BROOMFIELD, Colo., July 27, 2016 /PRNewswire/ — Level 3 Communications, Inc. (LVLT) today reported results for the second quarter 2016.
“With our focus on profitable growth combined with the strong operating leverage in the business, we continued to deliver expanded margins and improved profitability,” said Jeff Storey, president and CEO of Level 3. “We continue to invest in the business, remain confident in our ability to meet the networking needs of our enterprise customers and believe we can deliver stronger revenue growth in the future.”
Total revenue was $2.056 billion for the second quarter 2016, compared to $2.061 billion and $2.037 billion, on a reported and modified basis, for the second quarter 2015, respectively. The second quarter 2015 modified results exclude the results from the company’s Venezuelan subsidiary’s operations that was deconsolidated as of September 30, 2015.
In the second quarter 2016, the company generated net income of $149 million, basic earnings per share of $0.42 and diluted earnings per share of $0.41. This includes a charge of $40 million or, approximately $0.11 in basic earnings per share for the modification and extinguishment of debt. Excluding this charge, basic earnings per share was $0.53 per share for the second quarter 2016. For the second quarter 2015, the net loss was $13 million and basic and diluted loss per share were $0.04. The second quarter 2015 results included a charge of $163 million or, approximately $0.46 in basic earnings per share for the modification and extinguishment of debt. Excluding this charge, basic earnings per share was $0.42 per share for the second quarter 2015.
Financial Results
|
Metric ($ in millions) |
Second |
Second |
Second |
|
Core Network Services Revenue |
$1,956 |
$1,942 |
$1,918 |
|
Wholesale Voice Services Revenue |
$100 |
$119 |
$119 |
|
Total Revenue |
$2,056 |
$2,061 |
$2,037 |
|
Network Access Costs |
$676 |
$696 |
$693 |
|
Network Access Margin |
67.1% |
66.2% |
66.0% |
|
Network Related Expenses (NRE) (3) |
$335 |
$359 |
$356 |
|
Selling, General and Administrative Expenses (SG&A)(3) |
$330 |
$341 |
$338 |
|
Non-cash Compensation Expense |
$31 |
$27 |
$27 |
|
Adjusted EBITDA(4) |
$715 |
$665 |
$650 |
|
Adjusted EBITDA Margin(4) |
34.8% |
32.3% |
31.9% |
|
Cash Flows from Operating Activities |
$631 |
$419 |
$404 |
|
Capital Expenditures |
$367 |
$317 |
$314 |
|
Unlevered Cash Flow(4) |
$396 |
$321 |
$309 |
|
Free Cash Flow(4) |
$264 |
$102 |
$90 |
|
Net Income (Loss) |
$149 |
($13) |
|
|
Net Income (Loss) per Common Share-Basic |
$0.42 |
($0.04) |
|
|
Weighted Average Shares Outstanding (in thousands)- Basic |
357,924 |
354,471 |
|
(1) |
The reported second quarter 2015 results have been adjusted to reflect changes made to customer assignments between the wholesale and enterprise channels as of the beginning of 2016. |
|
(2) |
References to “modified” figures represent the adjustments made to exclude the company’s Venezuelan subsidiary’s operations except for Net Income (Loss), Net Income (Loss) per Common Share-Basic and Weighted Average Shares Outstanding (in thousands)- Basic. |
|
(3) |
Excludes non-cash compensation expense. |
|
(4) |
See schedule of non-GAAP metrics for definitions and reconciliation to GAAP measures. |
Revenue
|
2Q16/2Q15 |
|||||||
|
Core Network Services (CNS) Revenue ($ in millions) |
Second Quarter |
Second |
Second |
Percent |
Percent |
Percent |
|
|
North America |
$1,605 |
$1,550 |
$1,550 |
4% |
4% |
4% |
|
|
Wholesale |
$443 |
$452 |
$452 |
(2%) |
(2%) |
(2%) |
|
|
Enterprise |
$1,162 |
$1,098 |
$1,098 |
6% |
6% |
6% |
|
|
EMEA |
$191 |
$205 |
$205 |
(7%) |
(7%) |
(5%) |
|
|
Wholesale |
$63 |
$69 |
$69 |
(9%) |
(9%) |
(7%) |
|
|
Enterprise |
$110 |
$111 |
$111 |
(1%) |
(1%) |
2% |
|
|
UK Government |
$18 |
$25 |
$25 |
(28%) |
(28%) |
(26%) |
|
|
Latin America |
$160 |
$187 |
$163 |
(14%) |
(2%) |
5% |
|
|
Wholesale |
$37 |
$48 |
$43 |
(23%) |
(14%) |
(9%) |
|
|
Enterprise |
$123 |
$139 |
$120 |
(12%) |
3% |
10% |
|
|
Total CNS Revenue |
$1,956 |
$1,942 |
$1,918 |
1% |
2% |
3% |
|
|
Wholesale |
$543 |
$569 |
$564 |
(5%) |
(4%) |
(3%) |
|
|
Enterprise |
$1,413 |
$1,373 |
$1,354 |
3% |
4% |
5% |
|
|
(1) |
The reported second quarter 2015 results have been adjusted to reflect changes made to customer assignments between the wholesale and enterprise channels as of the beginning of 2016 |
|
(2) |
References to “modified” figures represent the adjustments made to exclude the company’s Venezuelan subsidiary’s operations. |
|
(3) |
Year-over-year growth rates are calculated using second quarter 2015 results which have been adjusted to reflect changes made to customer assignments and included the company’s Venezuelan subsidiary’s operations. These growth rates are on a reported basis and not adjusted for currency. |
|
(4) |
Modified year-over-year growth rates are calculated using second quarter 2015 results which have been adjusted to reflect changes made to customer assignments as well as to exclude the company’s Venezuelan subsidiary’s operations. These growth rates are on a reported basis and not adjusted for currency. |
CNS Revenue
CNS Revenue was $1.956 billion in the second quarter 2016, increasing 0.7 percent year-over-year on a reported basis, and 2.8 percent year-over-year on a constant currency and modified basis.
“We continued to grow Core Network Services revenue this quarter, and saw improvement in both EMEA and Latin America Enterprise CNS revenue,” said Sunit Patel, executive vice president and CFO of Level 3.
“In North America, in conjunction with a two year contract extension, we issued a $5 million credit during the quarter. While this renewal put pressure on revenue in the short term, it also provides more than $100 million of additional revenue during the extension period, providing significant benefit to Level 3 over the long term. Additionally, revenue was affected due to higher disconnects at the lower end of our enterprise customer base.
“North America Enterprise CNS revenue grew 5.9 percent year-over-year compared to the second quarter 2015. Excluding the credit from the contract renewal, North America Enterprise CNS revenue grew 6.4 percent year-over-year.
“During the quarter, we also saw pressure in Wholesale CNS revenue from previous consolidations. As a result, Wholesale CNS revenue declined year-over-year in all three regions.”
Capital Market Transactions and Liquidity
During the quarter, on April 21, 2016, Level 3 Financing fully redeemed $775 million aggregate principal amount of its 7% Senior Notes due 2020. To fund the redemption of these notes, Level 3 Financing used the net proceeds from the March 2016 issuance of its 5.25% Senior Notes due 2026, along with cash on hand, to pay for principal, accrued interest, applicable premiums and transaction fees and expenses.
The company incurred a loss on extinguishment and modification of debt before taxes as a result of this transaction and related redemption of $40 million, or approximately $0.11 in basic earnings per share in the second quarter 2016.
As of June 30, 2016, the company had cash and cash equivalents of $1.291 billion.
2016 Business Outlook
“As we look at the remainder of the year, we are confident in and are reiterating our outlook for Adjusted EBITDA and Free Cash Flow,” said Patel. “Specifically, we expect full year 2016 Adjusted EBITDA growth of 10 to 12 percent and Free Cash Flow of $1.0 to $1.1 billion.”
All other outlook measures remain unchanged.
|
Metrics |
Outlook |
|
Adjusted EBITDA(1) |
YoY growth of 10% to 12% |
|
Free Cash Flow |
$1.0 to $1.1 billion |
|
GAAP Interest Expense |
$555 million |
|
Cash Interest Expense |
$510 million |
|
Capital Expenditures |
15% of Total Revenue |
|
Depreciation and amortization |
$1.230 billion |
|
Cash Income Tax |
$40 million |
|
Non-cash Compensation Expense |
$170 million |
|
Full Year Income Tax Rate |
~30% |
|
(1) From a starting point of $2.592 billion, which is adjusted to exclude Adjusted EBITDA from the company’s Venezuelan subsidiary. |
Conference Call and Website Information
Level 3 will hold a conference call to discuss the company’s Second Quarter Results today at 10 a.m. ET. The call will be broadcast live on Level 3’s Investor Relations website at http://investors.level3.com. Additional information regarding Second Quarter Results, including the presentation management will review on the conference call, will be available on Level 3’s Investor Relations website. If you are unable to join the call via the Web, the call can be accessed live at +1 877-283-5145 (U.S. Domestic) or +1 312-281-1200 (International). Questions should be sent toinvestor.relations@level3.com.
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