Lumen Technologies (NYSE:LUMN) reported second-quarter results that management said were in line with expectations, as the company continued to shift its business toward digital, strategic networking services and away from legacy offerings.
Chief Executive Officer Kate Johnson said Lumen is positioning its fiber infrastructure, programmable network and connected ecosystem for enterprise networking needs tied to artificial intelligence. The company also announced that John Hinshaw joined its board of directors.
Revenue Mix Shifts Toward Strategic Services
Total business revenue declined 1.8% year over year to $2.44 billion during the second quarter, while North American business revenue fell 1.6%. North American enterprise revenue, excluding wholesale, declined 0.2% from the prior-year period.
At the same time, strategic revenue increased 14% year over year and more than 23% over two years, according to President and Chief Financial Officer Chris Stansbury. Strategic revenue represented 53% of total business revenue, compared with 51% in the first quarter and 45% a year earlier.
“The positive revenue mix shift continues,” Stansbury said, adding that legacy revenue had declined less than the company expected. He said the increasing contribution from strategic services was driven by underlying dollar growth rather than solely by legacy product declines.
Digital revenue totaled $39 million in the second quarter. Stansbury said customer adoption and service usage are the near-term drivers of digital revenue growth, though he said it will take time for customers to add second, third and fourth services to their accounts.
Strategic 100-gigabit and 400-gigabit wavelength revenue in North American enterprise channels rose nearly 11% year over year. Sales of those services increased nearly 35%, which Stansbury described as an indicator of future revenue momentum.
Johnson said Lumen believes it is gaining share in high-speed wavelength services, aided by its Rapid Routes capabilities, which she said can activate customer circuits in days rather than months. She also cited demand from “neo cloud” customers for 100G and 400G connectivity.
Alkira Integration and Network-as-a-Service Adoption
Johnson said Alkira enables customers to use a single cloud-based control point to connect and secure distributed environments, including buildings, data centers and public clouds. She cited Koch Industries’ use of Alkira to reduce a multi-cloud network-hub setup from eight months to one day, and Michaels’ use of the platform to connect more than 1,400 retail locations to Google Cloud in a few weeks.
Lumen has trained nearly 4,000 employees on the Alkira value proposition since the acquisition closed, Johnson said. The company is also developing sales incentives, outbound marketing and demand-generation efforts around the offering.
Management said Alkira was not included in Lumen’s investor-day digital revenue targets. Its near-term revenue and cost contribution is immaterial, Stansbury said, but the company views it as potential upside to its digital growth plans. Lumen expects to discuss its view of Alkira’s impact when it provides 2027 guidance.
The company reported more than 3,000 Network-as-a-Service, or NaaS, customers. New customer adoption increased 22% sequentially in the second quarter, while active ports increased 34% and active services rose 29%.
More than 20% of first-time NaaS adopters were new to Lumen, Johnson said. She also said many existing Lumen customers are adding NaaS circuits rather than merely replacing legacy services, which management characterized as evidence of market-share gains.
Profitability, Capital Spending and Simplification
Adjusted EBITDA, excluding special items, was $802 million, down from about $877 million a year earlier. Stansbury said the year-over-year decline was driven primarily by the first-quarter sale of the company’s fiber-to-the-home business and expected revenue declines.
Special items affecting adjusted EBITDA totaled $204 million in the quarter, primarily related to modernization and simplification initiatives, transaction costs and separation costs.
Capital expenditures excluding special items were approximately $780 million, including about $300 million associated with public cloud fiber, or PCF, deals. Lumen received approximately $476 million in PCF-related cash during the quarter. Free cash flow excluding special items was $327 million.
PCF revenue was approximately $91 million, including about $36 million from a State of California delivery milestone that was accelerated from the second half of the year and is now largely complete.
Stansbury said Lumen plans to continue monetizing underutilized conduit and fiber assets where returns are attractive, but does not intend to pursue new construction projects with returns at or below its cost of capital. He said the company has a pipeline of potential PCF opportunities, though such deals have long sales cycles.
The company is also phasing out enterprise voice and communications products as part of its portfolio simplification effort. Johnson said Lumen will focus on larger customer relationships, migration strategies and regulatory requirements as it exits those services. Stansbury said enterprise voice represented a very low-single-digit share of sales and is not central to Lumen’s future strategy.
Lumen reiterated its cost-savings targets of $700 million exiting 2026 and more than $1 billion exiting 2027. Stansbury said the company remains on track to meet both goals and expects modernization and simplification savings to be a key contributor to its EBITDA outlook.
About Lumen Technologies (NYSE:LUMN)
Lumen Technologies is a multinational technology company specializing in integrated network, edge cloud, security and collaboration services for enterprise and public sector clients. The company’s core offerings include high-capacity fiber and IP-based connectivity, managed edge computing solutions designed to accelerate applications and data processing closer to end users, and cybersecurity services ranging from DDoS protection to unified threat management. Through its unified portfolio, Lumen enables organizations to support digital transformation initiatives, modernize infrastructure and enhance operational resilience.
Leveraging one of the largest fiber footprints in North America, as well as infrastructure in Latin America and parts of Europe, Lumen connects customers across more than 60 countries.
