Issued on April 30, 2014 © 2014 Level 3 Communications, LLC. All Rights Reserved
April 30, 2014
First Quarter 2014 Results
Issued on April 30, 2014
Cautionary Statement & Pro Forma Adjustment
2
Some statements made in this presentation are forwa...
Issued on April 30, 2014
First Quarter 2014 Highlights
3
 Nine consecutive quarters of Enterprise Core Network Services
(...
Issued on April 30, 2014
$871
$884
$905
$939
$962
1Q13 2Q13 3Q13 4Q13 1Q14 4
CNS By Region CNS By Customer Type
CNS revenu...
Issued on April 30, 2014
$577
$537
36.6%
33.4%
1Q13 1Q14
SG&A SG&A % total revenue
Level 3 Gross Margin and SG&A
5
 Gross...
Issued on April 30, 2014
Level 3 Adjusted EBITDA and Capital Expenditures
6
 Continued YoY double digit
growth
 Capital ...
Issued on April 30, 2014
Level 3 Free Cash Flow
7
 Free Cash Flow improved by
$140 million YoY, driven by
EBITDA improvem...
Issued on April 30, 2014
Debt Maturity Profile
8
 Net Debt to Adjusted EBITDA ratio was 4.6x, compared to 5.3x in the fir...
Issued on April 30, 2014
Full Year 2014 Business Outlook
9
Updated
 Expect Adjusted EBITDA growth of 14-18% for the full ...
Issued on April 30, 2014
10
Appendix
Issued on April 30, 2014
Revenue by Region
11
($ in millions)
1Q13 4Q13 1Q14
1Q14/
1Q13
%Change
Constant
Currency
1Q14/
4Q...
Issued on April 30, 2014
Services Revenue
12
1Q14 Percent of CNS
Revenue by Service
Type
10%
16%
35%
39%
Colocation and Da...
Issued on April 30, 2014
13
Non-GAAP Reconciliation
Issued on April 30, 2014
14
Pursuant to Regulation G, the company is hereby providing definitions of non-GAAP financial me...
Issued on April 30, 2014
15
Schedule To Reconcile To Non-GAAP Financial Metrics
Consolidated Revenue is defined as total r...
Issued on April 30, 2014
16
Schedule To Reconcile To Non-GAAP Financial Metrics
Management believes that Adjusted EBITDA a...
Issued on April 30, 2014
17
Schedule To Reconcile To Non-GAAP Financial Metrics
Debt is defined as total gross debt includ...
Issued on April 30, 2014
18
Schedule To Reconcile To Non-GAAP Financial Metrics
Unlevered Cash Flow is defined as net cash...
Issued on April 30, 2014
19
Schedule To Reconcile To Non-GAAP Financial Metrics
Free Cash Flow is defined as net cash prov...
Issued on April 30, 2014
20
Schedule To Reconcile To Non-GAAP Financial Metrics
(1)- Adjusted EBITDA and the resulting Adj...
Issued on April 30, 2014
21
Schedule To Reconcile To Non-GAAP Financial Metrics
2014
($ in millions) Q2 Q3 Q4 Q1 Q2 Q3 Q4 ...
Issued on April 30, 2014
22
Schedule To Reconcile To Non-GAAP Financial Metrics
($ in millions)
Debt 8,388$
Cash and Cash ...
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1 q14 earnings presentation

  1. 1. Issued on April 30, 2014 © 2014 Level 3 Communications, LLC. All Rights Reserved April 30, 2014 First Quarter 2014 Results
  2. 2. Issued on April 30, 2014 Cautionary Statement & Pro Forma Adjustment 2 Some statements made in this presentation are forward-looking in nature and are based on management's current expectations or beliefs. These forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside Level 3's control, which could cause actual events to differ materially from those expressed or implied by the statements. Important factors that could prevent Level 3 from achieving its stated goals include, but are not limited to, the company's ability to: successfully integrate the Global Crossing acquisition or otherwise realize the anticipated benefits thereof; manage risks associated with continued uncertainty in the global economy; maintain and increase traffic on its network; develop and maintain effective business support systems; manage system and network failures or disruptions; avert the breach of its network and computer system security measures; develop new services that meet customer demands and generate acceptable margins; defend intellectual property and proprietary rights; manage the future expansion or adaptation of its network to remain competitive; manage continued or accelerated decreases in market pricing for communications services; obtain capacity for its network from other providers and interconnect its network with other networks on favorable terms; attract and retain qualified management and other personnel; successfully integrate future acquisitions; effectively manage political, legal, regulatory, foreign currency and other risks it is exposed to due to its substantial international operations; mitigate its exposure to contingent liabilities; and meet all of the terms and conditions of its debt obligations. Additional information concerning these and other important factors can be found within Level 3's filings with the Securities and Exchange Commission. Statements in this presentation should be evaluated in light of these important factors. Level 3 is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. In 2013, the company accrued 60 percent of its annual employee bonus compensation expense in the form of equity and 40 percent in cash, compared to 100 percent cash in 2014. The amount of the bonus accrued as equity based compensation in the first quarter of 2013 was $15 million. SG&A, Adjusted EBITDA and Adjusted EBITDA margin for the first quarter of 2013 have been adjusted on a pro forma basis to include the $15 million to present the results on a consistent basis with the accrual of bonus compensation expense in 2014 as 100 percent cash.
  3. 3. Issued on April 30, 2014 First Quarter 2014 Highlights 3  Nine consecutive quarters of Enterprise Core Network Services (CNS) revenue growth on a constant currency basis  CNS revenue grew 6.6% YoY  Gross margin increased to 61.8% in 1Q14  Strong Adjusted EBITDA of $458 million  Based on strong first quarter performance and momentum we are seeing, raising full year guidance:  Adjusted EBITDA is expected to grow 14-18% • Prior outlook of 11-14%  Free Cash Flow is expected to be in the range of $250 to $300 million • Prior outlook of $225 to $275 million
  4. 4. Issued on April 30, 2014 $871 $884 $905 $939 $962 1Q13 2Q13 3Q13 4Q13 1Q14 4 CNS By Region CNS By Customer Type CNS revenue grew to $1.457 billion or 6.6% YoY on a constant currency basis  Enterprise CNS grew 11% YoY on a constant currency basis:  14% YoY from North America  13% YoY from Latin America  10% YoY from EMEA(1)  CNS revenue churn(2) was 1.5% compared to 1.6% in the first quarter 2013 Core Network Services Revenue 72% 15% 13% North America EMEA Latin America 66% 34% Enterprise Wholesale (1) Excludes EMEA UK Government CNS revenue (2) Level 3 measures revenue churn as disconnects of Core Network Services monthly recurring revenue as a percent of Core Network Services revenue. This calculation excludes usage. Also included in the churn calculations are customers who are disconnecting existing service, but are replacing their old service with new, generally higher speed services Total Enterprise CNS Revenue ($ in millions)
  5. 5. Issued on April 30, 2014 $577 $537 36.6% 33.4% 1Q13 1Q14 SG&A SG&A % total revenue Level 3 Gross Margin and SG&A 5  Gross Margin improvement driven by high margin CNS revenue growth  SG&A improved as a result of headcount reductions and non- headcount savings Gross Margin ($ in millions) SG&A(1) ($ in millions) $948 $995 60.1% 61.8% 1Q13 1Q14 GM $ GM % (1) SG&A excludes non-cash compensation expense (2) First quarter 2013 SG&A expense is adjusted to include the $15 million in bonus-related non-cash compensation (2)
  6. 6. Issued on April 30, 2014 Level 3 Adjusted EBITDA and Capital Expenditures 6  Continued YoY double digit growth  Capital expenditures are expected to represent 12-13% of revenue for 2014 Adjusted EBITDA(1) ($ in millions) Capital Expenditures ($ in millions) (1) First quarter 2013 Adjusted EBITDA and the resulting Adjusted EBITDA margin are adjusted by $15 million $371 $458 23.5% 28.5% 1Q13 1Q14 Adj EBITDA Adj EBITDA % of Total Revenue $169 $163 1Q13 1Q14
  7. 7. Issued on April 30, 2014 Level 3 Free Cash Flow 7  Free Cash Flow improved by $140 million YoY, driven by EBITDA improvements and cash interest expense savings Free Cash Flow – Year over Year ($ in millions) Free Cash Flow – Rolling Four Quarters ($ in millions)  Strong improvement of $207 million in Free Cash Flow on a rolling four quarter basis ($162) ($22) 1Q13 1Q14 ($114) $93 1Q13 1Q14
  8. 8. Issued on April 30, 2014 Debt Maturity Profile 8  Net Debt to Adjusted EBITDA ratio was 4.6x, compared to 5.3x in the first quarter 2013  Focused on the lower end of target leverage range of 3 to 5 times  Average interest rate was 6.8%, compared to 7.4% in the first quarter 2013  2015 maturity is 7% Convertible Senior Notes that convert at $27  Cash on hand as of March 31, 2014 of $607 million Note: Maturity chart excludes capital leases and other debt of approximately $82 million March 31, 2014 ($ in Millions) $475 $300 $3,420 $3,471 $640 2014 2015 2016 2017 2018 2019 2020 2021
  9. 9. Issued on April 30, 2014 Full Year 2014 Business Outlook 9 Updated  Expect Adjusted EBITDA growth of 14-18% for the full year 2014 compared to the full year 2013 (from a starting point of $1.565 billion)  Expect Free Cash Flow of $250 to $300 million for the full year 2014 Unchanged  For the full year 2014, expect CNS revenue growth to be higher than the 2.9% growth we saw for the full year 2013  Expect GAAP interest expense of approximately $600 million  Expect net cash interest expense of approximately $560 million  Expect capital expenditures of approximately 12-13% of total revenue  Expect depreciation and amortization of approximately $750 million for the full year 2014  Expect GAAP income tax expense of approximately $70 million
  10. 10. Issued on April 30, 2014 10 Appendix
  11. 11. Issued on April 30, 2014 Revenue by Region 11 ($ in millions) 1Q13 4Q13 1Q14 1Q14/ 1Q13 %Change Constant Currency 1Q14/ 4Q13 %Change Constant Currency 1Q14 % CNS CNS Revenue ($ in millions) North America 967$ 1,025$ 1,043$ 7.8 % 1.7 % 72 % Wholesale 372$ 374$ 368$ (1.4)% (1.6)% 25 % Enterprise 595$ 651$ 675$ 13.5 % 3.6 % 47 % EMEA 223$ 223$ 225$ (2.8)% (0.4)% 15 % Wholesale 89$ 89$ 87$ (5.7)% (3.8)% 6 % Enterprise 134$ 134$ 138$ (0.8)% 1.8 % 9 % Latin America 182$ 195$ 189$ 11.9 % (0.9)% 13 % Wholesale 40$ 41$ 40$ 7.8 % 0.1 % 3 % Enterprise 142$ 154$ 149$ 13.0 % (1.1)% 10 % Total 1,372$ 1,443$ 1,457$ 6.6 % 1.0 % 100 % Wholesale 501$ 504$ 495$ (1.4)% (1.8)% 34 % Enterprise 871$ 939$ 962$ 11.2 % 2.6 % 66 % Total CNS 1,372$ 1,443$ 1,457$ 6.6 % 1.0 % Wholesale Voice Services and Other Revenue 205 159 152 (25.6)% (4.5)% Total Revenue 1,577$ 1,602$ 1,609$ 2.4 % 0.5 % Level 3 Communications
  12. 12. Issued on April 30, 2014 Services Revenue 12 1Q14 Percent of CNS Revenue by Service Type 10% 16% 35% 39% Colocation and Data Center Services Voice Services (Local and Enterprise) Transport & Fiber IP and Data Services Level 3 Communications ($ in millions) Core Network Services Revenue 1Q13 4Q13 1Q14 1Q14/ 1Q13 %Change 1Q14/ 4Q13 %Change 1Q14 % CNS Colocation and Datacenter Services 142$ 154$ 145$ 2.1 % (5.8)% 10 % Transport and Fiber 476$ 496$ 502$ 5.5 % 1.2 % 35 % IP and Data Services 518$ 557$ 573$ 10.6 % 2.9 % 39 % Voice Services (Local and Enterprise) 236$ 236$ 237$ 0.4 % 0.4 % 16 % Total Core Network Services 1,372$ 1,443$ 1,457$ 6.2 % 1.0 % 100 % Wholesale Voice Services and Other 205$ 159$ 152$ (25.9)% (4.4)% Total Revenue 1,577$ 1,602$ 1,609$ 2.0 % 0.4 %
  13. 13. Issued on April 30, 2014 13 Non-GAAP Reconciliation
  14. 14. Issued on April 30, 2014 14 Pursuant to Regulation G, the company is hereby providing definitions of non-GAAP financial metrics and reconciliations to the most directly comparable GAAP measures. The following describes and reconciles those financial measures as reported under accounting principles generally accepted in the United States (GAAP) with those financial measures as adjusted by the items detailed below and presented in the accompanying news release. These calculations are not prepared in accordance with GAAP and should not be viewed as alternatives to GAAP. In keeping with its historical financial reporting practices, the company believes that the supplemental presentation of these calculations provides meaningful non-GAAP financial measures to help investors understand and compare business trends among different reporting periods on a consistent basis. In addition, measures referred to in the accompanying news release as being calculated “on a constant currency basis” or "in constant currency terms" are non-GAAP metrics intended to present the relevant information assuming a constant exchange rate between the two periods being compared. Such metrics are calculated by applying the currency exchange rates used in the preparation of the prior period financial results to the subsequent period results. Schedule To Reconcile To Non-GAAP Financial Metrics
  15. 15. Issued on April 30, 2014 15 Schedule To Reconcile To Non-GAAP Financial Metrics Consolidated Revenue is defined as total revenue from the Consolidated Statements of Operations. Core Network Services Revenue includes revenue from colocation and datacenter services, transport and fiber, IP and data services, and voice services (local and enterprise.) Gross Margin ($) is defined as total revenue less cost of revenue from the Consolidated Statements of Operations. Gross Margin (%) is defined as gross margin ($) divided by total revenue. Management believes that gross margin is a relevant metric to provide to investors, as it is a metric that management uses to measure the margin available to the company after it pays third party network services costs; in essence, a measure of the efficiency of the company’s network. Adjusted EBITDA is defined as net income (loss) from the Consolidated Statements of Operations before income taxes, total other income (expense), non-cash impairment charges, depreciation and amortization and non-cash stock compensation expense. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by total revenue.
  16. 16. Issued on April 30, 2014 16 Schedule To Reconcile To Non-GAAP Financial Metrics Management believes that Adjusted EBITDA and Adjusted EBITDA Margin are relevant and useful metrics to provide to investors, as they are an important part of the company’s internal reporting and are key measures used by Management to evaluate profitability and operating performance of the company and to make resource allocation decisions. Management believes such measures are especially important in a capital-intensive industry such as telecommunications. Management also uses Adjusted EBITDA and Adjusted EBITDA Margin to compare the company’s performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure from period to period its ability to fund capital expenditures, fund growth, service debt and determine bonuses. Adjusted EBITDA excludes non-cash impairment charges and non-cash stock compensation expense because of the non-cash nature of these items. Adjusted EBITDA also excludes interest income, interest expense and income taxes because these items are associated with the company’s capitalization and tax structures. Adjusted EBITDA also excludes depreciation and amortization expense because these non- cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures. Adjusted EBITDA excludes the gain (or loss) on extinguishment and modification of debt and other, net because these items are not related to the primary operations of the company. There are limitations to using Adjusted EBITDA as a financial measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from the company’s calculations. Additionally, this financial measure does not include certain significant items such as interest income, interest expense, income taxes, depreciation and amortization, non-cash impairment charges, non-cash stock compensation expense, the gain (or loss) on extinguishment and modification of debt and net other income (expense). Adjusted EBITDA and Adjusted EBITDA Margin should not be considered a substitute for other measures of financial performance reported in accordance with GAAP.
  17. 17. Issued on April 30, 2014 17 Schedule To Reconcile To Non-GAAP Financial Metrics Debt is defined as total gross debt including capital leases from the Consolidated Balance Sheet. Net Debt to Last Twelve Months (LTM) Adjusted EBITDA Ratio is defined as debt, reduced by cash and cash equivalents and divided by LTM Adjusted EBITDA.
  18. 18. Issued on April 30, 2014 18 Schedule To Reconcile To Non-GAAP Financial Metrics Unlevered Cash Flow is defined as net cash provided by (used in) operating activities less capital expenditures, plus cash interest paid and less interest income all as disclosed in the Consolidated Statements of Cash Flows or the Consolidated Statements of Operations. Management believes that Unlevered Cash Flow is a relevant metric to provide to investors, as it is an indicator of the operational strength and performance of the company and, measured over time, provides management and investors with a sense of the underlying business’ growth pattern and ability to generate cash. Unlevered Cash Flow excludes cash used for acquisitions and debt service and the impact of exchange rate changes on cash and cash equivalents balances. There are material limitations to using Unlevered Cash Flow to measure the company’s cash performance as it excludes certain material items such as payments on and repurchases of long-term debt, interest income, cash interest expense and cash used to fund acquisitions. Comparisons of Level 3’s Unlevered Cash Flow to that of some of its competitors may be of limited usefulness since Level 3 does not currently pay a significant amount of income taxes due to net operating losses, and therefore, generates higher cash flow than a comparable business that does pay income taxes. Additionally, this financial measure is subject to variability quarter over quarter as a result of the timing of payments related to accounts receivable and accounts payable and capital expenditures. Unlevered Cash Flow should not be used as a substitute for net change in cash and cash equivalents in the Consolidated Statements of Cash Flows.
  19. 19. Issued on April 30, 2014 19 Schedule To Reconcile To Non-GAAP Financial Metrics Free Cash Flow is defined as net cash provided by (used in) operating activities less capital expenditures as disclosed in the Consolidated Statements of Cash Flows . Management believes that Free Cash Flow is a relevant metric to provide to investors, as it is an indicator of the company’s ability to generate cash to service its debt. Free Cash Flow excludes cash used for acquisitions, principal repayments and the impact of exchange rate changes on cash and cash equivalents balances. There are material limitations to using Free Cash Flow to measure the company’s performance as it excludes certain material items such as principal payments on and repurchases of long-term debt and cash used to fund acquisitions. Comparisons of Level 3’s Free Cash Flow to that of some of its competitors may be of limited usefulness since Level 3 does not currently pay a significant amount of income taxes due to net operating losses, and therefore, generates higher cash flow than a comparable business that does pay income taxes. Additionally, this financial measure is subject to variability quarter over quarter as a result of the timing of payments related to interest expense, accounts receivable and accounts payable and capital expenditures. Free Cash Flow should not be used as a substitute for net change in cash and cash equivalents on the Consolidated Statements of Cash Flows.
  20. 20. Issued on April 30, 2014 20 Schedule To Reconcile To Non-GAAP Financial Metrics (1)- Adjusted EBITDA and the resulting Adjusted EBITDA margin in the first quarter excludes $15 million in non-cash bonus related compensation. ($ in millions) Q1 2013(1) Q1 2014 Consolidated Net Income (Loss) (78)$ 112$ Income Tax Expense (Benefit) 14 7 Total Other Expense 219 145 Depreciation and Amortization Expense 194 184 Non-cash Compensation Expense 37 10 Non-cash Impairment — — Consolidated Adjusted EBITDA 386$ 458$ Consolidated Revenue 1,577$ 1,609$ Adjusted EBITDA Margin 24.5 % 28.5 % Level 3 Communications, Inc. and Consolidated Adjusted EBITDA
  21. 21. Issued on April 30, 2014 21 Schedule To Reconcile To Non-GAAP Financial Metrics 2014 ($ in millions) Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 2013 Q1 2014 Net Cash Provided by Operating Activities 183$ 70$ 400$ 7$ 216$ 104$ 386$ 141$ 660$ 847$ Capital Expenditures (180) (227) (198) (169) (208) (194) (189) (163) (774) (754) Free Cash Flow 3$ (157)$ 202$ (162)$ 8$ (90)$ 197$ (22)$ (114)$ 93$ Cash Interest Paid 110 234 123 190 145 178 161 128 657 612 Interest Income (1) — — — — — — — (1) — Unlevered Cash Flow 112$ 77$ 325$ 28$ 153$ 88$ 358$ 106$ 542$ 705$ Level 3 Communications, Inc. and Consolidated Subsidiaries Cash Flows 2012 2013 Rolling Four Quarter Basis
  22. 22. Issued on April 30, 2014 22 Schedule To Reconcile To Non-GAAP Financial Metrics ($ in millions) Debt 8,388$ Cash and Cash Equivalents (607) Net Debt 7,781$ LTM Adjusted EBITDA 1,696$ Net Debt to LTM Adjusted EBITDA Ratio 4.6 Net Debt to LTM Adjusted EBITDA ratio as of March 31, 2014 Level 3 Communications, Inc. and Consolidated Subsidiaries

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