Earnings Call Insights: Lumen Technologies (LUMN) Q4 2025
Management View
- Kathleen Johnson, President and CEO, highlighted the closing of the AT&T transaction as a pivotal moment, stating, “This marks a defining moment for Lumen, completing our pivot to become a simpler, stronger, enterprise-focused technology infrastructure company.” Johnson emphasized the significant impact on capital structure, reporting, “With the $4.8 billion in net proceeds and cash on hand, we’ve paid off all our super priority bonds in the last 24 hours” and “Our total debt now stands at less than $13 billion, and our net leverage has been reduced by a full turn now below 4x.”
- Johnson reported that annual capital expenditures will decrease by over $1 billion due to the divestiture, as the company stops fiber-to-the-home builds and reallocates resources to build a digital network services company. She announced, “We exceeded our increased target for cost reduction, ending the year at over $400 million in run rate savings. Exiting 2026, we’re targeting another $300 million of cost out, totaling $700 million run rate savings.”
- Johnson noted, “We had a banner performance in PCF sales in the fourth quarter…we are now at nearly $13 billion with more deals in the pipeline.” She also detailed strong growth in the NaaS business, highlighting a 29% quarter-over-quarter increase in active customers and a 31% rise in NaaS fabric ports deployed.
- She announced management additions: “Jim Fowler, our new Chief Technology and Product Officer…and Jeff Sharritts, our new Chief Revenue Officer.”
- Christopher Stansbury, Executive VP & CFO, stated, “Over the past 12 months, we signed almost $4.5 billion in new PCF deals, taking the total amount of signed deals to nearly $13 billion.” He noted, “We reached over $400 million in run rate cost reductions on track for $1 billion exiting 2027.”
- Stansbury reported, “Yesterday, we announced the close of our fiber-to-the-home business to AT&T for $5.75 billion. The net proceeds and cash on hand were used to pay down the full $4.8 billion of super priority bonds, which reduces annual cash interest expense by an additional $300 million. In total, annual interest expense has been reduced by nearly $0.5 billion in the last 12 months.”
Outlook
- Stansbury gave guidance for 2026, stating, “We estimate adjusted EBITDA to be in the range of $3.1 billion to $3.3 billion. We expect adjusted EBITDA to inflect to growth in 2026.” He added, “We expect to generate free cash flow in the range of $1.2 billion to $1.4 billion for the full year 2026.”
- Johnson and Stansbury reiterated their target of $700 million run rate savings by year-end 2026 as part of the modernization and simplification program.
- Stansbury noted, “We expect adjusted EBITDA to inflect to growth in 2026” and that business revenue is expected to return to growth in 2028.
Financial Results
- Stansbury reported, “Total reported revenue declined 8.7% to $3.041 billion. Business segment revenue declined 8.8% to $2.425 billion…Mass Markets segment revenue declined 7.9% to $616 million. Adjusted EBITDA was $767 million with a 25.2% margin and free cash flow was negative $765 million.”
- He stated, “Total business grow revenue was roughly flat year-over-year in the quarter…we recognized revenue of roughly $41 million in the fourth quarter and $116 million for the year associated with the nearly $13 billion in PCF deals.”
- Special items impacting adjusted EBITDA totaled $280 million, including severance, transaction and separation costs, and modernization initiatives. Capital expenditures were approximately $1.6 billion in the quarter.
Q&A
- Michael Rollins, Citi: Asked about the structure and economics of recent PCF deals and CapEx pacing. Stansbury responded, “The structure is really the same as what we’ve experienced to date because we’re doing these deals on existing network conduit…capital intensity profile that’s roughly half of where we were last year.”
- Sebastiano Petti, JPMorgan: Inquired about upside to 2028 revenue guidance given the increased PCF deal volume and accelerating NaaS adoption. Johnson explained they are being “pretty conservative” due to the market’s ability to absorb change. Stansbury added, “We are projecting kind of linear growth in digital. The reality is…that’s a J-curve adoption, but we’re not going to try to predict where that J-curve comes into play.”
- Batya Levi, UBS: Asked about bridging to 2026 EBITDA and cost items. Stansbury stated, “When you take out the EBITDA from the ’25 base year…that’s where you see the growth,” and noted that cost savings are expected to offset higher medical costs and SG&A.
- Frank Louthan, Raymond James: Asked about fiber retained for Lumen’s own purposes. Johnson said, “In 2031, when we’ll have 58 million miles of fiber installed in the ground, we will have more available for growth than when we started this journey in 2022.”
- Gregory Williams, TD Cowen: Asked about completion of PCF projects and conservative digital revenue forecasts. Johnson clarified, “The $13 billion, the builds go all the way out through 2031.”
- Michael Ng, Goldman Sachs: Sought details on new segment reporting. Stansbury explained, “What we took out were specific product lines that are in decline…you’ll continue to see us move products through that life cycle.”
- Nicholas Del Deo, MoffettNathanson: Inquired about churn trends and PCF revenue mix. Stansbury reported, “On our NaaS offering, the churn rates are dramatically less than what we see on traditional sales.”
- Michael Funk, BofA Securities: Asked about construction delays and revenue recognition for PCF. Johnson emphasized, “Our scale really, really matters here and gives us the accessibility to all the things that we need to ensure that there are no constraints put on our ability to execute on time.”
- Samuel McHugh, BNP Paribas: Asked for EBITDA guidance clarification. Stansbury replied, “We’re saying inflection on the year. It’s not going to be in every quarter.”
Sentiment Analysis
- Analysts pressed for more granular detail on revenue timing, cost structure, and upside potential, reflecting a slightly positive but cautious tone. Several questions focused on the sustainability of growth and the pace of transformation.
- Management maintained a confident tone during prepared remarks, frequently highlighting successful execution and financial transformation, but adopted a more measured, sometimes conservative approach in Q&A, frequently referencing upcoming Investor Day for additional detail. Johnson described their outlook as “cautiously optimistic.” Stansbury stated, “We have that confidence in ourselves, and we have delivered.”
- Compared to the previous quarter, both management and analysts displayed increased confidence, particularly following the AT&T transaction and debt reduction.
Quarter-over-Quarter Comparison
- The current quarter featured the closing of the AT&T transaction, significant debt reduction, and a shift to an enterprise-focused model—compared to the previous quarter’s focus on scaling PCF deals and digital adoption.
- Guidance for adjusted EBITDA in 2026 was introduced, targeting $3.1 billion to $3.3 billion, as opposed to prior quarter’s reiteration of the $3.2 billion to $3.4 billion range.
- Cost reduction targets increased from $350 million in Q3 2025 to $400 million in run rate savings by year-end 2025 and $700 million by year-end 2026.
- Revenue mix continued to evolve, with strategic revenues now representing 52% of North American enterprise revenue, up from 50% last quarter.
- Analysts remained focused on the sustainability of digital growth and capital discipline, while management’s tone shifted from emphasizing execution to discussing the structural impacts of strategic changes.
Risks and Concerns
- Management referenced challenges in market adoption of new network architectures, emphasizing “the market’s ability to absorb that change.”
- Analysts raised concerns about timing of PCF revenue recognition, the pace of EBITDA growth, and the sustainability of cost reductions in the face of ongoing transformation costs.
- Stansbury acknowledged, “working capital will definitely be positive…that’s obviously where those PCF inflows and outflows or inflows show on the balance sheet.”
Final Takeaway
Lumen’s leadership emphasized that the company is now operating from a position of financial strength following the AT&T divestiture, with a simplified capital structure, significant interest expense reduction, and sharpened focus on enterprise AI network infrastructure. Management reiterated confidence in achieving cost savings targets, progressing toward EBITDA growth in 2026, and returning to business revenue growth in 2028, while underpinning their guidance with a disciplined approach to transformation and digital adoption. Investors are encouraged to watch for additional details at the upcoming Investor Day.