Lumen(US:LUMN)2025-05-01 20:18Part I - Financial Information Financial Statements Lumen Technologies reported a net loss of $201 million in Q1 2025, a significant downturn from prior-year net income, driven by revenue decline and debt retirement losses Consolidated Statements of Operations Lumen reported a net loss of $201 million in Q1 2025, driven by a 3.3% revenue drop and a significant swing in other expenses, despite improved operating income Consolidated Statements of Operations (Unaudited) | Financial Metric | Three Months Ended March 31, 2025 (Millions USD) | Three Months Ended March 31, 2024 (Millions USD) | | :--- | :--- | :--- | | Operating Revenue | $3,182 million | $3,290 million | | Operating Income | $107 million | $45 million | | Net (Loss) Income | $(201) million | $57 million | | Diluted (Loss) Earnings Per Share | $(0.20) | $0.06 | - Total other expense was $352 million in Q1 2025, a stark contrast to total other income of $57 million in Q1 2024. This was primarily due to a $35 million net loss on early retirement of debt in 2025, compared to a $275 million net gain in 202420 Consolidated Balance Sheets As of March 31, 2025, Lumen's total assets were $33.54 billion, with long-term debt at $17.33 billion, leading to a decrease in total stockholders' equity Key Balance Sheet Items | Balance Sheet Item | March 31, 2025 (Millions USD) | December 31, 2024 (Millions USD) | | :--- | :--- | :--- | | Total Current Assets | $4,277 million | $4,394 million | | Total Assets | $33,538 million | $33,496 million | | Long-Term Debt | $17,334 million | $17,494 million | | Total Liabilities | $33,249 million | $33,032 million | | Total Stockholders' Equity | $289 million | $464 million | Consolidated Statements of Cash Flows Net cash from operations was $1.095 billion in Q1 2025, with increased cash used in investing activities and significantly decreased cash used in financing activities Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2025 (Millions USD) | Three Months Ended March 31, 2024 (Millions USD) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $1,095 million | $1,102 million | | Net Cash Used in Investing Activities | $(769) million | $(698) million | | Net Cash Used in Financing Activities | $(314) million | $(1,060) million | | Capital Expenditures | $(791) million | $(713) million | Notes to Consolidated Financial Statements Notes detail accounting policies, revenue breakdowns, debt structure, refinancing, segment performance, and ongoing legal contingencies including lead-sheathed cable litigation - As of March 31, 2025, the company expects to recognize approximately $6.1 billion of revenue in the future related to existing, unsatisfied performance obligations57 - The company had accrued $77 million for litigation and non-income tax contingencies as of March 31, 2025, but cannot estimate the reasonably possible loss in excess of this amount123 - Approximately 21% of employees are represented by unions, with 90% of these employees covered by collective bargaining agreements set to expire within the next 12 months ending March 31, 2026152 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 3% YoY revenue decline across segments, projecting $4.1-$4.3 billion in 2025 capital expenditures and detailing liquidity Overview Lumen focuses on networking, acknowledging macroeconomic challenges, and pursuing strategic goals like infrastructure delivery, network monetization, and financial strengthening - The company's strategic goals include delivering best-in-class infrastructure, monetizing network assets through Private Connectivity Fabric (PCF) solutions, expanding the AI backbone, and executing the Quantum Fiber buildout plan167 - Key trends impacting operations include increased demand for robust, scalable network services due to AI and cloud adoption, and declining demand for mature service offerings, which necessitates continuous right-sizing of the cost structure166 Results of Operations Consolidated operating revenue decreased 3% YoY to $3.182 billion, with expenses falling 5%, increasing operating income but resulting in a pre-tax loss due to other expenses Operating Revenue by Segment (YoY Change) | Segment | Q1 2025 Revenue (Millions USD) | Q1 2024 Revenue (Millions USD) | % Change | | :--- | :--- | :--- | :--- | | Business Segment | $2,524 million | $2,591 million | (3)% | | Mass Markets Segment | $658 million | $699 million | (6)% | | Total Revenue | $3,182 million | $3,290 million | (3)% | Operating Expenses (YoY Change) | Expense Category | Q1 2025 (Millions USD) | Q1 2024 (Millions USD) | % Change | | :--- | :--- | :--- | :--- | | Cost of services and products | $1,687 million | $1,652 million | 2% | | Selling, general and administrative | $675 million | $823 million | (18)% | | Depreciation and amortization | $713 million | $748 million | (5)% | | Total Operating Expenses | $3,075 million | $3,245 million | (5)% | - The decrease in SG&A expenses was primarily due to a $140 million decline in legal and other professional fees, mainly driven by a large debt transaction in Q1 2024 that did not have a comparable event in Q1 2025172 - Interest expense increased by $56 million YoY due to a higher average interest rate (7.67% vs 6.98%), despite a decrease in average outstanding long-term debt178 Segment Results Business segment revenue declined 3% YoY, while Mass Markets saw a 6% decline, with Fiber Broadband growth insufficient to offset legacy service declines Business Segment Revenue by Product Category (Q1 2025 vs Q1 2024) | Product Category | Q1 2025 Revenue (Millions USD) | Q1 2024 Revenue (Millions USD) | % Change | | :--- | :--- | :--- | :--- | | Grow | $1,136 million | $1,059 million | 7% | | Nurture | $666 million | $776 million | (14)% | | Harvest | $534 million | $582 million | (8)% | | Other | $188 million | $174 million | 8% | - Business segment 'Grow' revenue increased by $77 million, driven by dark fiber and conduit (+$51 million) and IP services (+$19 million)186 Mass Markets Segment Revenue by Product Category (Q1 2025 vs Q1 2024) | Product Category | Q1 2025 Revenue (Millions USD) | Q1 2024 Revenue (Millions USD) | % Change | | :--- | :--- | :--- | :--- | | Fiber Broadband | $209 million | $170 million | 23% | | Other Broadband | $257 million | $315 million | (18)% | | Voice and Other | $192 million | $214 million | (10)% | - Mass Markets segment adjusted EBITDA margin improved to 58% in Q1 2025 from 55% in Q1 2024, despite a revenue decline, due to a 12% decrease in segment expenses187188189 Liquidity and Capital Resources Lumen held $1.9 billion in cash, projecting $4.1-$4.3 billion in 2025 capital expenditures, with recent debt refinancing and ongoing management of obligations including pension liabilities - The company projects capital expenditures for 2025 to be between $4.1 billion and $4.3 billion194 - In March 2025, subsidiary Level 3 Financing refinanced its term loan facilities, extending the maturity to 2032 and reducing pricing. The transaction involved $2.4 billion of outstanding borrowings69199 - The company does not expect to be required to make any contributions to its Combined Pension Plan in 2025213 - The company is exposed to potential costs related to lead-sheathed copper cables in its network, which have resulted in regulatory inquiries and lawsuits. As of March 31, 2025, no costs have been accrued as they are not yet considered probable and reasonably estimable229 Market Risk Primary market risks stem from interest rate changes on $6.0 billion unhedged floating-rate debt, where a 100 basis point SOFR increase would decrease annual pre-tax earnings by $60 million - A hypothetical 100 basis point (1%) increase in SOFR would decrease annual pre-tax earnings by approximately $60 million due to the company's $6.0 billion of unhedged floating-rate debt234 Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the 'Market Risk' discussion within Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - This section incorporates by reference the Market Risk discussion found in Item 2 of Part I of the report239 Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls during Q1 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025240 - No material changes to internal control over financial reporting occurred during the first quarter of 2025241 Part II - Other Information Legal Proceedings This section incorporates by reference detailed legal matters from Note 10, including shareholder lawsuits and lead-sheathed cable litigation - Information regarding legal proceedings is incorporated by reference from Note 10—Commitments, Contingencies and Other Items244 Risk Factors This section supplements Annual Report risk factors, highlighting potential adverse effects from changes in U.S. and foreign government policies and trade agreements - The company highlights risks related to changes in U.S. and foreign government administrative policy, including the imposition of tariffs and changes to trade agreements, which could have a material adverse effect on the business246 Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2025, the company withheld 2,148,593 common shares from employees for tax obligations related to stock-based award vesting Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Withheld for Taxes (Shares) | | :--- | :--- | | January 2025 | 48,080 | | February 2025 | 99,236 | | March 2025 | 2,001,277 | | Total | 2,148,593 | Exhibits This section lists exhibits filed with Form 10-Q, including the Level 3 Credit Agreement amendment, CEO/CFO certifications, and Inline XBRL financial statements - Key exhibits filed include an amendment to the Level 3 Credit Agreement, CEO/CFO certifications, and financial statements in Inline XBRL format249