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    Earnings call· Jun 2026(Q2 FY26)

    Lumen Technologies Q2 FY26 earnings call LUMN

    Aug 4, 2026 Source

    Executive summary

    Lumen Technologies Q2 FY26 — Strategic Revenue Growth and Digital Transformation

    Lumen Technologies reported Q2 FY26 results in line with expectations, driven by strong strategic revenue growth and accelerating digital transformation. The company is redefining enterprise networking for AI, leveraging its physical infrastructure, programmable network, and connected ecosystem. The acquisition of Alkira is expected to accelerate digital growth, with a focus on high-margin, platform-based services and disciplined capital allocation away from legacy products.

    Highlights

    5

    • Strategic revenue grew 14% year-over-year, reaching 53% of total business revenue.

    • NaaS customer adoption grew 22% quarter-over-quarter, with active ports up 34% QoQ and active services up 29% QoQ.

    • North American enterprise revenue declined only 0.2% year-over-year, showing improving mix.

    • 100 and 400 gig waves revenue grew nearly 11% year-over-year in North American enterprise channels, with sales up nearly 35% YoY.

    • Free cash flow, excluding special items, was $327 million in Q2, in line with expectations.

    Concerns

    4

    • Total business revenue declined 1.8% year-over-year to $2.44 billion.

    • Adjusted EBITDA, excluding special items, decreased to $802 million from $877 million in the prior year quarter.

    • Special Items impacting adjusted EBITDA totaled $204 million, primarily due to modernization and simplification initiatives and transaction costs.

    • Legacy revenue declined 15% year-over-year, though less than expected.

    Guidance & targets

    4
    CategoryTargetConfidence
    Modernization and Simplification Savings
    $700 million
    medium materiality
    High
    Modernization and Simplification Savings
    $1 billion
    medium materiality
    High
    Alkira Integration
    most of that integration in the next 18 months
    low materiality
    Medium
    Digital Revenue Growth Acceleration
    quantify Alkira's impact on accelerating our growth
    high materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Total Business
    Revenue declined year-over-year, but the revenue mix continued to improve.
    		$2.44 billion-1.8%——
    North America Total Business
    Year-over-year decline.
    		—-1.6%——
    North American Enterprise
    Excludes wholesale, showing improving performance.
    		—-0.2%——

    Operational metrics

    17
    Adjusted EBITDA excluding special items
    $802 milliondown from $877 million YoY
    Q2 FY26

    Year-over-year decline predominantly due to Fiber-to-the-Home sale and expected revenue declines.

    Special Items impacting adjusted EBITDA
    $204 million
    Q2 FY26

    Primarily driven by modernization and simplification initiatives, as well as transaction and separation costs.

    Capital expenditures excluding Special Items
    $780 millionin line with expectations and full year guidance
    Q2 FY26

    Includes approximately $300 million of CapEx associated with PCF deals.

    PCF cash received
    $476 million
    Q2 FY26

    Cash received from PCF deals in the quarter.

    Strategic revenue growth
    14%YoY
    Q2 FY26

    Contributing to the improving revenue mix.

    Strategic revenue as percentage of total business revenue
    53%up from 51% QoQ and 45% YoY
    Q2 FY26

    The shift is happening faster than expected.

    Digital revenue
    $39 millionin line with expectations
    Q2 FY26

    Key near-term drivers are customer growth and service adoption.

    Strategic waves revenue (100 and 400 gig) growth
    11%YoY
    Q2 FY26

    Momentum expected to continue.

    Strategic waves sales growth
    35%YoY
    Q2 FY26

    Precursor to future revenue.

    Legacy revenue decline
    15%YoY
    Q2 FY26

    Legacy has declined less than expected, implying expanding share of strategic revenue is more impressive.

    NaaS customers
    over 3,000
    Q2 FY26

    Total number of NaaS customers.

    NaaS new customer adoption growth
    22%QoQ
    Q2 FY26

    Exceeded internal ambitions for the first half.

    NaaS active ports growth
    34%QoQ
    Q2 FY26

    Exceeded internal ambitions for the first half.

    NaaS active services growth
    29%QoQ
    Q2 FY26

    Exceeded internal ambitions for the first half.

    PCF revenue
    $91 million
    Q2 FY26

    Associated with PCF deals, with a significant portion from an accelerated State of California milestone.

    DIA incremental services adjusted EBITDA margin
    80%
    Future

    Expected margin for high-margin digital services layered onto existing DIA ports.

    Lumen employees trained on Alkira value proposition
    nearly 4,000
    Since Alkira close

    Rapidly scaling Alkira go-to-market muscle.

    Product announcements

    4
    ProductTypeDetails
    Alkiralaunch
    Enterprise Voice and Communications productsdiscontinuation
    Digital Experience for DIAroadmap
    Managed Security Offering (Black Lotus Labs + Palo Alto Networks)launch

    Deals & partnerships

    3
    AlkiraAcquisition of a cloud-native networking solution provider.

    Lumen closed the acquisition of Alkira in early July. Alkira is now a Lumen Connect solution, providing capabilities for connecting and securing multi-cloud and AI environments. It was not embedded in Investor Day targets but is expected to accelerate digital growth.

    State of CaliforniaDelivery milestone for a PCF (Private Capital Fiber) deal.$36 million

    Approximately $36 million in PCF revenue was associated with a State of California delivery milestone, which was accelerated into the second quarter and is now largely complete. This is part of the broader $13 billion in PCF deals.

    Palo Alto NetworksPartnership to create a managed security offering.

    Lumen paired Black Lotus Labs network-level threat intelligence with Palo Alto Networks' leading security platform to create a managed offering. This aims to provide customers with early visibility, fast response, and reduced tool sprawl against security threats.

    Risks & headwinds

    5
    Legacy business decline

    Legacy revenue down 15% YoY

    Mitigation: Product portfolio simplification, reallocating capital towards higher-growth digital initiatives, maximizing value of existing legacy assets while winding down the portfolio.

    Complexity of existing network solutionsOngoing

    Customers ended up having to stitch together too many tools, policies and handoffs. It created sprawl, which is expensive and difficult to manage, secure and adapt to the speed of today's business.

    Mitigation: Bringing innovation back inside the network with Alkira to simplify architecture, improve control, and create more value for customers through one cloud-based control point.

    Subpar returns on new fiber buildsOngoing

    returns that are at or below cost of capital levels

    Mitigation: Lumen will not invest capital with subpar returns; instead, it will provision higher-margin, higher-growth services on top of existing or third-party fiber.

    Integration costs for modernization and simplification initiativesQ2 FY26

    $204 million in Special Items impacting adjusted EBITDA

    Mitigation: These initiatives are expected to drive $700 million in savings by year-end FY26 and $1 billion by year-end FY27, helping to inflect EBITDA.

    Regulatory constraints on copper exitOngoing

    dealing in some places with regulatory constraints

    Mitigation: Balancing customer needs, maximizing cash flow, and providing migration strategies while navigating regulatory requirements.

    What to watch in Q3 FY26

    5

    Alkira impact on digital growth

    FY27 guidance (expected in Q4 FY26)
    CurrentImmaterial revenue contribution today
    TargetQuantification of acceleration to be provided with FY27 guidance

    Why it matters

    Alkira is a key acquisition expected to accelerate Lumen's digital transformation and strategic revenue growth, impacting the investment thesis.

    We're in the process of quantifying Alkira's impact on accelerating our growth, and we plan to share that view with investors when we provide our 2027 guidance.

    Q&A highlights

    5

    Is the transition from legacy to strategic revenue accelerating? How can Alkira further accelerate performance? What are the implications for H2 business revenue declines given Q2 results?

    Management confirmed the transition is accelerating, citing NaaS adoption by new customers and non-migratory additions by existing ones, indicating market share gains. They highlighted the growth in 100/400 gig waves driven by AI adoption and rapid routes. Alkira is seen as a disruptive cloud-native solution to accelerate digital transformation, with quantification expected in FY27 guidance. H2 revenue guidance remains on track, with Q2 benefiting from accelerated State of California revenue.

    “It's not a one-for-one cannibalization. What's more? I can't -- I don't remember the exact number, but I think it's somewhere around 60%, we can confirm that off-line, of the customers that were already Lumen customers were adding NaaS circuits. They weren't migrating, okay? So this is clearly a share take, and it's not a one-for-one translation of the legacy business into strategic.”

    asked by Michael Rollins · answered by Kathleen Johnson

    2 min read5 chapters

    Detailed Narrative

    01

    Alkira Acquisition and Enterprise Networking for AI

    Lumen recently closed the acquisition of Alkira, integrating it as a Lumen Connect solution. This acquisition is central to Lumen's strategy of redefining enterprise networking for AI, providing a simpler, faster way to connect and secure multi-cloud and AI environments. Alkira enables customers to consolidate tools, improve control, and reduce sprawl, with examples like Koch Industries compressing network hub setup from 8 months to a single day and Michaels connecting 1,400 retail locations to Google Cloud in weeks.

    02

    Product Portfolio Simplification and Margin Expansion

    The company is aggressively managing its product portfolio, moving capital and talent towards high-growth, high-margin digital services. This includes phasing📎 out enterprise voice and communications products to focus on markets where Lumen has a differentiated position. The goal is to layer high-margin digital services, such as Lumen Defender and DDoS, onto the existing DIA installed base, which are expected to approach 80% adjusted EBITDA margin, driving overall margin expansion.

    03

    NaaS Adoption and Market Share Gains

    Lumen reported strong NaaS adoption, with the total number of NaaS customers exceeding 3,000. New customer adoption grew 22% quarter-over-quarter, and over 20% of these were new to Lumen. Active ports increased 34% QoQ, and active services grew 29% QoQ. This growth, achieved in a North-South connectivity market growing less than 1% per year, indicates Lumen is taking market share due to customer demand for digital consumption-based network services and perceived differentiation.

    04

    PCF Strategy and Capital Allocation

    Lumen continues its strategy of monetizing underutilized assets through PCF (Private Capital Fiber) deals, which generated approximately $91 million in revenue in Q2, including an accelerated $36 million State of California milestone. The company emphasizes disciplined capital allocation, avoiding new fiber builds with subpar returns (at or below cost of capital) and instead focusing on provisioning higher-margin digital services over existing or third-party fiber infrastructure. A pipeline of material PCF deals is in conversation.

    05

    Strategic Revenue Mix Shift

    The business is experiencing a faster-than-expected positive revenue mix shift, with strategic revenue now comprising 53% of total business revenue in Q2, up from 45% in the prior year quarter. This shift is driven by underlying dollar growth in strategic services, including 100 and 400 gig waves, which grew nearly 11% year-over-year in North American enterprise channels, with sales up almost 35% YoY. This indicates a move towards sustainable revenue growth as the mix shifts towards strategic and digital services.

    AI-generated summary of the company’s earnings call. Not investment advice.