Lumen Technologies Q2 2025 Earnings Report

Lumen Technologies EPS Results

• Actual EPS: -$0.03
• Consensus EPS: -$0.24
• Beat/Miss: Beat by +$0.21
• One Year Ago EPS: -$0.13

Lumen Technologies Revenue Results

• Actual Revenue: $3.09 billion
• Expected Revenue: $3.11 billion
• Beat/Miss: Missed by -$19.76 million
• YoY Revenue Growth: -5.40%

Lumen Technologies Announcement Details

• Quarter: Q2 2025
• Date: 7/31/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 5:00PM ET

Lumen Technologies (NYSE:LUMN), a facilities-based technology and communications company, provides various integrated products and services to business and residential customers in the United States and internationally. The company operates in two segments, Business and Mass Markets. It offers dark fiber, edge cloud services, internet protocol, managed security, software-defined wide area networks, secure access service edge, unified communications and collaboration, and optical wavelengths services; ethernet and VPN data networks services; and legacy services to manage cash flow, including time division multiplexing voice, private line, and other legacy services, as well as sells communication equipment, and IT solutions. The company also provides high speed and lower speed broadband service to residential and small business customers; local and long-distance voice services, professional services, and other ancillary services; and federal broadband and state support programs. It serves its products and services under the Lumen, Quantum Fiber, and CenturyLink brands. The company was formerly known as CenturyLink, Inc. and changed its name to Lumen Technologies, Inc. in September 2020. Lumen Technologies, Inc. was incorporated in 1968 and is headquartered in Monroe, Louisiana.

Lumen Technologies Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Sale of consumer fiber business: Lumen sold its consumer fiber-to-home assets to AT&T for $5.75 billion, will use $4.8 billion to pay down super-priority debt, reducing leverage by a full turn and saving ~$300 million in annual interest.
• Positive Sentiment: Upsized cash flow and cost-out targets: The company raised its 2025 free cash flow guidance by $500 million to $1.2–$1.4 billion and boosted its run-rate cost-out target from $250 million to $350 million, supporting high-end adjusted EBITDA guidance.
• Positive Sentiment: AI-backbone contract progress: Lumen has signed nearly $9 billion in PCF deals, deployed 1,200 miles of fiber and 119 ILA sites, and expects these networks to generate over $400 million in annual revenue once fully built out.
• Positive Sentiment: Strong NaaS adoption: Network-as-a-Service metrics rose sharply in Q2—customers up 35%, active ports up 31%, active services up 22%—as on-ramp innovations with major hyperscalers advance.
• Negative Sentiment: One-time RDOF giveback and revenue decline: The company incurred a $46 million Rural Digital Opportunity Fund giveback and reported a 5.4% year-over-year revenue drop in Q2, driven by mass markets and legacy service contractions.

Presentation

[Operator]

Ladies and gentlemen, greetings, and welcome to Lumen Technologies Second Quarter twenty twenty five Earnings Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded, Thursday, 07/31/2025. I would now like to turn the conference over to Jim Breen, Senior Vice President, Investor Relations. Please go ahead.

[Jim Breen, SVP - IR at Lumen Technologies]

Good afternoon, everyone, and thank you for joining Lumen Technologies on today's call. On the call today are Kate Johnson, President and Chief Executive Officer and Chris Stansbury, Executive Vice President and Chief Financial Officer. Before we begin, this conference call may include forward looking statements subject to certain risks and uncertainties. All forward looking statements should be considered in conjunction with the cautionary statements and the risk factors in our SEC filings. We'll be referring to certain non GAAP financial measures reconciled to the most comparable GAAP measures, which could be found in our earnings press release.

[Jim Breen, SVP - IR at Lumen Technologies]

In addition, certain metrics discussed today exclude costs for special items as detailed in our earnings materials, which can be found on the Investor Relations section of the website. With that, I'll turn the call over to Kate.

[Kate Johnson, President & CEO at Lumen Technologies]

Thanks, Jim, and thanks to everybody for joining the call. I'm happy to share that Lumen had a very productive quarter. We announced the sale of our consumer fiber to the home business to AT and T for $5,750,000,000 providing us strategic clarity and a path to financial freedom. We signed nearly $500,000,000 of new PCF contracts since our last deal update. We strengthened our balance sheet with a successful $2,000,000,000 bond offering that extends maturities and reduce the coupon rate by over 3.5%, saving another $50,000,000 or so in annual interest expense.

[Kate Johnson, President & CEO at Lumen Technologies]

And we reported strong revenue and EBITDA despite a onetime RDOF giveback. We're focused and executing extremely well. So now I want to give some context as to where I think we are in Lumen's transformation story. We see three critical financial milestones. The first is to clear a path to a healthy balance sheet and free cash flow to support our transformation.

[Kate Johnson, President & CEO at Lumen Technologies]

To that end, we're raising twenty twenty five free cash flow guidance by 500,000,000 The second milestone is to return to EBITDA growth. And to that end, we're raising our 2025 run rate cost out target from $250,000,000 to $350,000,000 This will put us near the high end of our EBITDA guide and gives us confidence that we have a path to EBITDA growth. With free cash flow and EBITDA milestones on track, I'll focus my comments on the third milestone, our pivot back to revenue growth. And I'll start with an update on building the backbone for the AI economy. The global AI race is a matter of economic development and national security for The United States.

[Kate Johnson, President & CEO at Lumen Technologies]

We are pleased with the administration's AI action plan and recent tax legislation, which not only reduces regulatory barriers and helps accelerate our current network build out, it also provides us with additional capital to invest in our nation's digital infrastructure. As such, we're making huge progress executing on the $8,500,000,000 of PCS contracts we announced last year. We're constructing 119 ILA sites. We've already deployed 1,200 miles of fiber on 16 routes, and we've completed IRU conduit deployments across 55 additional routes. In another two years or so, we expect to finish this construction and over pull work, generating over $400,000,000 of annual revenue for Lumen for the remaining duration of the twenty year contracts.

[Kate Johnson, President & CEO at Lumen Technologies]

And as I mentioned upfront, we now have just under $9,000,000,000 in PCF business, adding nearly $500,000,000 in new contracts since our last update. Our pipeline of PCF opportunities remains strong with a combination of demand for over pulls on existing conduit, which are higher margin and lower risk, as well as new route construction, which is inherently expensive, risky and lower margin. For any new route construction, we're working with our customers on creative deal structures to mitigate risks and manage costs. But please note, none of these remaining deals in the pipeline have been contemplated in our guidance or long range growth plans. They are purely upside.

[Kate Johnson, President & CEO at Lumen Technologies]

Additionally, I want to assure our investors that we will remain deeply disciplined in our approach by only inking deals that are value accretive to Lumen shareholders, even if this means stepping away from an opportunity. We simply won't be pulled back into the field of dreams route construction practices of legacy telecom. We're building new capacity trumped every other investment opportunity. At Lumen, we will build new capacity only where we need it and can get the right commercial terms. Our focus is on driving higher utilization of our assets and therefore better economic returns for our shareholders.

[Kate Johnson, President & CEO at Lumen Technologies]

Speaking of better network utilization, AI is forcing a pivotal shift in customer needs, driving unprecedented bandwidth demand for real time data processing and secure uninterrupted access to critical business applications. Our digital platform and network as a service or NAS offerings give customers the flexibility and agility needed to thrive in a multi cloud hybrid world. In 2Q, we saw continued strength in adoption across three critical KPIs all quarter over quarter. The number of customers that purchased and used one or more ports was up 35% from first quarter. Total active NAS ports were up 31%.

[Kate Johnson, President & CEO at Lumen Technologies]

Total active services were up 22%. So across all three metrics, the quarter over quarter growth rates in Q2 remained consistent with Q1, showing continued adoption growth and ultimately a significant driver of network utilization. Additionally, we're encouraged by the healthy patterns we're observing in repeat purchases and lower churn rates. Big name brands are buying LumenNAS for their cloud connectivity needs. Companies like Pacific Life, Columbia, DXC Technology, and so many more.

[Kate Johnson, President & CEO at Lumen Technologies]

There's even a large investment bank on this call that's using LumenNAS, but they were too shy to let us talk about them with this audience. And don't worry, we understand. As we continue to build and deliver quick, secure, and effortless customer experiences, NAS adoption will continue to accelerate, ultimately becoming a significant part of our revenue growth story. Last quarter, I shared some detail about our digital platform architecture, talking about Lumen Control Center, Fabric Ports, and Cloud OnRamp. This is how we're building a platform to deliver cloud economics, enabling scaled revenue growth at declining marginal costs.

[Kate Johnson, President & CEO at Lumen Technologies]

We're continuing to innovate all of these important capabilities, and we plan to announce some exciting fabric port innovation later this year, so stay tuned. But today, I'm happy to give you an update on our cloud on ramp innovation. We're now working with all three major hyperscalers to connect our network directly into their cloud infrastructure, creating the fast lane for AI powered businesses, bypassing nonvalue intermediaries. Our goal is to build fully automated API driven up to 400 gig on ramp offerings so customers can move as much data as they want wherever and whenever they need it quickly, securely, and effortlessly. Today, we have more than 30 paying customers leveraging our existing multi cloud networking capabilities through LumenNAS.

[Kate Johnson, President & CEO at Lumen Technologies]

As we launch cloud on ramps with each hyperscaler, we'll be able to democratize the networking fast lane for all AI powered businesses and bring multi cloud networking to everyone digitally. Okay. I talked about the first two important revenue growth vectors for Lumen, the physical layer where we're building the AI backbone, and the digital layer where we sell mass. Here comes the third, and it's an important one. By putting our physical network together with our digital platform, we're fulfilling our mission to connect people, data, and applications quickly, securely, and effortlessly.

[Kate Johnson, President & CEO at Lumen Technologies]

Ultimately, we've created a connected ecosystem for our customers in both the public and private space to purchase provision and manage their network services as easily as they do their cloud solutions. Again, fully automated, API driven, and available in digital marketplaces. This helps us scale Lumina offerings to new customers faster than ever before and more efficiently than in traditional telecom. Now there's obviously a lot of work to do, but what's exciting is that this isn't some far away vision. We've already I have many of the pieces in place.

[Kate Johnson, President & CEO at Lumen Technologies]

We have close to a thousand NAS customers. We have the three biggest cloud service providers connected to our fabric and co building high speed on ramps with us. And we already serve more than 1,500 data centers across The US, and that number is growing. So the newest piece of the puzzle is working with technology companies to integrate our digital network solutions directly into their cloud offerings. Today, networking and connectivity solutions are purchased separately from tech solutions.

[Kate Johnson, President & CEO at Lumen Technologies]

Soon, customers will be able to purchase their tech solutions bundled and integrated with Lumen networking services available in online marketplaces. So not only will this yield frictionless customer experiences, it gives Lumen scale commercial reach by turning any technology company into a sell with and a sell through channel partner. To start, we're working with AI companies, backup and recovery solution providers and security companies, all of whom are eager to create a first mover advantage with this new business model. This connected ecosystem gives Lumen market velocity and reach, positioning us to win in the fast growing $15,000,000,000 multi cloud networking market. We offer unparalleled cloud agility with carrier grade performance engineered for AI, built for scale and designed for the demands of today.

[Kate Johnson, President & CEO at Lumen Technologies]

So in summary, we're pivoting Lumen back to revenue growth by restoring value to once commoditized fiber assets with innovation and new business models. We started by leveraging our physical network to create the backbone for AI, then we built a digital platform to make it easy for customers to consume network services in a cloud like consumption model, and now we're tying it all together into a digital commercial ecosystem so that our fiber network can help fulfill the ambition of AI. I think you can all agree, this is not your mom of Lumen. So Chris, over to you.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Thanks, Kate. As Kate highlighted, we had an eventful and constructive quarter on many fronts. We reported solid 2Q financials, announced the transformative sale of our consumer fiber to the home business to AT and T and successfully refinanced $2,000,000,000 in debt. Financially, revenue and adjusted EBITDA came in better than expected despite a $46,000,000 onetime impact to both from the Rural Digital Opportunity Fund or RDOF givebacks. Our total business grew grow revenue was up 6% year over year, and our total business revenue was down only 3.4% year over year, well ahead of our competition.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

A highlight from the quarter was total IP sales up nearly 38% and IP revenue up in the mid single digits. In May, we announced the sale of our consumer fiber to the home business to AT and T for $5,750,000,000 This transaction allows us to invest and focus on our core enterprise capabilities, while also significantly improving our balance sheet. With plans to pay down approximately $4,800,000,000 in super priority debt at close, this would reduce our annual interest expense by approximately $300,000,000 reduce CapEx by roughly $1,000,000,000 and reduce leverage on the business by a full turn. This deal goes a long way to strengthening our balance sheet and providing incremental cash to invest in the enterprise customer capabilities that will power our return to revenue growth. Following an agreement to sell our consumer fiber assets to AT and T, Lumen withdrew from the RDOF program.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

This decision reflects a strategic shift toward building the next generation digital networking infrastructure that powers the AI economy and serves enterprise, public sector and wholesale customers. Accordingly, we reported a $46,000,000 onetime revenue and adjusted EBITDA giveback that Kate referenced at the start of the call. As we turn to debt, we continue to strengthen our balance sheet with a successful $2,000,000,000 bond offering, which enabled us to extend maturities from 2029 and 2030 to 02/1933. In fact, post the fiber to the home deal close, it reduces our post TSA exposure in 2029 and 2030 by over 60%, and we're not done yet. It also reduces our cost of capping.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

The reduction in coupon of more than 3.5% results in annual interest expense savings of approximately $50,000,000 This debt refinancing in conjunction with our term loan refi in March reduced annual interest expense by approximately $100,000,000 We'll continue to work toward improving the balance sheet ahead of the anticipated close of the AT and T transaction in the 2026. And as you can see over the slide, over the past eighteen months, we've begun to substantially extend and level out the phasing of our debt maturities. We will aggressively seek opportunities to further delever, extend maturities, simplify and reduce our cost of capital. Stay tuned. In July, Congress passed the reconciliation bill, which includes three pro growth cost recovery tax provisions.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Based on the enactment of the reconciliation bill, we estimate our 2025 tax liability will be reduced by approximately $400,000,000 Accordingly, we have filed a refund request with the IRS for $400,000,000 of estimated taxes previously paid for 2025, which we anticipate receiving later this year. We estimate another large benefit from the reconciliation bill in 2026. We anticipate benefits from the legislation to decline over time as our CapEx spend and interest expense continue to decrease, which is a good thing. Lastly, we continue to make progress on Lumen's modernization and simplification, with a particular focus on using AI to drive intelligence and automation as we implement new digital enterprise application and unify our network architectures. Last quarter, we said that our modernization and simplification work was off to a great start with a goal of reaching $250,000,000 in run rate savings exiting this year and $1,000,000,000 exiting 2027.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

As Kate mentioned, we now see our run rate savings exiting 2025 to be in the $350,000,000 range, thanks to the hard work from our modernization simplification team, and we're more than halfway toward that goal through June 30. Now let's move to the discussion of financial results for the second quarter. Total reported revenue declined 5.4% to $3,092,000,000 Business segment revenue declined 3.4% to $2,490,000,000 Mass markets segment revenue declined 12.8% to $6.00 $2,000,000 Adjusted EBITDA was $877,000,000 with a 28.4% margin and free cash flow was negative $2.00 $9,000,000 Next, I'll review our detailed revenue results for the quarter on a year over year basis. And within our North American enterprise channels, which is our business segment, excluding wholesale, international and other, revenue declined only 2.4%. North American enterprise grow revenue increased 8.5% year over year, driven by large enterprise and public sector growth with continued pressure in nurture and harvest product revenue, with harvest product revenue up slightly year over year.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Overall, American business declined 3.1%. On a year over year basis, large enterprise revenue declined 2.3% in the second quarter and mid market revenue declined 11%. In large enterprise and mid markets, GROW revenue was up 13.31.2% respectively, offset by nurture and harvest. Public sector revenue grew 8.2% year over year. Public sector was helped by GROW revenue up 9.4% and harvest revenue was up approximately 49% year over year.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Public sector harvest revenue has been elevated over the past couple of quarters, and we estimate it will return to more normalized levels in the 2025. We would expect public sector harvest revenue to remain lumpy quarter to quarter based on future voice disconnects and summary rating. Wholesale revenue declined approximately 5% year over year. The Harvest portion of the wholesale portfolio, which is primarily driven by voice and private line, saw revenue contraction by 6.2% year over year in the second quarter. This is primarily driven by telco partners that are selling legacy services.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Our Harvest product revenue will likely continue to decline over time and is an area that we will manage for cash. Nurture revenue was down 8.6% in the second quarter on VPN and Ethernet declines, and wholesale Gro revenue was down 0.4. International and other revenue declined 10.9% or $10,000,000 driven primarily by VPN declines. Now moving to our business product life cycle reporting, I'll reference the results based on our North America enterprise channels. The 2.4% year over year decrease was due to declines in nurture, offset by strength in grow and harvest.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

While results can vary in any quarter, we expect sustained strength in the grow product revenue as we execute in our core turnaround. Within North America enterprise channels, grow product revenue increased 8.5% year over year, marginally down sequentially from 9.9% year over year due to the timing of large contracts within public sector in the first quarter. GRO now represents over 48% of our North American enterprise revenue and for our total business segment carried an approximate 80.4 direct margin this quarter. Nurture products revenue decreased 18% year over year, largely impacted by declines in Ethernet and VPN. Nurture represents approximately 25% of our North American enterprise revenue and for our total business segment carried an approximate 67.1% direct margin this quarter.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Harvest products revenue increased 2.1% year over year. Harvest represented approximately 17% of our North America enterprise revenue in the second quarter. For our total business segment, it carried an approximate 75.2% direct margin this quarter. Other product revenue decreased 9% year over year. As a reminder, other product revenue tends to experience fluctuations due to the variable nature of these products.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Now moving briefly to mass markets, our team continues to do a terrific job building out our fiber to the home footprint, adding new subscribers and providing great service to existing customers. Our fiber broadband revenue increased 19.9% year over year and represents 47% of mass markets broadband revenue. As a reminder, all of the $46,000,000 RDOF impact came from our mass markets business. During the quarter, Lumen added approximately 117,000 fiber enabled homes, bringing our total to approximately 4,400,000 as of June 30. We also added 34,000 Quantum Fiber customers, bringing fiber subs to approximately 1,200,000.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Fiber ARPU was $64 At the end of the second quarter, our penetration of legacy copper broadband was approximately 7%, and our quantum fiber penetration stood at approximately 26%. Now turning to adjusted EBITDA. For the 2025, adjusted EBITDA excluding special items was $877,000,000 compared to approximately $1,000,000,000 in the year ago quarter. For the 2025, our margin was 28.4%. Adjusted EBITDA margins declined two fifty basis points year over year compared to a 50 basis point year over decrease in the first quarter.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

The RDOF giveback negatively impacted year over year adjusted EBITDA margins by approximately 150 basis points. Special items impacting adjusted EBITDA totaled $152,000,000 This includes severance, transaction and separation costs, an RDOF penalty payment of approximately $50,000,000 and our modernization and simplification initiatives. Lastly, capital expenditures were $891,000,000 Free cash flow excluding special items was negative $2.00 $9,000,000 As a reminder, we expect free cash flow to be lumpy quarter to quarter as we move through the large PCF builds. Now I'll talk about changes to our 2025 guidance. With respect to 2025 adjusted EBITDA, we now expect to come in near the high end of the $3,200,000,000 to $3,400,000,000 range despite the $46,000,000 RDOF giveback.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

For the remainder of 2025, in Q3, we would expect a similar absolute dollar seasonal adjusted EBITDA declines we saw in 2024. And additionally, we expect increased costs associated with our utilization of cloud services as we discussed on our fourth quarter twenty twenty four call. As a reminder, our adjusted EBITDA guidance assumes organic revenue declines similar to 2024 and excludes roughly $300,000,000 in transformation costs to begin the multiyear task of reducing expenses by $1,000,000,000 We remain confident that we will achieve adjusted EBITDA stability over the next few quarters and see inflection to growth in 2026, driven mainly by continued modernization and simplification savings and improving revenue declines. We're maintaining our 2025 guidance for CapEx spending at 4,100,000,000.0 to $4,300,000,000 However, we now believe we will be at the low end of that range, mainly as a result of timing around some builds offset by some strategic investments for growth. Our 2025 cash interest guidance remains at 1,200,000,000.0 to $1,300,000,000 but we now expect to be at the low end of the range as a result of refinancing in the first quarter.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

We're revising our guidance for cash taxes from 100 to $200,000,000 to a benefit of 300 to $400,000,000 based on the expected impact of the reconciliation bill and the anticipated $400,000,000 refund of estimated federal income taxes to receive be received in 2025. Finally, we're raising our full year free cash flow guidance from 700 to $900,000,000 to 1,200,000,000.0 to $1,400,000,000 mainly as a result of the expected $400,000,000 tax refund, lower than anticipated CapEx spending, better adjusted EBITDA performance and lower interest expense. Free cash flow fundamentals are improving, all great news and we're pleased with the cash flow generation from our core business. That said, looking forward into 2026, we expect continued lumpiness in our cash flow related to the PCF contracts and related taxes as well as the sale of our consumer fiber to the home business to AT and T, is expected to close in the 2026. Overall, our first half performance represents a great start to the year as we challenge the norms of traditional legacy telecom through the transformation of Lumen's network assets, service delivery platforms and financials.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

With adjusted EBITDA on the path to inflection and then growth in '26 combined with healthy cash flows as well as a significant restructuring and delevering of the balance sheet underway, we are materially strengthening the financial foundation of Lumen, which allows us to focus our resources on customers and solutions with attractive growth in margin profiles. We believe our innovation will lead to new revenue streams that satisfy the needs of customers in today's multi cloud AI environment, while the financial transformation of Lumen leads to leverage and borrowing cost reductions and cost structure optimization. We're excited about the path we're on and look forward to providing more updates along our journey. And with that, I'll now hand it back to Kate for closing remarks.

[Kate Johnson, President & CEO at Lumen Technologies]

Thanks, Chris. I just want to recap real quick. The headline is we're making material progress in our core transformation. Lumen is financially healthy with a strengthened balance sheet and free cash flow to fuel our transformation. We're confident in our return to EBITDA growth, thanks to great execution by the team.

[Kate Johnson, President & CEO at Lumen Technologies]

And we've got a plan to deliver revenue growth that leverages the combination of our physical assets and the digital platform that we've built and creates a scalable commercial ecosystem that will make it easy for our customers to thrive in an AI powered multi cloud world. It's a new day for Lumen, and we're planning to win. And with that, we'll take questions.

[Operator]

And our first question comes from the line of Michael Rollins with Citi. I

[Michael Rollins, Analyst at Citi]

was curious to focus a bit on your Slide 13, where you walk us through the growth harvest buckets within North American enterprise. And when you look at that segment performance during the quarter down 2.4% year over year, how much of that would you attribute coming from the forward operational progress that you described earlier on the call versus things that might be anomalous, whether they're helpful or hurtful? And then given the comments that you made about the public sector and maybe having some tougher comps in the back half, Can you give us a sense of how revenue in this bucket might evolve in terms of that rate over year over year rate of change?

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Yes.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

So I'll try to attack that a couple of ways, Mike. First of all, we're really, really pleased with the rate of the grow bucket at 8.5%. That's strategic revenue. It's the most valuable revenue that we have from a margin standpoint, and it's really focused on where we're going. So the fact that that's growing is now almost half of what we sell has material implications for the slowdown of the revenue declines in our ultimate inflection.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

If we look at nurture and really the VPN and Ethernet declines, you know, we're gonna be, you know, in the double digit decline territory, I think, for the foreseeable future just as the technology shifts to some of those newer grow items where we're well positioned. The the hardest piece is is probably the most, you know, surprising this quarter, and it really does relate to some of the public sector work that we're doing in the interim, which we don't expect will continue. It's gonna you know, it has helped us for a few quarters, but, you know, over time, we would expect that the harvest bucket will continue to decline. As it relates to public sector, quarter to quarter, we are going to see that jump around. That said, I can tell you that public sector is exceeding our internal expectations for the year.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

We're doing very well in that space, and we're super pleased with the work that team is doing, and I think we're well positioned as we go forward. So over time, again, continued growth and grow. And by the way, almost no material impact of the PCF deals yet on earnings. And so or sorry, on on revenue. And so that's, I'd say, really organic.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

But, again, overall, pleased. I think the 2.4 is is probably a little suppressed because of what we're seeing in in harvest this quarter, but the reality is we're going to be declining at rates that, like we said, are similar to last year for the full year.

[Michael Rollins, Analyst at Citi]

And has this progress pulled forward you think you'll get to that revenue breakeven or grow point, or is your expectation similar to what it has been?

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Yeah. So if you if you look at, you know, our current and historical trends, you look at grow revenues as a percentage of the total. I mean, first, grow will be more than half sometime next year. And and as we said, that's materially better revenue for us. We believe that our investments in the physical network, the digital platform and the emerging technology ecosystem are all differentiators that expand our commercial reach and help us really drive scaled revenue.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

So with all that, we believe that total company revenue will grow in 2029, just consistent with what we said, but the business segment could pivot to growth even sooner. The key variable there is we are aggressively shifting our resources towards these growth areas that Kate really touched on today. And that's what will determine our ability to go faster. So more to come as we learn more about our success in those areas in the coming quarters.

[Michael Rollins, Analyst at Citi]

Thanks.

[Jim Breen, SVP - IR at Lumen Technologies]

Next question.

[Operator]

And our next question comes from the line of Sebastiano Petty with JPMorgan. Your line is open.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

Hi, thanks for taking the question. So I guess, Chris, you kind of addressed it in your prepared remarks, but just wanna make sure I understand. So with the cost savings pull forward up to $3.50 this year, it sounds like you're just kinda running ahead of schedule against that $1,000,000,000 program. And so while, you know, maybe EBITDA is now anticipated to come in at the high end of the range, could you comment about maybe expectations for 2026, if that is kind of changed at all? And then within the second, I guess, sticking with 2025 for a second, just to get another clarification question.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

Was the RDOF give back, was that anticipated in the in the guidance at the beginning of the year? Because, you know, seems to be, you know, nice, you know, momentum you might be having, except for that. And then one last one as we kinda think about, I guess, within your prepared remarks, again, Chris, you talked about the benefits of the reconciliation bill perhaps declining over time or being not necessarily as impactful over time. Makes sense, but could you perhaps unpack for us some of the different pieces around, you know, maybe free cash flow as you think about the or just tailwinds there as you think about the separation of the mass markets business and just result in your tax on free cash? Thanks again.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Yes. So let me do them in reverse order. As it relates to the commentary around how those benefits will decline, they're really declining for good reasons, right? So we're our guidance for CapEx this year is a little over $4,000,000,000 $1,000,000,000 of that is the fiber to the home builds, right? So as you go forward and that is no longer being invested in and our CapEx spend comes down, the ability to use bonus depreciation to reduce taxes goes away.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

It's a good thing. If you look at the substantial deleveraging of the company and even in a leverage neutral scenario, our ability to dramatically reduce our cost of capital and borrowing as credit markets have great confidence in the future of the company. I mean, our bonds are trading effectively at par. Who would have thunk, right? And so that's giving us the opportunity to borrow at at much cheaper rates.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Interest expense between what we've done this year to date and and paying down the super priority at the deal close is reducing our interest expense by over 400,000,000 a year. And so as the deductibility levels go up, that's a great benefit to us this year. But as we spend less on interest, there's less deductibility. Again, a net good thing. In terms of RDOF, the that was not contemplated in guidance at the beginning of the year.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

And it really was a decision around whether with the sale of the fiber to the home business, those builds would continue. And the decision was made as we work through that process to not continue that, hence, the giveback. And and so that had a negative impact on the quarter. But, again, it's it's it's not something that's impactful to the enterprise business, which is our focus. And then as it relates to '26, I would say at this point, no change.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

I mean, we said that we expect EBITDA to inflect next year. I think that's still in the cards. We were thinking that we were gonna be able to call that point of quarterly inflection soon. I think that over delivery this year is creating the good problem of of making that harder to call. And so but as we look at our our performance into next year, I would say no changes at this point in terms of what we said.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

And and, obviously, as we move through the year and and towards Investor Day, we'll be able to to share more.

[Operator]

And our next question comes from the line of Batya Levi with UBS.

[Batya Levi, MD & Analyst - Communications, Media & Infrastructure at UBS Group]

A couple of questions. You had guided to about $200,000,000 of incremental costs that we'll see this year that's included in EBITDA. Any update on where we are? How should we think about it going forward? And does that maybe bleed into 2026 as well?

[Batya Levi, MD & Analyst - Communications, Media & Infrastructure at UBS Group]

And just to go back to the EBITDA guide, given the performance in the first half, I know there will be some seasonality in expenses in 3Q. It sounds like you do have more upside. Is there anything else that you would call out that would just cap you at the towards the high end of the EBITDA range? And maybe just one more on the PCF sales. Can you provide a bit more color on the drivers of where they came from?

[Batya Levi, MD & Analyst - Communications, Media & Infrastructure at UBS Group]

And would the structure be similar to the initial ones that we saw in terms of CapEx requirements, margins, timing, etcetera? You.

[Kate Johnson, President & CEO at Lumen Technologies]

Hey, Matthew, it's Kay. I'll start with the PCF deals. So the $500,000,000 is a similar economics to the first $8,500,000,000 that we did. And the lion's share of that is on over pull work. That's why I mentioned that it was lower risk and higher margin.

[Kate Johnson, President & CEO at Lumen Technologies]

The composition of the new routes remains in the pipe, though we're doing some pretty creative things with our partners. The the buyers, you know, on the other side are a combination of data center and hyperscaler companies that are connecting data centers to support, you know, the the expansion of their AI training models and, you know, the proliferation of bringing those capabilities to customers. So it's it's really very much, you know, in the same vein as we described over the past couple of quarters.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Yes. And as it relates to the EBITDA questions, I know OpEx is in there, some of this is an OpEx, some of it is. The headwinds on EBITDA that the underlying business is really overcoming is we've got about $100,000,000 impact from forced disconnects. So we've been pretty vocal about that over the first half of the year. I think in the long run, it's better for us because there's a lot of bad behavior in that, but that has a near term implication.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

There's about $50,000,000 as we move more of our workloads to the cloud. And there's about $50,000,000 in the PCF OpEx costs in the second half. So those impacts are really all second half. But again, guiding to the high end, I think the strength of the underlying business is what's allowing us to do that. I understand your question as it relates to '26, and the point is we've got to wait and see because we've had some really great work by the team on modernization and simplification.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

The question is, you know, can we increase the exit run rate for '26? We don't know yet. And so we're looking at all of those things, and that'll be contemplated, obviously, when we give guidance. But it's a it's a great question, and it's a nice problem to have to have the business performing the way it is right now.

[Batya Levi, MD & Analyst - Communications, Media & Infrastructure at UBS Group]

All right. Thank you.

[Operator]

And our next question comes from the line of Nick Del Deo with MoffettNathanson. Your line is open.

[Nick Del Deo, Senior Research Analyst at Moffettnathanson LLC]

Hi. Thanks for taking my questions. First, Chris, returning to the public sector performance, the 10 Q mentioned temporary rate increases that benefited the Harvest revenues, so I assume that's the driver. Guess, have there been EBITDA implications from these rate increases? Or are they sort of offsetting higher off net costs?

[Chris Stansbury, EVP & CFO at Lumen Technologies]

It's a bit of both. So in some cases, there's charges that are impacting revenue that are offsetting cost increases on the EBITDA side. In other cases, we're being paid to help keep services running. And those that's more temporary in nature, and it's why our prepared remarks said that we expect this to to moderate over time.

[Nick Del Deo, Senior Research Analyst at Moffettnathanson LLC]

Okay. And and any chance you can kinda quantify that at all or or just leave it at a at a bit of both?

[Chris Stansbury, EVP & CFO at Lumen Technologies]

I want to keep it at a higher level just because of the customers involved and the types of things that we're doing. I don't think we want get into a lot of detail on that.

[Nick Del Deo, Senior Research Analyst at Moffettnathanson LLC]

Okay. Okay. Fair enough. Then, Kate, maybe returning to the PCF deals, thinking about the cadence of those since you closed on the initial $8,500,000,000 Is that mostly a function of the dynamics that you described in your prepared remarks related to new construction and the complexities around that? Or are there kind of other gating factors that you're working through that are kind of determining the cadence there?

[Kate Johnson, President & CEO at Lumen Technologies]

I think the cadence is really determined by this the complexity of building new routes. If they're riskier, they're lower margin, and, you know, both counterparties wanna manage the risk, manage the cost, etcetera. And so and and just kind of imagine building from one city to another, from, you know, one side of The US to the other, how many municipalities you're going through, how many different types of, you know, material in the ground you're going through, etcetera. So having more and more intelligence around, you know, what the true cost is gonna be with engineering design and inspection processes is is a long pole in the tent. I do I do wanna just sort of reiterate that think in the old days, maybe, you know, the the idea was build the route and figure out how to get traffic on the route eventually.

[Kate Johnson, President & CEO at Lumen Technologies]

And we're just not gonna do that. We're gonna drive utilization on our existing network because every dollar from that kind of revenue is higher quality. And so we're orienting everything we're doing around driving net new services, which is why I talked about the connected ecosystem that we're building on top of the physical network.

[Nick Del Deo, Senior Research Analyst at Moffettnathanson LLC]

Okay. Great. Thank you both.

[Operator]

And our next question comes from the line of Greg Williams Your line is open.

[Greg Williams, Director - Equity Research at TD Cowen]

Great. Thanks. Maybe just dovetailing off that last statement about complexity of building. The CapEx guidance that's coming down towards the low end, know, I would have thought that the hyperscalers would wanna build as soon as possible, but I guess you're hearing it's also complexity. Is that the reason for the CapEx coming down, or is the CapEx coming down for deals that are unrelated to PCS?

[Greg Williams, Director - Equity Research at TD Cowen]

Second question is just around the tech solutions that you noted in the scripted remarks, the sell with and sell through channel partners. Can you help us with the your rev share model, what that would look like and size it and and the timing of that opportunity? Thanks.

[Kate Johnson, President & CEO at Lumen Technologies]

Sure. I'll I'll start with the connected ecosystem business model, and then I'll pass to Chris for the commentary around CapEx. So the the platform that we've built, the digital layer on top of the physical network, enables a technology partner to connect with us through APIs and make solutions integrated and available in a marketplace. So picture a backup and recovery company selling a cloud solution with bundled IOD or VPN OD or EOD, any of the, you know, Ethernet Internet or VPN on demand. And, you know, a couple clicks and you're able to get the thing deployed, and you have total management control and provisioning through, you know, control center.

[Kate Johnson, President & CEO at Lumen Technologies]

So so that's the first thing, you know, just to explain what we're actually building, and we're pretty far down the path with several partners on this. How we act how the economics actually work, if if nothing other than just having a sell with sell through partner, is the sales force of those technology partners that are actually selling to their customers, but they're attaching Lumen capabilities. So our cost of sale goes down, and they're just selling basically NAS attached to whatever product they have. So, you know, I just met with the CEO of one of the companies that we're working with, and we've done some beta customer testing. And his comment to me was integrating these network capabilities has basically improved everything about the offering that I'm bringing to my customers.

[Kate Johnson, President & CEO at Lumen Technologies]

It's easier to deploy. It's more reliable. It's a it's a better customer experience. But more importantly, it's providing more resilience for our customers because attached to the cloud solutions, they have all the things that you're that you're, know, building and offering to customers like direct on ramps into, you know, into the hyperscalers. So it's it's a very promising model in terms of expanding velocity and commercial reach. Chris, you wanna talk about the CapEx?

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Yeah. So on the CapEx, I mean, I I would say the primary thing is really just a a shift in in our you know, what's happening versus our estimates, although we don't expect it impacts the timing of revenue. There are some equipment backlogs around some components that we're navigating. I would say that that's been material to date. The biggest thing is just the timing of big PCF builds and where we are in the construction process.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

So given the size of the CapEx, the difference of kind of midpoint to lower end in the greater scheme of things is not really that material given the complexity of what we're managing.

[Greg Williams, Director - Equity Research at TD Cowen]

Got it. Thank you.

[Operator]

And our next question comes from the line of Frank Louthan with Raymond James. Your line is open.

[Frank Louthan, Managing Director at Raymond James Financial]

Great. Thank you. Looking at you touched on this, maybe just a little more color. When can we expect to see grow and nurture maybe show some more consistent growth going forward? And then I apologize if I missed this, but over time, lots of times contracts can expand from the original scope.

[Frank Louthan, Managing Director at Raymond James Financial]

Has any of that happened with some of these with the AI fiber builds, the original $8,500,000,000 have those customers come in and expanded those original projects to any meaningful extent?

[Kate Johnson, President & CEO at Lumen Technologies]

Frank, thanks for the question. So regarding the PCF deals, there are repeat customers and the contract vehicles are complex. So, you know, sometimes we're using existing vehicles and expanding. But I I think the key the key point you're hitting on is, yes, these are repeat customers that are coming back to Lumen. They're happy with our on time, you know, on budget delivery of of what we're giving them so far, and and so they're asking for more.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Yeah. What was sorry, Frank. What was the second? Oh, the grow. I would say grow has consistently been in that kind of high single digit territory.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

Will it move around a bit? Yes. It will. So we're really pleased about that. It's probably the most important number as it relates to our ability to inflect revenue going forward.

[Chris Stansbury, EVP & CFO at Lumen Technologies]

As it relates to nurture, I expect that to continue to decline. We expect harvest to continue to decline. But the point is, is that they're quickly becoming a smaller and smaller piece of the portfolio. And so those variables combined with what Kate talked about around the digital layer and the ecosystem, that's ultimately what pivots us to growth.

[Frank Louthan, Managing Director at Raymond James Financial]

Great. Thank you.

[Operator]

And our next question comes from the line of Eric Luchow with Wells Fargo. Just

[Eric Luebchow, Director - Senior Equity Analyst at Wells Fargo Securities]

one for me touching on the PCF contracts again. Know, the hyperscalers, all the reported earnings recently, and we saw CapEx expectations rise across the board. So with the $9,000,000,000 booked, I mean, does the addressable market or opportunity that you see that's attractive out there bigger today, you know, than it was when you first started announcing these deals? Or does it give you an incentive, especially coupled with, you know, tax reform to potentially ramp up CapEx the next couple years into these businesses beyond, what you've already announced? Thanks.

[Kate Johnson, President & CEO at Lumen Technologies]

So I think we've been pretty clear that that connecting, data centers for the hyperscalers, that that market is phase one of what we see as a three phase evolution for AI. It's about the hyperscalers saying, gosh. We need so much more compute. It's about, you know, building net new data centers and connecting them. We're doing that in parallel.

[Kate Johnson, President & CEO at Lumen Technologies]

We're building the routes, you know, in parallel with the the construction of the data centers. The second phase is when enterprises start actually consuming AI, and that's where you're seeing the proliferation of data centers across The United States, know, many hundreds of data centers being built over the next three or four years. We're in conversations with with those companies as well to, you know, connect them. That's a different nature and size of contract, obviously, than than the hyperscaler. And then the third piece of this is we we really feel like there'll be yet another expansion required of the physical network once AI is really talking to AI.

[Kate Johnson, President & CEO at Lumen Technologies]

And and we're doing a substantial build out in in metros around the country to accommodate AI rings for that very purpose. But the fur the first phase, you know, was always kind of finite. And and what we're seeing is that, you know, we're winning this business. I don't think anybody else has near the amount of of deals won, and the construction is going well. But once we get them strung up, we're really focusing on the build out for number two and three, which are where the advanced services really come into play and sort of accrue to that grow bucket that Chris just described. Chris, do have anything to add on that?

[Chris Stansbury, EVP & CFO at Lumen Technologies]

No. I mean, I I think the only other piece that I would add is is that, you know, I think the the current administration has been very clear about The US' need to continue its leadership in the AI space, and that's that's beyond enterprise. That's also in the public sector domain, and and there could be opportunities there as well. So we'll see how that pans out. Right.

[Operator]

Next question.

[Operator]

And with no further questions, I'll turn the call back over to Kate Johnson for closing remarks.

[Kate Johnson, President & CEO at Lumen Technologies]

Thanks so much, operator. Thanks, everybody, for a great call and insightful questions. I just want to close out with a shout out to all luminaries, the great men and women of Lumen, for tirelessly working to turn this company around. As you heard today, your work is driving material results, and we're just so grateful to you. There's no one that we'd rather play to win with than you. See you all soon.

[Operator]

And ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.

Participants

Executives

• Jim Breen, SVP - IR
• Kate Johnson, President & CEO
• Chris Stansbury, EVP & CFO

Analysts

• Michael Rollins, Analyst at Citi
• Sebastiano Petti, Senior Research Analyst at JP Morgan
• Batya Levi, MD & Analyst - Communications, Media & Infrastructure at UBS Group
• Nick Del Deo, Senior Research Analyst at Moffettnathanson LLC
• Greg Williams, Director - Equity Research at TD Cowen
• Frank Louthan, Managing Director at Raymond James Financial
• Eric Luebchow, Director - Senior Equity Analyst at Wells Fargo Securities