In a strategic move to address its substantial debt load, Lumen is set to lay off 4% of its workforce, as announced by CEO Kate Johnson during the third-quarter earnings call.

The company currently grapples with nearly $20 billion in debt and aims to optimize its operations and reduce costs significantly.

"We have made the challenging choice to restructure and downsize Lumen with a focus on future growth," stated Johnson. She also mentioned that the restructuring, along with additional optimization initiatives, is expected to generate annualized savings of around $300 million.

Lumen, as of September 30, had approximately 30,000 employees, which means that approximately 1,200 employees will be affected by these layoffs.

In response to this plan, Lumen anticipates incurring severance and related costs in the range of $55 to $65 million, according to a filing from the company. The workforce reduction is anticipated to be "substantially completed" by the end of the fourth quarter of 2023.

These layoffs are part of Lumen's broader strategy to reposition the company for growth, which includes restructuring its balance sheet.

The company is also in the process of selling its EMEA business, which is expected to generate approximately $1.5 billion in net after-tax proceeds to be used for debt reduction. The sale of a majority of its Content Delivery Network (CDN) contracts to Akamai is another step toward focusing on its core strengths.

Looking Ahead

Lumen's future strategy is focused on stemming churn and legacy product revenue declines while evolving new products. The company also plans to continue expanding its fiber presence.

Johnson highlighted that Lumen has seen substantial expansion in Quantum fiber enablement, enabling approximately 141,000 fiber locations during the third quarter. However, subscriber additions this quarter fell short of Lumen's expectations.

At the close of the third quarter, the company had 896,000 fiber broadband customers, marking an increase from 813,000 in the same period of 2022. On the other hand, its non-fiber broadband customer base declined from nearly 2.3 million to 1.9 million.

While Lumen believes that operational improvements contributed to the subscriber addition shortfall, it acknowledges the need to enhance sales and marketing strategies. Given the constraints of the capital environment, Lumen will prioritize sales and marketing investments over enablement growth.

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Analysts' Perspective

New Street Research suggests that Lumen's challenges are primarily company-specific, indicating that they may not be indicative of broader industry trends.

Lumen's Focus on New Markets

In the future, Lumen plans to target new markets, with a particular focus on the digital inclusion market.

Recently, the company secured a significant multi-year deal worth over $400 million with California to help build an open-access network across the state. Lumen aims to replicate this framework in other states to bridge the digital divide.

Lumen NaaS Expansion

Lumen is making progress in driving the adoption of its Internet on Demand, a feature of its Network as a Service (NaaS) platform that allows customers to connect to public data centers and port-enabled business locations instantly.

The company has also announced the integration of its NaaS with Equinix Fabric, a global, software-defined interconnection platform, to extend its services to Equinix's 10,000 customers.

This expansion will enable Lumen to offer new services under the NaaS umbrella, including security services such as distributed denial of service (DDoS), secure access service edge (SASE), and edge services.

Q3 Financials

In terms of financials, Lumen reported a net loss of $78 million in Q3 2023, compared to a net income of $578 million during the same period in 2022.

Consolidated Q3 revenue of $3.64 billion was in line with industry expectations but down 17% year-on-year from $4.39 billion. Business segment revenue remained relatively stable at $2.89 billion, while Mass Markets revenue decreased by 2% to $747 million.

CFO Chris Stansbury attributed the revenue headwinds to the macro environment and ongoing creditor discussions.

However, he expressed optimism about seeing sustained improving revenue trends in mid-2024. Stansbury also emphasized that the enterprise segment would continue to be a top priority as the company works toward its growth goals.

Lumen's decision to reduce its workforce and undertake other cost-cutting measures is a strategic move aimed at addressing its substantial debt and positioning the company for future growth.

The company's focus on expanding its fiber presence and venturing into new markets, particularly in the digital inclusion sector, reflects its commitment to diversifying its offerings.

Additionally, the integration of its NaaS with Equinix Fabric and plans to offer new services under the NaaS umbrella highlight Lumen's commitment to staying competitive in the evolving telecommunications landscape. While the company faces financial challenges, it remains determined to achieve sustained revenue growth in the coming years.

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