Lumen Technologies, Inc. (LUMN) September 9, 2026 Conference Transcript

And before we begin, disclosures are available at the registration desk. For those of you I haven't met, I'm Mike Rollins, and I cover communication services and infrastructure for Citi. We're pleased to welcome Kate Johnson, CEO of Lumen. Kate, it's great to see you. Thank you so much for being here.

It's always great to be with you.

You know, I think back, it was our January conference, 2023, I think, where we first met. you had just come to Lumen.

I was there for a hot second. Yes.

And since then, it's been extremely busy for Lumen. You know, over a more recent period, the team and you have discussed creating a new industry category. Can you unpack that for us?

Sure. So coincidentally, I started in November of 22, November 7th specifically, and chat GPT-3 was the first publicly available instance of AI that we could all download to our phones, and that launched on November 22nd of that same month. And I think when we talked in January, we were just starting to hypothesize this notion of, you know, really pivoting the network in support of enterprise data consumption growth, right? And I think we're there. We have created a platform for enterprise networking for AI. And I think while none of us could see it quite clearly, you know, so clearly in November of 22, what we have now is people, data, and applications are dispersed geographically. They sit in buildings, you know, they have applications and data sitting in clouds and data centers and at the edge, then you add billions of AI agents, billions of them. And each one of these agents is generating and consuming huge quantities of data. And that data resides kind of everywhere and needs to be shipped everywhere. And the new problem that we, you know, are solving for customers is they have the need to ship data from anywhere to anywhere in real time to fulfill their AI ambitions. And in order to do that, you need three things. You need a massive physical network. You need a programmable network, so a digital platform sitting on top of that. And the cool thing about ours is it's agnostic to whose fiber is underneath, so we can leverage our great network but also other people's. And then you need a connected ecosystem because what you're connected to really matters. It's not just the buildings, the edge points, the clouds, and the data centers, but also you need to be connected to other technology companies. And we've got all three working together, and it's given us a growth engine.

I want to dig into this a lot deeper. When I think about, just to start off for background, when I think about Lumen's core competency in business and wholesale, I think a lot about Level 3 and what that brought to the table for your company. And I think about it, as you mentioned, it's like some combination of business locations and data centers, and there's a variety of products used to connect all of this together, It used to be called like Frame, ATM, Internet Transit, then MPLS. Now it's Lit Fiber, Waves, Dark Fiber. So the question is, as you look today, the lumen of today, the lumen of tomorrow, like what you're selling to customers. Is it a different menu? You know, is it different pricing models? Like, like, what should we take in terms of like, what you're actually selling into these customers?

It's every everything is changing. So the the classic way of connecting and transporting is becoming digital and on demand. So I want the ability to fire up the circuit and and pick my bandwidth you know and pick my security levels and things like that but i also want to orchestrate it so it's all of connectivity and transport just like you know the past couple of decades but it's this new set of capabilities which is unique to us as a carrier which is the orchestration layer which says i need to be able to manage policy i need to be able to control the data flow. I want to pick where it goes and when it goes there and to set all of the attributes of how big it is, how secure it is, how fast it is along the way. And what that enables us to do is go, we used to sell physical circuits, how many you want to buy. We worked with procurement. They set a price and a bandwidth limit and said not to exceed X and Y. And now we're really selling outcomes. If you think about hospitals need, for example, real-time diagnostics across their systems. Banks need real-time fraud detection services across their branches. Retail companies need real-time inventory management across all of their warehouses to get the right product in the hands of the right customer at the right time. You can't do any of that without AI. And you can't support AI without a programmable network. So we finally have a seat at the table with the CIO and the CTO to have a conversation about delivering business outcomes, which is very different than where we've been in the past.

And so when you mentioned the orchestration layer, is that what you really mean by a programmable network?

Sure. Programmable really is it's defined by a couple things number one can i see it through a single pane of glass can i see your screen on your computer screen can i look at the network and see the whole thing where's the circuit what what are all the qualities of it what bandwidth is it you know how's it performing what security services do i have on it etc can i see it on a computer screen And can I manage provision and support it without actually having to physically, you know, go do intervention?

And so how disruptive is this, you know, in terms of a shift? And where do you see the marketplace relative to where you're going?

So it's incredibly disruptive on a bunch of different fronts. So the first thing is it's disruptive from a business model perspective. So let's talk about old telco, point-to-point, static, bill every month. Take a couple of months to deploy a circuit. Set it up, and you're good to go for a long, long, long, long, long time. You're not going to get much innovation, right? But you're going to have this static route that's there for you if you need it. that's not where we are now we're saying that ai requires data to be moved from anywhere to anywhere in real time which is non-deterministic so you can't actually build a physical network with the legacy business model to support your ai ambitions today because you wouldn't be able to afford it you'd need to put a link into every single building and every single cloud and every single data center. What we're selling is on-demand and consumption-based. We're selling an option to consume these services on our platform, and that's incredibly disruptive from a business model perspective. But we're also, you know, doing a lot of technical innovation that's disruptive to existing business models. I'll give you two examples. One is colos, you know, or where meet-me rooms where traditional enterprise connected through these co-location facilities and carrier neutral facilities into the cloud. Tens of billions of dollars of fees to get that connection. When we built out, you know, PCF for the hyperscalers, we also worked with them to start to conceive of a brand new architecture for cloud connectivity. And our cloud on-ramps bypass these co-location facilities and go directly into the cloud so it bypasses that fee it's more secure it's higher capacity and it's more cost effective that's one how about another example of of network innovation to disrupt the marketplace as people data and applications geographically dispersed you have this proliferation of these colos as well as firewalls right every time you have a person that needs to access your network somewhere you have to segment that part of the network and make sure that you have local policy to protect that person's data and also to protect the company from you know the the motions of bad actors as well as as whatever that person is consuming on the network when when people keep dispersing you've got more and more proliferation or sprawl of these firewalls and it all need to be managed locally from a policy perspective right We now have a platform that allows us to manage policy centrally with a single cloud service rather than locally across hundreds or sometimes thousands of different firewalls. One service centrally cloud provisioned versus hundreds or thousands of physical interventions locally is a huge economic shift. We save tens of millions of dollars of hardware for our customers, and we can deploy things instantly, which is obviously, you know, sort of the way of the world these days. So it's not just a business model disruption, but it's also technically we continue to innovate. I've got a bunch more examples, but I'll leave it there.

Now, this is great. So just the centralizing security essentially is what you're describing. So through software, you're able to centralize a security for multiple business locations, customer access points. And so you're delivering the same quality, reliability, security. I would argue better. But from an easier point.

It's more efficient, it's faster, and it's more secure. And Mike, I never understood when I was working for Microsoft, leading their U.S. business, I could never understand why network wasn't cloudified. Compute and storage were cloudified. We could do all these things with compute and storage, but never with networking. I couldn't understand it. And then when I got into the industry, really telco had seeded innovation to all of the tech companies outside of the network. And Lumen is bringing all of that innovation back into the network.

I think as I think about what you're describing, it feels to me like the reason maybe network's been tougher is because there's such a physical aspect to it, right? Where, you know, cloud compute, you can locate it in different places and get similar.

I don't know. With digital twin technology, we can instantaneously create a digital network. So that's why I never really got it, because, you know, have you seen chips? Like, they're physical, too. You know, storage, compute, physical. But in our minds, all digital. You can actually go find that hardware somewhere. So the fact that there's a physical network, yes, it's geographically dispersed, and, you know, it happens to be in the ground, which has its own set of, you know, challenges, Sometimes it's aerial. But for the most part, digitizing the network was logical, and it's absolutely essential for AI. We cannot achieve our AI ambitions in this country at a global level without a digitized network.

When you think of the Lumen value proposition to customers and then ultimately to shareholders, how do you rank the importance of your physical network versus your software and the technology that you're using to now in the future deliver network? Maybe there's an element of this that's people and resource. How do you think about what your greatest, most valuable assets are?

Back in the day, before we started disrupting the industry, it was just a physical game. You always wanted to win the build. You always wanted to have the physical infrastructure. Since we've created a programmable network, we are now agnostic to the underlying fiber itself and to any cloud or provider. So you can run our services across, which is great, across anybody's fiber, which is great because there's this notion of diversification. Customers want to have multiple routes to get to the same thing, and they tend to do that through separate carriers. We can do that for them quite easily. But what's more is we can orchestrate and make AI work on anybody's network. So back to your question. It used to just be table stakes. I've got to have the fiber to win the service business. That's no longer the case. Lumen can operate globally now, which expands our TAM massively. But probably more importantly, we do have the world's biggest and best network. That's my opinion. And I think that it compounds our value in North America for sure, because I can build on ramps, because I've partnered with the cloud companies to build multi-cloud gateways so I can ship data from and to any cloud and in between clouds really, really well. And so that's how we think about it moving forward is that sometimes I want to have the physical link. And I want to have the physical link because I can embed incredible technical capabilities into it to do things that others can't. But, you know, since I've been with the company, when I started, we were 12 million fiber miles strong. By the end of 2031, we will be 58 million fiber miles strong, so almost quintuple what it was. That's to serve the hyperscalers, but also we've reserved a very large percent of that network for our enterprise business, which is growing now that AI is helping companies transform.

I want to get back to that opportunity in a moment. But before we do, maybe just taking a step back, and as you think about this transformation, if you give us an update on the multi-year journey to return the company to positive financial growth, revenue, EBITDA, free cash flow.

We're right on schedule. So we promised stabilizing free cash flow, check, got that under control. The second thing is we promised EBITDA growth in 26 check on target for this year, which we're super excited about. And then third, the third step of that was returning to revenue growth. And what we've committed to, and we see a path to do so, is to return to positive revenue growth in the business segment in 2028 on target.

So coming up to the PCF opportunity and the hyperscaler opportunity, markets very focused on this. How important are future deals? I think you were at $13 billion contract value. So how important are these future deals? And do you have an update on where you are or where that's going?

First things, how important are the deals to our future? We have zero PCF business based into our long-range plans. We don't forecast it. It's very lumpy. And what that speaks to is how strong our strategic revenue growth is, right? We don't need the PCF deals to transform our business anymore. But we did at the time that we did it, that they did those deals, the first 13 billion. We really needed that cash injection and it helped us transform financially. We were able to recapitalize. We completely transformed our cap structure. We simplified from three filers down to one in combination with selling fiber to the home, you know, to AT&T, really turned the balance sheet in totality from a liability to a very strong asset. So we're not there anymore. We don't need the PCF deals in order to fund future growth. And the real opportunity for the company, the one that delivers higher margin, higher quality revenue, is the digital platform piece of it. So when we think about doing more of these deals, they've got to meet certain criteria and it's basically builds are not really something that, you know, we're signing up to do. We will do over pulls of our existing conduit because we can, you know, hit margin metrics that are accretive and we're pretty committed to delivering a mixed shift to digital that delivers, you know, margin accretion to our shareholders in addition to revenue growth.

Is there an element of this? You mentioned earlier that one of the things that you're doing is you create these PCF or have created these PCF deals. You're creating this connectivity. You're reserving extra capacity, whether it's to sell to enterprises, whether it's to connect to these clouds directly so you've got control. So is there a magnetic effect that having more of these customers, so it's beyond just like a return on capital of this specific deal, but there's this evolution of you just want to have all the strategic customers that could be winners in the future because that's going to pull through all this enterprise and the ecosystem.

Once they plug into the fabric, they're in the fabric and they have access to all of the capabilities. But when I talked about the financial transformation that the PCF allowed us to do, that's also where the source of all of our innovation came from. We launched NAS. We co-developed on-ramps with all of the hyperscalers you know we built multi-cloud gateway we garnered enough extra cash on hand to go buy an orchestration platform called Alkira all those capabilities came from that initial you know tranche and now that we have all of the biggest companies in the world plugged into the network we're continuing to innovate with them and to work with them to say how can you take advantage of our network to grow your business? And that's the magic. You know, I say I came from Microsoft. Any company or customer that could help us accelerate cloud consumption was one that we wanted to be a part of the ecosystem. And it's the same as Lumen builds this platform. We know that the way to ingratiate ourselves with those cloud companies is to accelerate consumption of their platforms. And we do that because we have bigger pipes, they're more intelligent, they're more secure, and they drive acceleration.

So you mentioned with the enhanced financial flexibility, you went out, you bought Alkira. We were talking about some of the orchestration cases earlier. What did this acquisition do to turbocharge what you're offering to customers? and what's the value that they're going to see now from having this added capability?

So think about it this way. We bought an orchestration platform that allows us to move data from anywhere to anywhere, cloud core, data centers, edge buildings. It gave us access to two things, $47 billion of TAM, right? Because companies need the ability to move their data from anywhere to anywhere. And it gave us access internationally because it's carrier and cloud agnostic. So there are so many different use cases. It's almost impossible, you know, to, can you tell I'm excited, by the way? It's impossible to go through them all. But think about, you know, Extramet, a direct connection between technology companies happens all day long. We can do this with our private network and the orchestration capability. You know, moving data from cloud to cloud, we do that exceptionally well. And again, firewall and colo sprawl, it allows us to deliver centralized cloud services that eliminates the need for local policy setting and local intervention. So it's a brand new set of capabilities. It's capabilities that are sitting with the CIO, the business decision maker, the CTO. We are now out of procurement. We don't sell physical links anymore. We sell business outcomes. Huge transformation for us, huge transformation for our customers, and something that's going to take time for us to build the muscle and for them to see us in that way.

So maybe just to double click on that just for another moment. So you're changing who you're engaging with in the organization. How far are customers along in this journey? So, you know, what percent of the customer interactions have now moved to that level versus, you know, that's where the puck is still going?

Yeah, it's a great question. So I would say that the majority of enterprises are still thinking about network from a procurement perspective. But what we're seeing in large enterprises, and I give you a hospital, a retail company, and, you know, a bank where we see enough repeating pattern where those are industries that we're approaching as such. They're no longer individual. Like, this is a play that we're running. And we've graduated from procurement to really network buyers where they're having to do a massive network upgrade in order to fulfill the ambition to the various business decision makers on their various AI use cases. The next step is one that we're doing in partnership with other technology companies. Like take Commvault, for example, backup and recovery for a security breach. how fast you can reinstate your cloud depends on how quickly you can move your data from one place to another. And to do that, you don't just need big, fat, dumb pipes. You need really big digital pipes that are intelligent and secure to allow that restoration to happen instantaneously. And so companies like Commvault are starting to recognize the true differentiation that our platform provides to their customers and they're bringing us with them. And that's the connected ecosystem at its best.

And so when you're describing that example, so is the thought that a customer in a particular building gets wiped out, they need to recover all their data. If they have a fiber pipe that's managed digitally, in that moment, it can scale up to a much higher their bandwidth beyond what the customer would normally pay. So the customer might only need up, I'm going to make this up, like 100 megabits for that location. But to get the gigs and gigs of data in quickly, what you're giving them is the ability to flex that up, get the recovery more quickly.

On demand.

On demand and go back to their normal service. But you pay for the normal service and the optionality of being able to have that.

Exactly right, on-demand and consumption-based. And not to get too crazy, but talk about data sovereignty, digital sovereignty, operational sovereignty. Once you start moving data, you start putting sovereignty at risk. You have to have a platform that allows you to do that and a private interconnection underneath, and that's why the platform is so valuable.

So you mentioned also that you're agnostic to where the pipes come from. You have, of course, this big network that you're leveraging. So it's very common for many, many years for telecom companies to sell bandwidth of other companies. One of the companies that Lumen owns, TW Telecom, from years ago, the management team would coin this as coopetition. How much of these access pipes that you don't have, you're procuring, paying another telecom or cable or someone else for versus how much of that is, you know, bring your own bandwidth and then you just manage it for the customer?

So I think in our traditional business, it's like not quite half and half, but we expect the same composition because who owns the endpoint, you know, the access point? Now we can just run anything on them with our digital capabilities. So, for example, we've talked about, you know, a very large financial institution that just standardized on Lumen Fabric.

The whole thing runs on AT&T's fiber. they're using our platform on somebody else's fiber because the services that we provide are where the value is and then the services that you're providing is this flexibility uh security orchestration orchestration control right and then the ability right that ability to see everything single pane of glass to manage the whole thing remotely so there's another concept that I think the team has been discussing, which is this digital discoverability of DIA ports. Like, what does that mean? And why or how is that a strategic unlock for Lumen in your customers?

It's a massive strategic unlock, one that I'm, again, super excited about. Because DIA, you know, analog or traditional connectivity services, right? It's an Internet product, and it's a very popular one, and it's one that's still growing, right?

It's access, for those less familiar, access to the public Internet.

That's correct. Okay. But you can also use it to get to private as well, right?

And that's how, you know, like these SD-WANs and these VPNs, right? Like you use the Internet to create private connections.

Right. So think about our install base of DIA circuits. We've got more than a billion dollars of revenue and tens of thousands, maybe more than a hundred thousand ports that are in customer locations operating those live capabilities today. These are in production circuits. The exciting thing is through our platform right now, we can see those ports. All right. And what is the breakthrough here strategically in a growth unlock, this is all about growth, is that we are now able to allow a customer to use a single pane of glass to manage that port. And you say, well, why is that interesting? Because the platform can take a traditional port and make it digitizable, which means that that customer can remotely see it manage it provision it put it in life put it out of life change the bandwidth on it change the security settings on it they can manage it digitally so it's good for them they get more capability out of what they already have but what's more is we can now sell into that customer remotely without rolling a truck and And what we can say to them is, I see you have a 1 gig or a 10 gig, and now this is not the case for every single one of these customers because it does depend on the port that they have. But we can convert that port into a fabric port, which means instead of carrying one service like it traditionally did, it can carry thousands of services. And instead of being fixed at some bandwidth of a gig or a 10 gig or whatever, we can increase their bandwidth dramatically. And we can give them all of these orchestration services and make it available through that once analog circuit that's now digitized. And anytime we sell a service on top of what's already there, it's at 80% margin. So it's great for our shareholders. It's great for customers. And it basically takes a giant install base and says, let us help you get ready for AI in a really, really efficient way, unlike any other telco sales motion.

So what's the experience of when you're upselling these services, what have been the most popular upsells so far? And do you see that evolving where you've got some new services coming out or they're out and they're just starting to sell? That could be big.

You know, if you think about kind of like the motion and you start with, you know, like basic connectivity and and transport and then you kind of like okay well we've got this on demand thing and they're like let me try that and just you know in in that basic connectivity space where it's people in buildings connecting to cloud that market grew at about one percent annually where you know if you annualize our last quarter's growth rate we were up over 200 percent growth so there's a high demand for digitization of that basic capability but then they're adding things on it and saying, hey, can you give me a security service like Lumen Defender, right, or some DDoS, and, you know, now can you help me connect to multiple clouds? Can I put in a multi-cloud gateway? Because I've got some data in Azure that needs to get over to GCP and back, and then they say, hang on a second, I need help with direct connects to technology companies, I need help with firewall sprawl, and I want to manage everything centrally, and the whole set of Alcura services on top of that. So we have an incredibly rich set of services that take everything from basic connectivity all the way through to control and orchestration of your data from anywhere to anywhere.

And then, you know, is it fair to say that Lumen doesn't have, because of the history of the company, its fair share of the business and wholesale market and that this transformation gives you the opportunity, maybe not just to get your fair share, but to go beyond that?

In the wholesale market specifically?

The broad business and wholesale market broadly.

So in the business segment, I think it was endpoint driven for a long time. And we were really heavy on the transport side and the long haul. And that was the composition. And I think you're going to see us basically becoming, I think, the provider of choice for large enterprise at the multinational level. And that's also something that I think is incredibly important to our growth plan is this ability to elegantly support multinational corporations with their AI ambitions, you know, on the global stage, which is something we just didn't have access to before.

So if we come back to the multi-year financial targets that you have, what are the next hurdles, obstacles to clear, or what's keeping you up at night?

What's keeping me up at night? Right. So what's keeping me up a night is maybe this lack of awareness of everything we just talked about on the digital side. It's the lack of understanding of how high the quality is of our strategic revenue. It is extremely high quality revenue, and it's more than half of the revenue at Lumen. It's 53% last quarter of the total revenue, and last quarter it grew 14% year over year. It's got some PCF in there, but it's also digital, and it's also waves and DIA and things like that. And there is an awakening at the enterprise level of the need to upgrade networks for AI. And we are incredibly well positioned. and that business is so healthy that it's giving us the opportunity to use legacy as an unlock and while it used to be that we harvest you know legacy revenue for cash we are now thinking about that very very differently and we're saying okay let's start to harvest the cost side of it for cash let's decommission applications let's decommission networks let's mine our copper Let's reduce the capex that we invest in that business because it's low quality revenue. It's just not as sexy as this strategic revenue that we have and the opportunity that we have. And that's what keeps me up. It's like, you know, how do we get the market to metabolize our position?

So in our last minute, what is the market getting wrong about Lumen? What's underappreciated?

I think it's exactly that. It's the growth opportunity that we have in this digital market, in the orchestration platform, and what's on the horizon for us to grow. And I think the more time we spend double-clicking on that strategic, high-quality revenue side, the better off we'll be.

Finally, how do you define winning in the future?

Look, winning is all about, for Lumen, delivering growth to shareholders. And we're very committed to doing that. We've got a plan to do it. I'm excited about it. But we only do that if we deliver huge value to customers, and we've got the portfolio to do that. So I think we become the enterprise networking for AI powerhouse with our platform, and we get others building on it, and that's what great looks like.

Kate, it's great to see you. Thanks so much for joining us.

Yeah, likewise.