as we need to, and we've got momentum. Number two, we're innovating to disrupt, and that's what's driving the transformation. It's not a program or initiative or a fly-by-night thing. It's very real. And you're going to hear all day long about the innovation that we're bringing to market already. The intellectual property of this company is delivering is super exciting. And finally, financially, we are restoring growth to the business segment of this company by 2028 with margin expansion.

And that's our story. I hope you engage with us. Ask tons of questions, please. We're here over the next couple of days to make sure you get your answers and dig in with us. So let's get to it, and thanks for the time.

Up next, we're thrilled to welcome Lumen's Chief Financial Officer, Chris Stansbury.

Good morning, everybody. Good afternoon and good evening for those on the East Coast and around the world that are listening in. I've got one job to do here this morning and that is to draw a firm, solid line between the past and the future. Because for the 3.5 years that I've been at Lumen, there's been this dark cloud, about the finances of the company, the balance sheet. The balance sheet was the only conversation and we're putting that to bed today.

But before we do that, I want to take a step back, and I want to talk about why? And I want to talk about why that conversation still exists today, and it exists today because it's the playbook for enterprise telecom except for rate here. So if you look at what happened, if you go back to the '90s and early 2000s, literally billions of dollars were deployed to build new fiber networks supply eventually outstrip demand, and the industry was plagued by a lack of scalability, right? Everybody had these fixed assets. There wasn't a lot you could do with it. So what did that do? They put price pressure. It was commoditized.

So people started selling on price, oh, well, that's not too good. But the network was still inflexible and static, and it wasn't evolving for the changes that were taking place around it. I mean just pause for a second. Does anyone in this room think that the network today is what a network engineer would design to support an AI multi-cloud world? I don't think so. We got here by accident. And we got here because of this. So revenue started to fall as prices fell, margins fell, companies started to consolidate. That's the answer. I know we'll go by each other. We'll get that next layer of efficiency. We'll scale that way. We'll outrun price deflation by consolidating, except that didn't work.

And so what happened? All right. We got a lot of cash, but we're not going to invest it because this thing is moving down and to the right. We're not going to innovate anymore. And the innovation was cycled. So the cycle just kept repeating itself, right? How many of these companies had dividends still have dividends today. They are a prisoner to the dividend. Oh, wait a minute, we got to pay the dividend again. I know what to do. Let's go raise debt. Money is cheap. Let's do that. Leverage rose, right? It just continues. It's a terrible, terrible cycle. And that is why Enterprise Telecom has a bad rap.

But that is not the rule book that we're playing by anymore. Now I'm going to talk about this in more concrete terms and using Lumen as an example. But before I do, I'm a car guy. And my childhood idol was Ayrton Senna. And this is a quote that I shared with the Lumen management team when we kicked off Dare to Lead in February of '23. And the quote is pretty simple, right? You can't overtake 15 cars in sunny weather, but you can when it's raining. It was raining. All right?

$20 billion in debt, almost half of it due in 1 year. time was running out. This quickly became affectionally known as the middle finger chart. All right. That's what we were up against. It was staring us right in the face. And analyst investor analysts, some of you were writing our obituary. So time was of the essence. It was existential. The crazy thing though that is not represented on this chart, if you look at the management team that Kate and I shared with you earlier, outside of Kate and myself, everybody showed up after this.

They ran into the fire. And they ran into the fire because they saw the tremendous opportunity that this company had and the assets that it had and the ability to transform telecom. So from there, we got into a bit of a situation with our creditors and the creditors were concerned. And that was in the news, and that was the cloud that was hanging over our heads. And this is where we were starting kind of at the end of '23, the deal wasn't done yet, a lot of debt outstanding, $20 billion in debt, leverage above 4x, $1.2 billion in interest expense. And then we did a thing. We did the largest out-of-court debt restructuring in history and what that allowed us to do is it bought us time. It bought us time.

It pushed maturities out. We still had a lot of debt. Leverage rose because EBITDA is still declining. And really importantly, we had to pay a lot to get that flexibility. $1.4 billion a year in interest expense, December of '23, not yet 2 years ago and then we renegotiated the debt. And with the renegotiation, we knew we had an opportunity with PCF, and that's why we did it. I cannot tell you how many times Kate and I got asked the question, why don't you just file Chapter 11? Why don't you just do what everybody else does in telecom? Consolidate with somebody else, write it all off and start the clock again. Again, the old playbook, right, drive scale through consolidation. We said, no, there's a better way. There's assets here that have value, and we're going to monetize them.

What happened? Within 6 months, really within 3 months of signing that deal, we signed our first $5 billion. And within 6 months, it was 8.5%. And that allowed us to start to chip away at the debt and to refinance things. And to start to get to a more normal maturity curve. Leverage is still increasing because we're chasing the declining EBITDA, interest expense is starting to come down. And if you play the clock forward, with the sale of the consumer fiber-to-the-home business, we significantly delever. We go from over $18 billion in debt to 13, our leverage falls below 4%. And roughly 2 years after negotiating the largest out-of-court debt restructuring in history, we're cutting our interest expense in half. So this isn't about Lumen's balance sheet anymore. This isn't about playing by the old rules. This is about where we're going, and everybody else can keep playing the game the old way. That's giving us a huge advantage today, and we're going to take it.

So we have financial freedom. We're on a path to return to business segment revenue growth in '28. Kate talked about that, total Lumen in '29. We see EBITDA stabilizing next year and inflecting and starting to grow. We're investing what we need to. And we're going to get into that in great detail today. We're focused on execution and the word I love the most on this chart, optionality. There's lots of things we can do. And by the way, we're not going to get it all right every day.

One of the biggest attributes of this company is its ability to adapt to be nimble to adjust the trends and realize where we've messed up and pivot. We have optionality now. We've got a balance sheet that actually works in our favor. We can invest in our future. We can continue to delever. And at the right time, if there's an asset that we can acquire, that would further that strategy, we can do that, too. And if none of that's available, I guess what we can do, we can buy back stock. Those words haven't been spoken inside in Lumen in years.

Now what we're doing isn't anything new. Kate talked about that. This is connectivity. It's security, it's Ethernet, IP wave and VPN, but we're selling it differently. It's Ethernet on Demand. It's VPN on demand. It's a different way and a more flexible way for customers to upgrade their networks and meet their needs in an AI multi-cloud world. Now I'm going to repeat some of the slides that Kate showed. But if you look at the strategy, I want to -- I do want to get into these in a little more a financial view. The physical layer, it's so important. I'm going to share a slide with you in a second because that is our enduring competitive advantage. No one else has what we have. And that's why no one else participated in that $9 billion so far. I don't know of anybody that wouldn't want $9 billion. They didn't because they couldn't. We can.

Kai is going to talk about our unparalleled network expansion. Dave is going to talk about the dramatic and I mean dramatic reduction in cost that we can bring customers, which gives us pricing power. Ashley is going to talk about the connected ecosystem and our key to market growth as we go forward by leveraging technology companies who need our network to make their products better. And Ana is going to talk about how the culture ties all that together. It's the foundation of everything we do. We're customer #1. We're doing this to ourselves before we take our products to anybody else, and we're learning as we go.

Now we've shown this slide a number of times in earnings. This is what's important. These assets, Kate talked about no more field of dreams built, what gave us this opportunity was a field of Dream build. And it happened 26 years ago, when Level 3 put conduit in the ground all over the U.S. And at the time they put that in the ground, they thought they would get, maybe a dozen strands of fiber through each of those conduit. Kai is going to talk about the fiber count that we can pull through today, it's dramatically higher. So this is immensely scalable. We can rip and replace, we can take advantage of empty conduit, which is what we do with the hyperscalers. And we still have lots of capacity left. We're basically quadrupling our intercity miles and we still have enormous capacity left. No one else has this.

We want to level the playing field in the enterprise landscape and your competitor lumens, you better start now. It's going to take years, and it's going to take tens of billions of dollars to level the playing field. Now what all this means, and Kate touched on this earlier, is as we move through this, you're going to see a lot of things start to change in our financial situation. The digital and ecosystem layers really provide scalability. That fabric port, I can't say much more than that because, again, I don't want to steal Dave's thunder. That changes everything. It's not one set of infrastructure for one service. It's one set of infrastructure for infinite services. That's scalability, Oh, wait a minute, the only way you can scale enterprise telecom is by consolidating wrong.

With that, we see a path to revenue growth. We see margins expanding in the range of about 20%, so get us into the mid-30s as we go forward. Free cash flow, we talked about we've addressed that, and we address it further with the sale of the consumer fiber-to-the-home business, freeing up $1 billion a year in CapEx and capital intensity will fall. We think that once the PCF builds have completed -- and by the way, that's not really a fair comparison because we get paid upfront for those builds. It's not really cash that we're financing. But even if you throw all that into the mix, we think our capital intensity is going to be about half once those PCF deals are done. So now let's last slide, talk about revenue.

We have historically, over the last 3 years, talked about grow, nurture and harvest. When we talk about our product portfolio and a way to give some level of visibility into what's going on with revenues. This is a simplified view of that. It's really where we're going to start going. And it's quite simply saying what's strategic, what can we grow and what's legacy? What's gravity? Because that's reality. And I think the important thing here is that if we were talking about grow, nurture, harvest, on our last earnings call, that grow bucket is almost half of what we sell today, almost half of our revenues.

When you look at it through this lens, which is pretty much the same thing, it's taking some of that nurture bucket, the pieces that can be delivered digitally and moving that into the strategic. Over half of what our revenue is going to be next year is in that strategic bucket. So for the naysayers, you have the legacies there. You can see it. It's the blue line, down into the right. But don't forget the orange ones. It's not about us trying to inflect gravity. Those things are declining. They're great assets. They provide a lot of cash. They allow us to invest in our future. They are not our future.

Our future is a strategic product, and that's what we've got a path to grow. So super excited you're here today, super excited that we can share our vision and innovation with you. Now let's get to the really fun stuff. Thanks.

Now let's hear from someone who keeps things running smoothly across Lumen, our EVP of Enterprise Operations, Kye Prigg.

Good morning, everybody. Hope you're all well. Huge pleasure to be here with you all today. I joined Lumen 2.5 years ago. I met Kate and Ashley and a few other executives, Chris. And I was just blown away by where they wanted to take this company, what they wanted to do with this company from rebuilding the culture, rebuilding the networks, the technology. It was so, so exciting for me. And then Kate asked me the question, would you run into the fire with me. And here I am. And we're still running through the fire.

I run operations across North America. What we do is we look after the planning, the design, the deployment, the management professional services and the service assurance of all of our networks, looking after the network day in, day out, making sure the network is available, offering the amazing services to our customers that they've come to expect from us.

Today, I'm going to talk about how we're setting the place, how we're setting the pace, how we are leading the industry when it comes to building the backbone for the AI economy. I'm going to start by sharing a short video with you all that we call the big build. This video was filled over the last few months, and we filmed it coast to coast. And what we're doing with this video is highlighting this mass scale construction project that's going on. It's going on all around us, even as we speak, thousands of people engaged across the country doing this. And so I hope this brings to life what we do day in, day out here at operations.

[Presentation]

So just to put it into perspective, one of those shelters, which we call the double wide shelter, would fit in probably about half of this room, you'd be lucky to get 2 of them into this room, right? So I hope that kind of gives you a view of the kind of scale that we're talking about in terms of the construction effort that's going on. So this is our network. This is our crown jewel. And importantly, as you heard from Chris, there's a lot of capacity in this network. There's additional ducting in this network. This is a unique network in the United States in that it gives us everything that we need, all the ingredients that we need to be successful as we build this new backbone.

The network is resilient. It is low latency, and it is hyperconnected. And you'll hear from Dave and the team, just how hyperconnected this network is and how we're going to make it even more connected as we go forward in the future. The network once built, and you can see, obviously, we're building the fiber infrastructure at the moment will be controlled by digital experiences. And again, you'll hear from Dave and the team on exactly what those experiences are and Dave will bring them to life. And that's incredibly important because it is game changing for our industry.

So data volumes, it should be no surprise to anybody in the room just how quickly data volumes are increasing due to AI. By 2030, we expect 19, 20x growth in data consumption, which is mind boggling. It's a huge amount of data. That data will need a lot of fiber in the ground. It will need a lot of technology to move around the country into data centers out and between data centers, hyperscalers and so on and so forth. But it also changes how we build the networks. You heard Chris talk about if we started with a clean sheet of paper, would we build the network in the same way that it is constructed today. And the answer to that is we definitely would not. We would build it differently, and that's what we're doing, right?

So the networks of today are not the networks of the future, right? We need more distribution. We need more locations connected to the network. We need much more fiber in the ground, and that's what we're doing. So our solution is PCF or custom Fabric. I'd like to think about this as your network, your way. You can choose the ingredients. We have all the ingredients to be successful. If you're a hyperscaler that runs a large global network, you know what you're doing in terms of lighting up the fiber, you know what you want, you know where you want it. And we will work with those hyperscalers to construct in the way that they want.

Other customers, they want us to do everything for them soup to nuts. They want us to design the network, they want us to build the network. They want us to integrate the network and then they want us to operate the network as well, right? So in operations, we provide all of these services from the design services through to the deployment of these networks and all the way up to the operation and maintenance of the networks as well.

So how did we go about building the foundation of the AI infrastructure. So just like with the network build, we started with a clean sheet of paper. We recognized very early on that this was such a huge undertaking to deploy $8.5 billion of network infrastructure that we were not going to be able to do that with our traditional way of working, and we would just overpower the teams that we have in place. So we started with a clean sheet of paper, and we built a brand-new team from scratch. We developed new processes, we developed new tools. We made sure we instilled a new culture into that team in our ways of working, not just our ways of working within the team, but how we show up with our customers and how we show up with our vendors or our partners as well in the field, right? So we've instilled that culture into how we work end-to-end.

We also built a massive ecosystem of partners. So coast to coast, we work with the biggest and the best companies in the United States to bring this to life. We have thousands of people out in the field day in, day out, who are deploying these networks. And we work very, very closely with them as we do that. And importantly, as we built this, we needed national scale, but we needed local knowledge, okay? When you think about permitting, you think about what's happening in individual municipalities across the country, we needed that big scale to do this, but we needed that local knowledge as well. So we went and we made sure we built that through the way that we approach our permitting. We've built dedicated teams and specialists across the country that can help us with that.

We established the team in 9 months. So from start to finish, 65% of the people in the team are new to Lumen. So we took, of course, a lot of extremely good people from Lumen into the team, but then we went out and we found the very best people in the industry to come and join Lumen. And so many people wanted to be part of this. It was actually amazing for me to see how many people wanted to be part of this coming in from the wireless industry as well as from the wireline industry and other industries as well. So we've been able to build a world-class team.

Deployment is underway, and it's going really, really well. We have already deployed 3,000 miles of fiber, and we're ahead of target, and we've built 144 shelters or ILAs. So 144 times this room, if you think about that in terms of the scale that we've built. And we have 145 more under construction right now. So it's going really, really well. The team is performing as we expected and so are our partners out in the field. The other thing that we're doing is we're making sure, of course, that we have a world-class operations to operate this network that our infrastructure is capable of managing this AI backbone. This is the AI backbone for the economy. So of course, we are implementing AI systems to manage this network, right, that will enable us to very, very quickly understand the root cause of something to effect repairs in record time and so on and so forth. So we're building that layer on top of this through our service assurance teams.

So we're also building on top of all of this infrastructure, a number of very important things. And this is the enabling infrastructure for what Dave is going to be talking about when he's up here after the break. We've built something called RapidRoutes. So this is mass scale waves built across the country, right? So you see that map on the left-hand side. We started this project 6 months ago. And 2 weeks from now, it will be complete. All of those blue lines will be filled in.

What this wave network enables you to do is to light up customers within a matter of days. Previously, what would happen is customers would order a wavelength service, call it a 10 gig, 100 gig, 400 gig connection from A to B. And if we didn't have the capacity there, we would have to go and deploy that capacity. And we'd have to visit all of these shelters. We'd have to do all the work necessary to line all of that up. It could take months to do so. With this system now in place, we are able to do that in days. And we've already lit up the first customers last week. We lit up a customer coast to coast in 3 days. So very, very pleased to see that working. There's more routes being added daily. Yesterday, we added El Paso to Stratford, and we also added Denver to Dallas. And as I said, within 2 weeks, this map will be completed. Phase 2 has already started, so we will be adding more and more routes Phase 2.

So as we go into 2026, the first half of 26, this map will look completely different. Actually, we're adding almost the same amount of routes again.

Then we come into Data Center Expansion, which is closely linked to metro expansion. So as we go into the metros, we are rebuilding our metro access networks. So we're moving away from the legacy metro networks that we have today into metro networks that are capable of delivering 100 gig up to 400 gig to the premises. So a customer will be able to go from their premises of choice, all the way into the cloud hyperscalers, cloud to cloud, through the multi-cloud gateways that we're also deploying in these metros, and they will be able to do that digitally.

And so these projects are all well underway. The data center expansion, the metro expansion all goes live by the middle of December. So the teams are working on this right now.

Then we go into the next phase, which we don't have in here, but there's a Phase 2 and a Phase 3 as we obviously roll out this technology into more and more metros.

So this just shows you where we are today on the PCF rollout. Here's the shelter deployment, and here's the network overpull as we call it. So in total, 23,000 miles is underway at the moment across 73 different routes and 553 shelters that we need to deploy. 144 shelters complete, 145 in construction, and we've almost completed 3,000 miles of fiber overpull across 26 routes. This is as of today.

Towards the end of this year, we will be at 289 shelters complete, which will be 52% of the scope. Things are moving so fast with our hyperscaler partners that they need everything that they ordered from us quicker and quicker basically. That's my day-to-day phone calls, can you do more? Can you go faster? It's unbelievable, really. And so we are pushing as hard as we can to get the infrastructure out there because without these shelters, you can't light the fiber. We can get the fiber in the ground. And what we're seeing is the consumption of the fiber in the ground is growing more and more and more, whereas previously it may have spent a couple of years in the ground, it may only spend a few weeks in the ground before being lit now.

So our customers are also lighting up and consuming the fiber in the ground, I would say, at a record pace. We will hit around 4,000 miles of fiber deployed by the end of 2025. And we're also working very, very hard to set ourselves up for 2026.

Here's the 2026 plan. We want to be at 15,000 kilometers -- sorry, wrong country, 15,000 miles -- still do that. 15,000 miles by the end of 2026, with 30 routes completed, 35 routes in construction. So you can imagine, what comes live in '26, we have to start in '25. What comes live in '27, we have to start in '26, right, because the effort to do this is extreme.

And then 2027, we want to be at 27,000 miles completed and all of the shelters that are in the current scope completed, and we are expecting more shelters to come into the program. Here's just some pictures just to bring to life a little bit more on the video that we looked at. We have the ILA deployment. What you can see there is a double wide. So these are built in South Dakota. In Sioux Falls, we set up a dedicated factory with one of our vendors. It's a huge facility, and all they do is make these for us. They make them, they ship them to our locations. We have to, of course, install the concrete pads, all of the peripherals, the generators, the batteries, the rectifiers, all of that kind of support infrastructure then the heavy machinery comes in, the cranes and so forth and places the ILA, -- and then they are literally bonded together into one unit on the site. So as they're bonded together, they're weatherproofed and so forth. And these are generational investments in that they will last a very, very long time, made from reinforced concrete. Then we have the network over pull.

It sounds easy. It's not easy. The teams PAUSE sometimes have to dig up. They have to repair conduit and so on and so forth. And so there's a lot of heavy construction going into that. And then, of course, we have new routes being constructed as well, right? So we have to take our network to the location that the hyperscalers or the data centers or sometimes, of course, our enterprise customers, we have to take it where they want it, right, which involves building new routes as well. So we're heavily into the new route construction, and you see that ongoing right there.

Kate mentioned or Chris -- Kate or Chris mentioned Corning. So of course, we have a very, very strong partnership with Corning, and we've worked really closely with them to develop new cable technologies because we wanted to get the maximum amount of fiber into the conduit that was already existing that we could. And traditionally, these networks have been built with 432 fibers, sometimes you would get up to 864 million. But we knew that we needed to go higher than that because the demand was so much. And of course, overpulls and all of the construction is expensive. So you want to get as much in the ground as efficiently as possible.

So working with Corning, we developed a new 864 cable and 1,152 and 1,728 cable that are all now ready for deployment and they're going into the ground. Corning also set up a dedicated facility just for Lumen. We take a lot of their global capacity coming out of that facility in Hickory, North Carolina. The fiber itself is a game-changing design and I have some samples here and in the break I'd be happy to pass samples out, so you can actually touch and look at the fiber and answer any questions about how is it constructed and why is it special?

So I'll be available in the break to show you that. And so yes, working with Corning has been great. They've ramped up production. You can see some examples here. The fiber comes to us in spools. We then have to lay it out in a figure of 8 configuration. And in the top left-hand side there, you can see the machine that actually blows compressed air into the conduits and blows the fiber through the conduits. we're playing to win, and we're just getting started. It is so exciting to be here right now as we build this new backbone across the country. And we bring it to life. The teams are up and running, as I said, I'm very, very proud of the team that we've built, the expertise in the team, the culture and the team is absolutely fantastic.

The infrastructure is real. As you can see, we're out there. We're building it. It's coming to life. We're ahead of schedule with what we're doing. We're getting the fiber in the ground. We're getting the ILA built, I would say, in record time. And important for me is that we're gaining momentum. So momentum in these programs is really, really important. When you start, it takes time for things to gel, for processes to come to life for tools and systems and people to get to know each other, and then you get the momentum. And then it takes on a life of its own.

And I feel like we're there already. This is now taken on a life of its own. Those teams are day in, day out racing to get this done, and they're getting it done in record time. And we're very, very proud of what everyone is achieving out there. Okay. So thank you.

That wraps up the first part of our morning time for a quick break, stretch, recharge, and we'll see you back here soon.

Our program will resume in 20 minutes. Our program will start again at 10 a.m. Thank you.

Welcome back. Hope you had a chance to recharge. Before we dive back into the sessions, we've got a quick video we'd love for you to check out.

[Presentation]

Let's keep things rolling. Please welcome to the stage Lumen's Chief Technology and Product Officer, Dave Ward.

Hey, everyone, as you just heard I'm Dave Ward, it's great to see so many long friends, long-standing friends in the audience here. We've had a joined career over the years, building the Internet, building out cloud and now we have -- we're at a point in time. We're at a point in time where what we thought of as the Internet architecture is actually fundamentally changing. So I've been -- I came to Lumen about 1.5 years ago. I know Kate, it's only been 1.5 years. It seems longer. And one of the greatest things happened to me in my career the employees that are on my team and the employees on Kye's team and everybody's team said, Dave, if you're going to change something, change everything, don't just make small incremental product changes, technology changes, and Kate and Chris back that up with an investment and actually backed it up bringing the customers with their use cases and their needs. And that's what I want to talk to you about today.

We heard a ton of cool stuff from Kye. We saw pictures of giant creams and tractors putting fiber in the ground, but Kye's network is built to run my software and my software is built to sell Kye's network because we only have 3 products. Telecom is a very simple business. We sell connectivity, we sell speed, and we sell services. But the point of my story today is that we want to talk about how that Internet architecture is changing from cloud 1 to cloud 2.

When I talk to you about the rise of the -- and the economic implications of what's happening in our industry, how -- what we're building, how we're building it and then how we're going to provide value to our customers. So this is really post cards or maybe concessions from a bit finger. And that's what we're going to talk about today. Now I'm going to throw some figures at you. I'm going to throw some technology at you. But I'd like to treat this talk really just as an introduction to this topic. We have one-on-one time later today. We've known each other a long time. I'd love to talk to you more about this. I'll be publishing a short white paper. And if you know anything about my blogs, this one is going to run about 22 pages where I want to explain in depth and in words what I want to introduce today. So networking in the networking industry PAUSE finally is getting the word out, about the changes in the economy.

Almost all the discussion has been around chips and around data centers and about power. But what you can see on this slide, there will be as much investment in networking as there is going to be in power to build the AI economy. And that's a critical piece because as much as the $9 billion of deals that we have and all the fiber that's going into these new locations, and I'll talk about that in a moment, our customers need to be able to get access to it. So connectivity, where we're connected speed, why that's critical and then how we're going to deliver these services. So what's driving this? And I have to admit, a lot of this is a shared history that we have as an industry.

I'm going to start with the second one. This notion of legacy networks. We've got a long career building MPLS, VPNs and traffic engineering and heaters on tops of encapsulations on top of extension heaters. None of that is relevant in the AI economy. Second, cloud, the cloud, as we know it today, took about 10 to 15 years to become the de facto standard of where IT, SaaS and other services are located. This revolution is going to take us about 3 years. And that's what's fundamentally different on the transition from 1 to 2. The economic opportunity and the investment is unparalleled.

Last time we saw this, in fact, it was 25 years ago, when we were building the Internet architecture as we know it today. But the Internet architecture and the protocols and the way that we run that network is not fit for purpose anymore. And telcos of the past and service providers of the past absolutely missed the ability to provide services and accelerate the adoption of Cloud 1.0, and Lumen is not going to make that mistake for Cloud 2.0 because we are in the brief case. We are in the middle of these deals, and we're building the products to bring our enterprises and make them relevant in the economy.

But what this means, there is an architectural shift and a corresponding technology shift, a new way to think about enterprise networks. There's PAUSE absolutely completely different way to build enterprise WAN networks in particular. And then we really have to get beyond the notion of a flat Internet and flat PAUSE technology to get to cloud. There's waves in fiber, there's ethernet and there's private IP, and we're going to have layers of services and control of these different layers, and that has not been seen before. More than just waves on demand, Ethernet on Demand and IP on demand. Instead, it's a way to control bandwidth, latency and redundancy for specific workloads and workflows which is what's required for the economy. And let's talk about that for a moment.

To make sure we're all on the same page. Our work and your work combined together shows that we're going to go from about 240 million square feet of data center space today to 1 billion square feet of data center space by 2030. There's an insatiable demand for the Internet, and there's an insatiable demand for data centers as well. And this isn't all hyperscalers, and I'll show that in a moment. But what we know is that data centers in the U.S. today are at about 98% occupancy. They are full. There is a constant need to construct.

And as you can see from 2024 to 2030, just by the amount of construction of data centers themselves, there has to be connectivity for there to be value. And as Lumen has said before, in particular, for anyone to have an AI strategy, you need to have a cloud strategy, you need to have a data strategy and you have to have a network strategy. And so here becomes -- and the lower box here becomes the location of the enterprise IT architecture in the immediate future. So connectivity and where we connect to, that's what Kye is specializing in. And at the right speeds, we are absolutely at the tip of the spear with 400-gig speeds, pushing out 800 and 1.6 terabit channels, concatinated circuits or ports can't come fast enough, and let me tell you why.

Just looking at the ability to move a petabyte over a 10 gig to 400 gig circuit moves from 222 hours to 6 hours. Now why is that important? Everything in AI is feeding the GPU. And GPUs are not economically viable unless they're at 100% utilization constantly. So therefore, it's feeding the data into the data centers and feeding the data into the GPUs. So if you go in rent or start an AI workload and you have a 10-gig link, and a training is a petabyte, you are paying for 222 hours of idle time. Just to move your data into that cloud, where you connect, how fast you connect and how you can control that bandwidth is what is critical in this economy.

To make it perfectly clear, when you look at the middle part of this chart, the cost to move a 10 gig just using a simple measure of $0.02 per gigabyte. $431,000 over a 10-gig link, just to load your traffic -- sorry, to load your training into that GPU. At 400-gig, 40x less cost to load that GPU training. So the point here is, if you want to start running AI on demand and you want to be able to take advantage of this -- not -- we have 400 gig today, it immediately shows the need to get to 1.60 as quickly as possible for this economy. So we can build single 400 gig links, we can lag them together, create equal cost multipath. We have all sorts of ways to get the bandwidth that is needed available with today's technology.

But as Kye described his metro builds, we're building that with equipment that can immediately upgraded to 1.60 access links, links to data centers and links to hyperscalers. Now this is all on petabyte scale. The size storage we're talking about for AI training is in exabytes, multiply all this by 1,000. It then becomes very, very clear why where we connect and how fast we connect will drive the economic value of those data centers and really drive the AI economy for our enterprises.

So there's an insatiable demand that we see in our pipelines from Ashley and in Kye's builds to immediately get utilize all of those fibers that are in that cable that Kye has outside that you may have seen and why Kye is doing so much construction. So if we're going from just to make sure it's perfectly clear, earlier in my career, we'd be putting 144 fibers in a particular cable. Kye is now at 1728. Those are 50-terabit fibers. So all of a sudden, you're understanding how much bandwidth you can take 50 terabit and then understand how many 400-gig waves is in that.

We're talking about hundreds of thousands. And what I'm trying to tell you through this economic slide, this slide on the economics is that it is what's required to take advantage and create economic value out of the AI economy. So we will continue to construct and we'll continue to build to the gigawatt multi-hundred megawatt and all the data centers that are out there.

Now to put this in perspective, this bar chart shows hyperscalers, colo and neo clouds and their construction over an immediate period through 2028 in which we see a massive surge. We talk about this in the industry quite a bit and the CAGR of that growth is 6%. Now as we look beyond to 2030, we see the CAGR is at 17% and the data center construction at 17% CAGR matches the CAGR of real estate power, water cooling servers, et cetera, that are also growing at 17%. So my point here is that we have immediate line of sight between now and 2028. We understand that 3 years after that, and that the industry is going to -- the industry will hit 1 billion square feet of data center space spread roughly in thirds across hyperscalers, colos and neo clouds. So this is the fundamental economic shift that's happening in our industry, and this is the new core of the Internet.

We know today that Northern Virginia, half of the Internet traffic, as we know it today, goes through Northern Virginia. With this amount of investment in this movement, of traffic of data, of workloads, of jobs into these data centers, we know this is the new core of the Internet. It's not just consumer services. And Lumen is the only company going after this cloud core and the only one that's on as many deals with hyperscalers, data center operators and neoclouds to build the fiber there. So I'm extremely happy that all my competition is chasing SIM cards because this is the Internet. This is where enterprises are going. Sorry, was that wrong?

Okay. Let them chase SIM cards. I want the Internet. And that's just for connectivity and speed. So how does this then change the macroeconomics of what we know about cloud 1 to cloud 2. So we already know that every hyperscaler has cloud regions throughout the Continental U.S. But when you take a look at the construction and you take a look at these colored dots of where most of the data centers are being built. You see a densification in and around urban areas. That's not surprising. We see a massive amount of diversification based on real estate power and water and Kye is building the fiber. We're building our own routes. We're building it in partnership with power companies with data center companies, et cetera. And again, the flatness of that WAN into 3 distinct strata edge, data center interconnect and hyperscaler back-end fabrics. So therefore, all the construction Kye is doing, where we're connecting, absolutely critical, and we're the only ones building to this space.

I may need a new clicker. No, here we go. So Cloud 2.0, extreme bandwidth and low latency required we can debate where inference is going to happen. It can happen in an edge cloud. It can happen in a neo cloud. It can happen to a hyperscaler because the distance of those routes is incredibly small due to the diversification of the locations.

Second, as Kate mentioned, data center to data center, data center to cloud, cloud to cloud, et cetera, that data center interconnect is the new Internet core, the expansion into these AI regions, which we can hypothesize which in my world view will occur, that will have AI regions, just like we have cloud regions. And so those AI corridors that we're building to become massive economic value and become the new cloud regions of Cloud 2.0.

Now distributed on-ramps. We've talked about this a couple of times. What this means in essence, and we announced this with Google, and we're working with others is that we are building on ramps into the cloud, into the hyperscalers and into the neo cloud and with data center operators away from the current carrier-neutral facilities. There are 17 locations in the Continental U.S., where multiple carriers come together. This is there historically because that's where we exchanged voice traffic and long distance traffic across carrier, those became the on-ramp to the cloud 1.0 that we know it today. They're out of power, they're out of space, and they're in the wrong locations of the network topology to be relevant for the AI economy. So we're building with hyperscalers, data center operators and Neoclouds an inter mesh, pre-lit of tens of terabits of capacity, intertwining our backbone with theirs. So our backbone becomes the backbone for all the enterprises to get to the hyperscalers and Neocloud, pre-lit driven by digital platforms and now becomes the new on-ramp to the cloud and becomes fully distributed around the continental U.S.

And key for me in this transformation is enabling a fully programmable Internet. And I don't just again mean IPV4 and the swap of the Internet that we know it today. What is changing is that we can control bandwidth, latency and redundancy between data centers and cloud on demand. So you can take that 400 gig pipe, and you can carve up 100 gig goes to Amazon, 100 gig goes to Google, 100 gig goes to Azure, et cetera. And you can rearrange it all tomorrow on demand. The digital platform becomes critical, and I'll describe that in more detail. But that network as a service is absolutely critical in the cloud 2.0 economy because enterprises can't predict the partners will have tomorrow, where their data is located, how much traffic is necessary between where the AI workloads will be and how much traffic is necessary to be immediately created to move that data to those workloads. Therefore, this leads us to the conclusion that a notion of VPNs or static point-to-point must evolve into a fabric in this backbone of controllable bandwidth, latency and redundancy.

So these elements of cloud 2.0 don't exist in Cloud 1.0 and don't exist in the protocols and features and products that have been delivered by legacy telco and this is what we are building. As we've mentioned several times, and I want to build this up for you, ecosystem, physical network, and digital platform.

Physical network where we connect in the speed, digital platform are going to be the services that we create and the ecosystem are the outcomes that we want to deliver for customers. And you're going to hear quite a bit about that over the next couple of days. I'm going to save the technology partners for Sean Alexander's talk. And I'm going to focus on the hyperscaler and data center operators because data center operators have their own backbone, they need to connect to other data centers in cloud, and the #1 question is, how do I get my customers to my data center?

And I want to answer that question shortly. This partnership with the hyperscalers and data center operators as our ecosystem partners and the intermeshing and the creation of a unified fabric between our backbones and locations, fundamentally different architecture than exists today on the Internet. And we are out in front with those partnerships. So on the platform itself the digital platform, as we know it today, from being in a network-as-a-service like manner has to evolve and change. And it's evolving and changing because the ability for our customers to design, price, order, provision and assure out of one platform becomes the critical mechanisms in which the enterprises keep control, keep the design of their network, but have the ability digitally to be able to manage and assure that their workloads are happening.

So this move with Lumen Connect, what we were as a NaaS company now moving into a platform company and cloud native becomes a critical, critical move for us as a company and exactly what our customers are demanding. And when I say on the design piece, back to what Kate mentioned, design not only what's on net to Lumen, but also design off the net any carriers access to be able to build these constructs. And so PAUSE Last, on the physical network side, picking up work high left off. What becomes -- what you can see on the left-hand side is an example of Cloud 1 shows some point-to-point between data centers, prem and some cloud, relatively static can be rearranged, hub and spoke like nature of MPLS VPNs, gateways all over the place.

Moving to the vision of cloud 2, showing this with illustrative data center operators and services is that fabric. I don't need to think about where my bandwidth is going. I've got a notion of fabric in my network and the fabric ports that I'll talk about in just a second. These enable me to flexibly rearrange at any time, my connectivity. And just as an example, we see our customers having on average of 36 different data locations to run their enterprises. So this means that we need to create on-demand data clouds for our customers, you build that with a fabric. They need to connect between multitude of data centers that have been chosen throughout the history of the company and a multitude of cloud partners, switching that bandwidth, defining latency, defining redundancy on demand across just moving their data, let alone the transformation to adopt SaaS, whether it's their ERP, CRM, PAUSE whether they're also bringing in Workday, Autodesk, whatever the case might be.

Selection of storage partners, Snowflakes, S3 to Wasabis and again, this is just for conversation, all of IT has moved into the cloud. But without a fabric, you're stuck with static, hub-and-spoke, point-to-point connectivity, that is not flexible enough to make that transformation or meet the partnerships and outcomes that our enterprise customers want to hit. So what is absolutely key about the vision that we have for our digital future? Our customers keep control, they keep the ability to design their connectivity and their business foundation based upon their connectivity architecture. But they don't need to own, manage or operate any of these assets. To be perfectly clear, do-it-yourself is dead in Cloud 2.0. There is no core value to an enterprise or intellectual property to get out of owning managing operating assets. This is what Lumen does. But what has never been seen in a VPN or managed service offer is the ability for the customer to design and control it themselves, full power to define their enterprise in design and our ability to deliver all of this connectivity and services with Lumen Connect.

And you get something that looks like this picture, which is an example of everything connected to everything, on demand, changing bandwidth on demand and only paying for what you use, and usage-based billing. So as we're transforming our products in our portfolio that my friend, Dave is going to talk about next, we're transforming the back end of Lumen as well to be able to incorporate all of these new features that legacy telco had never had before.

Kate mentioned this, but I want to reiterate this, the big change is a way that we think about delivering services in our network. So the notion of multiservice ports has been built by a number of system integrators for a very long time. But Kye and I had not deployed multiple services over the same port in the history that we have together. So a fabric port, single physical port, multiple services on top, services that I'm talking about, access to the Internet, site-to-site connectivity, voice connectivity, storage and archive connectivity. Certain amount of bandwidth going to any 1 of the 3 hyperscalers, certain amount of bandwidth going to my ERP and CRM, these become the new units of services and the value that we're creating for Lumen and creating for our customers.

Everyone of these services, ethernet, IP, private IP, the customer can design and control. How much bandwidth now, how much bandwidth tomorrow? Is it very latency-specific, all of that can be controlled by the customer through these fabric ports. And it gives us a future-proof nature of being able to roll out additional services on top of this. So for Ashley, incredibly easy mode to sell, get a port on our network get a number of ports build the services you need, build the enterprise that you want and build it with the assurance and the capabilities to match the workflows that you have in your enterprise and then this can scale. And it can scale massively because, we're using industry standard building blocks to be able to get this done.

So all that sounded fantastic. And we know that we've got a legacy telco problem. We have lots of customers on our legacy products. And all of our enterprises want to be part of the AI economy. And want to be able to get to this new cloud infrastructure. So how can we transform and enable enterprises to transform to Cloud 2.0 without missing a step. Let's watch this video.

[Presentation]

So many of you have known me for a long period of time. And you probably can imagine what's underneath this on top of this pedestal. And what I'm about to show you has not existed in the industry before. It has -- there is no system integrator that has built the ability to transition and migrate an enterprise between different connectivity. There is no one that has ever built something that is controlled by a cloud data platform, and this is Project Berkeley. The smallest router I've ever designed in my career. But perhaps the most powerful because it doesn't just fling bits.

This front panel allows for connectivity, copper, fiber, Ethernet, LEO, fixed wireless access, 5G. It is the only one with a Swiss Army knife as a front panel. And on the -- and this is control. Let me step forward, so you can read about it, too. This device on Lumen's network and across any other providers access network can virtualize the underlay and deliver all the services that I just described to you from our digital platform in Lumen Connect.

So all of my other service provider partners, maybe competitors, all my service provider partners in the industry. I now run the services on their network. And we connect this back to Lumen's backbone. And therefore, all customers on the Internet have the ability to take advantage and become part of the Cloud 2.0 AI economy because we can connect any form of legacy access and turn that into modernity. Already built zero-touch provisioning platform, digital control through Lumen Connect, to be integrated and sold through hyperscaler marketplaces and a full ecosystem possibility.

Let me put this down for a second. So SD-WAN and SASE great ecosystem partners of ours. But SD-WAN and SASE has a massive problem. Their tunnels over the swap of the Internet. How are tunnels over the swap of the Internet going to be valuable in the AI economy, they're not unless those tunnels are pushed into bandwidth latency and redundancy controlled virtualized underlay from Project Berkeley. Security built in Max sec device security as well, fanless, hardened and a full portfolio of options of speeds and feeds to hit the market cost points.

The value we're bringing full digital twin of the enterprise. We have a full replicant understanding of exactly what's going on on this device running out of our cloud. Zero-touch provision, as I mentioned, Kye's technicians and hopefully soon just somebody in a brown van delivering a box. We'll hand this box to a customer, 2 cables, power and their access finds itself immediately out of Lumen Connect. So this becomes our fabric port on-prem. So we're the only provider to have the ability not only for data center to data center and cloud and cloud to cloud, but now prem to cloud, prem to data center, prem to prem with full bandwidth, latency and redundancy control, and I can -- and to make sure it's clear, the reason we can do this is because we have a digital platform using a programmable device to create a programmable Internet in addition to the dynamic routing protocols that we know.

There is no system integrator building this device. There is no other network that's going after enterprise business services and cloud core like we are. So we had to build it ourselves. And the team we have in engineering and the innovation that we've been able to accomplish has been astounding in such a short period of time, fewer truck rolls, easier to use, easier to sell and that is how enterprises get to the AI economy.

So I'm going to summarize this portion and then wrap up for a second. The programmable fabric that we are building in the Cloud Core is now the core of the Internet, high-speed secure connectivity where we connect Kye is proving that out and hitting all his dates, and we're going to continue to be in partnership with hyperscalers, data center operators, data center construction companies, neo clouds to build the network to connect them together. API-led and activation in hyperscaler marketplaces, enterprises now can buy the outcome and the network can deliver it through Berkeley and what we have across our network. Safe, redundant, reliable, Kye continues to build the most reliable network in the industry in the Continental U.S. and a single platform of Lumen Connect to design, price, order, provision and assure. So without these, without any other provider going after this space, we are fully going after being the enterprise on ramp to the new AI economy. So to build this up, building the physical network now for us includes everything on net to Lumen and everything off-net of Lumen because we can provide those services.

Next, sold a different way, directly plumbed into the hyperscalers and data centers and with new on-ramps distributed around the country, all run by Lumen Connect. As we build up, you can see where the data centers are being constructed. Now you can see where Kye is constructing his network, and we can have full design and control for enterprises via the digital platform, attached to all the major cloud vendors and all the data centers that are being built and linking those data centers into the AI regions that are emerging in the U.S. These AI regions now become the new commercial nature of the Internet core and something we all need to track as an industry.

As we build up these on-ramps and you can see there are now redundantly within every one of the AI regions and AI region interconnect, this becomes new pricing capability and new pricing and offering that we're hypothesizing is going to emerge in the market. And then the ecosystem space. As you'll hear from many of our ecosystem partners, those that are doing cyber recovery, those that are doing storage, UC, CRM's ERPs on and on every single SaaS player or those that are building cloud natively. We can see an emergence of subsegments of the economy that are fully within cloud, that Sean and our Lumen validated design offer that we'll talk about in just a second, we can now build outcomes for our customers with our technology partners, utilizing our backbone and our on-ramps, to provide a fully new and different value proposition to our customers. So this is a target that we want to go after.

So this might sound a little harsh or maybe a little cheeky, but Enterprises will be defined as leaders or laggards in this economy. Those who adopt the architectural shift, take control of the design of their own enterprise, who they partner with, how they connect, how they transform, how they construct and how they take advantage of AI, you're either on the journey or you're falling behind. So the enterprises that are going AI native, cloud-first just isn't enough anymore. And now is how do you utilize the cloud.

How do you match your workloads, wherever they may be located with your data, wherever that may be located with a partner that you're going to use to train it. You must have a programmable fabric to do this. We know that everything is headed towards exabytes of data being transferred and of extreme low latency built into the network. So we're changing incredibly fast. And then Cloud Core.

I think I've said this a number of times now, but it's incredibly important to realize the core of the Internet is now the core of the data center interconnect between all of these sites. And the full flow of customer experience being digitized and identified is the path forward for design, price, order provision and ashore. So I thank you all very much. I'm extremely happy to introduce Project Berkeley to you. And just a quick introduction to the vision that we have at Lumen for how to fundamentally change and positively disrupt the business of being in the Internet. Thank you.

[Presentation]

We're excited to hear from Lumen's Vice President of Product Management, David Shacochis.

I believe the industry term for that is an interstitial and that was a banger. I have to say. Hi, everybody. My name is Dave Shacochis. I am very fortunate to be the member of the product management team here at Lumen that gets to build a bridge between that vision that Dave Ward just laid out, our vision of a Cloud 2. future. And then a lot of the great detail we're going to be getting into this afternoon, the rest of our product management team inside all of the different breakouts as we start to break down the near-term parts of our road map and what we're planning. But this is going to be a little bit of a longer-term view that hopefully stitches those 2 things together. So a lot to get through.

Let's begin. A great place to begin as it usually is, is with the voice of our customer. So it was a great place to start. Our customers and their views and experiences have been central to shaping our priorities and what we're investing in and the way we execute. And through all these conversations, we're seeing these clear signs in the market get validated. First is this idea of growth in data and the way the customers are experimenting with AI, connecting all the different sources of data that are important to their enterprise. It's a big fuel to this surge in data center connectivity. And over the next few years, our customers are telling us that their data center interconnect, their cloud interconnect is going to surge by over threefold. But what they're also telling us is that, that surge in consumption, that surge in usage, that surge in cloud connectivity needs to be managed in the same way that they can manage all of the cloudified data center and software that they're connecting to.

And so they're telling us 8 and 10 of them when we asked them to give us this feedback they're saying, look, give me a single pane of glass, I need to be able to control my cloud network in the same way that I control all my cloud resources. And we're also seeing a shift in the way that customers think about sourcing and integrating the way they buy certain services and technologies, there's a huge growth in enterprises buying all sorts of software and hardware services and starting to include other value-added services from public hyperscale marketplaces and from other different sourcing portals.

So making sure that whatever we're delivering to the market, whatever we're delivering to support this surge in connectivity can also tie into the places where customers want to source things where they want to manage things and how they want to configure that together. And so this is all driving the way. Our road map is planning out. So let's dive in a little bit to how we're prioritizing and bringing that to life. You've heard a lot about the 3 pillars to our strategy, and -- when we think about what needs to be true for those 3 pillars to be successful, there's really 10 main building blocks that's spread out across each of these areas that we're going to get into in a little bit more detail.

So the first pillar here is our physical network. Really where cloud cloud-first topology and ultra-high speed received significant investment from Lumen and I think you've heard a lot of examples about how that's taking place, as Dave talked about, Cloud 1.0 is more of a flat wide area networking contract where cloud was really more of an afterthought. Sort of bolted onto that entire strategy. But what Cloud 2.0, and that age requires is a much more diverse range of networking venues of hyperscaler on-ramps of data center operators and a lot of the neo cloud players that are starting to build ultra high-density data center environments, as well as ultra high-density processing units and GPU farms to be able to add on to a much more complex hybrid cloud landscape that customers have ever really had to deal with before.

It also requires the ability to scale to handle as Dave was talking about, that exabyte scale of data transfer, scaling to 400 gig and 800 gig and beyond for all the different AI innovation vectors that customers and enterprises are starting to explore. They know they need data on more than just one cloud. The second pillar here is really our digital platform, and this sort of breaks out into 2 distinct levels of innovation here within Lumen. First, we're thinking about how customers engage with Lumen. How customers are looking for that design, price, order and implement service capabilities at their fingertips with the ability to have granular control and being able to be sourced and activated from all the different delivery channels that matter to them.

But customers also want composable services across the cloud connectivity, whether that's Internet services or security services or private IP services, real-time communication and all the different types of partner services that they can integrate their onto any singular network port. And so that for Lumen really means an exercise in disaggregating a lot of what used to be very siloed delivery services into a much more flexible model that allows customers to interact with their network design and create new forms of bandwidth flexibility.

And the third pillar is really around our connected ecosystem. We believe that by 2030, our customers won't just buy connectivity from Lumen. They're going to be buying solutions that optimize that underlay network with value-added technologies from a whole range of over-the-top partners. And that resulting co-selling and co-marketing motion is what we're going to break down even further here over the course of the next couple of days to talk about how we're innovating with partners and accelerating our innovation to not just be what women can go create but what we can co-create with our friends.

So that's those 10 building blocks that we're facing out there. There's a lot to keep track of. There's a lot to do. And so we're laying out our road map really here in terms of a tech radar view that takes those 10 building blocks. And capture some near-term and long-term deliverables across a number of time horizons. So it's like a radar, right, where Lumen is at the center of that radar. The inner ring is the closest near-term time period, right? This is the next 12 to 15 months of Lumen's innovation. You're going to hear a lot more detail about what we're planning in that range in the breakout sessions.

But as priorities and dependencies and the -- as road maps evolve and shift and customer requirements start to shift and change, we know that in some of these further out time horizons that road map is going to get reprioritized. And we're going to be always keeping that sort of north star view of what's the ultimate end goal inside each of these 10 building blocks. So what we're going to do next is break down this radar view across those 10 building blocks. And across these 3 pillars, to define what our strategic innovation is looking like across the physical network, the digital platform and the connected ecosystem.

So let's start off with the physical network and our road map there. Our first pillar is the physical, the backbone that lays the foundation for Lumen's growth. We're designing this cloud-first topology, and we're pushing high-speed connectivity to enable future-proof connectivity at any scale. But the core of this is that fabric port that Dave was mentioning before, introduced here now in the physical form as Project Berkeley. It's the port that enables customers to build multiple services on top digitally and multiplex those together on any user network interface.

On top of this, we're expanding our reach into new data centers. We have a huge data center expansion plan going on as part of our network build. So incorporating new cloud on-ramps, AI on ramps, as Dave mapped out in his section, really focusing on the new topology and the new footprint of cloud 2.0. As our customers start continuing and migrating all these services to cloud, they're going to need more direct to cloud connectivity and on-ramp. So we have some more direct connectivity pathways that are on our road map as well. And we're committed to serve over 90% of the on-ramps in the U.S. as part of our near-term product road map.

We're also introducing some really interesting and powerful features across some of Lumen's core services that render the physical network under greater control for our customers such as services like wavelengths. We're introducing some new automated wavelength design and quoting pieces, and we'll have a little example of that over my shoulder, and we'll pop up a couple of examples like this that give you -- that illustrate how much of this road map is already ongoing, previewing some features and things like our ability to go and digitally purchase wavelength blocks via self-configured processes for site selection and payment terms and things like that, we want to unlock the ability for our wavelength customers to engineer low-latency paths for specific use cases such as AI inferencing, we get a lot of interest in fast and fast provisioning wavelengths from our financial services customers as well.

In the longer term, we want to move to even faster bandwidth. So as Dave was talking about, scaling to 800 gig and 1 terra and beyond, secured with next-generation optical encryption for some of the advanced persistent threats that exist out there around encryption at the physical layer. So we're not just adding capacity here. We're taking our services and we're making them more programmable, resilient and secure. So there's a lot more to cover here. You're going to hear a great breakout of the structure -- the infrastructure breakout later on this afternoon led by TJ [indiscernible] and Todd. We're going to get into a lot of the details that's going on in our physical network investment.

But the main takeaway, the net-net, that were the backbone of Lumen growth and the ability to go at the right topology and the right speed is the key of everything we're delivering here at the physical network.

Shifting to our next pillar, It would be easy to start off with that physical layer and start saying, okay, layer 0 layer 1, layer 2, let's just climb the OSI stack, but there's an important time out that we think about when we talk about our strategy, And that is all of the digital elements we need to add into our road map to be able to enable product -- from a product agnostic standpoint, all the fundamental building blocks we need, remember, 80% of our customers are telling us we need to see this in a single pane of glass where everything is integrated together. So we have full control of our network.

And that's why we're converging everything into Lumen Connect. You may have known this in the past at Lumen as what we call our control center portal but the Lumen Connect is the updated digital experience that customers can use to design, price, order, provision and assure everything from one place. So some critical principles to Lumen Connect. And so it's going to be a redesigned API ecosystem to be more developer-friendly and consistent. But for those interactions that are going to be API Fed, we're integrating and making sure that those APIs are designed to work with all the different commercial channels, whether those are cloud marketplaces, tech distributors or even in the future of some interactions from more agentic AI policies that are taking -- that are management tools that are taking action against the network based on their own defined policy.

So customers can tap into Lumen Connect from whatever tools and whatever investments they're already making. And finally, it's a unified experience that can be rolled into a single pane of glass across different products and services. And I'm really excited and happy to show you a little bit of a preview about how Lumen Connect is going to start to change that experience. It's a converged user experience based on modern design that helps users quickly browse PAUSE compare solutions, select the right one for them and give them a lot of powerful tools to track not only network performance, but also spending patterns.

So there's a lot of thin ops tools and FinOps capability that we're loading into Lumen Connect that allow our customers to take a look at some innovative commercial offers that we're planning like such as volumetric billing, right, buy a terabyte of bandwidth anywhere across the Lumen network, and you can use that from a number of different services that again, you can multiplex through your existing fabric port investments in all your locations. We also have some exciting features coming up around digital twins and taking all that telemetry to allow customers to simulate and test changes within Lumen Connect and roll those out to optimize performance and change management.

But the net-net around Lumen Connect is that it's a key driver and 1 of the foundational building blocks for how our customers are going to interact with the Lumen platform from wherever they are on their tools landscape and on their user experience environment. So the project -- so here's the rest of the product road map, right? We've talked a little bit about some of our physical infrastructure products, and there's a lot more that Lumen offers across a wide range of customer solution areas.

Let's start off with connectivity. Our connectivity products are evolving and modernizing they're becoming much more composable over that idea of a multiplex user network interface in a single fab report. We're enabling frictionless activation across fabric connections at Layer 2 and our emerging services like multi-cloud gateway at Layer 3, which really allows customers to maximize their control over anything that they can reach across any fabric port across any on-ramp, across any enterprise gateway.

And if customers are going to be able to scale those workloads across hybrid cloud designs, expand premise, data center and cloud. Now of course, in the longer term, we're looking at models where customers can use and define their own enterprise on ramp. So much like a cloud has a defined on-wrap pattern. We see enterprises starting to explore with the reemergence of an extranet pattern where a private pool of bandwidth can be used for your supply chain or a private pool of bandwidth can be used for a multiparty AI experimentation around a set of shared data that one company is bringing to bear. Another company is bringing another ingredient to that data solution, and they want to share all that, but they don't want to throw it all over the public Internet, they want to be using private exchanges and private extra nets in order to fuel that innovation.

So a lot going on in the connectivity space. We're also listening to our customers. And our customers are telling us when they see opportunities inside of Lumen Connect. We have a feature here or an example over my shoulder, our recent feedback from one of our major service -- Ethernet services customers wanted to take what they were already running inside ELAN and they said, what would this look like inside Lumen Connect, we would really appreciate the ability to support dynamic Ethernet bandwidth changes and some self-provisioning capabilities, but we're already heavily invested in 1 of your existing products, we were able to go and modernize that product and launch it inside Lumen Connect for faster turnups and attachments to Fabric port.

Now on top of the connectivity layer -- in the connectivity layer, there's a whole lot more to cover there. Chris Murow is going to lead a great breakout session delving into everything that's going on inside of our connectivity strategy, and I'll cover that customer solution area extremely well.

We have other services in the portfolio here that we're adding in. On top of the connectivity layer, we're working on attached services like bare metal computing services and GPU clusters running inside the Lumen network at the edge. This is going to enable new inferencing patterns and workload designs where customers can optimize their layout inside of the Lumen network at closer to the edge and closer to digital interactions.

Jeff Saraki is going to be leading an infrastructure breakout all around our edge computing portfolio, and that can be something for you all to look forward to and learn a little bit more about where we're playing there. Another area of our product road map is all around the real-time communications sector. In real-time communications is really powerful. It's one of the critical areas where Lumen has competitive advantage in terms of all the telephone numbers that we have in inventory, all the different capacity that we have on different types of voice and peering networks. And we're starting to introduce some really exciting features inside Lumen cloud communications, right? This is our suite for on-demand voice control.

And the example showing here, we're doing some telephone number assignment and telephone number porting and LOA workflow is really starting to become part of the Lumen Connect platform that drive longer-term feature benefits. We're also starting to build out a road map around unified communications and our contact center services. And some of those real-time communication innovations, which is really where the enterprise is telling us that's one of the first killer workloads that they're starting to see in the AI space. How do I interact with my customers better? How do I drive better engagement with my clients PAUSE how do I automate that and keep that cost efficient? How do I do that with real-time communications. This is an early area where Lumen's network is tying that together. And so there's a great connectivity -- there's a great communications breakout that Jamie Coach and John Evans are going to lead later on today. They're going to dive into this full road map in a lot of detail.

And the final part of our product road map here is really around security. The Lumen Defender suite we have in place today can already detect coordinated attack behavior from some advanced persistent threats, working across the Internet. They can oftentimes identify those attack vectors at earlier stages before those threats are weaponized or even recognized by a lot of common endpoint tools, but that's all stemming from the threat intelligence that is mined from Lumen Black Lotus Labs threat intelligence. So that Defender suite will continue to evolve. We're doing some fun and interesting things inside the Lumen Defender over my shoulder there where we're starting to take not only the proactive blocking policies that are inside of Lumen Defender, but then adding in genetic AI to support how customers can dive into the data and interrogate the data about what happened in that event.

What was that attack? What was the bad actor? What geography were they coming from? These get more free text interrogations that you can take, and you can go start downloading all of the data Lumen has within its Black Lotus Labs database and be able to share that with customers in much the same way that they would ordinarily do with a human SOC analyst, we're going to have that as an AI feature of Lumen Defender. A lot more exciting things that we're doing across the security portfolio, and there's a great breakout led by [indiscernible] and Craig Dario that's going to cover the security road map in a lot more greater detail. But the net-net is that there's a lot of innovation that we're driving across everything inside of the core of our network. These are all going to be composable to our fabric port, and they're all going to be controlled within Lumen Connect.

And so the final point we'll touch on here and the final point of our tech radar is all the things that we're doing inside of the ecosystem. And you've heard that word a lot ecosystem is a bit of a pet peeve word of mine. Sometimes find people use ecosystem is just a cooler word for system. I think there's power in that biological metaphor. An ecosystem exists when things surprise you. An ecosystem exists when things kind of cross hatch and pollinate. And you can -- you never know maybe what's going to come out and what's going to grow out of an ecosystem and you can be really thrilled and surprised that some of the growth -- and so I think that biological metaphor is powerful because you need certain conditions for a biological ecosystem to grow. You need to write soil, you need the right water, you need the right nutrients.

Lumen is creating the right conditions for a technology ecosystem to thrive with some of our validated configurations, an organized program that helps create service wrappers and define customer outcomes along the way. So we're looking at a range of different technology partners. You're going to hear a lot more about our strategy for not only building and fostering that Lumen validated design program and the technology ecosystem that we're building up consciously inside of our road map. But we're also -- you're going to hear about that from Sean Alexander and Ethan a little bit on day 2. You're also going to hear more from Ashley about how we're adapting our go-to-market and our co-selling motion as we start to work with different ecosystem partners that have built something that deeply integrated with the Lumen network and evolve that over time as we start to build that as a much more important and vital part of Lumen's innovation strategy, where we don't have to go and build everything. There's a lot that can emerge from our connected ecosystem to drive growth of our network in the future.

So you've seen this diagram before, and this is the narrative arc, right? The narrative arc of our road map is really going to enable us to take a journey from where we are today to a future state where connectivity fabrics enable the future of AI innovation in the enterprise. At the physical layer, we're expanding topology or upgrading speed across key metro areas and key data center locations, all across this landscape of the evolving state of Cloud 2.0, achieving 400 gig connectivity and beyond.

On the digital end -- on the digital experience end, we're evolving from a simple online inventory view where we are today to true digital interaction. Where customers can provision and purchase services on the Lumen platform and also through API integrated catalogs and hyperscaler marketplaces. In the product layer, we're progressing from configurable on-demand connectivity that we have today to some more innovative multi-cloud solutions and service fabrics with advanced programmability and routing control, what's powerful about this diagram is it starts to speak to individual pools of bandwidth that can be configured for customers, well, whether you're a multi-cloud workload that runs in a data cloud for the data layer is running a specific type of GPU in a physical data center.

You can create a multi-cloud data fab -- you multicloud application fabric to run that workload, you may be thinking about creating a back net that's going to link together your corporate data center that's going to link together your customer premise, it's going to look together all your cloud workloads and perhaps AWS and you build yourself a data protection fabric for that pool of bandwidth that you can slice off and make available in those locations. And to the point we're making before around how customers are starting to think about really innovating in the -- with AI in the area of customer engagement and real-time communications, those can be complex, but they're probably going to be best served by a private pool of bandwidth that can go and link to your contact center personnel at your premise with the hosted contact center software and may be powered by something like Genesis, that's running in a colo, and then being able to tie into some of the inferencing services from speech recognition players like Twilio or tie into CRM data that's running in the cloud with sales force, doing that over a private network, an AI call center fabric is sort of the value and the vision of what we would perceive there all across our product portfolio.

So why don't we finish where we started, which is with our customers -- and you're going to hear a lot more about this in this whole program we get from getting feedback from our customers from Lori Garcia a little bit more tomorrow. But our customers are continuing to tell us that what we've started doing here, what we're building in terms of our overall strategy is really resonating for them. Nearly 7 and 10 leaders are telling us that their current networks cannot handle AI demands in the world of cloud 2.0. When we paint this vision for them, they tell us that things need to change. And they all agree, 95% of them agree that AI-ready networks are going to be essential to the strategy that they're already planning. Multi-cloud is really already the vast default for our customers. And so enterprise teams want a simpler, more flexible cloud-based way to connect and manage it all. And that's exactly what our road map is delivering.

The physical upgrades for typology and speed, the digital experience upgrades the provision through multiple channels and that composable product layer that brings a programmable multi-cloud networking and service fabrics together with a growing ecosystem of partners that benefit through Lumen validated designs over the top. So in short, customer demand is pulling us forward and our road map is being designed to meet this moment. So you've heard a lot of exciting things today around our technology point of view, but let me close here and we'll just summarize it up.

First of all, we really believe the demand is real. Our voice of the customer and external research tells this consistent story. Enterprises are moving towards cloud 2.0 and need an AI-ready network to get them there. And thank you to a lot of the analysts in this room as well, who have helped us validate that strategy to be true, and we're excited to talk more with you about this over the course of the forum.

Second, we're absolutely not starting from 0. We have a deep and a hard-earned network building experience that Kye talked a lot about is that builds a backbone that very few can match. And we're upgrading that for the next decade to be able to react to and evolve with the changing shape of cloud 2.0 and that overall footprint in topology. And finally, on top of all that foundation, it's a pretty clear differentiated product strategy that converges our services into a common user experience with an API-first model that supports multi-cloud architecture, cloud distribution channels and agentic tools. The demand has proven. We think the foundation here is really strong and our commitment is certainly real.

Lumen is playing to win with this product road map, and that's how we're going to become the trusted network for AI and the real enabler for cloud 2.0. Thank you.

[Presentation]

Now let's give a warm welcome to Lumen's Chief Revenue Officer, Ashley Haynes-Gaspar.

Good afternoon. I am absolutely thrilled to be with all of you this afternoon. And I think I am what's standing between Q&A and lunch. So let me start here. Most weekends, I enjoy going on hikes with my husband. Any hikers in the room? Yes. Oh, I love it, my people. Hi. I love the way it makes me feel especially after the rain. I love the way it smells, which happens like rain and smells. Pacific Northwest, that's where I live, happens a lot. We pick a trail. Usually, the harder, the more complex, the more technical, the better. It's a metaphor. I think for the type of work that I enjoy, it's why I'm here at Lumen. I love transformations, but that is not the point of the story.

The point of the story is that if you have ever hiked -- you know that the forest isn't just scenery. It is a living system. And the roots underfoot really form this incredible network, and it is complex, and it's critical. And Kye described our network as this root system. But roots alone don't make a forest. The trunks give it shape, and it gives it strength. And Dave showed us how our digital platform really is the trunk, and it is simplifying decades of complexity, really making our growth possible.

But the canopy is my favorite. Because the canopy is where the magic happens. It's the branches that reach out, it's the connection and it's the extension and it's the scale of the forest, and that is our ecosystem. It is linking cloud and edge and enterprise and partners, and it is how we unlock growth for our customers and for industries. And every part of the forest depends on the others, roots feed the trunk, trunks support the branches, the branches connect the system as a whole.

And we are building the connected ecosystem that is more than the sum of its parts because the world is changing faster than any particular technology, company or platform can keep up with on its own, and sustainable growth and success now depend on the ecosystems that we build together because growth today is not about owning everything. It is about connecting everything. And at Lumen, our connected ecosystem is the key to our growth engine. And we believe it is the 3-way intersection between customers, partners and innovation, and it is the place where the next generation of business value will be unlocked to provide the intelligent infrastructure, scale and trust for the AI era.

So the future is not built in silos. It is built in network. So today, I'm going to share how we are building and how we are connecting this ecosystem, really linking the cloud, the edge, the enterprise and partners to unlock growth for this next generation. So let's start with the opportunity that's in front of us. You've seen this. Kate referenced it. Dave, who was just on stage, talked a little bit about it. Demand for cloud, data and AI is growing faster than most enterprises can keep up with today. And there are 4 key dynamics. The first is that the global cloud market is on track to hit $1.1 trillion by 2030. That is not incremental growth. It is a full scale shift in how businesses run their infrastructure.

Second, for Lumen, it means a $15 billion addressable market, and that is where we are focused. Third, we know that infrastructure has to scale. In the U.S., we expect 1,600 new data center site expansions by 2030. These aren't just buildings. As Dave mentioned, these are the backbone of the AI economy. And they all need intelligent, high-capacity networking, which is exactly what Lumen delivers. And fourth, 85% of customers say that AI is going to drive bandwidth and cloud demand. And we know that AI is not just another workload. It is the force that is reshaping how enterprises think about connectivity, how to think about scale, how they think about security and how they think about performance.

So the opportunity is huge. The demand is real, and this is where Lumen's growth strategy comes alive. We are showing up where growth is happening with the infrastructure, the digital platform and the ecosystem that customers need to win in the AI economy. So every customer I talk to says the same thing. Data growth is relentless. Bandwidth heavy, latency-sensitive apps keep rising, and legacy networks are not built for this kind of scale. About 70% of U.S. leaders say their networks can't support AI, and 95% say that AI-ready networks are mission-critical.

This is our call to action. Customers need partners who can help them make that leap, and this is our opportunity. We also know multi-cloud is the norm. 92% of enterprises are doubling down on it. But managing workloads across cloud and on-prem is getting harder, and moving data securely and seamlessly is a growing challenge. This plays directly into Lumen's strength, programmable cloud integrated infrastructure. And at the same time, customers are facing budget pressures. They have patchwork fixes to outdated systems, which only make it worse, and they're driving up costs and creating inefficiencies. So what customers are asking for are connected solutions that cut costs, reduce complexity and help prevent that vendor sprawl that is happening across their organizations. They also want faster deployment. They want faster ROI, and they need to optimize both budgets and performance, and that's why our connected ecosystem approach deeply matters.

So customers needs are clear, we're at an inflection point. Modernization is not optional. It's essential, and enterprises need a new path forward, one that removes bottlenecks, simplifies operations and makes the economics work. That's where a connected ecosystem matters because it's not about adding more bandwidth or another cloud provider. It is about partnering with technology leaders to drive joint customer success to expand our reach together. It's about delivering scale, speed, efficiency, security and resiliency for the AI era, and it's about reducing total cost of ownership for customers while enabling innovation.

So you've seen this page a few times today. What I'd like to do is unpack it a little bit for you and talk about what it means from a commercial perspective. This is the connected ecosystem model, and it's about building more than connections. We are linking data centers, technology partnerships, hyperscalers and enterprise and public sector customers. And this shifts us from a network provider to a growth platform. For customers, this means less complexity and faster time to value and confidence that their workloads can run anywhere securely.

For Lumen, this means we're not going it alone. We are monetizing our central role in this era of AI connectivity, and our connected ecosystem partners are helping us deliver stronger solutions with expanded reach. So how does it work? When we look at data centers, we are expanding our Connectivity Fabric in every major data center, and customers are getting instant software-driven access. And it's not just connectivity, it's a digital marketplace inside the data center.

When we look at tech partners, this is all about partnering to deliver integrated best-in-class solutions. Customers want answers. They don't want complexity. This makes it easier for them to buy, deploy and scale integrated solutions in the backup, recovery, data, AI and security space. We're also partnering with every major hyperscaler, making it available -- making on-ramps available directly in their marketplaces. And that means that customers can connect workloads to the cloud and certainly with none of the legacy friction. And customers are at the center of everything that we do, and we are helping them to adopt multi-cloud and that's really simplifying how they buy, how they consume and how they grow.

So the breakthrough value of Lumen's multi-cloud and NaaS solutions is real, and it's immediate. Customers tell us that this is the fastest way to connect to multi-cloud environments. And it's all about speed, it's all about reliability. It's all about scalability, and there are no longer barriers, and they can provision connections in minutes and not days. And this is what happens when you put customers at the center and deliver solutions that work at the speed of business.

So the connected ecosystem is not about theory. We are proving it in practice, and we are building for repeatability, and we are doing that through Lumen validated designs. We are testing with real customers. We are learning fast, and we are scaling what works. This is how we are delivering solutions that create measurable business value for customers and for Lumen. Every test that we do strengthens the ecosystem. And by codeveloping with partners and with customers, we are building a platform that stays ahead of the AI and multi-cloud era.

And when a solution delivers, whether it is 1 click data center connectivity, it's AI at the edge or it's seamless multi-cloud access, we can take it wide, we can take it fast, and we can take it with confidence. And this is how we win, moving quickly from pilot to repeatable growth. We're not just connecting data centers or connecting clouds, we're connecting enterprises to new revenue to lower costs into the agility that they need in the AI era.

Now you might be saying this all sounds great, Ashley, how do you make it real? I'd love to do that. We are partnering with Commvault to tackle some of enterprises' toughest challenges that they are facing today. If you don't know Commvault, you're about to meet them. Commvault is a global leader in backup recovery and ransomware defense. And together, we are delivering solutions that are protecting data and keeping businesses running safely in this AI-driven space. We chose Commvault in this partnership because their platform delivers real results, [ air gap defaulting ], multi-tier recovery and automated ransomware defense.

So to share more about this partnership, please join me in welcoming Pranay Ahlawat, their Chief Technology Officer and leader of AI. While you come up, we're also going to roll a quick video to introduce Commvault. So come on.

[Presentation]

Okay. Thank you so much for being here. I appreciate you.

Of course.

Okay. So Pranay, when you and I were getting to know each other a little bit, we spent some time talking and you're spending time with enterprises all day every day. I'd love for you to share with us a little bit about what you're seeing.

No. And so Ashley, I think a lot has been said already. So this is a hard question because now I have to think of smart things to say beyond what's already been said. But at least from our vantage point, I think there are 3 things that I think we see increasingly. First, I think we've all talked about multi-cloud, 95% customers being hybrid and multi-cloud. On average, a typical enterprise has more than 100 to 200 SaaS applications, depending on what source you want to look at.

But I think from our vantage point, 3 things. First, scale has exploded. So when we are actually backing up data right now, it's very common for us to see petabyte, sometimes exabyte data stores, exabyte scale data stores. And we currently have customers that actually have S3 buckets with billions of objects, 1 of them 60 billion objects in 1 bucket. So scale is continuing to go up. And if you think about the modality of modern applications, a typical microservices-based application might have more than 12 to 30 databases. So the scale has definitely become an issue.

The second thing which I think it was implicit in everything that was mentioned is cybersecurity. So if you think about cybersecurity, the volume of ransomware attacks has increased between 100% and 127% year-over-year. It's hard to actually think in compounding growth, but it's a lot, it's a lot. We are looking at 287 reported ransomware incidents per day.

That's incredible.

And I think that's growing every day. And the funny thing is when you juxtapose everything that AI is doing, we think the velocity of that is only going to go up. And the third point that I think is worth mentioning is regulation. So regulation today is a $2 trillion problem for the industry. And if you think about regulations like [ Dora ], they actually ask enterprise customers to build isolated recovery environments outside of cloud and in different data centers.

So the net impact, the net impact if you sort of squint your eyes and see how architectures are evolving, large enterprises today actually need to move large amounts of data at scale between cloud and between on-premises and cloud. And I don't think it's enough just to think about, of course, we would like to think Commvault can do it all. But the fact of the matter is that the underlying network substrate is equally important.

Yes, that's really incredible. And I think it's a perfect setup for why we've partnered. So I'm curious, from your vantage point, what makes Lumen such a critical partner for Commvault?

So I mean, first off, I just want to thank everyone from Lumen. Lumen has trusted Commvault with their own data protection. So that means a lot, it's not something -- it's a huge privilege for us. So thank you for that. But I mean, beyond that, I think this partnership makes sense because we deliver 3 things that customers really want. So the first is better economics. I mean with Lumen's programmable NaaS and IP VPN on demand, we can actually provision network capacity on demand so customers can only pay for what they use. I mean, that's huge. When you're actually moving data -- when we are actually moving data, we know predictably how much data is moving, what time that we are moving it. So having the ability to do that is huge.

Second is scale. So we use a bunch of bulk data transfer circuits, Lumen Cloud Connect. But the idea is when you're actually moving huge volumes of data into [ Air Gap Vaults ], having the ability to do that predictability is huge. And the third is security. So the network itself has things like segmentation and encryption built in. And with Commvault sort of encryption at the data layer, customers can be confident that what they're moving is actually secure.

And unlike hyperscalers, hyperscalers are super optimized for their own environment. I think Lumen and Commvault together, I think we deliver true multi-cloud resilience for customers.

I totally agree. And I know that we have been working together on a Lumen Validated Design or an LVD as part of our connected ecosystem strategy. So why is that model so powerful from your perspective?

I think it makes a ton of sense. But I think -- by the way, I'm a consultant, I always tend to speak in 3s, but I think the...

I like 3s.

To me, the most obvious reason is it's customer first innovation. I don't think we're doing science projects. The fact is that Lumen Validated Design actually is sort of based in customer case studies. And our first LVD together was actually scaling this model in Lumen's own environment.

Second, I think it's tested at scale. So if you think about what we did at Lumen, we had 72 scale-out nodes, hyperscale x nodes, 6 different data center regions, 20,000 hosts. I mean that's the kind of rigor that I think enterprise customers actually expect from us. And then third, I think you've mentioned this before, and it's adaptable. It's not a onetime thing. The beauty of this model is that it's not a one-off. We can actually take this and apply it over and over in multiple sort of architectural modalities.

And the value proof has been amazing. I mean, we achieved roughly about 90% savings in Lumen's operational costs, $3.5 million in savings. And by the way, recovery time cut from days to hours. So it's huge. And Ashley, I think it's worth mentioning that forward-leaning companies like Worley are also engaged in this model.

Yes, they are. And the work that we're doing together with Worley is already showing results, and I think it's really exciting. So if you all aren't familiar with Worley, Worley is a global engineering services firm. They specialize in the oil and gas space mostly, and they face the challenge of moving enormous data sets across multiple geographies. And when they move these data sets, sometimes it would take days to move them. And that is not hyperbole. It drove up cost. It drove up complexity. It drove up risk.

And with our edge infrastructure and global reach and our pay-as-you-go simplicity that you've been hearing about today, combined with Commvault's unified data protection and ransomware defense, we really helped Worley build a cyber-resilient multi-cloud architecture, and it moves data faster. It reduces job failure, and it simplifies operations for Worley. And that means real-time enablement across multiple locations with lower risk and better compliance. And this is better together in action. And Lumen and Commvault is working together to solve for speed, to solve for scale and to solve for security in this multi-cloud world.

I couldn't agree more. I think Worley is such a good example, 45 different countries. And like you mentioned, enormous complexity. I mean, historically, managing that sort of complexity means you're actually taking on a lot of risk. And I think using Lumen's global infrastructure and Commvault's [ Cyber Resilience ] platform, I think Worley has really transformed its cyber resilience posture. And together, I think we're delivering world-class cyber resilience at better economics. So very happy for that.

Yes. Pranay, thank you so very much for joining us. And thank you so much for being an incredible partner.

Okay. So clearly, the right partnerships help to unlock growth and unlock possibility. Thank you, Pranay. And the right talent and the right tools help to make it real for every single customer. And we are doing that by transforming our sales model by combining AI with human talent, each playing to its strengths to drive outcomes at scale. So we deeply believe at Lumen that AI is an enabler. It is not a replacement for our commercial talent. And our sales force and business development teams remain at the center of everything that we do from a commercial perspective.

We are strengthening our core sales motions with our account executives and our customer success professionals while adding new capabilities through alliances, specialists and business development to support this connected ecosystem discussion. And at the same time, we are building a world where AI agents are helping to handle repetitive behind the scenes, tasks like lead qualification and pipeline management and quoting so that our teams can focus on things like high-value customer engagement. This means more time for relationships, more times for solutions and better outcomes, and this is how we create deeper growth opportunities.

And what we know is that AI is a force multiplier and it helps us engage in thousands of accounts without losing that human touch. And by 2026, this hybrid model that I'm talking about of human talent plus AI is going to give us the muscle and the agility to win inside these commercial motions. You might be saying, Ashley, that sounds great. How are you making it real? We have launched Lumen's AI Lab. And AI Lab is a dedicated team that is waking up every single day. It is responsible for turning our AI strategy into business outcomes for our commercial teams. The lab is the engine to modernize how we sell, and it's where we move from buzzwords to measurable impact.

Here are a couple of examples. The first is we are taking 14 legacy B2B commercial systems, and we are bringing them into 1 single sales force engine. It means less time toggling between tools and more speed from lead to order. We are also deploying agents to help with the heavy lifting. They are doing things like targeting, execution, routing and support so that sellers can focus on relationships and closing deals, which is what they do best. We've also codified 19 use cases into repeatable playbooks through AI-supported motions like buddy agents, smarter targeting, intelligent workflows and automated tasks.

And what's important for you all to know is that the AI Lab is not just about technology, it is about giving our people more time with customers, more time to deliver solutions, to drive predictive cost savings, to drive stickier revenue and to drive faster time to purchase. And here's the proof point. Lumen has been invited to join a highly selective research program, 1 of 12 companies, and we are the only telco. And this research program is exploring the future of work. And it's at the intersection of AI-powered, human-led, agent-operated. And this isn't just research. It is a validation that at Lumen, we are building the future of commercial innovation and commercial workflows, and I'm deeply excited about it.

So we've explored how our connected ecosystem expands what's possible for our customers, for our partners and for our teams. And when you look at the results, smarter cloud economics, streamlined experiences and new growth, you see the impact of every part working together. So if I bring it back to where we started, nature and forests have the ability to adapt, to stretch, to be agile and to find new ways to thrive, and our network, our platform, our ecosystem are all doing the same, each supporting each other and making the whole stronger. That is what building a connected ecosystem delivers. It expands and optimizes how customers use our network, turning it from infrastructure into a growth engine. It elevates the customer experience, making it simpler, smarter and more valuable. And this is how we deliver value, create momentum and set ourselves up for what's next.

This is the start of something bigger. This is our moment, and I couldn't be more excited for what's ahead. This is the era of connected growth, and it starts now. Thank you.

[Presentation]

We're opening the floor for a Q&A. If you've got a question for our morning speakers, just raise your hand, and we'll bring a mic your way.

All right. Gang is all here. We're ready to go. What you got?

I'm [ Jerry Karin ] with [ Global Data ]. Thanks very much for that, it was brilliant so far. Also, congratulations for making it all the way until almost 12 before mentioning agentic AI. My question actually goes -- actually threads around all of the different presentations, but all the way back to the first couple on strategy. And it has to do -- what are the big assumptions that you're depending on what conditions have to occur for you to reach this revenue growth that you've outlined as part of your strategy and as part of your financial plan? I have 1 in mind, but I'd like to hear what your thoughts on that?

Can you share yours? I'd love to hear it.

Yes, sure. I think 1 of the things that we've been at [ Global Data ] have been studying quite a lot the last couple of years is the timing of this acceleration of demand for enterprise AI. And I think there are definitely still questions around that timing and what -- and all that, that will then dictate down the chain, including the network demand. So that's one. It seems you're heavily dependent on the timing of that to reach the targets, the dates that were put up in the CFO presentation, for example?

I think that's a great one. I think there are many at the macroeconomic level that are not in our control. We are assuming there's no massive exogenous shock on rates or things like that and that the conditions that we've seen are going to persist. We would need to obviously change our call if we were to see some shocks and impacts to it. But that's normal course of business for planning period, much as planning a turnaround.

I'd love to kind of focus on 2 different pieces. One is the assumptions from a technology perspective. And the second are the assumptions from a financial perspective. And then if we've exhausted your curiosity there, we can move on or we could explore other areas.

Just a little context. I'm not an AI skeptic by any means, I'm an enthusiast. But having lived through the Internet bubble and seeing what happened there, it was all about timing. Everything that we thought was going to happen did actually happen. Is it the timing, wasted a lot of money in the interim?

Yes. So first of all, this is a long-term transformation, right? And we talked about 3 phases of the AI economy, hyperscalers connecting all the data centers, enterprise is starting to [ use in bringing ] and then AI talking to AI in the rings that Dave eloquently pointed out are forming already. And quite frankly, things are happening a little faster than we thought. But economically, the assumptions that we have are based on what we see happening in our core business, the growth rates that we have on our organic platform today and the legacy decline rates that we have already been experiencing. So there's really no big leap of faith assumptions, but I'm going to turn it over first to Chris to kind of validate and maybe share some more, and then Dave.

Yes. So the assumptions that get us to an inflection point in the Business segment in '28 and total in '29 is exactly what Kate just said. All we're doing is taking market growth rates or decline rates and applying them to the existing portfolio. And then we're laying in about $600 million of digital revenue associated with these new initiatives by the end of '28. So not heroic assumptions. And candidly, 1 of the reasons why we separated today from an Investor Day is we're still learning the unit of economics for Lumen is quickly going to become that Fabric port that they've shared with you. How many ports per customer, how many services per port, how much revenue per service per port. That's learning that we're getting a lot of data on now. And between now and February, we'll lay out what those economics are for each of the layers in the system, the physical, the digital and the ecosystem.

So for now, the placeholder is the assumptions that I shared, but there is a range of outcomes. But I think the starting point in terms of what we're committing to today is based on some pretty conservative assumptions.

So on the technology side, a number of the pieces that Chris just described are within our control. Our ability to move our existing physical ports that we've already deployed, convert those to Fabric ports and then all of the new construction that Kye is doing for data center expansion, right now, we don't have access to that TAM because we haven't built Ethernet and IP at scale into those locations. So Kye hitting his dates, the development team hitting the platform dates to be able to enable that, for us, that's very good news because we can unlock known market with known customer base and go and approach that wallet share.

So a couple of other things that are really important for us for timing to hit Kye's pieces are 1 thing that Kye touched on and I want to reiterate, the rapid routes and the pre-deployment of waves, that's fundamentally decreasing the amount of time it takes to install a wave service. The digital platform, rigid repeat for Ethernet and IP, that is decreasing our time to revenue to new points. And so as Kye keeps rolling those pieces out and we keep rolling out the platform, I think those are some of the fundamental technological pieces that have to continue to happen in time. And then as we hit [ Project Berkeley ], hitting that in '26 and scaling that up with -- and capturing first-mover advantage, I think those are some great ways to continue to add on top of Chris' strategic growth curve.

Commercial and public sector, different rates of change and readiness. So do you want to talk about that, Ashley?

I'd be delighted to. I think to your point, when we think about AI, we tend to naturally have a bias, at least I do, to go to the hypers. We have a tendency to go to corporations and to enterprises. But the reality is, I think that there is equal appetite in the public sector space because it's about national competitiveness.

So I think 1 of the things that we continue to evaluate, and we continue to partner with the public sector space on is what does AI mean to them and how does Lumen continue to partner in that space. And I think that is an important part of our growth strategy as well.

How did we do, okay? More questions.

Hello, [ Kimi Mandlo ] with [ Omdia ]. So I love the passion. And I don't really want to call you an underdog. I prefer Phoenix potential. But my question is, what is the range of flight to you? And by that, I mean, I noticed that you used [ Omdia's ] traffic revenues and traffic for AI, which is great, but our projections are global. And I'm just not sure from today's conversation, whether you are a provincial U.S. player or a global service provider because you've not spoken about a tricky thing for enterprises, which is sovereignty. And managing sovereignty -- I'm not saying, by the way, the U.S. market is a shabby one to operate in. But I'm just trying to figure out who indeed you are?

I think it's a great question. And and 1 that we have a very strong point of view. So first of all, the numbers that you saw today for the available markets we're going after, they were U.S. members. And we believe we have a right to win and that we are already demonstrating success. And success breeds success, momentum is an asset, and we have it. So that's great.

What I think is really important is the vision that Dave Ward brought to life today about a digital platform haloed around our physical network is something that's incredibly important because what we decided to do was focus on winning in the U.S. but also building a platform that can easily scale globally. Because if you have the ability to interconnect digitally, then you don't always have to own the assets in order to monetize connectivity, period. We know that, right? And so what we're doing is really taking a giant leap forward in our own ability to create a global fabric. First, by getting healthy and focusing on the U.S. where we can win and just with that and grow, but serving multinational corporations that can expand globally by having partnerships around the world.

Our connected ecosystem, it's not just about technology companies serving U.S. customers. This is about technology companies serving customers globally and partnering with telecommunication companies who have the ability to with us, and we're already doing that and we have so much more to say, but we can't yet. Dave, do you have anything to add?

So the global telecom market is also shifting where it is becoming ecosystem partnerships as well and the integration of our partners' NaaS platforms as -- and that actually works globally as well. That is a very interesting way that we're now, as an ecosystem and a community of service providers actually focusing ourselves, but still providing global reach through these partnerships. So that ecosystem, as Kate just mentioned, you understand when Lumen sold much of its international fiber sold it to very specific partners that we partner very deeply with.

And whether it's us speaking to this or you see this at organizations like MEF or Amplify Now or others, that integration of those MAS platforms is providing that accessibility and in the U.S., whenever any one of our partners wants to get to the U.S. into these AI data centers and all that we described, they need to partner with us. And then for our reach, we need with them. And so I think it's actually a very healthy expansion and extension of what's happened in the telco market. In particular, because we can also look at the history of many global networks and their global services arm that has not been either overly profitable and incredibly expensive for any individual company to actually take on.

Gary Barton from Global Day. I think you set out so far today and an excellent vision for the future of what the Lumen network looks like. And that -- I can see how that scales, how you grow the business. But you also mentioned about the margin aspect as well. I'm just wondering if you could say more about that because there's an aspect automate the network, but that has a sort of diminishing returns aspect because only so far you can go with efficiency. So where does this deliver in place? We heard that sort of self-build is debt. So is there more room on the professional services side because a lot of this building these AI networks for enterprises, they don't have the skills necessarily then they're starting to understand how they build that? And is there more of a role for aluminum that will be more?

We announced as much of expansion in margins that we're planning on executing over the next 4 to 5 years based on two things: Number one, modernization and simplification is taking cost out, okay? So we're an amalgamation of many firms. We had 4 networks in those networks, each -- we call them color, there was all the different colors and they had ecosystems with applications supporting them. And we're going after that technical debt pulling out the and delivering a more efficient lumen. And that's finite. There's only so much that you could do there. What's not finite is the revenue growth side. We've built an organic growth engine called NaaS. We also have private connectivity fabric, which is growing.

And on a deferred basis, just the $8.5 billion or $9 billion that we've already closed its $400 million of deferred revenue exiting $27 million. That revenue growth curve particularly with a fabric port, which can support thousands of services on one piece of hardware delivers cloud economics. So we're having a declining marginal cost for every new service provision on top of this fab report. So revenue goes like that. cost goes like that. You combine cost out with that revenue curve and you've got yourself margin expansion. Chris, how do I do?

Perfect. I mean I think the fact that people are consuming these things digitally and self-provisioning means no truck rolls. So right there, you have an expansion in gross margin. And what the model doesn't really contemplate when we make the comment around margins is the operating we can get when a legacy enterprise telecom business pivots to the future and actually starts to grow because the rate at which OpEx will grow, will be less than the rate with the revenue growth. So there's lots of pathways to drive that, but the single biggest unlock is the fabric port and the fact that truck rolls don't have to exist to deploy services to customers.

And I think point, Chris, is really important. This is an extremely reasonable plan. It's a tack to growth. We have to execute a lot of things and there's a lot of complexities, but we didn't contemplate operating leverage in that plan yet because we need to sort of learn about the Cyberport rollout and how we're going to do it, how quickly it can happen, et cetera. There's also this notion of we don't build into the plan, these really large PCF deals that we do either. So the combination of some of those things make the upside even more exciting.

So Kate, I have one more that is a little bit deeper into the layers of the network that kinda been building, and it's moving to a routed optical network at our metros, away from [ Sonat Rings ] and hub-and-spoke. I have been quoted by a colleague of yours, as I said in the conference that rigs are for marriage, but not for networks. Routed optical network does allow us to route the photonic signal within the metro area and not be constrained by a specific physical topology, this is unlocking order of magnitude reduction in the cost to deliver a bit, so now not only do we have the largest network with highest capacity, but we actually have the most efficient physical topology and logical topology by reconstructing it away from the past in legacy technology to a routed optical network.

My other concern with that is just that sort of marketplace approach. We've seen service providers attempt that approach, and they usually plateau that there's usually a lot of interest, and you talk to the initial enterprise as you take up that approach, and they're super key because it's the way they want to do it. But then for the mass market of enterprises, it's not necessarily they want to buy services. So I just wonder whether some of the growth assumptions within that the NaaS marketplace approach may not pay out, there's probably more of an opportunity in the U.S. than there is, say, in Europe for it?

Possibly, but also our growth assumptions are quite modest. In what we're seeing right now is an acceleration of growth and the connected ecosystem monetization capabilities are quite remarkable. But what we've contemplated in the model is just further reach of mass without some of these other interesting models like embedded services and fees on subscriptions of other technology services. When we start to add that in, it gets exciting, but we haven't in the model of where we turn growth in the business segment in 2028.

Again, it's a path. We're chipping away at it. We're doing quite well. And we're excited about that moment because after more than a decade of decline, having that growth moment on the horizon is exciting.

Just really quick, too, and I think this is an often forgotten back. Our starting point today is roughly half of our business, half of our revenue today is growing. So the starting point isn't a legacy telecom that is just now getting to this and we rely on all these things that we've talked about today to get us to growth. The foundation is very strong today because we are already far, far competition. Our rate of decline. We don't like to be declining, but our rate of decline is half of theirs because the strength of that foundation is so strong. So that's our starting point. And that's what makes all this more conservative.

[indiscernible] from IDC. Look, you guys are clearly a company in positive in transition and in positive transition in terms of what you were and what you -- versus what you are now. So I'd love your perspective from all of you with -- Kate, especially you, when you look back from 2022 when you joined it today, what was the thing you thought would be hardest about the transition and turned out it wasn't. And then what would you like to do over run in terms of like maybe we should be moved to faster?

My first earnings call was pretty horrendous. So I'd love to do over on that one. But that was just a rookie kid with bright eyes about the future, and I didn't realize how negative the sentiment was against the because I saw an asset with an opportunity, and I couldn't understand why nobody else saw it. So that was my bad. I understand I got a lot of explaining to do between then and now about what it's going to take to capitalize on opportunity. I think the biggest surprise for me because it's something that -- we could Phoenix rising from the ashes, we could talk under dog when you're in the middle of the transformation sitting side by side with messy negative sentiment and a business that's on the decline like that, I have enormous negative capacity I can do it all day long because I have a passion for driving the disruption in the change.

And I can say, oh, yes, this is hard and disappointing and overwhelming and disconcerting them all that stuff, but look at this thing, getting 25,000 people to that same place was our biggest challenge. And I renamed myself from CEO, the Chief Hope Officer so that we could galvanize the people to come with us to gain the momentum that we have today. essential to our culture that Ana has helped us inculcate in everything that we do. But I would say that's probably the biggest in. I'd love to hear Ana from you and Kye maybe for you the biggest surprises.

Yes. My biggest surprise might be a surprise to you all. It was debt. And I don't just mean financial debt, I mean technical debt and culture debt. So I look at it from a technical business and a people perspective, it was a lot of debt, and I have never had that experience in that. And that was a surprise, but the other surprise on the positive side of the coin for that one, when you bring in exceptional leaders that are not only deep, deep domain experts great business leaders and lead the culture that you really aspire to miracles can happen.

Yes. I would say the 2 things very similar. The technical debt that we faced. I came to lumen from the wireless industry where, as you all know, you go through the Gs, the 2Gs, the 3G, 4G, 5G, you're continually refreshing the estate, right, the radio networks, the core networks, all of the systems around. And that wasn't the case here at Lumen. Kate talked about the colors. We have so many colored networks. All of those different networks have their own legacy systems, for example, inventory we're carrying 19 different inventory systems. So you can imagine that our people when we're doing something, they have to operate in all of those different systems to try to work out what they're doing right?

And so that was one of the hardest parts was kind of getting my head around all of this legacy and then developing a plan with the team here of how are we going to move that forward, what investment do we need. And it's taken a couple of years, but we've broken the back of that problem, and we're well underway on the transformation. We now have a colorless network, right? So we are able to have one method of provisioning, one method of planning across the whole country, for example, has taken a lot of hard work. The other thing for me was the culture, right? So without having the right culture in place, you will never be successful with transformation. And when I arrived at Lumen, I can tell you 100%, we did not have a good culture. We weren't talking to each other. Well, we were, right? But maybe our teams weren't talking to each other. And even within the teams there were silos. People weren't sharing things. There was a blame game.

People weren't willing to take risk because they didn't want to get blamed and so on so forth. And I think outside of all of the technical things that we've done and the amazing products, which, by the way, we would never have been able to do without having that culture in place, it would have been impossible. The single biggest thing we've done as a team is reinvent the culture and instill that into each and every individual. That is the biggest thing. It's not something we talk about enough, but for me, that was the big one.

Kate, if I could just a little different spin because I'm the newest guy on stage, I've been here 5 months. So my surprise has been pleasant in 2 really important ways. One is the realness of the culture, the consistency throughout the organization. It's not just this team on the stage. I was -- I fell in love with this team, and that's why I'm here because I believe we're going to do one of the greatest transformations in tech history. I believe that. I was part of that at Motorola Solutions where I was for 22 years, and I know what that looks like.

But falling in love with this team was one thing. In 5 months, it's -- I see throughout the organization. That's one. The second one is I am so energized by my team, which is legal and public policy embracing the notion that they all play a role in enabling growth that they're not just risk mitigators that they're not just playing not to lose. They're playing to win in roles that aren't traditionally maybe that mindset. And so that's been really exciting for me and energizing.

Ryan. Only voice, the haven't had so far on stage.

I think the underestimating what is possible with the power of the people, the silos of when I came in, I've been here about 1.5 years, understanding what we were working in, I would say, in the marketing team and then putting that in a place where the marketing team got infused with literally every single leader on this stage. That was a transformation in itself. But then getting people to understand what the needs were of the teammates with of customers getting to a place to become customer obsessed. I don't think -- I think I can say confidently that generally the telco industry has not been customer obsessed. They've been technical tech obsess and moving that forward more Gs and more Gs. We are spending every single day and every single moment asking what isn't it for the customer? How is it going to transform. And I think -- you saw that through all of our presentations, there's the technology, but it's the customer and the outcome at the end.

[indiscernible], IDC. This is a question for everyone because I think a picture is worth a thousand words. Raise your hand if you've been with Lumen more than 3 years. It's amazing.

Chris, how long?

3.5.

It's fascinating. So you've done a huge a huge path of transformation with just basically changing leadership. And I just Google to make sure my brain was functioning and I said, name any companies that Lumen has acquired in the last 3 years and it couldn't come up with anything. So my memory is good, with cost of capital coming down and I cover security services, but I think it's broader than this. We're starting to see some consolidation. It's actually happening quicker than I thought. So that's bad on my part, I'm not recognizing that before. What would it take for you guys to make a major transaction without finance yell and educate?