Q2 2026 Lumen Technologies Inc Earnings Call

August 4, 2026

Speaker #1: Greetings, and welcome to Lumen Technologies' second quarter 2026 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session.

Operator: Greetings, and welcome to Lumen Technologies' Q2 2026 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the star followed by the one on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Tuesday, 4 August 2026. Your speakers for today are Kate Johnson, CEO, and Chris Stansbury, CFO. I would now like to turn the conference over to Jim Breen, Senior Vice President of Investor Relations. Please go ahead.

Speaker #1: question, please press the star followed by the 1 on your telephone. If at any time during the conference you need to reach an operator, please press star 0.

Speaker #1: is being recorded Tuesday, August 4, 2026. Your speakers for today are Kate Johnson, CEO, and Chris Stansbury, CFO. I would now like to turn the conference over to Jim Breen, Senior Vice President of Investor Relations.

Speaker #1: Please go ahead.

Speaker #2: Good afternoon, everyone, and thank you for joining Lumen Technologies' second quarter 2026 earnings call. Before we begin, I'd like to remind everyone of today's presentation will include forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Jim Breen: Good afternoon, everyone, and thank you for joining Lumen Technologies' Q2 2026 earnings call. Before we begin, I'd like to remind everyone that today's presentation will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect our current expectations, assumptions, and projections about future events and financial performance. Actual results may differ materially from those expressed or implied in these forward-looking statements due to a number of risks and uncertainties. A detailed discussion of these factors can be found in our most recent filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and quarter report on Form 10-Q for this quarter, and any subsequent filings. We undertake no obligation to update or revise any forward-looking statements made today, whether as a result of new information, future events, or otherwise.

Speaker #2: These statements reflect our current expectations, assumptions, and projections about future events and financial performance. Actual results may differ materially from those expressed or implied in these forward-looking statements due to a number of risks and uncertainties.

Speaker #2: A detailed discussion of these factors can be found in our most recent filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and quarter report on Form 10-Q for this quarter, and any subsequent filings.

Speaker #2: We undertake no obligation to update or revise any forward-looking statements made today, whether as a result of new information, future events, or otherwise. Today's presentation may also include non-GAAP financial measures. Reconciliations are provided under the posted materials.

Jim Breen: Today's presentation may also include non-GAAP financial measures. Reconciliations are provided in our posted materials. With that, I'll hand it to Kate.

Speaker #2: And with that, I'll hand it over to Kate.

Speaker #3: Thanks, Jim. I'll start by sharing how excited we are to welcome John Hinshaw to the Lumen Board of Directors. John's led complex technology organizations through major moments of change, and his perspective will be a great asset as we continue Lumen's transformation.

Kate Johnson: Thanks, Jim. I'll start by sharing how excited we are to welcome John Hinshaw to the Lumen Board of Directors. John's led complex technology organizations through major moments of change, and his perspective will be a great asset as we continue Lumen's transformation. To that end, we're pleased to report that Lumen delivered another solid quarter with financial results in line with expectations. Before Chris covers the numbers, I'll give some color on our strategy and transformation progress. Great companies don't win by fitting neatly into existing categories. They win by solving hard problems in new ways, sometimes creating new company categories along the way, and that is exactly what we're doing at Lumen. We're using three assets together in a way no other traditional telecom company is: our physical infrastructure, our programmable network, and the connected ecosystem we're building on top.

Speaker #3: And to that end, we're pleased to report that Lumen delivered another solid quarter with financial results in line with expectations. Before Chris covers the numbers, I'll give some color on our strategy and transformation progress.

Speaker #3: Great companies don't win by fitting neatly into existing categories. They win by solving hard problems in new ways, sometimes creating new company categories along the way. And that is exactly what we're doing at Lumen.

Speaker #3: We're using three assets together in a way no other traditional telecom company is: our physical infrastructure, our programmable network, and the connected ecosystem we're building on top.

Speaker #3: We are redefining enterprise networking for AI. And the market's noticing. Most recently, Gartner named Lumen the company to beat in enterprise networking, one of several strong endorsements of our strategy and progress.

Kate Johnson: We are redefining enterprise networking for AI. The market's noticing. Most recently, Gartner named Lumen the company to beat in enterprise networking, one of several strong endorsements of our strategy and progress. Since closing the Alkira transaction, our market position has only strengthened. Alkira is now a Lumen Connect solution. It gives us a critical capability customers really need, a simpler, faster way to connect and secure multi-cloud and AI environments. Let me double-click on the problem we're solving. Over the past decade, people, data, and applications have dispersed geographically. The software industry responded with wave after wave of innovation to help the physical network keep up, launching new capabilities in cloud connectivity, SD-WAN, SASE, firewalls, and colo-based interconnection. Basically, they made distributed work possible.

Speaker #3: And since closing the Alcura transaction, our market position has only strengthened. Alcura is now a Lumen Connect solution, and it gives us a critical capability customers really need: a simpler, faster way to connect and secure multi-cloud and AI environments.

Speaker #3: Let me double-click on the problem we're solving. Over the past decade, people, data, and applications have dispersed geographically. The software industry responded with wave after wave of innovation to help the physical network keep up, launching new capabilities in cloud connectivity, SD-WAN, SASE, firewalls, and colo-based interconnection.

Speaker #3: Basically, they made distributed work possible. But because telecoms ceded that innovation to big tech, it happened around the network, not in the network. And that created a whole new set of problems.

Kate Johnson: Because telecom ceded that innovation to big tech, it happened around the network, not in the network. That created a whole new set of problems. Customers ended up having to stitch together too many tools, policies, and handoffs. It created sprawl, which is expensive and difficult to manage, secure, and adapt to the speed of today's business. Lumen is stepping up. We're bringing innovation back where it belongs, inside the network. Together with Alkira, we can simplify architecture, improve control, and create more value for customers. By giving customers one cloud-based control point to connect and secure distributed environments, we can help them connect to any building, data center, or public cloud while reducing sprawl. Our network fabric is simple, secure, and built for scale and agility. Look, we're not talking about a vision here.

Speaker #3: Customers ended up having to stitch together too many tools, policies, and handoffs. It created sprawl, which is expensive and difficult to manage secure and adapt to the speed of today's business.

Speaker #3: Lumen is stepping up. We're bringing innovation back where it belongs, inside the network. Together with Alcura, we can simplify architecture, improve control, and create more value for customers.

Speaker #3: By giving customers one cloud-based control point to connect and secure distributed environments, we can help them connect to any building, data center, or public cloud while reducing sprawl.

Speaker #3: Our network fabric is simple, secure, and built for scale and agility. And look, we're not talking about a vision here. These are capabilities that are already delivering breakthrough business outcomes for many customers.

Kate Johnson: These are capabilities that are already delivering breakthrough business outcomes for many customers. Two real-life examples. On Alkira, Koch Industries simplified network hub setup across multiple clouds, compressing implementation time from 8 months to 1 day. At Michaels, Alkira helped connect more than 1,400 retail locations to Google Cloud in just a few weeks with no CapEx and reduced OpEx. In Alkira's real economic value report, you can find many more examples of business value delivered with our platform. It's a new chapter for Lumen, our customers, and our investors. In the past, too much of telecom's value conversation came down to price. We're changing all of that. Our digital capabilities help customers reduce costs, move faster, and create new revenue opportunities. Lumen can now deliver value to customers through business outcomes, not just through discounts.

Kate Johnson: These are capabilities that are already delivering breakthrough business outcomes for many customers. Two real-life examples. On Alkira, Koch Industries simplified network hub setup across multiple clouds, compressing implementation time from 8 months to one day. At Michaels, Alkira helped connect more than 1,400 retail locations to Google Cloud in just a few weeks with no CapEx and reduced OpEx. In Alkira's real economic value report, you can find many more examples of business value delivered with our platform. It's a new chapter for Lumen, our customers, and our investors. In the past, too much of telecom's value conversation came down to price. We're changing all of that. Our digital capabilities help customers reduce costs, move faster, and create new revenue opportunities. Lumen can now deliver value to customers through business outcomes, not just through discounts.

Speaker #3: Two real-life examples? On Alcura, Koch Industries simplified network hub setup across multiple clouds, compressing implementation time from 8 months to a single day. And at Michael's, Alcura helped connect more than 1,400 retail locations to Google Cloud in just a few weeks, with no capex, and reduced opex.

Speaker #3: In Alcura's real economic value report, you can find many more examples of business value delivered with our platform. It's a new chapter for Lumen, our customers, and our investors.

Speaker #3: In the past, too much of telecom's value conversation came down to price, and we're changing all of that. Our digital capabilities help customers reduce costs, move faster, and create new revenue opportunities.

Speaker #3: Lumen can now deliver value to customers through business outcomes, not just through discounts. And our sales team, as you can imagine, are excited to bring these new capabilities to existing Lumen customers.

Kate Johnson: Our sales team, as you can imagine, are excited to bring these new capabilities to existing Lumen customers. As such, we're rapidly scaling our Alkira go-to-market muscle. Just since we closed, we've already trained nearly 4,000 Lumen employees on the Alkira value proposition. We've established a scalable sales motion and aligned incentives. We're doing outbound marketing and demand gen to scale the sales pipeline. The feedback so far from customers, very positive. We feel confident that Alkira will accelerate our strategic revenue growth curve. I want to also share our plan for technical integration of the Lumen Connect and Alkira platforms. Our goal is really simple. We want to give customers a quick, secure, effortless digital experience to discover, buy, provision, and manage all of their services across their network.

Speaker #3: As such, we're rapidly scaling our Alcura go-to-market muscle. Just since we closed, we've already traded nearly 4,000 Lumen employees on the Alcura value proposition.

Speaker #3: We've established a scalable sales motion and aligned incentives, and we're doing outbound marketing and demand gen to scale the sales pipeline. And the feedback so far from customers?

Speaker #3: Very positive. We feel confident that Alcura will accelerate our strategic revenue growth curve. I also want to share our plan for technical integration of the Lumen Connect and Alcura platforms.

Speaker #3: And our goal is really simple: we want to give customers a quick, secure, effortless digital experience to discover by provision and manage all of their services across their network.

Speaker #3: That includes traffic moving into and out of the enterprise, which we call North-South, as well as traffic moving across clouds and data centers, which we call East-West, and do it all on one platform.

Kate Johnson: That includes traffic moving into and out of the enterprise, which we call north-south. As well as traffic moving across clouds and data centers, which we call east-west and do it all on one platform. Our plan is to deliver most of that integration in the next 18 months. Even earlier than that, we plan to bring the digital experience to existing Lumen customers, starting with DIA. We are in the process of making Lumen DIA ports digitally discoverable and service-ready through our platform. That's going to allow us to remotely provision, manage, and support these circuits, upsell additional capability on existing ports without a truck roll, and create a path toward more consumption-based offers. This is a huge strategic unlock. I cannot stress this enough.

Speaker #3: Our plan is to deliver most of that integration in the next 18 months. But even earlier than that, we plan to bring the digital experience to existing Lumen customers starting with DIA.

Speaker #3: We are in the process of making Lumen DIA ports digitally discoverable and service-ready through our platform. And that's going to allow us to remotely provision manage and support these circuits upsell additional capability on existing ports without a truck roll, and create a path toward more consumption-based offers.

Speaker #3: This is a huge strategic unlock. I cannot stress this enough. Our DIA install-based carries traditional telecom economics today, but the platform gives us a path to layer on high-margin digital services like Lumen Defender, DDoS, multi-cloud gateway, and more.

Kate Johnson: Our DIA install base carries traditional telecom economics today, but the platform gives us a path to layer on high-margin digital services like Lumen Defender, DDoS, Lumen Multi-Cloud Gateway, and more. Those incremental services are expected to approach 80% adjusted EBITDA margins, helping drive Lumen's margin expansion. That's why product portfolio simplification matters so much. We're moving capital and talent towards the existing and future products that define next-gen Lumen. They're digital, platform-based services that solve real customer problems and expand our margins over time. This strategy includes pruning the portfolio with discipline. Our recent decision to phase out our enterprise voice and communications products was part of this strategy. We're setting our sights and allocating our capital on higher growth markets where Lumen has a differentiated position to win.

Speaker #3: Those incremental services are expected to approach 80% adjusted EBITDA margins helping drive Lumen's margin expansion. That's why product portfolio simplification matters so much. We're moving capital and talent towards the existing and future products that define next-gen Lumen.

Speaker #3: They're digital, platform-based services, that solve real customer problems and expand our margins over time. And this strategy includes pruning the portfolio with discipline. Our recent decision to phase out our enterprise voice and communications products was part of this strategy.

Speaker #3: We're setting our sights and allocating our capital on higher growth markets where Lumen has a differentiated position to win. Now, speaking of winning, we had another great quarter of NAS adoption.

Kate Johnson: Now, speaking of winning, we had another great quarter of NaaS adoption, and today, the total number of NaaS customers exceeds 3,000. In Q2, new customer adoption grew 22% quarter-over-quarter, and more than 20% of these first-time NaaS adopters were brand new to Lumen. Active ports grew 34% quarter-over-quarter, and active services grew 29% quarter-over-quarter. I have to say, our NaaS growth rates, they exceeded even our own internal ambitions for the H1. What's more, we achieved these results in the North-South connectivity market, a segment that's growing less than 1% per year. We are clearly taking market share, and we believe this is for two reasons. Enterprise customers want digital consumption-based network services, and they also see real differentiation in Lumen. Now, let me close where our strategy compounds in the connected ecosystem.

Speaker #3: And today, the total number of NAS customers exceeds 3,000. And in Q2, new customer adoption grew 22% quarter over quarter, and more than 20% of these first-time NAS adopters were brand new to Lumen.

Speaker #3: And active ports grew 34% quarter over quarter, and active services grew 29% quarter over quarter. I have to say, our NAS growth rates—they exceeded even our own internal ambitions for the first half.

Speaker #3: And what's more, we achieved these results in the North-South connectivity market, a segment that's growing less than 1% per year. We are clearly taking market share.

Speaker #3: And we believe this is for two reasons. Enterprise customers want digital consumption-based network services. And they also see real differentiation in Lumen. Now, let me close where our strategy compounds.

Speaker #3: In the connected ecosystem, we just paired Black Lotus Labs network-level threat intelligence with Palo Alto Networks' leading security platform to create a managed offering that's better together.

Kate Johnson: We just paired Black Lotus Labs network-level threat intelligence with Palo Alto Networks' leading security platform to create a managed offering that's better together. Customers get early visibility, a fast response, and far less tool sprawl against security threats that are growing more and more complex every single day. We're scaling this partner model in the connected ecosystem by making sure that Lumen brings unique network intelligence and our incredible fiber capabilities together with our tech partners who bring their best products and technologies. Together, we help customers move, control, and secure data in an AI-first world. Chris, over to you.

Speaker #3: Customers get early visibility of fast response and far less tool sprawl against security threats that are growing more and more complex every single day.

Speaker #3: We're scaling this partner model in the connected ecosystem by making sure that Lumen brings unique network intelligence and our incredible fiber capabilities together with our tech partners who bring their best products and technologies.

Speaker #3: Together, we help customers move control and secure data in an AI-first world. Chris, over to you.

Speaker #2: Thanks, Kate. I'll build on Kate's remarks by showing how our strategy is showing up in our financial model—through disciplined simplification, improving our revenue mix, focused capital allocation, and a clearer path to higher-growth strategic revenue.

Chris Stansbury: Thanks, Kate. I'll build on Kate's remarks by showing how our strategy is showing up in our financial model through disciplined simplification, improving revenue mix, focused capital allocation, and a clear path to higher growth strategic revenue. Before I get into the Q2 results, I want to talk about some of the decisions we're making with respect to product simplification. Product simplification is not just a cost action. It's a strategic capital allocation decision, and it's letting us focus resources on the digital platform-based, high-growth, high-margin services Kate described. It's imperative that as an organization, we aggressively manage our product portfolio to maximize margins and cash flow. These are purposeful decisions that are a means to an end in driving cash flow to fund our growth.

Speaker #2: Now, before I get into the second quarter results, I want to talk about some of the decisions we're making with respect to product simplification.

Speaker #2: Product simplification is not just a cost action. It's a strategic capital allocation decision. And it's letting us focus resources on the digital platform-based high-growth, high-margin services, Kate described.

Speaker #2: It's imperative that as an organization, we aggressively manage our product portfolio to maximize margins and cash flow. These are purposeful decisions that are a means to an end in driving cash flow to fund our growth.

Speaker #2: Legacy remains a cash-generating part of the business, but it's becoming a smaller part of our revenue mix as strategic and digital services grow. We're maximizing the value of our existing legacy asset base while redeploying capital towards our digital initiatives.

Chris Stansbury: Legacy remains a cash-generating part of the business, but it's becoming a smaller part of our revenue mix as strategic and digital services grow. We're maximizing the value of our existing legacy asset base while redeploying capital towards our digital initiatives. To be abundantly clear, extending the life of legacy products has not been and will not be a pillar of our future success. These decisions create the flexibility to invest in capabilities like Alkira that can accelerate our digital revenue curve and support a higher growth, higher return revenue mix over time. Over the next several quarters, we'll continue to provide color on our shift from legacy to the digital products and how Alkira can help accelerate that process. The Q2 gave us tangible evidence that the transformation Kate described is progressing strategically, operationally, and financially.

Speaker #2: So to be abundantly clear, extending the life of legacy products has not been, and will not be, a pillar of our future success. These decisions create the flexibility to invest in capabilities like Alcura that can accelerate our digital revenue curve and support a higher growth, higher return revenue mix over time.

Speaker #2: Over the next several quarters, we'll continue to provide color on our shift from legacy to digital products, and how Alcura can help accelerate that process.

Speaker #2: The second quarter gave us tangible evidence that the transformation Kate described is progressing. Strategically, operationally, and financially. And the second quarter, we delivered solid financial results.

Chris Stansbury: In the Q2, we delivered solid financial results with revenue, adjusted EBITDA, and free cash flow all in line with our expectations. In early July, we closed the acquisition of Alkira. Alkira was not embedded in our Investor Day targets. While the near-term revenue contribution is immaterial, we view it as upside to the digital growth trajectory we outlined earlier this year. We reduced our SEC filers from three to one, simplifying our reporting structure. Just as we're simplifying the customer experience and product portfolio, we're also simplifying how we operate internally, giving investors one unified view of Lumen's financial performance. Total revenue was in line with our expectations and slightly ahead of consensus. Total business revenue declined 1.8% year-over-year to $2.44 billion as our revenue mix continued to improve, and North America total business was down 1.6% year-over-year.

Speaker #2: With revenue adjusted EBITDA and free cash flow all in line with our expectations. In early July, we closed the acquisition of Alcura. Alcura was not embedded in our investor day targets, so while the near-term revenue contribution is immaterial, we view it as upside to the digital growth trajectory we outlined earlier this year.

Speaker #2: And we've reduced our SEC filers from 3 to 1, simplifying our reporting structure, and just as we're simplifying the customer experience and product portfolio, we're also simplifying how we operate internally.

Speaker #2: Giving investors one unified view of Lumen's financial performance. Total revenue was in line with our expectations and slightly ahead of consensus. Total business revenue declined 1.8% year over year to $2.44 billion, as our revenue mix continued to improve and North America total business was down 1.6% year over year.

Speaker #2: North American enterprise revenue, which excludes wholesale, was down only 0.2% year over year. Importantly, the positive revenue mix shift continues as strategic revenue grew 14% year over year, and over 23% going back two years.

Chris Stansbury: North American enterprise revenue, which excludes wholesale, was down only 0.2% year-over-year. Importantly, the positive revenue mix shift continues as strategic revenue grew 14% year-over-year and over 23% going back two years. Q2 PCF revenue was approximately $91 million, associated with the $13 billion in PCF deals announced to date. Approximately $36 million was another state of California delivery milestone, which was accelerated into the Q2 from the H2 and is now largely complete. PCF remains an example of disciplined infrastructure monetization of underutilized assets while preserving capital for the higher return digital and platform-based opportunities that Kate discussed. We'll continue to monetize these underutilized assets, we are not going to invest capital with subpar returns when we have the ability to drive significant returns through our digital portfolio.

Speaker #2: Second quarter PCF revenue was approximately 91 million dollars, associated with a 13 billion dollars in PCF deals announced today. Approximately 36 million dollars was another state of California delivery milestone, which was accelerated into the second quarter from the back half of the year, and is now largely complete.

Speaker #2: PCF remains an example of disciplined infrastructure monetization, of underutilized assets, while preserving capital for the higher return digital and platform-based opportunities that Kate discussed.

Speaker #2: We'll continue to monetize these underutilized assets, but we are not going to invest capital with subpar returns when we have the ability to drive significant returns through our digital portfolio.

Speaker #2: Within strategic digital revenue in the second quarter was $39 million. The key near-term drivers are customer growth and service adoption, both of which continue to build.

Chris Stansbury: Within strategic, digital revenue in Q2 was $39 million. The key near-term drivers are customer growth and service adoption, both of which continue to build. Digital revenue remains in line with our expectations as the category scales. The clearest proof point behind our transformation is the mix shift in the business. That shift is happening faster than we expected. Strategic revenue was 53% of total business revenue in Q2, up from 51% in Q1 and compared to 45% in the prior year quarter. The increasing share of strategic revenue allows for more paths to capitalize on products aligned with customer demand and the future of Lumen. We also note that legacy has declined less than expected, implying the expanding share of strategic revenue is all the more impressive and driven by underlying dollar growth.

Speaker #2: Digital revenue remains in line with our expectations as the category scales. The clearest proof point behind our transformation is the mix shift in the business, and that shift is happening faster than we expected.

Speaker #2: Strategic revenue was 53% of total business revenue in the second quarter, up from 51% in the first quarter and compared to 45% in the prior-year quarter.

Speaker #2: The increasing share of strategic revenue allows for more paths to capitalize on products aligned with customer demand in the future of Lumen. We also know that legacy has declined less than expected.

Speaker #2: Implying the expanding share of strategic revenue is all the more impressive and driven by underlying dollar growth. Contributing to the improving mix, strategic wage revenue, 100 and 400 gig, grew nearly 11% over a year over year in the second quarter in our North American enterprise channels, and we expect that momentum to continue as strategic wage sales grew up nearly 35% year over year in the quarter which is a nice precursor to future revenue.

Chris Stansbury: Contributing to the improving mix, strategic waves revenue, 100 and 400 gig, grew nearly 11% year over year in Q2 in our North American enterprise channels. We expect that momentum to continue as strategic wave sales were up nearly 35% year over year in the quarter, which is a nice precursor to future revenue. In short, the enterprise business is moving closer to sustainable revenue growth as the mix shifts towards strategic and digital services. As a reminder, Alkira was not contemplated in our Investor Day digital revenue targets. While its revenue contribution is immaterial today, we believe Alkira can unlock increased adoption over time, making any contribution upside to those targets. We are in the process of quantifying Alkira's impact on accelerating our growth, and we plan to share that view with investors when we provide our 2027 guidance.

Speaker #2: In short, the enterprise business is moving closer to sustainable revenue growth as the mix shifts towards strategic and digital services. And as a reminder, Alcura was not contemplated in our investor day digital revenue targets.

Speaker #2: While its revenue contribution is immaterial today, we believe Alcura can unlock increased adoption over time making any contribution upside to those targets. We're in the process of quantifying Alcura's impact on accelerating our growth, and we plan to share that view with investors when we provide our 2027 guidance.

Speaker #2: Adjusted EBITDA excluding special items was 802 million in the second quarter, compared to approximately 877 million dollars in the prior year quarter. The year over year decline was predominantly due to the fiber to the home sale in the first quarter, as well as expected revenue declines.

Chris Stansbury: Adjusted EBITDA, excluding special items, was $802 million in Q2 compared to approximately $877 million in the prior year quarter. The year over year decline was predominantly due to the fiber-to-the-home sale in Q1, as well as expected revenue declines. As strategic and digital services become a larger part of the mix, we expect that shift to support improvements in the margin profile of the business over time. Special items impacting adjusted EBITDA totaled $204 million this quarter, primarily driven by our modernization and simplification initiatives, as well as transaction and separation costs. Capital expenditures, excluding special items, were approximately $780 million, in line with our expectations and full year guidance. That included approximately $300 million of CapEx associated with PCF deals. PCF cash received was approximately $476 million in the quarter.

Speaker #2: As strategic and digital services become a larger part of the mix, we expect that shift to support improvements in the margin profile of the business over time.

Speaker #2: Special items impacting adjusted EBITDA totaled 204 million dollars this quarter, primarily driven by our modernization and simplification initiatives as well as transaction and separation costs.

Speaker #2: Capital expenditures, excluding special items, were approximately 780 million dollars, in line with our expectations in full year guidance. That included approximately 300 million dollars of CapEx associated with PCF deals.

Speaker #2: PCF cash received was approximately 476 million dollars in the quarter. Free cash flow excluding special items was 327 million dollars in the second quarter, and our cash flow performance gives us the flexibility to continue funding the transformation while the remaining disciplined around where we deploy capital.

Chris Stansbury: Free cash flow, excluding special items, was $327 million in Q2. Our cash flow performance gives us the flexibility to continue funding the transformation while remaining disciplined around where we deploy capital. To wrap up, our focus remains on delivering consistent execution through our strategic initiatives, including the end of sale of enterprise voice and the acceleration of digital growth inclusive of the incredible capabilities Alkira brings to Lumen. We are not managing decline. We are reshaping Lumen around where demand is moving, simplifying the legacy portfolio, reallocating capital towards higher growth digital initiatives, and building a revenue mix designed to create more durable shareholder value. With that financial context, the message is clear. The strategy is taking hold. We are focused on translating it into sustainable growth and value creation. Kate, back to you.

Speaker #2: So to wrap up, our focus remains on delivering consistent execution through our strategic initiatives including the end-of-sale of enterprise voice and the acceleration of digital growth inclusive of the incredible capabilities Alcura brings to Lumen.

Speaker #2: We're not managing decline. We're reshaping Lumen, around where demand is moving. Simplifying the legacy portfolio, reallocating capital towards higher growth digital initiatives, and building a revenue mix designed to create more durable shareholder value.

Speaker #2: With that financial context, the message is clear. The strategy is taking hold, and we're focused on translating it into sustainable growth and value creation.

Speaker #2: Kate, back to you.

Speaker #1: Thanks, Chris. I'll close with this. Lumen is becoming a different company. We're helping create a new category, enterprise networking for AI. Our platform is grounded in fiber scale, network intelligence, digital orchestration, and measurable business outcomes.

Kate Johnson: Thanks, Chris. I'll close with this. Lumen is becoming a different company. We are helping create a new category, enterprise networking for AI. Our platform is grounded in fiber scale, network intelligence, digital orchestration, and measurable business outcomes. Customers see the differentiation. They see a company that understands their networking challenges and can help them connect, secure, and scale for AI. They are voting with their business. You can see it in the numbers. Strategic revenue grew 14%. NaaS adoption dramatically outpaced the market. 100 and 400 gig waves in North America enterprise revenue grew 11% year over year, while sales of the same grew almost 35%. We are executing with discipline. Alkira expands our opportunity, and our momentum is backed by customer demand, stronger capabilities, and a clearer economic model. Lumen's pivot to growth isn't a slogan, it's just math. Operator, let's open up the line for questions.

Speaker #1: And customers see the differentiation. They see a company that understands their networking challenges and can help them connect, secure, and scale for AI. And they're voting with their business.

Speaker #1: You can see it in the numbers. Strategic revenue group 14%, NAS adoption dramatically outpaced the market, 100 and 400 gig ways in North America enterprise revenue grew 11% year over year, while sales of the same grew almost 35%.

Speaker #1: We're executing with discipline. Alcura expands our opportunity and our momentum is backed by customer demand, stronger capabilities, and a clearer economic model. Lumen's pivot to growth isn't a slogan.

Speaker #1: It's just math. Operator, let's open up the line for questions.

Speaker #3: Thank you. If you would like to register a question, please press star, followed by one, on your telephone keypad. If your question has been answered and you would like to withdraw your question, please press star one again.

Operator: Thank you. If you would like to register a question, please press star followed by one on your telephone keypad. If your question has been answered and you would like to withdraw your question, please press star one again. One moment, please, for the first question. Your first question comes from the line of Michael Rollins with Citigroup. Your line is open. Please proceed with your question.

Kate Johnson: Thank you. If you would like to register a question, please press star followed by one on your telephone keypad. If your question has been answered and you would like to withdraw your question, please press star one again. One moment, please, for the first question. Your first question comes from the line of Michael Rollins with Citigroup. Your line is open. Please proceed with your question.

Speaker #3: One moment, please, for the first question. Your first question comes from the line of Michael Rolands with Citigroup. Your line is open. Please proceed with your question.

Speaker #4: Thanks, and good afternoon. First, I was curious if you talk a bit more about Kate, what you were just describing, this move to strategic revenue relative to legacy.

Michael Rollins: Thanks, good afternoon. First, I was curious if you would talk a bit more about, Kate, what you were just describing, this move to strategic revenue relative to legacy. Are you seeing that this transition of your customers from legacy to strategic is happening more quickly? If you look at the higher strategic revenue growth and legacy now declining about 15%. When you look at Alkira, can you share with us some additional ways that you can accelerate that performance to get to more of the strategic services? If I could just follow up with one other numbers question. I think earlier in the discussion, it was mentioned that results were in line with your expectations. As you look at revenue change for Q2 in business, down about 1.8% year over year.

Speaker #4: So are you seeing that this transition of your customers from legacy to strategic is happening more quickly if you look at the higher strategic revenue growth and legacy now buying about 15%.

Speaker #4: And when you look at Alcura, can you share with us some additional ways that you can accelerate that performance to get to more of the strategic services?

Speaker #4: And if I could just follow up with one other numbers question. So I think earlier in the discussion it was mentioned that results were in line with your expectations.

Speaker #4: And as you look at revenue change for Q2 in business, down about 1.8% year over year, but I think for the year you're thinking about it when you talk about correct me if I'm wrong in maybe the upper 3s to 4.

Michael Rollins: I think for the year, you are thinking about it, when you talked about it before, and correct me if I am wrong, maybe the upper threes to four. What does that mean for business revenue declines in the back half of the year? Thanks.

Speaker #4: So what does that mean for business revenue declines in the back half of the year? Thanks.

Speaker #1: Do you want to take the second part first and I'll go to the first?

Kate Johnson: Do you want to take the second part first, and I'll go to the first?

Speaker #2: Sure. So we're still committed to the guidance that we laid out, and obviously, we don't guide revenue—or at least we haven't to date.

Chris Stansbury: Sure. We're still committed to the guidance that we laid out, and obviously, we don't guide revenue or at least we haven't to date. Just keep in mind that the H1, we did have State of California impact both Q1 and Q2. While our plans contemplated some of that hitting in the H2, that's now done. That was accelerated. I would answer the question, certainly from an EBITDA standpoint, if you look historically, adjusted EBITDA is about $100 million less in the Q3 than the Q2, just seasonally because of summer maintenance and energy costs and whatnot. If you look at it that way and then look at what Q4 would need to be to hit guidance, I think that solidifies what we're saying for the year.

Speaker #2: Just keep in mind that the first half we did have state of California impact both first and second quarter. And while our plans contemplated some of that hitting in the second half, that's now done.

Speaker #2: So that was accelerated. I would answer the question certainly from an EBITDA standpoint. If you look historically, adjusted EBITDA is about 100 million dollars less than the third quarter than the second quarter, just seasonally because of summer maintenance and energy costs and whatnot.

Speaker #2: And so if you look at it that way, and then look at what fourth quarter would need to be to hit guidance, I think that solidifies what we're saying for the year.

Speaker #4: Okay. And Mike, I'll

Kate Johnson: Okay. Mike, I'll try and hit the first one. Strategic, 53% of the portfolio, legacy 47. Strategic growing 14, legacy down 15%. Is it a one for one match? No. There's a lot of complexity in there, but I think the trends that we see that give us confidence are two that I really called out. There's several of them in there, though. The first is, if you think about the number of NaaS customers that adopted the platform in Q2, we had another greater than 20% number of them be brand new to Lumen. These were customers that were not doing business with Lumen that decided to come to the NaaS platform, which is great because it's not one for one cannibalization.

Speaker #1: try and hit the first one. So strategic 53% of the portfolio legacy 47. Strategic growing 14, legacy down 15%. Is it a one-for-one match?

Speaker #1: No, there's a lot of complexity in there, but I think the trends that we see that give us confidence are two that I really called out.

Speaker #1: There are several of them in there, though. The first is, if you think about the number of NAS customers that adopted the platform in Q2, we had another greater-than-20% number of them be brand new to Lumen.

Speaker #1: These were customers that were not doing business with Lumen. That decided to come to the NAS platform, which is great because it's not a one-for-one cannibalization.

Speaker #1: What's more, I don't remember the exact number, but I think it's somewhere around 60%. We can confirm that offline. Of the customers that were already Lumen customers, we were adding NAS circuits.

Kate Johnson: What's more, I don't remember the exact number, but I think it's somewhere around 60%, we can confirm that offline, of the customers that were already Lumen customers were adding NaaS circuits. They weren't migrating. Okay? This is clearly a share take, and it's not a one for one translation of the legacy business into strategic. What's more, I think in legacy, we have the lower bandwidth wave circuits, and those are declining. In strategic, we have 100 Gb and 400 Gb, and you're seeing a real uptick there, which is indicative, I think, of the phase 2 of the AI adoption curve, where more customers are starting to realize that they've got to upgrade their capacity. You're also seeing a lot of the neoclouds go long in 100 Gb and 400 Gb.

Speaker #1: They weren't migrating. Okay? So this is clearly a share take, and it's not a one-for-one translation of the legacy business into strategic. What's more, I think in legacy we have the lower bandwidth wave circuits.

Speaker #1: And those are declining. And in strategic we have 100 and 400 gig, and you're seeing a real uptick there, which is indicative I think of the second phase of the AI adoption curve, where more customers are starting to realize that they've got to upgrade their capacity.

Speaker #1: And you're also seeing a lot of the Neo clouds go long in 100 and 400 gig. That growth—if you juxtapose one-for-one—think over time you're going to see a much faster acceleration on the 100 and 400 gig on the horizon, and where we're focused and where we're investing, and why our investment in Rapid Routes has been just such a great return.

Kate Johnson: That growth, if you juxtapose one for one, think over time, you're going to see a much faster acceleration on the 100 and 400 gig on the horizon and it's where we're focused and where we're investing and why our investment in RapidRoutes has been just such a great return because we can turn up these circuits in days, versus what used to take months. We're very encouraged with what we see.

Speaker #1: Because we can turn up these circuits in days versus what used to take months. So we're very, very encouraged with what we see.

Speaker #2: Yeah, and the only thing that I would add to that is remember the vast majority of the legacy is voice and private line, and those are just not in vogue anymore.

Chris Stansbury: Yeah. The only thing that I would add to that is remember, the vast majority of the legacy is voice and private line, and those are just not in vogue anymore. To Kate's point, it's the high speed waves, it's IP, it's dark fiber, it's NaaS. You also asked about Alkira, and I think you in particular, Mike, have done a phenomenal job of really digging in and understanding the strategy. I would encourage you and everybody else to look deeply into the value proposition of Alkira and some of the data that we shared and the materials that are online. When you look at the things that Kate talked about in her script, the complexity of allowing networking to work today, which as you scale that for AI, is impossible. Cloud native solutions, which is what Alkira brings, are massively disruptive.

Speaker #2: And to Kate's point, it's the high-speed waves, it's IP, it's dark fiber, it's NAS. You also asked about Alcura, and I think you in particular, Mike, have done a phenomenal job of really digging in and understanding the strategy.

Speaker #2: I would encourage you, and everybody else, to look deeply into the value proposition of Alcura and some of the data that we shared, as well as the materials that are online.

Speaker #2: Because when you look at the things that Kate talked about in her script, the complexity of allowing networking to work today, which as you scale that for AI is impossible.

Speaker #2: Cloud-native solutions, which is what Alcura brings, are massively disruptive. And so, our belief is that this allows us to accelerate our digital transformation, and we're working over the next couple of quarters to quantify that for when we give guidance next year.

Chris Stansbury: Our belief is that allows us to accelerate our digital transformation, and we're working over the next couple of quarters to quantify that for when we give guidance next year.

Speaker #4: Thanks.

Michael Rollins: Thanks.

Speaker #3: Your next question comes from the line of Frank Lowden with Raymond James. Your line is open. Please proceed with your question.

Operator: Your next question comes from the line of Frank Louthan with Raymond James. Your line is open. Please proceed with your question.

Speaker #4: Great. Thank you. Can you give us an idea of sort of the MRR of an Alcura customer and maybe what that would be you would be getting with them over above if they were just a networking customer?

Frank Louthan: Great. Thank you. Can you give us an idea of sort of the MRR of an Alkira customer and maybe what you would be getting with them over above if they were just a networking customer? Then on the Waves growth, how do you think about it? Do you believe that you are taking share in the Waves business, or is that just indicative of the market growth itself? Thank you.

Speaker #4: And then on the wave growth, how do you think about it? Do you believe that you're taking share in the waves business or are you just is that just indicative of the market growth itself?

Speaker #4: Thank you.

Speaker #1: I mean, rapid routes is clearly giving us an advantage from ability to turn up customer circuits. That's being recognized. Again, I'll kind of hammer on this.

Kate Johnson: I mean, RapidRoutes is clearly giving us an advantage from ability to turn up customer circuits that is being recognized. Again, I will kind of hammer on this. The neoclouds have awakened to this notion of Lumen capabilities being able to be quick, secure, and effortless. It is working, and the best example is 100 and 400 gig Waves with RapidRoutes. Yes, we are taking share. It is growing quite rapidly. The sales number was phenomenal. The pipe looks really good. We have a lot more work to do to offset the decline on the lower end, we are pretty excited and bullish on the future.

Speaker #1: The Neo clouds have awoken—awakened to this notion of Lumen capabilities being able to quickly secure and be effortless. It's working. And the best example is 100 and 400 gig waves with rapid routes.

Speaker #1: So yes, we're taking share. It's growing quite rapidly. The sales number was phenomenal. The pipeline looks really good. We have a lot more work to do.

Speaker #1: To offset the decline on the lower end, but we're pretty excited and bullish about the future.

Speaker #2: Yeah, and from an MRR perspective, it's the right question, Frank—it's a good question. I would say it's too early to say that, because it really gets back to what we talked about in terms of scaling the model.

Chris Stansbury: Yeah. From an MRR perspective, it is the right question, Frank. It is a good question. I would say it is too early to say that because it really gets back to what we talked about in terms of scaling the model. Our focus to date has been on driving customer adoption. That continues. That is good news. It is now about getting customers to consume more services for every port, because the reality is, once you go back in with a second, third, fourth service, you get very close to having zero marginal cost, and little to no CapEx. Too early to call that. Our goal would be to provide much more clarity around total business segment revenue next year when we give guidance that would incorporate all of that. Certainly, Alkira allows us to expand that. Kate?

Speaker #2: Our focus to date has been on driving customer adoption. That continues. That's good news. It's now about getting customers to consume more services for every port because the reality is once you go back in with a second, third, fourth service, you get very close to having zero marginal cost.

Speaker #2: And little to no capex. So, too early to call that. Our goal would be to provide much more clarity around total business segment revenue next year when we give guidance.

Speaker #2: That would incorporate all of that. But certainly Alcura allows us to expand that. And Kate?

Speaker #1: Yeah, I just want to just want to add one thing. Look, it's been a month since we've closed. So I don't want to overdo our zeal here, but two things that I see that I'm really excited about.

Kate Johnson: Yeah. I just want to add one thing. Look, it has been a month since we have closed, I do not want to overdo our zeal here, two things that I see that I am really excited about. When we renew Alkira customers, we are upsizing the deal, and I think that is a very positive outcome of customers that are happy, and we have several data points that show that. The second thing is, Frank, which I think is really important, is traditionally when we are selling connectivity, we are talking with procurement teams, and they have a cost budget, and they have a bandwidth budget, not to exceed. With these net new services, Multi-Cloud Gateway and the Alkira portfolio, we are now a couple clicks up from procurement, talking about total network upgrades strategically to allow for them to achieve their AI ambitions.

Speaker #1: When we renew Alcura customers, we're upsizing the deals. And I think that's a very positive outcome of customers that are happy and we have several data points that show that.

Speaker #1: The second thing is, Frank, which I think is really, really important, is traditionally when we're selling connectivity, we're talking with procurement teams, and they have a cost budget and they have a bandwidth budget, and they have a not-to-exceed.

Speaker #1: With these net new services, multi-cloud gateway, and the Alcura portfolio, we're now a couple of clicks up from procurement talking about total network upgrades strategically to allow for them to achieve their AI ambitions.

Speaker #1: And we're knocking on the door of the CIO and CTO, and they're answering for the first time since I've been here. And I think that's a really exciting part.

Kate Johnson: We're knocking on the door of the CIO and CTO, they're answering for the first time since I've been here, I think that's the really exciting part. We'll get a larger sort of share of wallet of those customers as we can bring the whole set of capabilities. At least that's our aspiration.

Speaker #1: So we'll get a larger sort of share of wallet of those customers as we can bring the whole set of capabilities. At least that's our aspiration.

Frank Louthan: Okay, great. Thank you very much.

Speaker #4: Okay, great. Thank you very much.

Speaker #3: Your next question comes from the line of Gregory Williams with TD Cohen. Your line is open. Please proceed with your question.

Operator: Your next question comes from the line of Greg Williams with TD Cowen. Your line is open. Please proceed with your question.

Operator: Your next question comes from the line of Gregory Williams with TD Cowen. Your line is open. Please proceed with your question.

Greg Williams: Great, thanks for taking my questions. First one's on digital revenue. Chris, you mentioned it was in line with expectations, about $39 million. It's up only $2 million from $37 million last quarter. When does that digital adoption, you talk about this mass adoption, equate to a higher ramp than $2 million quarter-over-quarter as we think about the cadence of the next few quarters? Second question is just on state of California. Can you quantify the impact of the pull forward? Just trying to see how much you beat on public sector and if it was California or not, and to what degree. Is that both PCF revenue and public revenue? Thanks.

Gregory Williams: Great, thanks for taking my questions. First one's on digital revenue. Chris, you mentioned it was in line with expectations, about $39 million. It's up only $2 million from $37 million last quarter. When does that digital adoption, you talk about this mass adoption, equate to a higher ramp than $2 million quarter-over-quarter as we think about the cadence of the next few quarters? Second question is just on state of California. Can you quantify the impact of the pull forward? Just trying to see how much you beat on public sector and if it was California or not, and to what degree. Is that both PCF revenue and public revenue? Thanks.

Speaker #4: Great. Thanks for taking my questions. First one's on digital revenue. Trishy mentioned it was in line with expectations that 39 million. It's up only 2 million from 37 million last quarter.

Speaker #4: When does that digital adoption you talk about this mass adoption equate to a higher ramp than 2 million quarter over quarter as we think about the cadence of the next few quarters?

Speaker #4: And the second question is just on the state of California. Can you quantify the impact of the pull-forward? I'm just trying to see how much you beat on public sector, and if it was California or not, and to what degree.

Speaker #4: And is that both PCF revenue and public revenue? Thanks.

Speaker #2: So on the latter, yes, it is. It's both. The public sector business, obviously, has been, I would say, fairly chunky given what's going on in the world.

Chris Stansbury: On the latter, yes, it is. It's both. The public sector business obviously has been, I would say, fairly chunky given what's going on in the world. We also know Q3's the strongest quarter for that business, we'll see. I mean, we remain in deep conversations around some fairly strategic investments with the federal government, we'll see where that takes us. As it relates to digital revenue, remember when we did Investor Day, we laid out not just the mix shift from legacy to strategic, but also within strategic, how much was digital. I would say that as a baseline, that's still a good way to look at it. Obviously, Alkira allows us to accelerate that, and that's what we've got to quantify over the next couple of months. Again, we're operating off a small base. We're driving significant adoption.

Speaker #2: But we also know third quarters, the strongest quarter for that business. So we'll see. I mean, we remain in deep conversations around some fairly strategic investments with the federal government.

Speaker #2: And so we'll see where that takes us. As it relates to digital revenue, remember when we did invest today, we laid out not just the makeshift from legacy to strategic, but also within strategic how much was digital.

Speaker #2: And so I would say that as a baseline, that's still a good way to look at it. Obviously, Alcura allows us to accelerate that.

Speaker #2: And that's what we've got to quantify over the next couple of months. So again, we're operating off of a small base. We're driving significant adoption.

Speaker #2: It's really a question as to how long it takes to get customers to add that second, third, and fourth service. But it will come.

Chris Stansbury: It's really a question as to how long it takes to get customers to add that second, third, and fourth service. It will come.

Speaker #4: Thank you. Yep.

Greg Williams: Thank you. Yep.

Gregory Williams: Thank you. Yep.

Speaker #3: Your next question comes from the line of Michael Funk with Bank of America. Your line is open. Please proceed with your question.

Operator: Your next question comes from the line of Michael Funk with Bank of America. Your line is open. Please proceed with your question.

Speaker #4: Yeah. Thank you for taking the question tonight. Two or five could. So can you comment on the size of the funnel and where deals are on the funnel for new enterprise deals?

Michael Funk: Yeah, thank you for taking the questions tonight. Two, if I could. Can you comment on the size of the funnel and where deals are in the funnel for new enterprise deals? You mentioned earlier some of the pace of those deals as well as the payback for customers as well. Second, just want to comment about not chasing PCF deals based on price. Can you add some more clarity for where you see deals being priced, again, development yield or whatever type of yield you think is useful in the current environment versus where you'd be more comfortable pricing yourselves?

Speaker #4: You mentioned earlier some of the pace of those deals, as well as the payback for customers as well. And then second, just from a comment about not chasing PCF deals based on price, can you add some more clarity for where you see deals getting priced—maybe on development yield or whatever type of yield you think is useful in the current environment—versus where you'd be more comfortable pricing yourself?

Speaker #2: Yeah. No, I'd love to address that. Thanks for asking. If you look at the PCF deals that Lumen has signed to date, all of those deals were about monetizing conduit that was paid for a quarter of a century ago.

Chris Stansbury: No, I'd love to address that. Thanks for asking. If you look at the PCF deals that Lumen has signed to date, all of those deals were about monetizing conduit that was paid for a quarter of a century ago. Underutilized assets that allowed us to deliver faster network deployment for hyperscalers that ultimately, from a strategic perspective, created proximity with those hyperscalers that is now helping us bring differentiated services to enterprise. As we look at new builds, the economics are a very different story. I think there's been a number of announcements. There's great headline generating news in those, but the returns are terrible. What I mean by that is that if you look at the cost to build new trenches, deploy new conduit, you're looking at returns that are at or below cost of capital levels.

Speaker #2: Underutilized assets that allowed us to deliver faster network deployment for hyperscalers that ultimately from a strategic perspective created proximity with those hyperscalers that is now helping us bring differentiated services to enterprise.

Speaker #2: As we look at new builds, the economics are a very different story. And so, I think there's been a number of announcements. There's great, headline-generating news in those.

Speaker #2: But the returns are terrible. And what I mean by that is that if you look at the cost to build new trenches, deploy new conduit, you're looking at returns that are at or below cost-of-capital levels.

Speaker #2: So from our standpoint, the growth of fiber is great news. Alcura, our NAS solution, allow us to deliver services across everyone's fiber, not just Lumen's.

Chris Stansbury: From our standpoint, the growth of fiber is great news. Alkira, our NaaS solution, allow us to deliver services across everyone's fiber, not just Lumen's. We're quite happy for others to build at or below their cost of capital so that we can provision higher margin, higher growth services on top of them. Now, with that, we will continue to deploy network where it makes economic sense for our shareholders. We are not going to chase things for headline value anymore. That's just not what we do. It hasn't been what we've done, and we're not going to start now.

Speaker #2: And we're quite happy for others to build at or below their cost of capital, so that we can provision higher-margin, higher-growth services on top of them.

Speaker #2: Now, with that, we will continue to deploy network where it makes economic sense for our shareholders. But we are not going to chase things for headline value anymore.

Speaker #2: That's just not what we do. It hasn't been what we've done and we're not going to start now.

Speaker #3: Your next question comes from the line of Bachelor Levi with UBS. Your line is open. Please proceed with your question.

Operator: Your next question comes from the line of Batya Levi with UBS. Your line is open. Please proceed with your question.

Batya Levi: Great. Thank you. Couple follow-ups. First, on the comments you made on the PCF network. Can you talk about the CapEx required to deliver the service? I believe CapEx has been coming lighter than you had originally expected. Are you finding some improvements in the delivery? Looking out to potential new deals, do you still see some of your existing conduits and fiber assets as you can leverage to gain more deals? Question on Alkira. Can you just remind us what status is the current business revenue EBITDA that you acquired from the company? Should we anticipate any incremental cost as you integrate that with your platform over the next 18 months? Thank you.

Speaker #1: Great. Thank you. A couple of follow-ups. First on the comments you made on the PCF network. Can you talk about the CapEx required to deliver the service?

Speaker #1: I believe CapEx has been coming in lighter than you had originally expected. Are you finding some improvements in delivery? And looking ahead to potential new deals, do you still see some of your existing conduits and fiber assets as ones you can leverage to gain more deals?

Speaker #1: And a question on Alcura. Can you just remind us what the current business revenue and EBITDA were that you acquired from the company? Do you anticipate any incremental costs as you integrate that with your platform over the next 18 months?

Speaker #1: Thank you.

Speaker #2: Yeah. So we haven't given specific Alcura guidance and the revenue and cost are immaterial in terms of our results at this point. And obviously, that had no impact on the second quarter.

Chris Stansbury: Yeah. We haven't given specific Alkira guidance, and the revenue and cost are immaterial in terms of our results at this point, and obviously have no impact on the Q2. It really is about where we can take it from here. As Kate said, we're moving very rapidly to drive sales motions around that, and we'll quantify that in the H2. As it relates to PCF, I would say the capital expenditures on PCF, which remember, are paid for up front by the customer, we're pretty much on schedule. I wouldn't say that we're finding significant efficiencies, nor do I see any risk. It's pretty much on schedule. Yes, there is definite opportunity to deploy more of those underutilized assets for the hyperscalers with great returns. Where there's opportunities to do that, we will continue to do so.

Speaker #2: It really is about where we can take it from here and as Kate said, we're moving very rapidly to drive sales motions around that.

Speaker #2: And we'll quantify that in the back half of the year. As it relates to PCF, I would say the capital expenditures on PCF, which, remember, are paid for upfront by the customer, we're pretty much on schedule.

Speaker #2: I wouldn't say that we're finding significant efficiencies, nor do I see any risk. So, it's pretty much on schedule. And yes, there's definite opportunity to deploy more of those underutilized assets for the hyperscalers, with great returns.

Speaker #2: And where there's opportunities to do that, we will continue to do so. We do, yeah. We're in a number of conversations for some fairly material deals, but again, as you know, we don't announce those until they are signed because they have very long sales cycles.

Kate Johnson: We have a pipeline of them.

Chris Stansbury: We do. Yeah. We're in a number of conversations for some fairly material deals. Again, as you know, we don't announce those until they are signed because they are very long sales cycles.

Speaker #1: Great. Thank you.

Batya Levi: Great. Thank you.

Speaker #3: Your next question comes from the line of Nick Deltio with MoffettNathanson. Your line is open. Please proceed with your question.

Operator: Your next question comes to the line of Nick Del Deo with MoffettNathanson. Your line is open. Please proceed with your question.

Speaker #4: Hey, thanks for taking my questions. First, it seems like everyone across the industry is highlighting NeoCloud demand. Kate, you mentioned it earlier in the call.

Nick Del Deo: Hey, thanks for taking my questions. First, it seems like everyone across the industry is highlighting neocloud demand. Kate, you mentioned it earlier in the call. Kate, can you do anything to help give us a better sense of just how much that category of customers is contributing to your deal funnel or your bookings or to your revenue growth?

Speaker #4: Can you do anything to help give us a better sense of just how much that category of customers is contributing to your deal funnel or your bookings or to your revenue growth?

Speaker #2: We don't report that, Yeah. We don't report it. There are NeoCloud deals as part of the $13 billion. They're relatively small.

Kate Johnson: We don't report that, right?

Chris Stansbury: Yeah, we don't report it. There are neoclouds deals as part of the $13 billion. They're relatively small.

Speaker #1: And I think they're buying wave, right?

Kate Johnson: I think they're buying Waves, right?

Speaker #2: Yeah. Exactly.

Chris Stansbury: Yeah, exactly.

Kate Johnson: Not as much PCF business for the neoclouds, but a pretty significant uptick in pipe and conversion of Waves capabilities for these customers.

Speaker #1: So, not as much PCF business for the NeoCloud, but a pretty significant uptick in pipe and conversion of wave capabilities for these customers.

Kate Johnson: Not as much PCF business for the neoclouds, but a pretty significant uptick in pipe and conversion of Waves capabilities for these customers.

Chris Stansbury: Exactly.

Speaker #2: Exactly. That is part of the wave growth. We're definitely, I would say, taking share of waves because of the capabilities of our 100 and 400 gig routes and just the density.

Nick Del Deo: Okay.

Chris Stansbury: That is a part of the Waves growth. We're definitely, I would say, taking share of Waves because of the capabilities of our 100 and 400 gig routes and just the density in those 58 million fiber miles that we're building that are a big factor for the neoclouds, and that's how they're choosing to buy their net connectivity.

Speaker #2: In those 58 million fiber miles that we're building, that are a big factor for the NeoClouds. And that's how they're choosing to buy their connectivity.

Speaker #4: Okay. Okay. That's good color. Second question on enterprise voice. I mean, you've articulated the idea of sunsetting, those sorts of services for a while.

Nick Del Deo: Okay. That's good color. Second question on Enterprise Voice. You've articulated the idea of sunsetting those sorts of services for a while, so it's not necessarily a surprise to hear that. Can you talk a little bit about the path to get there? Like for how long you're going to support existing customers taking the service and so on, and maybe the steps you're taking to ensure this doesn't prompt any unwanted churn associated with other services that those customers might be buying.

Speaker #4: So it's not necessarily a surprise to hear that. Can you talk a little bit about the path to get there? For how long you're going to support existing customers taking the service and so on?

Speaker #4: And maybe the steps you're taking to ensure that it doesn't prompt any unwanted churn associated with other services that those customers might be buying.

Speaker #1: Yeah. I think it's a great question for our strategy is deeply rooted in the customer. But the customer at the center of it. And I think it's really important to kind of segment customers in the base of a legacy revenue stream.

Kate Johnson: Yeah, I think it's a great question. Our strategy is deeply rooted in the customer. We put the customer at the center of it, and I think it's really important to kind of segment customers in the base of a legacy revenue stream. We have a huge number of customers that have a very small monthly MRR, and do not have other services. Then we have a much smaller base of customers numerically, like a lower number, that actually have a very large book of business with Lumen. So we're rooting our strategy in the larger footprint of revenue for obvious reasons, and we're intersecting that with our strategy to exit copper. I think that that's really important. We're balancing a couple of things.

Speaker #1: We have a huge number of customers that have a very small monthly MRR, right? And do not have other services. And then we have a much smaller base of customers numerically—a lower number—that actually have a very large book of business with Lumen.

Speaker #1: And so we're rooting our strategy in the larger footprint of revenue for obvious reasons. And we're intersecting that with our strategy to exit copper.

Speaker #1: And I think that's really important. So we're balancing a couple of things. We're maximizing cash flow as we consider the customers' needs and provide migration strategies that are swift, efficient, and make sense for them, addressing their AI aspirations. At the same time, we're also dealing, in some cases, with regulatory constraints.

Kate Johnson: We're maximizing cash flow as we consider the customer's needs and giving them migration strategies that are swift and efficient and make sense for them and address their AI aspirations, at the same time that we're dealing, in some places, with regulatory constraints. It's a bit of a multi-variable equation that starts with customer, second thing is maximize cash from it, and the third thing is to exit so that we can mine the copper.

Speaker #1: So it's a bit of a multivariable equation. That starts with customer. The second thing is to maximize cash from it. And the third thing is to exit so that we can mine the copper.

Speaker #2: Yeah. I would just add to that. The percentage that enterprise voice contributed to our sales is very low single digit. It's immaterial. So it's not about what's driving our future.

Chris Stansbury: Yeah. I would just add to that, the percentage that Enterprise Voice contributed to our sales is very low single digit. It's immaterial. It's not about what's driving our future. It comes down to the revenue management and to Kate's point, there's very few customers that we actually need to be concerned about when we look at the bulk of that business. Beyond that, though, there are decision points around when we end of life versus end of sale. We announced end of sale. End of life is a different story. We're going to be aggressive about that and make the right financial decisions because again, it's a distraction. We will meet the obligations of our big customers, we'll meet the regulatory obligations we have, beyond that, this is not our future.

Speaker #2: It comes down to the revenue management. And to Kate's 's point, there's very few customers that we actually need to be concerned about when we look at the bulk of that business.

Speaker #2: Beyond that, though, there are decision points around when we end of life versus end of sale. We announced end of sale, right? End of life is a different story.

Speaker #2: But we're going to be aggressive about that and make the right financial decisions because, again, it's a distraction. We will meet the obligations of our big customers.

Speaker #2: We'll meet the regulatory obligations we have. But beyond that, this is not our future. We're fully focused on extracting every dollar we can to focus on digital growth.

Chris Stansbury: We're full on in terms of extracting every dollar we can to focus on digital growth.

Speaker #1: And I also feel really good about the partnerships that we're developing with some providers that can help our customers get the voice that they need in the context of the overall Lumen portfolio of business.

Kate Johnson: I also feel really good about the partnerships that we're developing with some providers that can help our customers get the voice that they need in the context of the overall Lumen portfolio of business. It's a connected ecosystem play that I think will enable better economics for the company.

Speaker #1: So, it's a connected ecosystem play that I think will enable better economics for the company.

Speaker #2: Absolutely.

Chris Stansbury: Absolutely.

Speaker #4: Great. Thank you both.

Nick Del Deo: Great. Thank you both.

Speaker #3: As a reminder, to register to ask a question, please press star followed by one on your telephone keypad. Your next question comes from Eric Luco with Wells Fargo.

Operator: As a reminder, to register for a question, please press star followed by one on your telephone keypad. Your next question comes from Eric Luebchow with Wells Fargo. Your line is open. Please proceed with your question.

Speaker #3: Your line is open. Please proceed with your question.

Eric Luebchow: Great, thanks for taking the question. There's obviously been a ton of talk about how satellite could potentially impact telecom, and Kate, you brought this up. Just wondering if you could comment on how satellite broadband could maybe help you accelerate your copper decommissioning and what type of cost savings opportunity that could represent for Lumen longer term. Secondly, maybe Chris, you could just touch on the trajectory of the cost savings opportunity, the $1 billion plus by 2027, where we are in that journey and what we should expect through the balance of the year. Thank you.

Speaker #5: Great, thanks for taking the question. There's obviously been a ton of talk about how satellite could potentially impact telecom, and Kate, you brought this up.

Speaker #5: Just wondering if you could comment on how satellite broadband could maybe help you accelerate your copper decommissioning, and what type of cost savings opportunity that could represent for Lumen longer term.

Speaker #5: And then secondly, maybe Chris, you could just touch on the trajectory of the cost savings opportunity—the $1 billion-plus by 2027—where we are in that journey, and what we should expect through the balance of the year.

Speaker #5: Thank you.

Kate Johnson: Sure. Hey, part of our voice strategy is basically to provide whatever capability makes sense for that customer and to give them choice along the way. Whether it's fixed wireless or satellite, we have the capability to drop an Starlink puck in place of the infrastructure sites that they have today to give them immediate capabilities to replace, which I think is a great thing, and we're starting to get that motion in place to do it at scale. Separately, satellite is a significant part of our business as well because, as we've talked about in the past, data needs to find fiber as fast as possible. We do the backhaul for the satellite companies, and it's growing pretty significantly.

Speaker #1: Sure. Hey, part of our voice strategy is basically to provide whatever capability makes sense for that customer and to give them choice along the way.

Speaker #1: So whether it's six wireless or satellites, we have the capability to drop an airline puck in place of the infrastructure that they have today.

Speaker #1: To give them immediate capabilities to replace, which I think is a great thing. And we're starting to get that motion in place to do it at scale.

Speaker #1: Separately, satellite is a significant part of our business as well because, as we've talked about in the past, data needs to find fiber as fast as possible.

Speaker #1: So, we do the backhaul for the satellite companies, and it's growing pretty significantly.

Speaker #2: Yeah. And on the modernization and simplification, when we guided the year, we said $700 million exiting this year, $1 billion exiting next year. And we are on track to deliver against both of those.

Chris Stansbury: Yeah. On the modernization simplification, when we guided the year, we said $700 million exiting this year, $1 billion exiting next year, and we are on track to deliver against both of those. It's frankly a big piece of how we inflect EBITDA this year, while revenue hasn't inflected yet. The revenue decline slowing is certainly a help, but the M&S savings are what push us there. I'd say more importantly, the learning that we've been able to extract around the legacy business because of that modernization and simplification program, in terms of truly understanding the economic value of individual circuits and routes to market, is what's allowing us to be more aggressive on how we ultimately wind down that portfolio.

Speaker #2: It's frankly a big piece of how we inflect EBITDA this year, while revenue hasn't inflected yet. So, the revenue declines slowing is certainly a help.

Speaker #2: But the M&S savings are what push us there. And I'd say, more importantly, the learning that we've been able to extract around the legacy business because of that modernization and simplification program, in terms of truly understanding the economic value of individual circuits and routes to market, is what's allowing us to be more aggressive on how we ultimately wind down that portfolio.

Speaker #2: So, a few years ago, we would not have had the level of information that we have today. And it's just allowing us to move faster on becoming a digital company.

Chris Stansbury: A few years ago, we would not have had the level of information that we have today, and it's just allowing us to move faster on becoming a digital company. It's worked out really well for us.

Speaker #2: So it's worked out really well for us.

Speaker #3: There are no further questions at this time. I'll now turn the call back to Kate for closing remarks.

Operator: There are no further questions at this time. I will now turn the call back to Kate for closing remarks.

Speaker #1: So, the transformation is going well, and we're really excited. I just wanted to take a minute to thank all Luminaries for their incredible work and contribution.

Kate Johnson: The transformation is going well, and we're really excited, and I just want to take a minute to thank all Luminaries for their incredible work and contribution. Let's keep going, and thanks to everybody today for great engagement on the call and a great discussion. Have a great day.

Speaker #1: Let's keep going. And thanks to everybody today for great engagement on the call and a great discussion. Have a great day.

Operator: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

Speaker #3: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

Q2 2026 Lumen Technologies Inc Earnings Call

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