With the tw telecom transaction still looming large in the autumn, Q2 and Q3 for Level 3 are about not tripping over anything. And they didn't, posting another strong quarter of enterprise revenue growth. This time it was Europe and South America that held things up, even after taking out boosts from currency fluctuations. Here are their actual numbers in some context:
|$ in millions||Q2/13||Q3/13||Q4/13||Q1/14||Q2/14
|- North America – Wholesale||367||365||374||368||367||The smallest bump up in N.A. enterprise in the past year, but enough to keep the momentum going|
|- North America - Enterprise||603||622||651||675||684|
|- EMEA – Wholesale||88||88||89||87||86||A big enterprise number for Europe, helped a bit by forex but still up 2.5% sequentially in constant currency.|
|- EMEA – Enterprise||132||134||134||138||143|
|- Latin America – Wholesale||40||39||41||40||42||Also a bit enterprise number for Latin America, helped by forex a bit but still up 3.6% sequentially in constant currency.|
|- Latin America – Enterprise||149||149||154||149||157|
|Total Core Network Services||1,379||1,397||1,443||1,457||1,479||Up 1.5% sequentially.|
|- Wholesale Voice & Other||186||172||159||152||146||A decelerating decline lately.|
|Total Comm. Services||1,565||1,569||1,602||1,609||1,625||Beating expectations, including mine.|
|Comm. COGS||616||608||618||614||613||Strong COGS number. SG&A was up a bit even after transaction costs.|
|Comm. Cash SG&A||562||576||518||537||553|
|Comm. Adjusted EBITDA||387||385||466||458||459
||Includes $4M in tw telecom transaction costs, as I expected. Otherwise, $463M|
|Adjusted earnings per share||(0.11)||(0.09)||0.06||0.47||0.21||Not counting a forex hit in Venezuela, $0.37 per share.|
|Adj. Gross margin %||60.6%||61.2%||61.4%||61.8%||62.3%||Very strong|
|Adj. EBITDA margin %||24.7%||24.5%||29.1%||28.5%||28.2%||Not including tw telecom transaction costs, this was flat|
|Capital Expenditures||208||194||189||163||241||A substantial number this quarter|
|Free Cash Flow||8||(90)||197||(22)||62||Could be anything near breakeven or above.|
Revenue: North American enterprise revenues were up, but not as much sequentially as we have seen lately. However, Europe and South America made up for that. Wholesale was, as usual, far less exciting. The strength came from mostly IP&Data, as it generally has lately.
EBITDA & Margins: EBITDA was pretty much where I expected it to be, with the extra revenue offset by some higher SG&A even after discounting the tw telecom transaction costs of $4M. Gross margins were quite strong, however.
Earnings: Not including the Bolivar devaluation, EPS would have been $0.37 which was better than the street's number and mine too. Including it, $0.21 was still well into the black for another quarter of actual positive earnings for Level 3 -- which is still taking some getting used to.
Free Cash Flow: FCF of $62M was essentially where I expected, despite a big bump in capex up to $241M. I'm curious where the spending went to this quarter.
Meanwhile, Level 3 also this morning announced plans to offer $600M in senior notes. The new funds will go into escrow until the tw telecom deal closes, funding the cash portion of the deal.