Greetings, and welcome to Lumen Technologies First Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, May 4, 2022. It is now my pleasure to turn the conference over to Mike McCormack, Senior Vice President of Investor Relations. Please go ahead.

Thank you, France. Good afternoon, everyone, and thank you for joining us for the Lumen Technologies First Quarter 2022 Earnings Call. Joining me on the call today are Jeff Storey, President and Chief Executive Officer; Chris Stansbury, Executive Vice President and Chief Financial Officer; and our Senior Vice President and Treasurer, Rafael Martinez-Chapman. Before we begin, I need to call your attention to our safe harbor statement on slide 2 of our first quarter 2022 presentation, which notes that 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 on slide 2 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 that can be found in our earnings press release. In addition, certain metrics discussed today exclude cost for special items, as detailed in our earnings materials, all of which can be found on the Investor Relations of the Lumen website. With that, I'll turn the call over to Jeff.

Thanks, Mike, and good afternoon, everyone, and thank you for joining us. I'd like to begin the call today by welcoming Chris Stansbury to the Lumen team as our Chief Financial Officer. Chris joined us from Arrow Electronics and brings over 25 years of finance leadership experience. I'm confident that Chris' skills and knowledge will prove invaluable to our organization as we drive toward profitable revenue growth. Chris joins Lumen an exciting time for our company and its stakeholders. We continue to anticipate closing two major transactions this year, which will provide a significant improvement in our revenue mix and generate over $7 billion of net cash proceeds. Within our business segment, we see strong momentum in our forward indicators like sales in churn which provide us confidence in achieving our growth objectives. In addition, our Quantum Fiber build plan is ramping, and we expect momentum to continue to accelerate as we drive toward our expectation of hitting 1 million or so new fiber enablements in 2022. On today's call, I will provide some thoughts on our first quarter results as well as the opportunities we see in the year ahead. Chris will discuss the first quarter in more detail, and we'll reserve time after Chris' remarks for your questions. As we mentioned last quarter, our first quarter revenue performance tends to be seasonally weaker compared to the fourth quarter, and this year was no exception. We continued strong performance in security, cloud, unified communications and IT products, offset by anticipated declines in voice and other as well as lower non-recurring equipment revenue. We are managing through supply chain constraints that have caused some delays in our install intervals and significantly slowed down our CPE sales. Although CPE has little impact on the EBITDA and free cash flow, it has…

Thank you, Jeff, and good afternoon, everyone. I want to begin by thanking the team here at Lumen for a warm welcome. While it's only been a few weeks since coming on board, I can tell you that the excitement for our goals and initiatives is palpable. I look forward to being a part of the transformation occurring at Lumen and believe I bring a unique perspective as we execute on our plan. I'll begin with the financial summary of our first quarter. We reported adjusted EBITDA, excluding special items, of $1.966 billion and generated a 42% margin. A number of items impacted margins this quarter, which I will discuss in more detail later in my remarks. Our reported revenue was down 7%, meaningfully impacted by the completion of the CAF II program and seasonal factors within our Enterprise business. Our free cash flow was $846 million. We returned $271 million to our shareholders during the quarter through our quarterly dividend. Additionally, we reduced net debt by over $450 million during the first quarter and by approximately $1.5 billion since the same time last year. As we announced on our last earnings call, we are adjusting our mass markets product revenue reporting categories this quarter to fiber broadband, other broadband and voice and other. The two key reasons for these changes are the increasing importance of our Quantum Fiber platform and the completion of the CAF II program. Given this relatively small impact, RDOF support revenue will be included in the voice and other category in our new reporting structure, consistent with other state support payments. We currently expect to begin recognizing RDOF support revenue during the second quarter. But even on a full year basis, RDOF will have a very small impact on our results, particularly after the expected…

[Operator Instructions] Our first question is from Batya Levi with UBS. Please go ahead.

Great. Thank you. Two questions. First, can you provide a little bit more color on the Enterprise trends that you're seeing, maybe the sales funnel versus bookings? And when would you expect to see a trough maybe in the revenue decline in that segments? And Chris, maybe a question for you. You did provide priorities for capital allocation with investment on the top of the list. Can you talk a little bit about how you would weigh the shareholder return, the dividend payment versus the debt pay down, if the revenue decline persists? Thank you.

Sure, Batya. I'll take the first question. I mentioned in the prepared remarks that we see strong forward indicators. And what that looks like to me is, number one, sales. If you look at our first quarter sales with very solid sales in the quarter, much in line with the strong sales we talked about in the fourth quarter. I get that we don't always see this in revenue yet. And so I'll talk a little bit about that. But the sales for large enterprise, in particular, is the first area that I point to. And there's good news and bad news in that fact. We've seen great success in very large complex deals with large enterprise customers. These aren't single product plays, and we integrate more closely with the customers' environment with multiple products that makes it very strategic and sticky relationship. These deals shift our revenue mix and move up the stack with managed services and security and edge capabilities. So they're good margin products moving up the stack and make those relationships much stickier. Some of the bad news associated with the fact of these big deals is they convert to revenue more slowly. They have thousands of locations, takes months and months to coordinate with the customer to turn up the locations. And so they don't convert to revenue quite as quickly as some of our mid-market type deals. The other thing is we need to make sure that we can - as Chris and I both said, we need to make sure that we are driving more success in our mid-market sales. That's more of the flywheel business of Lumen and we need to make sure that we're driving that. Now lastly, I'll point out that we discussed this in the fourth quarter call, and that is seasonality tends to impact the first quarter more than it does other quarters. And we've seen that for many years. It's not new to us. And we've talked about it for many years. Looking at the first quarter 2021 seasonal - sequential revenue comparison is pretty typical to what we've seen in previous years. And so those are some of the things that I look at, not really to predict where a trough is, and we don't give revenue guidance. I'll tell you that we are looking at what type of information we provide and it may be something that we look at in the future to provide, but we really don't give revenue guidance at this point. Chris, do you want to ask - answer that?

Sure. Yes, Batya, on the question regarding investment for dividend. Obviously, that - I mean that answer is growth is the priority, and dividends are a close second to that. But we do have flexibility around the CapEx. It's dynamic. We can adjust as we go. And as Jeff mentioned, the dividend payout ratio will move around as we move through the investment phase. So when you look at all the variables that go into the capital allocation, I think the investment and the dividend are both absolutely things that we can do. And we've got other choice points that we can make along the way as needed.

Maybe just a quick follow-up. Do you also have a target on when you would like to take the leverage down to the original target, I guess, closer to 3% or 3.25%?

That's a longer-term goal. I think it's the right goal. But obviously, as we move through the current investment window, having a strong balance sheet is critical, and that's something that we'll have a mindful eye towards. But I do think we'll be more in the neighborhood of where we are now. That's - I know what we've talked about in the past, relatively net leverage neutral. And that's what the focus will be as we go forward.

Our next question is from Simon Flannery with Morgan Stanley. Please go ahead.

Great. Good afternoon and congratulations, Chris, on the new role. I wonder if you could - just for housekeeping, just explain to us what happened with the CAF II? I think most people had assumed we were done with that at the end of last year. So what exactly is going on there? And why did you have to release it? And is there any more to go for the rest of the year? And then just any comments on the macro environment. There's certainly been concerns about consumers and businesses suffering from higher fuel prices, rising interest rates, et cetera. Are you seeing anything as you go through March and April, the uncertainty around the war you referenced the supply chain. But any comments there on just the general operating environment would be great?

Sure. On the CAF II, this was something that was contemplated in the guidance for the year. And as the program winds down and audits are completed by various states, there were reserves that we had in place, and we've been able to release some of those reserves as those have been closed down. There's only a bit left to go smaller than what we have released here, but that’s really the impact that you're seeing in the quarter.

And you never know what those reserves exactly are going to be until you go through those audits and things. So that's the process that we have to go through. On the macro environment, I mean, we see some impacts of the war with certain customers, our government customers and some things slowing down, making sure that doing upgrades to the network while you've got something that critical going on. So we see some impacts of that. Haven't really seen impacts of inflation on customer buying habits. We still see some impact on - from COVID on customers not being fully back into the office or having slowed evaluations of new solutions during COVID and just now getting back up to speed on those, but there really no macro comments that we would make about inflation or other things like that.

And what about cost control within your own business from inflation, your exposure to energy and labor cost inflation?

Yes. So we work really hard on controlling inflation within our own business. If you - from a fuel standpoint, we have worked over the past few years through our ESG efforts to really reduce our fuel consumption. And we've been pretty proud of what we've done there. And so it's got an impact, but it's got a smaller impact than it would have had four or five years ago. And with respect supply chains. We see do have trouble with supply chains, we see that lingering effect from vendors being able to deliver equipment to us, wanting a little more money for what the equipment they are delivering. But we've got great relationships with them, and we're working through all of that to mitigate the risks and pressures that come from inflation.

Our next question is from David Barden with Bank of America. Please go ahead.

Thanks so much for taking the questions and welcome, Chris. I guess my first question, Chris, going back to your answer, I think the Batya's question. I think that when we look at the pro forma organization into 2023 from a free cash flow standpoint, basically, all the money is spoken for when we look at CapEx investments and dividends and it doesn't really leave anything left for deleveraging and if we do something on the stock buyback program, it means we're willing to take leverage up from where it is currently. So I guess I'm wondering kind of as you come in with fresh eyes on the balance that we're trying to strike with a fairly narrow margin for error in 2023 on cash, kind of how you perceive the willingness of the company to take up or the ability to take down leverage? And then I guess, if I could, on kind of the second question was just on the comments just that you made about the progress in Quantum, the expansion of the footprint and availability. Your comments about maybe not getting credit in the stock for some of these investments that you're making. I think that the people would love to kind of get a sense as to where the time in the future is that we see a crossover where the fiber net adds are beginning to turn the corner on the legacy broadband net add decline? Thanks.

Yes. So I'll take the first one - the second one first. And Chris said in his prepared remarks that at that time is the second half of 2023, we see subscriber - broadband - overall broadband subscriber net adds growing in the second half of 2023. And we see overall broadband revenue growing in the second half of 2023. And so Chris gave those comments in his prepared remarks. Chris, you want add at the leverage?

Yes, sure. And I would just add to that, that we made a real effort this quarter to provide more disclosure and transparency around mass markets, and we'll continue to do that. Obviously, as we go forward, we'll work on the Enterprise side. As it relates to 2023, obviously, we're not in a position to guide 2023 right now. And I guess the good news is, is that by the time we're ready, I'll have more time under my belt to have had input into that process. We hear you on the math. The reality is there's other things that we've got to look at as well in terms of what assets do we keep? What assets do we not keep? Are the new assets we would add to the portfolio? There's also the opportunity, I think, to continue to drive cost efficiencies as we go forward. So there's a lot of things that go into baking 2023 guidance and as we move through the year, that will be part of my focus.

Our next question is from Eric Luebchow with Wells Fargo. Please go ahead.

Thanks for taking the question. Jeff, I was curious on the supply chain commentary. First of all, how much of a revenue impact did you see from, I think, you said some lower non-recurring equipment sales? And are you seeing these supply chain issues? Is that contributing to some of the larger, longer install cycles from some of your customers? Or is that largely related to some of the large complex deals you talked about recently? And then second question maybe for Chris. You called out some of the transition costs as transitory. And I think it was the separation costs, the synergies and the transformation savings. When do you think we'll kind of get past those and we will see those actually had a positive net impact to the current run rate of EBITDA? Thanks.

Sure. On the supply chain issues, it does have an impact on our CPE sales. We don't quantify that number generally, but it's not insignificant. So we look at it pretty carefully. It does not drive EBITDA, it does not drive cash flow, but it does have a fairly significant impact on revenue in the quarter. So we'll continue to focus on it, but not worry about it from a free cash flow or EBITDA perspective. Within the service delivery, it absolutely creates bottlenecks for us, especially with customer premise equipment. If the customer wants a particular vendors product and the vendor isn't shipping it, those are that we have to deal with. It's not an insurmountable challenge. It's not something that I'm pointing to say, oh, service delivery isn’t delivering. I think we are doing a great job of managing through the supply chain issues. But it is something that I want you to be aware of that we do see it, and we do face it and I hope that it's getting better. It seems to have improved a little bit over the last month or so, but we'll continue to stay focused with our vendors. Now the last point is we have great relationships. And so I talked to our major vendors pretty regularly, and we work with them in good times and in bad to make sure that they have accurate forecasts for our services. And so during COVID, I worked with a lot of these vendors to make sure they knew what they could expect from us. And now we're working with them to make sure that we can expect from them. So we'll continue to work through the supply chain issues. It's a warning flag that I want you to hear, but I don't want you to overemphasize it in that either.

And just on the transition costs, we expect those to go on probably for one to two years. Now again, we'll recover a lot of that in other income, and you'll see that as we go sooner. Transformation savings, I think we can ramp up sooner. Obviously, in the near term, we've got a lot of people working on the divestitures, but we can refocus on transformation savings next year. But I do think the other thing that will impact OpEx increases is really the growth in Quantum. And frankly, I hope that continues. That's a positive reinforcement mechanism because we'll be driving the revenue that goes with that. So we'll continue to provide insight on that as we move forward, but that's how I see it unfolding.

Our next question is from Greg Williams with Cowen & Company. Please go ahead.

Thanks for taking my question. You spoke about portfolio optimization and alluded to 2023 in the way you're going to deal with the balance sheet. There's some media reports suggesting that Lumen is exploring a sale of the European assets. Just wondering if that's something that you would be considering? And can you remind us how much revenue and EBITDA those assets do generate? And then the second question is just on the mid-market weakness, if you can elaborate a little bit. Is this really COVID related? Or is this more voice attrition? Or are they adopting lower ARPU, SD-WAN and the technology risks there? Just help us think about the trajectory going forward? Thanks.

Sure. Let me address the first question on asset sales. I never speculate on any particular assets sales and never comment on anything. But I'll point out that we administrated an openness to smart optimization of our assets. We've also demonstrated the discipline to get the right deal done, not just get a deal done. And so we'll continue to do that. There's no urgency for us to divest anything, but we're always interested in figuring out the best ways to generate strong returns for our shareholders. I'll also add that any acquisitions or dispositions really must meet two fundamental criteria and the first is attractive valuation and the second is strategic benefit to Lumen. And so anything we do, we'll have to meet those two requirements. As you look at our LatAm sale and our ILEC sale in the 20 states to Apollo, both of those transactions meet the attractive valuations and providing strategic benefit to Lumen. And so that's the context in which we'll look at any type of acquisition or disposition. I'm sorry, Greg, what was the other question?

Just the mid-market, the trajectory and elaborate on the weakness?

The mid-market weakness, I really think it's still just a lingering effect of COVID. I look at our products and services and our sales motion with them and our digital experience and think that it is - so we've got all the right capabilities for the customers. They're just not yet back into the office or just now getting back into the office and starting to look at sales opportunities again. And so we'll continue to focus on that. I'm pretty confident in our ability to win in that group. We just need to make sure that we do and execute on the plan. It's a relatively small number of our overall Enterprise business. I don't have the exact percentage in my head, but it's a relatively small number.

Our next question is from Michael Rollins with Citi. Please go ahead.

Thanks and good afternoon. Just curious if you could dive a little deeper in the subject of legacy revenue. And is there a way to frame whether it's by product or by customer vertical of how investors should think about what's legacy or at risk over time? And what's strategic? And then maybe how - when legacy converts the strategic like what that average algorithm is to understand like longer term, the current revenue power of the company?

Sure. So great question, and I'll ask Chris to answer it because that's what he spends a lot of time over the last month that he's been here. He's thinking about how do we give appropriate disclosures, better disclosure, clear disclosures on our business. And so Chris, I'll let you.

Yes. And I wish I had more specificity for you today. That's obviously something we're going to drive to going forward. But that's really what we're trying to unpack right now, right, which if you think about the assets in our portfolio today, what are the growers, what are the things that are critical to the portfolio, but are going to have a lower growth rate. And then what are the things that over time will go away either through just regular business declines and harvesting cash or we sell them. So that's an exercise that we're going through now. We didn't have enough time to get through that before this call, but you can expect more visibility on that going forward.

And just another quick follow-up. So you adjusted the guidance for EBITDA. Was there a reason that the CapEx didn't get adjusted for holding on to the wireline assets for another quarter?

Yes. It's just - the differences there are so small. We wanted to keep it simple. And that's why you saw the flow through the way you saw it presented. So it's really - the big variable is just time and there's not going to be a significant change in CapEx because of that.

Our next question is from Brett Feldman with Goldman Sachs. Please go ahead.

Thanks for taking the question and welcome to Chris. Two, if you don't mind. The first one is, we're now at this point where every single major wireless carrier and cable company is offering a bundle of mobile and broadband. And as you ramp your investment in your own advanced fiber broadband service, I'm curious how you think about the importance of incorporating mobile into the bundle and obviously already have Enterprise partnership with T-Mobile, and I'm curious whether it would make sense to maybe expand that? And then the second question here, some of the other large telcos, that are a bit more consumer facing like the wireless carriers, have been talking about looking at pricing as a mechanism for offsetting some inflationary cost pressures in their business. And even yesterday, AT&T announced that they would start taking price on some legacy plans. You're obviously not exposed to the wireless market, but you're exposed to literally every other telecom market in the country. And so Jeff, I'm curious how you're thinking about pricing power and whether there's an opportunity or to what extent you think you can move price higher if needed, if inflationary pressures persist? Thank you.

Sure. The first one, bundling mobile and broadband, candidly, we haven't seen that it has been all that important, if you - and - so we will continue to evaluate and continue to look at it. I know we're never going to go out and build and actually, I shouldn't say never, but we're not going to go out and buy a whole bunch of spectrum and build a network partnerships, obviously, that we would consider doing it. But we haven't seen bundle - we didn't see the bundle between Prism TV payoff and subscriber growth. We think our broadband capability stands on its own. I mean, we just announced that we're going to do multi-gigabit services. We think incredible capability. We think our all-digital experience, provides a customer experience that's unmatched in the market, layering WiFi and home WiFi and layering security on top of those types of capabilities. We think our product is second to none and stands on its own. So I don't think that we'll really not anytime soon look at mobile bundling. But I don't say, never. We'll always keep it open mind to it if we thought that it added value. From a pricing perspective, we look at re-rates pretty regularly and see if there are opportunities to do re-rates and so I'm not going to get into our specific strategy on what customers, what type of customers, what types of products. But when we look at the market and we feel that our prices are not where they should be, we do re-rates. It's historically not been a huge number, but it's something that over the past couple of years - for three or four years that we've paid a lot of attention to. And we'll continue to do so.

Our next question is from Phil Cusick with JPMorgan. Please go ahead.

A couple of follow-ups and maybe a real question, first, can you break out for us what the revenue and EBITDA were for the planned asset sales this quarter? And then, did last quarter's outlook anticipate that $59 million in non-cash CAF benefit that you got this quarter? And then, the third follow-up, talk again on the mass market growth in the second half of 2023, was that on a year-over-year or quarter-to-quarter basis that growth number? Finally, a real question, have you seen any shift in copper broadband churn in markets where fixed wireless has launched versus markets where it hasn't? Thanks very much.

Yes. So I'll try and take a couple of those and leave whichever ones I've forgotten to Chris. I don't know the number on asset sales, what the revenue is. So Chris, you can have.

Yes. Yes. So - for the ILEC sale, the revenue number for the year was $2.5 billion.

For 2020.

Sorry, for 2020 was $2.5 billion. And for Latin America was $800 million.

Okay, but nothing for the quarter? Thanks.

Yes. The second question you had was on the CAF II release and was it contemplated in the guidance and what we said last quarter. And the answer is the CAF II - the opportunity for CAF II release has always been contemplated in the guidance. I won't give details on how much, when or any of that. But yes, it's contemplated in our guidance. It's a little bit of a fuzzy number moving forward, because we don't know what the audits will result in. And until you go through that process, you don't know whether there is a release or how much of a release or if there's some sort of make it has to go. And then on top return due to fixed wireless, we're not seeing it, but there's a little bit, but we're not seeing it. If you think about fixed wireless moving forward and the broadband capabilities of Quantum, I look at it and think we have exactly the right solutions for fixed wireless. And we use fixed wireless and our Enterprise business is a campus area in networking technology. There are always multiple technologies to deliver similar services. And so we use it in our campus area and networking solutions to provide mobility within a campus. But as soon as you want to have traffic that wants to leave the edge of the campus, it moves to fiber. And we think that is ultimately the answer for all communications, whether it's leaving the edge of the campus for fixed wireless-type communications. Whereas leaving the edge of the campus. We're leaving the edge to the home, it wants to leave best on fiber. And so we look at it and think there's certainly some application, probably more applicable in rural environments than in dense urban market clusters the Quantum Fiber is targeting. But I don't know that we see any particular churn as a result of it.

Okay. And then on the mass market growth, just to clarify, was that year-over-year or quarter-to-quarter revenue growth, I think it was?

The - sorry, which number were you referring to I want to make sure?

You had said you expected - was it - I think you said you expected mass market revenue growth in the second half of 2023?

Yes. That's right. And so that's year-over-year.

That's year-over-year. So you expect it to start growing sequentially more quickly than that?

That's tougher to call, but I would expect that at that point in time, you would see year-over-year growth and sequential growth. I wouldn't say cumulatively, it would be growth at that point. So we got to be careful with that. But the key message is that we see a light at the end of the tunnel at an inflection point where that segment starts to grow again in the year.

Our next question is from Nick Del Deo with MoffettNathanson. Please go ahead.

Hi, good afternoon and thanks for taking my questions. First, a high level one for Chris. What have Jeff and the Board charged with accomplishing in the role? And can you describe any high-level philosophies that you bring with respect to value creation, financial KPIs you focus on and so on? And then second, I think you guys disclosed $400 million to $500 million annual maintenance CapEx. I guess how are you defining that since everyone seems to do it a little bit differently? And how do you think about a more holistic maintenance CapEx number when you kind of bake in the cost of churn of placement? Thanks.

So Nick, I think I should answer the question about what am I charging him with, but I'll let Chris answer.

Thanks, Nick. I mean, really, the conversations that I have with Jeff and the Board when I was considering this opportunity, we're really around helping Lumen transition to growth. And if you look at my experience with Arrow, Arrow was in a very similar situation when I joined and went through a big strategic shift and focus to drive growth. And I think that's something I bring to Lumen. And quite frankly, the reason I came is I saw all the hardworking people and initiatives inside the building. And I think it's a tremendous opportunity. So that's job number one. But moving through these windows is obviously tricky. And some of the questions today, obviously, get to that. So maximizing EBITDA, while we're navigating that transformation, I think, is critical, and that's going to be a close second to helping drive growth. I'd say that on that journey, obviously, I'm going to learn more as I get closer to the business, but one thing near-term that I think is critically important is giving more transparency to the investment community around what's under the covers. And I think that's a real opportunity for us as well, and I've talked about that earlier. I'll touch on the CapEx. When we say $400 million to $500 million, that's keep the lights on CapEx. That's what we need to do to keep the business running. Where that goes as we move forward? That's a little trickier, but the reality is when you look at a lot of the capital that's going into the ground now, those are very long-lived assets. And so I don't expect a ton of maintenance associated with that, certainly in the near-term. Longer term, I've got to educate myself a little more before I can answer that. And then really, when you think about some of the things that Jeff talked about on the enterprise side, a number of those initiatives become less CapEx intensive, right, when you're talking about complex solutions. There is CapEx involved, but that - the pace of that looks different, perhaps in some of the more historical motions. So that's how I'd address that.

Our next question is from James Ratcliffe with Evercore ISI. Please go ahead.

Thanks for taking question. Two, if I could. First of all, Chris, just to clarify in the guidance changes, there is no organic change in EBITDA. It's just adding another quarter of the US telco EBITDA and just rounding on CapEx? And secondly, Jeff, can you give us a little color around what you think you need to do better in mid-market? You highlighted that a scenario you're not satisfied. What's the blocking and tackling there? Thanks.

Sure. Yes, you're correct. On the guidance, it's just the - just the timing shift and that flows through to free cash flow as well.

And what do we need to do better in mid-market, I'll give you a short-term answer and a long-term answer. The short-term answer is we need to get people back in the office. We need to get them looking new technology solutions for their businesses. And that's obviously beyond our control to some extent, but we need to keep working with those customers as they come back from the past two years. Longer term, we need to keep investing in an all-digital experience. Last week - and I guess this is near-term, too. But last week, we launched the Lumen Marketplace. And the Lumen marketplace is an ideal for our mid-market customers to go in and explore and learn about our capabilities, to configure things that they want and to place orders that we can then turn up very quickly because we've been standardizing our building platform in which those customers exist. And so we need the customers to get back in the office and start buying, but we also need to make sure that we're driving utilization of the capabilities that we've been building and have recently launched for those customers. So we're excited about that business. And if you look at our security business, our DDoS mitigation, our excellent broadband, SASE, SD-WAN, all of those capabilities, we think we have the right answers. We just need to continue to execute on the plan.

Our next question is from Walt Piecyk with LightShed Partners. Please go ahead.

Thanks. Sorry, I have a bit of a small specific question. You talked in February about million new fiber home passed for 2022. Your pace really for the past four quarters is only is very small. Is this impacted by supply chain? Is there a specific ramp that's going to occur? And then when you talked about 2023, I think you said maybe more than that 1.5 million in homes passed. If you can get momentum in these fiber builds, does that carry into the first half of 2023? Can you just talk about that a little bit? Thanks.

Sure. First of all, everything affect our supply chain that I don't point to that as any major obstacle in our fiber ramps for this year at this point. So I don't want to discount it entirely, again I don't want to over highlight it either. If you look at our process, we have shifted from micro targeting to a more market-based targeting. That means more engineering upfront, longer permitting times. And all of the things that we contemplated in our build schedule but make it non-linear. Now I'm going to see the same number in the first quarter that you see the second quarter, it's not always as efficient as you would want it to be, and you certainly can't divide one million by four and think that, that's the right number. So I talked about capital in my remarks. And I think that we are on track for what we're wanting to accomplish in 2022 from a fiber build perfective, and we should be continuing to ramp throughout the year.

Thanks. And then on Slide 11, you referenced hitting, think if I'm reading this correct, 22% penetration of the 12-month mark for the 2022 - 2020 vintage? When you think - I mean, obviously, there are small builds in 2021. Are you seeing similar performance as you continue to build in terms of a one-year target of 20%-plus penetration?

We've always been very excited about the success that Quantum Fiber brings to the market. We've had a great digital experience. We handle the sales and turn it up and all that through the digital experience. So we think that we - and we have a great symmetrical high-speed product. And so yes we are very pleased with what we see, we haven’t reported specifically what we're seeing in 2021, but we think that one-year mark is a good place to look at it. And so that's why we talked about 2020.

Thank you, everybody. Look, in closing, I just want to say that Lumen is a company undergoing rapid and exciting change in 2022. We've been on a transformation journey for the past several years, and it's really coming to a focal point in 2022. We see a broad opportunity set across our business and mass market units as we streamline and position them for revenue growth. In addition, I look forward to Chris' new leadership of our finance organization and the powerful skills that he brings to the team. So Chris, I'd like to add my welcome in front of everybody. With that, we will end the call. Thank you all for joining. As always, thank you for your interest in Lumen.

And we would like to thank everyone for your participation and for using the Lumen conferencing service today. This does conclude the conference call. We ask that you please disconnect your lines, and have a great day, everyone.