Qwest's Q3 Net Income Halves Amid Revenue Slump, AT&T Divestiture Looms

TL;DR

**Qwest's Q3 numbers are a disaster, and the AT&T sale is a desperate move to stop the bleeding; stay away from CTDD.**

AI Summary

Qwest Corporation reported a significant decline in financial performance for the three and nine months ended September 30, 2025. Total operating revenue decreased by $202 million, or 14.8%, to $1,161 million for the three months ended September 30, 2025, compared to $1,363 million in the prior year period. For the nine months, total operating revenue fell by $555 million, or 13.4%, to $3,589 million from $4,144 million. Net income saw an even steeper decline, dropping by $189 million, or 51.8%, to $176 million for the three-month period, and by $359 million, or 32.7%, to $737 million for the nine-month period. Operating income also decreased substantially, from $498 million to $243 million for the quarter, and from $1,523 million to $1,008 million for the nine months. A key business change is the classification of $2,689 million in assets as 'held for sale' as of September 30, 2025, related to the pending sale of Lumen Technologies' Mass Markets fiber-to-the-home business in 11 states to AT&T. This divestiture is a major strategic shift, impacting future revenue and asset base. Risks include intense competition, new technologies, and the ability to successfully integrate or divest assets, as well as the impact of increased interest expense, which rose from $11 million to $25 million for the quarter.

Why It Matters

This filing reveals a significant downturn for Qwest Corporation, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., with net income plummeting over 50% in Q3 2025. For investors in Lumen Technologies, this indicates potential weakness in a core subsidiary's performance and highlights the strategic importance of the pending $2.689 billion asset sale to AT&T. Employees in the divested Mass Markets fiber-to-the-home business face uncertainty regarding their future under AT&T. Customers may experience service changes or transitions as the business changes hands, potentially impacting competitive offerings in the 11 affected states. The broader market will watch how this divestiture impacts Lumen's deleveraging plans and its ability to compete in the evolving telecommunications landscape against rivals like AT&T.

Risk Assessment

Risk Level: high — The company reported a 51.8% decrease in net income for the three months ended September 30, 2025, falling to $176 million from $365 million in the prior year. Total operating revenue also declined by 14.8% to $1,161 million. The classification of $2,689 million in assets as 'held for sale' indicates a significant divestiture, which, while potentially improving liquidity, introduces execution risk and uncertainty regarding the company's future revenue base and competitive position.

Analyst Insight

Investors should exercise extreme caution and consider reducing exposure to Qwest Corporation's debt instruments, such as the 6.75% Notes Due 2057 (CTDD), given the substantial decline in net income and operating revenue. Monitor the progress and financial implications of the pending asset sale to AT&T, as its successful completion and the subsequent use of proceeds will be critical for the company's long-term financial stability and deleveraging efforts.

Financial Highlights

revenue

$1,161M

operating Margin

20.9%

total Assets

$17,855M

total Debt

$1,689M

net Income

$176M

cash Position

$36M

revenue Growth

-14.8%

Revenue Breakdown

Key Numbers

• $1,161M — Total Operating Revenue (Q3 2025) (Decreased 14.8% from $1,363M in Q3 2024)
• $176M — Net Income (Q3 2025) (Decreased 51.8% from $365M in Q3 2024)
• $3,589M — Total Operating Revenue (9M 2025) (Decreased 13.4% from $4,144M in 9M 2024)
• $737M — Net Income (9M 2025) (Decreased 32.7% from $1,096M in 9M 2024)
• $2,689M — Assets Held for Sale (Significant portion of assets related to the AT&T divestiture)
• $243M — Operating Income (Q3 2025) (Decreased from $498M in Q3 2024)
• $1,008M — Operating Income (9M 2025) (Decreased from $1,523M in 9M 2024)
• $25M — Interest Expense (Q3 2025) (Increased from $11M in Q3 2024)
• $71M — Interest Expense (9M 2025) (Increased from $44M in 9M 2024)
• $1,360M — Net Cash Provided by Operating Activities (9M 2025) (Decreased from $1,646M in 9M 2024)

Key Players & Entities

• QWEST CORPORATION (company) — registrant and reporting entity
• Lumen Technologies, Inc. (company) — ultimate parent company of Qwest Corporation
• AT&T (company) — buyer of Lumen Mass Markets fiber-to-the-home business
• $1,161 million (dollar_amount) — total operating revenue for Q3 2025
• $176 million (dollar_amount) — net income for Q3 2025
• $2,689 million (dollar_amount) — assets held for sale as of September 30, 2025
• $202 million (dollar_amount) — decrease in total operating revenue for Q3 2025
• $189 million (dollar_amount) — decrease in net income for Q3 2025
• New York Stock Exchange (regulator) — exchange where Qwest's notes are registered
• SEC (regulator) — U.S. Securities and Exchange Commission

FAQ

Risk Factors

• Increased Interest Expense [medium — financial]: Interest expense rose from $11 million to $25 million for the quarter and from $44 million to $71 million for the nine months ended September 30, 2025. This increase puts pressure on net income and cash flow available for other strategic initiatives.
• Divestiture of Mass Markets Business [high — operational]: The pending sale of the Mass Markets fiber-to-the-home business in 11 states to AT&T, involving assets worth $2,689 million, represents a significant strategic shift. The success of this divestiture and its impact on future operations are key uncertainties.
• Intense Competition [high — market]: The telecommunications industry is characterized by intense competition, which can lead to pricing pressures and reduced market share. This is a persistent risk that affects revenue and profitability.
• Technological Advancements [medium — market]: Rapid advancements in technology require continuous investment and adaptation. Failure to keep pace with new technologies could render existing infrastructure and services obsolete, impacting competitiveness.
• Integration or Divestiture Challenges [medium — operational]: The company faces risks associated with the successful integration of acquired assets or the efficient divestiture of non-core businesses, such as the AT&T transaction. Any missteps could lead to financial losses or operational disruptions.

Industry Context

Qwest Corporation operates in the highly competitive telecommunications sector, facing pressure from established players and emerging technology providers. The industry is characterized by rapid technological change, demanding significant investment in infrastructure like fiber optics and 5G. Trends include the shift towards cloud-based services, increased demand for high-speed connectivity, and ongoing consolidation through mergers and acquisitions.

Regulatory Implications

As a telecommunications provider, Qwest is subject to various regulatory frameworks governing service provision, pricing, and infrastructure deployment. Changes in regulations, such as net neutrality rules or spectrum allocation policies, can impact operational flexibility and profitability. Compliance with FCC regulations and state-level oversight remains a critical aspect of its business.

What Investors Should Do

1. Monitor the progress and financial impact of the AT&T divestiture.
2. Analyze the drivers of the significant revenue and net income decline.
3. Evaluate the impact of increased interest expenses on cash flow.
4. Assess the company's strategy for growth in its remaining business segments.

Key Dates

• 2025-09-30: Qwest Corporation 10-Q Filing — Provides unaudited financial results for the three and nine months ended September 30, 2025, including details on revenue decline, net income drop, and the significant divestiture of assets.
• 2025-09-30: Pending Sale of Mass Markets Business to AT&T — The agreement to sell the fiber-to-the-home business in 11 states for $2,689 million represents a major strategic pivot, impacting future revenue streams and asset base.

Glossary

Assets held for sale

Assets that are classified as such because management has committed to a plan to sell them, and they are expected to be sold within one year. They are typically reported at the lower of their carrying amount or fair value less costs to sell. (The classification of $2,689 million in assets as held for sale is a direct result of the pending divestiture to AT&T, signaling a significant change in the company's asset structure and future business focus.)

Operating revenue—affiliates

Revenue generated from services provided to or transactions with affiliated companies, often within the same corporate group. (A significant portion of Qwest's revenue comes from affiliates, and a decline in this segment ($1,441M vs $1,676M for 9M 2025 vs 2024) indicates reduced intercompany activity or a shift in how services are accounted for within the Lumen Technologies structure.)

Depreciation and amortization

The systematic allocation of the cost of tangible (depreciation) and intangible (amortization) assets over their useful lives. (A decrease in depreciation and amortization expenses ($527M vs $557M for 9M 2025 vs 2024) could be due to the sale of assets or a slowdown in capital expenditures, impacting operating expenses.)

Goodwill

An intangible asset that arises when one company acquires another for a price greater than the fair market value of its net assets. (The significant decrease in Goodwill from $6,955M to $5,650M suggests potential impairment charges or the impact of the divestiture on the consolidated balance sheet.)

Year-Over-Year Comparison

Qwest Corporation's financial performance has deteriorated significantly compared to the prior year. Total operating revenue for the three months ended September 30, 2025, fell by 14.8% to $1,161 million, and net income dropped by a steep 51.8% to $176 million. For the nine-month period, revenue declined 13.4% to $3,589 million, and net income decreased 32.7% to $737 million. Operating income also saw substantial reductions. A major new development is the classification of $2,689 million in assets as held for sale, signaling a significant strategic divestiture. Additionally, interest expense has increased, impacting profitability.

Filing Documents

• lumn-20250930.htm (10-Q) — 819KB
• qc2025093010qex311.htm (EX-31.1) — 9KB
• qc2025093010qex312.htm (EX-31.2) — 9KB
• qc2025093010qex321.htm (EX-32.1) — 4KB
• qc2025093010qex322.htm (EX-32.2) — 5KB
• 0000068622-25-000017.txt ( ) — 5203KB
• lumn-20250930.xsd (EX-101.SCH) — 37KB
• lumn-20250930_cal.xml (EX-101.CAL) — 68KB
• lumn-20250930_def.xml (EX-101.DEF) — 225KB
• lumn-20250930_lab.xml (EX-101.LAB) — 498KB
• lumn-20250930_pre.xml (EX-101.PRE) — 380KB
• lumn-20250930_htm.xml (XML) — 637KB

- Financial Information

Part I - Financial Information Item 1.

Financial Statements

Financial Statements Consolidated Statements of Operations (Unaudited) 6 Consolidated Balance Sheets (Unaudited) 7 Consolidated Statements of Cash Flows (Unaudited) 8 Consolidated Statements of Stockholder's Equity (Unaudited) 9

Notes to Consolidated Financial Statements (Unaudited)*

Notes to Consolidated Financial Statements (Unaudited)* 10 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 25 Overview 25 Results of Operations 28 Liquidity and Capital Resources 31 Other Information 36 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 37 Item 4.

Controls and Procedures

Controls and Procedures 37

- Other Information

Part II - Other Information Item 1.

Legal Proceedings

Legal Proceedings 38 Item 1A.

Risk Factors

Risk Factors 38 Item 5. Other Information 39 Item 6. Exhibits 40 Signature 41 * All references to "Notes" in this quarterly report refer to these Notes to Consolidated Financial Statements. 2 Table of Contents Special Note Regarding Forward-Looking Statements This report and other documents filed by us under the federal securities laws include, and future oral or written statements or press releases by us and our management may include, "forward-looking" statements about our business, financial condition, operating results, or prospects, within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve substantial risks and uncertainties. These statements include, among others: forecasts of our anticipated future results of operations, cash flows, or financial position; other similar statements of our expectations, beliefs, future plans and strategi

—FINANCIAL INFORMATION

PART I—FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS QWEST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 (Dollars in millions) OPERATING REVENUE Operating revenue $ 684 793 2,148 2,468 Operating revenue—affiliates 477 570 1,441 1,676 Total operating revenue 1,161 1,363 3,589 4,144 OPERATING EXPENSES Cost of services and products (exclusive of depreciation and amortization) 379 389 1,096 1,132 Selling, general and administrative 156 111 356 357 Operating expenses—affiliates 221 182 602 575 Depreciation and amortization 162 183 527 557 Total operating expenses 918 865 2,581 2,621 OPERATING INCOME 243 498 1,008 1,523 OTHER (EXPENSE) INCOME Interest expense ( 25 ) ( 11 ) ( 71 ) ( 44 ) Interest income—affiliate, net 26 8 63 14 Other income, net 3 2 8 1 Total other income (expense), net 4 ( 1 ) — ( 29 ) INCOME BEFORE INCOME TAX EXPENSE 247 497 1,008 1,494 Income tax expense 71 132 271 398 NET INCOME $ 176 365 737 1,096 See accompanying notes to consolidated financial statements. 6 Table of Contents QWEST CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, 2025 December 31, 2024 (Dollars in millions) ASSETS CURRENT ASSETS Cash and cash equivalents $ 36 26 Accounts receivable, less allowance of $ 28 and $ 29 207 227 Assets held for sale 2,689 — Advances to affiliates 509 902 Note receivable - affiliates 937 — Other current assets, net 88 152 Total current assets 4,466 1,307 Property, plant and equipment, net of accumulated depreciation of $ 8,789 and $ 8,910 7,512 8,865 GOODWILL AND OTHER ASSETS Goodwill 5,650 6,955 Intangible assets, net 103 84 Other assets, net 124 151 Total goodwill and other assets 5,877 7,190 TOTAL ASSETS $ 17,855 17,362 LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 1 239 Accounts payable 167 221 Accrued expenses and other liabilities Salarie

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) References in this report on Form 10-Q, for all periods presented, to "QC," "Qwest," "we," "us," 'the Company" and "our" refer to Qwest Corporation and its consolidated subsidiaries, unless the context otherwise requires. References to "Lumen Technologies" or "Lumen" refer to our ultimate parent company, Lumen Technologies, Inc. and its consolidated subsidiaries, including Level 3 Parent, LLC ("Level 3") and Level 3 Financing, Inc. ("Level 3 Financing"). Note 1—Background General We are a leading digital networking services company empowering enterprise businesses to fuel growth in a multi-cloud, AI-first marketplace by connecting people, data, and applications quickly, securely and effortlessly. We are unleashing the world's digital potential by providing a broad array of integrated products and services to our domestic and global Business customers and our domestic Mass Markets customers. Our specific products and services are detailed in Note 4—Revenue Recognition of this report. We generate the majority of our total consolidated operating revenue from services provided in the 14 -state region of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. We refer to this region as our local service area. Basis of Presentation Our consolidated balance sheet as of December 31, 2024, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). However, in our

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