-
Lumen reported mixed financial results for Q1 2024, with softer sales and weaker revenue and EBITDA figures attributed to debt restructuring uncertainty
-
CEO Kate Johnson highlighted traction in driving adoption of Lumen's Network-as-a-Service (NaaS) and ExaSwitch products
-
In the first quarter, Lumen reported net income of $57 million compared to $511 million in the same period last year
Lumen unveiled mixed financial results for the first quarter of 2024, a challenging period marked by softer sales and weaker revenue and EBITDA numbers. During an earnings call leadership still seemed optimistic that things are turning around for the company, particularly shining a light on its newer products like Lumen NaaS and Exaswitch.
CEO Kate Johnson said the company’s debt restructuring in the second half of 2023 created uncertainty, which translated into the soft results. Yet she touted “material traction” in driving adoption of Lumen’s network-as-a-service (NaaS), which she called an important component of the company’s “turnaround story.”
Lumen is seeing more demand for high capacity, low latency network and edge services, often requested in the form of custom private networks. Johnson said this is likely driven by the advent of GenAI and the complexity of hybrid multi-cloud architectures. More customers are looking to design, price, order and consume networking and security services online.
The company launched Lumen NaaS in late 2023, and since then has delivered 14 new NaaS-related products, including native DDoS and automated transport.
Last year it also released its optical switching platform, ExaSwitch. Johnson said the platform addresses modern multi-cloud connectivity as AI, autonomous systems and exploding data growth redefine enterprise networking and security needs.
“We are focused on securing the base because when we transition customers from legacy systems like TDM and voice to digital-first solutions like NaaS and IP, we're not only supporting our customers' growth, but also our own,” she said.
That said, Johnson noted that part of the transformation plan is the “most challenging” because of secular headwinds, as well as “complex and unpredictable” pricing dynamics across on-net and off-net peering partnerships. “Negative growth in these areas masks the progress we are making in selling and delivering the more modern capabilities in our portfolio,” she added.
Later this year Lumen will launch a new subscription service that leverages AI-powered IP-based threat detection and prevention capabilities from its Black Lotus Labs. In the second half of 2024, the security service, called Lumen Defender, will be available over its NaaS and DIA connections.
Lumen fiber update
Lumen now has 952,000 fiber broadband subscribers and 2,710,000 Mass Markets total broadband subscribers.
Johnson said it is on track to deliver more than 500,000 new fiber-enabled locations this year. “Our strong fiber sales momentum from late last year continued, highlighted by our Q1 quarterly fiber net adds being the best we've ever reported,” she added. Those improved results were largely driven by converting existing copper customers to its Quantum Fiber product.
Quantum Fiber hit a net promoter score (NPS) of positive 67 in Q1, rising sequentially and year over year.
Q1 financials
In the first quarter, Lumen reported net income of $57 million compared to $511 million in the same period last year. Revenue fell to $3.29 billion from $3.74 billion, down 12% over the year-earlier period. Generated Adjusted EBITDA of $977 million for the first quarter 2024, compared to $1.251 billion for the first quarter 2023.
The company saw a 2% revenue drop in its “grow” businesses, which includes unified communications and managed security, though it did maintain sequential and year-over-year revenue growth in Q1 within its North America enterprise grow product portfolio.
Its enterprise business saw good sales performance in the first quarter, with North American enterprise sales up 27% year over year, its strongest first quarter performance “in some time,” according to Johnson. Additionally, new logo sales increased by 21%, and total contract value for all sales nearly doubled year over year.
That was helped by a large deal in its public sector business, where Lumen won a $73 million contract to transform the U.S. Government Accountability Office's network, data, voice and video connectivity.
Sales in its “nurture” segment, which includes Ethernet, were down 7%. Lumen also saw a 6% decline in its “harvest” businesses, which include legacy voice products.
In March, Lumen closed a Transition Services Agreement (TSA) with a broad group of creditors. Although “TSA-related customer uncertainty” negatively impacted its first quarter revenue and EBITDA performance, the agreement addresses over $15 billion of the company’s debt, extending maturities and securing access to additional liquidity.
“We're pleased with the runway this deal created for our transformation, and you can expect us to continue to find ways to strengthen our balance sheet and return value to shareholders,” Johnson said.
Lumen will continue to focus on securing its base by homing in on installs, renewals, migrations, usage and disconnects. Its Q1 sequential install trends were also affected by “TSA-related uncertainty,” but renewals were up 5%, disconnects improved by nearly 5% and migrations were up double-digit percentages.