Lumen raises 2025 free cash flow guidance by $500M amid AI-driven network expansion and AT&T asset sale

Earnings Call Insights: Lumen Technologies (LUMN) Q2 2025

Management View

• Kathleen E. Johnson, President & CEO, announced the sale of Lumen’s consumer fiber-to-the-home business to AT&T for $5.75 billion, stating this provides “strategic clarity and a path to financial freedom.” Johnson also highlighted nearly $500 million in new PCF contracts signed since the last update and noted a successful $2 billion bond offering that extends maturities and reduces the coupon rate by over 3.5%, saving about $50 million annually in interest expense.
• Johnson indicated a focus on three critical milestones: clearing a path to a healthy balance sheet and free cash flow, returning to EBITDA growth, and pivoting back to revenue growth. She stated, “we’re raising 2025 free cash flow guidance by $500 million” and increased the 2025 run rate cost-out target from $250 million to $350 million, which “gives us confidence that we have a path to EBITDA growth.”
• Johnson emphasized progress on executing $8.5 billion in PCF contracts, construction of 119 ILA sites, deployment of 1,200 miles of fiber on 16 routes, and completed IRU conduit deployments across 55 additional routes. She expects this work to generate over $400 million of annual revenue for Lumen over the remaining duration of the 20-year contracts. As of this call, Lumen’s PCF business stands just under $9 billion.
• Johnson provided updates on the digital platform and Network as a Service (NaaS) offerings, reporting quarter-over-quarter growth in three KPIs: “The number of customers that purchase and use one or more ports was up 35% from first quarter. Total active NaaS ports were up 31%. Total active services were up 22%.” Johnson highlighted ongoing innovation and upcoming Fabric ports developments, as well as collaborations with all three major hyperscalers for direct cloud integration.
• Christopher David Stansbury, CFO, stated, “we reported solid 2Q financials, announced the transformative sale of our consumer fiber-to-the-home business to AT&T and successfully refinanced $2 billion in debt.” Stansbury added, “revenue and adjusted EBITDA came in better than expected despite a $46 million onetime impact to both from the Rural Digital Opportunity Fund, or RDOF givebacks.”

Outlook

• Stansbury reported raising full year 2025 free cash flow guidance to $1.2 billion to $1.4 billion, citing the expected $400 million tax refund, lower-than-anticipated CapEx spending, better adjusted EBITDA performance, and lower interest expense.
• For 2025 adjusted EBITDA, the company expects to come in near the high end of the $3.2 billion to $3.4 billion range, despite the $46 million RDOF giveback.
• CapEx guidance for 2025 is maintained at $4.1 billion to $4.3 billion, with expectations now at the low end of the range.
• Cash interest guidance remains at $1.2 billion to $1.3 billion, now anticipated at the low end due to refinancing.
• Cash taxes guidance revised from $100 million to $200 million to a benefit of $300 million to $400 million, reflecting the expected $400 million federal tax refund in 2025.

Financial Results

• Total reported revenue declined 5.4% to $3.092 billion.
• Business segment revenue declined 3.4% to $2.49 billion; Mass Markets segment revenue declined 12.8% to $602 million.
• Adjusted EBITDA was $877 million with a 28.4% margin; free cash flow was negative $209 million.
• North American enterprise channels revenue decreased 2.4% year-over-year; Grow product revenue increased 8.5% year-over-year and now represents over 48% of North American enterprise revenue.
• Mass Markets fiber broadband revenue increased 19.9% year-over-year and represents 47% of Mass Markets broadband revenue.
• Special items impacting adjusted EBITDA totaled $152 million, including severance, transaction and separation costs, an RDOF penalty payment of about $50 million, and modernization initiatives.

Q&A

• Michael Ian Rollins, Citi: Asked about drivers behind enterprise segment performance and the outlook for Public Sector and revenue inflection. Stansbury responded that the Grow bucket’s 8.5% growth is “strategic revenue” and that the business segment could pivot to growth sooner than total company revenue, which is expected to grow in 2029.
• Sebastiano Carmine Petti, JPMorgan: Queried about cost savings and the RDOF giveback. Stansbury clarified the RDOF giveback was not anticipated in prior guidance and reaffirmed no change to 2026 EBITDA inflection expectations.
• Batya Levi, UBS: Sought clarification on incremental costs in EBITDA and PCF sales structure. Johnson stated the new $500 million PCF deals are similar in economics to prior contracts and primarily consist of overpull work with higher margin and lower risk.
• Nicholas Ralph Del Deo, MoffettNathanson: Asked about temporary rate increases in Public Sector. Stansbury explained that rate increases are “temporary in nature” and expect to moderate over time.
• Gregory Bradford Williams, TD Cowen: Questioned CapEx guidance and marketplace partnerships. Johnson described expanding the digital ecosystem with tech partners and stated, “the sales force of those technology partners that are actually selling to their customers, but they’re attaching Lumen capabilities.” Stansbury pointed to timing of large PCF builds as the primary CapEx variance.
• Frank Garrett Louthan, Raymond James: Inquired on Grow and Nurture consistency and expansion of AI fiber builds. Johnson confirmed repeat business from existing customers, noting, “they’re happy with our on-time, on-budget delivery… and so they’re asking for more.”
• Eric Thomas Luebchow, Wells Fargo: Asked if increased hyperscaler CapEx signals a larger addressable market. Johnson described a three-phase AI market evolution and noted, “the first phase was always kind of finite. And what we’re seeing is that we’re winning this business.”

Sentiment Analysis

• Analysts’ tone was neutral to slightly positive, with questions focusing on segment growth sustainability, cost management, and revenue inflection. Probing around RDOF and CapEx reflected interest in structural shifts but not overt skepticism.
• Management maintained a confident and constructive tone in both prepared remarks and Q&A, emphasizing successful execution, disciplined risk management, and upside potential from digital transformation and AI-driven network demand. Johnson stated, “we’re focused and executing extremely well.”
• Compared to the previous quarter, management’s confidence has increased, now backed by tangible cost savings, strategic asset sales, and raised free cash flow guidance. Analysts’ tone has remained constructive but more focused on executional details following strategic announcements.

Quarter-over-Quarter Comparison

• Guidance has shifted upward, with 2025 free cash flow guidance raised by $500 million and cost-out targets increased by $100 million.
• The sale of the consumer fiber-to-the-home business to AT&T marks a major strategic change from the previous quarter’s speculation to a confirmed transaction.
• Grow product revenue growth slightly decelerated (8.5% vs. 9.9% previously), but Grow now represents a larger share of enterprise revenue.
• Adjusted EBITDA margin and revenue both declined compared to Q1, impacted by one-time RDOF givebacks and special items.
• Management’s tone is more optimistic; analysts’ focus has shifted from strategic speculation to execution and monetization of announced initiatives.

Risks and Concerns

• Management acknowledged the ongoing risk from Nurture and Harvest product declines, expecting these to continue as technology shifts.
• Complexity and risk associated with new route construction for PCF deals were highlighted, with management emphasizing a disciplined approach: “we will remain deeply disciplined in our approach by only inking deals that are value accretive to Lumen’s shareholders.”
• Lumpiness in free cash flow, CapEx outflows, and potential volatility from ongoing PCF builds and the AT&T transaction were cited.
• Analyst concerns included the sustainability of recent Public Sector and Grow revenue trends, CapEx timing, and the future impact of tax legislation and special items.

Final Takeaway

Lumen’s Q2 2025 call demonstrates significant progress in its transformation, highlighted by the sale of its consumer fiber-to-the-home business to AT&T and raised financial guidance. Management is confident in delivering EBITDA growth and achieving revenue inflection through disciplined investment in AI-driven infrastructure, digital platforms, and marketplace partnerships. With strengthened liquidity, a growing base of high-margin enterprise business, and active management of risks, Lumen positions itself for accelerated growth opportunities in an evolving multi-cloud, AI-powered market.

Read the full Earnings Call Transcript