Lumen Technologies, Inc.

Greetings and welcome to Lumen Technologies' second quarter 2026 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the star followed by the one on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Tuesday, August 4, 2026. Your speakers for today are Kate Johnson, CEO, and Chris Stansbury, CFO. I would now like to turn the conference over to Jim Breen, Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining Lumen Technologies' second quarter 2026 earnings call. Before we begin, I'd like to remind everyone that today's presentation will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Thank you. Thank you. Thank you. Thank you. Today's presentation may also include non-GAAP financial measures. Reconciliations are provided on our posting materials. And with that, I'll hand it to Kate.

Thanks, Jim. I'll start by sharing how excited we are to welcome John Hinshaw to the Lumen Board of Directors. John's led complex technology organizations through major moments of change, and his perspective will be a great asset as we continue Lumen's transformation. And to that end, we're pleased to report that Lumen delivered another solid quarter with financial results in line with expectations. Before Chris covers the numbers, I'll give some color on our strategy and transformation progress. 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. And that is exactly what we're doing at Lumen. We're using three assets together in a way no other traditional telecom company is. Our physical infrastructure, our programmable network, and the connected ecosystem we're building on top. We are redefining enterprise networking for AI. And the market's noticing. Most recently, Gartner named Lumen the company to beat in enterprise networking, one of several strong endorsements of our strategy and progress. And since closing the Alcura transaction, our market position has only strengthened. Alcura is now a LumenConnect solution, and it gives us the critical capability customers really need, a simpler, faster way to connect and secure multi-cloud and AI environments. Let me double-click on the problem we're solving. Over the past decade, people, data, and applications have dispersed geographically. The software industry responded with wave after wave of innovation to help the physical network keep up, launching new capabilities in cloud connectivity, SD-WAN, SASE, firewalls, and colo-based interconnection. Basically, they made distributed work possible. But because telecom ceded that innovation to big tech, it happened around the network, not in the network. And that created a whole new set of problems. Thank you for joining us today. By giving customers one cloud-based control point to connect and secure distributed environments, we can help them connect to any building, data center, or public cloud while reducing sprawl. Our network fabric is simple, secure, and built for scale and agility. And look, we're not talking about a vision here. These are capabilities that are already delivering breakthrough business outcomes for many customers. Two real-life examples? On Alcura, Koch Industries simplified network hub setup across multiple clouds, compressing implementation time from eight months to a single day. And at Michaels, Alcura helped connect more than 1,400 retail locations to Google Cloud in just a few weeks with no CapEx and reduced OpEx. In Alcura's real economic value report, you can find many more examples of business value delivered with our platform. It's a new chapter for Lumen, our customers, and our investors. In the past, too much of Telecom's value conversation came down to price, and we're changing all of that. Our digital capabilities help customers reduce costs, move faster, and create new revenue opportunities. Lumen can now deliver value to customers through business outcomes, not just through discounts. and our sales team, as you can imagine, are excited to bring these new capabilities to existing Lubin customers. As such, we're rapidly scaling our Alkira go-to-market muscle. Just since we closed, we've already trained nearly 4,000 Lubin employees on the Alkira value proposition. We've established a scalable sales motion and aligned incentives, and we're doing outbound marketing and demand gen to scale the sales pipeline. And the feedback so far from customers, very positive. We feel confident that Alkira will accelerate our strategic revenue growth curve. I want to also share our plan for technical integration of the Lumen Connect and Alkira platforms. And our goal is really simple. We want to give customers a quick, secure, effortless digital experience to discover, buy, provision, and manage all of their services across their network. That includes traffic moving into and out of the enterprise, which we call north-south, as well as traffic moving across clouds and data centers, which we call east-west, and do it all on one platform. Our plan is to deliver most of that integration in the next 18 months. But even earlier than that, we plan to bring the digital experience to existing Lumen customers, starting with DIA. We are in the process of making Lumen DIA ports digitally discoverable and service-ready through our platform. And that's going to allow us to remotely provision, manage, and support these circuits, upsell additional capability on existing ports without a truck roll, and create a path toward more consumption-based offers. This is a huge strategic unlock. I cannot stress this enough. Our DIA install-based products carries traditional telecom economics today, but the platform gives us a path to layer on high-margin digital services like Lumen Defender, DDoS, Multicloud Gateway, and more. Those incremental services are expected to approach 80% adjusted EBITDA margin, helping drive Lumen's margin expansion. That's why the product portfolio simplification matters so much. We're moving capital and talent and many more. on higher growth markets where Lumen has a differentiated position to win. Now, speaking of winning, we had another great quarter of NAS adoption, and today the total number of NAS customers exceeds 3,000. And in Q2, new customer adoption grew 22% quarter over quarter, and more than 20% of these first-time NAS adopters were brand new to Lumen. An active course grew 34% quarter-over-quarter, and active services grew 29% quarter-over-quarter. I have to say, our NAS growth rates, they exceeded even our own internal ambitions for the first half. And what's more, we achieved these results in the north-south connectivity market, a segment that's growing less than 1% per year. We are clearly taking market share. and we believe this is for two reasons. Enterprise customers want digital consumption-based network services and they also see real differentiation in Lumen. Now let me close where our strategy compounds, in the connected ecosystem. We just paired Black Lotus Labs network-level threat intelligence with Palo Alto Network's leading security platform to create a managed offering that's better together. customers get early visibility, a fast response, and far less tool sprawl against security threats that are growing more and more complex every single day. We're scaling this partner model in the connected ecosystem by making sure that Lumen brings unique network intelligence and our incredible fiber capabilities together with our tech partners who bring their best products and technologies. Together, we help customers move, control, and secure data in an AI-first world.