Lumen(US:LUMN)2025-07-31 22:00Financial Data and Key Metrics Changes - Lumen reported total revenue of $3,092,000,000, a decline of 5.4% year over year, while business segment revenue decreased by 3.4% to $2,490,000,000 [26][21] - Adjusted EBITDA was $877,000,000 with a margin of 28.4%, down from approximately $1,000,000,000 in the same quarter last year [33][21] - Free cash flow was negative $209,000,000, with expectations for improvement in future quarters [34][36] Business Line Data and Key Metrics Changes - Total IP sales increased nearly 38%, with IP revenue up in the mid-single digits [21] - North American enterprise grow revenue increased by 8.5% year over year, while nurture revenue decreased by 18% [30][27] - Mass markets segment revenue declined by 12.8%, but fiber broadband revenue increased by 19.9% year over year [32][26] Market Data and Key Metrics Changes - Public sector revenue grew by 8.2% year over year, driven by a 9.4% increase in grow revenue and a 49% increase in harvest revenue [27] - Wholesale revenue declined approximately 5% year over year, with harvest revenue contracting by 6.2% [28] - International and other revenue decreased by 10.9%, primarily due to VPN declines [29] Company Strategy and Development Direction - The company is focused on transforming its network to support the AI economy, emphasizing the construction of new infrastructure and digital platforms [20][7] - Lumen aims to leverage its physical network and digital platform to create a scalable commercial ecosystem for customers [20][19] - The company is committed to maintaining discipline in deal-making, ensuring that new contracts are value-accretive [10][4] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to EBITDA growth and highlighted the importance of modernization and simplification efforts [37][38] - The company anticipates continued lumpiness in cash flow related to PCF contracts and the sale of its consumer fiber business [36][34] - Management noted that the recent reconciliation bill will significantly reduce tax liabilities, providing additional financial flexibility [25][36] Other Important Information - The company successfully refinanced $2,000,000,000 in debt, extending maturities and reducing annual interest expenses by approximately $100,000,000 [24][23] - Lumen's free cash flow guidance for 2025 has been raised to between $1,200,000,000 and $1,400,000,000, primarily due to expected tax refunds and lower CapEx spending [36][34] Q&A Session Summary Question: Performance of North American enterprise segment - Management highlighted that the grow bucket is performing well at 8.5%, which is crucial for future revenue inflection, while nurture revenue is expected to decline [42][43] Question: Expectations for 2026 EBITDA - Management indicated that there are no changes to the expectations for 2026 EBITDA, which is still anticipated to inflect next year [56][57] Question: Incremental costs and their impact - Management noted that there are about $100,000,000 in costs related to forced disconnects and cloud workload transitions, which will impact EBITDA in the second half [64][65] Question: Drivers of PCF sales - The recent $500,000,000 in new PCF contracts is primarily driven by over pull work, which is lower risk and higher margin [62][63] Question: Complexity of building new routes - Management explained that the complexity of building new routes is a significant factor affecting CapEx guidance, but it does not impact revenue timing [80][79]