Greetings, everyone, and welcome to Lumen Technologies Fourth Quarter and Full Year 2025 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the star followed by one on your telephone. If at any time during the conference you need to reach an operator, please press star 0. 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, and 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 on our earnings press release. In addition, certain metrics discussed today exclude costs for special items, as detailed in our earnings materials, 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, 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 twenty-four 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 four times. 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 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…

As Kate said, since the debt restructuring in 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 twelve 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 a billion dollars 2027. We launched phase one of our new ERP system, streamlining our accounting processes and reducing long-standing systems complexity. 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 seven 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 three and reduced the number of debt tranches outstanding by ten. And it's 16 when you include the recent super priority pay down. Almost a 40% reduction. These disciplined actions help to materially improve our financial flexibility and today, our…

Thanks, Chris. Before we open it up for questions, just wanna 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 NAS adoption, helping us do a major strategic divestiture, It takes every single function operating as one team from HR to operations to product, IT, and engineering to marketing and sales and to finance and legal. All of you matter deeply. And it's because of your work that Lumen's future is so very bright. Moderator, we'll open it up for questions now.

Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q and A roster. Your first question comes from the line of Michael Rollins with Citi. Your line is open. Please proceed with your question.

Thanks, and good afternoon. 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 receipts just given now the quantum of these deals maybe relative to the CapEx that you spent over the last couple of years, and it seemed 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 today because we're doing these deals on existing network conduit, so they don't have new routes. So the economic profile is very similar. You know, on your follow-up question, we will get into that detail at investor day. We're gonna give you visibility into the PCF versus non-PCF impact on cash flow. I think the thing that I would definitely share with everyone today, though, is if you think about our capital intensity, I'm gonna speak in rough numbers because it's easier. Know, $4 billion in CapEx last year, a billion of that went away. With the sale of a 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, a billion of the three or so that we're guiding for this year relates to PCF. And remember, those deals are prefunded because of the quantum of those dollars. So when you get to the underlying capital intensity, outside of PCF, 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. It's roughly half of where we were last year. So you know, that combined with the margin improvements really do drive ROIC improvement for investors.

Next question, please.

Your next question comes from Sebastiano Petti with JPMorgan. Your line is open. Please proceed with your question.

Hi. Good evening, and thanks for the 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 NAS was supposed to contribute you know, 4 to $500 million in 2028, and then PCF about 300 to 400 million correct me if I'm wrong, more or less in that quantum. Or 4 to 500 rather on the PCF, 3 to 400 on the on the digital. So 5 to 600 on digital. And why is there not upside to that numbers given what you guys have talked about today? Right? PCF I guess, 25, 35% larger than what we talked about exiting the third quarter call. And the NAS and digital adoption seems to be accelerating. And so any kind of color, you know, Chris, or Kate, you could provide on maybe the shaping of revenue and maybe there's upside relative last quarter's expectations. Thank you.

Yeah. Thanks, Soshan. I'll let Chris handle the financial side of it. I just 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 of technology did in the, you know, transformation in the cloud era. A decade or two ago. It's the 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 gonna 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 in cloud 2.0 you know, driving a clear and pressing need for that change. But, you know, we're being cautiously optimistic you know, and making sure that, that we're doing everything we need to do to prepare and provide change management for our customers as well. Chris, if you I don't know if you wanna give any financial guidance on top of that. Yeah. So

know, Sebastiano, you're certainly right that the additional $2.5 billion of deals does help. But keep in mind, we're in 2026. It's gonna take three years for those for those routes to get built at scale. So where will there be some revenue impacts know, in 2028, yeah, I would expect it. Does that impact maybe pull and pull forward in the year when we inflect the growth? Yeah. That's possible. I think the more important thing as we as we move to investor day, we will, again, give you those the PCF map there. But it's really on the digital side to your point with and NAS is obviously a big piece of that. But the other leading metrics that Kate talked about. Right? That's not 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 alert for Investor Day. We're humans. We're projecting kind of linear growth in digital. The reality is we all know that at some point that the j curve but we're not gonna try to predict where that j curve comes into play. So, you know, I think what we're what we're showing is a middle of the fairway estimate with the possibility for us to overachieve. But time will tell. Great. Thank you.

Next question, please.

Your next question comes from the line of Batya Levi with UBS. Your line is open. Please proceed with your question.

Great. Thank you. Can you provide a bit more color on bridging to 26 EBITDA? It's 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 and 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, 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? Thank you.

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 year and free cash flow. To your question, we are going to be releasing an 8-K tomorrow with the pro forma economics that'll get specifically to your question, Batya. So I don't wanna 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 and A as you exit the as you exit the year, and then maybe the modernization that you've been incurring. Is that all done, or do you anticipate more?

Yeah. So the modernization is largely in special items. So we tried to separate that out. Terms of its impact. We have, you know, 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, you know, we exited with our MNS savings at $400 million in '25. We're projecting $700 million in '26. So that's gonna mute a lot of that. And, again, we'll share five years of financials at investor day. I do wanna again, I wanna share one other thing that we've shared with investors. And I think it's really important What that five-year model is gonna 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 five years, and we'll get into specifics on that. And our objective is to, one, fully fund our growth initiative and our and our the transition of the company. And that is fully funded in that mod. You know, the second thing would be to continue to reduce leverage a little bit And after that, if there's nothing that achieves those first two objectives, then we'll look to start buying back stock.

Okay. Thank you.

Next question.

Your next question comes from the line of Frank Louthan with Raymond James and Associates. Please proceed with your question.

Thank you. So on the slide where you list the about of fiber that you 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?

Yeah. I mean, not I'm not exactly sure of 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.

Okay. Thank you.

Next question.

Our next question comes from the line of Gregory Williams with TD Cowen. Your line is open. Please proceed with your question.

Great. Thanks for taking my questions. Just on PCF, since you announced all those deals back in August 2024, Have you completed any of those projects? I know you said it takes, you know, up to three years on these things. I'm getting at is is is there any more are there any amortized PCF revenue running through the business at this point? How much? Or is it still too early in seeing that revenue? Question is just on the NAST metrics on Slide nine 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 nine, the new customers, new ports, you're pacing ahead of that or you're pacing, you know, in line with the sort of 5 to 600 million in digital revenue? Thanks.

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, businesses are gonna be very cautious in how they approach changing that infrastructure. And we think the buying patterns in NAS represent exactly what this looks like They buy a port, they test it. They buy a second port, and they run an against it. When they have success, they start to buy three, four, and five ports to run more of their locations. It's a standard land and expand model, and it's still pretty early to draw the curves to figure out exactly what's gonna 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've you know, 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 bills 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 bills won't be completed until after 2028. Chris?

Yeah. And just a few more details. So in my prepared remarks, I said that in all of last year, we had a $161 million of revenue recognized. Six. Sorry. A 116. Thank you. And 41 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.

Super helpful. Thank you. Next question.

Your next question comes from the line of Michael Ng with Goldman Sachs. Your line is open. Please proceed with your question.

Hey, good afternoon. I wanted to ask about the new segment reporting between strategic and legacy. You know, 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 So

Yep. What what are your assumptions in terms of, like, the the strategic revenue growth and the legacy revenue declines as we inflect to business revenue growth in 2020 Thank you, Chris.

Yeah. Yeah. No problem. So the shift, what we did is take the grow items that didn't cut. And, again, grow really relates to the most modern forms of connectivity, everything from Verdish you know, 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 And and 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. 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.

Great. Thanks for the talk. This is Chris.

Okay. Your next question comes from the line of Nick Del Deo with MoffettNathanson. Your line is open. Please proceed with your question.

Hey. Thanks for taking my questions. So you talked about 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 to 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 ninety-ten non-cash 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 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 you know, in '25 versus '24. But one thing we are seeing and and we don't have numbers to disclose, But on our NAS offering, the churn rates are dramatically less than what we see on traditional sales. It's a much stickier sale.

Nick, what was the second part of your question?

Oh, so the the the PCF revenue that you disclosed, the 41 and the million in quarter and the 1 and 16 million for the year, should we think that as being like 90% noncash, 10% cash? Or is there a different mix because you're kind of early in the in the process?

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

Okay.

Great. Thanks, Chris. Next question.

Your next question comes from the line of Michael Funk with Bank of America. Your line is open. Please proceed with your question.

Great. Yeah. Thank you for taking the questions. So for first one, lot lot of reports of construction delayed for you specifically data center build. So know, what what are you doing specifically to, to avoid construction delays just to understand better, in in the contract that you have with with customers, and revenue recognition, for the TCF, they able to delay acceptance for delivery? Or once finished, you light it up as to recognizing revenue at that point.

Couple 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 and terms of first off the line priority status We have scale in terms of workforce. So, you know, if you if you wanna join a construction team that's gonna be at this for several years, you wanna 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, you know, on our our ability to execute on time. Regarding demand and, you know, 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 oftentimes already there. And the, you know, 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 I can't reveal any names here. But we did a large deal with with a company, a cloud company, and it was the first time that we'd done work with this company. And went so fast that we got a call from the head of operations that said, I we've never experienced this kind of speed before. With the telco. You know, can can we meet more regularly so that we can your true capacity and ability to go at this pace? Because we're not we weren't quite ready for it. So that was one of the more fun phone calls I've ever gotten. I'm gonna be very honest with you. And then Chris, did you wanna add something? Yeah. I'd say a couple other things. On the on the first part of the construction, again, we've got a very special relationship with Corning. And and we we are doing very well in terms of access to fiber. I think the other the other point though, and I'm I'm gonna kinda go with the nuance of your question, which is can they hit pause because of concerns over a bubble? I can say consistently, and 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 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.

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

Great. Thank you all.

Your last question comes from the line of Sam McHugh with BNP. Your line is open. Please proceed with your question.

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 '26, the $3.5 billion prior guide. I just wanted to clarify the range of 3.1 billion to 3.3 we saying it's still growth versus 25 throughout the whole range? Or at the midpoint in the range. And then the second was and and I'll try, but

Go.

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

No. At the end, the follow-up was one on on PCS, and I I guess maybe I won't get an answer, until the CND, but rough math would suggest like, working capital and PCS cash inflows around 1.7 billion or something based on the guide. I can my miles off with that, and is there any reason why working capital could be massively positive or negative?

Yeah. I mean, working capital will definitely be positive. I that's obviously the we're we're those PCF inflows and outflows or inflows show on the on the balance sheet, and then the outflows obviously show up in in CapEx. So again, as we've said to the market, at some point, when PCS stops, we'll have trailing CapEx that we've already received the cash for. But with 2.5 billion coming in and and, you know, more demand in the pipeline, that's just not something that we're encountering right now. And that 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.

Cool. Well, thank you very much.

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.