Jeff Storey
President And Chief Executive Officer at Lumen Technologies
Good afternoon, everyone, and thank you for joining us. On today's call, I'll provide a few thoughts on our third quarter results, an update on our recently announced transactions, a review of our key capital allocation priorities and outline our investment plans as we continue to position the company for long-term sustainable revenue growth. I'll then ask Neel to discuss the third quarter in more detail. And of course, we'll reserve time at the end for your questions. We're pleased with our third quarter sequential revenue progression. In fact, we showed sequential growth in both IGAM and Large Enterprise, showing the resilience of our business as COVID-related headwinds begin to diminish. We're also pleased with the continuation of the strong sales we saw in the second quarter and our growing funnel, which should provide a strong foundation as we drive toward growth. Overall, it's an exciting time for Lumen as we continue evolving and transforming the company for long-term growth. Our Lumen platform continues to resonate with customers and is the cornerstone of our digital transformation for enterprises.
In addition, I believe our Quantum Fiber platform is unique in the market and not only drives an enhanced customer experience but also drives revenue growth and even lowers the operating cost for our Mass Market segment, improving the profitability and sustainability of the business. I'm excited to discuss the investments we're making to drive Enterprise and Quantum Fiber growth, but let me start with an update on our previously announced transactions. Both the sale of our 20 ILEC states and our LATAM business are important steps to positioning our company for the long term. Those transactions materially change the mix of our business operations, which will amplify and accelerate the positive outcomes for our focused investments in our retained markets. Both transactions were executed with strong valuations, which we believe validates a much higher value for our retained portfolio of assets. Worth more than $10 billion collectively, we're making excellent progress toward closing both deals.
We currently expect the LATAM transaction with Stonepeak to close during the first half of 2022 and believe the Apollo transaction will close in the second half of 2022. After considering the transfer of our Embarq debt to Apollo, pension and OPEB liabilities, tax and other transaction adjustments, we estimate that we will receive approximately $7 billion in combined net proceeds from the deal. Looking beyond the transaction. If you turn to Slide four in our investor presentation, you can see our top five priorities for putting to work the significant free cash flow we generate and the proceeds from these transactions. As this slide illustrates, investing in growth is always our highest priority, and we're very excited about what we see as high-return, high-confidence opportunities to invest in both Enterprise and Quantum Fiber growth. Let me start with Quantum Fiber.
First of all, the quantum acceleration plan has already begun. On our last earnings call, I highlighted the attractiveness of our Mass Market assets in the 16 states we will retain after the sale to Apollo and noted that approximately 70% of our footprint or about 15 million locations will be in urban and suburban areas, the majority of which are economically attractive for our quantum expansion. Our Quantum Fiber initiatives continue to deliver, growing third quarter revenue 25% year-over-year. As we transition from micro-targeting to a broader market approach for deployment, we have high confidence in our ability to drive significant revenue growth for years to come. As I mentioned during the second quarter call, we plan to accelerate Quantum Fiber investments in our retained markets. As of the end of the third quarter, we had approximately 2.5 million enabled locations within the retained 16 states.
Historically, we've enabled around 400,000 locations per year, and we expect that pace will continue in the fourth quarter. As we accelerate our investment in Quantum Fiber, in 2022, we expect to ramp that enablement pace to over one million new locations, on our way to hitting a run rate of 1.5 million to two million enablements per year as we exit 2022. When deploying Quantum Fiber, we typically expect penetration rates of 40% or better with average build cost of less than $1,000 per location enabled. After a thorough review of our footprint and given these economics, we expect our total addressable opportunity to be more than 12 million locations. Our Quantum Fiber plan for 2022 is fully funded, and we're very excited about these investments. But it's not just excitement born from hope. It's excitement born from experience and accomplishment. As we built Quantum Fiber, we've done more than simply construct new fiber. We built an excellent quantum experience and product capability that is now ready to ramp aggressively, providing higher ARPU, lower churn and greater customer lifetime value.
Over the past couple of years, we have executed a successful fiber deployment program using a deliberate and micro-targeted approach. This approach has enhanced and proven our capabilities, and we are positioned to execute on our much more aggressive plan. Our custom algorithms predict the cost to build and likely penetration levels for our fiber enablement opportunities, maximizing the efficiency of our capital spend. Our experienced and actively engaged workforce is already ramping for our accelerated Quantum Fiber build plan, and we are confident in our employees' ability to deliver on our plan. We know supply chain is a major topic currently. So let me address that head on. We've been in close communication with our diverse and reliable supplier base and have commitments from them on their ability to deliver. However, we take nothing for granted, and this is an area where we will continue to closely monitor. Moving to our Enterprise business.
Rest assured, this much larger segment of Lumen is equally exciting for us. And we will continue to invest aggressively in our edge compute and storage platforms, our managed service offerings and our security products as well as continuing to automate and improve our customers' digital experience across many of the core networking services. With our extensive long-haul and dense metro infrastructure, our network provides low latency, ultra-high capacity, resilience and cost advantages over many of our competitors. We have a robust and extensive fiber footprint for enterprises, and that allows us to continue to focus our capital investment on our platform experience, higher penetration in existing buildings, new product offerings and when driven by customer opportunities, success-based fiber expansion. A few examples of recent wins in our business segment demonstrate the diversity of our customers and the need for our services across virtually all industries.
These wins include a cloud TV enabler, an independent renewable energy, clean technology provider and a hyperscaler. All of this is in addition to our recently announced network modernization contract for the U.S. Postal Service. There is strong demand for the enterprise services we enable, and we continually evolve our product portfolio to leverage our robust fiber network and provide services our customers need to drive success in their businesses. We believe our growth investments, coupled with our streamlined post-divestiture portfolio, will create tremendous value for our shareholders. The transactions will improve our revenue quality from day one and allow for focused investment, targeting our most strategic, highest ROI opportunities. We believe there are attractive opportunities to put new capital to work, driving revenue growth and with returns well above our cost of capital. You've heard me say this before, we will invest for growth and grow where we invest. Another key priority for Lumen is the importance we place on returning cash to shareholders.
Therefore, we have no plans to modify our dividend, which we believe is sustainable at the $1 per share level. Although our payout ratio will likely rise in the near term, as we streamline our asset portfolio and invest in the quantum and enterprise opportunities, we expect our focused operations to provide the underpinnings for top line growth in two to three years, which we expect will drive a more normalized dividend payout ratio over time. Our Board believes the return of cash in the form of a dividend is an important part of our value proposition, and we are focused on supporting our dividend even as we make the investments necessary to reach our growth objectives. As I mentioned in our last earnings call and as you can see in priority three, we will manage our balance sheet to remain more or less leverage neutral over the next few years. As we accelerate our Quantum Fiber deployment plan, we do expect the time line to reach our target net leverage ratio of 2.75 to 3.25 times adjusted EBITDA will be extended. With our two announced transactions, I'm not just using CEO speak when I say we are open to smart optimization of our assets. We are open-minded, and we'll continue to evaluate asset optimization that makes sense for our shareholders.
But we've also demonstrated our discipline in driving and working for the right deal, not just a deal to get something done. There's no urgency for us to divest assets, and our thoughtful approach to the ILEC sale resulted in additional years of cash flow from operations and stronger multiple received and a strong partner in Apollo as we move our business forward. We'll continue the same open-minded, disciplined approach to assess further optimization, both to improve our business mix and to fund growth in our retained businesses. Lastly, let me talk for a minute about share buybacks. As you've seen, we completed the $1 billion share buyback that we announced last quarter, reducing our share count by about 81 million shares or approximately 7% of our total shares outstanding. I'll also note, we funded this buyback largely with our third quarter '21 free cash flow. We executed this buyback quickly because we believe our shares are deeply discounted and do not reflect the significant opportunity for Lumen going forward. Our Board continues to believe this and is prepared to authorize further buybacks on short notice if we believe this presents a prudent use of our shareholders' capital.
With that, I'll turn the call over to Neel to discuss our third quarter results. Neel?
