It's that time already. Level 3 Communications reported its second quarter earnings this morning, and the story is familiar. Revenues came in a little light at $2.06B due to offsetting trends, but cost savings kept adjusted EBITDA on an upwards trend and adjusted earnings per share checked in above expectations. Here's a quick table of the numbers in some context and some comments:
|$ in millions||Q2/15||Q3/15||Q4/15||Q1/16||Q2/16||Comments|
|– North America – Wholesale||452||421||425||434||443||Wholesale up again, but Enterprise took a breather|
|– North America – Enterprise||1,101||1130||1146||1167||1162|
|– EMEA – Wholesale||69||69||69||65||63||Holding the line after a rough Q1|
|– EMEA – Enterprise||111||117||118||107||110|
|– EMEA – UK Government||25||26||22||19||18|
|– Latin America – Wholesale||40||39||35||39||37||A strong enterprise number sequentially|
|– Latin America – Enterprise||146||144||125||116||123|
|Total Core Network Services||1,941||1,946||1,943||1,947||1,956||Improving sequential CNS growth|
|– Wholesale Voice & Other||120||116||110||104||100|
|Total Revenue||2,061||2,062||2,053||2,051||2,056||Below expectations|
|Network Access Costs||696||706||708||694||676|
|Adjusted EBITDA||665||657||681||710||715||Up sequentially again, but higher SG&A held it back|
|Adjusted earnings per share||0.42||0.00||0.53||0.35||0.41||Includes loss of $0.11 due to debt extinguishment.|
|Network access margin %||66.2%||65.8%||65.5%||66.2%||67.1%||Slowly edging toward 70%?|
|Adj. EBITDA margin %||32.3%||31.9%||33.2%||34.6%||34.8%||Another baby step toward 35%|
|Capital Expenditures||317||328||330||297||367||17.8% of revenue, the biggest in a while|
|Free Cash Flow||102||247||226||213||264||Solid number in the expected range.|
Level 3 is still seeking a solid growth trend. This quarter, EMEA revenues managed to hold steady for the first time in a while, while Latin America saw positive gains return. In North America, wholesale revenues rose again sequentially, but this quarter it was the enterprise number that fell and offset things a bit due in part to the short term effects of a 2 year extension deal for one customer. The result was CNS revenue growth of $9M sequentially and $15M over the same period last year. In constant currency, it was a 2.8% year-0ver-year improvement.
Network access margin continued to march upward, but SG&A rose sequentially cutting into the EBITDA gains a bit. Nevertheless, the growth was there and guidance of 10-15% was reiterated.
Capex rose to 17.8% of revenue during the quarter, perhaps an early indicator of revenue growth in the second half of the year, but free cash flow remained strong as the company didn't give back anything after its strong first quarter FCF number.
Not including the $0.11 from refinancing work, Level 3's earnings per share of $0.52 came in about 6-8 cents ahead of estimates depending on who you ask.
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