Lumen recorded a non-cash goodwill impairment charge of $8.79 billion in the second quarter, driven by a difference between the company's market capitalization and the carrying value.
Separately, Lumen used cash on hand to make $938 million in tax payments in Q2 related to proceeds from its two divestitures received last year.
On an earnings call Tuesday CFO Chris Stansbury assured that Lumen has now paid all the transaction-related taxes for those divestitures. The company’s stock still fell 7.4% in after-hours trading.
Reported revenue was down 20.6% from the second quarter last year, with the impact of the divestitures and related commercial agreements representing approximately 72% of that decline.
Lumen’s large enterprise segment made up a third of the company’s revenue during the quarter but fell 17.4% during the second quarter. The midmarket enterprise segment declined 9.7% to $507 million, and Enterprise Channels – which represented over half of Lumen’s Q2 2023 earnings -- fell 15.3% from the year prior.
Stansbury pointed out that these results should take into account that in the second quarter of last year, Lumen benefited by approximately $25 million related to a nonrecurring IT professional services agreement that was provided in connection with the now divested 20 state ILEC assets.
“As I mentioned earlier, excluding the impacts of our divested businesses, this quarter's results showed a similar level of strong year-over-year growth to the first quarter of this year,” Stansbury said.
Still, Lumen has been facing debt and low growth due to a decline in traditional internet services and slower IT buying decisions.
It doesn’t help that the company’s stock also fell 10% last month following an investigative journalism exposé published by the Wall Street Journal (WSJ) that shed light on a lead contamination issue involving at least 2,000 copper cables spread across the U.S.
Addressing that report, Stansbury said Lumen “began phasing out lead-sheathed cables from our network infrastructure during the 1950s.”
Based on an initial analysis, Lumen currently estimated that less than 5% of its approximately 700,000-mile copper network contains lead, of which the company believes “the majority is buried in conduit-based infrastructure.”
“We thoughtfully manage our network to ensure the health and safety of our employees and the communities we serve,” Stansbury said during the earnings call. “We also regularly assess our safety protocols and meet established regulatory and scientific standards related to potential lead exposure for workers. Moving forward, we're committed to working with independent experts, regulators, and our industry peers to maintain our positive track record of safety and compliance.”
When asked if Lumen has had any discussions around remediation of the lead-clad cables, Stansbury said, “it’s very early for that… we don't really think there's any meaningful way to estimate what that would be at this point.”
Hopeful outlook driven by quantum, NaaS
On the earnings call Lumen CEO Kate Johnson said that despite turbulence, the company is seeing “early traction” in its key growth areas, including migrating customers from legacy telecom platforms to modern ones.
Johnson said Lumen is seeing progress in its focus on migrating customers from VPN to SD-WAN and secure access service edge (SASE), for example.
In the company’s mass market segment, it has added around 250,000 fiber-enabled locations this year so far, Johnson noted, “and we're confident that we can meet or exceed our plan of 500,000 for the year.”
Lumen expects to nearly double its current Quantum Fiber footprint to over 7 million locations in the next four years and added 21,000 Quantum Fiber customers in the second quarter (bringing total subscribers to 877,000).
Stansbury said Lumen will likely add Quantum subscribers at a faster rate in the second half of the year with a planned increase in Quantum marketing and a conversion of the CenturyLink Fiber brand to Quantum Fiber in the third quarter.
Johnson also pointed to two “big breakthrough innovations” from the company in Q2. Lumen unveiled ExaSwitch, an on-demand, 400-gig capable optical interconnection platform in mid-June.
And this week Lumen launched a network-as-a-service (NaaS) platform called Lumen Internet On-Demand – a move the company claims will “disrupt the telecom industry.”
Johnson concluded, “I hope that it's clear we're playing to win here.”
This story was updated 8/4/23 to reflect that the non-cash goodwill impairment charge of $8.79 billion and the transaction-related tax payments Lumen paid in Q2 were not correlated, as an earlier version of the article might have suggested.