Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported August 4, 2026 · Beat 6 of last 7 quarters
The Buildout is a website built on agentic AI tools, currently in beta, and could have factual errors.
Lumen's accelerating NaaS adoption and strategic revenue growth signal that enterprises are shifting to consumption-based, programmable networking for AI workloads, which could drive demand for fiber and network infrastructure. The company's disciplined approach to PCF deals—focusing on monetizing existing assets rather than new builds—may temper fiber construction growth but could benefit partners like Corning and Dycom if Lumen continues to deploy network where economics make sense. Alkira's integration could expand Lumen's digital services and increase demand for cloud connectivity, potentially benefiting cloud providers like AWS and Google.
Lumen reported Q2 revenue of $2.805B, slightly ahead of consensus, with total business revenue down 1.8% YoY to $2.44B and North American enterprise revenue down only 0.2% YoY. Strategic revenue grew 14% YoY to 53% of total business revenue, while legacy declined 15%. NaaS adoption continued to accelerate, with over 3,000 customers and strong port/service growth. The company closed the Alkira acquisition in early July, which is expected to be immaterial in the near term but a tailwind to digital growth. PCF revenue was $91M in Q2, including a $36M accelerated State of California milestone. Adjusted EBITDA was $802M, and free cash flow was $327M.
Management reaffirmed full-year guidance, noting that Q2 results were in line with expectations and that the first-half State of California PCF milestone was pulled forward into Q2, reducing back-half PCF revenue. They expect adjusted EBITDA to be seasonally lower in Q3 (roughly $100M less than Q2) and to inflect in Q4 to hit full-year targets. The company is committed to product simplification, including the end-of-sale of enterprise voice, and is reallocating capital toward digital, platform-based services. They plan to quantify Alkira's impact on accelerating digital growth when they provide 2027 guidance. Management emphasized that they will not chase PCF deals with subpar returns, focusing instead on monetizing underutilized assets and driving higher-margin digital services (targeting ~80% adjusted EBITDA margin on incremental services).
“Great companies don't win by fitting neatly into existing categories. They win by solving hard problems in new ways, sometimes creating new company categories along the way.”
on Strategy and category creation
“We're not managing decline. We're reshaping Lumen around where demand is moving, simplifying the legacy portfolio, reallocating capital towards higher-growth digital initiatives and building a revenue mix designed to create more durable shareholder value.”
on Transformation and capital allocation
“We are not going to chase things for headline value anymore. That's just not what we do. It hasn't been what we've done, and we're not going to start now.”
on PCF discipline
Are you seeing the transition from legacy to strategic revenue happening more quickly? And what does the back-half revenue decline look like given Q2 business revenue was down 1.8%?
Management reaffirmed full-year guidance, noting that the first-half State of California PCF milestone was accelerated into Q2, reducing back-half PCF revenue. They highlighted that strategic revenue is growing 14% while legacy is down 15%, but it's not a one-for-one match. They noted that over 20% of new NaaS customers are brand new to Lumen, and ~60% of existing customers are adding NaaS circuits rather than migrating, indicating share gains. They also pointed to strong 100/400G wave growth driven by neoclouds and rapid routes.
Can you give us an idea of the MRR of an Alkira customer and whether you're taking share in the waves business?
Management said it's too early to provide MRR metrics, as the focus is on driving customer adoption and then expanding services per port. They noted that Alkira renewals are being upsized, and they are now engaging with CIOs and CTOs on strategic network upgrades for AI. On waves, they confirmed they are taking share, citing rapid routes as a key advantage and strong sales growth.
Can you comment on the size of the funnel and where deals are in the funnel for new enterprise deals? And can you add clarity on PCF pricing and yield expectations?
Management declined to provide specific funnel details but noted a strong pipeline for PCF deals. They emphasized that PCF deals to date monetized underutilized conduit paid for decades ago, with attractive returns. For new builds, they said returns are at or below cost of capital, so they will not chase such deals. They prefer to let others build fiber at subpar returns while Lumen provisions higher-margin services on top.