Along with the blockbuster news of its merger with CenturyLink, Level 3 also reported its earnings this morning, a few days early -- getting all the news out there at once apparently. Revenues were down sequentially, both total and core, as weakness in both the US and Europe was only partially offset by a big quarter in Latin America. Earnings per share of $0.40 was a couple pennies light. Here's a summary of their numbers in some context:
|$ in millions||Q3/15||Q4/15||Q1/16||Q2/16||Q3/16||Comments|
|– North America – Wholesale||421||425||434||443||412||Wholesale was ugly, Enterprise didn't offset it.|
|– North America – Enterprise||1130||1146||1167||1162||1160|
|– EMEA – Wholesale||69||69||65||63||61||Enterprise was lower than hoped for.|
|– EMEA – Enterprise||117||118||107||110||104|
|– EMEA – UK Government||26||22||19||18||17|
|– Latin America – Wholesale||39||35||39||37||37||Big Enterprise number here, the only revenue bright spot.|
|– Latin America – Enterprise||144||125||116||123||139|
|Total Core Network Services||1,946||1,943||1,947||1,956||1,930||Down sequentially, and below expectations.|
|– Wholesale Voice & Other||116||110||104||100||103||Surprisingly steady.|
|Total Revenue||2,062||2,053||2,051||2,056||2,033||Down sequentially, and below expectations.|
|Network Access Costs||706||708||694||676||675|
|Cash SG&A||325||323||316||33o||311||Savings here helped hold the EBITDA line|
|Adjusted EBITDA||657||681||710||715||716||Up sequentially again, but barely|
|Adjusted earnings per share||0.00||0.53||0.35||0.41||0.40|
|Network access margin %||65.8%||65.5%||66.2%||67.1%||66.8%|
|Adj. EBITDA margin %||31.9%||33.2%||34.6%||34.8%||35.2%|
|Capital Expenditures||328||330||297||367||364||Guidance for capex raised.|
|Free Cash Flow||247||226||213||264||281|
Wholesale revenues in the US were quite soft, while enterprise revenues in Europe dipped as well. Latin American enterprise sales were the only bright spot on the growth front. Cost savings on the SG&A line compensated in part, and thus EBITDA went up for another consecutive quarter and kept the company on-track to meet its EBITDA guidance for the full year.
Level 3 updated its capex guidance for 2016 to 16% of revenue in light of higher demand for dark fiber and wavelength services. Free cash flow was steady and still strong, though I'll bet they hoped for a higher number.
All in all, Level 3 investors will be happy to have the merger announcement as cover today, as I expect the markets wouldn't take the revenue shortfall well otherwise. I look forward to additional color on the conference call later today.
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