LUMN Q1 Earnings Call: Digital Transformation and Fiber Initiatives Drive Revenue Outperformance

Telecommunications infrastructure company Lumen Technologies (NYSE:LUMN) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 3.3% year on year to $3.18 billion. Its non-GAAP loss of $0.13 per share was 51.1% above analysts’ consensus estimates.

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StockStory’s Take

Lumen’s first quarter results reflected ongoing operational changes and strategic investments in digital platforms and fiber infrastructure. Management pointed to expansion in the company’s core Grow product categories—led by demand for fiber and next-generation network services—as a key factor in surpassing market revenue expectations. CEO Kate Johnson highlighted progress in modernizing networks, expanding direct fiber connections, and introducing new digital offerings. She stated, “We’re confident in our goal of generating at least $250 million in savings exiting 2025 and $1 billion exiting 2027.”

Looking forward, Lumen’s guidance is shaped by both macroeconomic uncertainty and the company’s transition to a digital-first model. Management reiterated its commitment to margin expansion and long-term revenue growth through new digital services and operational efficiency. CFO Chris Stansbury noted, “We have confidence in our margin expansion and total EBITDA returning to full year growth in 2026 and growing thereafter,” citing ongoing cost optimization and platform adoption as critical drivers for the rest of the year.

Key Insights from Management’s Remarks

Lumen’s management detailed several transformation initiatives in Q1, emphasizing digital platform adoption and network modernization as primary contributors to performance. The company’s results benefited from lower disconnect rates, strong fiber broadband growth, and continued improvement in enterprise and public sector demand.

• Digital platform adoption: Lumen recorded a 23% quarter-over-quarter increase in new digital customers, with a 26% rise in Fabric Ports provisioned and a 29% jump in layered digital services sold. Management attributed this to the appeal of on-demand, cloud-style networking.
• Fiber infrastructure expansion: The company reported progress on its $8.5 billion private connectivity fabric (PCF) projects, with 57 sites under construction and the first tranche on schedule. This buildout is intended to support AI-driven network demand.
• Enterprise and public sector momentum: Grow product revenue—especially from large enterprise and public sector clients—posted near double-digit growth. Public sector revenue grew 14.7% year over year, driven by large bookings and modernization initiatives.
• Legacy service decline management: Lumen continued to proactively disconnect uneconomical legacy services, which contributed to lower absolute dollar disconnects and improved overall margins. Management views these actions as margin-accretive.
• Network modernization savings: The company reiterated its target for $250 million in cost savings exiting 2025, driven by unified network architecture, automation, and AI integration across operations.

Drivers of Future Performance

Management’s outlook for the year centers on continued adoption of digital networking, fiber expansion to support AI and cloud workloads, and disciplined cost reductions. The broader trend is a transition from legacy telecom to a digital, software-centric model that could enable margin improvement and new revenue streams.

• Digital service scaling: Lumen expects further uptake of its digital platform and Fabric Ports, which allow customers to manage multiple services more efficiently and could drive higher-margin revenue over time.
• AI and enterprise demand: The company is positioning its network to support growing enterprise needs for bandwidth, particularly as AI applications accelerate data traffic and require reliable, low-latency connectivity.
• Operational efficiency initiatives: Management is focused on achieving targeted cost savings through ongoing network unification, automation, and simplification, which are intended to offset declines in legacy products and support margin expansion.

Top Analyst Questions

• Michael Rollins (Citi): Asked if Grow revenue can sustain double-digit growth and how much is from new versus existing customers. Management said demand is strong, driven by large enterprise and public sector, but did not specify the customer mix.
• Batya Levi (UBS): Inquired about the impact of cloud economics on margins and the transferability of these strategies to other segments. Management explained that digital platforms lower marginal costs but said it is too early to quantify margin impact.
• Jim Schneider (Goldman Sachs): Sought details on the timing of the remaining PCF pipeline conversion and potential risks from accelerated legacy disconnects. Management confirmed active customer discussions and expects continued strategic investment in fiber.
• Nick Del Deo (MoffettNathanson): Asked if public sector revenue benefited from large, lumpy payments and how new digital services are priced. Management said public sector remains strong and digital services are priced based on value, not discounts.
• Frank Louthan (Raymond James): Requested differentiation details for the NAS product and color on public sector trends. Management highlighted the unique integration of digital and physical networks and emphasized ongoing strength in public sector bookings.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will watch (1) the scale and pace of adoption for Lumen’s digital platform and Fabric Ports, (2) the completion and revenue contribution from ongoing PCF fiber expansion projects, and (3) the company’s progress toward its cost savings targets through network modernization and automation. Developments in cloud partnerships and enterprise demand for AI-ready infrastructure will also be key factors.

Lumen currently trades at a forward EV-to-EBITDA ratio of 1.2×. At this valuation, is it a buy or sell post earnings? Find out in our free research report.

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