Well, I can’t say it was unexpected. The news out of Level 3 Communications (NYSE:LVLT, news, filings) this week is a round of layoffs. According to the Denver Post the number is 700, or 6.5% of the company’s global workforce, with 150 in Colorado and the rest spread out around the rest of the world.
I have been hearing rumors of this move for about a month and as painful as it is, it was also obviously on the horizon for quite some time. After the Global Crossing deal, the integration process was surprisingly light when it came to headcount reduction. One got the sense that they were hoping to grow into the size of their labor force rather than immediately slash and then rebuild later.
However, while they’ve been working very hard to improve the company’s rate of core revenue growth Level 3 just hasn’t been enough to generate enough momentum. Enterprise revenues have been doing quite well, but wholesale has not and the UK government headwinds haven’t helped either. Hence the 6.5% haircut, looking to bring costs inline with the reality of their current revenue levels.
As for the timing, Level 3 is approaching the actual break-even line, and a round of layoffs now is clearly timed to push them solidly over the hump for Q4. With the debt refinancing costs earlier this month plus severance for this week’s RIF, the third quarter’s EPS will surely be one-timed downward a bunch. But in the fourth quarter, the numbers all start to come together.
Of course, that may make some investors happy but it will be cold comfort to the affected employees. But at least the job market isn’t quite as ugly as it was a couple of years ago, good luck to all.
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I will say so my comments dont appear insensitive to the many impacted I was an 12 year lvele 3 employee and was impacted by RIF in my past wth Level 3 an dit hurts to this day although I have moved on and nicely employed today. . I dont believe this layoff had anything to do with teh Global crossing pace of integration, that round of 18 months worth of layoffs was in the past. I believe this is a Jeff Storey move all the way, I am no fan of the his but you may say he is working in the reality of Level 3 busines today. They lose money quarter over quarter period, he is committed to value/FCF creation and he made a very difficult move and is cutting to profitability. No pie in the sky funnel growth ala Crowe, no wait til next quarter rhetoric it is simple but painful , we need to make money now an dsince we dont we cant pay everyone. For those who remain hapy theya re employed but there job will be more demanding, for those riffed GOOD Luck it is a horrible persoanl event whne you are RIFFED.
I will say so my comments dont appear insensitive to the many impacted I was an 12 year lvele 3 employee and was impacted by RIF in my past wth Level 3 an dit hurts to this day although I have moved on and nicely employed today. . I dont believe this layoff had anything to do with teh Global crossing pace of integration, that round of 18 months worth of layoffs was in the past. I believe this is a Jeff Storey move all the way, I am no fan of the his but you may say he is working in the reality of Level 3 busines today. They lose money quarter over quarter period, he is committed to value/FCF creation and he made a very difficult move and is cutting to profitability. No pie in the sky funnel growth ala Crowe, no wait til next quarter rhetoric it is simple but painful , we need to make money now an dsince we dont we cant pay everyone. For those who remain hapy theya re employed but there job will be more demanding, for those riffed GOOD Luck it is a horrible personal event when you are RIFFED.
Take a look at the recent 10-Q…$24 million loss in Q2 after $23 million charge to fire Crowe ($6 million cash payout, $17 million stock vesting). Crowe’s last parting gift to LVLT was to defecate on what otherwise would’ve been a nearly breakeven quarter. Maybe Storey can put this type of obscene corporate welfare in LVLT’s past and get to a more responsible and productive future. Good riddance Crowe!
Quick napkin math for you lovers of this pos:
700 employees x avg. salary and cost per employee examples:
700 x $50,000 = $35,000,000 annual savings
700 x $60,000 = $42,000,000 annual savings
700 x $75,000 = $52,500,000 annual savings
This could end up being around .15 to .35 positive offect on EPS for 2014.
I have no idea what levels and salaries of employees were let go but would guess the above savings and scenarios are realistic and could even be on the conservative side. On the human side and the fact LVLT continues to negatively affect lives they suck and I hope Crowe sits at home and watches episodes of American Greed on CNBC and wonders if they should air an episode about him.
But, the above numbers are hard to ignore even for me and 2014 could finally be the year for this pos. Only took about 16 years or so.
Unlikely. Jeff’s comp was $11M last year.
ABC Your numbers are far off….Very far. Its more like $100,000+ per employee all in..
Good luck to everyone effected by the RIF.
The real number is closer to 1600 FTE being let go with some very generous severance packages… for example, an employee with 5 years of service received a 22 month severance package including full health.
700 is the NAEU alone… a whopping 900 were from LATAM
The real number is closer to 1600 FTE being let go with some very generous severance packages… for example, an employee with 5 years of service received a 22 month severance package including full health.
700 is the NAEU alone… a whopping 900 were from LATAM
frmrLVL3, I think you mean 22 weeks, not months, for NA employees. I don’t believe LVLT is giving any NA employee below SVP 22 months of severance unless they have 22 years of service which some legacy Rochester Tel employees may have.
LatAm and UK severance packages may be quite generous but that is dictated by country law, not arbitrarily by an employee-friendly HR department.
Laurinda Pang is the Chief Human Resource Officer and she just ain’t that generous. This is a woman who reduced the Global Crossing severance schedule for rank and file employees months before a planned RIF. At the same time she modified the rank and file severance schedule, she improved it for SVPs. (She was an SVP at the time.)
I know folks let go in this round with 10+ years of service and they got 5 months severance.
If the 1600 number is accurate, which I don’t believe it is, with the breakdown above, that’s a big problem.
Make no mistake about it, LatAm was way way over-staffed, but they’ve been over-staffed since they were acquired by GC. As long as Hector Alonso (the LatAm Managing Director) was hitting the numbers corporate pretty much left them alone.
If LatAm was forced to reduce that many, there must be some major problems on the other side of the equator. There were no LatAm synergies in LVLT’s GC acquisition; therefore, these LatAm reductions, if true, mean there is a selling problem down there.
The Brazilian Real has lost roughly 16% of its value against the USD over the last 6 months. (BOVESPA is down 20% YTD.) The Brazilian economy appears to have major problems and it’s naive to believe that somehow Level 3 LatAm can avoid them.
As has been noted before on these pages, the 16% reduction in the Real vis the USD is problematic because it means that for each Real LVLT coverts it gets 16% fewer dollars. And LVLT needs to covert those Reals to service (i.e., pay interest on) their dollar-dominated debt.
Anyone see a treadmill problem here? Sunit keeps shaving off 100 basis points here and there by refinancing debt at slightly lower interest rates, but LVLT has a 1500 basis point problem when they convert those Reals to dollars.
If I were an analyst covering LVLT I’d be looking real close at LVLT’s LatAm division.
Storey and Sunit will, undoubtedly, seek to bury as much as possible in the Q3 one-time charges tied to these reductions and hope that the analysts give them a pass this quarter or even reward them for eliminating costs.
They will certainly attempt to attribute the reduction in forces to the completion of synergies. The reality is these reductions are a function of anemic top line growth.
The premium Level 3 paid Global Crossing shareholders came from the expected synergies. The icing on the cake (i.e., the incremental shareholder value for LVLT shareholders) was to come from top line growth.
Agreed
The deal is as follows: For every year of service you get 1 week severance pay. My friend was one that got laid off last week…had 23 years…however the maximum is 20 weeks severance.
Here’s a little Love Note from Sunit to those LVLTers that were just let go, courtesy of the Sept 25th Goldman Sachs conference:
“The reductions were broad based, meaning, we were just looking for the bottom performers — bottomline 6% or so performers across the board in all regions and all functions across the company. So it wasn’t, as I said at the beginning don’t really see that impacting our revenue.”
http://seekingalpha.com/article/1713042-level-3-communications-management-presents-at-goldman-sachs-22nd-annual-communacopia-conference-transcript?part=single (reg’t required but it’s free)
I guess it’s nice that Sunit wants to blow smoke up WS’s, well, you know, in order to make it look like this wasn’t a desperation move to eliminate costs quickly to temporarily placate frustrated investors.
But I can tell you this much (1) the performance appraisals of the individuals I know let go in this round were not “bottom performers” and I’m appalled he referred to them as “bottom performers” so he could spin some BS narrative to hapless investors and (2) when LVLT comes a knocking on the door to sell you something, I would refer them back to Sunit with his little love note.
Quite frankly, I’m not so sure this isn’t legally actionable. He told investors (and anyone else who reads his publicly available comments) that the bottom performers were let go. You now have a scarlet BP on your shirt when you interview for a job.
600+ people let go in the last round. Some lawyer can make a lot of money suing LVLT if that statement to investors is not true. At the same time, lying to investors about the 600 who were let go — that is, they weren’t actually bottom performers — won’t look much better.
Maybe LVLT executives should stop trying to convince investors at financial analyst conferences how great they’re doing and simply prove it with actual performance.