Chris Stansbury
Executive Vice President & Chief Financial Officer at Lumen Technologies
Thanks, Kate. Lumen continues to move forward along its path to transforming the business and in the third quarter, we've taken additional steps towards achieving that goal. We signed over $3 billion in incremental PCF deals, as we continue to be the partner of choice in building the trusted networks for AI. And we successfully executed a debt exchange terming out over $800 million in 2026 through 2029 maturities to 2032. And we also given our confidence in the free cash flow generation, contributed $170 million to our pensions in the quarter, bringing us to nearly 90% funded.
As Kate discussed, we are now at over $8 billion in new PCF sales since June. Our customers have validated Lumen's unique position to build the backbone of the AI economy. While we will not be reporting on specific PCF sales every quarter, we chose to highlight the over $3 billion today for three reasons. First, we're incredibly proud of our team for how quickly they've been able to capture what we believe is a once in a generation market opportunity. We have the right assets and the right people to build the trusted networks for AI.
Second, given the incremental size of this over $3 billion, it will positively impact our 2024 guidance for free cash flow, which I will update you on shortly. And lastly, the PCF sales we're announcing today look similar in scope to the previous $5 billion largely sold on existing routes. Future PCF sales will also include new routes with a diverse set of enterprise customers. Given the complexity of these builds, these discussions are ongoing and will take place over several quarters.
In the future, we will provide updates to the extent PCF sales have a material impact on our financial guidance. We introduced PCF sales last quarter and updated them this quarter because there was a need for investors to understand our strategy, the market opportunity and the structure of these PCF deals. We will continue to educate the market on those opportunities for Lumen in the AI economy, while also focusing on the core metrics of sales growth, margin improvement and free cash flow generation.
As we stated last quarter, we believe the progress we've made on driving PCF sales in 2024 is just the beginning of a large new TAM, which brings long-term sticky revenue offsetting higher churn legacy product declines. We're now in the planning stages of constructing these networks, securing the necessary equipment and labor, and we're confident in the cost and margin structure we've estimated for the AI network builds.
We estimate the cash received from the first $5 billion in PCF sales provides free cash flow to fuel our business to the point, where we expect to reach sustainable positive free cash flow growth. The incremental cash provided by the over $3 billion recently signed contracts provides increased flexibility to delever our balance sheet and continue to address our capital structure in a meaningful way.
With respect to the balance sheet, another highlight of the quarter was our successful execution of a debt exchange terming out over $800 million in 2026 through 2029 maturities to 2032. We now have approximately $1.8 billion in maturities, excluding leases due through 2028, down from approximately $2.6 billion at the end of the second quarter and we're not done yet.
Now transformations are messy and particularly in industries, where it has never happened before. So as we move through ours, we strive to bring you the transparency of both the good and the less good. In Q1, we said demand for networking was heating up. In Q2, we delivered against that substantially increased free cash flow guidance and said there was an additional opportunity. This quarter, we announced progress against that opportunity and increased free cash flow guidance again.
Importantly, in both Q2 and today, we're saying our legacy business is declining consistent with industry trends and needs investment to both build our digital future and unlock $1 billion of cost efficiency. The result of which will be lower 2025 EBITDA before improving in 2026. In short, we recognize credibility is critical and we're taking great care in making sure our messaging is consistent with our delivery.
We believe the value creation path for Lumen is clear through additional sales, balance sheet improvements and cost structure optimization, all as we continue to execute on our core strategic goals of driving operational efficiency, building the backbone for AI and cloudifying the industry. We recognize we're in the early stages of a significant transformation of Lumen and remain laser-focused on accomplishing the goals we set for ourselves.
Now let's move on to the discussion of financial results for the third quarter. Our sales growth engines within our large and mid-market enterprise channels in our business segment along with our Mass Markets segment showed solid performance this quarter, with large enterprise and mid-market sales up nearly 14% year-over-year and Quantum Fiber broadband net additions once again setting an all-time record. While consolidated revenue and adjusted EBITDA still feels the impacts of legacy declines, we're encouraged by improvements we're making in the business, as disconnects improved both sequentially and year-over-year.
On a year-over-year basis, total reported revenue declined 11.5% to $3.221 billion. 32% of the decline was due to the impact of divestitures, commercial agreements and the sale of the CDN business. Business segment revenue declined 12.7% to $2.536 billion and approximately 37% of that decline was due to the impact of divestitures, commercial agreements and the sale of the CDN business.
Mass Markets segment revenue declined 6.9% to $685 million. Adjusted EBITDA was $899 million with a 27.9% margin and free cash flow was positive $1.2 billion, benefiting from the cash contribution from recent PCF sales.
Next, I'll review our detailed revenue results for the quarter on a year-over-year basis. Within our North America enterprise channels, which is our business segment excluding wholesale, international and other, revenue declined 6.9%. Overall, North America business declined 7.5%.
Large enterprise revenue declined 8.2% in the third quarter. Our Grow revenue increased 1.6% year-over-year with continued pressure in Nurture and Harvest product revenue. We expect continued variability in trends, as we drive towards overall stabilization.
Mid-market revenue declined approximately 6.9% year-over-year with an improvement in grow revenue to 5% year-over-year, offset by Nurture and Harvest. Public sector revenue declined 4% year-over-year. Public sector revenue can be lumpy quarter-to-quarter. However, we continue to see traction with large bookings in this space, which takes time to ramp to revenue. And these wins give us continued confidence that public sector will grow year-over-year in 2024.
Wholesale revenue declined approximately 9% year-over-year. The Harvest portion of the wholesale portfolio, which is comprised of products like TDM, voice and private line, saw revenue contract by 16.3% year-over-year in the third quarter. This is primarily driven by telco partners that are selling legacy services. Our Harvest product revenue will likely continue to decline over time and is an area that we will manage for cash.
International and other revenue declined 64.8%, driven primarily by the divestiture of our EMEA business and the sale of select CDN contracts in the fourth quarter of last year.
Moving to our business product lifecycle reporting, I'll reference the results based on our North America enterprise channels. Higher sales in our Grow product portfolio were led by enterprise broadband, dark fiber and IP. These sales were offset by declines in Nurture and harvest, resulting in an overall decline of 6.9% year-over-year. While results can vary in any quarter, we expect sustained growth in the Grow product revenue, as we execute on our core turnaround.
Within North America enterprise channels, Grow products revenue increased 4% year-over-year, up from 1.5% year-over-year last quarter. Grow represents approximately 45% of our North America enterprise revenue and for our total business segment carried an approximate 80% direct margin this quarter.
Nurture products revenue decreased 15.2% year-over-year, largely impacted by declines in VPN and Ethernet. Nurture represents 29% of our North America enterprise revenue and for our total business segment carried an approximate 67% direct margin this quarter.
Harvest products revenue decreased 14.1% year-over-year and continues to be negatively impacted by declines in TDM-based voice. Harvest represented approximately 16% of our North America enterprise revenue in the second quarter. For our total business segment, it carried an approximate 73% direct margin this quarter.
Other product revenue declined 11.1% year-over-year. And as a reminder, other product revenue tends to experience fluctuations due to the variable nature of these products.
Now moving on to Mass Markets, our fiber broadband revenue grew 16.6% year-over-year and represents approximately 40% of Mass Markets broadband revenue. During the quarter, fiber broadband enabled location adds were 131,000, bringing our total to over 4 million [Phonetic], as of September 30th and pacing towards our targeted annual 500,000 build target this year. We also added 43,000 Quantum Fiber customers, which is our best fiber net add quarter reported to date, and this brings our total to over 1 million [Phonetic]. Fiber ARPU was $62, flat sequentially and up slightly year-over-year. This is just outstanding work by that team.
At the end of the third quarter, our penetration of legacy copper broadband was approximately 9% and our Quantum Fiber penetration stood at approximately 26%. As we look ahead, we'll continue our market-by-market assessment of the Mass Markets business, as we explore a range of strategic options to maximize its value. Those options include potential joint ventures, wholesaling arrangements or future divestitures to generate incremental cash.
Now turning to adjusted EBITDA, for the third quarter of 2024, adjusted EBITDA was $899 million compared to $1.049 billion in the year ago quarter. Third quarter EBITDA was negatively impacted by legacy revenue declines, seasonally high operating expense, as well as some start-up costs associated with our Custom Networks Group.
For the third quarter of 2024, our adjusted EBITDA margin was 27.9%. EBITDA margins declined 90 basis points year-over-year compared to a 270 basis point year-over-year decline in the second quarter.
Special items impacting adjusted EBITDA totaled $56 million. The majority of special items this quarter were related to transaction separation costs. Capital expenditures were $850 million and free cash flow, excluding special items was positive $1.2 billion. As we previously stated, we're leaning into our network investments to support the rapid growth and demand our customers are facing, while improving our overall cost structure.
Now moving on to our financial outlook, we continue to estimate FY '24 EBITDA to be in the range of $3.9 billion to $4 billion. However, given the overall trends in the business and initial cost impacts from the incremental PCF sales, we see FY '24 EBITDA at the low-end of that range. As we've said previously, we expect EBITDA to decline year-over-year in 2025, as a result of continued legacy declines, start-up costs for PCF contracts and incremental transformation costs with a longer-term goal of improving the -- improving the broader cost structure. 2024 capex is expected to be in the range of $3.1 billion to $3.3 billion and cash interest in the range of $1.15 billion to $1.25 billion.
Lastly, we're raising our free -- our 2024 free cash flow guidance from $1 billion to $1.2 billion to $1.2 billion to $1.4 billion. This guidance includes some incremental opex, capex and cash flows associated with our PCF sales growth, as well as incremental spending to ultimately improve our cost structure and margins.
And with that, I'll turn it back to Kate for closing remarks.