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You're listening to Teip. On today's episode, we sit down with Ben Clurman and Eugene Rubbin from Corsetry Capital, we discuss looming technology, the stock Tigger's LSU Ammend, and it's a new name for a search entity between Level three and Centrelink. We discuss how a three horse the hidden upside value while only being one third of the new entity and central links dying business model is distracting the market's attention.

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Ben in Eugene makes a great case for why there may be a special situation opportunity right around the corner. There could be a catalyst for the stock price to soar. And before we jump into the episode, we also welcome our new co-host, Trey Lockerby.

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And you are listening to the Investor's podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Hey, everyone, welcome to the podcast, I'm your host brought us today, I'm even more excited than you used to see me. I am not accompanied by my co-host, Preston Peche. Instead, I'm here with our new co-host, Trey Lockerby. Trey, how are you doing today, Stig?

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I am thrilled and honored to be the new co-host of We Study Billionaires. I'm sure the audience has a lot of questions. I'm going to leave that to you, but I can just only say how grateful I am and excited about this opportunity. And we are equally as excited to bring you on today because you have been here for actually almost since the very beginning. So perhaps the audience, at least the most through the listeners, might be able to recognize your voice, even though it's a it might be a tall order.

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So perhaps you can explain to the audience, what do I mean by that? That's exactly right. So I actually am, I believe, the call in question on episode maybe two or three of the billionaires. So I have been listening since day one. I haven't missed a week. I listen to the show every week and have for the last, I don't know, six years now. So it started for me with my journey into investing. I'm an entrepreneur at heart.

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I've started multiple businesses and multiple industries, started in entertainment now and the beverage industry. And through all that, I took Buffett's advice where he said he's a better businessman because he's an investor and a better investor because he's a businessman. So I found this positive feedback loop of sorts of continuing to study investing, even though I don't have a finance degree or MBA. I did it all sort of on my own. And along the way I really got deep into value investing and I read every single book there is on Warren Buffett.

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And through all of that, this phrase kept popping up over and over again and it was intrinsic value. What is the intrinsic value? And that led me to this journey of of Buffett's books, the original course by this network. And when I finished the course, I believe we study billionaires. Episode one had just launched and I jumped right in. And I've been following along ever since. And Stick, I believe. Speaking of Buffett, we met at the Berkshire Hathaway meeting, I think in twenty sixteen.

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Yeah, that's that's right. And back in twenty sixteen I think our community at that point in time. Well I think the first time was there that was back in twenty fourteen. That was with Preston and his dad. So we've grown a lot since then. Twenty sixteen. We're probably like I don't know, twenty people or something like that. At least it was so small that everyone still knew each other and like new was first name and so, so I remember like we met at dinner and we just get to talk and people might be like that.

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Sounds like a bit of a familiar story. You're talking about Berkshire Hathaway. You're dressed a lot of times on the show. And we have introduced you to Robert Leonard, a host for real estate investing, Emiliane investing. We met him at the Berkshire Hathaway event, too. It was a different year. And then again, another year, we met Sean Murray, our host for The Good Life. So this is not a conscious hiring strategy at all.

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It's not like we will go to Omaha once a year and then just hire people if we ever run into. That's not how it is. It's just one of those where you you meet people, you start to network and you just meet the nicest and best people out there in Omaha at that meeting. He's just the most authentic and genuine people. So, you know, we met out there, kept in touch and and, you know, one thing led to another.

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And and now you're a new cohost. So we started billionaires talk about coincidence. That's right. It's definitely a certain tribe that shows up in Omaha every year for the Berkshire Hathaway meeting. My my wife would probably call it the most boring concert in the world. Right. It's it's not for everybody and those who are crazy enough to make the flight and trek and journey out to Omaha. It's a certain breed. And I think that's why we all clicked when we first met each other.

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We're just sort of in that brotherhood of this journey to figure out how to solve this puzzle of what makes a good investment. I guess the audience might be sitting out there thinking, OK, cool. You know, this new trade, dude, he sounds real cool is we started building. There's now going to be different. You know, it's Steg and Traina or like, what's the game plan here? How is this going to be different with you, Trey?

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Well, my mission is to not change the show. I mean, I'm a longtime listener, and my mission is to preserve the quality that everyone knows as we study billionaire and what has made it a success to date. And I'd only like to incrementally add value over time, hopefully by bringing a unique perspective, given my very atypical career background. So that's my ultimate mission and I am more than happy to take on. Feedback so you can reach me at Treh at the Investors podcast Dotcom, I only ask that you be nice.

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I'm just getting started right. But I do want honest feedback. I want to ensure that I'm providing as much value for you as possible.

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Fantastic, and I just wanted to address one thing here before we jump into the interview here today, president is still going to be here. Actually, already next week we're speaking with Ed Harrison and Preston will be on that call. So sometimes Trey will join me here on the show. Other times, Preston, will, you heard about Trey's background. You were probably very similar to what you've seen so in the past. And so that's sort of like the game plan move forward.

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But we are really just testing a lot of different formats. We are very excited about the new energy that Trey would bring to the team. So that's sort of like our starting point, as you probably heard there on the feed the other day. You know, Preston, he is working on this new big show. And you will have from time to time, you have new episodes on that, too. So Preston will will still be doing that and you will still be and we start building there.

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So anything else, Trey, we need to talk about before we jump into the episode? I think you nailed it.

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Stick. I'm not trying to fill Preston shoes. I'm not replacing him. He's still very much part of the show. I think I'm just sort of opening up the discussion a little bit broader and hopefully adding a unique perspective. Fantastic.

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Trey, I'm just excited for it for you to join Preston and me and the rest of the community on this journey. All right, let's jump into the interview, that train I did with Ben Yujin from Koshary Capital. Benny, Eugene, thanks for joining me here today to talk about Lumin and DM's investors podcast, how you guys. Thanks for having us on. All right. You have the first question. OK, so there's a lot to unpack with Lumin, so I need to start with just a general overview about the company and kind of the structure that's just become a little bit recently in place.

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We were as a firm, we own level three communications, which was also a roll up of different assets, if anybody was around in the early two thousands or in the late 90s, and remember people laying a bunch of subsea fiber from New York to Spain and across the Atlantic and across the Pacific, Level three and Global Crossing were exciting companies back then because of the idea that it was going to be this huge Internet. And we're going to need all this connectivity.

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We're going to get all this fiber that's connecting continents. Well, there was an overbill. Global Crossing went bankrupt. I mean, there was just a lot of mess. But lo and behold, years and years later, guess what? The Internet's bigger than anyone ever thought. And so level three was the role of that included level three assets, a company, Global Crossing company called Time Warner Telecom. It's a mix of what we would call kind of like domestic US fiber, like underground, and then a bunch of subsea fiber that connects endpoints all around the world.

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And so we love this company that's run by a guy named Jeff Story. We were level three shareholders when the merger with CenturyLink was announced. And we looked at it and we said to ourselves, Jeff, story looks like he's retiring. He's a guy that we like. We focus a lot on management at Coke Street. And we looked at the management team at CenturyLink and we said this is not a group of people who we feel confident and don't necessarily think they understand what they're buying.

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I think that has proven to be the case as we'll get into. But what is it now? So you have level three with a legacy CenturyLink business and CenturyLink is what we just basically a rural telecom. So if you think about the companies based in Louisiana, think about rural Louisiana, they're the telco there. And so if you need phone, if you need a really slow Internet connection, which is probably DSL, there's no fiber in these areas.

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And if you need a TV, that's where you're buying it from. And without any question, that's a shrinking business. So you have a global growing asset, heavy, almost irreplaceable asset business in level three and you have a slowly shrinking, melting ice cube in CenturyLink. Jam them together. And what could go wrong? Well, a lot can go wrong. And so we are now a number of years into this merger. It closed in, I think, October twenty seventeen.

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And a fair amount has happened. The old management team, unsurprisingly, is gone. It was twenty five million plus. So he didn't need the money. They kind of begged him to come in as CEO of the new company. And then quickly it became clear that the CenturyLink guys had no idea what they were doing. And just stories now, the CEO. So getting to management, we like management. And so that's a big part of our investment and research.

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So you have management in place. What is it now? It's about a ten point six dollars billion market cap company has a ten point three percent dividend yield, which for your listeners might be kind of interesting. Where else in the world are getting a ten point three percent yield as about thirty five billion in debt, which is a lot. And we'll talk about that and why we don't think that's a problem. And the business is essentially one third level three and two thirds CenturyLink and so are just a frame in.

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Why this is interesting is that our general thought is that Wall Street doesn't do a good job with two things. One, a good business and a bad business together. And the other thing is a business that is shrinking. The topline has been shrinking. And that's because you have the melting ice cube in Centrelink that is kind of overtaking the potential growth that you said that we saw with slightly less than we would expect for going forward growth, that you're going to see a level three.

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And so Wall Street doesn't know what to do with that. That's why we see such a large undervaluation. You get into a lot about that going forward.

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So I think in terms of we're framing this investment is one of the most dislocated things we've ever seen in our careers. We scratch our heads every day being like we just don't understand what the market's thinking. The dividend yield, I think, would imply that people don't think it's sustainable. The current dividend and we'll get into that and why we think the dividend is sustainable and then we'll get into what we think it's worth, which I think is why this should be really interesting for people.

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So let me get this straight. Level three has a lot of promise and a great management team with Jeff Story, and then they merge with Centrelink, which is now two thirds of the new business. But it's sort of this melting ice cube, as you've put it, because it's sort of a dying industry. So what was the impetus for the merger and why is Centrelink such a big portion of the new business? Great question about why the deal even happened.

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The short of it is the military was offered a lot of money to consummate the marriage. We were level three shareholders and we're happy to take the premium that was offered to us. And we sold out, as been mentioned, as soon as we realized that the surviving entity would be controlled by Glenn Postholes, the CEO of CenturyLink. The reason why the combined company is predominantly CenturyLink is because it was at the time of 17 billion dollar revenue company. This was not a tiny entity by any means, and it was larger only in the profits sense then level three.

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However, the actual valuation was skewed towards a little. It's a bizarre artifact. This is basically like a company that was trading at, let's say, five times by a company that was trading at 12 times. And typically the people who get pardon my French screwed are the shareholders of the company that is trading at five times. So we as shareholders have level three didn't care because we were getting a fantastic value for our investment. And the CenturyLink shareholders, well, they just they took it in the past.

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This actually reminds me of almost like Berkshire Hathaway, right, a dying textile business. Buffett overtakes this textile business that's ultimately failing and chooses to take some capital and buy stuff like insurance companies that's going to throw some cash and fuel the future of Berkshire Hathaway and made it into this conglomerate. Is it the right way to think about this, where Centrelink sort of has a dying industry and they see the writing on the wall? So they make this investment in something like level three that has more staying power and perhaps more scalability over time?

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That's exactly what the pitch was to the CenturyLink board when they discussed the acquisition currently. It's also still a truism to say that while it is a melting ice cube, the ice cube is melting at, let's say, three to five percent a year on a cash basis. And the good side, the level three side is growing. And yes, if Glenn Post was Warren Buffett, I would say that would be one hundred percent accurate in terms of the comparison.

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But unfortunately for central shareholders, Glenn Close was the farthest thing from Buffett, which is just a little bit of a nuance that kind of alluded to it. But the combined entity, when investors woke up and realized that Jeff story was not going to be the CEO, there was a rebellion within the shareholders because part of the deal also gave stock of the new entity to shareholders and those folks and said there's no way that we're going to allow you, the CenturyLink management team, to manage this going forward.

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So you better bring story back in or we're going to vote you out anyway. So there was a way to say that the deal was loved. It would be the farthest thing from the truth from day one. It was very contentious. And it's taken, Jeff, story three years to basically reconfigure the entity to be effectively level three. Again, from a management perspective, obviously not from a revenue perspective, but certainly from the people who make decisions on a day to day basis.

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And that ties into my next question. When did the merger close? The merger closed in two thousand seventeen, and it's interesting, if you look at the stock price between the deal announcement day and the deal closing day, it was just down. I think stock went from like I think it was like twenty eight, twenty nine dollars to nineteen. So, I mean, clearly there were concerns about whether this deal made any sense. So let's talk about the new entity, how does it make money and who are the customers?

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I will answer the question in a consolidated fashion, even though there are really two different parts of the business, the core of it is called IP services and IP services is a fancy way of saying connectivity. So I'm sitting in this office speaking to you right now via video link through the Internet. How do we get to that point? Right. We have a building that's wired with fiber. We have fiber running somewhere while you're in L.A. So it doesn't have to go that far.

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But again, if you were across the country, it would go through a fiber line that runs from L.A. to New York and get into someone's building. So little three at its core was exactly that. They own metro loops or fiber within large most of the large cities in not only the United States but in the world. And they had what's called on net buildings, which is a fancy way of saying their own fiber assets and copper. Sometimes wiring was inside the commercial building that we're in.

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And when we go ahead and choose the Internet provider that we want, we could choose Level three as the effective Internet provider. So that's the IP services side. Then they have what I would call they refer to it as wholesale. But if you think about it, obviously there are many companies out there who sell Internet connectivity to the customer without actually having owning the underlying fiber networks. So there are a lot of brokers out there, even folks like Verizon or sometimes even Comcast, while they have the end points wired up, they don't have a way for you to actually the way the Internet works.

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Right. Just because you can plug in your cable modem doesn't mean that you connect to Sao Paulo. Or if you have a multinational, how do you get that transit data from L.A. to Sao Paulo? Well, you have to run through someone else's fiber network. And so that that business is called wholesale, where you open up your strands of fiber to other people's traffic. So that's another way that they make this money. Then you have what I would consider to be higher on services on top of the fiber.

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So these are things like security, fancy terms called as the UN employees. And I'm happy to talk about what those are, if you really want to know. And then things like content delivery networks, which are actually how we as consumers consume things like Netflix videos and even get our updates from Microsoft or play games and things like that. So there are effectively ways for companies to minimize the use of their servers by caching or keeping copies stored more locally of commonly accessed media.

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Netflix has now their own CDN networks, the largest competitor that would be Akamai, fantastic company that's publicly traded. So that's another one of their services. Then when you go down the stack a little bit further, you get into what we would consider consumer. So consumer and then already kind of touched on it. They have a couple different legs. They also have this kind of a bizarre aspect of being in rural America. But there's actual regulatory revenue that they receive from the federal government to the tune of five to six hundred million dollars a year.

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That's basically a subsidy to allow for people like in the sticks in Louisiana or Kansas, Arkansas or wherever, wherever there are. There isn't fiber or the ability to get high speed Internet to get Internet at all. And what people don't realize is this country so vast that you need connectivity and you're not going to incentivize a private company to lay connectivity down on its own to a town of 50 people. So how do you get those 50 people connected to the Internet?

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You provide subsidy. So the way that Centrelink made money for many, many years and still does to some extent is to get basically free taxpayer dollars. So that's roughly five hundred million dollars right now. Another thing is, obviously, when I just mentioned is broadband connectivity. They have fairly extensive I'm saying it looks like one point six billion dollar business connecting households to the Internet. So it's not one hundred percent fair to say that it's all DSL copper.

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They did over the course of many, many years spend money to transition a lot of their installed base to be basically a derivative of coaxial cable. So competing with things that people like charterer and Comcast. So they do have actually, believe it or not, a pretty stable broadband customer base. And when I say stable, it's plus or minus two percent growth. Some years they might be slightly down. Another year like last year, I think they were up by one point seven percent, something like that.

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That's another consumer leg. Then they have the real problem. And this is a problem that affects almost all the telcos. They have a voice business that I think was one point nine billion, I want to say. So that voice businesses, as you can imagine, going to be effectively zero over time because many of us don't have home phones anymore. And the only reason why people get them for some bizarre reason is because they can. Companies would like to bundle them together.

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But in this, I mean, I think I had no idea what it was for many years and I don't anymore. But that's happening across the country. And obviously, the decline rate there is pretty intense. We're talking 15 to 20 percent year over year that business. The reason why that matters is you would think that, well, that seems like a silly business to be in. But remember, it's one hundred percent profit, right? So if you had the mines laid over the course of 50 to 80 years, you don't have to really invest in them as just people pay you every single month for this phone service that most people now with cell phones don't really need.

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So that is the other part of the consumer that's obviously been what's dragging down CenturyLink in total. And then you have another call it the small and medium sized businesses, which the services there run, the gamut from connectivity of broadband to voice, and that they're also having obviously issues just in terms of being able to sustain their top line while every single unit price downs on the connectivity side, as well as the telcos telephone service, that's kind of like it's a very broad range of ways that they make money, some of them growing good, other ones obviously shrinking.

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All right, back to the show. So as I said earlier, a lot to unpack here, right? This is a very complex company. I'm curious, Eugene, if you went to my son's in kindergarten, if you went to his kindergarten class to talk about Lumin, what would you say to them? How would you tell them that that makes money? They make money by connecting people to the Internet. I see that they also offer cloud solutions, does that make then a competitor to Amazon Web Services and Microsoft?

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Yes and no, this is a long story, too. They have a lot of data center assets, three to four hundred data centers that they basically run for their customers. They can partner with eight of us in some cases to offload some forms of traffic and and data aggregation. But for the most part, they provide what's called the edge connectivity solutions to businesses that don't necessarily want to be one hundred percent on us or one hundred percent on Azure or one hundred percent on their own internal data warehouses, mainly because of cost.

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The short answer is yes, they do compete, but certainly not in any sort of the same scale is more of an add on service to their core IP connectivity service that you can think of it that way. So as we looking at the new structure, the top line growth of lumin is pretty spotty.

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It has emerging, say, five percent over the past five years. Top line was down 4.5 percent, though, in 2019.

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And this was at point in time where the economy was still hot and before covid-19 head. So I'm curious where the losses coming from.

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Two main buckets, so I mentioned that they provide wholesale connectivity to people who use their their underlying network as a highway of sorts. It's like a toll road. And every single year the tolls pay to get onto the toll road, go down in price. While we may not be laying any new transatlantic fiber's, what's happened over the course of 20 years is that the actual hardware systems on each side of the fiber line continue to get upgraded every single, let's say, 12 to 18 months to a new generation.

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And I'm not going to get out on your listeners, but it's effectively just think of it as like a string cheese, like they've figured out a way to pull the string cheese ever so more thinly and to create more strands effectively of that string cheese from the same block of cheese they had from the last 10 years. OK, that appropriate to whittle this down as somewhat of a telecommunications company, and if so, there are a lot of competitors in that space, even though it's a very broad industry.

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I'm curious who you consider to be the direct competitors or Luman, and what advantage exactly does a woman have over them? I mean, I think if you talk to the company, you see little competitors here and there, but domestically it's really AT&T and Verizon, the other legacy telcos who have just massive customer bases and they're connecting people all over the country. I think outside the US, if you're thinking about like who else has the ability to have did you have to connect people from from the US to you, for example?

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I mean, Orange, right?

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Eugene and British Telecom Colt, Colt Fiber asset owners, people who have a lot of physical assets in the ground. And so I guess the one thing to think about is that is, of course, there's competition, but there are certain barriers to entry as well. Right. When you've already laid the fiber, you have a cost base that it makes it very, very difficult for someone to come in and build another whole strand of fiber to compete with you, because they've got to spend the cap.

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They have to put in the capital. They have to put they have manpower associated with that. And then they have to compete with you on pricing and you can put your assets already in the ground. Right. And so your ability to price lower gives you the opportunity to keep competitors out. The other thing is that the total addressable market continues to grow. Let's think of covid just for example, like what has covid gives them a lot of awful things.

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Obviously, one of the things that has done for for Internet connectivity is like everybody's on Zoome, everyone's doing videoconference calls. We were talking to one of our CEOs, other just just yesterday. And he was talking about the growth they've seen in average usage per household has gone up to something like two hundred and fifty gigabytes per household per month. And so the usage and the amount of traffic that is flowing is going up almost exponentially now because of Koven.

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Now, that growth rate will come down and maybe as we start to travel more, the numbers won't grow quite as much. But the total addressable market is growing. And so it's not like you have this melting, the whole market is shrinking and then you have issues with Centrelink and and level three, the connectivity business will continue to grow as people demand faster speeds, more bandwidth, more capacity and then more security and other kind of end point and edge services that Centrelink offers.

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So we don't look at this as like some winner take all fixed pie or shrinking pie that they have to compete to win. That's what we like about the level three side, is that we do think that this isn't growing as fast as detecting whatever that trade, the 20 times revenue. But we do see core growth, which I think is what the market doesn't understand is that what you have is that you have a core growth at level three. You have what we call shrink to grow at CenturyLink, which is to shrink the parts that are shrinking, eventually start to be a smaller part of the total.

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And then there's parts within Centrelink that are growing, which is the broadband side start to grow. And then so either the decline abates or there's no more decline at all. But in the meantime, you've cost to the degree that your margins are higher and your cash flows are growing. So even if your top line is shrinking the revenue line, your cash flows are growing. And that's the inflection point. Whether we'll get into this, whether this is one entity or multiple entities, over time, the inflection point will be where the no growth, no growth parts of the company no longer overwhelm the growing parts.

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And all of a sudden, Wall Street sees a growing business that generates an enormous amount of free cash flow, that has a great ability to deliver and trades at a multiple. And nothing trades in terms of how low it is. So just to kind of make sure I understand that if we talk about level three, which is sort of the fiber part of this business that's laid all the fiber underground and creating all this connectivity, that investment has a certain cost basis to it.

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And as you just said, more and more people are getting on to the Internet. So they've got this kind of fixed costs from laying out all this investment into fiber. And the more and more people get on the Internet, the more money they make with this fixed costs. And therefore, they're going to start throwing off a lot more free cash flow that they can use to pay off their debt as they become more profitable. So that's sort of the right way to think about it.

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Yes, in a nutshell, that's exactly right. You use the legacy business, you effectively milk it for the cash flows. You reinvest part of the cash flows into the growing side and you pay down debt to deliver the company while refinancing that debt to decrease your cost of debt as well as cost of capital. Now that we are on the topic of death, let's dig more into it, I'd like to focus on the interest coverage ratio and this is the ratio that determines how easily a company can pay interest expenses on outstanding debt.

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And it's calculated by dividing companies operating income by its interest expense. So whenever I do the math, I come up with an interest coverage ratio around two. And obviously the higher the ratio, the better. And we would like to see at least five, if not 10, if a company is conservatively financed. How concerned are you about the low coverage ratio? We're conservative investors, so debt and potential inability to cover interest payments are a major concern, and I think the market overall is concerned about the debt level.

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Let's talk about that, because not all that's created equally and not all situations are the same. So this company has ability to generate an enormous amount of free cash flow. And so that is one way in which this this problem will alleviate it. We don't think it's a current problem, but every day this company is generating cash. And what are they doing? They're paying down debt and they are refinancing their debt as well as using said their interest savings from the things they have done are in the hundreds of millions of dollars just because they're pushing out their maturities and they're also lowering their cost of debt.

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That is helpful. I look at the numbers that you have that, as you quoted, we would calculate it slightly differently because just because there's so much capital associated with this business, which is they have to spend to keep the physical assets up to date and also to expand. And so a slightly different metric which we ebeid, which is a kind of a proxy for cash flow, minus capital expenditures over the divided by interest expense. And that number is more like two and a half, which is, again, these numbers are.

[00:33:20]

Are they stellar? Absolutely not. Is that certainly a concern of the market? One hundred percent. Our contrarian perception here is that there's an inflection point in terms of growth that is upcoming. The capital that they are spending now will continue to generate even better returns because they're much more targeted. Their capital expenditures and the cash flows they generate can more than offset what they can pay down debt. They can pay a dividend, they can pay their interest.

[00:33:44]

And then over time, as EBITA grows, which was just kind of the cash flow metric that we're using here to measure the debt as LIBOR grows and that debt profile, the total amount of debt declines, then those numbers are going to start looking a lot better right now on a net debt basis. But that being our proxy for cash flow, there are three point seven times, which is certainly not that high. I mean, we think anything over five times I mean, depending on the business, the five times is a number where you start to have a really worry about it.

[00:34:12]

Given the cash flow profile, given that management is absolutely hellbent on paying down debt, given their ability to reduce their total interest expense. And the corollary to that or that, what happens associated with that is that you get higher free cash flow. There's a virtuous cycle of debt pay down and lower costs and then a better ratios that we think will be really helpful for the stock. So we never want to downplay how much risks associated when you're talking about thirty five billion dollars in debt and a business that has us as a shrinking component.

[00:34:43]

But I think our contrarian presumption is that there is a that it is nowhere near as big as an issue as people are giving it. So you pointed out that the management is aggressively cost cutting and also refinancing the high yield debt. So that brings us to CEO Jeff Story. Jeff, story's an interesting character in this story because he was CEO of level three, the smaller portion of this now merged company. And before that, he had experience at companies like Cox and will tell.

[00:35:10]

And you mentioned you have a lot of faith in Jeff specifically. So I'd like to cover him a little bit more. How do you measure his performance and how much do you factor management qualitatively in the overall valuation of the company? In terms of measuring his performance, I would point people strictly to the free cash flow number. So the weird thing about this company is that given that Level three has publicly traded debt, level three also still puts out its own independent financials.

[00:35:43]

So, well, you can have a consolidated Lubman 10k. You could also look at the annual results for the underlying Level three business, which allows you to break apart level three from literally CenturyLink. Just give your viewers some or some metrics behind how to judge a story. When story came in to be the CEO of the combined entity, The Legacy, CenturyLink had a free cash flow number roughly one point six to seven billion dollars. That was in twenty sixteen.

[00:36:17]

He came in at the end of seventeen. So let's just use eighteen as a starting point. From 18 and 19. He's effectively stabilized and slightly even growing free cash flow, while at the very same time CenturyLink has lost, call it, 10 to 12 percent of its topline. So how do you judge Jeff story? Will you judge him by the fact that within that melting ice cube, he's managed to cut enough costs to effectively stabilize free cash flow in the face of a shrinking topline number, which is an impressive thing?

[00:36:50]

And goes back to something that we've mentioned several times, which is this is kind of the cost cutting chops. That's one way to measure. The other way to measure them is we internally have a metric that we track which is called our return on invested capital. Since he took over the entity that Roett measure has gone up from RHOA because the return on invested capital has gone up from, call it, eight to nine percent when the old legacy CenturyLink management team ran things to roughly 12 to 13 percent.

[00:37:20]

Again, this is a way for us to kind of back of the envelope gauge whether or not whatever he's doing, including the CapEx that he's spending, is that a net positive for shareholders? I would point to both of those things as far as showing people that this person is a fantastic leader when it comes to cutting down unnecessary, inefficient, fat that a larger corporation might have, as well as deploying the next marginal dollar into the highest and best use for the underlying shareholders.

[00:37:55]

What's happened in the stock price? It's been a disaster. And for us, that's the opportunity. You have good management with a business that's about an inflection point and in trading at a valuation that is way below what we think it should be or what comparable companies trade at. But to get your question, these are independent decisions. Within our process. We evaluate the business separately from the people, separately from the valuation, because we want all three pillars to be pointing in the right direction.

[00:38:19]

And so we've done a fair amount of work on on Jeff over the number of years. And we don't have any concerns that that he's not completely aligned with shareholders. I'll point out that he was going to retire, was basically forced to come back into this role. He's fifty nine years old. I don't think he wants to do this forever. I'm going to put it out there that this is not public information. They haven't said it. What I'm saying, but our supposition based on the name change, the branding change is that the company is in the middle of a long process of actually undoing this merger, because very simply, as Eugene was talking about, a business like CenturyLink should trade at a lower multiple a business level three share traded a higher multiple and suggests comparable transactions, a much higher multiple.

[00:39:07]

And those two businesses don't work together in Wall Street's mind. But if you separate them, basically undoing what was an ill fated marriage from the very beginning, that's how you create a lot of value for shareholders. And so they haven't said that specifically. But I do think that you've seen signs that they've think that they've been very thoughtful about that. And when we talk to the company, they have expressed an openness to do anything that adds value for shareholders, including transactions, spin offs, things that would be more of a catalyst for value creation.

[00:39:39]

And I would just add to that in terms of we do a lot of work on proxies. People tend to skip over proxy materials, I feel to their detriment. And proxies are fantastic ways for investors to get a sense of what is this person that's ahead of the company? How are they incentivized to what are they going to focus on? So just stories and incentives are three fold. One, most of this comes in the form of things tied to the free cash flow growth.

[00:40:10]

I believe that 90 percent of the short term comp is based on that. And I believe he has a restricted stock. Issuances are also based on the profile of the company. That's one to. After the merger, I think he wound up owning three million shares, if not a little bit more. So you can do that math, right? So a stock that used to be twenty five dollars to him is a whole heck of a lot of money.

[00:40:36]

Doesn't matter. Even if you're a billionaire, you still think seventy five million dollars is a lot of money. So he's incentivized just from long term shareholder ownership. And the last part is, I think that the board also added in our total stock return. Long term compensation metric, which means that while you can argue that he's done a fantastic job on the operating side and he's done all the cost cuts to stabilize cash flows and that all these things, yet if the shareholders are getting the benefit of all of that, he's not going to get paid at all.

[00:41:09]

Which goes back to Ben's point about should this be actually kind of split back up into two different entities? And I'm guessing Jeff's story would be one hundred percent for it because he certainly would benefit greatly personal. Very interesting. So let's go back to the business and let's pretend that you are stuck on the remote island and you only had a score card with you.

[00:41:32]

And those all you had to track that performance was three key metrics. Would you put on that card? We look at the following three one revenue growth or their enterprise segment. It's very important because that's also a fantastic proxy for how Level three core assets are doing, which again, going back to how we think about it, are the the jewel here that's kind of obscured by a declining legacy site. So that's one to the free cash flow generated by the company, because irrespective, as I mentioned on the lead, the CTL or CenturyLink performance, irrespective of declines in revenue story, has managed to actually grow free cash flow in the face of all of that.

[00:42:17]

So we we also track in the way that your listeners know, the way that we look at free cash flow is simply the cash flow from operations minus the capital expenditures. So that's just it's a pretty simple way to judge the business. It's also incredibly important because that also is a way to measure how fast it could pay down debt and kind of your margin of safety versus that large debt load, as you pointed out previously. So that's two thirds.

[00:42:45]

Honestly, I just make sure that the legacy decline is within a comfortable variance. And what I mean by that is if the legacy CenturyLink mix of revenues is somewhere between call it negative three and negative six percent, that's OK. If it's greater than negative six percent a year over year basis, that's when some red flags start coming up. Because just judging by the cost cutting over the past several years, you kind of that's basically what Jeff story is assuming internally himself.

[00:43:20]

And so as long as it's within that kind of a decline range, those are the three things that we kind of follow.

[00:43:26]

And I don't know, I think margins. So the two other things that we focus on, four key variables at our firm. So we don't want to overload people with variables but margins, because if your revenue is shrinking, that's never good. But if your margins are improving and your cash flows are improving, that's a sign of underlying strength in the business that's kind of not seen in the top line. And then they have very large synergies, cost cutting targets that we are continuing to track.

[00:43:53]

I mean, we're talking that's a billion plus now. I think they've talked about in terms of the total synergies between CenturyLink and Level three and the cost cuts that are associated with that. So those are the things that we're tracking over time. And they all kind of flow into each other margins and free cash flow. I do want to mention one other thing. Eugene was talking about incentives. I was just looking at their proxy statement, which, by the way, since we didn't discuss that, which is just the annual data sent to shareholders about who's on the board, who's up for reelection on the board, corporate governance and then compensation.

[00:44:21]

But also in the proxy statement, there is a change in control clause, which is like if this company gets sold, how much does he make? Well, there's 16 million dollars in severance for that story. If the company gets old. And based on the stock price, I think it's probably December thirty. First it was forty four million dollars if the company were sold. So getting back to incentives, does he have an incentive to maybe transact this company?

[00:44:45]

I think the forty four million reasons why there could be a value creating transaction of some kind in our near future.

[00:44:52]

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[00:46:56]

So this might seem a little far fetched today, but companies like SpaceX are gunning to put up cheap satellite Internet. So within the next five to 10 years, do you think there might be a threat to broadband dying at the hand of satellite Internet technology? You and I are laughing about this because we can literally do an entire podcast on this subject, one of our largest position is ViaSat, which competes directly with space. And so I think in terms of the people who are in a good position to answer that question, I think you're talking to the right people.

[00:47:30]

So I'll hand it over to Eugene to discuss not necessarily viasat, but the potential disruption and risk at CenturyLink and level three to satellite broadband. I'm going to just sum up by saying, though, and what I mean by that is Starling is a fantastic money raising scheme for Elon to inject capital into space X. It is at the very moment inconceivable that they could serve more than one to maybe two million users in total across their entire network if they launch their forty four hundred satellites.

[00:48:08]

So I just want to be crystal clear about this. The hype machine that Starling and SpaceX has is a fantastic tool that very few companies can possess because it allows them to raise incredibly cheap equity at valuations that are literally sky high. Right. So that's something that no one can discount. I do believe he's going to build this constellation, and I do believe that is still uneconomic. And whatever they want to put out in terms of PR, at the very best, you're looking at a million home users.

[00:48:44]

Just so your listeners understand, originally Starlink was supposed to be, oh, this is going to buttress that call 5G infrastructure. That sales pitch was deleted over the past year and a half. Then it was going to be this world wide. We're going to deliver Internet connectivity to every single person in Africa and that's no longer mentioned. So what are they concentrating on? They're going to roll it out to rural America at eighty dollar per month plans with maybe one hundred megabits per second connectivity.

[00:49:18]

So translated in a different way, like we're sitting in an office where our download speeds are well, I mean, we obviously pay for a much higher tier, but they're already two to two and a half times that. So for us to transition, to use Starlink and from a business services perspective is laughable. And the silliest thing I've ever come across and again, I think Elon has stop saying some things that he used to say maybe two or three years ago, because the reality is no legal constellation has ever survived and irrespective of how good he is and first principles and getting costs down, then effectively having the lowest launch costs with SpaceX, which is a fantastic technological advancement, he still will never, ever be economic against fiber in the ground around the world that's already in existence.

[00:50:08]

Remember, he has to spend eight and a half to twelve and a half billion, depending on which estimate used to launch. All of this fiber is already there. So I wish him luck because, again, it's it's a I think, a good thing in general for space and space tech. And I'm a big I'm just a big fan boy of that general area. But the ability for him to disrupt the current connectivity environment is the most absurd thing I've ever come across in my entire life.

[00:50:35]

That's not to say that Centrelink has no exposure to things like 5G. I think 5G is an actual fundamental shift in the way that Internet connectivity could be delivered, not only consumers, but also businesses. And if Verizon is correct in their massive build out and plans for a true 5G network, which we have yet to see, but it is slowly being launched city by city if they're correct, and they could actually compete with and possibly even displace incumbents such as Comcast and Charter and level three from, as I mentioned before, the on net wired buildings.

[00:51:17]

Right. So if you have instead of connecting to our local cabinet that has the fibre to the premises from the from the street, I can contract out with Verizon. They'll come in and put in a router, a wireless router, effectively to connect to their 5G network, which supposedly could get ridiculously fantastic speeds. Now, as a counter to all of this, the way that 5G works is you still have to have base stations connected via fibre to the backbone of the Internet.

[00:51:46]

So irrespective, Verizon is not going to lay down their own fibre network. They actually are pretty adamant about investing primarily in wireless. So those bits of information will have to run over other people's connectivity. And you can make an argument that level three metro loops of fibre will become ever more in demand and also valuable in that kind of 5G revolutionary world. I want to touch on that. So as someone who doesn't understand five g all that well, what I'm hearing is that Level three might be at risk because they might have to compete with other companies entering the 5G space, but they also might have an advantage because they have this network of fiber already laid that might benefit or be needed actually for the expansion of 5G.

[00:52:32]

It's a great summary. Exactly. And we should level set here. So we are in a major city in Los Angeles. I have a Verizon phone with 4G and I can't even get phone calls in this building. I mean, I'm just saying, like and if you drive between L.A. and Las Vegas, good luck getting a signal. Good luck getting 4G. I just think we are many, many years away from a ubiquitous 5G network that can compete with fiber.

[00:53:00]

I mean, baby incertain certain very dense areas in cities like New York City. I mean, I think there's all kinds of questions about how well 5G waves will travel through buildings and stuff like that. But it's not completely farfetched. But I don't think it's in the investment time horizon of most of us or most of your listeners. That could be a major threat. Another thing I want to clarify when we talk about connectivity for level three is the services with CenturyLink.

[00:53:27]

We're not talking about a company like ours. We're a customer meeting. We just need to get on the Internet. We have one office. We're not international. It's not a big deal. We use it. We treat it as a true commodity for a multinational corporation that has, let's say, 20 different offices around the world there. Tech people don't want to deal with 20 different vendors. In effect, there are only a few companies around the world and level three being one of them that can come into GE and say, hey, look, you need to have a dedicated connectivity network spanning five continents.

[00:54:04]

And twenty three cities will do it for you because we have assets in every single one of your locations. That's the actual sales pitch that they bring to the table. So 5G, yes. Could it be disruptive for small and medium sized businesses such as ours? Sure. Is it going to affect to the Fortune five hundreds so people are bombarded with these acronyms and new technologies. And for the most part, the the new 5G new fangled connectivity technologies are geared towards individuals, consumers, customers that just need connectivity and treat connectivity as a commodity, not multinational corporations that actually need a dedicated network that can survive outages and things like that.

[00:54:51]

So there are effectively two different markets. When you talk about business services, I think I just I want to make sure that people understand that Level three isn't just they're not selling to people like us. So, guys, let's talk about the dividend looming, cut the dividend in half in twenty nineteen, and the pay of ratio since then haven't seemed to be sustainable.

[00:55:12]

They've been going over 100 percent giving that earnings were negative. Twenty nineteen. Is it wise that they cut the dividend? And the guess? The second part is whenever we talk about a dividend, what is the key thing that you're looking for? From a valuation perspective, we are focused on free cash flow. And so what you do with that free cash flow is important, whether you're paying down debt, whether you're paying a dividend. But we're valuing the company based on the free cash flow that we can generate, kind of agnostic to where it goes, at least from a pure valuation perspective.

[00:55:45]

So the dividend, as Eugene said, if people wouldn't hate it as much as they would, if they cut the dividend to zero, we would be OK with that, because then it would allow you to continue that virtuous circle of generating free cash to pay down debt, reduce your interest expense, reduce your cost of debt, generate more free cash flow. That's the virtuous circle that we are trying to get that benefits all shareholders because all that free cash flow eventually pays down debt and then all of that value increase to the equity holders.

[00:56:14]

So we don't use it as a we're not valuing the company say this company should have a seven percent yield. And based on that, it's worth X dollars. We're not doing that. We care a lot about capital allocation. We care a lot about what management decides to do with that free cash flow and the dividend. I think it's a nice to have if the stock does nothing for a year and at least you get a 10 percent dividend, that's a nice thing to have.

[00:56:38]

But as we'll get into the valuation, the real upside here is based on some of the parts analysis, a discounted cash flow analysis that is suggestive, a much, much higher value. And the dividend in the meantime is just a nice thing to have, assuming it's sustainable. And I think whether it's our projections of what interest costs are going to be, how much they can pay down in debt, or just the general free cash flow generating abilities of this company, we're not really worried about it at this current point.

[00:57:07]

So would it be a negative if they cut it? I don't know. Sometimes sometimes the stock already embeds another dividend cut. We actually don't think that's going to happen. And so it's a if you're an individual investor and you're looking at a business that you think is undervalued and has a 10 percent yield, that's just gravy on top. Let's talk about the fair value of Luman technology and what we call the intrinsic value, I typically use a discounted cash flow or internal rate of return model for calculating intrinsic value.

[00:57:37]

And the free cash flow was actually down in twenty nineteen, but seems to be stabilizing with some pretty conservative estimates about how I project the free cash flow to grow over time, meaning a 30 percent probability, let's say that the free cash flow just stays flat and doesn't grow from here. I'm still seeing an impressive internal rate of return in the double digits. I'm curious, what do you consider to be the intrinsic value of Luman and how do you go about calculating that?

[00:58:04]

But I'm just going to get a little bit of background or some clarity on how we value companies, that I'm going to hand it to Eugene to talk about the valuation. So as a firm, we try to triangulate value. Every firm has an intrinsic value. But as an investor, as you're doing a number of analyses to get that number, it's not like someone rings a bell and says, hey, you hit the intrinsic value. It can be a moving target.

[00:58:27]

Businesses change, management changes, capital allocation changes. All of those things can affect intrinsic value. So we triangulate. So we typically use this kind of cash flow analysis in a company like this where we think that there are assets that are separable. We'll use the sum of the parts, the value level three separately from Centrelink, and then we'll use the typical multiples analysis like, OK, other businesses trade. Is this multiple? So what multiple should this trade at based on the margins and returns?

[00:58:54]

And then if you have three legs to your valuation stool and they're all pointing to a massive dislocation in terms of undervaluation, when you combine that with a pretty good business, at least on a level three side and good management, that's the Holy Grail for us. And that's why this is one of our largest positions. So I'm going to hand it to Eugene to talk about how we think about intrinsic value. And we're going to focus on the sum of the parts.

[00:59:16]

But we can also talk about the DCF as well, because those numbers are very compelling. So starting again, the way that we looked at it was really a tale of two cities. There's the core level three and there's core Centrelink. And as I mentioned before, because level three has publicly traded debt, we can actually arrive at a very accurate snapshot of its underlying financial conditions through its public filings. So if you look at the I'll just use 20, 19 numbers because obviously 20, 20 is special year and certainly bizarre in many ways, but we'll just use twenty nine from twenty nineteen numbers.

[00:59:56]

You have eight point two billion in revenue roughly and about two point eight billion of which for us given how we approach the value of this company, is important metric when we get to kind of like private market value or valuation approach based on similar transactions. So if we take that two point eight billion dollars and we look at deals within the space that have happened over the past, let's call it 18 months, we try to keep it somewhat more relevant versus things that traded maybe seven or eight years ago.

[01:00:26]

We look at Kutty buying Zahl at twelve point one times. We look at Altice selling their life path subsidiary or fourteen point six times. Look at actually something that goes this week, which was a big roll up of various parts, but they had to fibre assets called Hibernia and Enteral that they just agreed to sell for roughly about twelve point eight times when all of these are our earnings before interest tax depreciation. So if we use those sort of private market values for five or heavier assets that have pretty good business connectivity and also add on services, we arrive at a valuation range for the core level three of somewhere between call it thirty one and thirty six and billion dollars for that business.

[01:01:20]

And just so you know, when CenturyLink bought three was it three years ago roughly now they paid thirty four billion. Thirty four billion was that it was the number. We'll just assume that no value was at it for three years which I would disagree with because I think this is one of those companies that gets more valuable. Going back to what Buffett believes in compound's value every single year, it's thirty four billion. It's kind of the midpoint of that valuation range.

[01:01:47]

I just that anyway. So at thirty four billion dollars, what are you getting? They have about thirty four billion in debt. So that takes out the entire debt stack just from the level three assets, meaning that if you subtract out that the number they said that two point eight billion, which comes directly from public filings not adjusted and no magic nonsensical, whatever, billion different adjustments that people make you get at the legacy CenturyLink five point eight billion that for free will not for free.

[01:02:19]

It's what I think the Leithauser, 10 billion. So you're getting it at one point seven times, roughly one point seven times or that another way. And mentioned before CenturyLink had point seven, five billion in free cash flow. You're getting it at, what, five times free cash flow? That is insanely cheap valuation or the even if it is, say, declining at three percent. Our premiss also your listeners understand, is that if you look in history, yes, the core of CenturyLink is declining.

[01:02:54]

And I think I mentioned this before, that their major problem really is their legacy voice that's just going to effectively become zero over time. So that revenue, as it becomes smaller and smaller, will affect the company less and less. And at some point in my model, it's I think it's about six years out. There will be a point where the decline rate there will not be big enough to supersede the growth of core broadband, plus small business services, plus some of the other kind of regulatory income that that CenturyLink has.

[01:03:28]

So assuming that this is not a perpetual decliner to zero, you have a valuation that is so low that I mean, it's just it's really hard to reconcile the value for what you get left over CenturyLink versus the reality. I literally almost anything that you can think of trades, even if it is declining at four and a half to five times. And if you did that math right, if you just said, OK, let's say you did that.

[01:03:56]

Thirty four billion dollar valuation for level three and you put up four times, I'm not even going to go crazy. Let's put up four times the multiple you're looking at. But a twenty one dollar stock, if you put it at five times multiple, you're looking at a twenty six dollars. So our premise really is that as long as people wake up to the. The core assets of level three are worth what they are worth in the private market, let's say around thirty four billion dollars, and as long as people apply even some modicum of multiple to the remaining CenturyLink assets, you have a completely insane risk reward from nine fifty or whatever trading at today.

[01:04:45]

That's kind of our sum of the parts. Look at how to value approach valuing the company. And again, it for us is more about margin of safety. So our margin of safety really is that, look, if someone offered me one point seven billion dollars today at one point seven billion dollars in cash flow today and I only have to pay 10 billion to get it, I would take that bet. That's it in a nutshell.

[01:05:08]

So, guys, definitely correct me if I'm wrong here, Wes, it sounds like discounted cash flow is a part of valuation.

[01:05:15]

You also really much focus on a colleague, Benjamin Graham, a heavy valuation. This is not a software company that has, whatever, 20 salespeople and a few people in one office and no assets, I mean, it is a very asset heavy company and there are any number of precedential transactions or how people value these assets. And I will note, although it is something that we approach with some trepidation, but there have been hundreds of billions of dollars raised in private infrastructure funds.

[01:05:48]

Insurance companies need yield. And there are these vehicles that are being raised by either Blackstone or someone like Macquarie or Brookfield, for example, that have, whatever, 10, 20, 30 billion dollars in money that goes physical infrastructure. And what does Level three have? Some of the most envious fiber infrastructure assets in the entire world. And so we're not going to put a lot of credence to the idea that someone's going to pay some insane multiple for level three.

[01:06:16]

But our point is that there are a lot there's a lot of demand for certain assets. So this is the sum of the parts analysis, which is in a way, it's a what would someone else pay for, just the assets of this company? What does that compare to the stock price? And so that's how we get those numbers. But I'll just you know, I was just playing around with our DCF a little bit and we put a nine and a half percent whack, which I think is the 30 year treasuries at one point six, seven and nine and a half percent whack is a very, very, very conservative number.

[01:06:43]

We're getting even with zero percent perpetual growth and then a perpetual decline in the boys business. As Eugene said, you're still getting high teens. I think that's a very conservative valuation and you have a nine dollar store. So it's just like any way you look at it, the stock is undervalued. So then the question is, what are we missing or what is the market missing? And our point one, the market does very poorly with things that are shrinking.

[01:07:06]

Shrink to grow is not something the market handles well. And the market is also not good with. They are not good at valuing a growing actual debt or asset within a shrinking total top line attached to a shrinking business. That's why they're spins and that's why there are asset sales that can kind of highly value. So to some extent, there is a catalyst in our future, we believe. And that's where you're going to see some of the value that we're discussing is going to be service, but it's going to take some patience.

[01:07:35]

I mentioned that we have this hypothesis that the companies in the middle of splitting these two companies up and it's messy. This was a messy merger. There are a lot of physical assets. There are little things that you have to figure out, transfer pricing. And if you sell your fiber assets, if the company split is split off, companies still using the fiber assets, you have to figure out transfer pricing. And so it's not saying it's simple, but even this is a company that people know.

[01:08:02]

Seattle Seahawks Stadium is a CenturyLink Field. Right. And so this is a company. People know we have a CEO who is highly incentivized to create value for shareholders, who's done it before. And one more point. If you go to their June 20, 20 presentation for the first time we'd ever seen, they put it in a slide that said, hey, we know we have a ten dollar stock, but here are some appropriate multiples we have for our two businesses.

[01:08:26]

And so they did exactly what Eugene did. They split level three and they split the legacy CenturyLink and they said, hey, see if three billion and EBITA here at a level three of six billion. And even at CenturyLink, let's put just conservative multiples on those illustrative of what this company should be could be worth. And so this is a company that at ten dollars stock that was saying we think we're worth twenty four to thirty five. I mean, these are numbers that you almost don't put out there because because people think that's so crazy.

[01:08:51]

If you think of the long term return of the stock market, over two hundred years is like six to seven percent per year. And you're talking about a single security that could have three times upside based on the company's valuation. You don't see that that often. And so we wrack our brains to figure out what other people are thinking. We understand what we think the market misses here. And so now we're patiently waiting for a good capital allocator who has a history of creating value for shareholders to create the catalyst that makes this a very, very lucrative investment for us and our investors.

[01:09:23]

And it sounds to me like the catalyst you have in mind is some kind of special situation where they might break apart the merger and spin off one one part of the assets. Is that correct? Some kind of value creating structure, whether they Yujin mentioned the peace sale of their assets, they actually only sold 50 percent. So Morgan Stanley Infrastructure Fund bought 50 percent of pieces, fiber assets and all sorts of really attractive assets in New York City. But we talked to the company Illumina, and we asked them, so was there anything unique about Altisource assets?

[01:09:55]

And then they said, you know what, even if we own those assets, we wouldn't even add to what we own in New York City. I mean, it's just and that that went off almost 15 times even. They don't even have to monetize all the fiber assets. They could do half they could split the companies into. They could sell the consumer business, which was something that's been floated. So private equity company would buy it for a low multiple levered up and then they get the return.

[01:10:18]

So there are a number of different ways that they could do this. The question is, are they going to do it and what's holding them back? And our answer to the second question is, it's just time right in the middle of covid, you're not going to sell physical assets. People can even visit the assets until very recently. So anything that was happening in January has been put on hold. But our sense is that the rebranding is just the first sign getting rid of the CenturyLink name, calling this company Lumin, saying that you're more of a tech company, the writing's on the wall, this is going to happen.

[01:10:51]

And then the question is, what is it worth? What is someone willing to pay for it? And that's kind of what we are as we're sitting here clipping a 10 percent coupon. We're hoping that the numbers are anywhere near what our research would suggest. So the last thing I like to do after I found something that I think is undervalued is look at the momentum before finally buying something, I tracked the momentum, which you can do at the investors podcast Dotcom.

[01:11:16]

We have the tipi finance tool with a great momentum feature. Basically, what it's doing is it's tracking the price volatility historically and finding the range, the normalized range and seeing if it's training inside or outside of that range. When I look at that indicator on our website, it's read right? So I typically wait to see if that price momentum changes into a green indicator showing positive price movement. The reason I do that is mainly because with value investing, oftentimes you can find something like a value trap or what's also known as a falling knife, where the market could potentially just continue to discount, discount and depress the stock price indefinitely.

[01:11:56]

We really don't know when that catalyst you mentioned is going to come along. So it's wise to consider that price momentum. But I think this is pretty unique because you do point out that while you're waiting, you are collecting a 10 percent dividend yield. And I think that's pretty uncommon and something to kind of potentially make you a little bit more patient as you hold the stock and something to consider. Is that anything? I'm just curious about price momentum.

[01:12:19]

Is that something you've ever factored into your own investing strategy? It's not something we consider I mean, we're looking at we were on a concentrated portfolio of securities and we're focused on the business value people and when we see large margin of safety, we act with conviction. Are there opportunities? I mean, the things you're saying are absolutely correct. I just point out here that when you're investing in situations where there's a special situation or where there's a catalyst, you may get terribly negative price momentum until one day it goes the other way.

[01:12:49]

So there are a million different ways to do that. But you're too late. Yeah, I know that you're too late. If there was a transaction here that valued the consumer at seven times, which is where Cincinnati Bell went out, which is maybe had some slightly better assets in the consumer business at CenturyLink, but still seven times multiple would be a hugely attractive multiple for the CenturyLink business. And then you'd be left with the, we think, a really good level three assets.

[01:13:14]

So there is a risk towards just waiting for things to get better because, listen, within financial markets, there is a pendulum swings between greed and fear. Right now, there's a lot of fear associated with this entry and level three and lumin. And so the question is, is that founded or unfounded? Our sense is that even a slight shift in that pendulum going back a little bit towards greed could still be very much on the fearful side. But even the leverage, given the degree of undervaluation, just a slight change in what people think about this could be enormously accretive for shareholders.

[01:13:49]

So I understand what you're talking about. It's just not something that we really incorporate in our analysis.

[01:13:54]

I really appreciate you guys coming on the show and sharing all this amazing knowledge. You're obviously experts in the space and we've got a really deep on this particular stock. So I can't wait to do this again with you guys. I would love to pick something else and dive in on something, maybe in the satellite space someday. That was really interesting. But until then, thank you so much for coming on the show. I really appreciate it. Thanks a lot for having us.

[01:14:19]

That was all the train I had for this week's episode of the Masters podcast, Preston, I will be back next weekend with a new episode. Have a good one, guys. Thank you for listening to TI IP to access our show notes, courses or forums, go to the Investors podcast Dotcom. This show is for entertainment purposes only before making any decisions, consult a professional. The show is copyrighted by the Investors Podcast Network written permission must be granted before syndication or forecasting.