North American Enterprise Revenues Hold Up Level 3’s Q1

April 29th, 2015 by · 4 Comments

Level 3 Communications posted its earnings report for Q1 2015 this morning, beating expectations slightly on earnings per share and coming in just under the street’s view on revenue.  EBITDA and free cash flow were both strong, and the company raised guidance for both. Here are their numbers in some context with a few thoughts:


$ in millions Q1/14 Q2/14 Q3/14 Q4/14
pro forma
 – North America – Wholesale 368 367 368 425 438 The enterprise number is quite excellent, more than offsetting wholesale weakness.
 – North America – Enterprise 675 684 695 1080 1097
 – EMEA – Wholesale 87 86 80 75 69 Currency pain here, but will listen to the call for more color.  UK government revs included in Enterprise for now.
 – EMEA – Enterprise 138 143 139 146 138
 – Latin America – Wholesale 40 42 42 41 40 As expected, currency fluctuations masked any progress
 – Latin America – Enterprise 149 157 158 151 145
Total Core Network Services 1,457 1,479 1,482 1,918 1,927 NA Enterprise carried this number above my guesses, growth of 6% over the pro-forma results for Q1/2014.
 – Wholesale Voice & Other 152 146 147 134 126 Down more than expected, but nothing out of the ordinary for this low margin segment
Total Revenue 1,609 1,625 1,629 2,052 2,053 Unexpectedly, exactly matching my projection, haha
Network Access Costs 723 
Network Expenses 351
Cash SG&A 339 Not including $5M in integration
Comm. Adjusted EBITDA 458 459 471 625 635 $10M better than I thought, largely due to lower integration expenses than I had modeled.
Adjusted earnings per share 0.47 0.21 0.35 0.35 0.35 Beating my guess by a nickel, but that’s as close as I expected to get as this number is still quite variable
Network access margin % 61.8% 62.3% 62.7% 64% 64.8%
Adj. EBITDA margin % 28.5% 28.2% 28.9% 30.5% 30.9% Deceptively flat given all the moving parts.
Capital Expenditures 163 241 204 346 254 Lower than I thought, but Q4 was bigger and capex is lumpy.
Free Cash Flow (22) 62 117 (9) 51 This just may be the first positive FCF number in the first quarter of any year I have watched (which is nearly all).

Revenues: I expected currency troubles in Europe and Latin America, and I got them.  But the North American enterprise growth number was quite strong, more than making up for it in my view.

EBITDA & Costs: With integration costs of only $5M incurred during the quarter (i.e. no severance I guess), EBITDA came in a bit higher than I had modeled.  Yet Level 3 says it has achieved $95M in run-rate synergies thus far since closing the tw telecom deal.  That’s significant progress, but it has to get harder from here I’d think — I look forward to some details on the call.  Level 3 raised its 2015 EBITDA growth outlook to 14-17%

Earnings & FCF: It’s such a change to see EPS in the black every quarter, but I still am not used to it.  FCF of $51M was quite strong for a first quarter.  The free cash flow forecast for 2015 was raised to $600-650M, which is also a very hard level to get used to after all these years.



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4 Comments So Far

  • en_ron_hubbard says:

    Excellent summary Rob.
    The company is becoming predictable within a very small range and seems to be managing expectations well. That is a good thing. Given operating leverage and the continuing refinancing into a low interest rate environment the ramp in future FCF is inevitable. The question is what multiple is appropriate for a company growing its EBITDA at ~ 15% and its FCF/share at a far higher annual rate? I guess we will find out but on those numbers they are far outperforming the sector.

  • Anon says:

    Gary Breauninger “The Ninger” is reason LVLT is doing so well. Congrats Gary!!!

  • Tom Hughes says:

    Good commentary. It’s time to get used to it. The superior provider has crossed its own chasm.

  • Rob Powell says:

    It turns out, the 2014 pro forma numbers were adjusted slightly after the deal, shifting things around a bit. I have now made the corrections to the table above as per the Q1 supplemental schedule on Level 3’s website.

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