LUMN earnings call transcript, November 4, 2026

Greetings, and welcome to Lumen Technologies' third 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. 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, November 4th, 2026. Your speakers for today are Kate Johnson, CEO, and Chris Stansbury. CFO. I would now like to turn the conference over to Michael Renke, Senior Vice President, Investor Relations and Lumen Transformation. Please go ahead.

Good afternoon, everyone, and thank you for joining Lumen Technologies. Lumen Technologies third quarter 2026 earnings call. Before we begin, I would 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 of future events in financial performance. Actual results may differ materially from these 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, our quarterly 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. Today's presentation may also include non-GAAP financial measures. Reconciliations are provided in our posted materials. With that, I'll turn the call over to Kate.

Thanks, Michael.

Thanks, Kate.

I'll build on Kate's remarks by walking through how the third... ...quarter results reflect the progress we're making against our financial goals. We're improving the mix in quality of revenue. We're delivering the adjusted EBITDA inflection we committed to, and we're maintaining discipline around cash and capital allocation. We're continuing to strengthen the balance sheet. This focus gives us the flexibility to continue investing in strategic and digital growth. Before getting into some of the financial details from the quarter, I want to be crystal clear about our growth plan. LUMN's growth is built on a strategic portfolio already in the market, including digital network, AI-enabling connectivity, and the programmable network and orchestration capabilities that bring it all together. Growth is where we are laser-focused, that's how we run the business, and that's where we spend our time. We are not focused on preserving legacy economics, and the market shouldn't be either. Put simply, we don't need to sign another large infrastructure build or hang on. to legacy economics to execute our growth ambitions. That gives us tremendous confidence in our path forward and continuing to deliver what we've promised. The third quarter provided another proof point that the transformation is moving from strategy into financial results. Strategic revenue had another strong. quarter up 10% year over year to $1.28 billion and now represents 55% of total business revenue compared to 48% a year ago. Within strategic, digital revenue grew 86.7% year over year.

to $56 million, driven by strength in NAS and Alkira. To follow up on Kate's overview of Lumen Intelligent Internet, we will be shifting to the Lumen Intelligent Internet revenue base into digital starting in 2020. We'll provide a pro forma of the digital revenue at that time. The mix of our business continues to shift towards higher growth strategic and digital services. And as I'll discuss in a moment, that shift is also improving the economics of our business. Total revenue was $2.72 billion ahead of our expectations and in line with consensus, including a positive impact to revenue of $27 million related to support payments received. Under the Federal Communications Commission's Connect America Fund and the Phase II program. This is $27 million. It's not impact-adjusted EBITDA. Total business revenue was $2.35 billion, down 4.5% year-over-year. North American enterprise revenue was 1.6%. $27 billion, down 3.1% year-over-year. And within North America enterprise, large enterprise continued to show strength, growing 3.6% year-over-year and 2% sequentially to $810 million. Adjusted EBITDA, excluding special items, was $715 million, putting us on track for the full year inflection we previously outlined. Third quarter adjusted EBITDA was higher than originally anticipated. Primarily due to lower than expected operating expenses. Capital expenditures, excluding special items, were $796 million. PCF cash received was $117 million in the quarter.

Free cash flow, excluding special items, was negative $76 million for the quarter and $1 billion year to date, including the impact of $75 million and $321 million in cash tax payments. To our mass market's fiber to the home divestiture, which were excluded from our guidance. This was in line with our internal expectations, driven by timing of PCF, and we continue to expect that full year free cash flow will be within our existing guidance range. Our return to business revenue growth is built on higher growth strategic and digital services. The current macro environment reinforces our value proposition. Customers increasingly need to reduce cost and complexity while improving resilience, speed, and control. Our platform helps customers simplify their technology stack, provision and scale services more efficiently, and reduce the cost and operational burden of management. Fragmented networks that can only be accomplished on a truly digital programmable network. The makeshift matters because of the economics of future portfolio are compelling. Earlier, so far, 20% of our IOD ports have more than one service on them, which means there's a significant scaling opportunity by adding services to installed ports with nearly 100% direct margin and creates operating leverage for LUMN. Many incorrectly believe that legacy revenue carries higher margin than strategic. Year-to-date, the average direct margin across our strategic portfolio is over 80%, compared to approximately 65% for legacy.

Strategic portfolio margins are meaningfully higher than legacy. I'll say that again. Strategic portfolio margins are meaningfully higher than legacy. Now let's touch on PCF quickly. As we said before, PCF is a disciplined way to monetize underutilized assets by leveraging conduit already in the ground, allowing us to deploy fiber efficiently and with attractive economics. We combined over $13.5 billion of PCF deals, including an additional $700 million. These contract structures also provide meaningful inflation protection. To customers filled up front, we actively manage procurement and supply chain exposure, and ongoing operations and maintenance payments include inflation escalators. The agreements already signed support our current plan, and our approach to incremental deals remains disciplined. They need to create attractive returns by leveraging assets we already own and preserving capital for higher-return strategic growth. For the third quarter, PCF revenue in CapEx for $66 million and $200... and $69 million, respectively. Before turning to the outlook, I want to highlight the strength of our balance sheet and the actions we've taken to get there. More than 80% of our debt is fixed rate and only approximately 2.5% of our debt is fixed rate. $4 billion is tied to SOFR. A 25 basis point change in rates affects annual interest expense by approximately $6 million. Put simply, our exposure to changes in interest rates is limited.

And immaterial in our ability to deliver against our objectives. We've also significantly extended our maturity profile with only approximately $1.2 billion of debt coming to you over the next five years, providing meaningful finance. That profile reflects the proactive steps we've taken to refinance debt, simplify the capital structure, and reduce annual interest expense by nearly half a billion dollars. Our balance sheet is more resilient, our near-term maturities are manageable, and we intend to continue using proceeds in cash generation to reduce debt. As Kate discussed, we're accelerating the decommissioning of our copper network. I'll say it again, copper is worth more mined than it is operated. For this business, revenue is the wrong metric. We estimate that the initial four states represent approximately 25% of our copper network. This is a methodical market-by-market transition focused on moving customers to modern services, working through regulatory requirements, and removing the stranded cost of infrastructure that no longer fits the future portfolio. The economics extend well beyond the value of the recovered copper. Decommissioning reduces the operating and capital costs. Required to maintain legacy infrastructure, simplify systems and facilities, and allows us to redirect capital towards higher return strategic opportunities. At current copper prices, we expect to generate between one and one and a half billion dollars in pre-tax net copper proceeds across our footprint over the next five.

years. This will build over time and depending on customer migration, regulatory approvals, recovery costs, and market conditions. Put simply, legacy can generate cash in two ways. Through the services that remain in operation. and over time through the decommissioning and monetization of the underlying assets. That cash can support debt reduction and investment in our strategic portfolio. Now moving to guidance, we're reaffirming our full year. For the full year, we expect adjusted EBITDA of $3.1 to $3.3 billion, capital expenditures of $3.2 to $3.4 billion, and free cash flow excluding special items and cash tax payments related to our management. Mass markets fiber-to-home vestiture of $1.9 to $2.1 billion. Each quarter, we continue to show significant progress against our strategic and financial objectives of driving operating leverage, delivering... ...higher margins and lower capital intensity through digitally delivered services. The future of LUMN is being built on strategic growth, not on preserving the past. We have a stronger, more resilient balance sheet, limited exposure to... ...changes in interest rates, and a disciplined capital model. DCF allows us to leverage assets we already own, while copper decommissioning provides another opportunity to remove legacy costs, generate cash, and reduce debt. Together, that puts us in a stronger position to invest in the strategic opportunities ahead.

While continuing to strengthen the financial foundation of the company. The story of LUMN is building what comes next. Kate, back to you.

Thanks, Chris.

But before we open it up for questions, I want to thank our LUMN team. The progress we're talking about today is all because of their hard work and relentless focus on our customers. Let me leave you with three things. Number one, we are executing really well. We're delivering on what we said we would deliver, adjusted EBITDA is inflecting, strategic revenue is growing, and our balance sheet gives us the flexibility to finish what we started. Number two, we're starting to see the operating leverage. We're landing customers on the platform and they're coming back and buying more services. That 1 plus N motion is really important because it strengthens the economics of every single connection. Thirdly, and finally, we're innovating again. Intelligent Internet, Alcura, and the work we're doing around risk-aware networking. We're solving increasingly complex problems for our customers and expanding what the Lumen platform can do. We're executing. The economics are getting better, and we're innovating for what comes next. Operators, let's take some questions. Thank you. If you would like to register a question, please press star followed by the 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 Roland.

Your next question comes in the line of Frank Luthen with Raymond James. Your line is open. Please proceed with your question.

Great. Thank you. I just wanted to touch base on the long-term guide. Are you still on track to hit the positive top-line growth inflection? How is that cadence progressing? I apologize if I missed this, but maybe walk us through a little bit of your wavelength growth. Are you seeing any issues getting customers connected or getting hardware that customers need, and how is that business progressing? Thanks.

Hey, Frank.

It's Chris. I'll take that. Look, I think even before we jump into the results, I want to highlight something that we're seeing clearly with each passing day, and that is the demand for our network is really growing in a significant way, and that's really what's underlying the results. As it relates to waves growth, it really is, it goes back to enterprise preparing themselves for the inference phase, and the investments that we made in the network, rapid routes, a lot of our metro rings, expand. Those are the things that allow us to light up 100 and 400 gig connectivity really rapidly, and no, I mean, yes, there's obviously issues in the market in terms of equipment supply and whatnot, but we've been prepared for that, and that has not slowed us down. As it relates to the total business. revenue inflection, it is still 2028. That's what we're modeling, even with kind of accelerating the exit from copper. You know, the offset in there is largely driven by Alcura, but if there's one thing that I'd like to leave investors with, it's that while we're committed to that, and we'll still. Continue to talk to it. Don't get too wrapped up in the total revenue growth. This is about a business internally that is 55% of our portfolio growing every quarter and growing double digits. There's a tremendous growth. And the decisions that we make on legacy have been and will continue to be focused on one thing, cash generation. And so, as I said in my prepared remarks,

Your next question comes from the line of Greg Williams with TD Co.

Your next question comes from the line of Sebastiano Petty with J.P. Morgan. Your line is open. Please proceed with your question.

Your next question comes from the line of Eric Glubchow with Wells Fargo. Your line is open. Please proceed with your question.

Your next question comes to the line of Sam McHugh with BNP Paribas. Your line is open. Please proceed with your question.

Yeah, thanks for the question. Chris, I think you talked about the medium term guidance, maybe not change. As Alkira offsets that quicker exit from copper. Then you also said that copper sales might offset the copper declines happening faster. If you could clarify kind of what you were trying to explain on the medium term guidance, maybe. And then just on the PCF deals, I think revenue this quarter was down about 30%. I assume it's just lumpiness, but is there anything happening on like revenue recognition for the PCF deals? Because I think you've guided to two to 250 million of revenue this year, but you're already at 240 million-ish, I think. So any update there? Be helpful. Thanks. Yeah, on the PCF, that was really driven by the state of California that got recognized last quarter, so that was chunkiness. As it relates to just the underlying trend on PCF, as Kate said, we're actually ahead of schedule. And revenue gets recognized, as we've discussed in the past, based off of when segments are delivered. As it relates to the copper piece in terms of how the declining revenue associated with sales... ...is offset by the timing of the copper sales. Again, for any given year, we view that as relatively awash in EBITDA because, again, there's cost to mine the coppers. So you have – you're replacing a P&L that is revenue-driven by sales and OpEx-driven by sales to generate EBITDA with a P&L that is driven by copper-based...

mining sales, which has costs associated to mine and delivers in that EBITDA number. And again, in total, broadly, we don't think that has a material impact on your modeling based off what we showed. Investor Day. To Sebastiano's question, yes, we obviously will incur some expense before we incur that revenue. But again, when we give guidance for next year, we'll give you all those details. But we don't expect a major. As a reminder, to register for a question, press the star followed by the one on your telephone.

Your next question comes from the line of Batia Levy with UBS.

Your last question comes from the line of Nook Del Deo with Moffitt Nathan.

There are no further questions.

at this time. I will now turn the call back to Katie for closing remarks.

Thank you all for your questions and the time that you took to spend with us today. Lumen's building the trusted network for AI, and we look forward to sharing more with you next quarter. See you soon. That concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.