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LT

Lumen Technologies, Inc. (LUMN)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered mixed but better-than-feared results: revenue of $3.09B declined 5.4% YoY and 2.8% QoQ, while Adjusted EBITDA excl. special items was $877M (28.4% margin), with one-time RDOF giveback of ~$46M reducing both revenue and EBITDA; management raised full-year FCF guidance to $1.2–$1.4B and expects to finish near the high end of EBITDA guidance .
  • Versus S&P Global consensus, EPS materially beat (−$0.03 vs −$0.27*), revenue was a slight miss ($3,092MM vs $3,113MM*); S&P’s EBITDA “actual” is below its consensus (definition differs from company’s Adjusted EBITDA), while company Adjusted EBITDA excl. special items of $877M is above the S&P EBITDA consensus of ~$834MM* .
  • Strategic catalysts: definitive agreement to sell the Mass Markets FTTH business to AT&T for $5.75B (expected close 1H26) to reduce leverage and interest expense, and multiple debt refinancings totaling $2B+ that extended maturities and cut annual interest by ~$50M to-date (incremental ~$300M post-close) .
  • Transformation momentum: “Grow” products up 8.5% YoY within NA Enterprise; NaaS adoption KPIs accelerated QoQ; management increased 2025 exit run-rate cost-reduction target to $350M (from $250M) and reiterated a path to EBITDA stability in coming quarters and growth in 2026 .

What Went Well and What Went Wrong

  • What Went Well

    • Raised FY25 Free Cash Flow guidance to $1.2–$1.4B (from $700–$900M) driven by a ~$400M tax refund, lower capex, better EBITDA and lower interest expense .
    • Execution on capital structure: closed/refinanced >$2B in notes to extend maturities (2033/2034) and reduce coupon by >3.5%, saving ~$50M annually; post-AT&T deal close, interest expense expected to fall by ~$300M annually .
    • Product and platform traction: NA Enterprise “Grow” revenue +8.5% YoY; NaaS adoption KPIs all up double-digits QoQ; PCF contracts now “just under $9B,” with overpull mix supporting higher margins .
    • Quote: “We’re laying our foundation for future revenue growth — we are playing to win.” – Kate Johnson, CEO .

  • What Went Wrong

    • One-time headwind: ~$46M RDOF revenue giveback (and ~$49M penalty within special items) weighed on Q2 revenue and margins (~150 bps margin impact), and the company exited the RDOF program .
    • YoY revenue declines persisted across channels (Total −5.4% YoY), with Mid-Market (−11% YoY) and Wholesale (−5% YoY) under pressure; NA Enterprise −2.4% YoY .
    • 2H headwinds flagged: ~$100M impact from forced disconnects, ~$50M incremental cloud costs, and ~$50M PCF OpEx expected to weigh on EBITDA in 2H25 .
    • Non-cash impairment: $628M goodwill impairment tied to Mass Markets reporting unit post-divestiture fair value .

Financial Results

Core P&L metrics (actuals)

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)3,268 3,182 3,092
Diluted EPS – Excl. Special Items ($)(0.13) (0.13) (0.03)
Adjusted EBITDA – Excl. Special Items ($USD Millions)1,011 929 877
Adjusted EBITDA Margin – Excl. Special Items (%)30.9% 29.2% 28.4%

Q2 2025 vs S&P Global consensus

MetricQ2 2025 ActualQ2 2025 Consensus*Surprise*
Revenue ($USD Millions)3,092 3,113*(21) (−0.7%)*
Primary EPS ($)(0.03) (0.266)*+0.236 (beat)*

Notes: Values with asterisk retrieved from S&P Global.

EBITDA definitional nuance (for context)

  • S&P Global “EBITDA” Q2 2025: Actual 667* vs Consensus 834* (miss)*. Company-reported Adjusted EBITDA excl. special items was $877M (28.4% margin) . Differences reflect methodology/definition. Values with asterisk retrieved from S&P Global.

Segment mix and product lifecycle (Q2 2025)

  • Revenue by channel | Segment ($MM) | 2Q25 | YoY Change | QoQ Change | |---|---:|---:|---:| | Large Enterprise | 732 | (2.3%) | (0.7%) | | Mid-Market Enterprise | 500 | (11.0%) | (2.5%) | | Public Sector | 486 | 8.2% | 0.6% | | Wholesale | 690 | (5.0%) | (2.1%) | | N.A. Total Business | 2,408 | (3.1%) | (1.2%) | | International & Other | 82 | (10.9%) | (4.7%) | | Total Business | 2,490 | (3.4%) | (1.3%) | | Mass Markets | 602 | (12.8%) | (8.5%) | | Total Revenue | 3,092 | (5.4%) | (2.8%) |

  • Business product lifecycle (N.A. Enterprise) | Category ($MM) | 2Q25 | YoY Change | QoQ Change | Mix | |---|---:|---:|---:|---:| | Grow | 827 | 8.5% | (0.8%) | 48% | | Nurture | 429 | (18.0%) | (5.1%) | 25% | | Harvest | 289 | 2.1% | 8.6% | 17% | | Subtotal | 1,545 | (1.5%) | (0.5%) | 90% | | Other | 173 | (9.9%) | (4.4%) | 10% | | N.A. Enterprise | 1,718 | (2.4%) | (0.9%) | 100% |

KPIs

  • Mass Markets broadband metrics | KPI | 2Q24 | 1Q25 | 2Q25 | |---|---:|---:|---:| | Fiber broadband subs (‘000) | 992 | 1,116 | 1,150 | | Other broadband subs (‘000) | 1,666 | 1,392 | 1,308 | | Total broadband subs (‘000) | 2,658 | 2,508 | 2,458 | | Fiber enabled units (MM) | 3.9 | 4.3 | 4.4 |

  • Fiber share of broadband revenue: 38% (2Q24) → 40% (3Q24) → 42% (4Q24) → 45% (1Q25) → 47% (2Q25) .

  • NaaS adoption QoQ (2Q25): customers +35%, fabric ports +31%, services +22% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChangeNotes
Adjusted EBITDAFY 2025$3.2–$3.4B $3.2–$3.4B; near high end MaintainedExpect high end on M&S savings and legacy performance
Free Cash FlowFY 2025$700–$900M $1.2–$1.4B RaisedDriven by $400M tax refund, lower capex, better EBITDA, lower interest
Net Cash InterestFY 2025$1.2–$1.3B $1.2–$1.3B; near low end MaintainedRefinancing benefits
Capital ExpendituresFY 2025$4.1–$4.3B $4.1–$4.3B; near low end MaintainedProject timing
Cash Income Taxes (Refunded)FY 2025$100–$200M ($400)–($300)M Lowered (refund)Reflects new tax legislation; $400M refund expected

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
AI/technology initiativesBuilding the AI backbone and cloudifying telecom (Q4’24) ; direct fiber access to Google Cloud; NaaS adoption growth (Q1’25) Near $9B PCF backlog; building 119 ILA sites; 1,200 miles deployed; multi-cloud on-ramps with all three hyperscalers; NaaS customers/ports/services up 35%/31%/22% QoQ Accelerating
Product performance (Grow/Nurture/Harvest)Continued focus on Grow; Waves strength (Q1’25) NA Enterprise Grow +8.5% YoY (48% mix); Nurture −18% YoY; Harvest +2.1% YoY ; public sector strong Mix shift to Grow
Capital structure2024 foundation; improved liquidity (Q4’24) $2B+ notes due 2033/2034; coupon −3.5%; ~$50M annual savings now; post-AT&T close ~+$300M Strengthening
Regulatory/macro—Exited RDOF; ~$46M revenue giveback; tax law change drives $400M 2025 refund Mixed (headwinds/tailwinds)
Supply chain/capex timing—Some equipment backlogs; capex toward low end mainly on build timing; not expected to impact revenue timing Manageable
Operating transformation—2025 exit cost-savings target raised to $350M (from $250M); path to EBITDA growth in 2026 Improving

Management Commentary

  • “We are delivering on our financial milestones and building a stronger, more modern company... we’re laying our foundation for future revenue growth — we are playing to win.” – Kate Johnson, CEO .
  • “We... announced the sale of our consumer fiber-to-the-home business to AT&T for $5.75B... strengthened our balance sheet with a successful $2,000,000,000 bond offering... and reported strong revenue and EBITDA despite a one-time RDOF giveback.” – Kate Johnson .
  • “We now see our run rate savings exiting 2025 to be in the $350,000,000 range... Total reported revenue declined 5.4%... Adjusted EBITDA... $877,000,000 with a 28.4% margin... Free cash flow was negative $209,000,000 [ex cash special items].” – Chris Stansbury, CFO .
  • “With plans to pay down approximately $4.8B in super priority debt at close, this would reduce our annual interest expense by approximately $300M, reduce CapEx by roughly $1B and reduce leverage... by a full turn.” – Chris Stansbury .

Q&A Highlights

  • Growth mix and trajectory: Grow revenue is “strategic” and nearing half of NA Enterprise; total company revenue growth targeted in 2029; business segment could inflect earlier with resource shift to growth areas .
  • Public sector harvest/temporary rate increases: benefits partly offset by higher costs; expected to normalize/lumpy going forward .
  • 2H25 EBITDA headwinds: ~$100M forced disconnects, ~$50M cloud costs (workloads moving to cloud), ~$50M PCF OpEx; still targeting high end of EBITDA range for FY25 .
  • PCF pipeline and economics: additional ~$500M deals similar economics to initial $8.5B, skewed to overpull (higher margin/lower risk); cadence reflects complexity of new routes .
  • Capex timing: some component backlogs; lower-end capex mainly timing without expected revenue timing impact .

Estimates Context

  • Q2 2025 vs S&P Global consensus: EPS beat (−$0.03 vs −$0.27*), revenue slight miss ($3,092MM vs $3,113MM*). S&P’s “EBITDA” actual 667MM* vs 834MM* consensus (miss)*; company’s Adjusted EBITDA excl. special items was $877MM (margin 28.4%) . Values with asterisk retrieved from S&P Global.
  • Implications: Estimate models likely need to reflect (i) RDOF removal and one-time giveback, (ii) raised FY25 FCF/tax refund, (iii) modestly lower capex trajectory near low end, (iv) 2H cost headwinds and seasonality commentary .

Key Takeaways for Investors

  • Transformation on track: raised FCF, reiterated high-end EBITDA outlook, and accelerated cost takeout support deleveraging and reinvestment capacity; AT&T FTTH sale is a major balance sheet catalyst (close expected 1H26) .
  • Mixed print, clean story: small revenue miss but large EPS beat vs consensus; RDOF headwind masked underlying margin trajectory, with explicit 2H headwinds quantified .
  • Growth pivot building: Grow products up 8.5% YoY (48% mix); NaaS KPIs accelerating; multi-cloud on-ramps with all three hyperscalers and connected ecosystem should support utilization and revenue quality .
  • Capital structure risk receding: multiple refinancings reduced coupon/maturity cliffs; post-transaction interest down ~$300M annually with leverage expected to drop by ~1x .
  • Watch items: execution/timing on PCF builds (overpull vs new routes), normalization of public-sector harvest uplift, and 2H spend headwinds; ensure models reflect tax refund and capex cadence .
  • Tactical setup: near-term stock narrative likely driven by guidance confidence (high-end EBITDA, raised FCF), debt-reduction path tied to AT&T close, and continued proof points on NaaS/AI backbone utilization .

Appendix: Additional Details

Mass Markets revenue composition (Q2 2025)

($MM)2Q25YoY ChangeMix
Fiber Broadband217 19.9% 36%
Other Broadband245 (17.8%) 41%
Voice & Other140 (33.6%) 23%
Total Mass Markets602 (12.8%) 100%
Note: Includes $46M one-time RDOF giveback .

Cash flow snapshot (Q2 2025)

  • CFO: Net Cash from Ops $570M; Capex $891M; Free Cash Flow $(321)M (ex-cash special items $(209)M); Net cash interest $375M .

Special items (Q2 2025)

  • Special items impacting Adj. EBITDA: $152M (severance, litigation, transaction/separation incl. ~$49M RDOF fees, modernization/simplification, other) .

Values with asterisk retrieved from S&P Global.