Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lumen Technologies Inc (LUMN, Financial) has secured over $5 billion in major partnerships, with visibility to nearly $7 billion more in opportunities, positioning itself as a trusted network for AI.
- The company reported a 26% year-over-year increase in North American large enterprise and mid-market sales, with new logo sales up 10% and net total contract value for all channels up nearly 40%.
- Lumen Technologies Inc (LUMN) achieved significant improvements in customer satisfaction, with transaction Net Promoter Scores rising across all enterprise customer channels.
- The company is making progress in its Quantum Fiber business, with record fiber net additions of 40,000 in Q2 and surpassing 1 million fiber subscribers in July.
- Lumen Technologies Inc (LUMN) announced a path to creating $1 billion in cost takeout by the end of 2027 through strategic infrastructure simplification in network, product portfolio, and IT.
Negative Points
- Total reported revenue declined 10.7% year-over-year to $3.268 billion, with significant impacts from divestitures and commercial agreements.
- Adjusted EBITDA was $1.011 billion, down from $1.229 billion in the year-ago quarter, with a 30.9% margin and free cash flow was negative $156 million.
- The company expects 2025 EBITDA to be below 2024 levels due to investments in transformation and costs associated with recent PCF sales.
- Revenue from legacy services continues to decline, with large enterprise revenue down 6.9% and mid-market revenue down approximately 7% year-over-year.
- The company faces challenges in managing multiple networks and systems, with plans to consolidate from four enterprise networks to one and reduce product codes and billing systems significantly.
Q & A Highlights
Q: With respect to the $5 billion of sales, can you give additional color on the competitiveness of that process? Are these customers using single vendors or multiple vendors?
A: Our network is the crown jewel with great coverage, unique routes, and state-of-the-art fiber. Customers often find that we can get them there faster with higher quality and better service. (Kathleen Johnson, CEO)
Q: Can you help us think about the free cash flow guidance? Is it driven by customer deposits from the private custom fiber fabric AI or the gain on the sale?
A: The cash flow guidance is driven by both the upfront cash received from PCF deals and the asset sale. We haven't received all the cash yet, and the CapEx will be spent over time. Next year's free cash flow looks good. (Christopher Stansbury, CFO)
Q: Looking at the EBITDA guidance change for the year, is it related to incremental OpEx for network readiness or underlying trends?
A: The main driver is the OpEx investments needed to scale our construction factory for the PCF deals. The $1 billion cost takeout will start next year, with some investments pulled forward to drive customer experience improvements. (Christopher Stansbury, CFO)
Q: Can you give us some color on the diversity of customers within the $5 billion of closed deals?
A: The first $5 billion tranche includes hyperscalers, social platforms, and large technology companies building and training AI models. The next tranche will likely come from enterprises using AI models in sectors like healthcare, retail, and financial services. (Kathleen Johnson, CEO)
Q: How should we think about the recurring revenue piece from these massive transactions?
A: Once scaled, customers may ask us to run the networks, providing ongoing payments for space, power, and maintenance. This revenue and cash will be earned in the year the services are provided. (Christopher Stansbury, CFO)
Q: Can you provide more color on the largest deal as a percentage of revenue within the $5 billion group?
A: We can't disclose specifics as it would reveal sensitive customer information. However, the $5 billion in sales is largely incremental to our existing dark fiber run rate. (Christopher Stansbury, CFO)
Q: How should we think about the visibility of getting back to revenue growth given the trajectory of bookings and PCF deals?
A: Revenue will lag the EBITDA turnaround due to significant cost takeout. The timing on revenue growth will likely lag by at least a year, excluding the $7 billion in ongoing discussions. (Christopher Stansbury, CFO)
Q: Can you talk about the split between middle mile, long haul fiber versus metro fiber in your pipeline to support these deals?
A: Our network includes both inner city and metro fiber. The investments we're making support 400 gig waves, scaling to 800 and 1.6 terabytes over the next two years. (Christopher Stansbury, CFO)
Q: Can you help contextualize the recurring revenue piece that comes on the back of these massive transactions?
A: Private connectivity fabric deals include a mix of dark fiber, waves, and IP. The revenue mix will evolve over time, and we prioritize penetration of our assets to deliver returns to shareholders. (Kathleen Johnson, CEO)
Q: Can you give us an idea of the largest deal as a percentage of revenue within the $5 billion group?
A: We can't disclose specifics as it would reveal sensitive customer information. However, the $5 billion in sales is largely incremental to our existing dark fiber run rate. (Christopher Stansbury, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
