Partner: Lumen Restructuring, Creditor Agreement 'A Move in the Right Direction'

Lumen Technologies channel leaders say they expect more investment in their business despite a newly announced Lumen restructuring plan that will impact 4% of the company.

Lumen CEO Kate Johnson in the service provider's Q3 earnings call shared several moves Lumen is making to adjust its balance sheet, lower costs and "reduce the noise" around the company's debt structure, as well as simplify the business. First, Lumen announced a transaction support agreement with creditors that will "extend maturities of the debt instruments" as well as add $1.2 billion in financing.

Moreover, Lumen seeks to save $300 million annually through cutting its headcount.

Lumen's Kate Johnson

"In addition to restructuring the balance sheet, we've made the difficult decision to reshape and right-size Lumen for growth," Johnson told investors and analysts on Tuesday. "As you might expect, this is a difficult but necessary decision given the revenue pressure we felt from the noise in the market regarding our creditor discussions as well as global macroeconomic pressures."

In addition, Johnson pointed to the sale of Lumen's EMEA business to Colt (which closed on Wednesday) and certain content delivery network (CDN) serviced contracts worth about $20 million in revenue to Akamai.

She added that Lumen willbecome more agile and efficient and more competitive in its markets as a result of the changes.

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What's the market "noise" Johnson was referencing? Chief financial officer Chris Stansbury said the questions surrounded "debt structure and our ability to refinance it."

"It unquestionably had a near-term impact on sales that we expect will impact revenue. The way we offset that is the cost-reduction program that Kate announced today," Stansbury said.

Iowa-based technology advisor Carrier Access partners with Lumen. Carrier Access chief operating officer Shane Stark said channel partners and customers will benefit if Lumen avoids chapter 11 bankruptcy. He said he's pleased about Lumen's agreement with creditors.

Carrier Access' Shane Stark

"I think it's a move in the right direction. There's a lot of folks that are questioning chapter 11 potential with Lumen. We have a huge Lumen base, so our customers are asking us the questions too," Stark told Channel Futures. "As is most important with any business, financial security is at the top of the list."

Lumen Earnings

Revenue decreased 17.1% year-over-year, but that number reflects Lumen's sale of its Latin American and 20-state ILEC business. Those divestures, as well as commercial agreements, accounted for 73% of the revenue declined. With that in mind, Lumen pointed out its improvements from Q2 to Q3, which both exclude the revenue lost from the divestures.

Lumen pointed out the category of "enterprise channels" as its bright spot. That category, which counts business revenue but not wholesale, grew 1.1% from quarter-to-quarter to $2.1 billion.

In the meantime, public sector grew 7% from quarter-to-quarter to $444 million up from $414 million. Midmarket quarter-over-quarter declined 2% to $498 million, down from $555 million a year ago.

Cost of services and products went down from $1.99 billion to $1.85 billion year-over-year.

Johnson said Lumen has leaned heavily on analytics to tackle customer churn. Lumen reported a 4% reduction in disconnects.

"This is about sales execution that ultimately yields growth. Simply put, there's just two ways to grow. You either sell to net new customers, or you sell more products and services to existing ones. We're making progress against both of these growth vectors," she said.

Lumen has added more than 2,500 new logos to its base in 2024, according to Johnson. In addition, the company reported a 47% increase "growth" portfolio products cross-sold to established customers. That category, includes secure access service edge (SASE) and unified communications, is the largest of Lumen's three main product segments. Lumen's "nurture" category includes VPN and ethernet services; the bucket stayed nearly the same as the previous quarter. Its legacy "harvest" category declined 4% quarter-over-quarter.

Johnson also reported a 14% higher seller productivity.

Lumen Restructuring: Channel Impact

Lumen national vice president of indirect channel sales Sara Seegers oversees the vendor's efforts with tech services distributor (TSDs) and technology advisor partners. She expressed confidence in the company's trajectory inside and outside of the channel.

“The positive, rapid transformation of Lumen continues under Kate’s outstanding leadership. We are positioning our company for growth and these investments will continue to benefit our amazing partners. Our partner ecosystem is critical to Lumen, and our commitment to the channel has never been greater. The opportunity ahead for our partners is immense and exciting.”

Stark said Johnson, who started working at Lumen in late 2022, took on a "heavy lift" in her new job.

"They're doing the things that they can to get this thing back on track. So far for us, we can see they're doing a better job of being easier to do business with. And they seem to be trying to simplify things for partners and for customers," Stark said.