Level 3 Earnings Primer

July 22nd, 2008 by · 4 Comments

Level 3 (LVLT) reports earnings on Thursday, so here is a quick primer on what to expect.  For more detailed thoughts, models from both thejuice and myself were posted to this blog.  Level 3 does not provide quarterly guidance anymore, so expectations are a bit harder to define.  Overall, expectations seem to be that ebitda will improve, that that improvement will be mostly due to cost savings.  Everyone will be looking for any signs of a return to real core revenue growth but few expect to find it until next quarter.

Core revenue should grow sequentially from the Q1 number of $958M, but nobody seems to be expecting a big number here yet.  If the wholesale voice number slides (or grows) a bunch, that is less of a big deal than the wholesale network, enterprise, or content divisions show strength or weakness.  SBC and Other revenues are expected to decline, but not drop off any cliffs.

SG&A is expected to come down from $395M in Q1.  Some people think it will drop a little ($5-10M), some think a lot ($20M?), nobody thinks it will go up.  Gross margins are generally expected to rise slightly, but nothing major – mostly a restoration from a drop in Q1.

To reach the lower bar of full-year EBITDA guidance ($950M), they have to average $237.5M/quarter for the year.  After Q1’s $211M, if they don’t get close to $230M for Q2 then guidance will be moot.

Nobody really watches the EPS line for this company, however the number ought to be in the range of -$0.11 give or take a bit, excluding one time events (which are frequent).

Ok, it’s time to stand and be counted.

Core Revenue Ebitda
Morgan Stanley $968 $221
Rob Powell $970 $229
thejuice $970 $250
notrom $977-$986 $240-255
cody klein $981 $238

The Morgan Stanley numbers come from an earnings preview issued in the past couple days. My own and those of thejuice come from the models we post on this blog. Notrom’s come from the IV board, although he may also have posted them here in a comment. Anyone else have numbers to throw in? Don’t be shy!  I will update the table with any good faith guesses posted in the comments.

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Categories: Financials · Internet Backbones

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4 Comments So Far

  • Wayne Crimi says:

    I don’t have any projections for LVLT’s quarterly or annual results, but I do predict they will say something about the potential for the credit crisis and economic downturn to hurt business later this year.

    It won’t be done in a way that makes people believe they are going to miss or raises any red flags. In fact, they will probably strongly reiterate previous projections. It will be done in a very subtile way that most shareholders will miss or ignore. However, it will allow them to cover their asses later this year if they do miss by using that as their excuse.

  • morton dick says:

    Re COGS—- There are 3 factors driving an improving cost of goods sold # for Q2—-price increases , network optimization & a favorable mix re higher margin rev .
    I believe we will see a good increase in core network services [80% margin] , somewhere in the neighborhood of 15-30 mil , a reduction in SBC rev which had 33% margins last qtr & an increase in the margins of remaining SBC rev to 50% [per co] . The drop in 90% margin OTHER rev should be in line with the previous qtr which was about 5 mil .
    The wild card is wholesale voice which is unpredictable .
    My range re a drop in COGS is 5-15 mil ,with 10 mil as my best guess .

    Re ebitda—- If SBC rev were to drop from 57 down to 50, it could add a surprise 6 mil in gross margin, translating to a surprise increase in ebitda from this area .
    Although I have posted a range as stated in your blog—-I am leaning strongly to the higher end ,more in line with THE JUICE [ 250].
    Re F/C/F—– I think there is a better than even chance that LVLT will be F/C/F positive this qtr .

  • skibare says:

    nobody seems to put in the ””ONE TIME”” gain in CASH from the sale of the biz ad biz………..

    put me down with MORTY on STRONGER NUMBERS FINALLY after two atrocious years of learning curves and MISSES


  • I don’t think that the increase in price is a good idea.

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