Lumen Technologies Q3 Earnings Call Highlights

Key Points

• Q3 revenue was $2.72 billion, with strategic revenue up 10% year over year to $1.28 billion, partially offsetting declines in legacy services and a 4.5% drop in total business revenue.
• Lumen signed another $700 million in private connectivity fabric deals, taking cumulative deals above $13.5 billion, and exceeded its 2026 target for deploying 5 million fiber miles ahead of schedule amid growing AI-related demand.
• Lumen reaffirmed its full-year outlook, including adjusted EBITDA of $3.1 billion to $3.3 billion and free cash flow of $1.9 billion to $2.1 billion. It also plans to accelerate copper-network retirement in four states, which represent about 25% of its copper footprint.

Lumen Technologies NYSE: LUMN reported third-quarter revenue of $2.72 billion as growth in strategic network services partially offset declines in its legacy business. The company also reaffirmed its full-year financial outlook and detailed plans to accelerate the decommissioning of its copper network.

Strategic revenue rose 10% year over year to $1.28 billion, accounting for 55% of business revenue, up from 48% a year earlier, Chief Financial Officer Chris Stansbury said. Total business revenue fell 4.5% to $2.35 billion.

CEO Kate Johnson said demand for network capacity was increasing as customers adopt artificial intelligence and seek more flexible connections. Strategic sales climbed 30% year over year, while strategic wavelength sales increased 22% from the second quarter, she said. The strategic sales figure includes private connectivity fabric, or PCF, deals, Stansbury said.

AI Connectivity and Digital Growth

Lumen signed an additional $700 million in PCF business, bringing cumulative deals to more than $13.5 billion. Johnson described PCF as private network interconnects used by hyperscalers for AI model training.

Johnson said Lumen had exceeded its 2026 target of deploying 5 million new fiber miles funded by signed PCF deals more than two months ahead of schedule. She said the company had not seen a slowdown in customer timelines, with hyperscalers instead pressing Lumen to deliver faster.

On Lumen’s global public internet backbone, overall traffic has grown 20% since the beginning of the year, Johnson said. AI traffic remains a small portion of that total but has increased more than 1,000% since April, which she said signals growing enterprise interest in AI inference.

Digital revenue increased 86.7% year over year to $56 million, driven by network-as-a-service offerings and the Alkira acquisition. Excluding Alkira, digital revenue still grew at a “very healthy double-digit” rate, Stansbury said, without providing a precise figure.

Lumen has combined dedicated internet access and its on-demand internet service into Lumen Intelligent Internet. Johnson said the combined business represents more than $1 billion in revenue, over 100,000 installed ports and more than 25,000 customers. Stansbury said Lumen will move that revenue base into its digital reporting category starting in 2027 and provide a pro forma digital revenue figure then.

Johnson said Lumen had more than 4,000 network-as-a-service customers, with active customers up 24% quarter over quarter. Active ports rose 38% and active services increased 35%. The company plans to shift from reporting those adoption metrics to reporting financial performance for the digital business.

Financial Results and Outlook

Third-quarter adjusted EBITDA, excluding special items, was $715 million, higher than Lumen anticipated primarily because operating expenses were lower than expected. Capital expenditures, excluding special items, totaled $796 million.

Free cash flow, excluding special items, was negative $76 million for the quarter and negative $1 billion year to date. Those figures included respective cash tax payments of $75 million and $321 million related to the Mass Markets Fiber-to-the-Home divestiture, which were excluded from guidance.

Lumen reaffirmed its full-year outlook for adjusted EBITDA of $3.1 billion to $3.3 billion and capital expenditures of $3.2 billion to $3.4 billion. It also maintained its free cash flow forecast of $1.9 billion to $2.1 billion, excluding special items and the divestiture-related cash tax payments.

Stansbury said Lumen continues to model a return to total business revenue growth in 2028, even with an accelerated copper exit. He said Alkira largely offsets the effect of the faster transition in that forecast.

Copper Exit and Margins

Lumen plans to accelerate copper decommissioning in Iowa, Florida, Nevada and Utah, in addition to modernization work already underway elsewhere. The four states represent roughly 25% of its copper footprint, Stansbury said.

At current copper prices, the company expects $1 billion to $1.5 billion in pretax net proceeds from recovered copper across its footprint over five years. That estimate excludes operating expense savings and depends on customer migration, regulatory approvals, recovery costs and market conditions.

Stansbury said Lumen currently spends approximately $200 million to $300 million annually in capital expenditures to maintain the copper networks and expects efficiencies over time. He said a substantial portion of the impact from the initial four states should begin in the latter part of 2027, while acknowledging that revenue losses and cost savings may not occur at the same time.

Year to date, the strategic portfolio’s average direct margin exceeded 80%, compared with approximately 65% for legacy services, Stansbury said. He attributed much of the difference to lower costs to serve customers and the scalability of digital services.

About Lumen Technologies (NYSE:LUMN)

Lumen Technologies, Inc is a communications and technology company that provides network, connectivity, cloud, cybersecurity and managed services primarily to businesses, government organizations and wholesale customers. Its offerings include fiber-based internet and data transport, software-defined networking, network security, unified communications, voice services, edge computing and related information technology solutions.

The company operates one of the largest enterprise fiber networks in the United States and also serves customers internationally through its global network and wholesale operations.

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