Level 3 Throws a Party

July 24th, 2008 by · 1 Comment

Level 3 (LVLT) reported earnings today, and as with AT&T and Equinix yesterday, the verdict is a good one.  The company reported EBITDA of $251M, well above wall street predictions, and core revenue of $972M which was pretty much in-line. 

Wholesale Network and European revenues were strong, while Business Markets and Content were a bit weaker.  There was a bump from some deferred revenues in the Wholesale Network number though which makes that number look better than it really is, and the flatness in the Content Markets number was partly due to $4M in Vyvx ad revenue that got sold – so that number looks worse than it really is.  The big story was the SG&A improvements, with a reduction of $22M (5.5%) from Q1 levels.  The company is *finally* showing the synergies they promised from those 7 acquired companies.

The biggest item however was at the cashflow line.  With low capex and big cost savings, LVLT actually generated positive free cash flow without any gimmicks and despite a slightly negative contribution from working capital.  According to my model, which I will update formally before long, they are pretty much there if capex guidance (lowered to 11-12%) holds for the remainder of the year.  No gimmicks required.

And now let’s check our predictions:

Core Revenue Ebitda
Morgan Stanley $968 $221
Rob Powell $970 $229
thejuice $970 $250
notrom $977-$986 $240-255
cody klein $981 $238
Reality $972 $251

The winner is pretty clear here, congrats to thejuice! He couldn’t have nailed it much closer. Morgan Stanley, however, may need some remedial modeling courses.  I did slightly better, but my cost savings estimates were in fact too low – and I’m quite happy to have been wrong!  Congrats to LVLT for actually beating expectations – it has been much too long, welcome back.

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Categories: Financials · Internet Backbones

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1 Comment, Add Yours!

  • jeremy drane says:


    i will put out a post that updates my model and talks to the items in the press release and the call. i would like to point out that my numbers were right only becuase we scrubbed the def’s to the tune of 12M. taking that out cody is actually the ebitdas winner. congrats to him and his ‘great’ model. its a great day for longs in that the thesis that we are going to run out of money and not be able to refi is dead in the water now. we can quibble about the numbers going forward but ch11 is not part of that conversation any longer.


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