In its first quarter report, Level 3 Communications picked up where it left off in Q4 of 2013. That’s a good thing, because Q4 was their biggest in recent memory. CNS and total revenues beat expectations (both mine and the street’s), as did EBITDA and earnings per share. Here are the numbers in some context:
|$ in millions||Q1/13||Q2/13||Q3/13||Q4/13||Q1/14||Comments|
|– North America – Wholesale||372||367||365||374||368||Big enterprise number, almost matching Q4 gains.Wholesale still weaker, but not unexpected.|
|– North America – Enterprise||595||603||622||651||675|
|– EMEA – Wholesale||89||88||88||89||87||Now reporting UK Gov as part of enterprise,which was +4M — also stronger than wholesale|
|– EMEA – Enterprise||97||99||102||105||138|
|– EMEA – UK Government||37||33||32||29|
|– Latin America – Wholesale||40||40||39||41||40||Weaker than normal, looks like currency though. Awaiting further color.|
|– Latin America – Enterprise||142||149||149||154||149|
|Total Core Network Services||1,372||1,379||1,397||1,443||1,457||I was wrong, good sequential growth for a Q1|
|– Wholesale Voice & Other||205||186||172||159||152||A little less painful this quarter.|
|Total Comm. Services||1,577||1,565||1,569||1,602||1,609||Up sequentially, beating estimates|
|Comm. COGS||629||616||608||618||614||Costs under control, gross margins up.|
|Comm. Cash SG&A||562||562||576||518||537|
|Comm. Adjusted EBITDA||386||387||385||466||458||Down sequentially, but unexpectedly strong given the shift to cash bonus structure.Guidance now for 14-18% EBITDA growth.|
|Adjusted earnings per share||(0.36)||(0.11)||(0.09)||0.06||0.48||Very strong.|
|Adj. Gross margin %||60.1%||60.6%||61.2%||61.4%||61.8%|
|Adj. EBITDA margin %||24.5%||24.7%||24.5%||29.1%||28.5%|
|Free Cash Flow||(162)||8||(90)||197||(22)||The smallest Q1 cash burn number I’ve ever seen them post. Guidance now $250-300M for 2014.|
- Revenue – US enterprise revenues were huge, and Europe showed signs of life there as well — more than offsetting a rare smaller number in Latin America. I’ll have to listen if that was a currency thing or some other effect. Wholesale remained a bit soft, but not soft enough to ruin the overall party at all.
- EBITDA – Higher revenues with better margins saw this number do far better than the ‘flat with Q4 adjusted for cash compensation shift’ that they had suggested. Good enough in fact for them to raise guidance to 14-18% EBITDA growth.
- Free Cash Flow – This has always been a big downer in Q1 for Level 3, but at $-11M this quarter it was unexpectedly strong. Strong enough to let them boost guidance for this metric as well.
- Earnings per share – Blowing away the street’s $0.28 composite estimate — strong revenues and improving margins will do that.
Is the momentum finally on Level 3’s side now?
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