Greetings, and welcome to Lumen Technologies First Quarter 2024 Earnings Call. This conference is being recorded on Tuesday, April 30, 2024. I would now like to turn the conference over to Matthew Debnam, Director of Investor Relations. Matthew, please proceed.

Good afternoon, everyone, and thank you for joining Lumen Technologies First Quarter 2024 Earnings Call. On the call today are Kate Johnson, President and Chief Executive Officer; Chris Stansbury, Executive Vice President and Chief Financial Officer; and Jim Breen, Senior Vice President, Investor Relations. Before we begin, I need to call your attention to our safe harbor statement on Slide 1 of our first quarter 2024 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 and the risk factors in our SEC filings. We'll be referring to certain non-GAAP financial measures reconciled to the most comparable GAAP measures which can be found in our earnings press release. In addition, certain metrics discussed today exclude costs for special items as detailed in our earnings materials, which can be found on our Investor Relations section of the Lumen website. With that, I'll turn the call over to Kate.

Good afternoon, everyone, and thanks for joining us. I'm excited to have a chance to share Lumen's turnaround progress with all of you. As you know, our strategy is focused on empowering enterprises with next-gen on-demand connectivity solutions powered by our fiber network. Effectively, we're cloudifying telecom to meet our customers' need for blazing fast speeds, ultra-low latency, and dynamic capacity to support the immense expansion in data workloads, all in a secure and hybrid world. But before I get into the transformation update, I want to address our 2024 first quarter financial performance. As we shared last quarter, the debt restructuring in the second half of 2023 created uncertainty for our customers and partners, which translated into softer sales during that period. As a result, we saw weaker 2024 Q1 revenue and EBITDA results. Now despite these pressures, we did maintain sequential and year-over-year revenue growth in Q1 within our North America Grow product portfolio. We also made material traction in driving customer adoption of our flagship digital offering, network as a service, or Lumen NaaS, both important components of our turnaround story. Now that we've successfully executed the TSA agreement with a broad group of our creditors, our balance sheet is significantly stronger. When we unveiled our transformation plans at our mid-2023 Investor Day, it would have been hard to imagine the level of financial flexibility we would achieve through this agreement that addressed over $15 billion of our debt, extending over $10 billion of our maturities due over the next four years to 2029 and beyond, while securing access to over $2.3 billion in new liquidity. We're pleased with the runway this deal created for our transformation. And you can expect us to continue to find ways to strengthen our balance sheet and return value to shareholders. Additionally, we're continuing to reshape and right-size our business through automation and AI, continuously redeploying resources to the highest impact growth priorities and taking costs out in the form of people and vendor spend reductions. As such, we materially reduced our cost base in early Q2. These actions were a direct result of our transformation programs and were already contemplated in our 2024 EBITDA guidance. Okay. Moving on to the transformation update. I'll start with our Enterprise business, focused on driving commercial excellence. This is about better sales execution, securing the base of traditional telecom customers to reduce churn, and delighting our customers with quick, secure and effortless digital experiences. We had excellent sales performance in the first quarter, with North American Enterprise sales up 27% year-over-year, our strongest first quarter performance in some time. Additionally, new logo sales increased by 21% and total contract value for all sales nearly doubled year-over-year. A great example is within our public sector business, where we recently won a $73 million contract to transform the U.S. Government Accountability Office's network, data, voice, and video connectivity, so the agency can better serve Congress and the American people. Overall, we're excited by the significantly improved sales results as they should be a leading indicator for improved revenue performance. I also want to note that we're seeing a dramatic rise in demand for high-capacity, low-latency network and edge services, often requested in the form of custom private networks. We believe this is driven by the advent of Gen AI and the complexity of hybrid multi-cloud architectures. We've established a dedicated team focused on capturing this demand, and we are confident this will be an important tailwind for our turnaround. It is a spike in demand, perhaps a once-in-a-lifetime kind of opportunity to leverage what we do best at Lumen. Okay. On to securing the base, a crucial program that is all about five key levers, including installs, renewals, migrations, usage, and disconnects. While our Q1 sequential install trends were affected by the TSA-related uncertainty that I mentioned earlier, we did see strong results in the other secure the base levers. Specifically, renewals were up 5%, disconnects improved by nearly 5%, and migrations were up double-digit percentages, benefiting from a large deal. If we double-click on our migration performance, we see signs of better execution, closing deals with compelling economics as customers transition from legacy services to next-gen solutions in our Grow product portfolio. We are focused on securing the base because when we transition customers from legacy systems like TDM and voice to digital-first solutions like NaaS and IP, we're not only supporting our customers' growth but also our own. That said, this part of our transformation is the most challenging because of well-known secular headwinds as well as complex and unpredictable pricing dynamics across on-net and off-net peering partnerships. Negative growth in these areas masks the progress we are making in selling and delivering the more modern capabilities in our portfolio. As such, we will not only continue to adjust our resourcing here to ensure the highest returns on our transformation program spend, but we will also make those investments and results more transparent to you. A foundational part of our pivot to growth involves a relentless focus on enhancing customer experience. We're delighting customers with process optimization and a truly digital platform, giving them better visibility to their orders with real-time status updates. And as a result, we're meeting and exceeding customer expectations more consistently. In the first quarter, I'm super excited to tell you that every one of our customer segments showed dramatic year-over-year improvements across all products and customer satisfaction, as measured by Net Promoter Scores or NPS. Specifically, large enterprise NPS rose by 24%. Wholesale NPS rose by 35 points, and mid-markets and public sector NPS rose by more than 50 points each. We look at these improvements in customer experience as the cornerstone for continued momentum in sales, churn reduction, and ultimately, revenue growth. Alongside commercial excellence, we're driving disruption and building our future by delivering next-gen networking capabilities to our customers. Our Lumen digital team has been hard at work, empowering enterprise customers with on-demand access to cloud with direct control of network bandwidth, connectivity, and latency paths. Lumen is enabling customers to design, price, order, and consume networking and security services online with a truly digital, low-friction customer experience. It all started with Lumen NaaS, which we launched in Q3 of 2023. Since then, the team has delivered 14 new NaaS innovations, including native DDoS and automated transport in a family of secure, composable services that span our network and edge locations. Through Q1, we saw diversity in NaaS adoption with activated customers across over 20 industries, and the customer feedback is fantastic. For example, Avaya is using Lumen's NaaS to establish Internet connectivity in minutes rather than the traditional service model taking weeks, improving their operational agility. Norwegian Cruise Lines recently shared that with Lumen's NaaS, they've reduced the time to establish Internet connectivity from weeks to minutes, which greatly enhances their customer experience. Speaking of delighting customers, ARENA OPERATING COMPANY delighted fans with a bump in bandwidth while hosting the Florida Panthers NHL playoff game, thanks to Lumen NaaS. All right. Let's talk about ExaSwitch. We created this award-winning high-capacity optical switching platform to meet the demands of hyperscaler peering while also functioning as a high-capacity onramp to the public cloud for enterprises. Now the need to reimagine multi-cloud connectivity has never been more important as AI, autonomous systems, and exploding data growth redefine enterprise networking and security needs. Every millisecond counts. That's why ExaSwitch use cases are extending far beyond hyperscaler peering into things like AI exchanges because it's the only optical switching platform of its kind that can rise to today's performance and security challenges. Finally, we're taking a major step forward in security innovation by launching an exciting new subscription service that leverages patented AI-powered IP-based threat detection and prevention capabilities from Lumen's very own Black Lotus Labs. In the second half of 2024, this security service called Lumen Defender will be broadly available on our NaaS and DIA connections, enabling enterprise customers to have more secure connectivity as we help identify and block threats at the network level. Let's look at our Mass Markets business now. We continue to execute our strategy to deploy capital where we see the greatest opportunities for growth, and we're on track to deliver more than 500,000 new fiber-enabled locations this year. We're optimizing our presales motions to drive penetration into those assets as quickly as possible. Our strong fiber sales momentum from late last year continued, highlighted by our Q1 quarterly fiber net adds being the best we've ever reported. This was achieved with our sales, marketing, and retention efforts, including improved results in converting existing copper customers to our best-in-class Quantum Fiber product. It's not just me saying it's best-in-class; it's our customers saying it, too. We're continuing to deliver amazing Net Promoter Scores with Quantum Fiber hitting positive 67% in Q1, once again rising sequentially and year-over-year. Finally, I'll wrap with a comment on people and culture. I've said that we will rebuild Lumen from the people up, and this focus on culture is enabling our transformation and creating a company that continues to get external recognition. In fact, we won 11 awards for superior culture in the past few months alone. More importantly, it helps us continue to attract amazing talent. On our last earnings call, I spoke about our key innovation hires, including Satish Lakshmanan, as Chief Product Officer, and Dave Ward as our new Chief Technology Officer. Since that time, we've made three important talent additions to our team. Jim Breen, our new SVP of Investor Relations, is with us on this call, and as many of you know, he brings more than 25 years of tech and telecom equity research experience and will lead our efforts to clearly communicate our transformation progress to all of you. Ryan Asdourian, our new EVP and Chief Marketing Officer, joins us from Microsoft and will play a critical role in raising visibility around our game-changing innovations as we disrupt traditional telecom. Finally, Diankha Linear, a tech company CEO with an amazing track in tech, military leadership, retail, and logistics joined our Board of Directors. The team is gelling. We're executing really well, and our customers are seeing our progress. I'm confident that Lumen's future is very bright. And with that, I'm going to turn the call over to Chris.

Thanks, Kate, and good afternoon, everyone. In the first quarter, we took important steps towards strengthening our balance sheet and reshaping the business. As we position Lumen towards driving for long-term growth, as expected, our first quarter revenue and EBITDA performance was affected by TSA-related customer uncertainty as well as some seasonality factors discussed in our last earnings call. While we have more hard work ahead of us to improve trends, we're demonstrating our ability to execute. A few key highlights. First, as Kate mentioned, we successfully completed the TSA in the first quarter, which creates additional runway for our pivot to growth in terms of rephasing our debt maturities and providing more than $2.3 billion in new liquidity. The transaction included high participation from creditors across our capital structure, underscoring their broad support in our turnaround strategy, and will continue to strengthen our balance sheet as we move forward. As planned last week, we took material cost-out actions as we continue to improve processes and shape-shift our organization to support our strategy. These savings were included in our full year 2024 guidance. Going forward, we expect to realize additional cost takeout opportunities as we further reshape our organizational structure, rationalize third-party spend, drive increased adoption of AI to automate manual processes, and shut down non-core legacy products. Finally, and most importantly, our sales growth engines within our Business and Mass Markets segments accelerated in the first quarter as we saw a strong improvement in performance within both North America Enterprise sales with a 27% year-over-year growth and Quantum Fiber broadband net additions. All of this gives us confidence in our 2024 guidance with EBITDA expected to improve from a low point in the first quarter. Before covering our first quarter results in more detail, I'd like to first discuss several changes impacting our 2024 revenue reporting. As we discussed last quarter, we're breaking out a new International and Other channel within our business segment, which includes all international and CDN revenue. We're also providing updated business product category reporting to move CDN from Harvest to Other within the International and Other channel. Additionally, with the sale of our EMEA business and select CDN contracts completed in the fourth quarter of 2023, we will provide the historical contributions of these sales as well as the associated commercial agreement impacts within our financial trending schedules. Please 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. Finally, related to our annual customer realignment process, we moved a small amount of revenue from our Mass Markets segment to our Business segment within the Mid-Market Enterprise channel, and historical revenue has been reclassified into our financial trending schedules to reflect this change. Let's move to the discussion of the financial summary for the first quarter. On a year-over-year basis, total reported revenue declined 12% to $3.29 billion. Approximately 34% of the decline was due to the impact of divestitures, commercial agreements, and CDN. Business segment revenue declined 12.7% to $2.591 billion, and approximately 41% of that decline was due to the impact of divestitures, commercial agreements, and CDN. Mass Markets segment revenue declined 9.2% to $699 million. Adjusted EBITDA was $977 million in the first quarter with a 29.7% margin. Free cash flow was $518 million in the first quarter. 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, International and Other, revenue declined 5.5%. As we mentioned last quarter, we had a one-time public sector revenue benefit in the fourth quarter within our other product group, and this did not recur in the first quarter. Additionally, as I mentioned earlier, the customer uncertainty related to the TSA through the second half of '23 and early this year had a lagging effect on revenue trends in the first quarter. These pressures were fully contemplated in our 2024 guidance that we provided in early February and are expected to gradually abate over the coming quarters. We continue to expect public sector to be the first channel to pivot to sustainable growth later this year, followed by Mid-Market and large enterprise. Overall, North America business declined 7.3%. Large enterprise revenue declined 5.8% in the first quarter within large enterprise. Our Grow revenue increased 1.4% year-over-year and this growth was offset by other product revenue as well as continued declines in Nurture and Harvest product revenue. We expect continued variability in trends as we drive towards overall stabilization. Mid-Market revenue declined 7.1% year-over-year. Continued strength in IP and enterprise broadband within Grow product revenue was offset by lower VPN and voice, which contributed to the declines in our Nurture and Harvest products. Public sector revenue declined 2.8%, influenced primarily by declines in Nurture and Harvest, which more than offset growth within our Grow and other product revenue. As Kate mentioned, we continue to see traction with large bookings in this space, which take time to ramp to revenue, and these wins give us continued confidence that public sector will be the first sales channel to return to sustainable growth this year. Wholesale revenue declined 11.3% year-over-year. The harvest portion of the wholesale portfolio, which is comprised of products like TDM, voice, and Private Line, saw revenue contract by 17.2% year-over-year in the first quarter. This is primarily driven by telco partners that are setting legacy services. Our Harvest product revenue will likely continue to decline over time and is an area that we will manage for cash. International and Other revenue declined 65.2% driven primarily by the divestiture of our EMEA business and the sale of select CDN contracts in the fourth quarter of last year. Moving to our business product life cycle reporting. I'll reference the results based on our North America Enterprise channels, which represent our core strategic revenue categories. As Kate shared, we maintained higher Grow products revenue both year-over-year and sequentially in the first quarter despite the TSA-related headwinds. The 3.3% year-over-year improvement was driven by strength in IP and enterprise broadband across all channels as well as dark fiber and Edge Fabric growth primarily within large enterprise. While results can vary in any quarter, we expect sustained strength in the Grow product revenue as we execute on our core turnaround. Grow represented approximately 43% of our North America Enterprise revenue and for our total business segment carried an approximate 81% direct margin this quarter. Within Nurture and Harvest, we continue to see, and to expect, headwinds in these markets' declining categories. However, we continue to take proactive steps to migrate customers to newer technologies, and these actions improve our customers' experience and provide an uplift in customer lifetime value for Lumen. Additionally, we will continue to pursue opportunities for cost optimization when we help customers migrate from off-net legacy and TDM-based services onto Lumen's network. Nurture products revenue declined 13.3% year-over-year with VPN and Ethernet services driving the performance. Nurture represents about 31% of our North America Enterprise revenue and for our total business segment carried an approximate 67% direct margin this quarter. Harvest products revenue declined 11.9% year-over-year and continues to be negatively impacted by declines in TDM-based voice and Private Line. Harvest represented less than 17% of our North America Enterprise revenue in the first quarter, an improvement of approximately 120 basis points year-over-year. For our total Business segment, it carried an approximate 78% direct margin this quarter. Other products revenue declined 1.8%. Our other product revenue tends to experience fluctuations due to the variable nature of these products. Now moving on to Mass Markets. Our fiber broadband revenue grew 11.8% and represents approximately 35% of Mass Markets broadband revenue. Also note that our exposure to legacy voice and other services revenue improved by approximately 170 basis points year-over-year. During the quarter, fiber broadband-enabled location adds were 129,000, bringing our total to approximately 3.8 million as of March 31 and pacing towards our targeted annual 500,000 build target this year. During the quarter, we added 36,000 Quantum Fiber customers, which is our best fiber net add quarter reported to date, and this brings our total to 952,000. Fiber ARPU was flat sequentially and increased year-over-year to approximately $61 in the first quarter. At the end of the first quarter, our penetration of legacy copper broadband was less than 10%, and our Quantum Fiber penetration stood at approximately 25%. As we look ahead, we will continue our market-by-market assessment of the Mass Markets business as we explore a range of strategic options to maximize its value. Those options include potential joint ventures and wholesaling arrangements to improve its EBITDA contribution, as well as asset-backed securitization and future divestitures to generate incremental cash. Now turning to adjusted EBITDA. For the first quarter of 2024, adjusted EBITDA was $977 million compared to $1.251 billion in the year-ago quarter. The first quarter of this year included a net headwind of $43 million related to the divested EMEA business, a net benefit of $2 million from the divestiture-related post-closing commercial agreements, and a net headwind of $18 million from the sale of select CDN contracts. These items represent approximately 22% of the year-over-year decline. Due to expected revenue benefits from our strong first quarter sales bookings, and previously won large deals as well as efficiency improvements from our second-quarter and ongoing cost actions and overall margin management, we expect the first quarter to be the low point for EBITDA in 2024. Special items impacting adjusted EBITDA this quarter totaled $170 million, reflecting expected charges related to the negotiation and execution of our TSA agreement. For the first quarter of 2024, our adjusted EBITDA margin was 29.7%. Capital expenditures for the first quarter of 2024 were $713 million. For free cash flow, $518 million was generated in the first quarter, and this included an expected tax refund of approximately $700 million. Importantly, we're leaning into our network investments to support the rapid growth and demand our customers are facing and remain confident in our free cash flow guidance. Moving on to our financial outlook. We're reiterating all of our 2024 full-year guidance metrics. And with that, we're ready for your questions.

Two topics. The first one, in terms of the performance sequentially and year-over-year, your organic business revenue declined for things like Harvest and for Nurture, and then just for the customer vertical designation. Can you share a bit of how much of that was seasonal versus other factors, whether it's competition or an acceleration in the legacy revenues? And how much of that is customer-driven versus some of the initiatives that you have to try to drive out the unprofitable or lower-margin or legacy revenue to help your customer relationships? And then I have one other topic for you afterwards, if I could, please.

Michael, good questions. We don't have the split outs and all that. But what I'd say very broadly and generally is these are the industry declines that I think everybody is talking about, right? Customers are leaving legacy telecom services. Our competition is also trying to turn off off-net services. We're trying to turn off off-net services that are increasingly expensive to operate. All of that is driving some of those trends. So I would say this is more the continued behavior that exists. It's not something new that we're seeing. I wouldn't say that it's seasonal, and we expect it to continue. I think the more important point is that that's why we're changing the rules of the game and focusing on bringing newer products consumed digitally that meet the needs of customers today rather than the needs of customers from the past. And that's really where the focus is. And that's why our Grow category is the biggest portion of our overall portfolio, and you'll see that continue to grow.

And then the second topic, you mentioned in terms of the market-by-market assessment for the Mass Markets business, the possibility of wholesaling and joint ventures. If you could expand on that a bit more? And are you considering offering fiber on a wholesale basis, whether it's to wireless carriers or other third parties?

So we're looking at all possible arrangements. There's no secret, obviously. There was an announcement last week where joint venture arrangements exist with a number of our competitors. So we're looking at those. Wholesaling is one that could be added to that. And there may be opportunities to sell any given market if the valuation is right. So the whole point here is on driving incremental enablements and penetration and then how we increase our EBITDA leverage on those investments as we go forward. So there's no one answer at this point. And as we get closer to making decisions around those things, we'll certainly communicate that.

I was hoping, Chris, you could provide more details on what is contributing to the continued momentum in Quantum Fiber. It's great to hear about the NPS as well. If you could elaborate on the factors driving subscriber growth and what you're observing from a take rate perspective in terms of your product and service level speed mix, that would be appreciated.

So broadly speaking, there has been a significant amount of focus and excellent work by the team to scale up our marketing efforts. Last year, we mentioned that one of the challenges we faced until we reached scale was our ability to enhance the marketing strategy. Previously, many of our marketing efforts were concentrated on localized initiatives. We have since broadened our approach, and there is now significantly more media in the market than before. We are continuously refining this media strategy to ensure its effectiveness, which is improving our penetration. The team's focus remains on two key areas: ensuring efficient and rapid implementation of the right enablements and driving penetration swiftly to shorten the time to pay back. Kudos to the team for their efforts; we will keep evolving these programs to maintain effectiveness, and we feel very positive about what we've accomplished so far.

Can you provide a little bit more context on the cloud sales funnel that you mentioned in 1Q? And with that coming in into the second quarter, can we also expect maybe business revenue decline to be the low point in 1Q as well? And maybe if you could touch on the competitive environment for these new next-gen services that you're building up that would be helpful.

Sure, you want to start?

Yes. So I'll take the first part and then turn it back to Kate. I think, Batya, it's too early to say that first quarter is going to be the low point because we obviously do have the legacy drag that we've talked about openly. It's going to be choppy as we go through the year. What I would say is that the results that we saw in first quarter, we're really pleased with, but it's one data point. And the team is focused on rigorous execution to ensure that, that continues and obviously converting that funnel into installs as we go forward. So a little early yet to call how revenue performs quarter-by-quarter this year. EBITDA, we're more confident in because of the cost savings that we've been able to generate with some of the activities we talked about.

And with respect to your question around the competitive environment, it's clear that we are focusing on the future and applying all of our resources to building a platform to give customers what they want. Every customer conversation that I have reflects this notion of capacity on demand. When I talk about cloudifying telecom, it's the ability to fire up any service, anytime, anywhere and to do so with dynamic bandwidth and all of the digital capabilities that make it easy to operate in a really complex environment from on-prem to edge and in the cloud and back and to push processing and data workloads where it makes sense to do so cost-effectively. Traditional telecom doesn't account for that. It's too physically oriented and doesn't have that digital wrapper to enable what I just explained. We're investing in it heavily, and what we're hearing from our customers and our partners is that we're the only ones that are, and I think that's differentiating. We're very committed to it, and as such, we're getting what I see as a nice increase in demand across the board for our products and services. That's translating into a healthier pipe.

So if I could, just the first question would be related to Batya's question. Kate, if we went backwards five or six years ago, MPLS would have been the growth driver of the business, SD-WAN was this very small thing that was coming up the curve. Then three or four years ago, MPLS kind of stopped growing and SD-WAN started growing significantly as a cost savings opportunity. Now we're talking about high-speed, low-latency custom private networks. I'm wondering about the kind of interplay of these different product arcs, and your confidence level that the next generation of the next product isn't the product that kind of cannibalizes the existing products that are the meat and potatoes of the business today. And then the second question, Chris, if I could, just on the TSA, congrats for getting it all done. Our math is that it contributes $200 million of incremental interest expense to the business. Is that roughly right? If it is, you've reiterated all your guidance; can you talk about how that $200 million fits into all the numbers and where the offset comes from?

I'll start and pass the mic over to Chris. So the first part of your question regarding net new capabilities and how the portfolio grows over time rather than just cannibalizing. It's a great one. What we see is increased demand for the ability to consume services in the digital era. As I said before, there aren't a lot of companies doing this, which gives us a bit of a differentiated value proposition when we approach customers with NaaS, but also with ExaSwitch, which is an important part of this story of creating fabric to create infinitely flexible and dynamic connectivity solutions. That's going to do two things. Number one, it builds a digital platform upon which we can build more services like the Lumen Defender service I mentioned earlier in my remarks and increase our portfolio and the amount of available market we're going after. We're entering a new space with some of these new offerings. The second thing it does is it allows us to provide a seamless customer experience where we can help customers go faster in terms of their digitization, and they are starting to recognize that and choose this more, which gives us a huge share take opportunity. So it's two ways to grow, acquire more customers, which is happening, and the second way is to sell more to them, which is also happening, evident in both of the metrics that I shared earlier with net new customers and the size of the deals that we're selling to them.

Yes, and that's correct on the interest expense, roughly $200 million. This year, we gave a range. It could be a little less than that, just given the timing of when that deal was consummated. We talked really last year and late last year in our guidance about the fact that we adjusted our capital spend to compensate for that from a free cash flow standpoint. Between that and the cost of capital considerations and the time to pay back on consumer fiber, we pulled back on the build plan from $750,000 a year to $500,000 a year. That’s how that’s contemplated. Importantly, though, we’re not done; there will be opportunities for us to use new sources of cash, additional sources of cash to continue to focus on delevering, and that's job #1. So you'll see more as we go forward.

Chris, could you provide more insight into the EBITDA cadence? I understand the headcount reductions, but it appears they are being implemented gradually in the second quarter. How should we view the cost line items from Q1 to Q2 and from Q2 to Q3? What are the expected changes during those periods? And Kate, you briefly mentioned AI in your comments; I would like to explore further what you see as the main opportunities to reduce costs and enhance customer experience through AI. When can we expect those initiatives to reach their full potential?

Yes. As for the timing, Simon, we don’t provide quarterly guidance. But the reality is, if you look at the savings, you’ll see a lot of the benefits start in Q2 will be at run rate in Q3. Don’t forget in your modeling, Q3 is always seasonally our highest cost quarter because it’s when we’re doing a lot of maintenance. It’s the highest use of energy for cooling and whatnot. I don’t want to get into specific quarterly guidance other than to say we’re confident that Q1 is the low point in EBITDA for the year.

Regarding your question about using these technologies to enhance productivity and provide a better digital experience for our customers, we're very excited about the progress we’ve made. What I shared in my prepared remarks was just a part of this. Chris referred to it as shape-shifting; we're transforming Lumen into a digital company, which entails a variety of initiatives. We’re bringing in new skills across the company, evident in the leadership team and throughout the organization. We’ll focus on reskilling and upskilling different groups as needed, ensuring that we redeploy resources to higher priority tasks when possible. Last year, we actively engaged as beta testers for various AI capabilities, both within our enterprise system platform and for tools like Microsoft 365 Copilot. We are pleased with the adoption of these capabilities at all levels and functions within the company, and we’re experiencing a significant return on these investments. For instance, in terms of knowledge worker productivity, we’re seeing an increase of about 30 minutes per day for each employee, which translates to approximately 700,000 hours that we can redirect towards more important projects. We’re very excited about this. Additionally, we’ve observed around a 30% boost in developer productivity using AI with GitHub, which is particularly encouraging as we develop our digital platform. Our progress includes 14 new innovations in NaaS directly linked to our productive development team, along with another 16 innovations launched across ExaSwitch and our security and edge platforms since October. Overall, that totals 30 new innovations since October, demonstrating significantly improved productivity compared to previous periods. We're making substantial progress and will continue to pursue this as a key aspect of our turnaround.

First, Kate, you mentioned that there is growing demand for high-capacity solutions driven by AI. Would it be accurate to say that waves and dark fiber are seeing the most benefits from this trend? To what extent was this aspect of your bookings responsible for the overall increase in bookings you referred to? Additionally, you've indicated that the Mid-Market enterprise segment has transitioned to growth after the public sector. You've also mentioned that the channel is a key driver for this growth and that you are engaging your channel partners more. What insights can you provide about the quality of the deals being brought in by the channel and the compensation being offered to those partners?

I'll start with your first question. Yes, we're seeing a huge increase in demand for waves and for dark fiber, for sure. We're also seeing an increase in demand for what I referred to as custom private networks. Think of it as big technology companies or cloud companies that need to interconnect their data centers to push data back and forth, huge workloads and to do so as friction-free as possible. They’re coming to us for a couple of reasons. Number one, we have conduits. This ability to continue to overpull fiber gives a lot of flexibility there and room to grow. The second piece is because of the digital platform and because of our mission around delivering capacity on demand at every level of the network. It’s the value proposition of doing business with Lumen. So that’s the first part. Regarding channel productivity, we’re excited to be focused on the channel. We’re excited to continue to recruit and help our partners to be as productive as possible. We're seeing improvement there, but it’s not enough yet. I look at it as a huge opportunity to have more feet on the street, selling these net new capabilities. I think we're getting better at building the rhythms around a true commercial engine, which is both direct and indirect for these net new capabilities like NaaS, like enterprise to cloud connectivity through ExaSwitch, and like Lumen Defender with our security offering. More to the story coming. But Chris, do you want to add anything?

Yes, Nick. I think Kate hit most of it. I think the key thing for us, if I think about a large enterprise, Mid-Market, and public sector, public sector is first to turn with a well-established sales motion deeply connected to the customer and understanding of the customer. That was a strong muscle tissue at Lumen, frankly. Mid-Market was almost the exact opposite. There wasn’t a lot there. There was heavy reliance on a direct selling motion. The product set was really large enterprise focused, trying to sell to a mid-market customer. The bar was lower and there’s been tremendous work on fixing the products that dramatically expanding the partner ecosystem to reach a bigger customer base. As Kate said, getting processes and measurement in place that’s beginning to work. I won’t give the numbers specifically, but I can tell you our partner ecosystem, those new logos are selling at a rate that’s in double digits in terms of growth, and it really is those growth products. The motion is working. Large enterprise is the most difficult pivot because it’s big, and it was probably least prepared for where we’re going in terms of the kind of instrumentation, measurement, etc. A lot of work has happened there; it’s not that it hasn’t happened. It’s just going to take longer to see that turnaround take place.

Thank you, Nick. Operator, we will take the next question.

I just have one on the ILEC opportunities. You mentioned you take a market-by-market approach. Just wondering about the operational complexity with the plant specifically if you sold some of it. When you sold Brightspeed, you noted there wasn’t much overlap with the enterprise market, so it was like a cleaner break. Now you have a lot of plant that’s intertwined with the Enterprise segments. Just wondering if there’s more complexity and more time needed for any opportunities?

Yes. There is more complexity, but that’s part of what we do. It’s contemplated in everything we look at. It is in no way an impediment to us having the flexibility to do things that we think are right strategically. I would say it’s a consideration, but it’s certainly not a driver of our thinking.

Can you provide details on what percentage of revenue comes from the Lumen Digital Platform as shown on Slide 6? And what is its potential growth? Additionally, regarding Black Lotus Labs, given its success, would it create more shareholder value to operate as an independent company, or should it remain part of the existing structure?

Thanks. So a couple of things. Slide 6 shows the digital platform, NaaS, ExaSwitch, Edge Fabric, and Security. That is a significant opportunity for growth across all those capabilities, not something we're ready to report on. As we look to become a growth company, we’re maniacally focused on delivering customer value. That’s about making sure we delight every single customer. That’s why I shared we’re across 20 different industries because the number of industries that we can get to and then first, second, third, 10th, 20th customer, you start to go faster in each one, and you get momentum and critical mass for scale. We’re excited about the progress, lots more to do, but this is the future of the company. It represents new profit pools and available markets that Lumen didn’t have access to before, in the tens of billions across each of these spaces, some in the hundreds of billions. So we’re excited about the opportunity. Black Lotus Labs is without a doubt the not-so-secret weapon. They have helped keep the country safe. Their value is incredible, and we’re proud to have them in our portfolio. The reason they’re so valuable is that they see our network traffic. The capabilities we’re developing and launching in Lumen Defender take their patented data models and enable those to be available in an integrated fashion with our network. Nobody else is doing that right now. So we’re excited about the potential value, and you will see them as an integral part of our team moving forward.

That does conclude our question-and-answer session. And with that, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.