Gregory Williams

Gregory Williams asked about the completion status of PCF projects announced in August 2024, whether amortized PCF revenue is currently being recognized, and the amount. He also questioned if Lumen's NaaS metrics on slide 9 suggest a conservative estimate for the 2028 inflection, and if current pacing is ahead of or in line with the $500-$600 million digital revenue target.

Answer

Kate Johnson, CEO, explained that the company's conservatism stems from the structural changes in the industry and customer adoption patterns, which typically follow a 'land and expand' model for NaaS. She clarified that PCF revenue recognition begins upon construction completion and lighting up the fiber, with the $13 billion in builds extending through 2031, meaning Q4 deals won't be completed until after 2028. Chris Stansbury, CFO, added that $116 million in PCF revenue was recognized in 2025, with $41 million in Q4, indicating scaling and on-schedule delivery.

Gregory Williams inquired if any PCF projects announced in August 2024 have been completed, if amortized PCF revenue is currently recognized, and how much. He also asked if the NaaS metrics indicate that 2028 inflection estimates are conservative or if the company is pacing ahead.

Answer

Kate Johnson, CEO, reiterated that conservatism stems from the cautious approach businesses take to changing critical infrastructure, as seen in NaaS's 'land and expand' buying patterns. She clarified that PCF revenue is recognized upon construction completion and lighting, with the $13 billion builds extending through 2031, meaning Q4 sales won't impact 2028 ranges. Chris Stansbury, CFO, added that $116 million in PCF revenue was recognized in 2025, with $41 million in Q4, indicating scaling, and that the company is on or ahead of schedule.

Greg Williams asked for the reason behind the lowered CapEx guidance and requested details on the 'sell with' and 'sell through' channel partner model, including its economics, scale, and timing.

Answer

President & CEO Kate Johnson explained the channel model involves tech partners bundling Lumen's NaaS offerings via APIs, which lowers Lumen's sales costs and expands reach. EVP & CFO Chris Stansbury attributed the lower CapEx guidance to the timing of large PCF builds and some equipment backlogs, stating it does not affect revenue timing.

Gregory Williams of TD Cowen asked for insight into the cadence of capital expenditures and upfront hyperscale fees for the remainder of the year. He also questioned if Lumen was seeing any risk in the public sector from potential Department of Defense (DOD) efficiency cuts.

Answer

EVP and CFO Chris Stansbury declined to provide a quarterly CapEx cadence due to the volatility of large project payments but reiterated confidence in the full-year guidance. President and CEO Kate Johnson addressed the public sector outlook, stating that the administration's focus on modernization and simplification presents a significant opportunity for Lumen. Combined with return-to-office trends, she expressed a bullish view on the segment.

Gregory Williams asked if ongoing discussions for new PCF deals are showing signs of the AI 'inference phase' materializing and whether disruptive AI models like Deepseek could cause a near-term pause in hyperscaler network build-outs.

Answer

CEO Kathleen Johnson reported no signs of a pause from hyperscalers; in fact, she said they are asking to accelerate current projects. She noted that while it's early in the inference phase, industries like finance and healthcare are driving network upgrades. She emphasized that Lumen's multi-cloud fabric is a unique capability that securely and efficiently connects workloads between clouds, positioning the company well for this next phase of AI adoption.

Gregory Williams of TD Cowen asked about potential dis-synergies from a theoretical sale of the Mass Markets business, given enterprise overlap. He also questioned why the 'Nurture' product category was declining faster than the 'Harvest' category in the quarter.

Answer

EVP and CFO Chris Stansbury stated that dis-synergies would be manageable, as critical enterprise routes from the CenturyLink network would be retained. Regarding the product buckets, he described the faster decline in Nurture (mainly VPN and Ethernet) as a 'quarterly blip' rather than a significant trend and mentioned that new migration programs to move those customers to modern services have not yet taken full effect.

Greg Williams of TD Cowen questioned the progress of wavelength installations, asking if the target of 400-500 circuits per month by year-end is still achievable, and inquired about the data center sales process, specifically if the $10 million per megawatt asking price is realistic based on current interest.

Answer

Dave Schaeffer, Founder & CEO, explained that while billed installations were 147, several hundred more were installed but not yet billed due to customer readiness. He affirmed the capability to ramp to 500/month. Regarding data centers, he confirmed receiving six offers for parts or all of the portfolio but noted caution as bidders have been hesitant to post significant non-refundable deposits, making it premature to adjust the asking price.

Gregory Williams of TD Cowen asked about the recent reduction in the quarterly dividend growth rate to $0.005 per share, questioning if it was temporary and what milestones, such as leverage targets, would be needed to return to higher growth. He also sought clarity on the wavelength installation cadence, specifically the path to reaching the 500 circuits per month target.

Answer

CEO David Schaeffer explained the Board slowed dividend growth due to increased leverage, which is expected to peak in Q3 2025. He stated the Board is committed to returning capital and will re-evaluate the dividend growth rate as leverage begins to decline in Q4, with a reduction in net leverage being the key milestone. On installations, he clarified that Cogent has the capacity for 500 waves/month but is currently limited by the size of its rebuilt sales funnel (3,433 opportunities), which it expects to grow to 10,000 by year-end, enabling the 500/month installation rate.

Gregory Williams questioned Cogent's competitive position in the wavelength market against rivals like Lumen and Zayo, and also inquired about the IPv4 pricing strategy and its revenue potential.

Answer

CEO David Schaeffer highlighted Cogent's competitive advantages in waves, citing greater data center ubiquity (over 880 sites), faster provisioning times targeting two weeks, and a lower cost basis. Regarding IPv4, he confirmed the strategy of raising prices on new sales and cycling through the existing base, expressing confidence in continued outpaced growth from this high-margin segment.

Gregory Williams asked for more detail on the on-net revenue decline, questioning the drivers beyond the terminated contract and the cadence of future uneconomic contract terminations. He also questioned the data center sale process, asking if sites could sell for less than the $10 million per megawatt target and why CapEx was being spent upfront.

Answer

CFO Tad Weed clarified that the combined negative sequential impact from the T-Mobile CSA and the terminated contract on on-net revenue was $5.7 million; excluding this, on-net revenue would have grown 1%. CEO David Schaeffer added that the upfront CapEx for data centers is to accelerate conversions based on direct feedback from potential buyers, optimizing for the highest return. He noted significant interest in long-term leases and that they are effectively running a 'quiet auction' on a site-by-site basis.

Gregory Williams of TD Cowen inquired about how AI's 'inference phase' might alter deal structures and yields, and asked about the typical win rate for the company's $1.5 billion hyperscaler sales funnel.

Answer

Kenny Gunderman, President & CEO, explained that Uniti has a very high win rate on hyperscaler deals due to its selective pursuit of strategic projects. He noted that hyperscalers prioritize reliability over just price. Gunderman anticipates the AI inference phase will shift deals towards higher-margin, lower-capital lease-ups on existing fiber, citing a recent 20-year IRU as an example, which will boost recurring revenue and EBITDA.

Gregory Williams asked about the current M&A environment, questioning if deal activity has slowed, and inquired if the high mix of lease-ups signals a strategic shift away from new builds toward data centers and AI inference.

Answer

CEO Kenneth Gunderman confirmed that M&A activity has not slowed and is, in fact, quite active, fueled by convergence and hyperscaler themes. Regarding lease-ups, he explained that while the mix ebbs and flows, it reflects a conscious strategy to maximize asset utilization and cash yields. He noted that hyperscaler investment remains strong for large language models, with the AI inference phase expected sooner than anticipated, and that a significant portion of the quarter's lease-up was driven by these customers.

Gregory Williams asked about the timing of the AI 'inference phase' in Tier 2/3 markets and questioned the rationality of the current bidding environment for hyperscaler deals, inquiring if competitors are accepting lower yields.

Answer

CEO Kenneth Gunderman stated that the inference phase is already beginning and that Uniti's first-mover advantage in Tier 2/3 markets creates a competitive moat. He clarified that the merger with Windstream brings 40 new hyperscaler customer relationships, not just markets. Gunderman asserted that the bidding environment has been rational, noting that Uniti wins most deals it pursues with attractive economics, achieving blended yields approaching 20% on recent hyperscaler projects inclusive of lease-up.

Gregory Williams asked for more details on the Montgomery Metro rings win, the economic structure of hyperscaler deals, and the competitive dynamics in the RFP process for these large-scale fiber opportunities.

Answer

CEO Kenneth Gunderman explained that hyperscaler deals are highly strategic, focusing on core network routes with significant lease-up potential. He stated these deals fit squarely within their 'anchor plus lease-up' model, with high upfront payments (NRCs) often resulting in initial yields exceeding their typical 5-10% target range. Gunderman added that the competitive dynamic is less about a traditional RFP process and more about a provider's ability to deliver a scaled, robust network on time and on budget, where Uniti has a proven advantage.

Gregory Williams from TD Cowen asked for an update on T-Mobile's rural market share relative to its 20% goal and how the company plans to 'thoughtfully' deploy the $1.5 billion tax relief benefit.

Answer

President of Consumer Group Jon Freier confirmed they have surpassed the 20% household share goal in smaller markets and rural areas. CEO Mike Sievert added that their current win-share is significantly higher, indicating more room to grow. CFO Peter Osvaldik explained that deploying the tax benefit would follow their established capital allocation philosophy, potentially by accelerating synergies from the U.S. Cellular deal to enhance value.

Gregory Williams from TD Cowen asked for an update on T-Mobile's rural market share relative to its 20% goal for 2025 and how the US Cellular acquisition impacts that. He also inquired how the $1.5 billion tax benefit would be deployed.

Answer

President of Consumer Group Jon Freier confirmed T-Mobile has surpassed its goal of 20% household share in smaller markets and rural areas. President & CEO Mike Sievert added that their current win-share is significantly higher, suggesting substantial future growth potential. EVP & CFO Peter Osvaldik explained the tax benefit would be deployed thoughtfully, potentially to accelerate synergies from the US Cellular deal, guided by their established capital allocation philosophy of investing first in the core business, then adjacencies, before returning capital to shareholders.

Gregory Williams of TD Cowen questioned T-Mobile's appetite for larger-scale fiber M&A, such as the Lumen assets, given the company's stated focus on pure-play fiber and its available capital.

Answer

CEO Mike Sievert reiterated that T-Mobile is actively exploring opportunities in the fiber space but has nothing new to announce. He stressed that any potential deal must be the 'right thing' and offer a superior return for shareholders, similar to the high IRRs projected for its Lumos and Metronet JVs. He noted their current strategy already provides a significant broadband footprint, allowing them to be selective.

Gregory Williams of TD Cowen asked about the sustainability of the record-level consumer phone gross additions and requested more specific details on the customer experience initiatives launched on June 24.

Answer

EVP & CFO Tony Skiadas attributed the strong gross adds to excellent sales execution and the resonance of the 'best value guarantee' program. Chairman and CEO Hans Vestberg detailed the customer experience launch, which includes dedicated representatives for issue resolution, 24/7 customer service, AI-powered tools for support staff, and increased utilization of retail stores for customer support.

Gregory Williams inquired about Cable One's strategy for addressing its 2026 convertible notes following the MBI call option amendment, and asked for guidance on the future trajectory of residential data ARPU given multiple influencing factors.

Answer

CFO Todd Koetje explained that the MBI amendment provides significant capital flexibility. He noted the company will use its revolver capacity and proceeds from monetizing strategic investments to proactively address the converts in what he sees as a constructive market. CEO Julia Laulis added that for ARPU, the company has numerous levers to drive overall broadband revenue growth, planning to use a market-specific approach to either expand ARPU with enhanced products or drive unit growth with targeted offers.

Gregory Williams asked for clarification on whether the observed stabilization in competition applies to both fiber and fixed wireless, noting conflicting commentary from peers. He also sought confirmation on the timeline for the moderation of recent OpEx investments.

Answer

President and CEO Julia Laulis explained that they are seeing positive growth in some of their most competitive markets and that competitive disconnects have decreased. She noted that while fixed wireless competes for new connects, Cable One's high data usage trends and new pay-as-you-go product position them well. CFO Todd Koetje confirmed that the timeline for OpEx investments to moderate remains on track for mid-2025.

Gregory Williams asked about the expected impact of seasonal costs on third-quarter EBITDA and the drivers behind the strong momentum in commercial revenue.

Answer

CFO Scott Beasley confirmed that Q3 has seasonally heavier costs, primarily from energy and growth-related SG&A like marketing and commissions, but still expects strong year-over-year growth. CEO Nick Jeffery addressed commercial revenue, stating that while it can be lumpy, strong underlying fiber growth of 9% in the first half is driving performance. He expects to finish the year at the higher end of the previously guided plus or minus 1-2% growth range.

Inquired about whether the current low fiber churn is sustainable or if there's room for improvement, and asked for clarification on the amount of vendor financing included in the 2024 CapEx guidance.

Answer

The company believes it can continue to improve NPS and lower churn further. The 2024 CapEx guidance of $3.0-$3.2 billion includes vendor financing, which is expected to be a few hundred million dollars, with total cash and accrued CapEx being similar for the year.