Lumen(LUMN) - 2024 Q2 - Quarterly Report

FORM 10-Q Filing Information Registrant Information This section provides the official details of the registrant, Lumen Technologies, Inc., including its legal domicile, identification numbers, and primary business address - Registrant: LUMEN TECHNOLOGIES, INC.[1] - State of Incorporation: Louisiana[1] - Principal Executive Offices: Monroe, Louisiana[1] Securities Registered Details the classes of securities registered under Section 12(b) of the Securities Exchange Act of 1934, specifying their trading symbols and the exchanges on which they are registered Registered Securities | Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $1.00 per share | LUMN | New York Stock Exchange | | Preferred Stock Purchase Rights | N/A | New York Stock Exchange | Filer Status and Shares Outstanding Confirms the registrant's compliance with SEC filing requirements, its status as a Large Accelerated Filer, and the total number of common shares outstanding as of a recent date - Registrant has filed all required reports and submitted Interactive Data Files during the preceding 12 months[2] - Filer Status: Large Accelerated Filer[3] - Common Stock Outstanding (August 2, 2024): 1,016,810,054 shares[3] Special Note Regarding Forward-Looking Statements Forward-Looking Statements Overview This section outlines the nature of forward-looking statements included in the report, covering forecasts of financial results, impacts of strategic initiatives, and various business aspects, all subject to federal securities law 'safe harbor' protections - Report includes forward-looking statements about business, financial condition, operating results, or prospects, subject to 'safe harbor' protections[6] - Statements cover forecasts of future results, anticipated impacts of transactions, liquidity, profitability, and business strategies[6] Risks and Uncertainties Forward-looking statements are inherently speculative and subject to numerous risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are not guarantees and are subject to a number of risks and uncertainties[7] - Key risk factors include intense competition, new technologies, ability to attain operating imperatives (e.g., Quantum Fiber buildout), cybersecurity, regulatory changes, and ability to fund financial commitments[7][8][9] - The company undertakes no obligation to publicly update or revise any forward-looking statements[10] Part I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Lumen Technologies, Inc. for the periods ended June 30, 2024, including statements of operations, comprehensive (loss) income, balance sheets, cash flows, and stockholders' equity, along with detailed notes to these financial statements Consolidated Statements of Operations (Unaudited) The consolidated statements of operations show a significant reduction in net loss for both the three and six months ended June 30, 2024, primarily due to the absence of the large goodwill impairment charge recognized in the prior year Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended June 30, 2024 (Millions) | Three Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2023 (Millions) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Operating Revenue | $3,268 | $3,661 | $6,558 | $7,399 | | Total Operating Expenses | $3,133 | $12,082 | $6,378 | $15,430 | | Operating Income (Loss) | $135 | $(8,421) | $180 | $(8,031) | | Net (Loss) Income | $(49) | $(8,736) | $8 | $(8,225) | | Basic (Loss) Earnings Per Common Share | $(0.05) | $(8.88) | $0.01 | $(8.37) | - Operating revenue decreased by 11% for both the three and six months ended June 30, 2024, compared to the prior year[13] - Net loss significantly improved from $(8,736) million to $(49) million for the three months, and from $(8,225) million to $8 million net income for the six months, primarily due to the absence of a goodwill impairment charge[13] Consolidated Statements of Comprehensive (Loss) Income (Unaudited) The consolidated statements of comprehensive (loss) income reflect a substantial improvement in comprehensive income for both the three and six months ended June 30, 2024, largely mirroring the reduction in net loss from the prior year Consolidated Statements of Comprehensive (Loss) Income Highlights (Unaudited) | Metric | Three Months Ended June 30, 2024 (Millions) | Three Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2023 (Millions) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net (Loss) Income | $(49) | $(8,736) | $8 | $(8,225) | | Other Comprehensive Income | $13 | $16 | $24 | $46 | | Comprehensive (Loss) Income | $(36) | $(8,720) | $32 | $(8,179) | - Comprehensive (Loss) Income improved from $(8,720) million to $(36) million for the three months, and from $(8,179) million to $32 million for the six months, year-over-year[15] Consolidated Balance Sheets (Unaudited) The consolidated balance sheets show a decrease in total assets and long-term debt from December 31, 2023, to June 30, 2024, reflecting ongoing debt management and operational changes Consolidated Balance Sheets Highlights (Unaudited) | Metric | June 30, 2024 (Millions) | December 31, 2023 (Millions) | | :------------------------------------ | :----------------------- | :--------------------------- | | Total Current Assets | $3,760 | $4,775 | | Property, Plant and Equipment, net | $20,089 | $19,758 | | Goodwill | $1,964 | $1,964 | | Other Intangible Assets, net | $5,127 | $5,470 | | Total Assets | $32,943 | $34,018 | | Total Current Liabilities | $3,738 | $3,534 | | Long-Term Debt | $18,411 | $19,831 | | Total Stockholders' Equity | $466 | $2,221 | - Total assets decreased by $1,075 million from December 31, 2023, to June 30, 2024[18] - Long-term debt (excluding current maturities) decreased by $1,420 million, from $19,831 million to $18,411 million[18] Consolidated Statements of Cash Flows (Unaudited) The consolidated statements of cash flows indicate a significant increase in net cash provided by operating activities for the six months ended June 30, 2024, primarily driven by a federal income tax refund, while financing activities shifted to a net cash outflow due to debt payments Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2023 (Millions) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $1,613 | $495 | | Net cash used in investing activities | $(1,194) | $(1,405) | | Net cash (used in) provided by financing activities | $(1,160) | $72 | | Net decrease in cash, cash equivalents and restricted cash | $(741) | $(838) | | Cash, cash equivalents and restricted cash at end of period | $1,507 | $469 | - Net cash provided by operating activities increased by $1,118 million year-over-year[19] - Net cash used in financing activities was $(1,160) million in 2024, a significant change from $72 million provided in 2023[19] Consolidated Statements of Stockholders' Equity (Unaudited) The consolidated statements of stockholders' equity show a decrease in total stockholders' equity from the beginning of the year to June 30, 2024, primarily due to the net loss and other comprehensive loss components Consolidated Statements of Stockholders' Equity Highlights (Unaudited) | Metric | June 30, 2024 (Millions) | December 31, 2023 (Millions) | | :-------------------------- | :----------------------- | :--------------------------- | | Common Stock | $1,016 | $1,008 | | Additional Paid-In Capital | $18,135 | $18,126 | | Accumulated Other Comprehensive Loss | $(786) | $(810) | | Accumulated Deficit | $(17,899) | $(17,907) | | Total Stockholders' Equity | $466 | $2,221 | - Total stockholders' equity decreased from $2,221 million at December 31, 2023, to $466 million at June 30, 2024[21] Notes to Consolidated Financial Statements (Unaudited) These notes provide detailed explanations and disclosures supporting the unaudited consolidated financial statements, covering significant accounting policies, changes in estimates, segment information, debt, and various commitments and contingencies (1) Background This note provides an overview of Lumen Technologies, Inc.'s business, recent divestitures, basis of financial statement presentation, and changes in accounting estimates and pronouncements General Company Overview Lumen Technologies is a facilities-based technology and communications company offering integrated products and services to business and mass markets customers, operating one of the world's most interconnected networks - Lumen is a facilities-based technology and communications company serving domestic and global business customers and domestic mass markets customers[24] - Divested EMEA business (Nov 2023), ILEC business (Oct 2022), and Latin American business (Aug 2022), which were not considered strategic shifts[25] Basis of Presentation The unaudited interim consolidated financial statements are prepared in accordance with Form 10-Q instructions, condensing certain GAAP disclosures, with prior period reclassifications having no impact on total operating revenue, expenses, or net income - Financial statements are unaudited and prepared in accordance with Form 10-Q, with condensed GAAP disclosures[26] - Certain prior period amounts were reclassified to conform to current period presentation, with no impact on total operating revenue, expenses, or net (loss) income[28] - Identified errors in previously reported consolidated financial statements for 2023 related to accounts receivable and payable, resulting in a $63 million increase to accumulated deficit[29] Change in Accounting Estimates Effective January 1, 2024, Lumen changed its depreciation method for ILEC and certain CLEC fixed assets and extended the estimated economic life of owned fiber network assets, with an immaterial impact on net (loss) income and diluted (loss) earnings per share - Changed depreciation method for ILEC and certain CLEC fixed assets from group method to straight-line by individual asset, effective January 1, 2024[31] - Extended estimated economic life of owned fiber network assets from 25 years to 30 years, effective January 1, 2024[32] - The change in accounting estimates decreased depreciation expense by approximately $16 million (net of tax $12 million) for Q2 2024 and $32 million (net of tax $24 million) for YTD Q2 2024, increasing diluted EPS by $0.01 and $0.02, respectively[32] Summary of Significant Accounting Policies This section refers to the detailed summary of significant accounting policies provided in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - Significant accounting policies are detailed in the Annual Report on Form 10-K for the year ended December 31, 2023[33] Recently Adopted Accounting Pronouncements Lumen adopted ASU 2022-04 (Supplier Finance Programs) and ASU 2022-02 (Credit Losses) on January 1, 2023, and ASU 2023-01 and ASU 2022-03 on January 1, 2024, none of which had a material impact on the consolidated financial statements - Adopted ASU 2022-04 (Supplier Finance Program) and ASU 2022-02 (Credit Losses) on January 1, 2023, with no material impact[34][35] - Adopted ASU 2023-01 (Leases) and ASU 2022-03 (Fair Value Measurement) on January 1, 2024, with no impact[36] Recently Issued Accounting Pronouncements The FASB issued ASU 2023-09 (Income Tax Disclosures) and ASU 2023-07 (Segment Reporting) in late 2023, and Lumen is currently evaluating their impact, with effective dates in fiscal years 2025 and 2024/2025, respectively - FASB issued ASU 2023-09 (Income Taxes) effective fiscal year 2025; Lumen is evaluating its impact[37] - FASB issued ASU 2023-07 (Segment Reporting) effective fiscal years beginning after December 15, 2023 (interim periods after December 15, 2024); Lumen is evaluating its impact[38] (2) Goodwill, Customer Relationships and Other Intangible Assets This note details the company's goodwill and other intangible assets, including their carrying values, allocation to segments, and the impairment analysis conducted in Q2 2023, which resulted in an $8.8 billion charge Goodwill and Intangible Assets Overview As of June 30, 2024, Lumen reported $1.964 billion in goodwill, primarily assigned to its Mass Markets segment, and $5.127 billion in other intangible assets, net, with annual impairment assessments performed for these assets Goodwill and Other Intangible Assets (Millions) | Asset Category | June 30, 2024 | December 31, 2023 | | :------------------------------------ | :------------ | :---------------- | | Goodwill | $1,964 | $1,964 | | Indefinite-lived intangible assets | $9 | $9 | | Customer relationships, net | $3,501 | $3,811 | | Capitalized software, net | $1,538 | $1,564 | | Trade names, patents and other, net | $79 | $86 | | Total other intangible assets, net | $5,127 | $5,470 | - Goodwill of approximately $2.0 billion is assigned to the Mass Markets segment, with none to the Business segment[41] - Annual impairment assessment for goodwill is October 31, and for indefinite-lived intangible assets is December 31[42] Second Quarter 2023 Goodwill Impairment Analysis Due to continued erosion in market capitalization, Lumen performed a quantitative impairment analysis in Q2 2023, resulting in an $8.8 billion non-cash, non-tax-deductible goodwill impairment charge - A non-cash, non-tax-deductible goodwill impairment charge of $8.8 billion was recorded for the three months ended June 30, 2023[44] - The impairment was triggered by continued erosion in market capitalization and estimated fair value of certain reporting units being less than their carrying value[44] Future Amortization Expense Total amortization expense for finite-lived intangible assets was $277 million for Q2 2024 and $549 million for YTD Q2 2024, with future annual expenses projected to decline after 2025 Future Amortization Expense for Finite-Lived Intangible Assets (Millions) | Year | Estimated Amortization Expense | | :--- | :----------------------------- | | 2024 (remaining six months) | $479 | | 2025 | $900 | | 2026 | $847 | | 2027 | $759 | | 2028 | $688 | - Total amortization expense for finite-lived intangible assets increased to $277 million for Q2 2024 (from $263 million in Q2 2023) and $549 million for YTD Q2 2024 (from $523 million in YTD Q2 2023)[45] (3) Revenue Recognition This note details how Lumen recognizes revenue, categorizing products and services for both Business and Mass Markets segments, and provides reconciliations of total revenue, operating lease revenue, customer receivables, contract balances, and performance obligations Product and Service Categories Lumen categorizes its Business segment revenue into Grow, Nurture, Harvest, and Other, while Mass Markets segment revenue is categorized into Fiber Broadband, Other Broadband, and Voice and Other - Business segment revenue categories: Grow (dark fiber, Edge Cloud, IP, managed security, SD WAN, UC&C, wavelengths), Nurture (ethernet, VPN), Harvest (TDM voice, private line), and Other (equipment sales, managed/professional services)[48] - Mass Markets segment revenue categories: Fiber Broadband, Other Broadband (copper-based), and Voice and Other (local/long-distance voice, federal/state support programs)[48] Reconciliation of Total Revenue to Revenue from Contracts with Customers The tables provide a detailed breakdown of total revenue by segment, sales channel, and product category, distinguishing between revenue subject to ASC 606 and non-ASC 606 revenue (regulatory and lease revenue) Total Revenue by Segment and Product Category (Three Months Ended June 30, Millions) | Category | 2024 Total Revenue | 2023 Total Revenue | | :-------------------------- | :----------------- | :----------------- | | Business Segment | | | | Grow | $1,063 | $1,144 | | Nurture | $751 | $874 | | Harvest | $566 | $691 | | Other | $197 | $199 | | Total Business Segment Revenue | $2,577 | $2,908 | | Mass Markets Segment | | | | Fiber Broadband | $181 | $158 | | Other Broadband | $298 | $355 | | Voice and Other | $212 | $240 | | Total Mass Markets Revenue | $691 | $753 | | Total Revenue | $3,268 | $3,661 | Total Revenue by Segment and Product Category (Six Months Ended June 30, Millions) | Category | 2024 Total Revenue | 2023 Total Revenue | | :-------------------------- | :----------------- | :----------------- | | Business Segment | | | | Grow | $2,122 | $2,278 | | Nurture | $1,528 | $1,787 | | Harvest | $1,148 | $1,397 | | Other | $370 | $414 | | Total Business Segment Revenue | $5,168 | $5,876 | | Mass Markets Segment | | | | Fiber Broadband | $351 | $310 | | Other Broadband | $613 | $724 | | Voice and Other | $426 | $489 | | Total Mass Markets Revenue | $1,390 | $1,523 | | Total Revenue | $6,558 | $7,399 | - Total revenue decreased by $393 million (11%) for the three months and $841 million (11%) for the six months ended June 30, 2024, with $164 million and $332 million, respectively, attributed to the EMEA business sale and select CDN contracts[50] Operating Lease Revenue Lumen generates revenue from operating leases of dark fiber, office facilities, and other network assets to third parties, with gross rental revenue decreasing year-over-year but remaining approximately 7% of total operating revenue Gross Rental Revenue (Millions) | Period | 2024 | 2023 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $240 | $257 | | Six Months Ended June 30 | $461 | $526 | - Gross rental revenue represented approximately 7% of operating revenue for both periods in 2024 and 2023[56] Customer Receivables and Contract Balances This section provides balances for customer receivables, contract assets, and contract liabilities, with contract liabilities representing deferred revenue recognized as performance obligations are satisfied Customer Receivables and Contract Balances (Millions) | Metric | June 30, 2024 | December 31, 2023 | | :------------------- | :------------ | :---------------- | | Customer receivables | $1,263 | $1,256 | | Contract assets | $23 | $29 | | Contract liabilities | $701 | $698 | - Recognized $43 million and $343 million of revenue from contract liabilities for the three and six months ended June 30, 2024, respectively[57] Performance Obligations As of June 30, 2024, Lumen expects to recognize approximately $6.8 billion in future revenue from unsatisfied performance obligations, with significant portions expected in 2025 and beyond - Expected future revenue from unsatisfied performance obligations: $6.8 billion as of June 30, 2024[58] Expected Revenue from Unsatisfied Performance Obligations (Millions) | Period | Expected Revenue | | :---------------- | :--------------- | | Remainder of 2024 | $1,700 | | 2025 | $2,300 | | Thereafter | $2,800 | Contract Costs This section outlines the changes in contract acquisition and fulfillment costs, which are amortized over the average contract life of customers and assessed for impairment quarterly Contract Acquisition and Fulfillment Costs (Three Months Ended June 30, Millions) | Metric | Acquisition Costs (2024) | Fulfillment Costs (2024) | Acquisition Costs (2023) | Fulfillment Costs (2023) | | :-------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Beginning of period balance | $182 | $189 | $192 | $182 | | Costs incurred | $35 | $49 | $29 | $39 | | Amortization | $(32) | $(34) | $(39) | $(36) | | End of period balance | $185 | $204 | $183 | $186 | - Deferred acquisition and fulfillment costs are amortized over an average contract life of approximately 50 months for mass markets and 35 months for business customers[61] - Amortized fulfillment costs are included in cost of services and products, while amortized acquisition costs are in Selling, general and administrative[61] (4) Credit Losses on Financial Instruments Lumen estimates expected credit losses on financial instruments, primarily accounts receivable, using a loss rate method based on historical experience and forecasted economic conditions, with the allowance for credit losses at $62 million at June 30, 2024 - Uses a loss rate method to estimate allowance for credit losses, combining historical and expected credit loss rates[64] Allowance for Credit Losses Activity (Six Months Ended June 30, 2024, Millions) | Metric | Business | Mass Markets | Total | | :------------------------------------ | :------- | :----------- | :---- | | As of December 31, 2023 | $36 | $31 | $67 | | Provision for expected losses | $13 | $26 | $39 | | Write-offs charged against the allowance | $(19) | $(31) | $(50) | | Recoveries collected | $4 | $2 | $6 | | Ending balance at June 30, 2024 | $34 | $28 | $62 | (5) Long-Term Debt and Credit Facilities This note provides comprehensive details on Lumen's long-term debt and credit facilities, including an overview of outstanding debt, maturity schedules, the impact of recent debt transactions (TSA Transactions), and associated covenants and guarantees Debt Overview Lumen's consolidated long-term debt totaled $18,603 million at June 30, 2024, down from $19,988 million at December 31, 2023, primarily held by Lumen Technologies, Inc., Level 3 Financing, Inc., and Qwest Corporation, with various secured and unsecured instruments Consolidated Long-Term Debt (Millions) | Debt Category | June 30, 2024 | December 31, 2023 | | :------------------------------------ | :------------ | :---------------- | | Secured Senior Debt | $11,092 | $8,876 | | Unsecured Senior Notes and Other Debt | $7,511 | $11,112 | | Unamortized discounts, net | $(476) | $(4) | | Unamortized debt issuance costs | $(235) | $(145) | | Total long-term debt | $18,603 | $19,988 | | Less current maturities | $(192) | $(157) | | Long-term debt, excluding current maturities | $18,411 | $19,831 | - Long-term debt decreased by $1,385 million from December 31, 2023, to June 30, 2024[71] - Most outstanding consolidated debt is incurred by Lumen Technologies, Inc., Level 3 Financing, Inc., and Qwest Corporation[68] Long-Term Debt Maturities The aggregate principal amount of Lumen's long-term debt maturing in the next few years is relatively low, with the majority of maturities (over $16.5 billion) due in 2029 and thereafter Aggregate Principal Amount of Long-Term Debt Maturities (Millions) | Year | Amount | | :-------------------------- | :----- | | 2024 (remaining six months) | $43 | | 2025 | $466 | | 2026 | $238 | | 2027 | $847 | | 2028 | $1,162 | | 2029 and thereafter | $16,558 | | Total long-term debt | $19,314 | Impact of Recent Debt Transactions On March 22, 2024, Lumen completed TSA Transactions, refinancing over $15 billion of debt, extending maturities, and issuing new term loan facilities and notes, resulting in a $275 million gain on extinguishment of old debt and significant fees - Completed TSA Transactions on March 22, 2024, refinancing over $15 billion of debt, extending maturities, and issuing new debt[76] - Recorded a $275 million gain on extinguishment of old debt in Q1 2024 due to new debt instruments being substantially different[80] New Debt Issuances (Aggregate Principal Amount as of June 30, 2024, Millions) | Issuer | Debt Instrument | Amount | | :-------------------------- | :------------------------------------ | :----- | | Lumen Technologies, Inc. | Term Loan A | $368 | | | Term Loan B-1 | $1,621 | | | Term Loan B-2 | $1,621 | | | 4.125% Superpriority Notes due 2029-2030 | $812 | | Level 3 Financing, Inc. | Term Loan B-1 | $1,199 | | | Term Loan B-2 | $1,199 | | | 10.500% First Lien Notes due 2029 | $668 | | | 10.750% First Lien Notes due 2029 | $678 | | | 11.000% First Lien Notes due 2029 | $1,575 | | | 4.875% Second Lien Notes due 2029 | $606 | | | 4.500% Second Lien Notes due 2030 | $712 | | | 3.875% Second Lien Notes due 2030 | $458 | | | 4.000% Second Lien Notes due 2031 | $453 | | Total | | $11,970 | Lumen Credit Agreements Lumen's new Superpriority Term Loan A and B Facilities require quarterly amortization payments and allow prepayment without penalty, with no borrowings outstanding under its $1.0 billion revolving credit facilities as of June 30, 2024 - Superpriority Term Loan A and B Facilities require quarterly amortization payments (1.25% and 0.25% respectively) and allow prepayment without premium or penalty[82] - No borrowings were outstanding under Lumen's Series A ($489 million) or Series B ($467 million) Revolving Credit Facilities at June 30, 2024[82] Level 3 Financing Credit Agreement Level 3 Financing's new Credit Agreement allows prepayment subject to a premium for the first 24 months post-Effective Date and requires specified mandatory prepayments upon certain transactions - Prepayment of Level 3 Financing's new Credit Agreement is subject to a 2.00% premium within 12 months and 1.00% premium between 12-24 months of the Effective Date[83] - New Level 3 facilities require specified mandatory prepayments upon certain transactions[83] Senior Notes Lumen's consolidated indebtedness includes superpriority senior secured notes, Level 3 Financing's first and second lien secured notes, and senior unsecured notes from various entities, all carrying fixed interest rates with principal due at maturity - Indebtedness includes Lumen's superpriority senior secured notes, Level 3 Financing's first and second lien secured notes, and senior unsecured notes from Lumen, Level 3 Financing, Qwest Corporation, and Qwest Capital Funding, Inc[85] - Level 3 Financing's secured notes include $1.575 billion in privately placed first lien notes maturing 2029, with $1.325 billion issued for cash proceeds[85] Letters of Credit At June 30, 2024, Lumen had $221 million in undrawn letters of credit outstanding, primarily under its revolving credit facilities - Undrawn letters of credit outstanding: $221 million at June 30, 2024[87] - $217 million of these were issued under Lumen's revolving credit facilities[87] Certain Guarantees and Security Interests Lumen's debt obligations are supported by a complex structure of guarantees and security interests from its subsidiaries, with varying levels of collateralization and regulatory approvals required - Lumen's Superpriority Revolving/Term Loan A Credit Agreement obligations are unsecured but guaranteed by Lumen Guarantors, with certain guarantees secured by substantially all assets[88] - Level 3 Financing's new Credit Agreement obligations are secured by a first lien on substantially all of its assets and guaranteed by Level 3 Collateral Guarantors[89] - Level 3 Financing's first and second lien notes are secured by first and second liens, respectively, on substantially all of its assets and guaranteed by Level 3 Collateral Guarantors[90] Covenants Lumen's credit agreements and senior notes contain various financial and negative covenants, including restrictions on leverage ratios, interest coverage, dividends, additional indebtedness, and asset dispositions, with specific thresholds for Lumen and Level 3 Financing - Lumen's Superpriority Revolving/Term Loan A Credit Agreement limits total net leverage ratio (max 5.75:1.00, stepping down) and requires an interest coverage ratio of at least 2.00:1.00[92] - Covenants restrict Lumen's ability to declare dividends, repurchase stock, incur additional indebtedness, and dispose of assets[93] - Level 3 Financing's new Credit Agreement and secured notes also contain extensive affirmative and negative covenants[95] Compliance As of June 30, 2024, Lumen Technologies, Inc. and its subsidiaries believe they were in compliance with all material provisions and financial covenants of their respective debt agreements - Lumen Technologies, Inc. and its subsidiaries believe they were in compliance with material debt agreements as of June 30, 2024[97] Guarantees Lumen does not guarantee unaffiliated debt, but its key subsidiaries guarantee certain Lumen and other subsidiary debt, with several pledging substantially all assets to secure these guarantees - Lumen does not guarantee unaffiliated debt[98] - Certain key subsidiaries guarantee Lumen's debt under SP Credit Agreements, superpriority senior secured notes, and a letter of credit facility, as well as other subsidiaries' term loans or senior secured notes[98] (6) Severance In April 2024, Lumen reduced its workforce by approximately 6% as part of transformation and cost reduction efforts, incurring $103 million in severance and related costs - Workforce reduced by approximately 6% in April 2024 as part of transformation and cost reduction[99] - Incurred approximately $103 million in severance and related costs due to the workforce reduction[99] Severance Accrued Liabilities (Millions) | Metric | Amount | | :-------------------------- | :----- | | Balance at December 31, 2023 | $18 | | Accrued to expense | $107 | | Payments, net | $(106) | | Balance at June 30, 2024 | $19 | (7) Employee Benefits This note details the net periodic benefit expense for Lumen's Combined Pension Plan and post-retirement benefit plans, including service cost, interest cost, and actuarial gains/losses, with a special termination benefits charge recognized in Q2 2024 Net Periodic Benefit Expense - Pension Plan Net periodic pension expense for the Combined Pension Plan was $24 million for Q2 2024 and $52 million for YTD Q2 2024, remaining stable year-over-year Net Periodic Pension Expense (Millions) | Component | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service cost | $6 | $6 | $12 | $12 | | Interest cost | $62 | $67 | $125 | $135 | | Expected return on plan assets | $(69) | $(72) | $(136) | $(143) | | Recognition of prior service credit | $(1) | $(1) | $(3) | $(3) | | Recognition of actuarial loss | $26 | $26 | $54 | $51 | | Net periodic pension expense | $24 | $26 | $52 | $52 | Net Periodic Benefit Expense - Post-Retirement Plans Net periodic post-retirement benefit expense was $20 million for Q2 2024 and $38 million for YTD Q2 2024, with a $2 million special termination benefits charge recognized in Q2 2024 due to workforce reduction efforts Net Periodic Post-Retirement Benefit Expense (Millions) | Component | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service cost | $1 | $2 | $2 | $3 | | Interest cost | $24 | $25 | $47 | $51 | | Recognition of prior service credit | $(2) | $(2) | $(4) | $(4) | | Recognition of actuarial gain | $(5) | $(5) | $(9) | $(10) | | Special termination benefits charge | $2 | $— | $2 | $— | | Net periodic post-retirement benefit expense | $20 | $20 | $38 | $40 | - A one-time charge of $2 million for special termination benefit enhancements was recognized in Q2 2024[103] Pension Plan Contributions Lumen does not expect to be required to make any additional contributions to its Combined Pension Plan in 2024, nor does it anticipate making voluntary contributions - No additional required contributions to the Combined Pension Plan are expected in 2024[105] - No voluntary contributions to the Combined Pension Plan trust are expected in 2024[105] (8) Earnings Per Common Share This note details the calculation of basic and diluted (loss) earnings per common share, showing a significant improvement from a loss in 2023 to near break-even or slight income in 2024, primarily due to the absence of the prior year's goodwill impairment Basic and Diluted (Loss) Earnings Per Common Share | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(49) | $(8,736) | $8 | $(8,225) | | Basic (loss) earnings per common share | $(0.05) | $(8.88) | $0.01 | $(8.37) | | Diluted (loss) earnings per common share | $(0.05) | $(8.88) | $0.01 | $(8.37) | | Weighted-average common shares outstanding (Basic, thousands) | 987,239 | 983,453 | 986,047 | 982,505 | - Diluted EPS improved from $(8.88) to $(0.05) for the three months and from $(8.37) to $0.01 for the six months ended June 30, 2024, year-over-year[107] - Unvested restricted stock awards (24.1 million for Q2 2024, 22.2 million for YTD Q2 2024) were excluded from diluted EPS calculation as they were antidilutive[108] (9) Fair Value of Financial Instruments This note outlines the fair value measurements for Lumen's financial instruments, primarily long-term debt and an investment in a limited partnership, using a three-level hierarchy based on input observability Fair Value Hierarchy Lumen determines fair values using valuation techniques that maximize observable inputs, classifying them into Level 1, Level 2, and Level 3, with long-term debt primarily valued using Level 2 inputs - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction[110] - Long-term debt fair values are determined using Level 2 inputs (discounted future cash flows using current market interest rates)[111] Carrying Amounts and Estimated Fair Values of Financial Instruments (Millions) | Financial Instrument | Level Input | June 30, 2024 Carrying Amount | June 30, 2024 Fair Value | December 31, 2023 Carrying Amount | December 31, 2023 Fair Value | | :------------------------------------ | :---------- | :------------------------------ | :----------------------- | :-------------------------------- | :--------------------------- | | Long-term debt, excluding finance lease and other obligations | 2 | $18,333 | $13,020 | $19,703 | $13,304 | | Indemnifications related to the sale of the Latin American business | 3 | $91 | $86 | $86 | $86 | Investment Held at Net Asset Value Lumen holds an investment in a limited partnership, accounted for using net asset value (NAV), on which a loss was recognized for the three and six months ended June 30, 2024 Investment in Limited Partnership (Millions) | Metric | As of June 30, 2024 | As of December 31, 2023 | | :-------------------------- | :------------------ | :---------------------- | | Net Asset Value | $7 | $10 | - Recognized a loss on investment of $23 million for Q2 2024 and $3 million for YTD Q2 2024[114] (10) Segment Information This note provides financial results for Lumen's two reporting segments: Business and Mass Markets, detailing their revenue, expenses, and adjusted EBITDA, and reconciles segment adjusted EBITDA to net (loss) income Segment Overview Lumen's segments are Business (Large Enterprise, Mid-Market, Public Sector, Wholesale, International & Other) and Mass Markets (residential and small business), with segment expenses including direct costs and directly associated selling, general, and administrative costs - Two reporting segments: Business (enterprise and wholesale customers) and Mass Markets (residential and small business customers)[116] Segment Revenue and Adjusted EBITDA (Three Months Ended June 30, Millions) | Metric | Business (2024) | Mass Markets (2024) | Business (2023) | Mass Markets (2023) | | :-------------------------- | :-------------- | :------------------ | :-------------- | :------------------ | | Segment revenue | $2,577 | $691 | $2,908 | $753 | | Total segment adjusted EBITDA | $1,359 | $363 | $1,565 | $393 | - Segment expenses include specific cost of service and directly associated selling, general, and administrative expenses[120] Reconciliation of Segment Adjusted EBITDA to Net (Loss) Income This table reconciles the total segment adjusted EBITDA to the consolidated net (loss) income, highlighting the impact of unallocated expenses, depreciation, amortization, and the prior year's goodwill impairment Reconciliation of Segment Adjusted EBITDA to Net (Loss) Income (Millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total segment adjusted EBITDA | $1,722 | $1,958 | $3,453 | $3,967 | | Depreciation and amortization | $(743) | $(746) | $(1,491) | $(1,479) | | Goodwill impairment | $— | $(8,793) | $— | $(8,793) | | Other unallocated expense | $(847) | $(831) | $(1,771) | $(1,703) | | Operating income (loss) | $135 | $(8,421) | $180 | $(8,031) | | Net (loss) income | $(49) | $(8,736) | $8 | $(8,225) | - Total segment adjusted EBITDA decreased by $236 million (12%) for the three months and $514 million (13%) for the six months ended June 30, 2024, year-over-year[121] (11) Commitments, Contingencies and Other Items This note details Lumen's various legal proceedings and contingent liabilities, including shareholder class actions, derivative suits, environmental litigation related to lead-sheathed cables, state tax suits, and other disputes, with an accrued liability of $82 million for litigation and non-income tax contingencies Litigation Accrual Liabilities Lumen accrues liabilities for litigation and non-income tax contingencies when losses are probable and reasonably estimable, with an aggregate accrued liability of $82 million as of June 30, 2024 - Accrued $82 million in aggregate for litigation and non-income tax contingencies as of June 30, 2024[124] - Accruals are established when losses are probable and reasonably estimable[124] Principal Proceedings Lumen is involved in several significant legal proceedings, including shareholder class actions, derivative litigation, environmental suits concerning lead-sheathed cables, state tax disputes, and investigations related to Huawei equipment - Facing shareholder class action lawsuits (Houser, In re Lumen Technologies, Inc. Securities Litigation I & II) alleging misstatements related to Quantum Fiber expansion and lead-sheathed cables[126][127] - Subject to derivative litigation (Brown v. Johnson, et al.) alleging breach of fiduciary duty related to lead-sheathed telecommunications cables[128] - Involved in lead-sheathed cable environmental litigation (Parish of St. Mary, Blum) seeking damages and injunctive relief under Louisiana state law[129][130] - Under federal investigations (DOJ, FCC, Team Telecom) regarding the use of Huawei equipment in its networks[139][140][141] - Named in Marshall Fire litigation, with preliminary estimates of potential damage claims exceeding $2 billion[142] Other Proceedings, Disputes and Contingencies Lumen is involved in various other proceedings, including patent infringement lawsuits, regulatory hearings, employee claims, tax issues, and environmental law issues, with the ultimate outcome currently not expected to have a material adverse effect - Defending several patent infringement lawsuits from non-practicing entities, some seeking substantial recoveries[145] - Subject to environmental protection and health and safety laws, with potential for remediation costs related to historical operations and lead-sheathed cables[146] - Based on current circumstances, the ultimate resolution of these other proceedings is not expected to have a material adverse effect[147] (12) Other Financial Information This note provides details on other current assets and components of other income (expense), net, which includes non-operating items like gains from asset dispositions and pension/post-retirement benefit costs Other Current Assets Other current assets decreased from $1,223 million at December 31, 2023, to $971 million at June 30, 2024, primarily due to a decrease in income tax receivable Other Current Assets (Millions) | Component | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Prepaid expenses | $417 | $395 | | Income tax receivable | $21 | $273 | | Materials, supplies and inventory | $184 | $209 | | Contract assets | $15 | $19 | | Contract acquisition costs | $104 | $107 | | Contract fulfillment costs | $102 | $102 | | Assets held for sale | $107 | $104 | | Other | $21 | $14 | | Total other current assets | $971 | $1,223 | Other Income (Expense), Net Other income (expense), net, for Q2 2024 was $194 million (vs. $16 million in Q2 2023) and $267 million for YTD Q2 2024 (vs. $(24) million in YTD Q2 2023), significantly impacted by a $205 million gain on sale of investment - Other income (expense), net, included a $205 million gain on sale of investment for both the three and six months ended June 30, 2024[148] (13) Repurchases of Lumen Common Stock Lumen's Board authorized a $1.5 billion stock repurchase program in November 2022, with no shares repurchased during Q2 or YTD Q2 2024, leaving $1.3 billion authorized, and no current plans for purchases - Board authorized a $1.5 billion common stock repurchase program in November 2022[151] - No shares repurchased during the three and six months ended June 30, 2024[151] - $1.3 billion remains authorized under the program as of June 30, 2024, but no current plans for purchases[151] (14) Accumulated Other Comprehensive Loss This note details changes in accumulated other comprehensive loss, which improved from $(810) million at December 31, 2023, to $(786) million at June 30, 2024, primarily due to reclassifications related to pension and post-retirement plans Information Relating to 2024 For the six months ended June 30, 2024, accumulated other comprehensive loss decreased by $24 million, driven by $29 million in reclassifications from pension and post-retirement plans, partially offset by foreign currency translation adjustments Changes in Accumulated Other Comprehensive Loss (Six Months Ended June 30, 2024, Millions) | Component | Pension Plans | PostRetirement Benefit Plans | Foreign Currency Translation Adjustment and Other | Total | | :------------------------------------ | :------------ | :--------------------------- | :------------------------------------------------ | :---- | | Balance at December 31, 2023 | $(1,045) | $276 | $(41) | $(810) | | Other comprehensive income (loss) before reclassifications | $— | $— | $(5) | $(5) | | Amounts reclassified from accumulated other comprehensive loss | $38 | $(9) | $— | $29 | | Net current-period other comprehensive income (loss) | $38 | $(9) | $(5) | $24 | | Balance at June 30, 2024 | $(1,007) | $267 | $(46) | $(786) | - Net current-period other comprehensive income was $24 million for the six months ended June 30, 2024[153] Information Relating to 2023 For the six months ended June 30, 2023, accumulated other comprehensive loss decreased by $46 million, primarily due to reclassifications from pension and post-retirement plans and foreign currency translation adjustments Changes in Accumulated Other Comprehensive Loss (Six Months Ended June 30, 2023, Millions) | Component | Pension Plans | PostRetirement Benefit Plans | Foreign Currency Translation Adjustment and Other | Total | | :------------------------------------ | :------------ | :--------------------------- | :------------------------------------------------ | :---- | | Balance at December 31, 2022 | $(985) | $308 | $(422) | $(1,099) | | Other comprehensive income before reclassifications | $— | $— | $20 | $20 | | Amounts reclassified from accumulated other comprehensive loss | $36 | $(10) | $— | $26 | | Net current-period other comprehensive income (loss) | $36 | $(10) | $20 | $46 | | Balance at June 30, 2023 | $(949) | $298 | $(402) | $(1,053) | - Net current-period other comprehensive income was $46 million for the six months ended June 30, 2023[156] (15) Labor Union Contracts Approximately 21% of Lumen's employees are represented by labor unions (CWA or IBEW), with about 10% of these employees covered by collective bargaining agreements expiring by June 30, 2025 - Approximately 21% of employees are represented by CWA or IBEW[159] - Approximately 10% of represented employees have collective bargaining agreements expiring by June 30, 2025[159] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Lumen's financial condition and results of operations, discussing overall performance, macroeconomic impacts, segment results, liquidity, capital resources, and cash flow activities for the periods ended June 30, 2024 Overview Lumen Technologies is a facilities-based technology and communications company serving domestic and global business and mass markets customers, with this MD&A to be read in conjunction with the 2023 10-K and interim financial statements - Lumen is a facilities-based technology and communications company with a broad array of integrated products and services[163] - As of June 30, 2024, the company had approximately 25,000 employees[163] Macroeconomic Changes Macroeconomic changes have impacted Lumen through revenue shifts, operational challenges from inflation and supply shortages, and delayed customer decision-making, contributing to $14.0 billion in goodwill impairment charges in 2022 and 2023 - Macroeconomic changes have led to revenue increases/decreases, operational challenges (inflation, supply shortages), and delayed customer decision-making[164] - Increased fiber construction demand has raised costs for enabling fiber broadband services[165] - Macroeconomic factors and divestiture dis-synergies contributed to nearly $14.0 billion in goodwill impairment charges in 2022 and 2023[166] Reporting Segments Lumen's reporting segments are Business (Large Enterprise, Mid-Market, Public Sector, Wholesale, International & Other) and Mass Markets (residential and small business), with further product categorization within each segment - Business Segment sales channels: Large Enterprise, Mid-Market Enterprise, Public Sector, Wholesale, and International and Other[167][168] - Mass Markets Segment serves domestic residential and small business customers, with 2.7 million broadband subscribers at June 30, 2024[167] - Mass Markets product categories: Fiber Broadband, Other Broadband (copper-based), and Voice and Other[169] Trends Impacting Our Operations Operational trends include increasing demand for automated and high-bandwidth services, expansion of fiber networks, and declining demand for mature offerings, while facing challenges from higher vendor costs, reduced economies of scale post-divestitures, and macroeconomic uncertainties impacting margins and customer decision-making - Customers' demand for automated products and services requires continued investment in new technologies and automated processes[170] - Increased use of digital applications and AI drives demand for robust, scalable network services, leading to fiber network expansion[170] - Declining demand for mature service offerings and increased competitive pressures necessitate cost structure right-sizing[171][172] - Inflation and macroeconomic uncertainties are placing downward pressure on margins and delaying customer decision-making[174] Results of Operations Lumen's consolidated operating revenue decreased by 11% for both the three and six months ended June 30, 2024, primarily due to divestitures and declines in certain products, while operating expenses significantly decreased due to the absence of the prior year's goodwill impairment Overall Financial Performance Summary Consolidated operating revenue decreased by $393 million (11%) for Q2 2024 and $841 million (11%) for YTD Q2 2024, with net loss significantly improving to $(49) million for Q2 2024 and $8 million net income for YTD Q2 2024, largely due to the absence of the 2023 goodwill impairment Consolidated Operations Summary (Millions, except per share amounts) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating revenue | $3,268 | $3,661 | $6,558 | $7,399 | | Operating income (loss) | $135 | $(8,421) | $180 | $(8,031) | | Net (loss) income | $(49) | $(8,736) | $8 | $(8,225) | | Basic (loss) earnings per common share | $(0.05) | $(8.88) | $0.01 | $(8.37) | - Revenue declines are partially mitigated by efforts to promote integrated services, increase network capacity, and grow 'Grow' products and Quantum Fiber services[177] Revenue Analysis Consolidated operating revenue decreased by $393 million (11%) for Q2 2024 and $841 million (11%) for YTD Q2 2024, with $164 million and $332 million, respectively, attributed to the sale of the EMEA business and select CDN contracts Consolidated Operating Revenue by Segment and Sales Channel (Three Months Ended June 30, Millions) | Segment/Channel | 2024 | 2023 | % Change | | :-------------------------- | :--- | :--- | :------- | | Business Segment: | | | | | Large Enterprise | $837 | $899 | (7)% | | Mid-Market Enterprise | $478 | $514 | (7)% | | Public Sector | $448 | $415 | 8% | | Wholesale | $723 | $803 | (10)% | | International and Other | $91 | $277 | (67)% | | Total Business Segment Revenue | $2,577 | $2,908 | (11)% | | Mass Markets Segment Revenue | $691 | $753 | (8)% | | Total consolidated operating revenue | $3,268 | $3,661 | (11)% | Consolidated Operating Revenue by Segment and Sales Channel (Six Months Ended June 30, Millions) | Segment/Channel | 2024 | 2023 | % Change | | :-------------------------- | :--- | :--- | :------- | | Business Segment: | | | | | Large Enterprise | $1,695 | $1,810 | (6)% | | Mid-Market Enterprise | $964 | $1,037 | (7)% | | Public Sector | $868 | $847 | 2% | | Wholesale | $1,453 | $1,626 | (11)% | | International and Other | $188 | $556 | (66)% | | Total Business Segment Revenue | $5,168 | $5,876 | (12)% | | Mass Markets Segment Revenue | $1,390 | $1,523 | (9)% | | Total consolidated operating revenue | $6,558 | $7,399 | (11)% | - The sale of the EMEA business and select CDN contracts accounted for $164 million (Q2) and $332 million (YTD Q2) of the revenue decrease[180] Operating Expenses Analysis Total operating expenses decreased significantly by 74% for Q2 2024 and 59% for YTD Q2 2024, primarily due to the absence of the $8.8 billion goodwill impairment charge from the prior year, with cost of services and products also decreasing, while selling, general and administrative expenses saw mixed changes Cost of Services and Products (exclusive of depreciation and amortization) Cost of services and products decreased by $87 million (5%) for Q2 2024 and $252 million (7%) for YTD Q2 2024, driven by the EMEA business sale, lower headcount, and decreased network expenses, partially offset by higher facilities, equipment, and maintenance costs Cost of Services and Products (Millions) | Period | 2024 | 2023 | % Change | | :-------------------------- | :--- | :--- | :------- | | Three Months Ended June 30 | $1,653 | $1,740 | (5)% | | Six Months Ended June 30 | $3,305 | $3,557 | (7)% | - Decreases primarily due to EMEA business sale ($121 million Q2, $247 million YTD Q2), employee-related expense reductions ($51 million Q2, $65 million YTD Q2), and decreased network expenses[184] - Partially offset by increases in facilities costs ($68 million Q2, $52 million YTD Q2) and equipment/maintenance costs ($26 million Q2, $30 million YTD Q2)[184] Selling, General and Administrative Selling, general and administrative expenses decreased by $48 million (6%) for Q2 2024 but increased by $54 million (4%) for YTD Q2 2024, with the Q2 decrease due to the absence of a 2023 loss on campus donation and EMEA sale, offset by severance, and the YTD increase driven by legal fees and severance, partially offset by the campus donation, EMEA sale, and CDN deferred gain Selling, General and Administrative Expenses (Millions) | Period | 2024 | 2023 | % Change | | :-------------------------- | :--- | :--- | :------- | | Three Months Ended June 30 | $742 | $790 | (6)% | | Six Months Ended June 30 | $1,565 | $1,511 | 4% | - Q2 2024 decrease due to absence of $67 million loss from Monroe campus donation in 2023 and $30 million from EMEA sale, partially offset by $57 million in severance costs[186] - YTD Q2 2024 increase primarily due to $143 million in legal/professional fees (debt transactions) and $75 million in employee-related expenses (severance)[186] (Gain) Loss on Sale of Business Lumen recognized a $5 million gain on sale of business for Q2 2024, compared to a $13 million loss in Q2 2023, and for YTD Q2 2024, a $17 million loss was recognized, an 81% decrease from the $90 million loss in YTD Q2 2023 (Gain) Loss on Sale of Business (Millions) | Period | 2024 | 2023 | % Change | | :-------------------------- | :--- | :--- | :------- | | Three Months Ended June 30 | $(5) | $13 | nm | | Six Months Ended June 30 | $17 | $90 | (81)% | Depreciation and Amortization Total depreciation and amortization expense remained stable for Q2 2024 and increased slightly for YTD Q2 2024, with depreciation decreasing due to changes in fiber asset lives and net decline in assets, while amortization increased due to accelerated software amortization Depreciation and Amortization Expense (Millions) | Component | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Depreciation | $466 | $483 | $942 | $956 | | Amortization | $277 | $263 | $549 | $523 | | Total | $743 | $746 | $1,491 | $1,479 | - Depreciation decreased due to changes in fiber network asset lives ($16 million Q2, $32 million YTD Q2) and net decline in depreciable assets[189] - Amortization increased due to accelerated amortization of software assets ($18 million Q2, $32 million YTD Q2), partially offset by changes in amortization method and CDN customer relationships[190] Goodwill Impairment No goodwill impairment was recognized for Q2 or YTD Q2