Telecommunications infrastructure company Lumen Technologies (NYSE: LUMN) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 5.4% year on year to $3.09 billion. Its non-GAAP loss of $0.03 per share was 88.7% above analysts’ consensus estimates.

Is now the time to buy LUMN? Find out in our full research report (it’s free).

StockStory’s Take

Lumen’s second quarter was marked by a negative market reaction, as revenue declined and missed Wall Street’s expectations. Management attributed this underperformance to the $46 million one-time giveback related to the Rural Digital Opportunity Fund (RDOF) and persistent declines in legacy business lines. CEO Kate Johnson described the quarter as “a very productive” one, emphasizing the sale of the consumer fiber-to-the-home business to AT&T and progress on building the AI-ready network backbone. Management also highlighted ongoing cost reduction efforts and operational streamlining as key contributors to mitigating the impact of these headwinds.

Looking ahead, Lumen’s forward guidance is being shaped by its focus on enterprise digital infrastructure and the ongoing shift toward AI-supported network services. Management signaled that the company’s ability to consistently grow its 'Grow' product revenue and scale Network as a Service (NaaS) adoption will be central to driving future top-line improvements. CFO Chris Stansbury noted that while adjusted EBITDA is expected to stabilize and inflect to growth next year, volatility remains due to transformation costs and evolving customer demands. Johnson explained, “We are pivoting Lumen’s back to revenue growth by restoring value to once commoditized fiber assets with innovation and new business models.”

Key Insights from Management’s Remarks

Management attributed the quarter’s results to the impact of the RDOF exit, legacy revenue declines, and strategic focus on enterprise and AI-driven services.

• Consumer Fiber Asset Sale: Lumen announced the sale of its consumer fiber-to-the-home business to AT&T for $5.75 billion. Management sees this as pivotal for strategic clarity and balance sheet improvement, enabling greater investment in enterprise-centric offerings.

• AI-Driven Network Investments: The company continued to execute on building the backbone for AI infrastructure, deploying 1,200 miles of fiber and establishing 119 intercity long-haul (ILA) sites, with nearly $9 billion in Programmatic Capacity Fiber (PCF) contracts secured. These efforts support the growing bandwidth needs of hyperscalers and enterprise clients.

• NaaS Adoption and Digital Platform Growth: Lumen highlighted strong quarter-over-quarter increases in Network as a Service (NaaS) adoption, with customers, ports, and active services all up significantly. Customers like Pacific Life and DXC Technology are leveraging these offerings for cloud connectivity, reflecting the company’s shift to digital, automated service delivery.

• Cost Reduction and Modernization: Management increased its annual run-rate cost-out target to $350 million, aided by automation, AI-enabled operational improvements, and simplification initiatives. Stansbury noted these savings are essential to offsetting legacy revenue declines and supporting EBITDA stability.

• Balance Sheet Strengthening: The company completed a $2 billion bond offering and expects to reduce annual interest expense by over $400 million following the AT&T deal close. Favorable tax legislation is also anticipated to result in a $400 million tax refund, further supporting free cash flow generation.

Drivers of Future Performance

Management’s outlook is defined by ongoing investment in enterprise digital infrastructure, expanding AI-related services, and a disciplined approach to cost management.

• Enterprise and AI Revenue Focus: Lumen aims to accelerate revenue growth by expanding enterprise offerings, particularly through NaaS and AI-ready fiber networks. Management sees demand from hyperscalers and enterprises building new data centers as a multi-phase opportunity, with future growth tied to broader AI adoption.

• Operational Efficiency Initiatives: Continued modernization and simplification, including increased automation and migration to cloud-based systems, are expected to drive further cost reductions. Management believes these efforts will stabilize EBITDA and support margin improvement as legacy businesses continue to wind down.

• Risks from Legacy Declines and Project Timing: Management cautioned that legacy Harvest and Nurture product lines will remain under pressure, and the timing of large infrastructure projects can create volatility in reported results. Additionally, the company flagged one-time items such as RDOF-related impacts and transformation costs as sources of near-term earnings variability.

Catalysts in Upcoming Quarters

In the coming quarters, StockStory analysts will be watching (1) the pace of NaaS adoption and integration with technology partner marketplaces, (2) progress in executing PCF contracts and the build-out of AI-ready fiber infrastructure, and (3) sustained cost reductions and margin stabilization as legacy businesses are wound down. Execution on the AT&T transaction and realization of associated financial benefits will also be key milestones.

Lumen currently trades at $3.94, down from $4.48 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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