Lumen Q2 Earnings Call Highlights Digital Revenue Shift

LUMN Builds Around Enterprise Networking for AI

Chief executive officer Kate Johnson said that Lumen is combining its fiber infrastructure, programmable network and digital ecosystem to address enterprise networking requirements across cloud and artificial intelligence environments.

Johnson positioned Alkira as a central part of that strategy. The acquired platform gives customers a cloud-based control point for connecting and securing sites, data centers and multiple cloud environments.

Lumen plans to complete most of the technical integration between Alkira and Lumen Connect within 18 months. Management expects the platform to support service discovery, provisioning and management through a more unified digital experience.

Lumen Sees Faster Strategic Revenue Mix Shift

President and chief financial officer Chris Stansbury said that strategic revenues grew 14% year over year and represented 53% of business revenues, up from 51% in the first quarter and 45% a year earlier.

Legacy revenues declined 15%, but management said the improving mix reflected underlying growth in strategic services rather than a simple migration from older products. Business revenues were $2.44 billion, down 2% year over year.

The company reported an adjusted loss of 7 cents per share, beating the Zacks Consensus Estimate of a 15-cent loss. Revenues of $2.80 billion also exceeded the consensus estimate of $2.75 billion.

LUMN Expands NaaS Adoption and Usage

Johnson said that the number of Network-as-a-Service customers exceeded 3,000. New customer adoption increased 22% sequentially, while active ports grew 34% and active services advanced 29%.

More than 20% of first-time NaaS adopters were new to Lumen. In the analyst discussion, Johnson added that many existing customers were adding NaaS circuits rather than replacing current services.

Management also highlighted demand for 100- and 400-gigabit connectivity. Revenues from those strategic wave services in North American enterprise channels grew nearly 11%, while sales rose almost 35%, providing a potential indicator of future revenue conversion.

Lumen Targets Higher-Margin Digital Services

Johnson said that Lumen is making dedicated Internet access ports digitally discoverable and service-ready, creating opportunities to add security, cloud connectivity and other services without additional field visits.

Management expects incremental digital services placed on existing ports to approach an 80% adjusted EBITDA margin. Stansbury said that the economics improve as customers add second, third and fourth services because marginal costs and capital requirements become limited.

A Raymond James analyst asked about Alkira customer economics. Management declined to provide monthly recurring revenue details but said that recent renewals were being expanded and that customer discussions were increasingly reaching chief information and technology officers.

LUMN Keeps Capital Allocation Selective

A Bank of America analyst pressed management on private connectivity fabric investments. Stansbury said that Lumen would continue monetizing underused conduit where returns were attractive but would not pursue new construction offering returns near or below its cost of capital.

Second-quarter private connectivity fabric revenues were approximately $91 million. Capital expenditures tied to those arrangements were about $300 million, while related cash receipts totaled approximately $476 million.

Lumen reiterated its full-year outlook for adjusted EBITDA excluding special items of $3.1 billion to $3.3 billion and free cash flow excluding special items of $1.9 billion to $2.1 billion.

Lumen Maintains Its Transformation Priorities

Management’s tone remained focused on replacing legacy complexity with a smaller portfolio of digital, platform-based services. The company is phasing out enterprise voice sales while preserving service for important customers and meeting regulatory obligations.

Stansbury said that Lumen remains on track for $700 million in modernization and simplification savings exiting 2026 and $1 billion exiting 2027. The company’s stated priorities remain digital growth, cash generation and disciplined investment.

Zacks Rank and Style Scores Signals

LUMN currently carries a Zacks Rank #3 (Hold), indicating a more neutral near-term earnings-revision outlook. Its Value Score of A and Growth Score of B point to favorable characteristics in those styles, while the Momentum Score of F signals weak price momentum. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The VGM Score of B reflects an attractive combined profile across value, growth and momentum despite the momentum weakness. The Zacks Rank can change as analysts revise earnings estimates following the newly reported results.

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research