Lumen Technologies (NYSE: LUMN) today announced its Q1 2022 earnings and provided updates on its revised full-year 2022 outlook, Quantum Fiber broadband unit, and expansion of its high-capacity ethernet services into more than 40 cities by year-end 2022.

Financial Performance in Q1 2022 – Lumen Technologies

In Q1 2022, Lumen Technologies reported revenue of $4.68bn, a 3.5% decrease quarter-over-quarter, and adjusted EBITDA of $1.97bn, a 5.8% decrease quarter-over-quarter. Therefore, the company’s adjusted EBITDA margin was 42.0% in Q1 2022, a ~100 bps decline quarter-over-quarter.

Outlook for 2022

For full-year 2022, Lumen projects adjusted EBITDA of $6.9bn to $7.1bn. At the mid-point of the company’s outlook, Lumen is forecasting a 17% decrease year-over-year in adjusted EBITDA. For drivers of Lumen’s year-over-year decline in EBITDA, see Dgtl Infra’s prior quarterly update here.

Quantum Fiber – Broadband in Q1 2022 and Beyond

Quantum Fiber is Lumen Technologies’ brand for providing fiber-based broadband services to residential and small business customers. Whereas the company’s CenturyLink brand covers its mass-marketed legacy copper-based services.

As of Q1 2022, Lumen’s Quantum Fiber passes 2.92 million premises and serves a total of 830k fiber subscribers, implying a fiber penetration rate of 28%. In terms of customer additions, Lumen gained 27k Quantum Fiber subscribers during the quarter and 110k year-over-year.

Post-Transaction Footprint

Pro forma for Lumen’s 20-state ILEC sale to Apollo, Quantum Fiber passes 2.67 million premises, within a remaining 16-state footprint. Within this coverage area, Lumen’s Quantum Fiber will serve a total of 762k fiber subscribers, implying a fiber penetration rate of 29%.

Lumen Technologies Quantum Fiber Coverage Map

Importantly, Lumen’s Quantum Fiber has a >22% penetration rate for its 2020 enablement vintage, at the 12-month mark, supporting the company’s expectations for a longer-term penetration rate improvement. Additionally, roughly 90% of subscriber additions are new to Lumen. Finally, in terms of pricing, Quantum’s Fiber ARPU (average revenue per user), in Lumen’s 16 retained states, is ~$59 as of Q1 2022.

Fiber Build Plan

During 2022, Lumen anticipates that its Quantum Fiber unit will make $1bn in capital expenditures to pass a total of 1 million premises. Indeed, this implies a build cost of $1,000 per location passed.

Long-term, Lumen targets a fiber enablement opportunity for Quantum Fiber to pass a total of 12+ million locations, which represents an incremental 9.3 million passings from the company’s pro forma deployment levels.

In terms of pacing, Lumen targets a “run rate of 1.5 million to 2 million” passings per year from 2023 onwards. In turn, this build-out pace implies that Quantum Fiber could reach its goal of 12 million passings by the end of 2027 (i.e., within 6 years).

Fiber Broadband Revenue

For Q1 2022, Lumen’s Quantum Fiber unit generated fiber broadband revenue of $145m, however, pro forma for Lumen’s ILEC sale to Apollo, the unit’s quarterly revenue is $132m.

Ethernet – IP and Data Services – Lumen Technologies

Lumen’s ethernet services include point-to-point and multi-point equipment configurations that facilitate data transmissions across metropolitan areas and larger wide area networks (WANs). Additionally, Lumen’s ethernet technology is used by wireless carriers for data transmission via Lumen’s fiber-optic cables, which connect to their towers.

In April 2022, Lumen announced that it will bring upgraded ethernet services, with speeds of up to 30 gigabits per second (Gbps), to more than 40 cities by year-end 2022. Specifically, new markets gaining access to Lumen’s 30 Gbps ethernet speeds include Columbus, Ohio; Houston, Texas; Kansas City, Missouri; Nashville, Tennessee; Orlando, Florida; Philadelphia, Pennsylvania; Phoenix, Arizona; Salt Lake City, Utah; and Seattle, Washington.

To-date, Lumen has enabled 30 Gbps ethernet speeds in 9 cities overall, namely Atlanta, Georgia; Chicago, Illinois; Dallas, Texas; Denver, Colorado; Fort Lauderdale, Florida; Los Angeles, California; Newark, New Jersey; Sunnyvale, California, and finally Washington, D.C.

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