Revenue Recognition

3 Months Ended

Mar. 31, 2024

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Product and Service Categories

We categorize our products and services revenue among the following categories for the Business segment:

•Grow, which includes products and services that we anticipate will grow, including our dark fiber, Edge Cloud services, IP, managed security, software-defined wide area networks ("SD WAN"), Unified Communications and Collaboration ("UC&C") and wavelengths services;

•Nurture, which includes our more mature offerings, including ethernet and VPN data networks services;

•Harvest, which includes our legacy services managed for cash flow, including Time Division Multiplexing ("TDM") voice, private line and other legacy services; and

•Other, which includes equipment sales, managed and professional service solutions and other services.

We categorize our products and services revenue among the following categories for the Mass Markets segment:

•Fiber Broadband, under which we provide high speed broadband services to residential and small business customers utilizing our fiber-based network infrastructure;

•Other Broadband, under which we provide primarily lower speed broadband services to residential and small business customers utilizing our copper-based network infrastructure; and

•Voice and Other, under which we derive revenues from (i) providing local and long-distance voice services, professional services, and other ancillary services, and (ii) federal broadband and state support programs.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following table provides total revenue by segment, sales channel and product category. It also provides the amount of revenue that is not subject to ASC 606, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards. The amounts in the table below include revenue for the EMEA business prior to its sales on November 1, 2023. See Note 2—Divestitures of the Latin American, ILEC and EMEA Businesses in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information on these divestitures.

	Three Months Ended March 31, 2024				Three Months Ended March 31, 2023
	Total Revenue		Adjustments for Non-ASC 606 revenue (1)	Total revenue from Contracts with Customers	Total Revenue	Adjustments for Non-ASC 606 revenue (1)	Total revenue from Contracts with Customers
	(Dollars in millions)
Business Segment by Sales Channel and Product Category
Large Enterprise
Grow	$	427	(49)	378	421	(50)	371
Nurture	268		—	268	300	—	300
Harvest	119		—	119	139	—	139
Other	44		(1)	43	51	(1)	50
Total Large Enterprise Revenue	858		(50)	808	911	(51)	860
Mid-Market Enterprise
Grow	207		(6)	201	197	(7)	190
Nurture	188		—	188	219	—	219
Harvest	83		(1)	82	98	(1)	97
Other	8		(1)	7	9	(2)	7
Total Mid-Market Enterprise Revenue	486		(8)	478	523	(10)	513
Public Sector
Grow	125		(21)	104	117	(19)	98
Nurture	87		—	87	107	—	107
Harvest	94		(1)	93	99	—	99
Other	114		—	114	109	—	109
Total Public Sector Revenue	420		(22)	398	432	(19)	413
Wholesale
Grow	260		(62)	198	271	(71)	200
Nurture	192		(7)	185	215	(6)	209
Harvest	275		(38)	237	332	(44)	288
Other	3		—	3	5	—	5
Total Wholesale Revenue	730		(107)	623	823	(121)	702
International and Other
Grow	40		(1)	39	128	(29)	99
Nurture	42		—	42	72	—	72
Harvest	11		—	11	38	—	38
Other	4		—	4	41	—	41
Total International and Other	97		(1)	96	279	(29)	250
Business Segment by Product Category
Grow	1,059		(139)	920	1,134	(176)	958
Nurture	777		(7)	770	913	(6)	907
Harvest	582		(40)	542	706	(45)	661
Other	173		(2)	171	215	(3)	212
Total Business Segment Revenue	2,591		(188)	2,403	2,968	(230)	2,738
Mass Markets Segment by Product Category
Fiber Broadband	170		(4)	166	152	(4)	148
Other Broadband	315		(28)	287	369	(33)	336
Voice and Other	214		(9)	205	249	(9)	240
Total Mass Markets Revenue	699		(41)	658	770	(46)	724
Total Revenue	$	3,290	(229)	3,061	3,738	(276)	3,462

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(1)Includes regulatory revenue and lease revenue not within the scope of ASC 606.

Operating Lease Income

Lumen Technologies leases various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease income are included in operating revenue in our consolidated statements of operations.

For the three months ended March 31, 2024 and 2023, our gross rental income was $221 million and $269 million, respectively, which represents approximately 7% of our operating revenue for both the three months ended March 31, 2024 and 2023.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts classified as held for sale, as of March 31, 2024 and December 31, 2023:

	March 31, 2024		December 31, 2023
	(Dollars in millions)
Customer receivables(1)	$	1,289	1,256
Contract assets	26		29
Contract liabilities	710		698

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(1)Reflects gross customer receivables of $1.3 billion, net of allowance for credit losses of $60 million, at March 31, 2024 and December 31, 2023.

Contract liabilities are consideration we have received from our customers or billed in advance of providing goods or services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which typically ranges from one to five years depending on the service. Contract liabilities are included within deferred revenue on our consolidated balance sheets. During the three months ended March 31, 2024, we recognized $300 million of revenue that was included in contract liabilities of $698 million as of January 1, 2024. During the three months ended March 31, 2023, we recognized $305 million of revenue that was included in contract liabilities of $715 million as of January 1, 2023, including contract liabilities that were classified as held for sale.

Performance Obligations

As of March 31, 2024, we expect to recognize approximately $6.9 billion of revenue in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied. As of March 31, 2024, the transaction price related to unsatisfied performance obligations that are expected to be recognized for the remainder of 2024, 2025 and thereafter was $2.3 billion, $2.0 billion and $2.6 billion, respectively.

These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed) and (ii) contracts that are classified as leasing arrangements or government assistance that are not subject to ASC 606.

Contract Costs

The following table provides changes in our contract acquisition costs and fulfillment costs:

	Three Months Ended March 31, 2024			Three Months Ended March 31, 2023
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
	(Dollars in millions)			(Dollars in millions)
Beginning of period balance(1)	$	182	184	202	192
Costs incurred	33		36	36	40
Amortization	(33)		(31)	(41)	(35)
Change in contract costs held for sale	—		—	(5)	(15)
End of period balance(2)	$	182	189	192	182

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(1)Beginning of period balance for the three months ended March 31, 2023 excludes $6 million of acquisition costs and no fulfillment costs classified as held for sale related to the EMEA business.

(2)End of period balance for the three months ended March 31, 2023 excludes $11 million of acquisition costs and $15 million of fulfillment costs classified as held for sale related to the EMEA business.

Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of services to customers, including labor and materials consumed for these activities.

We amortize deferred acquisition and fulfillment costs based on the transfer of services on a straight-line basis over the average contract life of approximately 50 months for mass markets customers and 35 months for business customers. We include amortized fulfillment costs in cost of services and products and amortized acquisition costs in selling, general and administrative expenses in our consolidated statements of operations. We include the amount of these deferred costs that are anticipated to be amortized in the next twelve months in other current assets on our consolidated balance sheets. We include the amount of deferred costs expected to be amortized beyond the next twelve months in other non-current assets on our consolidated balance sheets. We assess deferred acquisition and fulfillment costs for impairment on a quarterly basis.