Good morning, everybody. Thanks for joining us again today. It's my great pleasure to welcome Lumen. We've got Chris, the CFO, many of you know, and we're delighted to have Satish join us, who just joined Lumen from AWS just a few weeks ago, right?
Six weeks now.
Six weeks. Wow! Okay, great. Well, really looking forward to our conversation. Before we get started, for disclosures, please see morganstanley.com/researchdisclosures, or talk to your MS representative.
We have to do the same thing.
Please go ahead.
Our safe harbor statement's on our website. We may talk about some forward-looking numbers, and so you can read the safe harbor there.
Great. So, it seems like every week there is a new announcement of something, transformative, either on the people front-
Yeah
... or on the product front or the debt front. So just level set us here, Chris. Just take us through some of the big,
Sure
... financial and strategic repositioning of the company in the last year.
Yeah, I mean, it's interesting because we were just outside waiting to come in, Simon, and I was thinking about this discussion a year ago.
Yeah.
You know, at that point, Kate had been inside the company about four months.
Yeah.
We were talking about the repositioning of the culture, our focus, and since then, an enormous amount of work has taken place. It's kind of like renovating an old house, and you got to start with the stuff that isn't so pretty first, right? There's a lot of plumbing and wiring, and that's really what's happened. And so, if I look at the way we run the business today, there's much deeper inspection at every level. There's much greater focus on what we're doing and almost more importantly, what we're not doing anymore. We continue to invest in cleaning up what are really poor processes, and we can talk a bit about that. And the innovation portfolio has evolved significantly, and Satish will get into that more later.
We're really excited about where we are in the journey, and what comes next.
Great. You know, I think one of the big things is the TSA.
Yeah.
So, perhaps, could you just give us-
Sure
... an update on where we stand on that and, you know, what the end result of that is gonna be for the organization?
Yeah. At a very high level, there's really three things that we need to successfully do to position the company well for its future and really transform what we do. And the first was to create financial security in our ability to execute the turnaround. And I think the most important way to characterize the TSA is that it deals with what was a very problematic capital structure, $10 billion due in 2027, that ultimately was going to be a limiting factor in our ability to execute the turnaround. With the successful completion of the TSA, that fundamentally shifts. We have moved debt into the future across the various structures, and it's obviously a complex structure, and that gives us plenty of runway to execute the turnaround. So that was critical.
That'll be done, being transacted by the end of the quarter, and we'll, you know, we'll have more updates as we go into earnings. And then the second thing is focusing on the core business. What's on the truck today? What are those sales rates? How are those improving? And that is something that, again, with the completion of the TSA, has gotten much better. The number of phone calls and voiced concerns from customers were significant. We saw it impact sales rates. That obviously impacted guidance for the year, but I think that's behind us. Those conversations are have all been abated. And then the innovation portfolio is the future, so.
I think you were saying that you're looking at an investor update.
Yeah. So, so the goal is, to really shine a light on key activities. So as I, as I already said, really, what are the sales rates for what we're selling today, what's on the truck today, and, and looking at that by channel. The second would be shining a light on what is legacy declines. Those are real things. It's, it's why the industry gets a bad rap, because this is a space where competition is not invested in, in new solutions and new ways of doing things for customers. And, and as a result, the legacy declines are an enormous anchor, and that's why you see our two, largest competitors declining at rates well above ours, in, in the space.
The additional piece would then be the clarity around how we see the new products ramping in the innovation space. And I'd like to bring that as one package to the investor community, probably after second quarter earnings. We've got to give Satish and Dave Ward a little more time to help us on the innovation piece, but that's why we have such confidence in the fact that this is going to inflect. So I want to lay that out, give you the visibility, give you the metrics. The only other add I'd have in there is that there's a lot of cost we can continue to take out as well, and that's why we have confidence in pivoting EBITDA next year.
We've been going through product by product, Kye Prigg, who's our new head of operations, to fix what is just a total mess in terms of process. And I'll give you one data point metric, but we would take on average about 55 days to deliver a DIA circuit before Kye arrived, and we would miss the customer delivery date three or four times. We'd re-quote multiple times. There was a lot of cancellation activity around that. We just delivered our first DIA circuit through ServiceNow with a much more streamlined process. We did it in 5 days. So those are the kinds of improvements that are coming, and when that comes, we need less human intervention to muscle orders through the system, and we drive a much better customer experience.
There's a lot of efficiency that can still come.
Everybody's looking for that turn, and I think the concern has been that, you know, your peers and others have talked about a turn that didn't come.
Yeah.
Help us just understand how does... what turns first, and then what, what's your guidance around the revenues, around the EBITDA, sort of quarter by quarter or period by period?
Yeah, and that's the data that I want to give you. I think realistically, that inflection point for EBITDA is later next year versus earlier. Initially, we thought early in the year, but because of the impact on revenues from the debt overhang, that got delayed a bit. But we see public sector pivoting to growth. You'll see that this year. I don't think it'll grow sequentially, Q1 versus Q4. There's a big equipment deal in Q4. But as we go forward, you're going to see public sector grow because those deals are already sold. We're now at the point of install. Mid-markets probably follows, then large enterprise. And that again, that's just with what's on the truck today.
As it relates to the innovation, which is really where I think the more material growth comes, we're starting, you know, effectively at zero, and so all of that is upside. I'll let Satish address that as we go further in the conversation.
Great. And just picking up on that, I think you'd called it noise in the channel before. I think on the last call, you suggested that the TSA was helping subdue that noise. It is-
Huge.
Yeah.
I mean, the way I've been characterizing it is literally 100% of my time from July through the end of January was on debt, whether it was speaking with advisors and/or bondholders, or the board, or Kate, or Rahul, who's led us through this in treasury, and customers. So, that has fundamentally shifted, and my ability to spend more time in the business and talking to customers about where we go from here and going forward, it's just, it's like the clouds have parted.
Great.
It's that different.
So, Satish, perhaps for the audience, just tell us about your role at AWS and what you were doing there, and really what attracted you to come to Lumen?
Yeah. It's a pleasure to be here. I was, I had the privilege of four years being the global head of Artificial Intelligence and Machine Learning Specialist team. So what we did was we would work with customers, understand their business problems across all industries and all segments, help them adopt the services in our portfolio, and in doing so, we would influence the roadmap and strategy of our services.
And the decision to move to Lumen-
Yeah, I felt-
October.
You know, after having consulted with C-suite about how AI/ML can really transform their businesses over the last 5- years, 4-years, 5- years, I felt the technology has reached a level of maturity where it's not about the technology, it's about the people's willingness in our customer base to really adopt the technology to transform. So I feel the next decade is about adopting that technology, and at Lumen, we're very committed to product-led growth. We have a set of interesting assets, I think, that we can leverage to drive some of that growth. And so I felt, in talking to Kate and some of the leadership team, many of the new members are coming from tech companies, that we can together, collectively, really drive that transformation from a telco to a techco. And so we are really excited and committed to that future.
What are your key priorities from Kate and the board?
Yeah. So, you know, focus on Lumen Digital, which we can talk about and unpack, really drive innovation and growth there. We are excited about growth opportunities even in our traditional business, you know, and Chris was talking about some of those dynamics there. The AI wave has direct implications on how much bandwidth across metropolitan areas and across cities, that it really drives. And we feel that demand is really going to accelerate in the future. And so we can monetize a core network for sure, in more ways than we have done in the past.
fiber to the data center.
Fiber to the data center, using that bandwidth across data centers, private networks, from enterprises to cloud, you know, cloud to cloud data movement, because multi-cloud is a reality across enterprises. So all of that, I think, monetizes our underlying network. On top of it, I think digitizing our network makes ease of consumption of the network. No other telco is really doing it the way we are. They're wrapping managed services around their core networking capability and calling it NaaS. And so we have the potential to really leapfrog them across all markets, and that's really our intent.
Great. And to what extent is your, your role external facing, like customer solutions versus I think a lot of telcos see AI and generative AI as being, you know, very powerful for customer care and for-
Yeah
... network optimization and, you know-
Yeah
- IT management.
As we think about AI, at least for Lumen, I think I would put it into two or three buckets, right? At the end of the day, AI as a technology lets you either improve productivity, save costs, which is really our intent, that's really first step. And all the, you know, all of those here who use Copilot, that's what exactly what we have done, right? Improving our productivity and saving us cost. But we want to focus on leveraging the technology beyond those, those two things to drive product-led innovation. So I'll give you an example. When you think about security and security services, which is a network adjacency to the core network, using proactive blocking technology, leveraging some of our core assets like Black Lotus Labs, would all be powered by AI.
We feel that there is a lot of upside opportunity for us to drive innovation and product-led growth, and that's what our focus is going to be about.
Great. I think for investors, Chris, see a lot of these, we talked about NaaS a second ago. I think you're been talking a lot about ExaSwitch.
Yeah.
The products, you know, certainly sound like they hit a customer need. It's sort of show me the money. Investors want to see-
Yep
You know, how, how do you monetize this? When does it become material? And I guess that gets to this a little bit of the pivot on, on the revenue line. But, but help us, what, what should we be focused on? What are the milestones that make us feel like this isn't just a press release, but it's actually-
Yeah
- generating a lot of dollars and not just cannibalizing existing revenue streams?
I think that's where we have work to do for you, which is laying out for each of these product groups what the right metrics are to track, so that you know what we're working against, you can hold us accountable to those numbers. And again, that's really why I want to come with an updated model, you know, a five-year model, that gives you some level of specificity around each of these, NAS, ExaSwitch, Edge, Security, and how those should be measured. So we're not quite there, and you know, as you hear Satish speak, you can see, you know, how those dots are being connected. But we need to give you that.
What I can tell you at this point is that we're really confident that that is, A, something that scales probably relatively quickly once we get it into the market. And two, that more than offsets the legacy declines that we see in voice and private line. It really is our future.
I remember at the last Investor Day, you said you hadn't contacted your customers, and or they in the past, the sales team hadn't contacted them.
Yeah.
There was a concern about encouraging switching or whatever.
Yeah.
How's that going now in terms of reaching out to the customers and-
It's again, it's a fundamentally different process. So today, as we look at our portfolio, and again, just to remind everybody, we took a very simple approach to try to give some more insight into what was going on inside of the business when I came almost two years ago, and that's when we split the products into grow, nurture, harvest. And just for a reminder, harvest is effectively voice and private line. It's the old stuff we don't sell anymore. It's in decline. It's managed for cash. harvest is effectively VPN and Ethernet. Still being sold, but being sold at a declining rate. And then everything else is grow, and that's where you've got IP waves, dark fiber, SD-WAN, SASE. It's a basket of many things.
And so as we move through time, I think giving more visibility into each of those and how they behave and where they pivot is important. Today, we've got very good motions around customer migrations on things like VPN. TDM-based VPN, there's alternatives we can ship customers to. Those are very important conversations, where we engage really from a customer lifetime value approach. The biggest challenge, I think, in the industry and for us, is when you talk about voice and private line. Because the alternative, in many cases, the customer's already implemented, right? They've got a UC&C kind of engagement, so it becomes a very binary decision of: Do I leave it on or do I shut it off?
Yeah.
I think there's really bad industry behavior that encourages some of that. All of us sell and buy off-net services, right, to each other. Inevitably, if there's an imbalance in trade between two parties, one tries to jack up rates on the other for some short-term gain. It's not sustainable, but that drives customers to the point of a decision of: Do I leave it on or do I shut it off across everything?
Yeah
not just that off-net piece. And so that's just something we have to navigate our way through. We've taken a very purposeful approach in saying: We're not just going to unconsciously continue to jack up rates. We've been guilty of that in the past. If we get handed a higher cost because one of our competitors who's selling off-net services starts to do some egregious things, then we have to pass that along. But beyond that, we'd like customers to leave those circuits on as long as we can, and then eventually we get to the point where it's more beneficial to turn those off and take cost out. So that's how we think about it.
Great. Can you just give us a comment back to this grooming a little bit, but the macro environment?
Yeah.
I mean, we heard we had Equinix up here yesterday, we were talking about how, you know, budgets are having to make room for AI spend, and that might mean-
Yeah
Grooming elsewhere. I think you've talked about delayed decision-making in the past. Where are we on all of that?
I think that's calmed down.
Okay.
I mean, again, we're seeing, I think, more signs of, you know, rates, you know, calming down a little bit.
Yeah.
Clearly, enterprise has not invested a lot over the last few years in an uncertain environment, so that gets better. I think the bigger thing, though, is that with the explosion of AI, and it's real, right? These are learning machines. They don't go to sleep.
Yeah.
They don't stop to eat. They and they just consume to learn. There is an enormous demand for underlying infrastructure, as well as how best to manage that in a flexible way. So it's actually a perfect environment for us to execute the turnaround because the core of what we do, which is that conduit-based infrastructure that allows us to quickly deploy additional capacity with a service layer on top of that, that allows you now to consume it very efficiently, very flexibly, that's where we see a real opportunity.
All right. So, Satish, in your six weeks, just tell us, you know, what have been the things that have surprised you, and, you know, where do you see the biggest opportunities?
Yeah. I think I'm most excited about what Lumen Digital can really do. So if I unpack what Lumen Digital is, right? We have networking as a service, we have ExaSwitch, and I can, you know, talk about each of these in more detail.
Please, yeah.
We have adjacent security services. We have ability to offer, you know, edge capabilities to customers for specific workloads beyond traditional IT workloads, and then wrap all of those around with managed services. So when I look at each of these elements, we are unlocking, I think, about $40 billion-$41 billion of incremental TAM, which is all, you know, growth opportunity for Lumen.
Is there one of those that's further ahead, do you think, in gaining traction?
Yeah. I think when we look at what has been super fun and interesting journey for me in the last 6-weeks-7- weeks, is the number of customers who are actually trying out NaaS and are enjoying the experience. Nobody is thinking of taking Lumen Digital, considering it as an as-a-service platform. Think about how most IT teams consume cloud infrastructure today, right? It's either over APIs or through a console. And our vision for taking our wide area network, which is really differentiated, is to do exactly that: is to provide that infrastructure as over APIs or through a portal, and give access to customers to be able to leverage that infrastructure either through tier one, tier two, tier three data center providers. Nobody else is really thinking of it that way, and that opens up a lot of incremental opportunity.
There'll certainly be some customers who want DIA connectivity, and we'll continue to serve them. Then we will continue to work on, you know, consumption of our core network that drives more AI workloads, because cross-region data movement is becoming very, very important as people think of training large language models or deploying these large language models in production. But then, if you think about the incremental growth that we can get, because now we are expanding our set of services to application developers, people who never really thought of consuming wide area network infrastructure the way we are going to be thinking of offering it. So we get this incremental uplift from existing customers of DIA who want to consume additional ports that are in the form of NaaS.
We get this ability to grow our business because customers who are enterprises and have been using the public internet to connect to cloud now can use ExaSwitch in a much more cost-efficient, faster way, deploy those into production.
Is that replacing an Equinix or something like that, how it-
It actually simplifies the networking experience. So, you know, in some cases, that connectivity to the cloud is done in an Equinix data center. The best way for me to describe ExaSwitch is, if you're thinking about your workload that requires you to go straight to a cloud data center, if you think about peering workloads between cloud data centers, if you think about moving workloads from one enterprise location to another, you can do it in a digital way through ExaSwitch, and that saves you the complexity of having to manage all this infrastructure, either in your data center or in a third-party data center, and abstracts that entire complexity out. Customers are willing to pay for the ease and flexibility to do so incrementally.
It's a big transformation for Lumen. We've got a lot of senior management who have experience, you know, in these industries, but I'm thinking of the sales force and, you know, the ops team and stuff. And where are we on that journey of bringing in some talent-
Sure
- on that? Because, you know, there's, you know, maybe people have been doing the kind of circuit switch telecom game for 30 years-
Yeah
- or whatever, and-
Yeah
... you know, certainly you can do stuff with training, but is there a lot of lifting required there to get those skills into the hands of the frontline?
Yeah. It's a great question, Simon. When I said we thought public sector would be the first to return to growth, then mid-markets, then large enterprise, that's largely why, right? So if I think about what was here when I came to Lumen, when Kate came to Lumen, our strongest sales team was always public sector. And it's because they, the way they were structured, they had deep, deep understanding of the customer need and therefore did the best job in delivering against those needs, and that's why we won so many large deals. Mid-markets is next because we effectively started at zero. There was a mindset inside of Lumen that at the time, that was, if it wasn't a direct sales force, it wasn't worth doing.
And that never made sense, because in the mid-market space, the only way you can scale a sales team is through a partner ecosystem, in addition to a, you know, a smaller direct sales force. And so that came next. We dramatically expanded that partner ecosystem. We built the selling tools, the measurement tools around that. Large enterprise was really the most work, because we had a team. There was no inspection, and I emphasize the word no. I mean, the only number that was measured was attainment of quota, and it didn't matter what you sold. So there were people doing the happy dance at the end of a quarter because they sold a bunch of CPE, which is low-calorie nonsense that really was no value to us. That's been wiped out.
The way the compensation system works today, there's gates to make sure that the sales team is focused on selling those growth products that are our future. There's been a lot of churn in the sales force as a result, a lot of training, a lot of measurement, what's working, what's not working, so we can cross-pollinate good ideas across the org. I think that'll continue to evolve. As we pivot to the things that Satish is talking about in more of a digital motion, those skill sets are going to have to continue to increase and improve, but I also think it'll attract a different kind of sales talent than we've typically targeted. That'll be an ongoing evolution, you know, as we go forward.
If I could just add to that. So beyond some of the work we're doing on upskilling and improving productivity of sales teams, there are certain markets where we really don't need new product innovation. I'll use mid-market as an example. Packaging our existing products into easy-to-consume packages, for example, connectivity with security, connectivity with UC&C, is giving us a lot of relevance in those markets, and it makes the job of the sales team and productivity of the sales teams easier, and for us to approach customers and really win customers faster. So that's the way we're approaching it. Like, there's a product angle of easing our way customers can consume products and making life of the salesperson much easier.
Good. Has the sale of EMEA and LATAM, has that allowed you to focus more?
100%. We had to make the company smaller so that, A, we could drive focus to the employee base, but, B, we could also focus our resources, right? To have a greater impact. Now, Satish can definitely add to this. I think as we go forward, you're gonna see a very different mindset around how we partner. And that's, you know, partnering around product development. It can be partnering around how we communicate globally, right? With some of these entities that we've divested. It's. If you think about what the most successful companies have done, they're not focused on saying: Okay, I'm going to define the pie, and I'm going to own all of it. It's about the platform value.
It's about a bigger, much bigger pie, and having a, you know, a nice slice of that. Drives much more accretion to investors than trying to keep control of one thing. And so, you can see that with what we've done with partners on the sales side, but I don't know if you want to talk about product and-
Yeah. Like, I think in terms of partnerships, our focus are gonna be all the channels necessary to drive Lumen digital. So whether it means tier one, tier two, tier three data center partners, whether it means direct to enterprises, where their development teams can consume our services over APIs. It could be hyperscalers as well, who could, you know, potentially resell some of our services through their own consoles and platforms. So those are the key partnerships I think we'll continue to pursue to drive scale.
We do have a partnership with T-Mobile. We haven't heard too much about that, but one of the themes in the conference so far has been this convergence. And, you know, certainly SMBs are adopting wireless as they move away from legacy voice. You've seen fixed wireless get some traction in the SMB-
Yeah
... and even some large retail base as well. So how are you thinking about that? Because, you know, they might want access to resell your fiber or something, but-
Yeah. So we're looking at a lot of things right now. You know, obviously, we have the ability to bring in wireless solutions to a campus environment through relationships like that, and that's something we certainly do on the enterprise side. When we look specifically at the consumer business, which we probably should talk about for a few minutes, again, it's a great business, right? It's a wonderful asset. We've got 3.7 million enablements, fiber enablements in the ground today, another 500,000 coming this year. But that's as we've said before, that's a space that is in desperate need of consolidation. We're not gonna be the consolidators. It's a very different return profile than enterprise. Our expertise is really in enterprise.
So our goal right now is to continue the investment pace in consumer because the value is in the fiber. Continue to drive subscription growth, where we've ramped up our marketing efforts and are seeing some good results. But ultimately, we're taking a market-by-market approach on how best to monetize those assets. We don't think big transactions are in the near future. There may be markets we sell. There could be markets, to your point, where perhaps we wholesale some of that fiber because it's got a lot of capacity on it. There could be other markets where we do more of a JV approach, much like the AT&T GigaPower situation.
So there's ways for us to drive more accretion from those assets while continuing to invest in it, and, you know, the example you brought up is one that we could expand on.
When you say markets, does that mean you might take a full state? Because there is this joint cost issue-
Yes
... between and joint network issue between business and wireline.
Yeah.
Would you look at it state by state?
It'll be state by state. And to your point, Simon, an important part of whatever we choose to do will be that last mile connectivity for enterprise. So anything we do would be mindful of that, and we'd continue to make sure we had that connectivity going forward, whether we owned it or not.
And how does BEAD play into all of that?
I've been pretty clear on my thoughts on BEAD. I think you end up in a situation where there's almost no return. So we will participate where we think there's value, but it's effectively a Dutch auction. So, you see those prices get bid down pretty low. I don't think that's a pathway to great returns.
Yeah, and you have a lot of other opportunities to do.
Exactly.
So on Quantum, $500,000 a year, where are you on... I know you had some cohorts where, you know, you probably didn't ultimately execute or maybe they were chosen poorly.
Yeah, yeah, yeah.
But you know, the more recent cohorts, how are things going versus your plan on costs and kind of-
We're pleased. Like, if there was a weak point last year that we wish was better, it was subscription growth. Part of that was us. We had two inventory systems, so it's effectively the same product, but in the market, we'd be selling CenturyLink and Quantum. And that was really an IT problem. That got solved ahead of time, but that got solved back in August, where everything finally folded into one system, one inventory system under the Quantum Fiber brand. And so since then, we've been able to ramp marketing, and in December and January, we saw some really nice activity around that. So this really is, it's a consumer brand. Marketing drives it. We're gonna continue that spend, and we'll monitor.
But we're pleased with the early signs now that we've been able to ramp that up.
How would you say... I think we had Altice here yesterday saying it's a very competitive environment. How does the consumer—you got FWA out there, you got some fiber overbuilders in your footprint. How does that all look?
Yeah. It is a competitive environment, but the good news is our product, when stacked up against the competition, performs the best. So, highest NPS scores, and really a seamless customer experience. There's no contract. It's a fully digital experience... and easy to connect, easy to pulse up or pulse down, you know, how much you want to buy. So we play well. The key thing is getting the marketing out there so that the customers know it exists, and that's where the focus has been.
Any updates on an ACP, how that may play out for you and what you're hearing out of your public policy folks in D.C.?
It's very small.
Yeah. Yeah. Okay. And do you think it might be an opportunity if some of your cable competitors-
It's possible, but we don't think it's huge for us.
Okay. Coming back to the balance sheet and cash flow, you've got a big tax refund. I think you've received some in February, perhaps.
Mm-hmm.
Just remind us of what 2024, you know, cash taxes look like and the refunds.
Yeah, so cash taxes this year are higher, and that's predominantly driven by two things. So we, with the refund, we accelerated the capture of NOLs. So in our base kind of tax rate going forward, there's not really NOLs that bleed in to help us there. And then the really big piece are the taxes related specifically to the TSA.
Mm-hmm.
That's really what's driving the difference in taxes this year.
Okay. How does bonus depreciation extension play into all of that?
Well, first, it needs to be approved. But if it, if it's approved, it's significant to us. It's, it's about $350 million a year of incremental benefit. So, we're, we're obviously big supporters of that. And we'll see where that lands. That's not in our guidance.
Any latest thoughts on... You know, we've got obviously an overwhelming vote in the House, but-
Yeah
... the Senate sort of sat on it, but-
My concern is the Senate has sat on it, and we're running out of time before the session closes. So I'm not super optimistic on it, but hopefully I'm wrong.
Right. I think earlier on, we talked a lot about costs and that being the key driver here. So you talked about this challenge of your ramping marketing costs in some areas, and I think there's a concern among investors that you could cut too deep, you know?
Yeah.
Either pull back CapEx too far or OpEx, and I think the TSA increased the interest expense, and now again, you know, that – how do we get comfortable that-
Sure
... you're able to achieve what you want to achieve without damaging the long term?
Sure. So we did announce that with the TSA, that instead of ramping up our consumer builds, if you recall back to Investor Day, we'd say we'd go from $500,000 in 2023 to $750,000 in 2024, and then $1 million in 2025. We said going forward, we're holding at$ 500,000. What's helpful is that the market has already done that. So if you look at all of our major competitors in that space, they have all pulled back on spending as the cost of capital has skyrocketed. So that doesn't put us in a weaker position vis-à-vis the competition. I think it puts us in line. And that compensates for the higher cost. The key message I want to drive, though, on- ...
Our overall cost efficiency is literally everything. Everything was broken inside of Lumen. There was so much focus on the dividend for so long that the way cash was generated was to take cost out, collapse management layers, but there was never reinvestment in fundamentally fixing the problem. And the DIA example that I gave earlier is a good example of a product, and this is going to happen across all products, where we can fundamentally and dramatically improve the customer experience, which ultimately means less cancellations and better stickiness for us. But it also means a far less costly system to deliver product to the customer. And that's before we even get to digitally delivering the things that Satish is talking about.
So, I assure you, the costs that we see as an opportunity are coming hand in hand with an improved customer experience because we're finally fixing what should have been fixed a long time ago.
So as you look at the revenue guidance, EBITDA guidance, the TSA, help us with the shape of the leverage calculation.
Yeah.
Your low 4s right now.
Yeah.
I think, you know, investors would love to see that kind of...
Sure
... rolling over and coming.
Absolutely. And by the way, we know that's critical. For the equity values to start to solidify and stop bouncing around, the debt values need to solidify just given the leverage nature of the company. It's a good question because if you just think about the leverage ratio in itself, it's not a crazy ratio, right? The issue, the fundamental issue has been this is an industry that gets tarnished by history where there hasn't been investment, and so everybody's worried about that decline in the numerator. Kate and I have always felt, it's why we both came, and it's frankly why the management team that's here today is here, that the much bigger opportunity in managing leverage wasn't denominator management. It was numerator management, right?
And so our ability to drive a much improved EBITDA profile through the innovation that Satish is talking about and through just underlying operational performance, is the bigger play here. So if we have cash opportunities along the way, of course, we'll, we'll use any excess cash to delever, but our focus is on making sure that we have invested in the CapEx and OpEx that's required to, to pivot back to growth, and, and we're confident we've done that.
Great. I think we do have a mic if anybody has a question in the last couple of minutes here. Okay, so we talked about the CapEx for fiber. How do we think about capital intensity on the enterprise, on the-
Yeah
the business side?
So we got midpoint of guidance on CapEx was $2.8 billion. About $1 billion of that is for consumer. And the way to think about consumer is, you know, it's roughly $600 million going into enablement, a couple hundred million going into maintenance, and just internal operational improvements, and a couple hundred million for the equipment that goes into the home when we get sub growth. On the enterprise side, $1.8 billion, there is a chunk of money we talked about last year, you know, $1 billion across the total company over 2 years, to basically fix internal things. That's definitely in that number, so there's probably $300-ish million, maybe a little more, in that kind of spending inside of enterprise. There's some maintenance of a couple hundred million. The balance is largely success-based.
So until we fully pivot or in a more in a greater mix pivot to a digital experience, there's still a lot of CapEx involved in deployments.
Yeah.
And, public sector is obviously a good example of that. So most of what remains is success-based.
I guess one of the things you were, I think, alluding to yesterday was you have a lot of empty conduit out there or, you know, conduit you can replace. So presumably, that helps you if you're gonna- there's a new hyperscale deal comes out to connect.
It really comes back to, so there's these wonderful assets that exist from our history, you know, from long ago, and because of the advancements in fiber technology, there is capacity. I think what that really means is that as broader AI consumption increases and there's demand for underlying connectivity, we'll be a player in that. We're good at it, we're good at deploying it quickly, and in those conversations, you know, we always have a seat at the table.
Right. Well, thank you for your time today.
Thanks.
We really appreciate it.
Thank you.
Good luck.
Thanks.