Q1/11 Earnings Preview: Level 3 and Global Crossing

May 2nd, 2011 by · 3 Comments

On Tuesday before the market opens we will hear from the internet backbone duo of Level 3 and Global Crossing, who of course announced their intentions to get hitched a few weeks ago.  Since that deal seems rather unlikely to fall through, it seems appropriate to preview earnings for both companies at the same time.  The two share some common features when it comes first quarter results, namely  a) slower sequential growth due to a seasonally strong Q4, and b) higher cash usage due to seasonal expense trends.  This year, both companies are also projecting a stronger overall growth trend.  But of course they are not yet joined at the hip, so let's look at each in turn:

Level 3 Communications Q1/11 Preview: Despite the seasonality in their Vyvx business, Level 3 has said that it should see core network services grow sequentially although just barely.  I'm taking them at their word on this, and I see no reason for their fortunes to vary much across their four reporting segments.  Higher expenses will probably drag communications EBITDA down slightly sequentially, and a loss from refinancing debt will cut into EPS.  Other than that, I'm not expecting fireworks of any sort.  Level 3 will continue the drumbeat on organic revenue growth with a ramp that is as always weighted toward the second half.  Here's a quick but detailed rundown of my projections for Level 3's numbers:

$ in millions Q1/2010 Q2/2010 Q3/2010 Q4/2010 Q1/2011 

(my estimate)

- Wholesale 336 342 343 347 347
- Large Enterprise & Federal 136 142 144 144 145
- Mid-Market 151 146 147 151 150
- Europe 71 69 75 78 79
Core Network Services Revenue 694 699 707 720 721
- Wholesale Voice 165 163 161 161 161
- Other 34 30 27 23 20
- Asset Sale 7
Total Communications Revenue 900 892 895 904 902
- Coal 10 16 17 17 17
Total Revenue 910 908 912 921 919
- Communications Cost of Revenue 371 358 353 352 350
- Communications Cash SG&A 327 324 325 330 333
Communications Adjusted EBITDA 200 209 216 222 219
Adjusted EPS (0.11) (0.10) (0.10) (0.09) (0.11)
Capital Expenditures 82 104 133 117 115
Free Cash Flow (90) (19) (63) 73 (75)-(100)

My estimates a bit more conservative than the street as my revenue number comes in a little lighter - your mileage may vary.  Over the years, I have found that Q1 is just not the time to expect to be impressed -- so therefore I just don't anymore.  Nevertheless 2011 promises to be a much better year for Level 3 organically, while 2012 will be about integration progress and little else.

Global Crossing Q1/11 Preview: Global Crossing had a big Q4, but before projecting Q1 one has to keep in mind a few caveats.  First, GCUK revenues had $13M in one time events, and therefore we must shift sequential expectations accordingly.  Second, they suggested higher opex in the neighborhood of $15M, which will cut into OIBDA.  Global Crossing will continue to place much emphasis on their large enterprise business and on investments in managed/cloud services.

$ in millions Q1/10 Q2/10 Q3/10 Q4/10 Q1/11 

(my estimate)

FY2011 

(guidance)

- GCUK 119 113 112 128 115
- GC Impsat 129 134 145 151 152
- ROW 312 314 317 335 337
- Intersegment Eliminations (6) (6) (6) (12) (8)
Total Invest & Grow 554 555 568 602
596 +6-9%
- Wholesale Voice 94 74 79 81 80
Total Revenue 648 630 648 683 676
- Cost of Revenue 455 431 440 452 460
- SG&A 116 106 99 110 120
OIBDA 77 93 109 121 96 425 (midpoint)
Free Cash Flow (72) (13)
(1) 102 (50)-(75) > 0
Capex & Capital Leases 55 63 43 64 55

Again, my revenue projections are a bit lower than composite analyst estimates - for the same aversion to Q1 optimism as I expressed for Level 3.

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Categories: Financials · Internet Backbones

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3 Comments So Far


  • Anonymous says:

    Rob, shouldn’t Global Crossing’s revenue be slightly higher? since year-end 2010 the dollar declined in value against the british pound and the euro, currencies the company does substantial business in.

  • Anonymous says:

    Global Crossing has not spent ANY MONEY in over a year.

    Managed Service deals are a joke, as they require a payback on the CPE in 6 months on 36 month deals, not to mention the use of pre-owned gear. Dave Carey also MUST approve any sale of MNSover $30K. Good luck, Level 3

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