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Level 3 Reports First Quarter 2016 Results

First Quarter 2016 Highlights- Grew Core Network Services revenue by 3.6 percent year-over-year, on a pro forma and constant currency basis- Grew Enterprise Core Network Services revenue by 5.7 percent year-over-year, or 6.2 percent year-over-year, excluding UK Government revenue, both on a pro forma and constant currency basis- Grew North America Enterprise Core Network Services revenue by approximately two percent sequentially, on a pro forma and constant currency basis- Delivered strong Adjusted EBITDA growth of 15 percent on a pro forma basis to $710 million and expanded Adjusted EBITDA margins to 34.6 percent- Generated strong Free Cash Flow of $213 million

LVLT, +0.20% today reported results for the first quarter 2016.

"Level 3's first quarter results demonstrate the benefit of our emphasis on profitable growth, as evident in our expanding margins and strong Free Cash Flow during the quarter," said Jeff Storey, president and CEO of Level 3. "The continued evolution of our products and service capabilities matches the changing and complex needs of enterprises, positioning the company to become the premier provider of global communications services."

Total revenue was $2.051 billion for the first quarter 2016, compared to $2.030 billion on a pro forma basis, for the first quarter 2015, excluding the results from the company's Venezuelan subsidiary's operations that was deconsolidated as of September 30, 2015.

In the first quarter 2016, the company generated net income of $124 million, basic earnings per share of $0.35 and diluted earnings per share of $0.34. Included in basic and diluted earnings per share was Income Tax Expense of $94 million, $85 million of which was non-cash, primarily due to utilization of the company's U.S. federal net operating losses. For the first quarter 2015, net income was $122 million and basic and diluted earnings per share were $0.35.

Financial Results

Metric

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($ in millions)

First Quarter 2016

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First Quarter2015 Pro Forma(1)(2)

Core Network Services Revenue

$1,947

$1,904

Wholesale Voice Services Revenue

$104

$126

Total Revenue

$2,051

$2,030

Network Access Costs

$694

$720

Network Access Margin

66.2%

64.5%

Network Related Expenses (NRE) (3)

$331

$349

Selling, General and Administrative Expenses (SG&A)(3)

$316

$341

Non-cash Compensation Expense

$47

$31

Adjusted EBITDA(4)

$710

$620

Adjusted EBITDA Margin(4)

34.6%

30.5%

Capital Expenditures

$297

$251

Unlevered Cash Flow(4)

$324

$188

Free Cash Flow(4)

$213

$42

Net Income

$124

$122

Net Income per Common Share-Basic

$0.35

$0.35

Weighted Average Shares Outstanding (in thousands)- Basic

356,785

346,874



(1)

References to "pro forma" figures represent the results adjusted to exclude the company's Venezuelan subsidiary's operations except for Net Income, Net Income per Common Share-Basic and Weighted Average Shares Outstanding (in thousands)- Basic.

(2)

The reported first 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.

(3)

Excludes non-cash compensation expense.

(4)

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

Revenue

Core Network Services (CNS) Revenue

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($ in millions)

First Quarter 2016

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First Quarter2015 ProForma(1)(2)

Percent

Change,

Constant Currency

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North America

$1,601

$1,534

4%

Wholesale

$434

$438

(1%)

Enterprise

$1,167

$1,096

6%





EMEA

$191

$207

(5%)

Wholesale

$65

$71

(5%)

Enterprise

$107

$110

-%

UK Government

$19

$26

(22%)





Latin America

$155

$163

8%

Wholesale

$39

$44

-%

Enterprise

$116

$119

10%





Total CNS Revenue

$1,947

$1,904

4%

Wholesale

$538

$553

(1%)

Enterprise

$1,409

$1,351

6%



(1)

References to "pro forma" figures represent the results adjusted to exclude the company's Venezuelan subsidiary's operations.

(2)

The reported first 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.

CNS Revenue

CNS Revenue was $1.947 billion in the first quarter 2016, increasing 3.6 percent year-over-year on a pro forma and constant currency basis.

Adjusted EBITDA

For the first quarter 2016, Adjusted EBITDA was $710 million. For the first quarter 2015, Adjusted EBITDA on a pro forma basis was $620 million, which excluded the results from the operations of the company's Venezuelan subsidiary.

Adjusted EBITDA margins expanded to 34.6 percent in the first quarter 2016 from 30.5 percent on a pro forma basis in the first quarter 2015.

Capital Market Transactions and Liquidity

After the close of the quarter, on April 21, 2016, the company fully redeemed $775 million aggregate principal amount of Level 3 Financing, Inc.'s 7% Senior Notes due 2020. To fund the redemption of these notes, Level 3 Financing used the net proceeds from the 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 will incur 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 March 31, 2016, the company had cash and cash equivalents of $1.004 billion.

2016 Business Outlook

"With our continued focus on profitable revenue growth and strong Adjusted EBITDA results in the first quarter 2016, we are increasing our outlook for full year 2016 Adjusted EBITDA growth," said Sunit Patel, executive vice president and CFO of Level 3.

"We now expect full year 2016 Adjusted EBITDA growth of 10 to 12 percent, compared to our previous outlook of 9 to 12 percent. In addition, we continue to expect to generate Free Cash Flow of $1.0 to $1.1 billion."

The company has also updated full year 2016 outlook measures for interest expense and non-cash compensation expense.

Metrics

Old Outlook

New Outlook

Adjusted EBITDA(1)

YoY growth of 9% to 12%

YoY growth of 10% to 12%

Free Cash Flow

$1.0 to $1.1 billion

No Change

GAAP Interest Expense

$570 million

$555 million

Cash Interest Expense

$520 million

$510 million

Capital Expenditures

15% of Total Revenue

No Change

Depreciation and amortization

$1.230 billion

No Change

Cash Income Tax

$40 million

No Change

Non-cash Compensation Expense

$130 million

$170 million

Full Year Income Tax Rate

~30%

No Change

Conference Call and Website Information

Level 3 will hold a conference call to discuss the company's First 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 First 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 to investor.relations@level3.com.

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

About Level 3 Communications Level 3 Communications, Inc. LVLT, +0.20% is a Fortune 500...


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