Lumen Technologies, Inc. Q2 FY2025 earnings call

• Announced the sale of the consumer fiber-to-the-home business to AT&T for $5.75 billion, providing strategic clarity and financial freedom.
• Successfully completed a $2 billion bond offering, extending maturities and reducing the coupon rate by over 3.5%, saving ~$50 million in annual interest expense.
• Raised 2025 free cash flow guidance by $500 million and increased the 2025 run rate cost-out target to $350 million.
• Made progress on $8.5 billion of PCF contracts, with 119 ILA sites under construction, 1,200 miles of fiber deployed on 16 routes, and IRU conduit deployments across 55 routes.
• Observed strong NaaS adoption with 35% QoQ increase in customers using one or more ports, 31% QoQ growth in total active NaaS ports, and 22% QoQ growth in total active services.
• Innovated cloud on-ramp capabilities, working with major hyperscalers to connect the network directly to their cloud infrastructure for AI-powered businesses.

Total reported revenue declined 5.4% to $3.092 billion. Business segment revenue declined 3.4% to $2.49 billion. Mass Markets segment revenue declined 12.8% to $602 million. Adjusted EBITDA was $877 million with a 28.4% margin and free cash flow was negative $209 million. Within North American enterprise channels, excluding wholesale, international and other, revenue declined only 2.4%. North American Enterprise Grow revenue increased 8.5% year-over-year. Public Sector revenue grew 8.2% year-over-year. Wholesale revenue declined approximately 5%. Nurture revenue was down 8.6% in the second quarter. International and other revenue declined 10.9%.

• Revised 2025 adjusted EBITDA to near the high end of the $3.2 billion to $3.4 billion range despite a $46 million RDOF giveback.
• Maintained CapEx guidance at $4.1 billion to $4.3 billion, now expecting the low end.
• Revised cash taxes from $100 million to $200 million to a benefit of $300 million to $400 million based on the reconciliation bill.
• Raised full-year free cash flow guidance from $700 million to $900 million to $1.2 billion to $1.4 billion.

• Impact of RDOF giveback on revenue and EBITDA.
• Potential continued decline in Harvest revenue, particularly in wholesale.
• Complexity and lower margins associated with PCF new route construction.
• Cloud service utilization costs impacting EBITDA.

Q: Michael Rollins with Citi asked about North American enterprise segment performance and revenue evolution.

A: Chris Stansbury responded that Grow revenue is growing, Nurture and Harvest are declining, and Public Sector is exceeding internal expectations.

Q: Sebastiano Petti with JPMorgan inquired about EBITDA guide, PCF deals, and free cash flow.

A: Chris Stansbury and Kate Johnson addressed RDOF impact, PCF deal economics, and free cash flow tailwinds.

Q: Batya Levi with UBS asked about incremental costs, EBITDA guide, and PCF deal drivers.

A: Kate Johnson and Chris Stansbury discussed PCF deal composition, EBITDA headwinds, and PCF deal dynamics.

Q: Nick Del Deo with MoffettNathanson asked about public sector EBITDA implications and PCF deal cadence.

A: Chris Stansbury and Kate Johnson responded about public sector EBITDA impacts and PCF deal complexity.

Q: Greg Williams with TD Cowen asked about CapEx and tech solutions rev share.

A: Kate Johnson and Chris Stansbury talked about CapEx timing and tech solutions ecosystem.

Q: Frank Louthan with Raymond James asked about Grow/Nurture growth and PCF contract expansions.

A: Kathleen E. Johnson and Chris Stansbury responded about Grow growth and PCF contract expansions.

Q: Eric Luebchow with Wells Fargo asked about PCF contracts and addressable market.

A: Kathleen E. Johnson and Chris Stansbury discussed PCF market phases and administration support.