Lumen Technologies completed one major business divestiture last month and is close to wrapping another. Company CFO and EVP Chris Stansbury said the pair of deals will help the company allocate resources to other products at a time when Lumen is starting to see big growth opportunities.
“The company is going to get smaller before it gets bigger again,” Stansbury said at a Bank of America investor conference this week. But he added that shedding businesses–the recent sale of Lumen’s Latin America business and the pending sale of ILEC properties to Apollo Global Management–will allow Lumen to invest more efficiently across its remaining products and services.
“We’ll be focusing on a narrower set of products that are going to get those investment resources, and I think it increases their chances of success as a result,” he said.
Stansbury added that in the five months since he has joined Lumen, the company already has made some adjustments to how it allocates resources to various enterprise products. “One of the things that was very clear to me when I came to Lumen was that here really wasn't a good way to understand what the enterprise segment was for us,” he said. “We saw an opportunity to give investors more visibility, and probably more importantly, help us make better decisions internally on how we allocate resources on a product lifecycle approach.” The changes already may be having a positive effect, as Lumen beat enterprise revenue expectations during the second quarter this year.
Stansbury’s comments came as Lumen filed a Form 8-K filing with the U.S. Securities and Exchange Commission revealing the financial impact the company is expecting from those two major divestitures. Lumen’s sale of its Latin America business to private equity firm Stonepeak Infrastructure Partners closed last month. The filing stated that revenue in the third quarter will boosted by $135 million and in the fourth quarter by $200 million as a result, while the capex effect is expected to be $85 million over the the two quarters.
Meanwhile, Lumen’s sale of its ILEC assets in 20 states to Apollo is expected to close “early in the fourth quarter,” Stansbury said, and will add $500 million in revenue that quarter with a capex impact of about $75 million.
Stansbury said that as a smaller company Lumen also will continue to examine its corporate overhead cost structure for opportunities to control costs, but he emphasized that the company “sees a pathway to growth” over the next two to three years.
“When you think about our business having a growth bucket, a nurture bucket and a harvest bucket, our growth bucket is our biggest bucket right now,” he said. “Companies in our industry have been in a position where it’s been a very tough space for the last year and there has been a lot of playing on defense. And I think it’s time to start playing more offense. Part of the balancing act this year is managing costs but also making sure that we're not impairing our ability to grow next year.”
Future growth in enterprise and government segments could depend greatly on Lumen’s ability to help these organizations modify their product and services bundles and adapt to new hybrid workforce models as their previous contracts with Lumen come to an end.
“A lot of those contracts are multi-year contracts and as they come to the end, we’re asking the customer what they want to do to support secure work in a hybrid environment,” he said. “So things like SASE and edge computing are big growth areas for us where we can monetize the network, and customers start to appreciate the broad network coverage we have.”
On the fiber front, Stansbury also reiterated that Lumen remains on target for 1 million new fiber passings this year, even amid the challenges related to permitting, supply chain delays and an ongoing labor shortage.