Level 3 posted its fourth quarter 2016 earnings this morning, earning $3.323B, or $9.33 per share. Most of that staggering number, of course, came from a non-cash benefit due to the recognition for tax purposes that the vast pile of net operating losses they have racked up over the years now appear likely to find some use. Looking past that, revenues were flat as enterprise growth was offset by currency headwinds in Latin America, and earnings per share were roughly in-line. Here's a table of Level 3's results in some context:
|$ in millions||Q4/14
|– North America – Wholesale||425||438||450||421||425||Wholesale steady, and Enterprise growth was solid.|
|– North America – Enterprise||1080||1097||1,101||1130||1146|
|– EMEA – Wholesale||75||69||68||69||69||Enterprise growth is now officially a trend.|
|– EMEA – Enterprise/Gov||146||138||136||143||146|
|– Latin America – Wholesale||41||40||40||39||35||Currency fluctuations and Venezuela de-consolidation hit hard|
|– Latin America – Enterprise||151||145||146||144||125|
|Total Core Network Services||1,918||1,927||1,941||1,946||1,943|
|– Wholesale Voice & Other||134||126||120||116||110|
|Total Revenue||2,052||2,053||2,061||2,062||2,053||Slightly below estimates.|
|Network Access Costs||732||723||696||706||708|
|Cash SG&A||332||339||336||325||323||Integration savings seem to be kicking in here|
|Adjusted EBITDA||625||635||665||657||681||Includes $18M in integration expenses|
|Adjusted earnings per share||-0.24||0.35||0.42||0.00||0.53||Not including Venezuelan deconsolidation, $0.48, ahead of expectations|
|Network access margin %||64%||64.8%||66.2%||65.8%||65.5%||This number seems to have leveled off|
|Adj. EBITDA margin %||30.5%||30.9%||32.3%||31.9%||33.2%||Now approaching where TW Telecom was on the entire revenue base|
|Capital Expenditures||346||254||317||328||330||16% of revenue again.|
|Free Cash Flow||(9)||51||102||247||226||Full year 2015 FCF of $626M|
Revenue growth: For the full year, Level 3 says core network serves were up 5.3% on a pro forma and constant currency basis, while Enterprise revenues were up 7.2% via the same measure. Not including the de-consolidation of the Venezuelan business and its $21M of revenue, the growth trend would have been intact both for CNS and total revenue. While the actual numbers haven't gone anywhere lately, they seem poised to have a better 2016. I didn't expect them to burn up the track on organic growth this year, the main task was to not stumble (or worse) while managing a complex integration, and they succeeded in doing that. The European enterprise numbers were once again encouraging.
EBITDA & Costs: The big story for Level 3 this year was the surge in EBITDA as they integrated the tw telecom business. The company says that it has now achieved $216M in annualized run-rated synergies since closing the purchase, exceeding the $140M they had promised to reach by later this quarter and more than the $200M they had promised in total. EBITDA during the quarter hit $681M, or a new high of 33.2% of revenue. At 16%, they hit their guidance for full year 2015 EBITDA growth of 15-17%, and for 2016 they are looking at growth of 9-12% starting from $2.592B, which doesn't include the Venezuelan business. That works out to a range of $2.825-2.903B.
Cash Flows: Free cash flow was strong again during the fourth quarter, giving them a full year FCF number of $626M -- a level many never thought would happen. Looking forward, Level 3 is looking for 2016 to bring in FCF of $1.0-1.1B, which matches what analysts have been projecting.