Q4 2023 Lumen Technologies Inc Earnings Call
Participants
Mike McCormack; SVP, IR; Lumen Technologies, Inc.
Kate Johnson; President & CEO; Lumen Technologies, Inc.
Chris Stansbury; Executive VP & CFO; Lumen Technologies, Inc.
Simon Flannery; Analyst; Morgan Stanley & Co. LLC
Batya Levi; Analyst; UBS Group AG
David Barden; Analyst; BofA Securities, Inc.
Michael Rollins; Analyst; Citigroup Inc.
Presentation
Operator
Greetings and welcome to Lumen Technologies's fourth-quarter 2023 earnings call. (Operator Instructions) As a reminder, this conference is being recorded on Tuesday, February 6, 2024.
And I would now like to turn our conference over to Mike McCormack, Senior Vice President, Investor Relations. Please go ahead.
Mike McCormack
Thank you, Aaron. Good afternoon, everyone, and thank you for joining Lumen Technology's fourth-quarter 2023 earnings call. On the call today are Kate Johnson, President and Chief Executive Officer; and Chris Stansbury, Executive Vice President and Chief Financial Officer.
Before we begin, I need to call your attention to our Safe Harbor statement on slide 2 of our fourth-quarter 2023 presentation, which notes that this conference call may include forward-looking statements subject to certain risks and uncertainties. All forward-looking statements should be considered in conjunction with the cautionary statements on slide 2, and the risk factors in our SEC filings.
We will be referring to certain non-GAAP financial measures that reconciles to the most comparable GAAP measures, which can be found in our earnings press release. In addition, certain metrics discussed today exclude costs or special items as detailed in our earnings materials, which can be found on the Investor Relations section of the Lumen website.
With Kate I'll turn it over to Kate.
Kate Johnson
Thanks, Mike. Good afternoon, everyone, and thanks for joining us today. I'm excited to provide an update on the significant progress we're making on Lumen's business transformation.
A year ago, I shared that 2023 was a reset year for this company, with the new mission and vision, a new executive team, and a newly redesigned culture. And importantly, we aspire to restore confidence in Lumen, not only with the improved financial results, but with execution excellence that delivers on our commitments. We outlined big multi-year strategic priorities, including strengthening our balance sheet, executing on key programs to turn the core business around by 2025, and igniting new growth by delivering disruptive innovations that help our customers solve their next-gen networking needs.
And now, I'm pleased to report that we both delivered on our 2023 EBITDA and free cash flow guidance. And we made material progress on our strategic priorities.
I'll start with the balance sheet. As we announced in late January, we entered into an agreement with a significant number of our creditors that clears the path for our turnaround. The deal extends most of our debt maturities to 2029 and beyond, injects $1.325 billion of net new financing into the business and gives us access to a new approximately $1 billion revolving credit facility to support our operations. It's a strong indication of the confidence of our bondholders and the broader debt markets that they have in our strategy. And it allows us to focus our energy on executing our business transformation, right? So how is the pivot to growth going? While we have a lot of work left to do, we're seeing progress as evidenced by our North American business performance compared to other industry competitors, while two large legacy telco companies saw Q4 revenue declines in their business wireline segment of roughly 8% to 10% year over year Loomans business, Q4 revenue decline was only 3.5% year over year. Breaking away from the others for the second straight quarter, we believe our positive peer group performance is due both to our strategy and our turnaround execution. Simply put, Lumen stands alone and how we think about the industry in today's digital economy. Technology environments are complex and multilayered, whether it's hybrid or multi-cloud or edge compute or emerging technologies like JNI businesses need fiber networks with digital services that deliver blazing fast speeds, ultra-low latency, massive capacity for growing data workloads and proximity to widely distributed users all in a secure environment, while our competitors harvest their business wireline segments for cash flow and is building a fully digital platform to deliver important new capabilities to these customers. And importantly, we're tailoring our go-to-market approach to get them there.
So let's dig a little deeper into that go-to-market execution progress. I'll start with our commercial excellence efforts in the business segment, which is all about driving better sales execution, securing our base of customers and creating a world-class digital customer experience.
In 2023, we tailored our go-to-market approach to each customer segment. This focus is allowing us to meet customers where they are and provide unique and tailored path to our modern communication infrastructure. And not surprisingly is driving better sales execution this year with the North America enterprise, we added over 3,000 customers and increased new logo sales by 13% sequentially in Q4, specifically, our Public Sector segment grew double digits quarter over quarter and year over year in Q4, powering our strong revenue performance year over year, we sold 29% more growth products to existing public sector customers in Q4, and we increased seller productivity by 18% for the full year. With this momentum, we expect this segment to be the first to bend the revenue curve back to growth, and we think that market segment will follow suit since establishing the dedicated go-to-market team for mid-market plus June's tenured directs, our tenured direct sales productivity increased 26%, while we simultaneously grew the sales force by 15%. Importantly, we exited 2023 by outperforming market growth rates and taking share in both SASE and IP in our large enterprise segment. We're winning business with sophisticated digitally native companies like Uber, who recently chose Lumen 400 gig wave service to ensure that they can scale and accelerate their company's growth with greater agility.
Okay. Let's turn to securing the base. This is all about install disconnects, renewables, migrations and usage. This program is the most challenging part of executing Luminous turnaround. For sure.
The good news is we're making progress in mid-market and large enterprise shown by our sequential results. For the second half, installations were up 13%. Migrations were up 4%, renewals were up 50% and in Q4, usage was up 3%, helping us end the year strong. Now that said, we're just not satisfied and we'll be focusing on improving performance here in this part of our turnaround using data and analytics and AI to help determine the right action for each unique customer at the right time.
The third piece of commercial excellence is all about customer experience. Illumina operations and IT teams did a fantastic job building the digital CX foundation in 2023, redesigning our processes from order to cash starting to implement new state-of-the-art systems and infusing JNI into our service delivery and assurance. And while we're still in the initial stages, we're seeing signs of impact, for example, in our North American business pilot, we were able to reduce order processing time by 70% for dedicated Internet access or DIA. one of our highest-volume products and across all products for large enterprise and public sector customers were already seeing a 17 point year-over-year improvement in Net Promoter Scores based on our process improvement works, Samsung about innovation, innovating for growth. As we announced last month, Dr. Satish London joined Illumina as our Chief Product Officer. Satish comes from us from a comes to us from AWS and brings a highly valuable combination of cloud, artificial intelligence and product development experience that will be an important part of fueling our innovation engine.
And just this morning, we announced that Dave Ward is joining Lumin as our Chief Technology Officer. Steve has a long history of successful executive leadership, having served as CTO for Cisco Systems. And most recently as the CEO of packet fabric and network as a service provider, talented visionaries like citizen. Dave are joining because they see the potential for Lumen to innovate, disrupt the industry and create major value for customers and therefore, major value for investors. And I'm delighted to report that we are well on our way in 2023, Lumen co-created with customers and launched several new digital services that take advantage of our world-class fiber network. Our vision is to empower enterprises to leverage the lumen digital platform as we are calling it, enabling customers to digitally consume our secure network services. This innovative platform will help customers build a high-powered applications across on-prem, co-lo and cloud environments seamlessly while also simplifying network onboarding and management to save costs in the latter half of this year will share new reporting for Lumen digital to allow you to better understand our growth trajectory.
Let me highlight a few important capabilities in the lumen digital platform versus network as a service or mass. We continue to enrich our Nav offering with more capability. And just last week, we announced the availability of two new Naas solutions with private connections as a recent customer element materials remarked lumens mass solution was not as timely but transformative. It highlighted the untapped potential of such innovative network solutions. Another Lumen digital breakthrough capability is excess switch our high-capacity optical switching platform originally conceived for direct InterCloud peering is performing extremely well in the market, and that's Microsoft shared. They highly value the switch platform for the fast and scalable interconnections that it provides, and they're eager and excited to expand access switch to new metros. In 2024, Lumen sees excess, which is assumed to be must-have solution for any corporation needing simplified, low latency, high capacity, direct cloud connectivity.
Finally, Lumen security. You may have read in The Washington Post that the Department of Justice announced that it disrupted the Volt Typhoon botnet used by a major Chinese government backed effort to hack the US critical infrastructure. I'm incredibly proud of our Black Lotus Labs team for identifying this threat and being credited by the DOJ for helping to keep the United States safe soon. You'll see Black Lotus labs powering the lumen digital platform, some highly valuable security services. The initial capabilities in the platform give Lumen access to around $40 billion in net new available market. And to be clear, we're just getting started. We're bullish on the impact. The Lumen digital will have on helping pivot our Company to growth.
Finally, let's cover mass markets. We're executing our strategy to deploy capital, where we see the greatest opportunities with the goal of continuing to evolve our business across a portfolio of markets, investing wisely and driving fiber market penetration.
Some quick notes to share about 2023. In mass markets, we delivered our commitment to grow our fiber network by more than 500,000 locations and intend to maintain that similar robust rate in 2024. While we weren't happy with our net adds performance in 2023, all up. Our sales and marketing engine is now gaining momentum as we close the year strongly with record high December sales. And we continued to see this pace hold through January. Quantum Fiber is the best Multi-Gig product in the market and to maintain that status. We know that constant innovation is a priority. That's why we made sure we were the first company in the industry to achieve WiFi seven certification. And finally, Quantum Fiber customers continue to be delighted, as shown by our Q4 net promoter score of plus 64, improving both quarter over quarter and year over year. Customer satisfaction won.
Last exciting note I talked about rebuilding this company from the people up and how important culture changes to supporting our transformation. In just the fourth quarter alone, we won four different culture awards, most notably U.S. News & World Report named Lumen Technologies, one of the 2024 best telecom companies to work for our culture is helping us attract new talent as well as supporting our current Lumen workforce through a pretty intense time for this company to Summit up 2023. We made great progress building Lumen for growth. We believe our strategy is the right one, and we're executing well to our plan is to hold steady on our strategy through 2024, we'll continue to strengthen our balance sheet will drive commercial excellence to return the business to growth by 2025 and will co-create innovative new capabilities that delight customers and give Lumen access to net new profit pools. And we'll do all of that while keeping you apprised of our progress being transparent about our wins and our struggles and delivering on our commitments every step of the way.
And with that, I'll turn the call over to Chris.
Chris Stansbury
Thanks, Kate, and good afternoon, everyone. Kate spoke about our progress and how we are disrupting disrupting an industry ripe for change as Lumen transforms into the leading digital enterprise solutions provider. She also spoke of our success in reaching agreement on an amended TSA with a broader group of creditors to extend our debt maturities.
On our Q2 earnings call, we said we viewed the formation of the creditor group as an opportunity to address a large part of the capital structure in a very efficient way. And the amended agreement we announced in January accomplishes that the amended TSA has support from a broad group of creditors and when finalized will address approximately $9 billion of outstanding indebtedness, including more than 77% of debt maturing through 2027. The TSA transactions will extend debt maturities to primarily 2029 and beyond, provide $1.325 billion of new money and provide access to a new approximately $1 billion revolver. This agreement and the broad support for it speaks to the confidence our banks and creditors have in our plan and provide Lumen ample runway to execute on our business turnaround. In short, our capital structure is no longer a limiting factor in our transformation. We expect to complete the transactions contemplated by the TSA in the first quarter, subject to the satisfaction of limited remaining closing conditions.
Before covering our fourth quarter results, I'd like to take a moment to discuss some changes to our 2024 financial reporting to enhance comparability with prior periods and better align with how we manage the business. First, we're updating our business sales channel reporting by breaking out a new international and other channel, including CDN. Secondly, given the sale of substantially all of our CDN contracts during the fourth quarter of 23, we are updating our business product category reporting to move CDM from Harvest to other within the international and other channel. And finally, with the sale of our media business and select CDN contracts completed in the fourth quarter of 23, we have updated our financial training schedules to provide the historical contributions of these sales as well as the associated commercial agreement impacts. Keep in mind when these impacts are excluded from results, our sequential and year-over-year growth rates are substantially better than the reported rates.
I'll now discuss the financial summary of our fourth quarter. Our fourth quarter total reported revenue declined 7.4% year over year to $3.517 billion. Approximately 39% of the decline was due to the impact of divestitures, commercial agreements and CDN adjusted EBITDA was $1.099 billion in the fourth quarter with a 31.2% margin. Free cash flow was $50 million in the fourth quarter. In 2023, we delivered on our expectations for both adjusted EBITDA and free cash flow.
Next, I'll review our detailed revenue results for the quarter on a year-over-year basis within our North America enterprise channels, which is our business segment, excluding wholesale and international and other revenue declined 0.1%. This quarter, we had a public-sector benefit in our other product group. As a reminder, our other category tends to fluctuate quarter to quarter. Given the nature of these revenue streams, overall, North America business declined 3.5%. We again significantly outperformed our two largest historical competitors in the fourth quarter while results can vary in any given quarter. We expect this trend of divergence between performance at lumen and the legacy business wireline providers to continue to widen over time as we expand our digital service offerings. Large Enterprise revenue declined 3.6% in the fourth quarter. Large Enterprise revenue was impacted by lower other product revenue and also the timing of large infrastructure revenue benefiting the year-ago quarter. Our year-over-year growth rate was in grow moderated. We expect continued variability in trends as we drive toward overall stabilization.
Now, moving on to mid-markets revenue declined 6% year over year. Mid Markets is a very important channel for us and one where we had lost considerable share prior to our focus and investment in this important area. We are leaning into this channel with products and buying tools to make ordering and provisioning more frictionless.
As Kate mentioned, we're seeing improved leading indicators and are taking share in both IP and Sassy products. This is a channel that we expect will be extremely interested in our NASH offering. Given the flexibility and ease of provisioning, it provides public sector revenue grew 14.8% year over year. Trends improved driven primarily by continued strength and grow revenue, moderating declines in nurture and higher other revenue. As mentioned earlier, over the past 12 to 18 months. Investors have asked us when we will start to see the benefits of the big contracts signed with the USDA U.S. Postal Service, the Department of Defense and other public sector wins. As our results demonstrate, we are seeing revenue strength in part due to those and other deals ramping as we work diligently to deploy these mission-critical services given our visibility to sales bookings and the longer install cycles related to the complexity of the solutions we're deploying within public sector, we have high confidence that we'll be the first sales channel to return to sustainable growth.
Wholesale revenue declined 11.2% year over year for the majority of wholesale represents the balance of trade with other carriers. As we negotiate with each other on buy-side and sell-side arrangements. The historical industry behavior between carriers has been to leverage pricing and rate changes to drive results instead of delivering incremental value to customers.
In our opinion, these actions are often to the detriment of the industry's customers and is also generally unhealthy for the industry while also creating volatility in our and others' results within Wholesale, approximately 39% of our revenue comes from Harvest products, which declined 15.9% year over year in Q4 and contributed to a majority of the 11.2% decline. Our harvest product revenue will likely continue to decline over time and is an area we will continue to manage for cash. International and Other revenue declined 43.5% year over year, driven by the divestiture of our media business and the sale of select CDN contracts in the fourth quarter of 23.
Moving to our business product lifecycle reporting. I'll reference results based on our North America enterprise channels, which represent our core strategic categories. Gro products revenue increased 5.7%, driven by strength in IP across all enterprise channels, cloud services and infrastructure product growth, particularly within co-location and dark fiber, grow represented approximately 40% of our North America enterprise revenue. And for our total business segment carried in approximately 80% direct margin this quarter within nurture and harvest.
We continue to expect headwinds in these categories as we take proactive steps to migrate customers to newer technologies. These actions improve our customers' experience and provide an uplift in customer lifetime value for Lumen.
As Kate mentioned, we continue to see positive leading indicators that our initiatives are working and will take some time to be reflected in our results.
Nurture product revenue declined 9.7% year over year. Pressure within VPN and Ethernet services drove the decline nurture represents about 30% of our North America enterprise revenue and for our total business segment carry an approximate 69% direct margin this quarter, Harvest products revenue declined 10.4% year over year. Harvest continues to be negatively impacted by declines in TDM based voice and other legacy services.
Now, I want to take a minute to discuss harvest in more detail. We have a very tactical approach to our harvest portfolio, which contains a mixture of customers that are on-net as well as off-net. These off-net customer contracts carry a much different margin profile and in some cases are margin dilutive. We utilize rerates to manage the margin. In some cases, this can result in nonrecurring regrettable churn.
In other cases, we will seek to migrate customers to our newer grow technologies than other set of customers within harvest are quite profitable and their needs can be met with existing services. Our data-driven approach drives our product migration and pricing strategies for each of these customers, enabling us to optimize our return profile. Harvest represented less than 17% of our North America enterprise revenue in the fourth quarter, an improvement of approximately 200 basis points year over year for our total business segment, a carrying approximate 81% direct margin this quarter. Other products revenue grew 31.7%. As I mentioned earlier, public sector showed particular strength in this product set.
Moving on to mass markets, revenue declined 8.3% year over year. Our mass markets fiber broadband revenue grew 11.5% and represented approximately a third of mass markets. Broadband revenue also noted our exposure to legacy voice and other services revenue continues to improve with an approximate 200 basis point reduction year over year. During the quarter, fiber broadband enabled location adds were 126,000, bringing our total to approximately $3.7 million as of December 31.
As Kate mentioned, we intend to maintain the same 500,000 build pace this year and during the fourth quarter, we added 20,000 Quantum Fiber customers and this brings our total to 916,000 fiber. ARPU was flat sequentially and increased on a year-over-year basis to approximately $61 in the fourth quarter. At the end of the quarter, our penetration of legacy copper broadband was approximately 10%, and our Quantum Fiber penetration stood at approximately 25%. Our 12 month frozen penetration of our 2022 enablement cohort was 18% at December 31st. For our 24 month frozen penetration of our 2021 enablement cohort was 25%.
Turning to adjusted EBITDA for the fourth quarter of 2023, adjusted EBITDA was $1.099 billion compared to $1.393 billion in the year ago quarter. The fourth quarter of this year included a net headwind of $13 million related to the divested Amea business, a net benefit of $3 million from divestiture related post-closing commercial agreements and a net headwind of $16 million from the sale of select CDN contracts. These items represent approximately 9% of the year-over-year decline in special items impacting adjusted EBITDA this quarter totaled $211 million. Our fourth quarter 2023 adjusted EBITDA margin was 31.2%. Capital expenditures for the fourth quarter of 2023 were $821 million, and the Company generated free cash flow of $50 million in the fourth quarter.
Moving to our financial outlook. For the full year 2024, we expect adjusted EBITDA to be in the range of 4.1 to $4.3 billion. Our EBITDA guidance includes an expectation of 2% to 5% organic decline, a significant and roughly 600 basis point improvement from the organic decline included in our 2023 outlook as our transformation initiatives take hold.
Moving to capital spending and our other outlook metrics. For the full year 2024, we expect total capital expenditures in the range of $2.7 billion to $2.9 billion. We expect to generate free cash flow in the range of $100 million to $300 million for the full year of 2024. And this includes an approximate $700 million tax refund received during the first quarter of this year. We expect free cash flow to be impacted by higher interest expense related to our new TSA agreement. And based on our initial analysis, we've included an incremental $125 million to $225 million of cash interest in 2024 versus 2023. We do not have any required or planned discretionary pension fund contributions in 2024.
In terms of special items for 2024, we continue to expect dedicated third-party costs to support transition services for the divestitures. The reimbursement for these services will be in other income with no material net impact to our cash flows. In addition, in the first quarter of 2024, we expect to recognize meaningful charges related to the negotiation and execution of our TSA agreement.
Before we move to Q&A, just a couple of housekeeping items. First, please remember that the first quarter typically has seasonally higher expenses related to the timing of bonus payments and other prepaid expenses. Additionally, while we are happy to discuss the recent TSA announcement in further detail. Our focus is now on our business and the financial results as we move forward.
Accordingly, we would prefer to be oriented two questions around the business, if accurate and over the months here, and we're ready for questions.
Question and Answer Session
Operator
(Operator Instructions)
Simon Flannery, Morgan Stanley.
Chris Stansbury
Right.
Simon Flannery
Thank you very much and good evening and thanks for all the color. I was wondering if you could just help us with the updated trajectory of revenues through the quarter. I think in the past you've talked about a second half our acceleration after some first half noise. How you didn't really talk to that, Tom, during your prepared remarks. So any updates there would be great. And then, Tom, thanks for the color on Q1 OpEx, how should we think about some of the OpEx savings from some of the severance and other actions that you've recently been taking, how does that flow through the quarters in 2024, think you saw?
Chris Stansbury
Yes, on and off on the revenue side, we would expect the public sector of implementation and the conversion from sales to revenue to accelerate as we move through the year. And to Kate's point, we continue to see improvement in the other channels as well. But mid markets, we expect to continue to improve over the course of the year as well. Obviously, wholesale can be a little more choppy. So that's a harder one to predict as it relates to OpEx, most of the savings that are related to the action we took last year will be realized this year. And I would expect that to be fairly even quarter to quarter. It's a full year impact.
Simon Flannery
Great. And just on that public sector, I mean, to what extent was the Q4 number, including on NOCP. sales or other things that may not recur next quarter.
Kate Johnson
So we did say that other product revenue impacted the fourth quarter, and that's that's the bulk of it. I would say that our commentary around our competence in public sector really relates as to the revenue recognition associated with the installs from those big deals we announced over the last 12 to 18 months.
Simon Flannery
Great, thanks. Thanks.
Operator
Batya Levi, UBS.
Batya Levi
And on the enterprise trends, earlier, you had mentioned that you were concerned about on some of the upcoming maturities and the conversations we're having with enterprises were kind of on a hold. Can you provide more color on maybe recent conversations with some of those larger clients and how the sales funnel is shaping up? And maybe just another follow up on the on on 1Q.
Can you quantify the seasonal expenses we should think about for the for the first quarter? And lastly on taxes, how should we think about tax range If bonus depreciation or other credits are extended? Thank you.
Kate Johnson
Thanks, Toshiya. I'll handle that one and give you two pieces to Chris, that VM, the clarity of having this TSA updated and amended is has been great for our customer conversations and it basically shifts the maturities to 29. It provides the ability to focus on, you know, our transformation efforts and have conversations with customers without that question.
And so we've really been releasing that come in our pipeline and conversations with customers are positive and growing. And a lot of that has to do with the sales excellence that we've put in place in terms of supporting our people with world-class platforms and driving a eye for sales productivity and things like that. So I think we're in a good spot, Chris.
Chris Stansbury
Yes. And on on taxes from our guidance, we gave a cash tax amount that we feel is the best way to look at it, obviously with the one-time expenses and special charges associated with the debt transaction and that the impact from an ETR standpoint on net income can be really sensitive. So that so that's why we chose to guide the cash tax amount as it relates to on legislation. Again, we're really pleased with the momentum around that, and we would expect that if everything was enacted that that's out there that the benefit to us could be in the three to $400 million range on an annual basis. But we'll have to wait and see.
Batya Levi
Perfect. Thank you. Tax budgets in the case of assemblies are.
Operator
David Barden, Bank of America.
David Barden
Hey, guys. Thanks so much for taking the questions. I guess on two, if I could. The first would be and just Chris, you know how you could maybe put some guardrails around how a successful TSA. conclusions would impact the free cash flow guidance outlook that you're presenting here today, which does not appear to have it in there. And the second question would be and sorry to go back to the to the public sector. But given that this is kind of the tip of the iceberg of the growth turnaround on your third quarter to fourth quarter was up $30 million. Third quarter fourth quarter doubled another $50 million. Most of all of that was attributed to kind of one-time items of where we say it's going to be the first to return to growth from what number should we assume that growth begins? Thank you.
Yes.
Simon Flannery
So I'll answer the last part first again, you're right. We have said that over the last couple of quarters, there were some one-time benefits that that have repeated themselves and certainly helped us. But as we look into the year from here forward, David, we should continue to see growth in public sector as well as the installs around those big contracts build their pace. So we do expect public-sector revenue to be increasing as we go forward from here, Palm. And as it relates to the free cash flow guidance, it does include all of the TSA costs. So successful closure means closing in Q1, and we've got line of sight to doing that. We'll certainly give more our commentary around that as that gets finalized, but it is contemplated and I think part of that confusion may be that included in that free cash flow guidance is the CAD700 million tax refund impact that hit in freight freight. Does the offsetting forces Perfect. That's helpful.
David Barden
Thank you, Chris.
Chris Stansbury
Yes, thanks, David.
Operator
Next question, please. Michael Rollins, Citi.
Batya Levi
Thanks and good afternoon. A couple of questions. The first one, if you go back to the Analyst Day slide few months back and the EBITDA guidance range is lower for one to four, three versus the 43 to 46. Can you remind us there and just some of the influences and some of the developments that got you to the current range? And then and can you also give us an update on how how the revenue range should look and know after all this time?
I think it was originally at 13, 6 to 14 one four, 2024.
Simon Flannery
Yes. So a few things.
Mike McCormack
So what's what's changed versus Investor Day?
Simon Flannery
Obviously, the the Amea sale, the CDN sale and last but not least, just the impact of the debt discussions and that overhang in our business. We were pretty clear, I think on the Q2 and Q3 calls that, Tom, that customers were concerned and certainly the size of the 27 debt tower and our ability to execute the turnaround in time to refinance that and particularly the looming debt. And that was of particular concern. So we adjusted for that. And with the negotiations behind us, we see positive momentum there.
As it relates to revenue, we're not guiding revenue at this point, and I would say that's conscious because the revenue piece is going to be choppy as we go forward and we want to be really transparent about that.
Mike McCormack
It's hard to predict what totals will do.
Simon Flannery
It's easier to predict channel by channel that we know when we would expect to see a turnaround. But I tried to give that with some level of confidence at this point is just a little too early. So we've chosen to stick to EBITDA where we obviously have more levers to pull and more control around that.
Batya Levi
And then just second, in the past, you've talked about the opportunities, two, proactively turn some of the legacy revenue and convert that into the strategic revenue. Can you share maybe some additional details or developments? Were there some numbers where you're able to show the financial balance of being able to migrate customers more quickly to fresher strategic service.
Michael Rollins
So a couple of things. There's number one, the using AI to reach out to customers in a programmatic fashion at scale to drive productivity of the outbound calling that we do is the first step. And so we've made a lot of progress there putting the platform together, number two, taking a migration factory approach still for each legacy platform that customers are on understanding of the behavior, signals that drive likelihood to churn and approaching them in cohorts and then meeting where they are in terms of what they have and the best solution that we can migrate them to and doing as much of that either in an automated fashion as possible.
Kate Johnson
All of that is the chassis that we built in 23.
Michael Rollins
Now we're starting to and in Q4, we had some pretty significant progress numbers we don't report on, but in terms of doing the reach out and making progress with migrations, et cetera.
Kate Johnson
So we'll continue to monitor it.
Michael Rollins
And as we get to a place of growth and stability and productivity of those teams in a way that we can share.
Kate Johnson
We certainly well, thanks to the next questioner.
David Barden
Next question is from the line of Eric Luebchow with Wells Fargo. Your line is less.
Kate Johnson
Great.
Simon Flannery
Appreciate it. On maybe you could touch on mid market a little bit. I know that's been a big focus of the Company in terms of new salespeople and new logo generation. I mean, when do you think that more of a 2025 story when we start to see the revenue line really turn in that segment.
And then secondly, and maybe you could just touch on your interest in additional asset sales or divestitures. As you look out, I think you've been pretty open about the consumer and mass markets business potentially making sense being separate from the enterprise segment. Is that something that you would actively evaluate?
Mike McCormack
Thank you.
Kate Johnson
And so starting with with mid-markets.
Michael Rollins
This is the this is actually the first market segment customer segment that we stood up and our squads are scrum teams to go after. And that's everybody from sales marketing customer success, IT operations, you know, finance, billing, et cetera, all kind of circling around the customer segment to say what are the offerings that we need, what's the price we need to win, what does the marketplace look like, you know, how do we swarm them and cover the markets, both direct and indirect? Because as you know, we want to continue to leverage our ecosystem for more feet on the street from a sales perspective.
Kate Johnson
And all of that work happened in, um, in 23, what's most remarkable about that?
Michael Rollins
Is it set the tone and context for how we then do turnarounds in the other segments because we got this learning Mojo thing happening, where the teams are meeting with daily standup and weekly spend ups and reporting back on the the challenges that they were experiencing. And then using an agile methodology, whether it's building a piece of IT functionality or it's working with the product team to say we need these net new capabilities or the marketing team to say how can we do better, account-based marketing, et cetera. And that method of working across functions with no silos in an agile, rapid fashion has set the context for basically how we treat all the other segments. So that's thing. One thing too, is on internally, there's a bit of camaraderie and healthy competition. And I call my mid-market teams, the sand bankers because basically they are always coming in a little bit better than they say they're going to and I think they're starting to get their chops. And so we're excited by our improvement in productivity. We're excited about our improvements and now in sales and revenue, et cetera. I think what we'd like to do next and where you'll see us sort of, you know, target the guns is is on the ecosystem side, making sure that we have a platform that is partner friendly. So we can drive sales productivity indirect because we all know that that's that's what we need for total coverage.
Simon Flannery
So you want to you want to handle the hotel, I mean on asset sales will obviously continue to evaluate the entire portfolio. What I would say specifically about the mass markets business is really a few things.
Mike McCormack
One that's an enormously valuable asset.
Simon Flannery
And we know that, and that's why we're continuing to invest at the pace that we're at right now in getting more fiber in the ground and pushing really hard to drive subscriber growth up. That said, we've been very public about saying that's a space where consolidation is necessary and we will not be the consolidator. So and I think you've seen in the last few days, some noise in the industry as people are, I think, taking more active positions around of what happens next with that sector. So we're going to keep our heads down, continue to focus on execution and building out the value of that asset. And we'll evaluate as we go.
David Barden
I think you can take their next questioner for next question is from the line of Nick Del Deo with MoffettNathanson. Your line is live.
Batya Levi
Hey, thanks for taking my questions. I've got two guidance-related ones for Chris on the first one on CapEx. So it looks like your midpoint for CapEx this year is 2.8 build $1 billion was about $3 billion in 23 XMEA., your fiber-to-the-home passings are about the same in 24 versus 23. So it seems like on the CapEx or everything else is ticking down some.
I was just wondering if you could talk a little bit about what's behind that reduction, assuming that observation is correct.
Mike McCormack
It's really driven by our continued focus on efficiency.
Simon Flannery
And so we continue to push on both OpEx as well as CapEx. And and we will continue to do so. But it's not I don't don't view it as a signal of us pulling back anywhere we are investing aggressively and we'll continue to invest aggressively in both enterprise and mass markets as well as just the broader, a simplification of Lumin as we go forward and there's an enormous amount of effort that's taking place in particular this year around financial systems as well as operations that will dramatically improve the customer experience since it's a you get a similar bang for your or more of a CapEx paying for your for your bulk this year than last year and that kind of explained, Rick, that's running.
Batya Levi
Okay. And then second on cash taxes on it looks like cash taxes paid, excluding the refund, are going to be in the 4 to 500 million range, which is a pretty big number I guess, barring any change in the tax code, is this a reasonable starting point to think about for the next few years or regarding debt transactions or other things kind of thrown it off?
Simon Flannery
Yes, I don't want to trying to estimate what 25 is right now.
Mike McCormack
We're obviously not doing guidance there.
Chris Stansbury
No.
Simon Flannery
As I said earlier, we gave the guidance the cash tax guidance we gave this year just because of the sensitivity and net income with all the other special charges hitting this year, some weak, I will give you a little bit here, though on the interest, because I think it's important. I think the cash interest and 25 will not be materially different than it is in 24 and the key thing there is just for your modeling is while we don't have a full year impact under the TSA and 24 at the execution of the TSA, we do basically have to pull forward in our interest expense. So when we look at it, the that that variable is going to be roughly the same 24 and 25, I think that I'll give you that much on 25.
Mike McCormack
Okay.
Batya Levi
But I guess you would maybe maybe I'll phrase it differently, but are there kind of onetime tax items that we should bear in mind. Is that are that are baked into that guidance now?
Simon Flannery
Not not Not materially, no.
Batya Levi
Okay. Okay.
Chris Stansbury
Thank you.
Kate Johnson
Chris Flextech.
David Barden
Next questioner for next question is from the line of Craig Williams from TD. Cohen. Your line is live.
Mike McCormack
Great.
Batya Levi
Thanks for taking my questions. Because I realize you typically guide EBITDA in that 200 million range and I'm just wondering if there's any particular puts and takes to consider what's driving that range this year? I know you mentioned some levers that you can pull up and then the second question is just on the ABS debt market. If you're looking at that in the year now that you've got the clean runway from the TSA and maybe you can leverage some of these fiber homes? Thanks.
Simon Flannery
Yes, we'll continue to look at the capital structure and for ways to make it more efficient for us. So we're not done that was a big one, but we're not done.
Batya Levi
I'm sorry to repeat the first part of the question, but just the EBITDA range, if there's any puts and takes to consider and levers to pull?
Chris Stansbury
Yes.
Simon Flannery
No, I mean, we just we felt that a plus or minus 100 million was the way to go with the comment that I made earlier on just the levers we have.
Mike McCormack
Obviously, we're doing a number of things, right?
Simon Flannery
The primary objective is to get revenue growing as we shift aggressively from kind of legacy services to digital service offerings. But at the same time, we are fixing the internal workings of Lumin.
Mike McCormack
I mean multiple billing systems, multiple G L.s inventory, frankly, a really poor customer experience. And Kate spoke to some of the progress we're making there.
Simon Flannery
So as those things get fixed and that obviously gives us the opportunity to drive more efficiency in addition to a better customer experience and that also had EBITDA effect. So the EBITDA we get the double benefit obviously of the revenue as well as those efficiency plan.
Batya Levi
The corporate, frankly.
Thanks, Greg, for the next question, please.
David Barden
We have another question from the line of Frank Louthan with Raymond James. Your line is live.
Batya Levi
Great. Great. Thank you. I'm just wondering and go to Slide 6 and the different opportunities you have there. Can you characterize that as what sort of potential revenue that is that multibillion-dollar opportunity for Lumin? How should we think about that? And then you mentioned something on the the recognition of the revenues for the public sector business. Is there some sort of a timing difference in the cash flow, some of those that we should be aware of tax plus you have the cash on the other three assets.
Simon Flannery
So really public sector front, that's the longest kind of sale to install interval of anything we sell the big complex deals. Obviously, we're working with government agencies and they've got to go through their processes and that takes time. So you can have a 12 to 18 month lag as I mentioned, until that starts to get recognized in revenue as it relates to the cash flows around that, it will increase as time goes on because obviously the pace of the installs increase.
Batya Levi
But the book to bill at the book-to-bill difference is what you're talking about, not a cash recognition different.
Simon Flannery
Exactly. And then just massive contract that So yes, but I'll turn it back to Kate for the first part of your question.
Mike McCormack
Sure.
Michael Rollins
On page 6, we describe based education use the lumen digital platform, and we have the portfolio outlined with a totally digital customer experience and wrapped around two important things. The first is our network, our core network services because none of these digital services are relevant without total integration into the network. Customers are demanding in the left, the right top-to-bottom integration, quick secure effortless on it needs to be exactly that in order to be relevant in the digital economy. And you know, I think you can look to other companies that have some of these digital services and they don't have the fiber network and they just can't get the economics and they can't get the customer service, right? So we're kind of excited about it. There are there are four core on capabilities that we have right now for Lumen digital. We're just getting started. As I said, the ones that we have here represent a total available market of around 40 billion. And but I think that's actually understating it because we have a couple of really interesting opportunities emerging that we'll talk about as we get a little bit closer to shaping them and think of it this way.
Now, as is, you know, clarifying telco, digital, everything, any port, any service, anytime, anywhere access switches, the center connectivity, fast path into the cloud, any cloud and across clouds. And the edge is becoming more and more germane, especially with a totally digital network and high-capacity switching because users are everywhere. And the expectation is that I'm going to process all of that data that's generated at the speed of thought. And so proximity really matters. And then the last thing is security, and we have huge muscle here that's totally under commercialized. So we're excited about the about the future. And right now, we're just kind of calling it a very big opportunity for net new profit pools, which is going to really help our growth curve.
Batya Levi
Right, great. Thank you.
Kate Johnson
Thanks, Greg.
Batya Levi
I think you have time for just one more questioner.
Simon Flannery
Perfect.
David Barden
We have one final question here for today. That is from the line of Jonathan Chaplin with New Street Your line is live.
Batya Levi
Thanks.
Thanks for squeezing me in guys. Actually two very quick ones. So I'm Chris, given that it may make sense at some point to separate mass markets out. Could you give us a sense for the EBITDA that you're generating in that business today? And then maybe a more conceptual question for you guys. It is you sort of run through the trends in the business, which seem to be improving a little in lot of areas. And it seems like you're taking share in the core segments that you're focused on and you're struggling against us or have the industry backdrop. That's just really, really tough. And it strikes me that the end of the business segment in aggregate is just fragmented not part of the problem. And I'm wondering if there's a consolidation opportunity there and whether you'd be a consolidator or whether a big consolidation transaction would just give you exposure to revenue streams that you're looking to move away from? Thank you.
Mike McCormack
Yes.
Kate Johnson
So I'll take the second part of the question is it's an interesting one for sure.
Michael Rollins
And I think you should think of us as being huge opportunity in the business segment by providing digital services that are integrated into the network in getting, you know, smarter and smarter about how we can take advantage of these really, really complex environments, you know, hybrid cloud, multi-cloud, JNI, et cetera. We have not only the right team, as I've talked about. We've got a world-class network, which I've talked about. And we've already got a head start with a lot of intellectual property protected by patents that sort of uniquely positions us to take advantage of this that's where our focus is. We're maniacally focused on delivering value to customers and obsessing about their needs because that's how we grow as fast as possible. If there are opportunities to integrate vertically or horizontally as time goes on, we will strategically look at every single one of those as is our fiduciary responsibility.
Kate Johnson
And as it makes sense, we'll go after.
Okay.
Simon Flannery
And on that on the EBITDA, we don't we don't guide to that.
Mike McCormack
It is in our filings.
Simon Flannery
So I think that's where I would point you to in terms of it splits between mass markets and enterprise. But as it relates to a potential split of the businesses, what I really want to emphasize is we're not looking to fire sale any assets we're investing and good assets to make them great. And that's our focus first and foremost, because that's how we see the path to maximizing value as we go forward.
Mike McCormack
So definitely on the radar screen.
Simon Flannery
But we've got a really dedicated group of people who are very focused on the quantum fiber build-out and the great customer experience that it brings. And we're going to continue on that path.
Batya Levi
Great to hear. Thanks, guys.
David Barden
Thanks, John.
Kate Johnson
Again, barriers that we're going to kick off.
David Barden
Thank you. Ladies and gentlemen, this will conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines and have a great day. Everyone will see you next time.
