If you have followed Cove Street’s podcasts interviews over the last year, Lumen Technologies (Ticker: LUMN) is a company that we have discussed a number of times. Here and here, for example. It is a hugely controversial, battleground stock that the mere mention of elicits a fair amount of derision. We think that means there is a total misunderstanding of the assets and of the people. That was the premise of being invited to appear once again on the great Yet Another Value Podcast, which is hosted by Andrew Walker.
In this discussion, we talked a lot about the motivations of Lumen’s management, the two recent assets sales, how to value the RemainCo, and the large discount to intrinsic value that (in our opinion) the stock still trades at. Please find the YouTube interview below.
Also, the most effective way to get better as a podcast host—and guest—is to re-listen to everything you do. It’s also important to fact-check yourself and acknowledge any mistakes. In this interview, I flew solo without my co-pilot, Eugene Robin, who is the lead analyst on Lumen. And I didn’t get everything right. Accordingly, I want to add a few clarifications to the LUMN podcast:
- We actually do know the CAF dollar number that is tied to the Apollo assets. On the Q2 call, Jeff Storey mentioned that 60% of the CAF revenue (which is about $500M in total) is tied to the assets they are selling, leaving $200M in the remaining consumer footprint. We also need to remember that there is a lot of CAPEX tied to CAF subsidies so the hit to Free Cash Flow is actually a fair amount lower than is the hit to EBITDA.
- Also from the Q2 call, the 5.5x multiple they are receiving from Apollo EXCLUDES CAF revenue, which is going away. So, we were both mistaken that they were including CAF revenue. It doesn’t change the math I presented because we are only using 5.5x for the Mass/Consumer assets.
- I slightly mischaracterized the RDOF auction. What I meant to say is that the auction was based on the minimum subsidy amount a party was willing to accept in order to provide broadband to an area.
- Corvex was actually the lead activist pushing for Storey, not Southeastern.
As always, we welcome your questions and feedback.
