It was a mixed bag for Lumen Technologies in Q2 2022, as the company surpassed expectations for its Business segment but delivered lackluster results in its Mass Markets division.
Overall revenue fell 6% year on year to $4.6 billion, while net income dropped from $506 million to $344 million. Mass Markets revenue fell nearly 15% year on year to $1.19 billion, though Lumen CFO Chris Stansbury said on an earnings call this included a $122 million impact from the end of the CAF II broadband subsidy program at the end of 2021. Absent this impact, Mass Markets revenue would have fallen 6.6%, he said.
Within the Mass Markets category, fiber broadband revenue grew 16.2% year on year to $151 million, but this was more than offset by a 5.7% drop in other broadband revenue and a 29.8% slide in voice and other revenue.
Lumen gained 28,000 fiber subscribers in the quarter, to reach a total of 858,000 Quantum Fiber customers. However, it shed 118,000 non-fiber broadband subscribers, leaving it with an overall loss of 90,000 broadband subscribers.
CEO Jeff Storey noted Lumen’s pace of fiber enablements has doubled since Q4 2021, but said the business is facing headwinds from supply chain and labor constraints. While it is working with suppliers to navigate equipment and materials shortages, Storey said “labor shortages in permitting departments causes problems for us. Labor challenges in electric companies cause problems with us for pole attachments. And so there are other people's labor challenges that do cause us to slow.” Still, he said the company is pushing to achieve a previously stated goal of reaching 1 million new fiber enablements by the end of this year.
Meanwhile, in the Business segment, revenue of $3.4 billion was down slightly from $3.5 billion, but beat analyst consensus estimates of $3.36 billion. Analysts at MoffettNathanson highlighted the result as notable given AT&T and Verizon’s enterprise units both struggled in Q2. A chart compiled by MoffettNathanson showed Lumen’s 3.4% decline in Business Segment revenue in Q2 was a marked improvement from declines of around 5% over the previous four quarters.
“Contrary to our expectations, Lumen bucked the trend, with performance in its business wireline segment noticeably improving rather than deteriorating,” they wrote.
Despite macroeconomic headwinds, Storey expressed confidence Lumen’s enterprise customers will continue to invest in network transformations.
“Historically, we've seen that during economic downturns, customers will accelerate some of that so that they can gain efficiencies within their own business. And so that's kind of what we're seeing today,” he concluded.