Lumen Technologies (LUMN -5.11%)
Q3 2022 Earnings Call
Nov 02, 2022, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings, and welcome to Lumen Technologies third quarter 2022 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct the question-and-answer session. [Operator instructions] As a reminder, this conference is being recorded Wednesday, November 2, 2022.
It is now my pleasure to turn the conference over to Mike McCormack, senior vice president, investor relations. Please go ahead.
Mike McCormack — Senior Vice President, Investor Relations
Thank you, Franz, and good afternoon, everybody, and thank you for joining us to Lumen Technologies third quarter 2020 earnings call. Joining me on the call today are Jeff Storey, 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 third quarter 2022 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 reconciled to the most comparable GAAP measures that can be found in our earnings press release. In addition, certain metrics discussed today exclude cost for special items as detailed in our earnings materials, all of which can be found on the Investor Relations section of the Lumen website. With that, I’ll turn the call over to Jeff.
Jeff Storey — President and Chief Executive Officer
Thanks, Mike. Good afternoon, everyone, and thank you for joining us. As you know, this is my last call as Lumen’s CEO. I want to begin today’s call by welcoming Kate Johnson as our new CEO.
Kate starts Monday. I think she is an exceptional leader with strong skills, commitment to customers in the direct pragmatic nature. Within Lumen, we are all excited to have her join the company and have high expectations of the great things she will accomplish. These are obviously very dynamic times in the broader market, in our industry, and for our company.
And while we have not accomplished all that I would have liked, we have accomplished quite a lot, and I pass the baton to Kate in confidence that the foundation we have built, the dedicated team we have in place, and the refreshed energy of new leadership puts Lumen in a great position to deliver on its objectives of driving growth and creating long-term shareholder value. At the outset of this call, I want to say a word about the Lumen team, all of whom have been on a challenging, yet exciting journey during the five years since Lumen was formed following the acquisition of level 3. In my final days as CEO, I want to tell you and our employees how extraordinarily proud I am with our team. I’ve seen them rise to every challenge with confidence, pride, and commitment to each other and our customers.
The first example is certainly their response to COVID. They attacked the challenges with tenacity and determination. Throughout the pandemic, we had 10,000 or so employees that continued to work from home, safely doing their jobs, and 10,000 more that were remote with just a few days’ notice. Together and within the first few weeks, they turned out the many emergency augments our customers needed for their own remote workforces.
We all know we stayed in that environment much longer than we had hoped, but the Lumen employees performed throughout. As I think of all that they’ve accomplished over the last five years, it really is remarkable. I appreciate the excellent work they did integrating two large businesses and digitally transforming our company. Between the two efforts, we enhanced our customer experience and realized close to $1.7 billion in synergies and transformation savings.
This summer, they completed the $2.7 billion LATAM transaction. In October, they completed the $7.5 billion ILEC transaction, focusing our Mass Markets business on high growth and more densely clustered markets. And we announced today that we have entered into an exclusive arrangement for the proposed sale of our EMEA business to Colt for $1.8 billion. As the most recent example of our team’s focus on our customers and their talent for delivering, I want to acknowledge their work in the aftermath of Hurricane Ian.
98% of our high-speed Internet customers were back online and connected within three weeks. Our thoughts and efforts remain with our employees and customers who were affected by this event. That’s all of great work. I’d like to talk more specifically about our digital transformation and the foundation we laid for our business going forward.
Digital transformation is not a destination, but it’s a journey. I’m very pleased with the significant strides we’ve made in driving simplicity and automation into our business. We are now easier to do business with, have greater efficiency, and are evolving the way our customers interact with and experience our capabilities. Our customer experience is better than ever and continues to improve as demonstrated by our very high NPS and customer e-scores for both Quantum Fiber and the upper end of our enterprise customer base.
Although not yet where we want to be, our results with our mid-market customers clearly show we’re making progress there as well. As I say to our team all the time, we have much more to do, and I’m incredibly proud of their accomplishments so far. Top-line growth is our principal focus, but we cannot overstate the importance of these transformation efforts in delivering the experience our customers want and driving the efficiencies we need to grow the profitability of our business. First, we’ll discuss the details of the third quarter.
But before he does that, I want to spend some time offering my perspective on the two big announcements we made today. Modifications to our capital allocation policies and today’s announcements regarding our EMEA business. We will reserve time after Chris’ remarks for your questions. First, the capital allocation discussion.
Earlier today, we announced that we are eliminating our dividend and instituting an up to $1.5 billion two-year share buyback program. I want to be clear that Kate, the board, and I are aligned on this action. This is obviously a big decision that we have carefully considered. The one we believe is the right long-term decision for our business.
The benefits of reallocating capital from the dividend are significant for our growth plans, our balance sheet, and our ability to use our free cash to unlock longer-term value through share repurchases. First and foremost, our new policy should remove any questions you may have about the capacity to invest in the growth of our business. Growth has always been and will continue to be our key imperative, and this decision makes our ability to fund that growth clearer than ever. You frequently asked questions about the dividend.
And we’ve generally said the same thing in response to your questions. Returning value to shareholders is a key priority for Lumen, and we believe the dividend is an appropriate value delivery mechanism. But we’ve also said that our board regularly reviews whether that approach remains aligned to the current circumstances. When we announced the $7.5 billion ILEC transaction last year, we specifically said that the board would assess our capital allocation policy in the wake of that transaction.
That transaction completed on October 3, and today’s announcement reflects the output of that assessment. We believe that the current market value of our shares dictates that the long-term value creation is better realized through share repurchases rather than the payment of a dividend. As I said, we have authorized an up to $1.5 billion two-year program, and believe it is more attractive to retire shares at today’s prices than to pay dividends at today’s yields. We have long supported the dividend as a good vehicle for value delivery, but at today’s stock price, that is no longer the case.
We expect to opportunistically repurchase shares over the life of the program. Although our debt maturities over the next several years are very manageable, the elimination of our dividend also provides the company greater flexibility in what promises to be an increasingly unpredictable credit market. Over the last five years, we have significantly improved our balance sheet, eliminating more than $16 billion in debt, and reducing annual cash interest expense by more than $1 billion, and extended most maturities to 2026 and beyond. That said, we do not favor using long-term leverage as a principal source for growth capital.
Again, this is a big decision on which we’ve spent a great deal of time, and that in current circumstances, we believe shores up the foundations of our growth, provides increased financial flexibility, and is solidly in the best long-term interest of our company and its shareholders. Let me cover some of the details on the EMEA announcement. We announced today that we have entered into an exclusive arrangement for the proposed sale of our EMEA business to Colt for $1.8 billion. This represents a very attractive multiple of approximately 11 times for Lumen’s EMEA business and would create additional value for our shareholders.
Included in the sale are substantially all of Lumen’s EMEA-based network assets and associated commercial contracts. Lumen and Colt are also entering into a long-term strategic partnership that will allow us to access each other’s networks to serve enterprise customers requiring local connectivity in our respective markets. As we did with Cirion and…
Read More: Lumen Technologies (LUMN) Q3 2022 Earnings Call Transcript | The Motley Fool