Lumen Technologies (NYSE: LUMN) reported significant structural changes and future strategies during its Third Quarter 2023 Earnings Call. CEO Kate Johnson outlined the divestiture of the EMEA business to Colt, the sale of majority CDN contracts, and a company-wide 4% staff reduction, expected to result in annual savings of approximately $300 million. Despite a 0.5% decline in total revenue, the company remains confident in its pivot towards stabilization and growth.
Key takeaways from the call include:
- Lumen Technologies secured $1.2 billion in new financing and reached an agreement with creditors to extend debt maturities.
- The company is focused on securing its base, driving commercial excellence, and innovating for growth, with a particular emphasis on Network-as-a-Service (NaaS) capabilities.
- Despite below-expectation subscriber adds in the Mass Markets segment, Quantum (NASDAQ:QMCO) Fiber enablements are performing well. The company plans to prioritize sales and marketing investments to improve penetration rates.
- The company expects sustained improving revenue trends in mid-2024, despite facing challenging headwinds.
- CFO Chris Stansbury highlighted the closure of the CDN sale and the pending divestiture of the EMEA business, which will impact financial trends.
- Lumen Technologies expects a cash refund of approximately $700 million in the first quarter of next year, with $200 million being used to pay estimated taxes for 2023.
Delving into the company's financial performance, the third quarter saw a 0.5% decline in total revenue, with Business revenue declining 0.1% and Mass Markets revenue declining 2.2% sequentially. However, large enterprise revenue grew 0.3%, and public sector revenue rose by 7.2%, offsetting a 1.8% sequential decline in mid-market revenue.
Despite financial pressures, Lumen Technologies has held its guidance range for the year. However, the company anticipates a free cash flow shortfall due to expenses related to closed transactions and plans to address this by reducing capital expenditures (CapEx).
The company also discussed its strategy to disrupt the telecom industry by migrating revenue from legacy services to new ones, emphasizing the unique opportunity it has as no other company is investing in this space. Lumen Technologies plans to continue investing in the consumer business, adding 0.5 million enablements per year to the existing 3.5 million.
Despite the consumer space being ripe for consolidation, the company's current focus is on improving the business's EBITDA and return profile. However, Lumen Technologies remains open to considering consolidation in the consumer space in the future.
The company reiterated its financial outlook for 2023 and mentioned that it would provide an outlook for 2024 in early February. The company also emphasized a focus on returns and mentioned the possibility of participating in BEAD programs.
The call concluded with a note of optimism, as Lumen Technologies continues to navigate challenging headwinds while maintaining a steadfast focus on its strategic goals.
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