Lumen Technologies (LUMN) Q1 FY26 earnings call: guidance and Q&A

How will Alkira accelerate market capabilities, and what drove Business segment revenue, particularly North American enterprise?

Alkira provides access to the fast-growing data center-interconnect and cloud-to-cloud market (20% CAGR), enabling CapEx-efficient international expansion. Business revenue strength came from strategic waves (100-gig+), and legacy revenue performed better than expected due to less cannibalization from NaaS adoption.

“Alkira is pretty exciting because it gives us access into data center-interconnect and cloud-to-cloud connectivity, which is the fastest-growing part of the market, growing, we think, 20% CAGR, which is pretty darn exciting.”

asked by Michael Rollins · answered by Kathleen Johnson

Is the observed reduced cannibalization of legacy services by new NaaS services a temporary benefit or indicative of increased overall customer investment?

While eventually new services will replace old, in the near term, customers are maintaining existing services while adopting new ones, creating an unexpected tailwind. Management will monitor if this trend continues.

“I think the end game here is, yes, eventually, the new does replace the old and we fully cannibalize. I think as customers -- it's early. So we're still trying to read all these signals. But as customers are driving to the new, at least in the near term, they're maintaining the old.”

asked by Michael Rollins · answered by Christopher Stansbury

What is the total amount and duration of modernization/transaction-related costs? Are there any installation or chip availability issues affecting the wavelength business?

Transaction-related costs were $50 million in Q1 and are expected to decline significantly in future quarters. The wavelength business, particularly RapidRoutes, saw a material uptick in adoption, driven by solving broader customer data movement problems rather than just price, with no mention of installation or chip issues.

“So the transaction-related costs were about $50 million in the quarter. And as I said in my prepared remarks, we would expect that to go down significantly in future quarters.”

asked by Frank Louthan · answered by Christopher Stansbury

How does Alkira relate to Project Berkeley's off-net service? Why was EBITDA guidance not raised despite a beat, and what was the contribution from cost savings?

Alkira focuses on East-West interconnect (data center-to-data center, cloud-to-cloud) with a virtual port model, complementing Project Berkeley (Lumen Connect platform) which enables on-prem to cloud. The EBITDA beat included a month of fiber-to-the-home EBITDA, and guidance remains firm. Cost savings are not disclosed quarterly.

“Remember that the first quarter also had effectively, a month of fiber-to-the-home EBITDA in that. So you do need to adjust for that. All that said, it was a strong quarter, but we remain firm on the guidance for the year and our ability to inflect at this point.”

asked by Gregory Williams · answered by Christopher Stansbury

What is the integration process for Alkira, especially for back-office systems? Are there other PCF milestone payments expected in 2026, and how does this track to the PCF cash flow target?

Lumen plans to integrate into Alkira's platform to preserve its innovation and speed, leveraging Lumen's new ERP system. A smaller PCF milestone payment is expected in Q3. The Alkira acquisition is also expected to reduce CapEx by $100M-$200M in aggregate in coming years.

“What I was referring to when I talked about not absorbing it, I'm very cognizant of a big company swallowing or suffocating the smaller company. I have a bunch of experience in the tech world of doing a bunch of acquisitions. And we need to make sure that Alkira stays Alkira in this transaction because we love what they do.”

asked by Michael Funk · answered by Kathleen Johnson

Can Lumen share Alkira's current revenue or EBITDA, or provide insight into its market presence, customer base, or traction?

Lumen is not sharing specific revenue or EBITDA figures, but noted Alkira's revenue is relatively small. The value of the acquisition lies in Alkira's control plane capabilities combined with Lumen's customer base, scale, and network, accelerating Lumen's vision.

“Yes. So we aren't sharing anything. They do have a number of customers today. Their revenue is relatively small, I will say that.”

asked by Nicholas Del Deo · answered by Christopher Stansbury