Lumen Q3 Strategic Revenue Rises as 2026 Outlook Holds

Lumen Technologies reported continued growth in strategic services in the third quarter of 2026, but declines in legacy operations and Mass Markets weighed on overall revenue. Strategic revenue increased 9.6% from a year earlier and reached 55% of total business revenue, while the company maintained its full-year financial outlook.

Total revenue was $2.72 billion, down 12.1% year over year and 3.2% sequentially. Total business revenue declined 4.5% to $2.35 billion, as a 17.2% contraction in legacy revenue to $1.07 billion more than offset strategic revenue growth to $1.28 billion. Strategic revenue slipped 0.8% from the second quarter, while legacy revenue fell 7.6%.

Mass Markets revenue was $369 million, down 41.5% year over year but up 2.2% sequentially. Third-quarter revenue included $27 million of deferred support payments under the Federal Communications Commission’s Connect America Fund Phase II program.

Strategic mix expands as enterprise results diverge

Lumen said strategic sales rose 30% year over year, while strategic Waves sales increased 22% from the previous quarter. The company signed an additional $700 million of Private Connectivity Fabric, or PCF, agreements year to date, taking cumulative signed PCF deals above $13.5 billion.

PCF generated $66 million of third-quarter revenue and $117 million of cash receipts, while related capital expenditures totaled $269 million. Lumen said its growth plan includes only signed PCF agreements and described the model as customer-funded, with operations and maintenance contracts containing inflation escalators.

Performance varied across customer groups. Large Enterprise revenue increased 3.6% year over year and 2% sequentially to $810 million. Mid-Market Enterprise revenue fell 7.3% to $430 million, while Public Sector revenue declined 9.9% to $429 million. Wholesale revenue decreased 7.3% to $607 million. Overall North American Enterprise revenue was down 3.1%, and total North American business revenue declined 4.2%.

The company reported a year-to-date direct-margin advantage of more than 15 percentage points for strategic services compared with legacy products. Strategic revenue carried a direct margin of about 80%, versus roughly 65% for legacy revenue, according to the presentation.

Lumen also reported expanding use of its Network-as-a-Service platform. Active NaaS customers rose 38% sequentially, active ports increased 35%, and active services grew 24%. About 20% of Internet on Demand ports now carry more than one service, which the company said supports additional operating leverage.

Network demand tied to artificial intelligence remained a central focus. Total traffic on Lumen’s global public internet backbone grew more than 20% year to date, while observed traffic destined for specified AI models, infrastructure companies, hubs and developer tools increased more than 1,000% from April through the presentation date. Lumen deployed 5 million fiber miles during 2026, funded by signed PCF deals, and said installations of new Waves services for AI companies were five times higher than in the preceding comparable 12-month period.

EBITDA declines, though margin improves

Adjusted EBITDA excluding special items was $715 million, down 9.1% year over year. The corresponding margin increased 80 basis points to 26.3%, indicating that the EBITDA decline was smaller than the drop in revenue. Adjusted EBITDA before excluding special items was $521 million.

Special items included $156 million of modernization and simplification costs and $64 million of transaction and separation costs, partly offset by other items. The modernization program covers network infrastructure, the product portfolio, IT systems and the workforce, and is designed to generate $1 billion of annualized run-rate cost savings by the end of 2027.

Cash flow from operations was $518 million in the quarter, while capital expenditures excluding special items were $796 million. Free cash flow excluding special items was negative $76 million. For the first nine months of 2026, cash flow from operations totaled $2.81 billion, capital expenditures were $2.44 billion and free cash flow was $1.01 billion. The year-to-date figure included cash-flow effects related to the company’s Mass Markets fiber-to-the-home divestiture.

2026 outlook maintained

Lumen kept its 2026 outlook unchanged. The company expects adjusted EBITDA of $3.1 billion to $3.3 billion and free cash flow of $1.9 billion to $2.1 billion. Capital expenditures are projected at $3.2 billion to $3.4 billion, with net cash interest of $650 million to $750 million. Cash income taxes are expected to be a refund of $350 million to $450 million, reflecting a $420 million refund, including interest, from recent tax legislation.

Free-cash-flow guidance includes $729 million of proceeds from the fiber-to-the-home divestiture that were classified as operating cash flow and primarily used to reduce debt in the first quarter. Lumen said more than 80% of its debt is fixed-rate and maintained a multi-year leverage target of 3.0 to 3.5 times.

The company also estimated that decommissioning copper infrastructure across its footprint could generate $1 billion to $1.5 billion of pre-tax net proceeds over five years, based on current copper spot prices. That estimate remains dependent on recovery costs, market conditions, regulatory requirements and customer migration.

Other uncertainties identified by Lumen include changes in customer demand, competitive and technological pressures, execution of network expansion and modernization programs, cybersecurity incidents, acquisition integration risks, capital-market conditions and the company’s ability to reduce debt and achieve its leverage target.