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Level 3 Reports Third Quarter 2015 Results

The following excerpt is from the company's SEC filing.

Third Quarter 2015 Highlights

Grew Core Network Services revenue by 6 percent year-over-year, on a pro forma and constant currency basis

Grew Enterprise Core Network Services revenue 8 percent year-over-year, on a pro forma and constant currency basis

Adjusted EBITDA was $657 million; excluding $18 million of integration-related expenses, Adjusted EBITDA was $675 million

Generated strong Free Cash Flow of $247 million

Achieved approximately $170 million of annualized run-rate Adjusted EBITDA synergies since the close of the tw telecom transaction, compared to $115 million as of th e end of the second quarter 2015

The company made an accounting change to deconsolidate its Venezuelan subsidiary effective September 30, 2015

The Company now expects Adjusted EBITDA growth of 15 to 17 percent, compared to its previous expectation of 14 to 17 percent, and continues to expect Free Cash Flow of $600 to $650 million for the full year 2015

BROOMFIELD, Colo., Oct. 28, 2015

Level 3 Communications, Inc. (NYSE: LVLT) today reported results for the third quarter 2015.

As we approach the one year mark of the tw telecom acquisition, we are pleased with the progress we have made as a combined company to strengthen Level 3s competitive position, said Jeff Storey, president and CEO of Level 3. The continued transition in technology creates an ongoing opportunity for Level 3. We are continuing to invest in the business to position the company for the future.

Reported results through the third quarter 2015 include the results from the companys Venezuelan subsidiarys operations using the SICAD I exchange rate. Total revenue was $2.062 billion for the third quarter 2015, compared to $2.038 billion on a pro forma basis, for the third quarter 2014, assuming the tw telecom acquisition took place on January 1, 2014.

In the third quarter 2015, the company generated net income of $172 million and basic earnings per share of $0.48, which excludes a non-recurring charge related to the deconsolidation of the companys Venezuelan subsidiarys operations. That charge was approximately $171 million or $0.48 per share. Including this charge, net income was $1 million and basic and diluted earnings per share were $0.00 per share. For the third quarter 2014, pro forma net income was $81 million and basic earnings per share was $0.24.

Financial

Results

Metric

($ in millions, except per share data)

Quarter

2015(1)

2014 Pro

Forma(1)(2)

Core Network Services Revenue(3)

Wholesale Voice Services and Other Revenue(3)

Total Revenue

Adjusted EBITDA, including acquisition related expenses(4)(5)

Capital Expenditures

Unlevered Cash Flow(4)

Free Cash Flow(4)

Network Access Margin

Adjusted EBITDA Margin(4)(5)

Net Income

Net Income per Common Share- Basic and Diluted

Weighted Average Shares Outstanding (in thousands)- Basic

355,791

335,165

As reported results include results from the companys Venezuelan subsidiarys operations

References to pro forma figures assume the tw telecom acquisition took place on January 1, 2014.

The reported

quarter 2014 results have been adjusted to reflect changes made to customer assignments between the wholesale and enterprise channels as of the beginning of 2015

See schedule of non-GAAP metrics for definitions and reconciliation to GAAP measures.

Includes tw telecom acquisition-related expenses of $18 million for the third quarter 2015 and $8 million for the third quarter 2014.

Core Network Services (CNS) Revenue

($ in millions)

Forma(1)(2)(3)

Percent

Change,

Constant

Currency

North America

UK Government

Latin America

Total CNS Revenue

As reported results include results from the companys Venezuelan subsidiarys operations using the SICAD I exchange rate.

The reported third quarter 2014 results have been adjusted to reflect changes made to customer assignments between the wholesale and enterprise channels as of the beginning of 2015.

CNS Revenue

CNS Revenue was $1.946 billion in the third quarter 2015, increasing 6 percent year-over-year on a pro forma and constant currency basis.

Deferred Revenue

evenue balance was $

billion at the end of the

$1.172

at the end of the second quarter 2015.

Network Access Costs

Network Access Costs w

ere $706

million in

on a pro forma basis

Network Related Expenses

For the third quarter 2015, excluding non-cash compensation and integration-related expenses, Network Related Expenses were $356 million. This compares to $365 million on a pro forma basis for the third quarter 2014.

Selling, General and Administrative Expenses (SG&A

Excluding non-cash compensation

, SG&A expenses

were $325

million in the

5. This compares to $336

Non-cash Compensation Expense

Non-cash compensation expense was

, non-cash compensation

on a pro forma basis.

For the third quarter 2015, Adjusted EBITDA was $657 million, including $18 million of integration-related expenses. For the third quarter 2014, Adjusted EBITDA on a pro forma basis was $612 million, which included $8 million of tw telecom acquisition-related expenses.

Free Cash Flow was $247 million for the third quarter 2015, compared to $139 million on a pro forma basis for the third quarter 2014.

For the third quarter 2015, capital expenditures were $328 million.

As of September 30, 2015, the company had cash and cash equivalents of approximately $691 million.

Effective September 30, 2015, the company deconsolidated its Venezuelan subsidiary and its related operations from its consolidated financial statements and began accounting for its investment in that Venezuelan subsidiary using the cost method of accounting. In future periods, the companys financial results will not include Venezuela operations. During the third quarter 2015, the company reported revenue of $25 million and Adjusted EBITDA of $16 million from its Venezuela operations at the SICAD I exchange rate which was devalued from 12.8 to 13.5 Bolivars to the US Dollar effective September 1, 2015.

This change in accounting treatment does not directly affect

operations. The company continues to operate in the region and remains committed to serving Venezuelan customers.

Release of Deferred Tax Valuation Allowance

With the companys Federal net operating loss carryforward position of $10.3 billion as of December 31, 2014 in the U.S. and continued expectation to generate income before taxes, the company expects to release a significant portion of its valuation allowance against its U.S. deferred tax assets in the fourth quarter 2015. The company expects the release of the valuation allowance to benefit fourth quarter Income Tax expense and Net Income by approximately $3.1 billion to $3.3 billion.

Business Outlook

We are confident in our full year financial performance, despite the change in the accounting for our Venezuelan operations and continued currency headwinds, said Sunit Patel, executive vice president and CFO of Level 3. We now expect 2015 Adjusted EBITDA growth of 15 to 17 percent, compared to our previous outlook of 14 to 17 percent. We continue to expect to generate $600 to $650 million of Free Cash Flow for the full year 2015. All other outlook measures remain unchanged.

Conference Call and Web Site Information

Level 3 will hold a conference call to discuss the companys third quarter 2015 results today at 10 a.m. ET. The call will be broadcast live on Level 3s Investor Relations website at http://investors.level3.com. Additional information regarding third quarter 2015 results, including the presentation management will review on the conference call, will be available on Level 3s 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 to investor.relations@level3.com.

For additional information, please call +1 720-888-2518.

About Level 3 Communications

Level 3 Communications, Inc. (NYSE: LVLT) is a Fortune 500 company that...


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