LUMN

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2025, for Lumen Technologies, Inc. (Lumen). Lumen operates as a leading digital networking services company with two primary reporting segments: Business (serving enterprise and wholesale customers) and Mass Markets (serving domestic residential and small business customers). A significant strategic shift occurred subsequent to the reporting period: on February 2, 2026, Lumen completed the sale of its Mass Markets Fiber-to-the-Home business in 11 states to AT&T for gross cash proceeds of $5.75 billion.

Key Financial Metrics

Segment Performance (Adjusted EBITDA):

• Business Segment: Revenue of $9.90 billion; Adjusted EBITDA of $4.52 billion (46% margin).
• Mass Markets Segment: Revenue of $2.51 billion; Adjusted EBITDA of $1.40 billion (56% margin).

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased 5% year-over-year, driven by declines in legacy services (Voice, Private Line, and Copper Broadband) and the impact of the EMEA divestiture in the prior year. The "Grow" product category (Dark Fiber, IP, Edge Cloud) increased 5%.
• Goodwill Impairment: Lumen recorded a non-cash goodwill impairment charge of $628 million in Q2 2025 related to the Mass Markets reporting unit, triggered by the classification of the Fiber-to-the-Home business as held for sale.
• Debt Restructuring: The company executed multiple debt refinancing and tender offers in 2025, resulting in a $740 million net loss on early retirement of debt. These actions reduced the average interest rate and extended maturities.
• RDOF Relinquishment: Lumen voluntarily relinquished its Rural Digital Opportunity Fund (RDOF) awards, resulting in a $46 million revenue reduction and $49 million in fees in 2025, with a total cash outflow of $99 million in January 2026.

Guidance, Outlook, and Risks

Outlook and Strategy: Management is pivoting to focus on the Business segment and AI-driven network growth. The company anticipates having only one reporting segment following the Mass Markets divestiture. Capital expenditures for the next 12 months are projected at $3.2 to $3.4 billion, focused on network modernization and fiber expansion.

Key Risks and Contingencies:

• Debt Levels: Significant debt ($17.8 billion) exposes the company to interest rate fluctuations and covenant compliance risks. The company relies on subsidiary cash flows to meet parent-level obligations.
• Legal Proceedings: Ongoing litigation regarding lead-sheathed cables poses potential environmental and reputational risks. Additionally, the company faces investigations regarding Huawei equipment usage in federal contracts.
• Legacy Decline: Continued erosion of legacy voice and copper broadband revenue remains a structural headwind.
• Cybersecurity: As a critical infrastructure provider, Lumen faces persistent threats from advanced persistent threat actors, including nation-state actors.

Investor Verification Checklist

• Divestiture Proceeds: Verify the final post-closing adjustments on the $5.75 billion AT&T sale and the specific allocation of proceeds toward debt reduction.
• Debt Covenants: Review compliance with financial maintenance covenants (e.g., leverage ratios) given the high debt load and recent restructuring.
• Goodwill Impairment: Assess the remaining goodwill balance and the potential for further impairments as the company transitions to a single-segment model.
• Capital Expenditure Efficiency: Monitor the return on investment for the $4.37 billion in 2025 capex, particularly regarding the "Grow" product categories.
• Legal Exposure: Track developments in the lead-sheathed cable litigation and the outcome of the FCRA class action appeal.