Those looking for a datapoint of strong growth in Level 3's fourth quarter earnings report got what they were looking for, as the company easily coasted past my own revenue and EBITDA expectations. And those looking for an actual profit, well they got that too and several cents per share higher than consensus estimates to boot. Here are the numbers in some context:
|$ in millions||
|- North America – Wholesale||392||372||367||365||374||A powerful enterprise performance, backed up by a rare strong wholesale number.|
|- North America - Enterprise||587||595||603||622||651|
|- EMEA – Wholesale||87||89||88||88||89||About as expected, weaker in UK gov but stronger elsewhere.|
|- EMEA – Enterprise||99||97||99||102||105|
|- EMEA – UK Government||42||37||33||32||29|
|- Latin America – Wholesale||41||40||40||39||41||Strong for both enterprise and wholesale.|
|- Latin America – Enterprise||143||142||149||149||154|
|Total Core Network Services||1,391||1,372||1,379||1,397||1,443||The best sequential CNS performance bump yet.|
|- Wholesale Voice & Other||223||205||186||172||159||Same trend, still steep|
|Total Comm. Services||1,614||1,577||1,565||1,569||1,602|
|Comm. Cash SG&A||599||562||562||576||518|
|Comm. Adjusted EBITDA||407||386||387||385||466||Includes a $10M from a one-time Latin American tax benefit|
|Adjusted earnings per share||(0.16)||(0.36)||(0.11)||(0.09)||0.06||Beating my guess by a penny and the street by four.|
|Adj. Gross margin %||59.4%||60.1%||60.6%||61.2%||61.4%||Still rising, albeit more slowly.|
|Adj. EBITDA margin %||25.2%||24.5%||24.7%||24.5%||29.1%||Closing in on the 30% barrier unexpectedly quickly.|
|Free Cash Flow||202||(162)||8||(90)||197||Not including $30M of accelerated interest and $46M to settle the swaps, FCF for full year 2013 would have been +29M.|
Revenue: The charge was clearly led by North American enterprise sales, which rose 5% sequentially. But North American wholesale managed 2% sequential growth, which is the best we have seen there in a long while. Europe was weaker, losing some ground in constant currency terms, but in the right range nonetheless. Latin American revenues have been the company's best growth engine, and turned in another strong quarter. Going forward Level 3 is looking at Q1 numbers roughly flat with Q4, reflecting the seasonal strength they see in Q4.
EBITDA: At $466M, or even $456M without the one time Latin American tax item, they easily bested my guess. I had assumed it would take longer for the results of the various cost cutting actions in Q3 to show up, but it was in fact all there. Going forward though, Level 3 is shifting a bunch of non-cash bonus compensation to all-cash. That will reduce dilution (it is no coincidence it came the same time as positive earnings), but it will show up in higher cash SG&A and lower adjusted EBITDA. If it were in these numbers, EBITDA would have been $438, which is roughly where they expect Q1.
Earnings: $0.06 per share, 'nuff said. It's been some 16 years in coming, but it's a profit nonetheless and my model says it should grow steadily from here.
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