Kate Johnson, President and CEO of Lumen Technologies, reported that Lumen’s transformation is well underway during the company’s Q2 earnings call.
“First, Lumen’s enterprise operational turnaround is progressing well, with continued sales momentum across our growth portfolio and further improvement in customer satisfaction,” she said. “We are also executing extremely well in our Quantum Fiber business.”
Lumen added 40,000 Quantum Fiber subscribers in the quarter—the most net adds it has had in a quarter. As of July, the company had over 1 million fiber subscribers.
“Second,” said Johnson, “Lumen has been anointed as the trusted network for AI by some of the most important technology companies on earth. With over $5 billion in major partnerships inked to date and visibility to nearly $7 billion more in opportunities, we see the market for Lumen’s private connectivity fabric as providing a major positive momentum shift for this company. Third, given our success in forging these partnerships, we’re seeing a significant improvement in our overall liquidity profile, further securing our ability to transform the company and pivot to growth.”
Operational turnaround
According to Johnson, Lumen’s pivot towards growth depends on several factors, starting with customer experience.
“We’re focusing on delivering dramatically improved customer experiences from quote to cash, giving customers a reason to choose Lumen for core network services,” she said.
Johnson said there are three fundamentals Lumen uses to drive and measure the turnaround: sales, customer saturation, and securing the base.
“After a blockbuster Q1, we continue to see strong sales performance in the second quarter, with North American large enterprise and mid-market sales up nearly 26% year-over-year,” she said. “Additionally, large and mid-market new logo sales increased 10%, and net total contract value for all channels was up nearly 40% year-over-year.”
Johnson also reported that every one of Lumen’s enterprise customer channels showed year-over-year improvement, which she said would result in lower churn, increased growth sales, and overall revenue growth.
“We’re making progress securing the base with our relentless focus on five key levers: installs, renewals, migration, usage, and disconnect,” she said. “We think the best way to measure our progress here is to compare ourselves to market trends and, once again, we saw less revenue decline this quarter than our industry peers.”
Positioned for growth
Johnson said that Lumen is also working to position itself to benefit from future growth in the AI market.
“We’re cloudifying telecom by delivering a digital platform to enable enterprise customers to digitally design, price, order, and consume secure network services quickly, securely, and effortlessly,” she said.
Lumen’s private connectivity fabric is an integral part of its plan to take advantage of this market growth.
“To summarize what’s happening, the dramatic rise in AI innovation is bringing explosive growth in data center build-outs, and data centers simply have to be connected,” she said. “We’re honored that technology powerhouses like Microsoft and several other big technology firms are choosing Lumen to build their AI backbone, and they’re choosing us for two reasons: first, our world-class fiber network with its unique route vast coverage and state-of-the-art fiber solutions from our strategic partnership with Corning, and second, the digital platform we’re building that makes consumption quick, secure, and effortless.”
Lumen believes that growth in the AI market will ultimately result in a better short-term cash position and will set the company up for long-term, predictable revenue growth.
Johnson also reported that Lumen’s path to growth includes altering its core structure.
“Today, we’re announcing that we see a path to creating $1 billion in cost takeout by the end of 2027,” she said.
Johnson reported that it will enact infrastructure simplification areas like its network, product portfolio, and IT.
“These infrastructure projects are rooted in network standardization,” she said. “We’re now integrating the network from four different architectures and engineering them into one simplified, standardized, and unified network fabric.”
Varying results
Before breaking down financial results for the quarter, Chris Stansbury, Lumen’s executive vice president and CFO, said that, although Lumen’s consolidated revenue and adjusted EBITDA are still being impacted by legacy declines, the company is encouraged by improvements it is making.
Lumen’s total reported revenue for the quarter was $3.27 billion, declining 10.7% year-over-year. Adjusted EBITDA was $1.01 billion, down from $1.3 billion in Q2 2023.
Revenue from the business segment was $26 billion, declining 11.4%. Stansbury reported that approximately 42% of the decline was a result of divestitures and commercial agreements. Revenue from the mass markets segment was $691 million, declining 8.2%, and free cash flow was negative $156 million.
“Within our North America enterprise channels, which is our business segment, excluding wholesale, international, and other, revenue declined 3.6%,” said Stansbury. “We continue to expect public sector to be the first channel to pivot to sustainable growth later this year, followed by mid-market, and then large enterprise. Overall, North American business declined 5.5%, and the large enterprise revenue declined 6.9% in the second quarter.”
Fiber broadband revenue was a bright spot for Lumen amidst the other declining segments, growing 14.6% year-over-year.
Stansbury also reported that fiber ARPU was up sequentially and year-over-year at $62. Penetration of legacy copper broadband was approximately 9%, and quantum fiber penetration was approximately 25%.
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Hayden Beeson
Hayden Beeson is a writer and editor with over seven years of experience in a variety of industries. Prior to joining Lightwave and Broadband Technology Report, he was the associate editor of Architectural SSL and LEDs Magazine.