Lumen Technologies To Grow Slumping Enterprise, Midmarket Segments By Retooling Business Units
The carrier’s multi-faceted growth strategy to increase profit in its enterprise and mid-market segments is to regroup the business unit and focus on growth products and services, Lumen executives outlined during the company’s second-quarter 2022 earnings call on Wednesday evening.
Lumen Technologies, formerly CenturyLink, has struggled with profitability in recent quarters. The new strategy is to retool its business segment and focus on growth products, executives outlined during the company’s second-quarter 2022 earnings call Wednesday evening.
Lumen plans to promote its more strategic services, including network security, zero trust, UC, and the carrier’s new multi-gig premier fiber internet service, Quantum Fiber, which is offering upload and download speeds in the U.S. up to 8 gigabits per second. The service is now available to select residents and small businesses in cities near Denver, Minneapolis and Seattle, with more cities to come, said Jeff Storey, Lumen’s president and CEO.
Lumen revealed the new classifications that it will be using to “reimagine” and report on its portfolio of business services. The “Grow” segment will include the carrier‘s higher-margin offerings, such as SASE, security, cloud, and UC collaboration services. “Nurture” will include VPN Data Networks and Ethernet services, and “Harvest” will house the carrier’s legacy services, including voice.
“Within the Nurture group, we see meaningful opportunities to migrate customers to new products sets residing in the Grow group,” said Chris Stansbury, Lumen’s new CFO who joined the company in March.
Lumen’s Large Enterprise segment continued to decline in Q2 2022, slipping 6.4 percent to $884 million during the quarter compared to revenues of $945 million a year ago. Total Enterprise Channels revenues for the quarter remained relatively flat at $2.51 billion. Lumen attributed the declines in Enterprise channel revenue to legacy voice declines that offset growth in managed security and cloud solutions. The service provider eliminated its SMB reporting segment in 2021.
Lumen has had great success in complex Enterprise deals, but the downside is that these large deals often convert to revenue more slowly, Storey said. In July, the company nailed down a large deal with U.S. Customs and Border Protection that will have Lumen provide communications, internet connectivity and managed network services that support the law enforcement agency’s systems and facilities across the nation and abroad.
The company’s mid-market segment dipped 5.3 percent during the first quarter to $626 from $661 million in Q2 2021, largely due growth in cloud services that was offset by legacy declines in voice and equipment. Storey in May called mid-market a “Flywheel business” for Lumen that the company needs to ramp up.
“These larger customer wins, coupled with improving mid-market sales provide both near-term and long-term revenue opportunities,” Storey said.
Lumen’s total business segment revenue totaled $3.42 billion during the second quarter, a 2.8 percent decrease from last year’s result of $3.52 billion. Wholesale revenue, on the other hand, climbed to $910 million from $905 million in the year-ago quarter.
The COVID-19 pandemic greatly impacted Lumen’s growth, a factor that the company said is largely behind them. Customers have since realized they must continue to transform their businesses, which means more room for growth for the carrier, Storey said. “[Customers] have to transform with the products and services that we built the Lumen platform to deliver … they can use edge computing to augment their cloud computing use, edge storage to augment their on-prem storage. They are moving toward those solutions and embedding security so they can be very nimble and adaptive and innovative in the way they analyze and act on their data,” he said.
Monroe, La.-based Lumen said in February that its plan to return to growth consisted of two strategies. The first is the company’s investment in the next-generation IT solutions. The second is through two strategic divestitures that the company announced in 2021. The major divestitures were worth more than $10 billion collectively and will help the company prioritize strategic fiber investments and grow its enterprise segment, Storey said.
Lumen Technologies earlier this month announced it had officially closed the sale of its Latin American operations to Stonepeak for $2.7 billion in cash. The Latin American business, called Cirion, will now operate as an independent portfolio company of Stonepeak.
The service provider in 2021 also announced plans to sell 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. Via the terms of the deal, Lumen will hold onto its ILEC assets in 16 states, as well as its national fiber routes and its competitive LEC networks. The deal has not yet closed, but the company expects to finalize the deal in the fourth quarter.
Storey said that Lumen continues to work through supply chain pressures and inflation-driven cost increases.
For the second quarter that ended on June 30, Lumen reported net income of $344 million compared to $506 million in the same quarter a year ago. The company reported total revenue of $4.61 billion and diluted earnings per share of 34 cents, a 6.3 percent decline compared with $4.92 billion and 46 cents per share in Q2 2021.