Level 3 Posts Lower Revenue for Q3

Along with the blockbuster news of its merger with CenturyLink, Level 3 also reported its earnings this morning, a few days early — getting all the news out there at once apparently.  Revenues were down sequentially, both total and core, as weakness in both the US and Europe was only partially offset by a big quarter in Latin America.  Earnings per share of $0.40 was a couple pennies light.  Here’s a summary of their numbers in some context:

$ in millions	Q3/15	Q4/15	Q1/16	Q2/16	Q3/16	Comments
– North America – Wholesale	421	425	434	443	412	Wholesale was ugly, Enterprise didn’t offset it.
– North America – Enterprise	1130	1146	1167	1162	1160
– EMEA – Wholesale	69	69	65	63	61	Enterprise was lower than hoped for.
– EMEA – Enterprise	117	118	107	110	104
– EMEA – UK Government	26	22	19	18	17
– Latin America – Wholesale	39	35	39	37	37	Big Enterprise number here, the only revenue bright spot.
– Latin America – Enterprise	144	125	116	123	139
Total Core Network Services	1,946	1,943	1,947	1,956	1,930	Down sequentially, and below expectations.
– Wholesale Voice & Other	116	110	104	100	103	Surprisingly steady.
Total Revenue	2,062	2,053	2,051	2,056	2,033	Down sequentially, and below expectations.
Network Access Costs	706	708	694	676	675
Network Expenses	356	337	331	335	331
Cash SG&A	325	323	316	33o	311	Savings here helped hold the EBITDA line
Adjusted EBITDA	657	681	710	715	716	Up sequentially again, but barely
Adjusted earnings per share	0.00	0.53	0.35	0.41	0.40
Network access margin %	65.8%	65.5%	66.2%	67.1%	66.8%
Adj. EBITDA margin %	31.9%	33.2%	34.6%	34.8%	35.2%
Capital Expenditures	328	330	297	367	364	Guidance for capex raised.
Free Cash Flow	247	226	213	264	281

Wholesale revenues in the US were quite soft, while enterprise revenues in Europe dipped as well.  Latin American enterprise sales were the only bright spot on the growth front.   Cost savings on the SG&A line compensated in part, and thus EBITDA went up for another consecutive quarter and kept the company on-track to meet its EBITDA guidance for the full year.

Level 3 updated its capex guidance for 2016 to 16% of revenue in light of higher demand for dark fiber and wavelength services.  Free cash flow was steady and still strong, though I’ll bet they hoped for a higher number.

All in all, Level 3 investors will be happy to have the merger announcement as cover today, as I expect the markets wouldn’t take the revenue shortfall well otherwise.   I look forward to additional color on the conference call later today.

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Categories: Financials · Internet Backbones