With CenturyLink in the Wings, Level 3 Finishes Off 2016

February 8th, 2017 by · 6 Comments

With the CenturyLink/Level 3 deal still in process, there are still earnings reports to keep an eye on.  This afternoon, Level 3 posted its numbers for the fourth quarter of 2016, showing relatively stable results relative to the third quarter.  Relative to analyst estimates, Q4 revenue came in light at $2.032B while earnings per share of $0.70 was above expectations.

$ in millions Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Comments
 – North America – Wholesale 425 434 443 412  405  Stronger Enterprise numbers this quarter
 – North America – Enterprise 1146 1167 1162 1160 1179
 – EMEA – Wholesale 69 65 63 61 58 Nothing special here
 – EMEA – Enterprise 118 107 110 104 106
 – EMEA – UK Government 22 19 18 17 16
 – Latin America – Wholesale 35 39 37 37 34 Down, partially currency?
 – Latin America – Enterprise 125 116 123 139 136
Total Core Network Services 1,943 1,947 1,956 1,930  1,934 Below expectations, but still up sequentially
 – Wholesale Voice & Other 110 104 100 103  98 Broke down through the 100 barrier finally
Total Revenue 2,053 2,051 2,056 2,033  2,032 Down sequentially, and below expectations.
Network Access Costs 708 694 676 675  680
Network Expenses 337 331 335 331 327
Cash SG&A 323 316 33o 311 316
Adjusted EBITDA 681 710 715 716 709 The first sequential decline in a while.
Adjusted earnings per share 0.53 0.35 0.41 0.40 0.70 
Network access margin % 65.5% 66.2% 67.1% 66.8%  66.5%
Adj. EBITDA margin % 33.2% 34.6% 34.8% 35.2%  34.9%
Capital Expenditures 330 297 367 364  306 Guidance for capex raised.
Free Cash Flow 226 213 264 281  251

In North America, enterprise revenues rose strongly during the quarter, more than offsetting softness on the wholesale side.  Enterprise growth also returned to the scene in Europe, while in Latin America they held most of last quarter's surge.  In both cases, wholesale and government revenues ebbed.  Combined, core network services went up by $4M, and total revenues down by $1M.  For the full year, Level 3 generated $7.767B in revenue.

EBITDA fell sequentially on slightly higher access costs and SG&A, but earnings per share jumped up due to a tax benefit - will have to listen to the call for details on that.  Free cash flow was a healthy $251M.

Looking ahead, Level 3 forecast 2017 EBITDA of $2.94-3.00B, free cash flow of $1.10-1.16B, and capital expenditures of about 16% of revenue.

Categories: Fiber Networks · Financials · Internet Backbones

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