Lumen's Q2 2025 Earnings Call: Contradictions Unveiled on PCF Sales, CapEx, and Public Sector Growth

Transformative Strategic Actions:
- Lumen Technologies announced the sale of its consumer fiber-to-the-home business to AT&T for $5.75 billion.
- This sale is set to strengthen Lumen's balance sheet and focus on core enterprise capabilities, reducing annual interest expense by approximately $300 million and improving leverage by a full turn.
- The transaction reflects Lumen's strategic shift towards building the next-generation digital networking infrastructure for AI.

Revenue Growth and Strategic Pivots:
- Lumen reported total business Grow revenue up 6% year-over-year, outperforming competitors.
- Total business revenue declined only 3.4% year-over-year, supported by significant growth in total IP sales, up nearly 38%.
- The revenue growth is attributed to strategic investments in the physical network, digital platform, and emerging technology ecosystem.

Profitability and Financial Improvements:
- Lumen raised its 2025 free cash flow guidance by $500 million, and its 2025 run rate cost-out target from $250 million to $350 million.
- The company reported an adjusted EBITDA of $877 million, with a margin of 28.4%, despite a $46 million onetime RDOF giveback.
- These improvements are due to successful debt refinancing, reducing annual interest expense by approximately $100 million, and strategic cost reductions.

Public Sector and Enterprise Performance:
- Public Sector revenue grew 8.2% year-over-year, driven by Grow revenue up 9.4% and Harvest revenue up approximately 49%.
- North American Enterprise Grow revenue increased 8.5%, offsetting declines in Nurture and Harvest revenue, particularly in Public Sector.
- Growth in Public Sector was supported by strategic revenue drives and contract wins, while enterprise performance reflects restructuring and strategic focus.