Lumen Technologies (LUMN) Citi’s 2024 Global TMT Conference summary

Strategic transformation and growth initiatives

• Focused on transforming enterprise telecom by investing in digital connectivity, edge, and security, targeting growth in AI-driven markets.

• Three-phase AI strategy: initial focus on training, followed by inference, and ultimately machine-to-machine communication, each with increasing connectivity demands.

• $5 billion in recent deals with over 10 customers, structured as 20-year conduit leases with high upfront cash and strong EBITDA margins.

• $7 billion pipeline progressing well, with no customer fallout and high demand for services.

• At least $50 billion total addressable market (TAM) identified for AI-related connectivity, with ongoing expansion expected.

Portfolio optimization and asset management

• Revenue profile: 60% in declining legacy categories (voice, VPN, Ethernet), with focus shifting to growth assets like dark fiber, IP, and high-speed waves.

• Ongoing investment in fiber infrastructure, with 6 million miles added and another 6 million planned.

• Network unification underway, aiming for 70% unified by year-end and full integration by next year, expected to drive $1 billion in cost savings over three years.

• Consumer business considered for monetization, with both full and partial divestiture options being explored.

• Legacy assets remain cash-rich, supporting funding for transformation.

Financial outlook and milestones

• $5 billion in deals fills previously modeled funding gap for the next three years, supporting free cash flow.

• EBITDA expected to bottom in 2026 and grow thereafter, with revenue growth following 18–24 months later.

• High double-digit EBITDA margins on new contracts due to fully depreciated conduit assets.

• Tax on upfront cash from contracts is paid the year after receipt, impacting cash flow planning.

• Credit agencies view recent deals positively, with ongoing communication to support ratings.