Lumen Technologies (NYSE: LUMN) today announced its Q4 2021 earnings and provided updates on its full-year 2022 outlook, as well as short- and long-term business plan for its Quantum Fiber broadband unit.

Financial Performance in Q4 2021 – Lumen Technologies

In Q4 2021, Lumen Technologies reported revenue of $4.85bn, a 0.8% decrease quarter-over-quarter, and adjusted EBITDA of $2.09bn, a 0.5% increase quarter-over-quarter. Therefore, the company’s adjusted EBITDA margin was 43.1% in Q4 2021, a ~55 bps improvement quarter-over-quarter.

Full-Year 2022 Outlook

For full-year 2022, Lumen projects adjusted EBITDA of $6.5bn to $6.7bn. At the mid-point of the company’s outlook, Lumen is forecasting a year-over-year decrease of 22% in adjusted EBITDA.

Lumen’s year-over-year decline in EBITDA is, in-part, driven by the company’s significant divestitures, which are expected to close during 2022. Firstly, Lumen is selling its incumbent local exchange carrier (ILEC) operations in 20 states, which comprise copper and fiber infrastructure, to Apollo Global’s Brightspeed for an enterprise value of $7.5bn. Secondly, Lumen is divesting its Latin American business, which includes subsea cables, terrestrial fiber, and data centers, to Stonepeak Infrastructure for $2.7bn.

Additionally, Lumen’s shortfall derives from the loss of ~$500m of annual revenue and EBITDA from the Connect America Fund (CAF) II program, which expired at the end of 2021.

Quantum Fiber – Broadband in Q4 2021 and Beyond

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

As of Q4 2021, Lumen’s Quantum Fiber passes 2.8 million premises and serves a total of 803k fiber subscribers. As such, the unit’s fiber penetration stands at ~29% at quarter-end. Pro forma for Lumen’s ILEC sale to Apollo, Quantum Fiber passes 2.6 million premises, within a 16-state footprint.

Additionally, Lumen notes that its current fiber build pacing stands at 500k home and business locations annually. Finally, Lumen added 29k Quantum Fiber subscribers during the quarter and 128k year-over-year.

In terms of pricing, Quantum’s Fiber ARPU (average revenue per user) is ~$58 as of Q4 2021.

Short-Term – 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 – Fiber Build Plan

“Over the coming years”, Quantum Fiber intends to pass a total of 12 million locations, which represents an incremental 9.4 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).

Quantum Fiber’s build costs assume a cost of less than $1,000 per location passed. Therefore, the unit’s incremental 9.4 million passings would result in total capital expenditures of ~$9.4bn.

By delivering Quantum Fiber to more customers, Lumen expects to “drive higher ARPU, lower churn, and significant customer lifetime value”.

Jonathan Kim covers Fiber for Dgtl Infra, including Zayo Group, Cogent Communications (NASDAQ: CCOI), Uniti Group (NASDAQ: UNIT), Lumen Technologies (NYSE: LUMN), Frontier Communications (NASDAQ: FYBR), Consolidated Communications (NASDAQ: CNSL), and many more. Within Fiber, Jonathan focuses on the sub-sectors of wholesale / dark fiber, enterprise fiber, fiber-to-the-home (FTTH), fiber-to-the-premises (FTTP), and subsea cables.

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