Okay. All right, everybody, thank you for joining us. I'm Dave Barden. I head up U.S. and Canada Telecommunications and Communications Infrastructure Research for Bank of America. Thank you for joining us for the official beginning of day two. I'm really happy to have Pascal Desroches join us again, the Chief Financial Officer of AT&T, for our conversation at this year's conference. Thank you, Pascal, for joining.
It's a pleasure to be here. Welcome everybody, and looking forward to our discussion.
Pascal, do you have any safe harbor stuff you need to address?
Yes. I just want to refer everyone to our safe harbor statement on our investor relations website. Some of the information we may discuss here is forward-looking and subject to risk and uncertainties.
Awesome. Thank you so much. So, there's a little bit of news out this morning-
Yeah. What's that?
That might be distracting some of our audience. I'd like to get your hot take on the announcement that Verizon is gonna buy Frontier for an 8.4x EBITDA multiple before synergies, expected to close in 18 months. The conference call is ongoing. What is your kind of thought on what's happened here?
Look, I think this underscores the strategy that we laid out four years ago and that we've been pursuing. When you look at bandwidth consumption trends in the U.S., they're going in one direction. They're going up significantly, and ultimately, the provider who can have networks at scale at both, in both wireless and fiber, will be the ones who succeed. They're gonna be most competitive. They will have the best networks, the best cost structure.
Our CEO, John Stankey, set out that course for the organization four years ago, and we've invested significantly in spectrum and fiber, and we are now that nearly 28 million locations passed, well on our way to 30+ million by the end of next year, and we have identified 10 million-15 million incremental locations beyond that in our footprint, and that's all before our Gigapower investment, which is a JV with BlackRock.
So you can see, our ambitions regarding fiber are pretty significant, and we are well on our way. The good news is this: we don't need to do a transaction in order to gain scale. When I think about our all-in cost to pass a home, I'd much rather build and generate the returns through building, as opposed to going out and acquiring and paying a premium. So all in all, look, this just affirms the strategy we laid out four years ago, and I'm just happy others are following along.
So that's not an over-the-top bid for, coming for Frontier?
There was an announcement. You know, we're good.
You're good. Okay.
We have lots of opportunity in front of us. No need to be distracted.
So I wanna kind of just dig in a little bit more on this whole topic, you know, which kind of goes to this idea of convergence a little bit, which is, I think for a long time, the wireless industry said, "Okay, cable's merging broadband and wireless over the Verizon MVNO, and they're having a little success with onesie-twosie customers, but there's a limit. We can be successful in wireless without a broadband solution." But yet, here we are. All the wireless companies seem to be adding broadband to it. So it might not be a need to have, but it's obviously a nice to have, right? So can you talk a little bit about the difference in opportunity when you have a wireless-only part of the market, as opposed to where you have fiber and wireless together? What's the difference between those two?
One, I think our... You know, fiber is a product that is beloved by customers. Having fiber paired with our wireless, we see considerable churn reduction, not only in fiber, but in wireless as well.
Do you wanna put some numbers around that? Verizon said 50% reduction in wireless churn and 40% reduction in fiber churn.
Well...
Can you do better?
I'm not gonna put any numbers out there. Perhaps one day I will, but right now, we're not gonna make news.
I was hoping today was that day.
No, it won't be...
Yeah.
It won't be today. So yeah, so we do see considerable churn benefits resulting in larger lifetime values. So also, where we have fiber, we penetrate wireless better. In our fiber footprint, we have a 500 basis point advantage in terms of penetration relative to our overall nationwide penetration by having both. So the benefits are considerable, and look, it doesn't mean that you can't sell wireless by itself or fiber by itself, but the benefits of convergence are very, very strong. And the good news is this: We have plenty of runway to add more converged subscribers, and we're building fiber every day.
So that leads me to my question about if this is true, that maybe they don't need to be together, but when they are together, they're stronger together, wireless and fiber or broadband. And what we're watching happen is Verizon now is kind of gonna have maybe 28 million homes passed within a couple years. You're gonna have 30+ million . T-Mobile's got something going on. We'll probably learn more about their strategy at their Analyst Day on, I think, the 18th coming up.
So does this mean that we're balkanizing the U.S. wireless market, where you're gonna have this weirdly larger share where you have fiber, but a weirdly smaller share where Verizon has fiber? And is this now a land grab? And if it is, why are you not then grabbing land faster, even if it's a little bit more expensive than it could be to be in your region?
Here is, I think it's important to look at the progress we have made the last several years in terms of our wireless. We have gained share, but importantly, we've gained share of service revenues. When you strip out fixed wireless, and you look at the wireless relationships that we have garnered, we have grown share of wireless revenue more than our peers. That is, the growth that has happened in the industry is, we have gotten the largest share of it the last several years, and it is in part due to our fiber strategy, but it's also, in part due to the various plays that we are running as an organization.
The head of our mass markets business is here with me today, and, you know, her and her team have done an extraordinary job of simplifying our offers to customers, making the process easy for our customers to stay with us, versus leave, and, as a result, you see an enormous churn reduction across our footprint the last several years, and so you're seeing the benefits of convergence, but it goes beyond that. It is comprehensively the different things that we are doing.
We're targeting. We're doing a much better job of segmenting than we've done historically to targeting underrepresented portions of our base. You look at FirstNet as an example. We've also... You know, our network has gotten considerably better. All those things have been part of the formula to get us to a point where we have taken more of a wireless service revenue growth the last few years than our peers.
So, if I hear you, it's not binary. It's not, you have fiber, you win, you don't have fiber, you lose. It's a multivariate combination of go-to-market, retail, care. Fiber might be a home field advantage but it's not a guarantee, and it's not a guarantee that you lose if you don't have fiber, but it's not a guarantee you win. You gotta do a lot of things right, right?
Absolutely.
I'm gonna ask a weird question, which is w hat are people gonna do in your territory when you have fiber to win?
Look, we compete very well where we have fiber in our territory, and look, I have every confidence in our team and our ability to deliver attractive returns in our footprint and, you know, we're used to competing.
Mm-hmm.
We've competed for a while, and I don't anticipate anything changing.
So I wanna get back to the business in one second. I just have to ask this question, which is the other thing in the news, which is, I think it's 15,000 workers have gone on strike, and I think the question people have is: It's probably not gonna be hugely disruptive, but should we be tempering expectations for, like, net adds or either in the wireline business or the wireless business? What should we expect in and in that regard?
Here's what we said. Yesterday, we had a press release that basically says, look, it will impact the levels of installation in the Southeast, but we don't expect this to have a material impact on our financial results for Q3.
Round numbers in a given quarter, what percentage does the Southeast represent of net adds?
We are not providing that information.
Pascal, man! Okay. All right, let's get back to the industry equation. Yesterday we had Sampath, CEO of Verizon Consumer Group, and he told us about the formula for growth that they foresee. 40% straight-up price increases, 40% kind of value ups, you know, whatever the word for that is, when people kinda take a bigger price plan for whatever reason, and then 20% volume growth. What is the formula at AT&T for growth that we should project into the future?
We're not giving that, we're not giving any guidance beyond what we have given already. We said for 2024, as an example, the growth is going to come from subscriber growth, and to a lesser extent, modest ARPU growth. I think if you look back the last several years, that's probably reflective of what has happened. And look, there's always migration of customers to higher value plans because those plans do deliver more value, so that is a constant dynamic. And over time, that shows up in ARPU.
Mm-hmm.
Look, I'm really comfortable with the plays we're running. They work. It's really trying to make sure we are providing customers with the plan that makes sense for them.
So if the bulk of your revenue growth is volume-driven, I think that one concern would be that the expectation, rightly or wrongly, is that industry volume at this mature state of the industry has to slow down. So do you agree with that? And if you do agree with that, and recognizing that Verizon has an intention of kind of taking more share, and cable is desperately trying to, you know, grow mobile, is the pool of opportunity shrinking for an AT&T? Do you have to lean more on the pricing lever as you look ahead?
You know, you just look back relative to 2021 and 2022, the market has normalized, and we are operating in a normalized market right now. We operated in a normalized market in the first half. Look, overall, I'd describe the industry as being very healthy, and our play is not necessarily taking share of subscribers. It is, how do you optimize overall revenue and deliver value to the bottom line? And how do you do that is through a combination of, one, reducing your churn as low as you can. Two, if there are opportunities to migrate customers up to higher price plans, you do that.
And three, it's really about looking at the different portions of your population of your customer base. Are there places where you are underrepresented, you are under-penetrated? What are the specific plays you can run to try to optimize? For example, we understood several years ago that we were under-penetrated in first responders, and we did the deal with FirstNet, and that has resulted in significant share gains in that segment of the market. We've run different segmentation plays to really try to take to understand, are there opportunities to offer something unique to portions of the population of our customer base in order to have them come to AT&T as customers.
So I think a lot of people run that playbook, going after, we've heard this, the first responders, enterprise, 65 and older, affinity groups, armed forces. Where do you over-index, and how do you defend against those incursions? You knew I was going to ask that.
Oh, and I think you can very well expect what I'm... Look, we are very comfortable that we offer our customers a really good product at a fair value, and as long as we keep doing that, we are confident we can continue to win. With that, I'm not gonna tell you where we over-index.
Your competitors already know. You can just say it.
Oh, we're good.
Okay, so one of the things that has kind of, I don't know, bubbled up and bifurcated the market a little bit is this. There's this universe of Apple bulls that are convinced that, you know, the iPhone is the best thing since sliced bread because it has AI in it, and that all the carriers are gonna get their knives out and use this as a switching opportunity, and you guys are gonna murder each other. And then there's all the carriers, which are like, "Nah, that's not gonna happen." And my theory is that, you know, you look backwards, you look at the 5G cycle, right?
In 5G, there was a real benefit to the carriers to push 5G phones into the marketplace, even though they really didn't do much that was new for the consumer. For the carrier, they did a lot, and now we've got this phone that's gonna do next to nothing for the carrier, and the question is: Is it gonna do something for the consumer that makes them wanna do something on their side? How do you respond to that, and how does AT&T prepare for what's gonna happen next week when the new iPhone comes?
Look, we are in the business of providing phone service. We don't make profits on the phones, as we all know. It's really...
Big losses. I want to talk about that, too.
Yeah, look, we do have discounts, but overall, we look at what is. For the discounts we're providing, what is the value that ultimately accrues to us? And what you have seen and what we have done is we have spent promotional dollars in securing customers, but in turn, those customers have stayed with us longer, and the churn benefits to us has far surpassed the cost of those promotions. And that is the state of the industry today. That's how, that's a point of competition that you have to participate in order to secure customers. But in the end, we're confident we can do that in a fiscally responsible way and deliver attractive returns.
So what percentage of your base has an iPhone?
I don't think we've disclosed that.
I'm pretty sure you have. Just remind me. So, I think that the theory, though, is so there's been a couple stories, right? One story would be that this could be, at minimum, an elevated switching event. It's always a switching event, but it's an elevated switching event. If it's not an elevated switching event this year, more likely than not, it's an elevated switching event a year from now. So one theory is that Verizon might use this as a way to get the net add growth that they haven't been able to get for the last year and a half or so.
And where they would go get that is where most of the switchers are, which is probably the company that had the iPhone the longest, which is AT&T. And so AT&T is gonna be backed into a corner to defend itself, and that there will be an escalation of promotions and kind of just net losses across the industry as a function of this. Are you concerned about that?
No, I'm really not, because we've lived through iPhone launches before and we are prepared. We're gonna be competitive in the market, but disciplined. We always have, and we will continue to be disciplined. This is an overall value play in terms of looking at what do we think the relationship will bring us and making the appropriate investment to secure it. The other thing I would remind everybody of is that oftentimes, in order to get a discounted phone, you need to trade in a phone.
That brings significant value and reduces the overall cost meaningfully. So all that is part of the equation when we decide how to tackle the market, how to be competitive. But we also have to make sure that we are competitive and that we have our market sensing in place, and we're able to respond to the marketplace, but we've always done so in a very disciplined way.
Okay. The, so I want to ask the other question, which is that, you know, there's a-- every dollar that you discount an iPhone is a deadweight loss to you and a, and a windfall to Apple. And if you multiply those discounts times the tens of millions of customers that upgrade per year, and then you take that across the industry, and it gets you to even multiples of tens of millions of customers a year, and then you discount that back into the future, it's hundreds of billions of dollars of value that's being transferred out of wireless into Apple.
Why-- How do we fix it? When do we stop doing this? Because, you know, the U.S. is not necessarily normal. Like, you go to Canada, north of the border, they don't discount phones. People pay for their phone. They want a phone. It doesn't have to be done, and it maybe doesn't go from something to nothing, but it could go from something to a little less than something. Just directionally signal to everybody, "Hey...
I...
It's not gonna be free forever.
Hey, look, in focusing on the phones, you're focusing on one side of the equation. When you look at the overall value of a subscriber, a wireless subscriber here in the U.S. versus in other parts of the world, the investments we're making make a lot of sense, and so, you know, would I love to find ways to have lower promotional costs? Yeah, absolutely. But, I'm also very grateful for the very valuable relationships we have, and, you know, the healthy industry dynamics that exist.
Mm-hmm. All right, so I'm gonna do something, which I'm very happy to be able to do..
Okay.
Which is to talk about free cash flow in the second half of our conversation.
All right.
I think in the press release that you put out ahead of our conversation, you kind of stated something about, you know, you're happy with where the cash flow is going. Maybe just revisit for us what the cash flow picture is for 2024.
Yeah, we guided to free cash flow of $17 billion-$18 billion on capital investments of $21 billion-$22 billion for the year. And
With a 40-60 split-
Yeah
First half, second half.
That's right.
Which you're on track-
Yeah
-to do.
We are on track to do that.
So one of the things, you know, that has been a burden for the AT&T stock, starting to get past that now, was, you know, 2022, there was working capital stuff, there was phone stuff, and you had to lower your free cash flow guidance. And then in 2023, the first quarter, cash flow was super low relative to the guidance. You ultimately beat your guidance in 2023, but there was a lot of question marks and doubt, and that I remember coming down to visit, and John Stankey was like: "Look, we're gonna fix this. We're gonna smooth out our free cash flow for the market." How have you done that? Or are you done, or is there more to do?
Yeah, last year, as an example, we delivered $16.8 billion of free cash flow. In reality, organically, the business produced, you know, nearly $2 billion more of free cash that we used to pay down some of our short-term financing. How do we do that? It is basically driving efficiencies across our business and improving the organic conversion. And look, 2021 and 2022 were big growth years in terms of subscribers and as well as CapEx. So as those investments moderated some, I think the combination of the moderation of those investments plus the more efficient organization overall, we were able to drive higher organic free cash flow conversion that allowed us to pay down some of our short-term financing.
Coming into this year, there was less obligations related to 2023 to pay down, and that's, and you're seeing the benefits of that, and we've continued to make progress in 2024 on continuing to lower those. You will get to a point where those balances are kind of at a steady run rate. We're not there yet, but we're getting much closer, and so, more of the free cash flow can fall to the bottom line.
So in the kind of olden days,
Yeah.
The kind of the pre-C-band, pre-pandemic days, I would say AT&T probably ran a business-as-usual CapEx rate of probably around $19 billion. This was before we added a term called capital investment, which was CapEx plus the vendor financing and other stuff. So does that $21 billion, $22 billion, is that the new run rate, given fiber, given other things, or can that $21 billion and $22 billion come down to $20 billion-$21 billion or $19 billion-$20 billion? Like, or should it come down?
So you want me to break some news?
Yeah, absolutely.
No, I'm not, I'm not going to. Look, here's the way I think about capital investments in general. We have to continue to invest where we think there is opportunities for growth. Fiber is a very attractive opportunity. We are, we have been building at a fairly consistent clip, call it two, between $2 million and $3 million each year. And, at that level, we feel like we can invest in our business and ultimately, once we get to our leverage target, be in a position to return value to shareholders. You know, as we look ahead, I would anticipate we're gonna balance both continued investments and, looking at opportunities to return share value to shareholders.
So one of the things that I think is interesting about the kind of AT&T conversation is that the business seems to be the least complicated part of it now, which is kinda great. You've got the wireless business. Volumes seem to be pretty good. Industry discipline seems to be pretty good. Pricing's moving in the right direction if you choose to use it. Customers are moving up the value chain. The iPhone doesn't seem like it's gonna be disruptive. If it creates disruption, I think the mutually assured destruction that exists between three players in a three-player market will keep things contained. What about cost structure? You know, what opportunities do we have on that?
You look at the last several years. We've done a really good job of rationalizing our costs, and as I look ahead, the areas where I think there are still lots of opportunities, you know. Let's start with our call volumes in our call centers. We have, through the use of AI, through the use of machine learning.
That was 29 minutes and 30 seconds for the first mention of AI, just for the record.
We've managed to really reduce our call volume significantly, and there's no reason why that shouldn't continue as technology improves and as our experience with it improves. I think you can expect us to continue to find ways to rationalize our technical footprint. We have a massive network. A lot of it is legacy copper, and over time, as legacy copper revenues decline, the technical space that we have will reduce.
That comes with lower power costs, and you know, lower software costs for legacy billing systems. So there are a lot of things that fall out as we retire parts of our legacy footprint. Look, and overall, you know, our costs come down considerably, and we will continue to look at ways to drive efficiencies, whether it's in G&A and other non-revenue dependent expenses.
So probably the only kind of variable that seems, I don't know, I would say troublesome...
Mm-hmm.
Is enterprise. So I got two questions on that, but the first one is: what is the game plan for enterprise?
You know, let's zoom out for a second. We are in the business of serving both consumers and businesses for connectivity solutions. Enterprises need wireless. They need fiber connectivity. Some of them, you know, small and medium-sized businesses, will need a fixed wireless. You know, construction locations may need fixed wireless, and we're a company that is experienced in complex networking. So, especially when you start to get into the small and medium-sized businesses, there is a need for all those services. And if you look inside our enterprise business, there are lots of things that are growing, but there is more dollars that are in legacy decline. And so we are earlier in the transition for our enterprise business than we are in our consumer business.
It's only a matter of time before you reach that inflection point, and then the growth products that we have. I have every confidence they will continue to grow. And so it's, you know, it's part of a transition we are working through. The good news is this: we can work through that transition and still grow the overall company, still invest in the future, still expand our fiber footprint that will benefit enterprise. And so all told, look, we are in the midst of a transition, but we, we've gone through those before, and every confidence we're gonna be able to navigate it.
So you're the largest business services wireline connectivity provider in the U.S. The next largest player recently announced a $5 billion series of transactions to build AI network connectivity for the hyperscaler community. You know, is suggesting that this is a new opportunity, untapped, and they want it because of their network capabilities. Why did AT&T lose that deal?
Who said we lost the deal?
You didn't win it. There's only two kinds, winners or losers.
Here is what I would say. Like... Look, I'm not gonna comment on what they did, but rest assured, we are in a position to provide all solution sets. Some of them are more profitable than others, and we tend to focus our efforts on the ones that are more profitable and bring us more returns.
Okay. So I guess I wanted to go back to the cash flow side. So we've got an understanding, we're working on enterprise. We've got the cost structure. We've talked about wireless revenue, fiber revenue is good, cost structure is improving. CapEx is kind of where it is. Maybe, I think maybe it could go down a little bit. So there's kind of two more parts that people are trying to figure out. One is the working capital part. Are we at a point now where the working capital is kind of run rate? Obviously, this Apple iPhone situation is something that creates a little anxiety, but other than that, are we kind of good on working capital, flattish?
Yeah, and even, I would submit even, whatever the iPhone launch brings, we are in a better position to deal with that today than we were a couple of years ago because, we've paid down many of our vendor financing balances, so we have more capacity there, and that won't be as much of a drag as it had been historically when we were growing. Look, working capital, you know, I would imagine, should be, shouldn't be a significant factor as you look ahead, absent some abnormal growth we had, which would be a good problem to deal with. So look, we are at a real good place.
It's a high-class problem, I guess, is what you're saying?
Absolutely.
And then, you know, taxes, right? You know, John Stephens was the, you know, the Obi-Wan Kenobi of taxes, and I think people think, like, you're always underpaying taxes, and we always have to assume taxes are gonna keep going up for you guys. What do you think is a good base case for people to assume about taxes and AT&T?
Look, I think it's no secret, we, as the largest infrastructure investor in the U.S., the tax incentives that were put in place in 2017 benefited us enormously, and those are expiring. They fully expire after next year.
That's after next year. So 2026 is when they expire?
Yeah, but they've been gradually phasing down, and as you saw, last year, we paid more taxes than the previous year. This year, we'll pay more taxes than last year, and I would expect our taxes to continue to increase. I will, as we always do, when we give our financial guidance for 2025 , we will provide you a view of how we think taxes will evolve based on the current tax code, assuming this expiration. Where if there are changes in the tax code with a new administration, then, you know, we'll provide you the appropriate update at the time.
So that's kind of where maybe we kind of wind it up a little bit, which is, okay, we're gonna get to target leverage ratios in the first half of next year. And what's interesting, 'cause Verizon was also getting to their target leverage ratio in the first half of next year, and we were asking: What are you gonna do when you get there? And now we know, which is buy a company, right? So for AT&T, given, you know, historically, the sensitivities around free cash flow, you know, you've got some choices to make. You know, one would be grow the dividend or buy back stock or both. When you think about that choice, which of the two is better?
Yeah, look, our board is in the midst of making that determination right now. You know, I've spent the last several months meeting with our board to go through the various options and considerations. And, you know, I would expect as we exit the year, we'll have some news to share regarding where, how we plan to approach this.
As you exit the year?
Mm-hmm.
Before the end of the year or after the end of the year?
As we exit the year.
Ah, damn! So, because here's my thought, right? It's because in 2026, if we've got this potential. I mean, again, everything could change in another month. But as we sit here today, 2026, we're going to lose all the tax deductions from CapEx. That means cash taxes could go up meaningfully, which means that, you know, you know, a stock buyback announcement would give you more flexibility. It would appear larger to the market, and that might be a better path given the unknowns. A dividend increase, though, would put you back on that historical path. It's a smaller number. It kind of increases the aperture of investors that look at dividend growth. Which of those two looks better? Okay. So then the other option is investment and M&A.
It kind of feels to me like what you've been saying is that there's just a huge opportunity internally. You've been run rating at two to three million homes passed in fiber. That seems to be the big opportunity you've talked most about. Can that materially improve? Is it even possible to go from two to three million to three to four million? I mean, I've seen how hard it is to do this work in person. It's... I can't—I mean—
It's hard.
Yeah.
But look, I dare say we have a core competency that's unmatched anywhere in the world, and I'm really proud of our team. Not only do we do it well, we're getting more efficient each and every day that we do it. So, look, the returns are really promising. The good news is this: We are in a position that we can keep leaning into that opportunity, get to our leverage target, and deliver value to shareholders. It's. We can do all of it because of the hard work that's been done the last several years. I'm incredibly grateful that the organization leaned in behind John and his strategy for and painting a future that will create enormous value for AT&T shareholders and employees. And, look, unlike other companies, we don't have to do a transaction in order to be able to realize that benefit.
That's the perfect place to leave it, Pascal. Thank you so much for coming out. I really appreciate the time.
Thank you, everybody.
All right, so guys, everybody, welcome to round two. Thanks for joining. I'm Dave Barden. I head up telecom and comm infrastructure research for the U.S. and Canada for the bank. I'm really pleased again to have Chris Stansbury back-
Good to be here.
In the octagon to chat about the Lumen business and everything that's been going on. Obviously, it's a pretty crazy morning. There's a lot of new news to talk about, but Chris, I think you guys have maybe some safe harbor and/or videos you want to show us?
Yeah. So the safe harbor is on the website, so I just encourage everybody to read that, and we have a quick video before we get started.
We have a great plan not only to participate but to thrive in the digital economy because of the capability.
Great. That was amazing.
Oh, thank you.
You did a great job.
Thank you. Thank you.
Yeah. Yeah, you look great on camera.
All right. Thanks.
Yeah, I did wear these socks for you.
I appreciate that.
Yeah.
I appreciate that.
So-
That made my day last year, so thanks.
Yeah. Yeah. I saved them.
Yeah.
They're small glass box.
You haven't worn them since last year?
No, no.
Okay.
Glass box-
All right
On my mantle. So okay, what are we gonna talk about? So let's start with the mass markets business.
Yeah.
The smallest business at Lumen, but the one most in the news right now.
Yeah.
Verizon just announced that they're gonna buy Frontier for $20 billion. Depending on who you are, let's just say an 8.5x .
Mm-hmm.
It's a 50/50, roughly copper fiber business as they divide it up. So let's just say that eight and a half is kind of a 11 fiber multiple and a six copper multiple or something in that neighborhood. It's, you know, the first time we've had a real kind of some metric out there that we could use. So in the context of that, tell us about Lumen's mass market business, fully loaded, what is the EBITDA, and how do you divide it up between copper and fiber?
Yeah, so we, at Investor Day, you know, last year, we gave visibility into the EBITDA of that business. So it's, you know, it's a little over $1 billion today. And obviously, if you think about the business, you've got a copper business that generates a lot of EBITDA. You've got a tremendous fiber business. The team's doing a great job at driving enablements and penetration, that doesn't generate a lot of EBITDA 'cause we're in heavy investment mode, right? There's a lot of marketing as you go into that, but it also consumes a lot of cash as we continue with the build plan. So a great business, one that's performing well, but one that we have consistently said, doesn't fit with the enterprise space.
The investor profile, the return profile is fundamentally different between enterprise and consumer, and in our view, there are companies that do consumer on a much bigger, better scale than we ever could. And on the enterprise side, we're the only ones that are investing in innovation, and there's a tremendous opportunity there because of that, and we have a lead, and over the next couple of years, I think you'll see us separate ourselves from the crowd. You know, our next dollar spend is best spent on the enterprise side, and we have consistently said that there will be a moment of consolidation, but we won't be the consolidator of the consumer space. That's kind of where things sit today. Things have been heating up, obviously, and the news yesterday. It got hotter, so we'll-
Mm-hmm
See where it goes from here.
Remind us, how many homes are left in the Lumen mass market footprint?
Yeah, there's millions of homes left. I think the total is about 10 million. In terms of our overall coverage, we've got 4 million enablements on the fiber side today, and a-
How many customers on fiber?
1 million. So, you know, our penetration rates are at or above industry levels, as you look at the ramp curve, so the team's doing great work on that. And it's a large asset. I think when you look at the announcement yesterday, I think we would be the next largest in line with some really attractive markets, so...
So if it's $1 billion in EBITDA and it's 10% fiber and 90% copper, essentially. So if we were gonna go and do the math, so a 6x on $900 million is about $5.5 billion, and then an 11x on the other 10% is another, you know, kinda $100 million or so. So $600 million-$700 million kind of number that we think you could maybe extract at this?
Yeah, I don't wanna go down the path of doing the math because I think the other way to look at the fiber piece is, I think you've really got to look at it more on an NPV basis, not a multiple basis, because we are in heavy investment mode.
Mm.
Right? To drive penetration, which is what we should be doing. It's really the future potential of that business. So I think when you look at it, kind of homes passed, you end up in a different place on that, so.
I guess that's a good argument. What you could say is, it took Frontier a long time to get to where they got to.
Yeah.
To get the 8.5x . If you reverse that, it would've been a much higher multiple on what they had five years ago-
Correct.
Eessentially.
Yeah.
That's what you're saying. Okay. That's worth thinking about, and just to your point, I think last year you said this, and you say it pretty regular, that, you know, it's not a, it's not an if, it's a when.
Yeah.
Is that when here and now? Because... is the phone ringing? Because, yesterday I asked Verizon if they were gonna buy Frontier, and they said, "No comment." And then five hours later, they were buying Frontier. So...
They stole the headline from me.
I know, exactly.
Yes.
So are you selling it today, anyone?
So, the reality is, we're not in any kind of a formal process. But yeah, there's interest. And I think that interest has definitely risen over the course of the last year as economic concerns have settled down. You know, it looks like we're quickly approaching rates moving in a different direction, which is beneficial. And when you look at things like Lumos and Metronet, I mean, there's been a lot of activity in the space. So is now the time? I don't know. What I do know is everything that everybody else knows, there's a lot of activity in the space.
Mm-hmm.
That certainly increases the amount of attention.
It's interesting. I think that maybe I'm wrong, but I feel like the language has changed a little bit because I think there was a time, a year or two ago, where the idea was that investing in the mass market business was a good idea because the more investment you put in there, the more value you would be able to extract eventually when you sold the fiber part.
That's right.
Then you throttled that back from about 1 million homes passed a year down to about 500,000 homes passed a year...
Mm-hmm.
So that you could make these more important investments in enterprise, which is where you wanted to go.
Yeah.
Now that you're seeing what's happening, that all the interest and activity and value is being subscribed to the fiber to the home side of the equation-
Mm-hmm.
Does that change your mind about how you want to allocate these dollars, at least in the near term?
No. I mean, really, when you look at where we are and, you know, the other news around the $5 billion in deals and another $7 billion of opportunity, that's where our focus needs to be. And so we ended up at the 500,000 homes, really, for two reasons. As everyone in the space has experienced, the cost to build has gone up. And at the same time that the cost to build was going up, we obviously went through the debt restructuring last year. We pulled forward some coupon as we, you know, pulled forward maturities and whatnot as part of that. And we had a gap, and that's partially how we solved the gap.
Now, the $5 billion in deals on enterprise fully funds any gap that remained, which is significant, and the $7 billion takes us beyond that. Again, our next best dollar spent is on the enterprise side because we're winning there. We have a right to win there when you look at the underlying infrastructure and the value that sits underneath Lumen, and that's what we need to capitalize on first.
Mm.
I think 500,000 homes a year is the right pace, and I think you'll see us stick with that for now.
I think when you and I first spoke, you know, we talked about... You said that, you know, the Lumen equity story is really a credit story. And, you know, you spent most of your tenure addressing the...
Yeah
The credit side. The TSA was a huge part of it. I think it was either yesterday or the day before, you guys announced an exchange offer.
Yeah.
We'll get to the contract in a second, but, could you talk a little bit about what the exchange offer is all about?
Sure. So we have near-term maturities. We have cash on the balance sheet. We could use that cash to focus on near-term maturities, but there was an opportunity because of some capacity we had at both the Lumen and Level 3 layers to provide secured debt to creditors in an exchange. And what that does is it preserves more of that cash for us to use elsewhere in the structure, where we may be able to capture more discount. So it's really just looking at the most efficient way to use the cash that we have on hand, as well as the capacity that we have. And that's the path we're on right now.
So when we talk about the mass markets business and the enterprise business as being divisible, I think that makes a lot of sense to people.
Mm-hmm.
There seems to be this belief that somewhere inside the Lumen enterprise business is this super secret, highly bankruptcy remote Level 3 business, and that its financials are available, therefore, we can examine them. But it doesn't seem to me that Level 3 is, in fact, divisible. It can be accounted for differently. You can imagine that it could be, in theory, separated, but that can't actually happen, right?
Yeah. If you, if you think about what Lumen is and, and Lumen Enterprise, let's talk about that piece specifically, right? It's a series of consolidations, and so that, you know, that obviously feeds into the $1 billion cost savings opportunity that we see because we still run four discrete networks.
Mm-hmm.
There's, as you would well know, there's Level 3, there's CenturyLink, there's TW Telecom, there's Global Crossing, and for a large enterprise customer, they have deep knowledge of that. We refer to those as colors, those networks as colors. So literally, you get on the phone with a customer, and they're saying, "I need to buy this much green and this much blue, and, you know, this much red," and they're trying to weave all that together. So from that standpoint, you're right because, you know, while a lot of that's in Level 3, there's pieces of it around the system.
We don't manage the business, and I have no problem saying this out loud and repeatedly. We do not manage the business as a Level 3 business, a Lumen business, and a Qwest business. We manage it as Lumen, and we do that with the customer in mind and improving the customer experience and making the consumption of networking more seamless. That's where our focus is. So to be really candid, and I've been very open about this, my goal would be, over time, that we don't have three different debt entities. We have one...
Mm-hmm
Because we run it as one business, and there's not a lot of benefit. I fully understand why creditors are asking the questions, but there's not a lot of benefit to us in dealing with, you know, squabbles between different debt entities.
Mm.
It just makes no sense.
Creditor on creditor violence.
Oh, yeah, I think that was referred to last week.
Oh.
Yeah. So it's, you know, I think we need to move beyond that. I think we have largely moved beyond that, but as we go forward and continue to focus on the capital structure, that's a goal of mine, personally, to get to a more simplified structure.
I wanna get to the business. This is just something I've, you know, questioned, is you say that, but the whole premise of the TSA was that somehow there was a group of people that believed that because the word Level 3 was associated with their bonds, it somehow had this magical pixie dust of security that none of the other bonds had, and yet, if it ever came push to shove, it, you'd never be able to realize that.
It would be hard to split things up, to your point, but there's a deep truth in that belief, and the deep truth was realized with the $5 billion in deals, right?
Mm.
Andrea Genschaw, our Chief Accounting Officer, is with us today, and
Everyone brings their chief accounting officer with them. I mean, I don't know what that deal is.
Because you ask questions I can't answer. No. There was a front page of Barron's, June of 1999. It was James Crowe, the CEO of Level 3 at the time, talking about his vision for this conduit network.
Mm-hmm.
So 25 years ago, almost to the day as to when these deals were closed, and the moment is now with AI. It's real, it's lasting, and a lot of that conduit because of advances in fiber technology, which continues to move forward, and we're taking advantage of that with Corning. There was conduit capacity.
Mm.
And so when you look at the race on the hyperscale and cloud provider side to train these AI models, the real element of scarcity is time, because nobody wants to be left behind in the training of their AI models, because whoever wins that race is who large enterprise, which is gonna be phase two, leans on..
Mm
To push new data through those learning algorithms to run their businesses. And so time is what matters, and that conduit, that empty conduit, and the ability to put high-speed fiber through it very quickly and build out those networks, is of enormous value.
Mm-hmm.
So, you know, that value is largely a Level 3 asset, to go back to your question.
Mm.
So there is truth to...
Yeah
To where the creditors sit on that.
So, all right, let's talk about the $5 billion contract announcement. So, my understanding, you didn't say this to me, but I heard that you said it to someone else, is that that's actually kind of 10 contracts?
It was over 10, yes.
Over 10. And so these contracts that you announced, this $5 billion, the day before your result, I'm guessing that it was maybe nine plus small contracts that you didn't have to press release, but then one big one that you felt you had to, the day before you came out with your results?
No. So there were a few large contracts in there.
Mm.
There was only... and then there was a number of smaller contracts. There was only one customer that wanted to do a press release with us. A lot of companies don't want to do press releases.
But there were no company names in that press release.
No, in our 8-K.
Oh.
That's correct. But there was a separate press release in terms of our arrangement with Microsoft, and that was something that both companies wanted to do. Nobody else wanted to do that, which is fine. A lot of companies wanna keep things more quiet. The reason that we've filed the 8-K before earnings, it was twofold. The first is, because the numbers were so significant and because we were you know, it was gonna materially impact the model, we wanted to make sure that the investment community had the information they needed to properly model this, because it's complicated. That was job one. The second reason is that Kate was actually supposed to be on MSNBC Closing Bell the night before earnings.
Mm-hmm.
And the Nikkei had its moment.
Mm-hmm.
And so she got pushed a couple of days, but we had to clear the path for her to talk about this for that. So those two reasons were the reasons why the 8-K was filed before earnings.
So, big picture... Are these contracts all roughly similar in structure?
In structure, yes.
Okay, and so if we look at the Microsoft relationship as emblematic...
Mm-hmm.
Of this structure. So we one question, when we did all the math, and I think we're in the right place. You said 10% of the revenue was kind of the maintenance part, and...
Mm-hmm
90% was the kind of the construction part, and we did the math, and we kinda came out with, like, roughly $800 million of cash related to the construction part. You said in the release it would be 3 years-4 years. Does the $800 million that's yours, let's just say that's the right number, is that something that you get ratably over the 4 years, or do you get paid your profit margin after everything's been completed?
No, it's actually one of those projects that if you're sitting in, you know, finance one on one, it's the best possible math because there is no outflow of cash before there's...
Right, you get it.
An inflow of cash. So we're not funding the working capital for this, and so contract to contract, it may vary a little bit, but we're getting cash in installments, and those installments are in advance of the CapEx that needs to be spent to do the build. So you actually can't calculate an IRR on it because there is no outflow before an inflow. What I will say, and this is really important about the $5 billion, and I would say over half of the $7 billion opportunity, is that we're doing really a couple of things as it relates to that 90% piece, that construction piece. The first is there's existing conduit in the ground that was bought and paid for decades ago.
And that is conduit, in this case, that Level 3 largely owns and continues to own. It's effectively leased to the customer over, you know, a roughly 20 year period. And so we're monetizing that empty tube, that conduit with very little investment. You got to go in and clean it out so you can blow fiber through it. So that's the first part. The second part is that, yes, there's fiber that needs to be placed in those tubes, and there's construction around that. There's huts, hundreds of huts along the way to repower the signal. There may be some compute there. So there's a lot of construction complexity around getting cement pads and huts and air conditioning and generators.
You can't leverage anything that you've already put for the fiber that's already there?
We can, but the reality is these builds are so significant, we need to build more.
Okay.
We're getting paid to do that. We're getting compensated to do that. That construction piece has a return associated with it. The return on the conduit is infinite because..
Mm-hmm
You know, it's again, it's already paid for. So when you look at the underlying economics, the EBITDA margin that eventually gets reported as things amortize in is extremely high. The cash contribution margin, as we said, is you know after that CapEx is around our EBITDA margin today, so around 30%. But over time, you will see our EBITDA margin improve from because of these deals and also because of our move to more digital consumption and networking, which is what the market really wants, and I don't want that point to get lost. Why did Lumen win these deals? Lumen won these deals because no other company has the intra or intercity web of conduit that we have. And we have capacity.
By the way, you can build new intracity. Really hard to build intercity, okay? So that's something that's unparalleled. The second thing is we can deploy with speed, and I've gotten a lot of feedback in my, you know, two and a bit years of being at Lumen on how Lumen performs, and the one thing that is always a positive, and there's, there hasn't been a lot of positives, right, as we're in the middle of a turnaround, is our ability to deploy networks at speed and in a cost-efficient way. Then the third thing is, the digital services that are coming are real. So if you think about a world of AI and data explosion, the need to flexibly consume networking, and when I say networking, I don't just mean the connectivity piece.
I mean, edge compute, I mean security, things that we have that we're continuing to enable. Those are enormously valuable because companies don't know where data workloads are gonna be. What they need in that very distributed and ubiquitous environment is the ability to access data in a very latency-free way in an instant. That's what NaaS unlocks and everything else. As companies are building their own networks side by side to our network, they have access to those tools. They also have access to tap into our network and expand their reach. There's a reason that we were the only ones at the table. The decision that customers were making is: do they try to build it themselves, or do they have Lumen do it?
Mm-hmm.
And that's why we're winning these deals, and that's why we have a right to win, and that's why there's more.
I guess two more questions on the construction part of it, which is, are the places where you're going to be doing this exist, like these training data centers? 'Cause-
Yeah. So, in the $5 billion, and I would say more than half of the $7 billion opportunity list, it's existing routes. There may be some small exceptions where, because of a data center cluster, we've got to do a run of, you know, pick a number, 20 mi, 50 mi...
Mm-hmm
To connect that. That's easy, and something we can do efficiently. So we can pick that up. There are in the $7 billion list of opportunities, some potential new routes that would be highly valuable. So think of it as a triangle, where we can get from A to B today, but we have to go through C first, and if there was a direct line, it would be faster, lower latency. So we're looking at those opportunities. Obviously, that would have a different economic profile associated with it. And we would then have a discrete decision to make that while the trench is open, do we lay some additional conduit because we see future demand in kinda phase two and phase three of AI development? And that'll be something that you know we'll evaluate and decide what to do, but we're deep in those conversations right now.
So if a lot of this is on routes that exist, why is it taking three to four years to do?
It takes a long time to go across the country and truly build out that web. So, again, you've got... We haven't disclosed the fiber count that we've been able to work with Corning on, that maximizes the real estate inside of those tubes. It's phenomenal, the kind of capacity we can create. It gives us, frankly, the opportunity to rip and replace, if in time we need to do that, and dramatically increase capacity. But when you think about going across the country, I mean, there's guys in the middle of a cornfield in Nebraska splicing, right?
Mm-hmm.
And again, these huts, we're talking in the 400-500 range just for one contract. So it's a massive undertaking. It just takes time. But I would also say that the two- to three-year timeframe is actually fast when you think about-
Is it two to three or three to four?
It depends, well, you'll see services start to light up earlier, 'cause so as soon as we get, you know, connectivity between points, things will get lit.
Mm.
And it'll get lit along the way. Our relationship with Blue Planet, that was announced a couple weeks ago, that's important because it actually gives us a daily dashboard where we will see how the networks, network builds are going by contract, what the costs are.
Mm-hmm.
Yes, so it is between two to four. It depends on the complexity, but the bulk of it will be in that three-year window.
All right, so then more to the financing side of it, or the financials. What is your liability if construction costs go way above expectations? If you hit a lot of rock or something burns down, like, what is your...
Yeah.
What is your exposure here?
So again, keep in mind, it's existing conduit. So, if you think about... I mean, the whole thing-
It's not exclusively, but there's those runs.
I mean, the reality is the vast majority of this is existing conduit.
Okay.
So I don't wanna say that's not hard, 'cause the ops team would be waiting for me with pitchforks when I got back. But it, that is hard. I would say the bigger complexity is really around these hut builds. And so just to show the level of insight and why these contracts are chunky, and they take time, we, you know, call it four or five hundred sites where these things had to go. We went through with the customers site by site and identified: Do we have land? How much power is there? You know, et cetera. And what we got to is... I can't remember the exact number, but say somewhere between 30 sites and 40 sites, we don't have land.
And so those were agreed to and carved out because we're gonna have to solve it somehow. We're either gonna have to buy more land, we're gonna have to go up, whatever it is, costs will be higher. And the contracts are structured such that, you know, the customer will bear the cost of that, and we will work with them to come up with the most efficient solution. So I cannot emphasize the amount of time and insight that went into this. So one safety measure is the big thing, getting conduit in the ground, is it's there already. The huts, we've spent a lot of time on it.
These are huge contracts for our suppliers that are gonna keep them in business for years, so we're getting the best suppliers. We have protections with them so that we're protected. Then in the contract itself, there are CPI escalators as well. It's what we do. It's what we've done, obviously on a smaller scale, for many years, and we're really good at it, so we're not concerned about that. There are penalties, performance penalties that could exist, but there are also performance bonuses that could exist.
Mm.
We feel that we've struck the right balance on that.
So the $5 billion is maybe Microsoft is an anchor tenant and a couple other bigger, chunkier pieces to the $5 billion. So let's just say $2 billion for Microsoft and two more unnamed $1 billion guys and then maybe eight or nine, you know, smaller $100 million dollar guys, kind of piecing it all together. When you talk about the line of sight to the next $7 billion, how far away is that line of sight?
Yeah.
And who are... You know, I think I've heard you say it's more like enterprises and things like that.
Yeah. So this construct of the seven billion looks a lot like the five billion. There is some customer overlap, but there's also a lot of new customers. So again, 10-ish kind of customers. There's a detailed list of opportunities that add up to more than the seven, and we were comfortable with saying the seven. Importantly, since we've thrown that number out there, there's been no fallout on that. And so we're excited and confident in our ability to execute.
Because of the chunkiness, here's what I can tell you: Every time I thought we were close, I was wrong, because as we went through the first five, because these are complex agreements, back to your question on cost. But some are closer in. I don't wanna try to guess that timeframe, 'cause I'll be wrong. Some, particularly for, like, new builds, are a little further out. But, as we know more, we'll obviously share it. It's to our benefit. We wanna get that investor in investors' hands as fast as we can, but, you know, things are looking good.
Um, so...
Sorry.
Yeah.
Your question on who is it? Again, three phases...
Mm-hmm.
As we see it today. That'll evolve, 'cause none of us really know where all this goes. But, when you think about the companies that are either running learning algorithms today, and they're training them, or they kind of support that ecosystem, it's really hyperscalers, cloud providers. That's kind of phase one. Phase II, which we call inference, is where large enterprise starts once those models are trained.
Mm-hmm.
Large enterprise is using those models to run their businesses, and that's where there's a lot of IP and Waves-type consumption.
Mm-hmm.
We're making sure we've got the right capacity in the ground. We've obviously added 6 million fiber miles over the last few years. There's another 6 million to come. By the way, that fiber today is supporting 400 gig waves, but as the equipment that powers that fiber comes online, there's a lot of innovation coming. It very quickly goes to 800 , and then 1.6 Tb .
Mm.
So that that's future-proofed. The last phase, which is further out, probably at least five years, is when AI starts talking to AI, and we think that's explosive again. We'll—you know, our all of our understanding of that will change as time goes on, but that's kind of how we think about it. Today, it's really largely hyperscaler and cloud provider, big tech companies.
So the $5 billion deal, again, if my math is roughly right, it's kinda $800 million of profit. You kind of siphon that profit out of the dollars that you get inbound to cover the cost of construction and stuff. So that kind of filters in over a four-year period. Over the course of the next year or two or three, there's another $7 billion of deals. If they're roughly equivalent, that's $1 billion of cash flow that maybe starts coming in in next year and the year after that, so maybe $200 million a year from the first set-up, starting next year, and then $250 million a year. I mean, $800 million over the next two, three, four years, another $1 billion over the next three, four, five, six years.
I mean, it sounds great, $12 billion, but the cash dollars after taxes just really aren't that big. You know, you've got $13 billion in revenue, you've got $4 billion in EBITDA, you've got $3 billion in CapEx annually, you've got a $9 billion maturity tower in 2029. These deals don't really do a ton. They're fun to talk about, they make headlines, but they're not changing who you are. Your DNA of this business is not changing because of this.
So I would disagree with you on that.
Wait, really?
Yeah. So, let me tell you where I agree. I agree that the legacy business that is in decline and will remain in decline is the legacy business. It generates a lot of cash. There's some things that we can do, and we'll continue to work away on it to improve that rate of decline, but we're not gonna fix it. That's not why we're here. That's not what our focus is. I think what's getting lost in the disagreement, David, is that we're not done. So again, this is phase I. This is monetizing an asset that is available to us and one that our customers desperately need. It brings us really valuable cash that literally, over the next number of years, fills the funding gap.
So we can continue to invest at the pace we are in the enterprise business. We can continue to invest in consumer, as we said earlier. We can pay the higher coupon because of the TSA. We can fund the pension to the extent that it needs to be funded. It literally takes all of that off the table. What's getting lost is that there's more that comes behind that. So literally, as we're building these networks, and companies are hearing that, you know, we're gonna be, you know, driving through their neighborhood, so to speak, we're getting phone calls saying: "Hey, I wanna connect in. I wanna connect in." So more will come from that. But importantly, the future of enterprise networking is digital. There's been very little credence given to that.
So today, you have a competitive landscape where every other provider out there views this as a commodity, views this as a cash cow, and is not investing in the space. We are the only ones who are investing hundreds of millions, billions, into enterprise networking, such that. Just like today, I mean, 20 years ago, who would have thought, who would have believed that you could provision, compute, and storage through your laptop, at a very large scale? That is exactly what we are bringing in networking. In a few years, as we consolidate the network and we digitize everything, large enterprise will be able to provision point-to-point connectivity in an instant with no truck rolls. No one else is bringing that.
On demand?
Well, look at... People have tried, people have said it, but..
We've talked about it for 20 years.
Yeah, but no one has ever done it, and so that's why this management team is here, and it's coming. You know, if I think about the stories that have been written about Lumen since I've been here, some of them from the investor side, some of them, frankly, from the competitive side. You know, we were apparently gonna die four times, and we haven't. And the reality is we haven't, and we got the support of our creditors, in part because they saw this.
Mm.
They saw the value in this. And it's starting to work. So I would actually say if you were to ask me to summarize in one word, what is Lumen's board and management team viewing the pushback that we get in the market as today? It's flattering. And I'm gonna share a quote that we point to regularly, and it's a quote from Gandhi, and it's about radical change. "And when you're driving radical change," he said, "there's four steps.
First, they ignore you, then they laugh at you, then they fight you, and then you win," and we're in the fight stage right now, and we're getting a lot of pushback because people have, for decades, seen legacy telecom move down into the right, and we are challenging every one of those norms, and it's gonna happen. So, we're confident in it. We're gonna stay focused on execution, and we'll go from there.
On the path to up and to the right, you lowered your EBITDA guidance for 2024.
Yeah.
And then talked about bringing a more downward pressure in 2025.
Yes.
It's gonna go up and to the right in 2026.
Yeah. So look, let's look at the pieces. Job number one, free cash flow, right? Fill the funding gap. Check. Job number two, EBITDA. So we have said consistently that we thought that the pivot point on EBITDA would be 2026 , and that remains true. I think the shape of it is actually better. So what happens is obviously guidance this year came down. Yes, there's a lot of stuff going on in legacy. We all know that. But we also had more OpEx associated with, you know, firing up the construction factory for these deals. That'll continue into next year.
And then next year, because of the cash position, we've made the choice to accelerate some of the OpEx spending that we needed to do to unify the networks into one. And so, next year was always gonna be down. It's probably down a little more than what was initially expected because of those two items. In 2026, off of that low point in 2025, we don't start to grow. At this. It's early. I'm not giving guidance, but at this stage, 2026 EBITDA looks a lot like 2024 because of the cost savings we can start to pull in, and the expenses we have next year don't continue forever.
So 2026 EBITDA, it's like a V-shaped recovery, and then we start to grow that. Revenue, by the time you balance out the legacy declines, it's a sizable business, but the growth we see in things like IP and Waves and edge compute security, those lines probably cross in 2028. You know, that's sometime in 2028. So we'll give more color on that. I do think when we give guidance for 2025 in early next year, we'll also give preliminary guidance for 2026.
Mm.
Because we have deep conviction in our ability to execute against this, and we want to give visibility to both.
Is it, as you think about that, time for another analyst day?
Not yet. You know, I think we have to see where some of this stuff sorts out on consumer and whatnot. I do think there could be kind of an in-between step where potentially we do a more of a virtual thing just to update people on the model.
Mm.
So, we're looking at that.
I thought your, the slide and the little presentation you guys gave on IRU and that sort of stuff was helpful in trying...
Thank you.
To understand all this, so
Thanks.
Look, that was great. Thank you. I wish I could spend another 40 minutes-
Yeah.
Doing this, but thank you for coming. I really appreciate it.
Yeah. No, I really appreciate it, David. Thanks.
Thank you, guys, for coming.
Yeah.
Appreciate it.