Lumen Technologies To Drive Growth Through Two Significant Divestitures

‘We are not pleased with our revenue performance year to date and have a solid plan to improve our revenue trajectory as the economy re-opens and our new initiatives take hold,’ the service provider‘s CFO tells investors.

Lumen Technologies, the company formerly known as CenturyLink, confirmed Tuesday plans to divest itself of two parts of its business as it faces some financial headwinds.

The service provider said it’s selling its incumbent local exchange carrier (ILEC) business, which includes its consumer, small business, wholesale and mostly copper-served enterprise customers and assets in 20 states to investment management firm Apollo Global Management in a $7.5 billion deal. The deal tops earlier reports that Lumen was planning to offload its consumer operations in a $5 billion deal that emerged in July.

Lumen will hold onto its ILEC assets in 16 states, as well as its national fiber routes and its competitive LEC networks. The company expects the deal to close during the second half of 2021.

Lumen in July also revealed plans to divest its Latin American Business to investment firm Stonepeak for $2.7 billion in another deal that the company said will help it return to revenue growth and leave room for Lumen to invest in strategic business services and fiber.

“We’re excited about the two transactions. Our overall company profile is rapidly changing as we invest in the business,” said Jeff Storey, Lumen’s president and CEO said during the company’s Q2 2021 earnings call on Tuesday evening. “We’ve done these transactions to drive investment and operational focus within the remaining business.”

[Related: Lumen Technologies CEO: ‘We’re Not Satisfied’ And Are Focused On Growth]

Monroe, La.-based Lumen generated 72 percent of its revenue from business services, a segment that had been stressed in recent quarters because of declining small- and midsize-business revenue and the impact of the COVID-19 pandemic on business buying trends.

Lumen’s Large Enterprise segment dipped 4.3 percent to $931 million during the quarter compared to revenues of $973 million a year ago. Mid-Market also slipped by 9.7 percent from $755 million in Q2 2020 to $682 this quarter. The service provider eliminated its SMB reporting segment during the first quarter of 2021.

Storey told investors that while the company is confident that the sales cycle will improve for enterprise customers due to growth trends the company is seeing in compute, applications, fiber and infrastructure, factors such as the delta variant could work against the service provider as companies change the way they return to work.

Lumen’s total business segment revenue totaled $3.52 billion during the second quarter, a 5.1 percent decrease from last year’s result of $3.71 billion. The consumer segment, which Lumen renamed “Mass Markets” in Q1, brought in 28 percent of the company’s revenue. Wholesale revenue also continued to slump during Q2 2021, falling 5.5 percent to $905 million from $958 million in the year-ago quarter.

“In the second quarter, market conditions remain challenging,” said Neel Dev, Lumen’s CFO. “We are not pleased with our revenue performance year to date and have a solid plan to improve our revenue trajectory as the economy re-opens and our new initiatives take hold.”

The service provider this year has been investing in its core assets, including fiber, edge computing, and the cloud-based Lumen platform, which brings together global networking, cloud edge computing, security expertise and collaboration services, as ways to drive long-term growth and success, according to Storey. The company is looking at other possible “opportunistic” areas of growth, the executives said.

Lumen is also partnering with a number of IT leaders, such as IBM, VMware, and Zoom, with the Lumen platform, which Storey called a “growth amplifier” for enterprise customers. “We can partner with [these providers] to bring their capabilities to our customers and our capabilities to their customers. Those are some of the things that we’re doing and will continue to do to amplify growth for our enterprise customers,” he said.

For the first quarter that ended on June 30, Lumen reported net income of $506 million compared to $377 million in the same quarter a year ago. The company reported total revenue of $4.92 billion and diluted earnings per share of 46 cents, a 5.2 percent decline compared with $5.19 billion and 35 cents per share in Q2 2020.