Lumen will lay off 4% of its workforce as it continues to deal with nearly $20 billion in debt, CEO Kate Johnson announced during third-quarter earnings today.
“We’ve made the difficult decision to reshape and resize Lumen for growth,” said Johnson. The reorg “along with additional optimization initiatives” is expected to generate annualized savings of around $300 million.
As of September 30, Lumen had approximately 30,000 employees, which would mean 1,200 employees will be impacted by these layoffs. As a result of this plan, Lumen expects to pay severance and related costs in the range of $55 to $65 million, according to a filing from the company.
The workforce reduction is expected to be substantially completed by the end of the fourth quarter of 2023.
The layoffs come in addition to “restructuring the balance sheet” in an effort to reposition Lumen for growth, Johnson said.
Other actions the company has taken to reduce its debt and spur growth include the sale of its EMEA business, which Johnson said is expected to be completed on November 1. That transaction, originally announced in November 2022, will generate approximately $1.5 billion in net after tax proceeds, which Lumen anticipates will be used for debt reduction.
Lumen also today announced an agreement with creditors that hold over $7 billion of the outstanding debt of the company and its subsidiaries. Johnson said the transaction will extend a large portion of its debt maturities and remove questions about the company's compliance with debt covenants.
Two weeks ago, Lumen announced the sale of the majority of its CDN contracts to Akamai, a transaction that will enable the company “to continue to focus our resources on businesses where we can differentiate ourselves in the market at scale,” Johnson said.
The road ahead
Looking ahead, the company will remain focused on stemming churn and legacy product revenue declines, evolving new products, as well as continuing to expand its fiber presence.
Johnson said Lumen has seen “strong growth” in Quantum fiber enablement, with approximately 141,000 fiber locations enabled during the third quarter. That said, she noted subscriber adds this quarter were below Lumen’s expectations.
The company ended Q3 with 896,000 fiber broadband customers, up from 813,000 in Q3 2022. But its non-fiber broadband customer figure fell from nearly 2.3 million to 1.9 million.
“During the quarter, we took significant steps to improve operations as we combine CenturyLink fiber with Quantum fiber, merging all inventory and field tech systems into one and vastly improved order to install commitment,” Johnson said.
She continued: “While we believe these operational activities coupled with lower move activity, dampened subscriber ads this quarter, we do know that we need to do better selling and penetrating existing belts. Therefore, as we face a more constrained capital environment ahead, we'll prioritize sales and marketing investments over enablement growth.”
Indeed, New Street Research posited in a note to investors Tuesday evening "We think Lumen’s struggles are company-specific."
Lumen will slow its build pace to 500,000 new locations in 2024, down from the 800,000 it was originally targeting. It will also focus on going after new markets, with “huge potential” in the digital inclusion market. Last week, Lumen won its first large multi-year deal in the space representing over $400 million of revenue when California chose the company to help build out an open access network across the state.
“We're now bringing the same commercial framework for public-private partnerships to other states as they seek to bridge the digital divide,” Johnson said.
Lumen NaaS plans roll forward
During earnings, Johnson claimed Lumen was making “great progress” in driving adoption of its Internet on Demand, a feature of its new Network as a Service (NaaS) platform that enables customers to instantly connect to public data centers and port-enabled business locations.
Lumen today announced that it is integrating its NaaS with Equinix Fabric, a global, software-defined interconnection platform operated by Equinix. This will enable Equinix's 10,000 customers to buy, use and manage Lumen’s Internet On-Demand feature.
In the announcement, Lumen said it will broaden its hyperscaler partnerships to “deliver new services under the NaaS umbrella.” The Lumen NaaS portfolio will also expand to include security services, such as distributed denial of service (DDoS), secure access service edge (SASE) and edge services.
Q3 financials
Lumen reported a net loss of $78 million in Q3 2023, compared to reported net income of $578 million in the same period of 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 was roughly flat at $2.89 billion while Mass Markets revenue fell 2% to $747 million.
CFO Chris Stansbury said the “macro environment and the overhang of Lumen’s creditor discussions has resulted in revenue headwinds, which will pressure our results over the next few quarters.” However, he added the company expects to see “sustained improving revenue trends in mid-2024.”
In September, Stansbury noted that as the company works toward its growth goal, enterprise will continue to take priority.