Executive Vice President and Chief Financial Officer at Lumen Technologies
Thank you, Kate, and good afternoon everyone. To start, I hope you had a chance to review the 8K we filed on January 27th, which provides modified financial information back to first quarter of '21 removing the impact of the ILEC and LATAM businesses as well as the impact of the CAF II program. The 8K also outlined the new business sales channel reporting structure for 2023 reporting which collapsed IGAM into large enterprise and pulled public sector out of large enterprise. This provides better alignment with how we manage these channels internally and should provide for more clarity when modeling our company.
Let me move on to discuss some macro thoughts. Later in my remarks, I will address our outlook for full year 2023, but near-term, we continue to face macro headwinds. Supply chains remains strained with labor as the key headwind and we are all facing the impacts of inflation. In addition, we are actively working to offset the synergies, resulting from the divestiture of our 20 state ILEC business as well as our LATAM business, but those headwinds are likely to persist through this year.
Despite these near-term pressures, this is an exciting time for Lumen and our team. Kate has energized our company and we are positioning Lumen to win. This will require internal systems and process investments to solidify our platform, pivot to a position of playing offense and enable us to grow. I will discuss the impact of these investments later in my remarks.
With that, I will move to the financial summary of our fourth quarter results. I will be referencing results on a modified basis which aligns with the 8K disclosures mentioned earlier and removes the impact of the divested businesses that closed during 2022 as well as the impact of the CAF II program.
Overall, business revenue declined approximately 4.2% year-over-year and 0.3% sequentially on a constant currency basis and after adjusting for the sale of our correctional facilities business in the prior year period. Mass Markets revenue declined 7.6% year-over-year and 2.8% sequentially. We reported adjusted EBITDA of $1.393 billion in the fourth quarter and generated a 36.7% margin. Our free cash flow was $126 million in the fourth quarter.
After paying all taxes owed on the 2022 business divestitures, we reduced estimated net debt by approximately $10 billion during 2022. And during the quarter, we repurchased 33 million shares of common stock for $200 million.
Moving to a more detailed look at revenue, I will be referencing all revenue growth metrics on a modified adjusted basis where applicable to remove the impacts of foreign exchange and the correctional facilities business sale in the fourth quarter of 2021. On that basis, our fourth quarter total revenue declined 5% year-over-year to $3.8 billion. This is the last quarter for which year-over-year comparisons are impacted by the sale of the correctional facilities business.
The benefit related to the correctional facilities business was about $3 million in the fourth quarter of '21 while the impact of FX year-over-year was a headwind of approximately $20 million. Within our two key segments, business revenue declined 4.2% year-over-year to $3.005 billion and Mass Markets revenue declined 7.6% year-over-year to $795 million.
Within our Enterprise Channels which is our business segment excluding wholesale, revenue declined 5.9% year-over-year. Our exposure to legacy voice revenue continues to improve within Enterprise Channels dropping a 141 basis points year-over-year and now represents less than 12% of Enterprise Channel revenue. Large enterprise revenue declined 2.5% year-over-year. As I previously noted, in the new reporting, we will be providing starting this quarter, we have collapsed IGAM and large enterprise into the large enterprise channel and have a moved public sector to its own channel. Now representing our largest enterprise channel, large enterprise had improved revenue trends both year-over-year and sequentially and was our strongest performing enterprise channel.
Public sector revenue declined 13.8%. We have had significant wins in this channel and we expect to see improving trends as the year progresses. We also had a contract in this channel expire last quarter which is impacting the year-over-year comparisons by 176 basis points. On a sequential basis, public sector revenue declined 0.9%. Mid-market revenue declined 6.6% year-over-year with VPN and Voice, the most significant headwinds. Wholesale revenue grew 0.5% year-over-year. This is the channel that will likely decline over time and one we manage for cash.
As I move to our business product lifecycle reporting, I will be referencing percentage changes on the same modified adjusted basis I referenced earlier. As Kate mentioned, our North Star plan incorporates a detailed economic model with plans to disrupt legacy declines and help us innovate for growth. Grow products revenue grew 2.5% year-over-year in the fourth quarter. We saw strength in ways[Phonetic], security services and unified communications. Grow now represents over 36% of our business segment up from 34% in the prior-year period and carried an approximate 84% direct margin this quarter. For added color, Grow products represented the majority of our enterprise sales in the fourth quarter which will continue to improve our mix of revenue going forward.
I would note that Grow revenue was negatively impacted by approximately 100 basis points related to a public sector contract that expired. This will continue to impact our Grow comparisons through the first half of '23. A key focus going forward will be to accelerate the growth of the Grow portfolio. This will take some time, but we believe we have real opportunity here with our outside in focus that Kate mentioned earlier.
Nurture products revenue declined 7.5% year-over-year in the fourth quarter. The decline was driven by VPN and Ethernet, and Nurture now represents about 31% of our business segment and carried an approximate 68% direct margin this quarter. We are making good progress on our nurture strategy and our efforts to migrate this revenue back into grow products. Harvest products revenue declined 8.3% year-over-year in the fourth quarter.
Our harvest team continues to work hard to manage to a lower rate of decline within this product set, which is helping to extend the life of these products. In addition, as with our nurture products, we are managing customers back to grow and Nurture products. Harvest now represents approximately 26% of our business segment and carried an approximate 76% direct margin this quarter. Other products revenue declined 6.4% year-over-year in the fourth quarter. Our other products revenue tends to experience fluctuations due to the largely non-recurring nature of these products.
Moving on to mass markets. As I mentioned earlier, total mass markets revenue declined 7.6% year-over-year and 2.8% sequentially. Our mass markets fiber broadband revenue grew by over 18% year-over-year, and in the fourth quarter, represented approximately 19% of mass markets revenue.
Our exposure to legacy voice and other services revenue has improved by 320 basis points year over year. As Kate discussed, we have made significant changes in how we are approaching the Quantum Fiber opportunity. This was a thoughtful evaluation that will result in a significant improvement in long-term shareholder value. That said, our location and subscriber results were impacted by the pause we had in place through our evaluation.
This change in strategy will continue to impact Quantum metrics until we get to scale with our new plan, which we expect to occur late this year. During the quarter, total enablements were approximately 97,000, bringing the total enabled locations to over 3.1 million as of December 31. During the quarter, we added 19,000 Quantum Fiber customers, and this brings our Quantum Fiber subscribers to 832,000. Fiber ARPU was stable sequentially at approximately $60, but we've seen accelerating year-over-year growth each quarter during 2022.
As of December 31, our penetration of legacy copper broadband footprint was less than 12%. Quantum Fiber penetration stood at approximately 26%. Our Quantum Fiber 2020 vintage penetration was approximately 29% at the 24-month mark and is now over 30%. Our 2021 vintage was at approximately 17% at the 12-month mark.
Our Quantum Fiber NPS score was greater than positive 50 again this quarter, an indication of the quality, value and superior service that Quantum Fiber delivers. As Kate mentioned, we have recalibrated our addressable footprint to ensure we are generating healthy returns for our shareholders. Based on that recalibration, we are targeting 8 million to 10 million locations for the overall build or roughly 5 million to 7 million incremental locations over the next few years. We continue to monitor how the economic environment is impacting our customers, and we have not observed any discernible changes in customer payment patterns.
Turning to adjusted EBITDA. For the fourth quarter of 2022, adjusted EBITDA was $1.393 billion compared to $1.496 billion in the year-ago quarter. As I mentioned earlier, we are seeing cost pressures from inflation in addition to our opex investments to drive growth. Special items this quarter totaled $583 million related primarily to a non-cash loss reported upon the designation of our EMEA business as held for sale and transaction and separation costs, partially offset by a gain on the sale of our ILEC 20-state business.
Our fourth quarter 2022 EBITDA margin was 36.7%, down slightly from 37.2% in the year-ago period. Capital expenditures for the fourth quarter of 2022 were $833 million. Additionally, in the fourth quarter of 2022, the company generated free cash flow of $126 million. Our reported net debt was $19.5 billion as of December 31, 2022, and our expected estimated net debt stands at $20.4 billion.
Our expected estimated net debt reflects our utilizing cash on hand to settle the tax obligations related to the divestitures we closed in 2022, which totals $900 million to $1 billion. We anticipate paying these taxes during the first half of 2023. Given the investments that Kate identified, we anticipate leverage to rise to between 4 times to 4.3 times in the near term. We expect leverage to peak as we approach year-end 2023 and decline thereafter.
For the full year 2023, we expect adjusted EBITDA to be in the range of $4.6 billion to $4.8 billion. When bridging to our full year adjusted EBITDA guidance, in addition to the CAF II completion and divested business EBITDA, there are a few other drivers to keep in mind. We estimate that our full year EBITDA will be impacted by approximately $100 million related to incremental inflationary pressures. Combined with dissynergies, we expect a headwind of between $200 million to $250 million this year. We're actively working to mitigate the impact of these dissynergies.
As Kate discussed, over the next couple of years, we will be aggressively investing both opex and capex to position ourselves for long-term sustained success. The focus of these investments will be to enable growth, improve customer experience and simplify how we operate. These investments will include a number of items such as digitization, ERP, Network-as-a-Service and IT simplification. These growth and optimization investments outlined in our EBITDA guidance waterfall chart are expected to total $150 million to $200 million. Importantly, we expect our revenue and EBITDA to stabilize as we exit 2024 with growth thereafter.
Moving to capital spending. For the full year 2023, we expect total capital expenditures in the range of $2.9 billion to $3.1 billion. Growth in optimization investments totaling $250 million to $350 million are included in this guidance. Additionally, we expect to enable an incremental 500,000 Quantum locations in 2023 as we emerge from our project reevaluation. We anticipate a cost per enablement of $1,200 in 2023. Lastly, our capital expenditure guidance includes $35 million to $65 million related to rebuilding efforts in the wake of Hurricane Ian last fall.
Moving on to free cash flow. We expect to generate free cash flow in the range of $0 million to $200 million for the full year 2023. In total, our 2023 free cash flow will be impacted by $435 million to $615 million related to our growth and optimization investments, as well as the impact of Hurricane Ian recovery efforts. We do not have any required or planned discretionary pension fund contributions in 2023.
Additionally, the cash taxes due on the 2022 sale of the ILEC and LATAM businesses are being paid out of the cash proceeds from those deals and are excluded from our free cash flow guidance. As a reminder, our first quarter typically has seasonally higher expenses related to timing of bonus payments and other prepaid expenses. We expect net cash interest expense in the range of $1.1 billion to $1.2 billion for 2023. In terms of special items for 2023, we expect a significant ramp-up in costs compared to prior years, primarily driven by dedicated third-party costs to support transition services for the divestitures. The reimbursement for these services will be in other income with no material net impact to our cash flows.
In closing, we are positioning Lumen for growth. We're making tangible progress internally, and we're investing in ourselves over the next two years to deliver on our longer-term goals. We look forward to sharing our progress with you as we execute on our plans, and we'll provide more detail around those plans and expected financial performance at our investor day in New York City on the afternoon of Monday, June 5. So please save that date. More details will follow in the coming months.
With that, we are ready for your questions.