Executive Vice President & Chief Financial Officer at Lumen Technologies
Thank you, Jeff and good afternoon, everyone. It has been about 4 months since I joined the Lumen team and I am more excited than ever for the opportunities that lie ahead. I've been working with the leadership team here at Lumen to rethink the way we manage our business and products. You'll find a change in the way we plan to report our revenues of the Lumen business segment in today's materials.
After closing the ILEC transaction which is expected early in the fourth quarter, we will provide a pro forma historical revenue view of these product groups. I want to emphasize that these new categories are not simply a recut of our external reporting but a significant internal change that addresses how we manage the products that reside within each category. This will drive enhanced efficiency and discipline as we drive towards our key strategic initiative of attaining profitable top line growth.
As Jeff discussed, we face some macro headwinds and we are actively working to address these challenges through cost reduction and other initiatives. We will keep a watchful eye on these issues that are and will likely continue to impact nearly every industry in the near term.
With that, I will begin with a financial summary of our second quarter. We are very pleased to have closed the LatAm divestiture to Stonepeak on August 1 for approximately $2.7 billion and we are on track for an early fourth quarter close of the ILEC divestiture. Our revenue performance has improved across all enterprise channels with overall business revenue growing sequentially. We continue to see fiber broadband revenue growth which is helping to improve our Mass Markets revenue trajectory and supporting our expectation for Mass Markets broadband revenue and subscriber growth in the second half of next year.
We reported adjusted EBITDA of $1.811 billion in the second quarter and generated a 39.3% margin. Recall that year-over-year comparisons will continue to be impacted throughout 2022 by the CAF II program that ended in 2021 and note that we did not recognize any CAF II-related reserve release this quarter. We will update you in future quarters if there are any significant additional CAF II-related reserve releases. With respect to the RDOF program, we recognized approximately $6 million in the second quarter of 2022.
Our reported revenue was down 6.3% year-over-year. On an adjusted basis, revenue declined 3.4% in the second quarter, an improvement from the 5.5% adjusted year-over-year decline in the first quarter of this year. Our free cash flow was $668 million for the second quarter. We returned $254 million to our shareholders during the quarter through our quarterly dividend. Additionally, we reduced net debt by nearly $900 million year-to-date and exited the quarter with leverage at 3.7x.
In the second quarter, total reported revenue declined 6.3% on a year-over-year basis to $4.612 billion. Year-over-year metrics were materially impacted by the end of the CAF II program at year-end 2021. When adjusted for CAF II, foreign currency and the sale of our correctional facilities business, the year-over-year rate of decline was 3.4% versus a decline of 5.5% last quarter. Sequentially, revenue was stable in 2Q '22 on a normalized basis.
Within our 2 key segments, Business revenue declined 3% year-over-year to $3.416 billion. When excluding foreign currency headwinds and the sale of our correctional facilities business, revenue declined 2.3% year-over-year and was up 0.6% versus the first quarter of 2022. Mass Markets revenue declined 14.7% year-over-year to $1.196 billion. Adjusting for the CAF II impact mentioned earlier, Mass Markets revenue was down 6.6% year-over-year. Wholesale revenue grew 0.6% year-over-year. Wholesale revenue benefits from IT professional services provided in connection with pending divestiture transactions and separately from carrier rerates. Remember, this is a channel that we expect to decline over time and one we manage for cash.
Within our enterprise channels which is our Business segment, excluding wholesale, reported revenue declined 4.2% year-over-year. When adjusting for the impacts of foreign currency and the sale of the correctional facilities business, revenue was down 3.3% year-over-year, an improvement from the 5.1% decline in the first quarter on the same basis. Our exposure to legacy voice and other revenue continues to improve and we expect the closing of the 20-state ILEC divestiture to provide further benefits for our enterprise revenue mix.
IGAM revenue declined 1.5% year-over-year. On a constant currency basis, IGAM revenue was flat year-over-year. We had strength in our managed security, cloud services, IP and dark fiber services. We've discussed large, complex transactions taking longer to turn up and I'm happy to report that IGAM benefited this quarter from additional revenue related to a large contract we signed last summer.
Large enterprise revenue declined 6.5% year-over-year. The sale of the correctional facilities business is reflected in this channel. Normalizing for this sale, large enterprise declined 5.4%, an improvement from the 6.9% decline in the first quarter. We had growth in managed security and IP services. Overall, large enterprise growth was negatively impacted by our IT solutions business which tends to experience quarterly fluctuations. Mid-market enterprise declined 5.3% year-over-year. We had growth in cloud, IT solutions and IP services, offset by lower voice and equipment revenue.
Moving on to our new business reporting. We are providing a view of our new revenue reporting structure today and will formalize our new reporting starting in 2023 which will provide a pro forma post-transaction view. We will continue to update you through the remainder of this year on a total company basis.
We are grouping our business revenue reporting into 4 distinct product categories: grow, nurture, harvest and other. Our grow category features products such as IP, wavelengths, security, cloud, SD-WAN, SASE, unified communications and voice over IP. Our nurture category includes products like VPN and Ethernet. Our harvest products include legacy services such as voice, Private Line and UNEs. The other products are equipment and IT solutions which tend to fluctuate quarter-to-quarter and are low-margin contributors.
As you can see, our grow group is the largest group, followed by nurture, with harvest being the smallest group. When looking at historical trajectories, be aware of a few key things. COVID had a significant impact on our growth over the last couple of years but we see that as largely behind us now. Within the nurture group, we see meaningful opportunities to migrate customers to new product sets residing in the grow group which will continue to dampen the nurture growth rate. These are relevant products that we continue to sell in real time. Within our harvest group, we will continue to manage the declines as well as take price to retain profitability. This could provide a buffer for some of the decline but many of the products in this group did not have a migration path back up the group stack.
I also think it's important to reiterate that these product groups are not simply a change in product groups for external consumption but rather a holistic change in the way we manage products internally. This will fully align what we present externally to how we manage internally with a significant focus on where we spend our opex and capex to provide the best possible returns for our stakeholders.
While we have provided 5 quarters of historic revenue for these product sets, you should consider this day 1 of how we are managing our new product groupings. Increasing efficiency to drive revenue growth is our primary goal and we look forward to providing you with our progression as we continue our transformation journey.
Moving on to Mass Markets. As I mentioned earlier, on an adjusted basis, Mass Markets revenue declined 6.6% year-over-year and 1.6% sequentially. Remember that we recognized a onetime noncash revenue benefit in the first quarter related to a CAF II reserve release of $59 million. In the second quarter of 2021, we recognized $122 million of CAF II revenue. Our Mass Markets fiber broadband revenue within our RemainCo footprint grew by 16% year-over-year and the second quarter represented more than 16% of our total Mass Market revenue. With the anticipated close of our ILEC sale, our exposure to legacy voice and other services will improve and reduce our annualized voice and other revenue by over $600 million based on our second quarter 2022 results.
During the quarter, we added 28,000 Quantum Fiber customers, roughly in line with last quarter as we continue our pivot to a market-based approach and adjust our go-to-market strategy. This brings our total Quantum Fiber subscribers to 858,000 with 788,000 of the subscribers within the 16 retained states. During the quarter, total enablements were approximately 205,000 with approximately 185,000 of those enabled locations in our 16 retained states, bringing the total enabled locations in the retained states to 2.9 million as of June 30 with approximately 270,000 additional locations enabled in the SellCo footprint.
ARPU in the retained states was approximately $59 and we see ARPU expansion opportunities with the adoption of in-home WiFi solutions, up-speeding and with today's announcement of the multi-gig speed offerings that Jeff shared. As of June 30, our penetration of legacy copper broadband subscribers in our retained 16 states was less than 13%, highlighting the significant share-taking opportunity as we accelerate the Quantum Fiber build.
Within the same footprint, our Quantum Fiber penetration stood at approximately 28% but we expect that to fall in the near term as we ramp enablements. Our 2022 Quantum Fiber vintage penetration increased 500 basis points to approximately 27% at the 18-month mark, a solid improvement from the 12-month mark and continuing to ramp, supporting our expectations for the longer-term penetration opportunity. Our Quantum Fiber NPS score within RemainCo is greater than positive 50, an indication of the quality, value and superior service that Quantum Fiber delivers.
Quantum Fiber is an all-digital prepaid product that features simple pricing with no contracts, helping reduce call center volumes and bolstering our NPS scores. In Mass Markets and across the overall business, we are continuing to see trends towards pre-pandemic levels in our allowance for credit losses which is reassuring and not having any notable impact to our business. The prepaid nature of our Quantum Fiber product helps reduce our bad debt risk.
Turning to adjusted EBITDA. For the second quarter of 2022, adjusted EBITDA was $1.811 billion compared to $2.109 billion in the year ago quarter. Recall that our adjusted EBITDA in the second quarter of last year benefited by $122 million from the CAF II program. Special items this quarter totaled $47 million and were related primarily to transaction and separation activities for the LatAm and 20-state ILEC divestitures. When comparing margins to the year ago period, you should consider the $122 million benefit of CAF II support in the prior year period.
When adjusting for this impact, our second quarter 2022 margin of 39.3% would compare to 41.4% in the year ago period. We are seeing some cost pressures from inflation in addition to our opex investments to drive growth. In addition, our wholesale-related network expense has increased more than our additional revenue associated with carrier rerates. Capital expenditures for the second quarter of 2022 were $761 million. We continue to focus on capital efficiencies but expect ramping Quantum Fiber build cost to drive higher spending in the second half. In the second quarter of 2022, the company generated free cash flow of $668 million.
Moving on to our outlook. Our guidance metrics remain unchanged from the update we provided last quarter. The closing of the LatAm divestiture on August 1 was 1 month later than our guidance assumed. That timing difference had a minimal impact on our full year outlook. We continue to expect the closing of the 20-state ILEC divestiture early in the fourth quarter.
Recall that in terms of special items for 2022, we expect a ramp-up in costs compared to prior years, primarily driven by dedicated third-party costs to support transition services for the divestitures. The costs for these services are removed from adjusted EBITDA. The reimbursement for these services will be in other income with no material net impact to our cash flows and reflected in our schedules of non-GAAP items impacting net income.
In closing, we are pleased with our improved revenue results as well as our progress on the Quantum Fiber acceleration. As I mentioned, we are not immune to the macroeconomic environment and are managing through those headwinds. Our team remains focused on executing on our growth initiatives to drive long-term profitable revenue growth. As a reminder, in addition to free cash flow generated from the business, we expect a total of about $7 billion in discretionary cash proceeds, including the recent LatAm divestiture as well as the pending closure of the 20-state ILEC divestiture.
With that, we are ready for your questions.