Lumen CEO Jeff Storey: Mid-Market Is A ‘Flywheel’ Business For The Carrier

Lumen’s strategic services, including its broadband, SASE and UC offerings, will help the carrier win in the mid-market, an area of focus for Lumen as more businesses return to the office, according to the company’s CEO Jeff Storey.

Lumen Technologies, the company formerly known as CenturyLink, is involved in some complex, large enterprise deals with many moving parts, but the segment that the service provider really needs to ramp up is the mid-market, according to Lumen President and CEO Jeff Storey.

“Mid-market is the flywheel business for Lumen and we need to make sure we are driving that,” Storey said during the company’s first-quarter 2022 earnings call on Wednesday evening. The company’s mid-market segment dipped 8 percent during the first quarter to $636 from $693 million in Q1 2021, largely due to the impact of the COVID-19 pandemic on business buying trends.

Lumen’s strategic services, including broadband, security, UC, and SD-WAN, will arm the provider with the ability to win in the mid-market, Storey said. “We think we have all the answers, we just need to execute on the plan.”

[Related: Lumen CEO Jeff Storey: We’re ‘Revving Up’ Our Growth Engine]

Large enterprise, on the other hand, is a “good news, bad news” opportunity for the carrier right now. The good news, Storey said, is that Lumen has had great success in complex deals. “These are not single product plays. We integrate closely with the customer’s environment with multiple products for a very strategic and sticky relationship. These deals shift our revenue mix with managed services, security, and edge capabilities with good margin products moving up the stack,” he said.

The bad news is that large enterprise deals often convert to revenue more slowly, Storey said.

Lumen’s Large Enterprise segment dipped 8 percent to $877 million during the quarter compared to revenues of $953 million a year ago. The service provider eliminated its SMB reporting segment in 2021. Total Enterprise Channels revenues for the quarter was $2.51 billion, a 5.8 percent decline year over year. Lumen attributed the declines in Enterprise channel revenue to legacy voice declines.

Chris Stansbury, Lumen’s new CFO who joined the company in March, said that Lumen is “not yet satisfied” with its mid-market segment results.

“Short term, we need to get people back in the office [and] looking at new technology solutions for their business,” Storey said. “Longer term, we need to keep investing in an all-digital experience.”

Monroe, La.-based Lumen generated about 72 percent of its revenue from business services. Lumen’s total business segment revenue totaled $3.40 billion during the second quarter, a 5 percent decrease from last year’s result of $3.56 billion. The consumer segment, which Lumen renamed “Mass Markets” in 2021, brought in 27 percent of the company’s revenue. Wholesale revenue also continued to slump during Q1 2022, falling 4 percent to $1.28 billion from $1.43 billion in the year-ago quarter.

Storey said that Lumen is working through supply chain pressures to mitigate impact with its suppliers. “It’s not an insurmountable challenge -- I think we are doing a great job, but it is something [we] need to be aware of.”

The service provider in 2021 announced plans to sell its incumbent local exchange carrier (ILEC) business, which includes its consumer, small business, wholesale and mostly copper-served enterprise customers and assets in 20 states to investment management firm Apollo Global Management in a $7.5 billion deal. Via the terms of the deal, Lumen will hold onto its ILEC assets in 16 states, as well as its national fiber routes and its competitive LEC networks. Lumen last year also revealed plans to divest its Latin American business to investment firm Stonepeak for $2.7 billion in another deal that the company said will help it return to revenue growth and leave room for Lumen to invest in strategic business services and fiber. The carrier expects both deals to close these transactions later this year.

For the first quarter that ended on March 31, Lumen reported net income of $599 million compared to $475 million in the same quarter a year ago. The company reported total revenue of $4.68 billion and diluted earnings per share of 59 cents, a 7 percent decline compared with $5.03 billion and 44 cents per share in Q2 2020.