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|
|- Large Enterprise & Federal||136||142||144||144||144|
|Core Network Services Revenue||694||699||707||720||729|
|- Wholesale Voice||165||163||161||161||164|
|- Asset Sale||7|
|Total Communications Revenue||900||892||895||904||914|
|- 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|
|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.