It’s that time already. Level 3 Communications reported its second quarter earnings this morning, and the story is familiar. Revenues came in a little light at $2.06B due to offsetting trends, but cost savings kept adjusted EBITDA on an upwards trend and adjusted earnings per share checked in above expectations. Here’s a quick table of the numbers in some context and some comments:
| $ in millions | Q2/15 | Q3/15 | Q4/15 | Q1/16 | Q2/16 | Comments |
|---|---|---|---|---|---|---|
| – North America – Wholesale | 452 | 421 | 425 | 434 | 443 | Wholesale up again, but Enterprise took a breather |
| – North America – Enterprise | 1,101 | 1130 | 1146 | 1167 | 1162 | |
| – EMEA – Wholesale | 69 | 69 | 69 | 65 | 63 | Holding the line after a rough Q1 |
| – EMEA – Enterprise | 111 | 117 | 118 | 107 | 110 | |
| – EMEA – UK Government | 25 | 26 | 22 | 19 | 18 | |
| – Latin America – Wholesale | 40 | 39 | 35 | 39 | 37 | A strong enterprise number sequentially |
| – Latin America – Enterprise | 146 | 144 | 125 | 116 | 123 | |
| Total Core Network Services | 1,941 | 1,946 | 1,943 | 1,947 | 1,956 | Improving sequential CNS growth |
| – Wholesale Voice & Other | 120 | 116 | 110 | 104 | 100 | |
| Total Revenue | 2,061 | 2,062 | 2,053 | 2,051 | 2,056 | Below expectations |
| Network Access Costs | 696 | 706 | 708 | 694 | 676 | |
| Network Expenses | 359 | 356 | 337 | 331 | 335 | |
| Cash SG&A | 341 | 325 | 323 | 316 | 33o | |
| Adjusted EBITDA | 665 | 657 | 681 | 710 | 715 | Up sequentially again, but higher SG&A held it back |
| Adjusted earnings per share | 0.42 | 0.00 | 0.53 | 0.35 | 0.41 | Includes loss of $0.11 due to debt extinguishment. |
| Network access margin % | 66.2% | 65.8% | 65.5% | 66.2% | 67.1% | Slowly edging toward 70%? |
| Adj. EBITDA margin % | 32.3% | 31.9% | 33.2% | 34.6% | 34.8% | Another baby step toward 35% |
| Capital Expenditures | 317 | 328 | 330 | 297 | 367 | 17.8% of revenue, the biggest in a while |
| Free Cash Flow | 102 | 247 | 226 | 213 | 264 | Solid number in the expected range. |
Level 3 is still seeking a solid growth trend. This quarter, EMEA revenues managed to hold steady for the first time in a while, while Latin America saw positive gains return. In North America, wholesale revenues rose again sequentially, but this quarter it was the enterprise number that fell and offset things a bit due in part to the short term effects of a 2 year extension deal for one customer. The result was CNS revenue growth of $9M sequentially and $15M over the same period last year. In constant currency, it was a 2.8% year-0ver-year improvement.
Network access margin continued to march upward, but SG&A rose sequentially cutting into the EBITDA gains a bit. Nevertheless, the growth was there and guidance of 10-15% was reiterated.
Capex rose to 17.8% of revenue during the quarter, perhaps an early indicator of revenue growth in the second half of the year, but free cash flow remained strong as the company didn’t give back anything after its strong first quarter FCF number.
Not including the $0.11 from refinancing work, Level 3’s earnings per share of $0.52 came in about 6-8 cents ahead of estimates depending on who you ask.
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It has been what 2-3 years since Jim Crowe left Level 3. At that time he left the company Level 3 was positioned and on the brink of and completely set up for large FCF as a standalone. Storey was also provided the gift of TW Telecom a profitable well respected enterprise focused CLEC to layer on top of that foundation of FCF. The usual cut cost and heads to make a financial integration number appears to be successful. ( that is not the same as operational integration). Has anything improved in the Storey era that suggest he has been successful ? Revenue growth and FCF has not improved if you look at TW Telecom standalone and Level 3 stand alone at the time he was appointed leader. You might say it has It is gotten worse. I would think it is time for change at the top for Level 3.
TWT did just fine making money because it had a model and a culture that enabled it. Level 3 killed both, and ruined a good thing.
Head count was 13500 at the start of the new lvlt/twtc. It is down under 5 percent since then. The increase in free cash flow is coming from the network synergies. You can see that in the gm. You can check out the network expense in the income statement to back it up
Soo agree!
Laurinda Pang and Gary Breauninger will reunite and create a massive Enterprise powerhouse. NA ALL THE WAY.
what the hell is wrong with you?