Level 3 Posts Solid Sequential Growth in the First Quarter

May 3rd, 2011 by · Leave a Comment

International fiber operator Level 3 Communications (NYSE:LVLT, news, filings) reported its Q1/2011 earnings this morning, fresh off its long-awaited announcement of the Global Crossing deal three weeks ago.  That deal has taken center stage since, however it won't close until much later in the year, and Level 3 has unfinished business on the organic growth front to handle first.  The first quarter is traditionally lighter, however in their fourth quarter call Level 3 indicated they expected to manage a bit of sequential growth nonetheless, and in fact they posted solid revenues of $929, including $728M in core network services, which bested street estimates - and my own as well of course.  Communications adjusted EBITDA of $225 was also a sequential improvement.  

$ in millions Q1/2010 Q2/2010 Q3/2010 Q4/2010 Q1/2011
- Wholesale 336 342 343 347 351
- Large Enterprise & Federal 136 142 144 144 144
- Mid-Market 151 146 147 151 155
- Europe 71 69 75 78 79
Core Network Services Revenue 694 699 707 720 729
- Wholesale Voice 165 163 161 161 164
- Other 34 30 27 23 21
- Asset Sale 7
Total Communications Revenue 900 892 895 904 914
- Coal 10 16 17 17 15
Total Revenue 910 908 912 921 929
- Communications Cost of Revenue 371 358 353 352 357
- Communications Cash SG&A 327 324 325 330 332
Communications Adjusted EBITDA 200 209 216 222 225
Adjusted EPS (0.11) (0.10) (0.10) (0.09) (0.12)
Capital Expenditures 82 104 133 117 115
Free Cash Flow (90) (19) (63) 73 (115)

Revenue: Wholesale revenues ticked upward for the quarter, which is very good news as this has always been the company's main engine for growth.  But the fastest growth came in the Mid-market segment, which has languished for years but now appears to be waking up.  Federal and large enterprise was flat, and Europe was up just slightly.

Costs & EBITDA: Costs seem to have been mainly inline, with cost of revenue higher with revenue, and EBITDA was therefore up slightly with margins holding constant.  Earnings per share dipped as anticipated due to losses from the refinancing of debt.  Without that bit, loss per share was flat sequentially at ($0.09).

Cash & Capex: Capex was right where I thought it would be, which suggests to me that the company's growth projections are probably still safe.  Free cash flow was very negative at ($115M), although this is to be expected due to working capital swings in the first quarter that we see every year. 

Final Thoughts: Overall, a pretty good quarter from Level 3 that will probably keep investors reasonably happy.  The stock has been up some this year in anticipation of some growth as well as in response to the Global Crossing deal.

Categories: Financials · Internet Backbones

Discuss this Post


Leave a Comment

You may Log In to post a comment, or fill in the form to post anonymously.





  • Ramblings’ Jobs

    Post a Job - Just $99/30days
  • Event Calendar