Greetings and welcome to Lumen Technologies' first quarter 2026 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the star followed by the one on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Tuesday, May 5th, 2026. Your speakers for today are Kate Johnson, CEO, and Chris Stansbury, President and CFO. I would now like to turn the conference over to Jim Breen, Senior Vice President of Investor Relations. Jim, please go ahead.

Good afternoon, everyone, and thank you for joining Lumen Technologies' Q1 2026 earnings call. Before we begin, I'd like to remind everyone that today's presentation will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect our current expectations, assumptions, and projections about future events and financial performance. Actual results may differ materially from those expressed or implied in these forward-looking statements due to a number of risks and uncertainties. A detailed discussion of these factors can be found in our most recent filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, our quarter report on Form 10-Q for this quarter, and any subsequent filings. We undertake no obligation to update or revise any forward-looking statements made today, whether as a result of new information, future events, or otherwise, today's presentation may also include non-GAAP financial measures. Reconciliations are provided in our posted materials. I'll pass it on to Kate.

Thanks, Jim. And thanks to everybody for joining the call and also for your feedback following the Lumen Investor Day. In addition to hearing your perspective about our strategy and new business model, we're tweaking the format of our earnings call by shortening our prepared remarks and leaving more time for your strategy oriented questions so let's get to it lumen delivered a solid performance during the first quarter with revenue and ebitda in line with expectations i'll let chris handle the detail in a few minutes after i provide an update on our strategy and execution enterprises are facing a huge challenge they're trying to build an ai driven future on infrastructure that simply wasn't designed to supported. And it's no longer about point-to-point connectivity. It's about whether you can move massive amounts of data securely, predictably, and in real time across highly distributed environments. And just as importantly, it's about whether you can control and orchestrate that movement dynamically. Lumen is solving that problem. We're bringing together three core assets, a world-class physical infrastructure, a programmable network, and a connected ecosystem of clouds, applications, and partners. Individually, each of these assets matter, but together, they solve the complexity problem by forming a comprehensive platform designed for AI and rooted in simplicity. The whole industry now recognizes the need for better networking better performance and better economics it's not just lumen talking about disruption anymore but we believe it is lumen who stands alone in our readiness to deliver game-changing capabilities to meet the needs of enterprise customers in an ai-driven world and it starts with the physical layer lumen already has one of the largest fiber networks in the world we're making significant investments in long-haul capacity metro expansion data center interconnect and cloud adjacency and we're on track to deliver all of the commitments we shared in detail at investor day this physical foundation is table stakes to support the proliferation of data workloads but alone it's insufficient to capture the full value of opportunity that we see that's where the programmable network comes in a single pane of glass where enterprises can in control and orchestrate connectivity across their entire technology footprint of clouds, data centers, applications, and partner networks. Lumens made strong progress in capturing the north-south part of this market with Lumen Connect and NAS, giving customers API-driven on-demand access to our network. And today, we announced our intent to acquire the software company Alcura. Alcura is expected to extend and enhance our programmable network into the fastest-growing segment of the enterprise networking market, the east-west part, establishing the control plane for cloud connectivity. After close, our combined capabilities will enable us to provide comprehensive coverage of north-south and east-west connectivity, whether on-net or off-net, with game-changing innovation, including direct cloud on-ramps and multi-cloud gateway, and all of this in a single programmable system. We'll also be able to provide digital marketplace access to a myriad of ecosystem partners, simplifying network purchase and deployment experiences. Together, Lumen Connect and Alcura will significantly accelerate time to value for customers operating in a complex, multi-cloud and AI-driven architecture world. Strategically, this acquisition will substantially complete our digital architecture. And post-close, it's all about integration and continuing our first and third-party service innovation to deliver new value for customers and growth for Lumen. As you know, we've also had some exciting recent announcements. AWS and Lumen partnered to launch AWS Interconnect Last Mile, a service allowing enterprises to establish fast, secure, private direct connections from on-prem to the AWS cloud, and Google just announced the availability of private connectivity discovery through Google Cloud Marketplace with an upcoming preview of API provision prem-to-cloud connectivity offering, all powered by Lumen. These two new offerings are another example of how we're innovating to help enterprise customers deliver on their AI ambitions, while simultaneously giving Lumen an opportunity to capture some of the over $2 billion in annual revenue currently served by carrier-neutral facility CrossConnects. And it's Lumen Multicloud Gateway that makes these direct on-ramp offerings possible, enabling customers to connect any cloud and any data center in any combination over our private network rather than the public internet. It's how we bridge north, south, and east-west connectivity domains securely and consistently. Now, after closing the acquisition, Multicloud Gateway and Alcura together will turn direct cloud on-ramps into more than just access points into clouds and data centers. They will become programmable entry points into a broader digital fabric. And speaking of that digital fabric, let's spend a minute on our Q1 adoption metrics. We're continuing to see strong adoption of our NAS services with strength in off-net and and large enterprise adoption this quarter. In the first quarter specifically, customer adoption grew 25% quarter over quarter, active ports grew 35% quarter over quarter, and active services grew 32% quarter over quarter. What's more, in Q1, we had two landmark wins. A leading global financial services firm committed to a more than 600 site branch upgrade with Luminas. Their goal is to drive deposit growth with faster new branch activation and deliver AI advisory and fraud detection services across all of those sites. And a large global logistics firm is deploying Lumen NAS at 300 sites to ensure faster activation of acquired service centers, directly accelerating freight capacity and revenue. Both customer wins tell the same story. Programmable networks are essential in delivering AI-powered business transformation. Back in February at Investor Day, we shared a multi-year roadmap for how we plan to drive digital service innovation, adoption, and revenue growth. And since then, we've made meaningful progress in execution, and we have some encouraging buying pattern data that we'd like to share. Starting with basic NAS, we now have nearly 2,500 NAS customers, with more than 30% of them being repeat purchasers. What's more, over 20% of first-time NAS adopters in Q1 were customers who are brand new to Lumen. They weren't doing any business with us before they bought our NAS ports and services. Now, the remaining NAS first-time adopters this quarter were existing Lumen customers, but what's interesting is that more than 60% of them were expanding their footprint with lumen nas not migrating from the old services these trends are encouraging as they suggest market share gain and we'll continue to track them as we grow the business in the second scenario upselling services approximately 25 of all nas customers are attaching more than one service per port primarily ddos and lumen defender another positive indicator of growth in the third buying scenario multi-cloud gateway it's already in market enabling innovation with tech titans like aws and google as i shared and after we close the alkira transaction it will be the bridge between east west and north south traffic giving our customers the feeling of one network any cloud total control globally and the fourth and fifth buying scenarios, direct connections into SaaS providers, and dynamic east-west cloud interconnects. That will be our focus post-Alcura transaction close, as we believe there's material growth potential there. Now let me finish up by sharing what we think this acquisition means to Lumen, our customers, and our shareholders. Alcura is a bullseye in terms of strategic alignment and value creation for lumen we expect it to dramatically accelerate our roadmap execution from years to months it will reduce execution risk it will give us an injection of talent and it will give us a partner platform that's expected to be marketplace ready on day one our customers will get the value they deserve ample bandwidth control simplicity and accelerated time to value and our investors will get what they deserve better economics across the board from lumen lumen has firmly entered a growth phase and our future is very bright chris over to you

thanks kate i'm pleased that lumen has delivered another quarter of positive momentum towards our financial and operational goals first we transformed the balance sheet by closing the fiber to the home sale to AT&T, reducing leverage below four times and reducing annual interest expense by nearly $300 million. Second, we recently simplified our capital structure by refinancing our revolver with a new $825 million facility. We also simplified our reporting structure this quarter, moving from three quarterly filings to two, and we expect to move to a single parent company filing beginning next quarter after completion of the Quest exchange offer. Now, this is a big deal. Why? For the first time in over 15 years, our equity investors, our bond investors, and management will be aligned on one financial view of Lumen. Finally, aligning those three together, we'll all be looking at the same information at the same time. Third, we further aligned our operating systems by implementing phase two of our ERP platform and are now on a unified ledger. This positions us to retire legacy systems and drive additional efficiencies over time. Fourth, we delivered solid financial results in line with our expectations and above consensus with strategic business revenue for the first quarter at 51% of our total. And last, today we announced our acquisition of Alkira. This is an important moment for Lumen. As our balance sheet has become a strategic asset, we've been asked about potential M&A. We've said that we'd be interested in technology assets only if they enhance our product portfolio, only at a reasonable valuation, and only if accretive to the broader financials. And Acura checked all those boxes. We believe that the Alkira acquisition will enhance Lumen Connect and expand our digital offerings across the east-west ham, with the potential to accelerate digital revenue as adoption scales. We plan to finance the $475 million transaction with cash on hand. Once closed, we estimate the transaction will be immaterial to financials and neutral to margins in the near term, but accretive to both as the platform scales. We estimate the deal will close sometime in the third quarter, and we look forward to welcoming our new teammates. Now, moving on to our financial performance in the first quarter. Before I start, we provided additional detail on the fiber-to-home sale impact in the financial training schedule. Total revenue was in line with our expectations and ahead of consensus as our revenue mix continues to improve. Total business revenue declined 3.2% year-over-year to $2.44 billion. As our revenue mix continued to improve in North America, total business was down 2.8% year-over-year. North American enterprise revenue, which includes wholesale, was down only 0.8% year-over-year. In short, as Kate mentioned earlier, we believe Lumen is taking market share. Strategic revenue was 51% of total business revenue in Q1, up from 49% in the fourth quarter, even with legacy results slightly ahead of internal expectations. Digital revenue in the first quarter was $37 million in line with our expectations. And as a reminder, included in that digital revenue number is NAS, Security Products, and Cloud Voice Services. We're still early in the adoption curve, and the shift to consumption-based revenue will take time. Quarterly results can be variable, and the key signals are customer adoption and expanding consumption. Our projections assume linear growth, but we believe there will be an inflection as the consumption flywheel gains traction, and we believe Alkira will be a tailwind to that timing. We're encouraged by the increased interest we're seeing from both existing and prospective customers. First quarter PCF revenue was $78 million, associated with the nearly $13 billion in PCF deals that we've announced to date. Roughly $32 million of that was a delivery milestone payment that was anticipated in our Investor Day projections for 2026 PCF revenue, but won't reoccur in Q2. Our long-term PCF revenue projections shared in Investor Day do not include any incremental PCF deals beyond those already announced. We remain opportunistic on additional accretive opportunities. And while PCF is a key pillar, we believe that our differentiation comes from monetizing the network through a programmable digital layer and partner ecosystem to drive durable, higher quality digital revenue. Adjusted EBITDA, excluding special items, was $849 million dollars in q1 compared to approximately 929 million dollars in the prior year quarter the year-over-year decline reflects expected revenue trends higher health care costs and the sale of our fiber of the home assets special items impacting adjusted ebitda total negative 430 million dollars this quarter and this includes a gain on the fiber to the home transaction severance transaction and separation costs and our modernization and simplification initiatives This one-time gain from the sale of the fiber-to-the-home business was $596 million in the quarter. And with that sale now closed, we expect the transaction-related special items to decline throughout the year. Capital expenditures excluding special items were approximately $859 million, in line with our expectations and full-year guidance. that included approximately $161 million of CapEx associated with PCF deals. Now, we're raising 2026 free cash flow guidance from $1.2 to $1.4 billion to $1.9 to $2.1 billion as a result of $729 million of the proceeds from the fiber to the home deal being classified as cash flow from operations. As such, free cash flow in the first quarter was $756 million, excluding special items. The cash proceeds from the divestiture had been primarily used to pay down debt in the first quarter of 2026. We received roughly $870 million in cash associated with the PCF deals, and we expect free cash flow will continue to be lumpy quarter to quarter, but trends remain in line with our full year guidance. Now to wrap up, we remain on track to meet our full-year guidance and will continue investing in our transformation to serve customers in a multi-cloud AI world. We've meaningfully strengthened our balance sheet, which allows us to make strategic investments, like our anticipated acquisition of Alkira, all while keeping leverage below four times. We're focused on building credibility through execution and transparent disclosure, highlighted by on-time and on-budget PCF builds, improving digital revenue visibility and continued ERP and modernization progress. We're pleased with our progress towards our key financial goals. We're operating with agility across the company, and we will continue to put in the hard work fortifying our position as the premier digital enterprise services provider. Back over to you, Kate.

Thanks, Chris. But the big takeaway for today, the vision for Lumen and Alcura is all about simplifying the customer experience, providing them quick, secure, and effortless connection between people, data, and applications. We're going to deliver one network, any cloud, total control globally. It's an exciting time. So with that, we'll take questions, Operator.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Rowlands with Citigroup. Your line is open. Please go ahead.

Thanks. Good afternoon. So I have a strategic question and an operating question. So on the strategic side with the acquisition, can you frame the opportunity to accelerate and the speed at which you can go to market with the capabilities that you're acquiring? And then on the operating side, if you could unpack a bit more of the business segment revenue performance in the quarter, and particularly in the North American enterprise where you could frame maybe what went better for certain of the verticals and products and maybe what, if there's anything that didn't contribute as much as you were hoping. Thanks.

Yeah, I'll start with the strategy and Chris will turn the revenue question over to you. Hey, Mike, thanks for the questions. Alcury's pretty exciting because it gives us access into, you know, data center interconnect and cloud-to-cloud connectivity which is the fastest growing part of the market um growing we think 20 uh kegger which is you know pretty darn exciting if you take our install base of customers all up legacy and and strategic you know revenue um and you offer that to the commercial engine you know that that we're going to create for alkira it becomes a pretty exciting accelerant it gives us new uh access to you know much more significant tam growing at a much faster rate i think what's more is that we now enable um in a capex efficient way international expansion because it's carrier and cloud agnostic and so uh that's what we plan to do we don't we don't plan to absorb of Alcura, we plan to enable and accelerate them by bringing our network as an underlay and making sure that they have the very best of our pipeline pointed right at their value proposition. So we're pretty excited about the growth trajectory. And obviously, we want this to accelerate our path to growth.

Yeah, and just on the operational question, if you look at kind of key drivers to total, I would say one standout was strategic waves. And again, those are waves that are 100 gig or greater. We saw some nice growth there, and we expect that to continue. And as Kate mentioned more broadly, we're just seeing strength in the broader digital portfolio. The part that was a pleasant surprise, and it was really highlighted in some of the data Kate shared, is that as customers are lighting up NAS services, we're not seeing as much cannibalization. And I think that's one reason why Legacy did a little better than we anticipated. And look, we'll take that all day long as we drive the conversion to our digital future.

And just one last thing on that point, is that a temporary benefit of that cannibalization maybe just further down the road, or do you think that it just represents that the customers just need to invest more and so the aggregate outcome is better?

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. And again, I think that's a bit of a tailwind that we hadn't anticipated. We'll see if it continues. But again, the cash that that business provides is welcome, and we'll use it to continue to invest in the transformation.

Thanks. Your next question comes from the line of Frank Lothan with Raymond Jameson Associate. Your line is open. Please go ahead.

Great. One question on some of the costs that you called out, some of the modernization costs and so forth. I assume some of those are related to the transaction with AT&T. Is there a total amount of that? How long will those types of costs go on? And then on the Wavelink business, you just called out, you mentioned that outperformed. Are you seeing any customers having issues making installations or having any issues with availability of memory or chips for those products?

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. So you'll continue to see that as, you know, special items number get a little smaller. As it relates to waves, I mean, again, I'm going to touch a nerve here. It's not about just selling on price anymore. And we've been saying that for a long, long time now. It's about solving a customer's problem. And the speed to dial up waves is important, but it's really around the broader problem that customers are trying to solve, which is the ability to move data all over the place. Our rapid routes investment and the ability to light up high capacity, low latency waves very quickly, we think is certainly a driver of that strategy.

And saw a material uptick in the adoption rate on rapid routes specifically in the quarter, which is great because it hasn't even been in production for very long.

All right. Great. Thank you very much.

Thanks, Frank. Your next question comes from the line of Gregory Williams with TD Cohen. Your line is open. Please go ahead.

Great. I also have one strategic and one operational question. On the strategic side, with Akira, it sounds like it enables the cross-cloud platform to off-net customers. Kate, you mentioned international. I just remember last September, you unveiled Project Berkeley, and that was supposed to deliver off-net services as well. So does this replace that, or does this sit on top of that, or are they not related? I'm just trying to understand the two.

So, they go to .

Yeah, go ahead.

Sorry?

On the operational side, I was just thinking about EBITDA, you beat by the street by that 50 million, you did not raise guidance, security specs, and was sort of stepped down through the balance of the year. And how much of that EBITDA help was from cost-saving initiatives?

Chris, you want to hit EBITDA first?

Yeah, we're not disclosing the cost-saving initiatives by quarter, but again, we remain on track and are super positive about where we're headed for the year. 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 in our ability to inflect at this point. Yeah.

And strategically, your question about Fabric Ports is actually a really good one. So remember, you know, Fabric Ports is about enabling buildings, you know, on-prem to be able to connect to the cloud and to be able to grow, you know, those services in a cloud economic way. And the Alcura platform really focuses on the east-west interconnect. So that's data center to data center, cloud to cloud, et cetera. So they operate with more of a virtual port, you know, kind of a model, and it's better together. So our fabric ports are really, you know, Project Berkeley is really the LumenConnect platform all up. It's not just a piece of hardware. And when you put Alkira and Lumen together, you get coverage of all the different interconnection possibilities.

Thank you.

Your next question comes from the line of Michael Funk with Bank of America. Your line is open. Please go ahead.

Yeah, great. Thank you for the questions. You mentioned a bit earlier that you don't plan to absorb Alkira. But I am wondering what will be involved in the integration process with Alkira, even in terms of some of the back office systems like billing, customer onboarding. And then second question, more numbers-based. You mentioned the milestone payment in 1Q. Any help thinking about other milestone payments projected in 2026 and the tracking? So I think you talked about the $16.50 to $18.50 in PCF cash flow for the year.

Regarding the integration, when I say we won't absorb it, of course, we'll look to, you know, take whatever capabilities on a single digital platform, quote, cash, procure, to pay. Which, by the way, we're pretty proud of the fact that we've implemented and upgraded a brand new, you know, ERP system, phase one and phase two at Lumen as of this week. So we're making huge progress and we'll leverage all of that technology platform. 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. You know, 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. They're customer obsessed. They have an amazing engineering team, an incredible platform. and their speed is incredible. So I think what you'll see is more of Lumen integrating into Alcura rather than the other way around.

Yeah. And on your question of kind of the one-time benefits, there was about $32 million in PCF in the quarter that won't recur. I think in the third quarter, we're expecting a smaller one. And so we'll give some more color at that time um well i don't think it'll impact 2026 i mean one thing with the alkira transaction is is we do expect uh our capex in the coming years to be reduced by somewhere in the 100 to 200 million dollar range and so after we um get a little more time to inspect that we'll we'll give uh everybody an update okay and that's an aggregate one or two or that's per annum yes that's that's exactly okay thank you as a reminder if you would like to ask a question please press star one to raise

your hand to withdraw your question please press star one again your next question comes from the line of nick del dio with moffett nathanson your line is open please go ahead all right thanks for of my questions.

First, just another little clarification from Chris on the performance payment in PCF. Is that what drove the sequential step up in public service revenue or was something else going on there?

No, it wasn't driven by that. And again, it wasn't performance-based. It's just the way that that contract was delivered that um delivery pay i i used the wrong term sorry some of it wasn't public okay okay okay anything else we should be aware of in um uh in public sector as we think about the coming quarters i think in the in the current quarter legacy performed a little better uh and in the coming quarters again it's there's tremendous opportunity in that space, it's just a very long decision cycle. So it's hard to predict, you know, when decisions will get made, but we feel very good about our position and ability to deliver to those customers.

Okay. Okay. And then maybe one on Alkira. Are you able to share anything regarding its current revenue or EBITDA? Or if not, you know, can you share anything to help give us a sense of its market presence or its customer base or its traction in the market today?

Yeah, so we aren't sharing anything. They do have a number of customers today. The revenue is relatively small, I will say that. Look, I think that the powerful combination here is that we bring a customer installed base and scale that Alkira didn't have on what is, in an unparalleled way, the strongest enterprise network on the planet. And what Alkira brings to Lumen is really the brain of that control plane and the ability to connect those things together and move workloads from anywhere to anywhere, right? As Kate said, one network, every cloud, total control globally. that's a big deal and and nobody else is doing that so that's where we see uh the power of these things coming together and uh and frankly delivering uh much faster uh what our vision has been for the last three years and so it was a great opportunity and um we're uh we're excited to share more uh after we close okay great thank you chris your next question comes from the line of patya levi with ubs your line is open please go ahead great thank you um just a follow-up on the public sector um was part of the 32 million booked in there and what else drove the sequential um strengthen in that line and can you just talk uh in general about um your expectations for business revenues for the for the full year so um again we don't guide revenue in total what I would say is that on our path to inflecting EBITDA this year and ultimately revenue over the next couple of years, and again, we'll get back to you with how we see how Kira can help us accelerate that, is you will continue to see kind of a rate of decline that is better than our competition and one that improves year over year in total. So there will be fluctuations quarter to quarter, but we feel very good about the fact that we are clearly differentiating ourselves in the marketplace, and the performance is going to show that. As it relates to public sector, as I just mentioned previously, yes, part of that $32 million was in public sector, and public sector also benefited from lower legacy churn than what we've been previously experiencing. Do you expect that to continue? look and i think we can't look at strategic and legacy as two separate and distinct things i would love nothing more than to tell you that legacy declines in public sector accelerated because a number of new strategic initiatives were signed right so what's the objective here for everything to be strategic over time um and so uh yeah we we do expect that to happen at some point in the future, I hope we actually see some faster decision making that it would allow us to drive more strategic. And in part, that would be driven by turning off some legacy product. That'd be a great thing.

Got it. Thank you.

There are no further questions at this time. I will now turn the call back to Kate Johnson for closing remarks.

Thanks, operator. Just a short note to say thank you to all luminaries for your amazing work and helping get us here. The transformation is going so well because of all you do every single day. Our future is very bright. And with that, thanks for joining the call. Have a great night.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.