Lumen(LUMN) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total reported revenue declined 8.7% to $3.041 billion, with business segment revenue down 8.8% to $2.425 billion [24] - Adjusted EBITDA was $767 million, with a margin of 25.2%, and free cash flow was negative $765 million [24][27] - Annual interest expense has been reduced by nearly $500 million in the last 12 months [21][22] Business Line Data and Key Metrics Changes - North American enterprise revenue grew to 52%, surpassing nurture and harvest revenues [6] - Total business grow revenue was roughly flat year-over-year and quarter-over-quarter, impacted by one-time revenue items [25] - The number of active customers grew by 29% quarter-over-quarter, and the number of NaaS fiber ports deployed increased by 31% [13] Market Data and Key Metrics Changes - North American business revenue declined 8.6%, with wholesale revenue down approximately 7.8% year-over-year [26] - International and other revenue declined 16.3%, primarily due to managed services, VPN, and voice declines [26] Company Strategy and Development Direction - The company aims to become the trusted network for AI, focusing on serving public and private enterprises [4] - A three-pillar strategy is being implemented to build the backbone for AI, cloudify telecom, and expand the connected ecosystem [9] - The company is transitioning from legacy revenue streams to strategic growth products, with a focus on digital services [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to business revenue growth by 2028 and total revenue growth by 2029 [18] - The company is cautiously optimistic about the market's ability to absorb changes in critical infrastructure due to the AI and Cloud 2.0 catalysts [50] - The future outlook remains positive, with expectations for improved margins and free cash flow as digital revenue increases [33] Other Important Information - The company closed the transaction with AT&T for $5.75 billion, using proceeds to pay down super priority bonds [20] - The company has achieved over $400 million in run rate cost reductions, targeting $700 million by the end of 2026 [19][29] Q&A Session Summary Question: Can you share how the recent PCF deals may differ from previous ones regarding margins and returns? - The structure of the recent $2.5 billion deals is similar to previous ones, as they utilize existing network conduit, maintaining a similar economic profile [39] Question: Can you provide insights on the guidance for 2028 business revenue growth? - Management is being cautiously optimistic about the market's ability to absorb changes, with a focus on gradual adoption and potential upside in revenue [50][51] Question: How should we think about the pacing of EBITDA growth in 2026? - The range for Adjusted EBITDA in 2026 is estimated to be $3.1 billion to $3.3 billion, indicating growth compared to 2025 [28][31]