BROOMFIELD, Colo., Aug. 2, 2017 /PRNewswire/ -- Level 3
Communications, Inc. (NYSE: LVLT) today reported results for the
quarter ended June 30, 2017.
"Level 3 continues to focus on delivering profitable growth and
expanding margins," said Jeff
Storey, president and CEO of Level 3. "With the CenturyLink
team, we have gained good traction on integration planning. I
am excited to become part of the combined company management team
when the transaction closes, as I believe the combination with
CenturyLink will enable us to deliver significant value to our
stockholders, customers and employees."
Total revenue was $2.061 billion
for the second quarter 2017, compared to $2.056 billion for the second quarter 2016. In
the second quarter 2017, the company generated net income of
$154 million and basic earnings per
share of $0.42.
Financial Results
Metric
($ in
millions)
|
Second
Quarter
2017
|
Second
Quarter
2016(1)
|
Core Network Services
Revenue
|
$1,965
|
$1,956
|
Wholesale Voice
Services Revenue
|
$96
|
$100
|
Total
Revenue
|
$2,061
|
$2,056
|
Network Access
Costs
|
$675
|
$676
|
Network Access
Margin
|
67.2%
|
67.1%
|
Network Related
Expenses (NRE)(2)
|
$331
|
$335
|
Selling, General and
Administrative Expenses (SG&A)(2)
|
$333
|
$330
|
Non-cash Compensation
Expense
|
$39
|
$31
|
Adjusted
EBITDA(3)
|
$722
|
$715
|
Adjusted EBITDA,
excluding acquisition-related expenses(3)(4)
|
$744
|
$715
|
Adjusted EBITDA
Margin(3)
|
35.0%
|
34.8%
|
Adjusted EBITDA
Margin, excluding acquisition-related
expenses(3)(4)
|
36.1%
|
34.8%
|
Cash Flows from
Operating Activities(3)(5)
|
$564
|
$631
|
Capital
Expenditures
|
$328
|
$367
|
Capital Expenditures,
excluding acquisition-related capital
expenditures(6)
|
$322
|
$367
|
Unlevered Cash
Flow(3)
|
$359
|
$396
|
Unlevered Cash Flow,
excluding acquisition-related expenses(3)(5)
|
$362
|
$396
|
Free Cash
Flow(3)
|
$233
|
$264
|
Free Cash Flow,
excluding acquisition-related expenses(3)(5)
|
$236
|
$264
|
Net
Income(7)
|
$154
|
$156
|
Net Income per Common
Share-Basic(7)
|
$0.42
|
$0.44
|
Weighted Average
Shares Outstanding (in thousands)- Basic
|
362,385
|
357,924
|
|
|
(1)
|
The reported
second quarter 2016 results have been adjusted to reflect changes
made to customer assignments between the wholesale and
enterprise channels as of the beginning of 2017.
|
(2)
|
Excludes non-cash
compensation expense.
|
(3)
|
See schedule of
non-GAAP metrics for definitions and reconciliation to GAAP
measures.
|
(4)
|
In the second
quarter 2017, acquisition-related expenses were $22
million.
|
(5)
|
In the second
quarter 2017, cash paid for acquisition-related expenses was $3
million.
|
(6)
|
In the second
quarter 2017, acquisition-related capital expenditures were $6
million.
|
(7)
|
Results for the
second quarter 2016 have been adjusted to reflect the Company's
adoption of Account Standards Update 2016-09, Improvements to
Employee Share-Based Payment Accounting.
|
Second Quarter 2017 Revenue Results
Core Network
Services (CNS)
Revenue
($ in
millions)
|
Second
Quarter
2017
|
Second
Quarter
2016(1)
|
2Q17/2Q16
Percent
Change
|
2Q17/2Q16
Percent
Change,
Constant
Currency
|
North
America
|
$1,607
|
$1,605
|
-%
|
-%
|
Wholesale
|
$415
|
$443
|
(6%)
|
(6%)
|
Enterprise
|
$1,192
|
$1,162
|
3%
|
3%
|
|
|
|
|
|
EMEA
|
$176
|
$191
|
(8%)
|
(3%)
|
Wholesale
|
$55
|
$61
|
(10%)
|
(6%)
|
Enterprise
|
$107
|
$112
|
(4%)
|
-%
|
UK
Government
|
$14
|
$18
|
(22%)
|
(9%)
|
|
|
|
|
|
Latin
America
|
$182
|
$160
|
14%
|
11%
|
Wholesale
|
$36
|
$37
|
(3%)
|
(3%)
|
Enterprise
|
$146
|
$123
|
19%
|
16%
|
|
|
|
|
|
Total CNS
Revenue
|
$1,965
|
$1,956
|
-%
|
1%
|
Wholesale
|
$506
|
$541
|
(6%)
|
(6%)
|
Enterprise
|
$1,459
|
$1,415
|
3%
|
3%
|
|
|
(1)
|
The reported
second quarter 2016 results have been adjusted to reflect changes
made to customer assignments between the wholesale and
enterprise channels as of the beginning of 2017.
|
Liquidity
As of June 30, 2017, the company
had cash, cash equivalents and marketable securities of
$2.2 billion.
2017 Business Outlook
"We remain confident in and are reiterating our outlook for
Adjusted EBITDA and Free Cash Flow," said Sunit Patel, executive vice president and CFO of
Level 3. "For the full year 2017, we continue to expect Adjusted
EBITDA of $2.94 to $3.00 billion and
Free Cash Flow of $1.10 to $1.16
billion, excluding CenturyLink acquisition-related expenses.
All other outlook measures also remain unchanged."
Metrics(1)
|
2017
Outlook
|
Adjusted
EBITDA
|
$2.94 to $3.00
billion
|
Free Cash
Flow
|
$1.10 to $1.16
billion
|
GAAP Interest
Expense
|
$540
million
|
Cash Interest
Expense
|
$520
million
|
Capital
Expenditures
|
16% of Total
Revenue
|
Depreciation and
Amortization
|
$1.35
billion
|
Cash Income
Tax
|
$40
million
|
Non-cash Compensation
Expense
|
$170
million
|
Full Year Income Tax
Rate
|
~38%
|
|
(1) All
outlook measures exclude CenturyLink acquisition-related
expenses.
|
Conference Call and Website Information
Level 3 will broadcast a live conference call on its Investor
Relations website, http://investors.level3.com at 3:30 p.m. MT/5:30 p.m.
ET. Additional information regarding the second quarter 2017
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).
The call will be archived and available as an audio replay on
Level 3's Investor Relations website starting at 7 p.m. ET August 3
until 6 p.m. ET October 31, 2017. The replay can be accessed by
dialing +1 800-633-8284 (U.S. Domestic) or +1 402-977-9140
(International), reservation code 21854939.
For additional information, please call +1 720-888-2518.
Contact
Information
|
|
|
Media:
|
Investors:
|
D. Nikki
Wheeler
|
Mark
Stoutenberg
|
+1
720-888-0560
|
+1
720-888-2518
|
Nikki.Wheeler@Level3.com
|
Mark.Stoutenberg@Level3.com
|
About Level 3 Communications
Level 3 Communications, Inc. (NYSE: LVLT) is a Fortune 500
company that provides local, national and global communications
services to enterprise, government and carrier customers. Level 3's
comprehensive portfolio of secure, managed solutions includes fiber
and infrastructure solutions; IP-based voice and data
communications; wide-area Ethernet services; video and content
distribution; data center and cloud-based solutions. Level 3 serves
customers in more than 500 markets in over 60 countries across a
global services platform anchored by owned fiber networks on three
continents and connected by extensive undersea facilities. For more
information, please visit www.level3.com or get to know us on
Twitter, Facebook and LinkedIn.
© Level 3 Communications, LLC. All Rights Reserved. Level 3,
Level 3 Communications, Level (3) and the Level 3 Logo are either
registered service marks or service marks of Level 3
Communications, LLC and/or one of its Affiliates in the United States and elsewhere. Any other
service names, product names, company names or logos included
herein are the trademarks or service marks of their respective
owners. Level 3 services are provided by subsidiaries of Level 3
Communications, Inc.
Forward Looking Statements
Some statements made in this press release 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: increase revenue from its
services to realize its targets for financial and operating
performance; 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; manage the future expansion or adaptation of
its network to remain competitive; defend intellectual property and
proprietary rights; manage risks associated with continued
uncertainty in the global economy; 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; 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
press release 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.
Except for the historical and factual information contained
herein, the matters set forth in this communication, including
statements regarding the expected timing and benefits of the
proposed transaction, such as efficiencies, cost savings, enhanced
revenues, growth potential, market profile and financial strength,
and the competitive ability and position of the combined company,
and other statements identified by words such as "will,"
"estimates," "anticipates," "believes," "expects," "projects,"
"plans," "intends," "may," "should," "could," "seeks" and similar
expressions, are forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are
subject to a number of risks, uncertainties and assumptions, many
of which are beyond our control. These forward-looking
statements, and the assumptions upon which they are based, (i) are
not guarantees of future results, (ii) are inherently speculative
and (iii) are subject to a number of risks and uncertainties.
Actual events and results may differ materially from those
anticipated, estimated, projected or implied in those statements if
one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect. Factors that could affect
actual results include but are not limited to: the ability of
the parties to timely and successfully receive the required
approvals for the combination from regulatory agencies free of
conditions materially adverse to the parties and from their
respective shareholders; the possibility that the anticipated
benefits from the proposed transaction cannot be fully realized or
may take longer to realize than expected; the possibility that
costs, difficulties or disruptions related to the integration of
Level 3's operations with those of CenturyLink will be greater
than expected; the ability of the combined company to retain and
hire key personnel; the effects of competition from a wide variety
of competitive providers, including lower demand for CenturyLink's
legacy offerings; the effects of new, emerging or competing
technologies, including those that could make the combined
company's products less desirable or obsolete; the effects of
ongoing changes in the regulation of the communications industry,
including the outcome of regulatory or judicial proceedings
relating to intercarrier compensation, interconnection obligations,
access charges, universal service, broadband deployment, data
protection and net neutrality; adverse changes in CenturyLink's or
the combined company's access to credit markets on favorable terms,
whether caused by changes in its financial position, lower debt
credit ratings, unstable markets or otherwise; the combined
company's ability to effectively adjust to changes in the
communications industry, and changes in the composition of its
markets and product mix; possible changes in the demand for, or
pricing of, the combined company's products and services, including
the combined company's ability to effectively respond to increased
demand for high-speed broadband service; changes in the operating
plans, capital allocation plans or corporate strategies of the
combined company, whether based on changes in market conditions,
changes in the cash flows or financial position of the combined
company, or otherwise; the combined company's ability to
successfully maintain the quality and profitability of its existing
product and service offerings and to introduce new offerings on a
timely and cost-effective basis; the adverse impact on the combined
company's business and network from possible equipment failures,
service outages, security breaches or similar events impacting its
network; the combined company's ability to maintain favorable
relations with key business partners, suppliers, vendors, landlords
and financial institutions; the ability of the combined company to
utilize net operating losses in amounts projected; changes in the
future cash requirements of the combined company; and other risk
factors and cautionary statements as detailed from time to time in
each of CenturyLink's and Level 3's reports filed with the U.S.
Securities and Exchange Commission (the "SEC"). Due to these risks
and uncertainties, there can be no assurance that the proposed
combination or any other transaction described above will in fact
be completed in the manner described or at all. You should be
aware that new factors may emerge from time to time and it is not
possible for us to identify all such factors nor can we predict the
impact of each such factor on the proposed combination or the
combined company. You should not place undue reliance on
these forward‑looking statements, which speak only as of the date
of this communication. Unless legally required, CenturyLink
and Level 3 undertake no obligation and each expressly
disclaim any such obligation, to update publicly any
forward-looking statements, whether as a result of new information,
future events, changed events or otherwise.
Additional Information
In connection with the proposed combination, CenturyLink filed a
registration statement on Form S-4 with the SEC (Registration
Statement No. 333-215121), which was declared effective by the SEC
on February 13, 2017. CenturyLink and
Level 3 have filed a joint proxy statement/prospectus and will file
other relevant documents concerning the proposed transaction with
the SEC. CenturyLink and Level 3 began mailing the definitive joint
proxy statement/prospectus to their respective security holders on
or about February 13, 2017. The
definitive joint proxy statement/prospectus, dated as of
February 13, 2017, contains important
information about CenturyLink, Level 3, the proposed combination
and related matters. INVESTORS AND SECURITY HOLDERS ARE URGED
TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND ANY
OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE
PROPOSED COMBINATION OR INCORPORATED BY REFERENCE IN THE DEFINITIVE
JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY BECAUSE THEY CONTAIN
IMPORTANT INFORMATION. Investors and security holders may obtain
the definitive joint proxy statement/prospectus and the filings
that are incorporated by reference in the definitive joint proxy
statement/prospectus, as well as other filings containing
information about CenturyLink and Level 3, free of charge, at the
website maintained by the SEC at www.sec.gov. Investors and
security holders may also obtain these documents free of charge by
directing a request to CenturyLink, 100 CenturyLink Drive,
Monroe, Louisiana 71203,
Attention: Corporate Secretary, or to Level 3, 1025 Eldorado
Boulevard, Broomfield, Colorado
80021, Attention: Investor Relations.
Level 3 Communications:
Non-GAAP Metrics
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.
Level 3
Communications, Inc. and Consolidated Subsidiaries
|
|
|
|
|
Quarterly Constant
Currency
|
|
|
|
|
|
|
2Q16
FX
|
1Q17
FX
|
|
|
|
2Q16
FX
|
|
1Q17
FX
|
CNS Revenue ($ in
millions)
|
2Q17
|
2Q17
Constant
Currency
|
2Q17
Constant
Currency
|
2Q16(2)
|
1Q17
|
2Q17/
2Q16
%Change
|
2Q17
Constant
Currency/
2Q16
%Change(3)
|
2Q17/1Q17
%Change
|
2Q17
Constant
Currency/
1Q17
%Change(3)
|
North
America
|
$
|
1,607
|
|
$
|
1,607
|
|
$
|
1,607
|
|
$
|
1,605
|
|
$
|
1,594
|
|
0.1
|
%
|
0.1
|
%
|
0.8
|
%
|
0.8
|
%
|
Wholesale
|
$
|
415
|
|
$
|
415
|
|
$
|
415
|
|
$
|
443
|
|
$
|
403
|
|
(6.3)
|
%
|
(6.3)
|
%
|
3.0
|
%
|
3.0
|
%
|
Enterprise
|
$
|
1,192
|
|
$
|
1,192
|
|
$
|
1,192
|
|
$
|
1,162
|
|
$
|
1,191
|
|
2.6
|
%
|
2.6
|
%
|
0.1
|
%
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
$
|
176
|
|
$
|
186
|
|
$
|
172
|
|
$
|
191
|
|
$
|
175
|
|
(7.9)
|
%
|
(2.5)
|
%
|
0.6
|
%
|
(1.7)
|
%
|
Wholesale
|
$
|
55
|
|
$
|
58
|
|
$
|
54
|
|
$
|
61
|
|
$
|
55
|
|
(9.8)
|
%
|
(6.0)
|
%
|
—
|
%
|
(2.0)
|
%
|
Enterprise
|
$
|
107
|
|
$
|
112
|
|
$
|
105
|
|
$
|
112
|
|
$
|
106
|
|
(4.5)
|
%
|
0.4
|
%
|
0.9
|
%
|
(1.3)
|
%
|
UK Govt
|
$
|
14
|
|
$
|
16
|
|
$
|
13
|
|
$
|
18
|
|
$
|
14
|
|
(22.2)
|
%
|
(9.0)
|
%
|
—
|
%
|
(3.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
Latin
America
|
$
|
182
|
|
$
|
178
|
|
$
|
183
|
|
$
|
160
|
|
$
|
177
|
|
13.8
|
%
|
11.3
|
%
|
2.8
|
%
|
3.4
|
%
|
Wholesale
|
$
|
36
|
|
$
|
35
|
|
$
|
36
|
|
$
|
37
|
|
$
|
36
|
|
(2.7)
|
%
|
(3.0)
|
%
|
—
|
%
|
1.7
|
%
|
Enterprise
|
$
|
146
|
|
$
|
143
|
|
$
|
147
|
|
$
|
123
|
|
$
|
141
|
|
18.7
|
%
|
15.5
|
%
|
3.5
|
%
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Total CNS
Revenue
|
$
|
1,965
|
|
$
|
1,971
|
|
$
|
1,962
|
|
$
|
1,956
|
|
$
|
1,946
|
|
0.5
|
%
|
0.8
|
%
|
1.0
|
%
|
0.8
|
%
|
Wholesale
|
$
|
506
|
|
$
|
508
|
|
$
|
505
|
|
$
|
541
|
|
$
|
494
|
|
(6.5)
|
%
|
(6.0)
|
%
|
2.4
|
%
|
2.1
|
%
|
Enterprise(1)
|
$
|
1,459
|
|
$
|
1,463
|
|
$
|
1,457
|
|
$
|
1,415
|
|
$
|
1,452
|
|
3.1
|
%
|
3.4
|
%
|
0.5
|
%
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Total CNS
Revenue
|
$
|
1,965
|
|
$
|
1,971
|
|
$
|
1,962
|
|
$
|
1,956
|
|
$
|
1,946
|
|
0.5
|
%
|
0.8
|
%
|
1.0
|
%
|
0.8
|
%
|
Wholesale Voice
Services
|
96
|
|
96
|
|
96
|
|
100
|
|
102
|
|
(4.0)
|
%
|
(3.7)
|
%
|
(5.9)
|
%
|
(5.1)
|
%
|
Total
Revenue
|
$
|
2,061
|
|
$
|
2,067
|
|
$
|
2,058
|
|
$
|
2,056
|
|
$
|
2,048
|
|
0.2
|
%
|
0.6
|
%
|
0.6
|
%
|
0.5
|
%
|
|
|
|
|
|
(1)
|
Includes UK
Government
|
|
|
|
(2)
|
The 2016 results have
been adjusted to reflect changes made to customer assignments
between the wholesale and enterprise channels as of the beginning
of 2017.
|
(3)
|
Percentages are
calculated using whole numbers. Minor differences may exist due to
rounding.
|
Consolidated Revenue is defined as total revenue from the
Consolidated Statements of Income.
Core Network Services Revenue includes revenue from
colocation and datacenter services, transport and fiber, IP and
data services, and voice services (local and enterprise).
Network Access Costs includes leased capacity,
right-of-way costs, access charges, satellite transponder lease
costs and other third party costs directly attributable to
providing access to customer locations from the Level 3 network,
but excludes Network Related Expenses, and depreciation and
amortization. Network Access Costs do not include any employee
expenses or impairment expenses; these expenses are allocated to
Network Related Expenses or Selling, General and Administrative
Expenses.
Network Related Expenses includes certain expenses
associated with the delivery of services to customers and the
operation and maintenance of the Level 3 network, such as facility
rent, utilities, maintenance and other costs, each related to the
operation of its communications network, as well as salaries, wages
and related benefits (including non-cash stock-based compensation
expenses) associated with personnel who are responsible for the
delivery of services, operation and maintenance of its
communications network, and accretion expense on asset retirement
obligations, but excludes depreciation and amortization.
Network Access Margin ($) is defined as total Revenue
less Network Access Costs from the Consolidated Statements of
Income, and excludes Network Related Expenses.
Network Access Margin (%) is defined as Network Access
Margin ($) divided by total Revenue. Management believes that
network access 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 Income before income tax (expense)
benefit, 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.
Adjusted EBITDA
Metric
|
($ in
millions)
|
2Q17
|
2Q16
|
Net Income
|
$
|
154
|
|
$
|
156
|
|
Income Tax
Expense
|
69
|
|
34
|
|
Total Other
Expense
|
130
|
|
184
|
|
Depreciation and
Amortization
|
330
|
|
310
|
|
Non-Cash Stock
Compensation
|
39
|
|
31
|
|
Adjusted
EBITDA
|
$
|
722
|
|
$
|
715
|
|
Add back:
Acquisition-Related Expenses
|
22
|
|
—
|
|
Adjusted EBITDA
Excluding Acquisition-Related Expenses
|
$
|
744
|
|
$
|
715
|
|
|
|
|
Total
Revenue
|
$
|
2,061
|
|
$
|
2,056
|
|
Adjusted EBITDA
Margin
|
35.0
|
%
|
34.8
|
%
|
Adjusted EBITDA
Excluding Acquisition-Related Expenses Margin
|
36.1
|
%
|
34.8
|
%
|
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.
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 Income. 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 loss carryforwards, 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.
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 loss carryforwards, 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.
Unlevered Cash
Flow and Free Cash Flow
|
|
($ in
millions)
|
|
|
2Q17
|
|
|
|
2Q16
|
|
|
Net Cash Provided by
Operating Activities
|
|
$
|
561
|
|
|
$
|
631
|
|
|
Capital
Expenditures
|
|
(328)
|
|
|
(367)
|
|
|
Free Cash
Flow
|
|
$
|
233
|
|
|
$
|
264
|
|
|
Cash Interest
Paid
|
|
129
|
|
|
133
|
|
|
Interest
Income
|
|
(3)
|
|
|
(1)
|
|
|
Unlevered Cash
Flow
|
|
$
|
359
|
|
|
$
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Cash
Flow
|
|
$
|
233
|
|
|
$
|
264
|
|
|
Add back: Cash
Acquisition-Related Expenses
|
|
3
|
|
|
—
|
|
|
Free Cash Flow
Excluding Cash Acquisition-Related Expenses
|
|
$
|
236
|
|
|
$
|
264
|
|
|
|
|
|
|
|
|
Unlevered Cash
Flow
|
|
$
|
359
|
|
|
$
|
396
|
|
|
Add back: Cash
Acquisition-Related Expenses
|
|
3
|
|
|
—
|
|
|
Unlevered Cash
Flow Excluding Cash Acquisition-Related Expenses
|
|
$
|
362
|
|
|
$
|
396
|
|
|
Debt is defined as total gross debt, including capital
leases from the Footnotes to the Consolidated Financial
Statements.
Net Debt to Last Twelve Months (LTM) Adjusted EBITDA
Ratio is defined as Debt, reduced by cash and cash
equivalents and marketable securities and divided by LTM Adjusted
EBITDA Excluding Acquisition-Related Expenses.
Level 3
Communications, Inc. and Consolidated Subsidiaries
|
LTM Adjusted
EBITDA
|
($ in
millions)
|
3Q16
|
4Q16
|
1Q17
|
2Q17
|
Total:
LTM
|
Total
Revenue
|
$
|
2,033
|
|
$
|
2,032
|
|
$
|
2,048
|
|
$
|
2,061
|
|
$
|
8,174
|
|
Network Access
Costs
|
(675)
|
|
(680)
|
|
(691)
|
|
(675)
|
|
(2,721)
|
|
Network Related
Expenses
|
(337)
|
|
(332)
|
|
(336)
|
|
(337)
|
|
(1,342)
|
|
Selling, General and
Administrative Expenses
|
(348)
|
|
(346)
|
|
(364)
|
|
(366)
|
|
(1,424)
|
|
Add back: Non-Cash
Compensation Expenses
|
43
|
|
35
|
|
48
|
|
39
|
|
165
|
|
Adjusted
EBITDA
|
$
|
716
|
|
$
|
709
|
|
$
|
705
|
|
$
|
722
|
|
$
|
2,852
|
|
|
|
|
|
|
|
Add back:
Acquisition-Related Expenses
|
—
|
|
15
|
|
20
|
|
22
|
|
57
|
|
Adjusted EBITDA
Excluding Acquisition-Related Expenses
|
$
|
716
|
|
$
|
724
|
|
$
|
725
|
|
$
|
744
|
|
$
|
2,909
|
|
Level 3
Communications, Inc. and Consolidated Subsidiaries
|
Net Debt to LTM
Adjusted EBITDA ratio as of June 30, 2017
|
($ in
millions)
|
Debt
|
$
|
11,007
|
|
Cash and Cash
Equivalents
|
(1,056)
|
|
Marketable
Securities
|
(1,127)
|
|
Net Debt
|
$
|
8,824
|
|
LTM Adjusted EBITDA
Excluding Acquisition-Related Expenses
|
$
|
2,909
|
|
Net Debt to LTM
Adjusted EBITDA Ratio
|
3.0
|
|
Outlook
In order to provide our outlook with respect
to non-GAAP metrics, we are required to indicate a range for GAAP
measures that are components of the reconciliation of the non-GAAP
metric. The provision of these ranges is in no way meant to
indicate that the company is explicitly or implicitly providing an
outlook on those GAAP components of the reconciliation. In order to
reconcile the non-GAAP financial metric to GAAP, the company has to
use ranges for the GAAP components that arithmetically add up to
the non-GAAP financial metric. While the company feels reasonably
comfortable about the outlook for its non-GAAP financial metrics,
it fully expects that the ranges used for the GAAP components will
vary from actual results. We will consider our outlook of non-GAAP
financial metrics to be accurate if the specific non-GAAP metric is
met or exceeded, even if the GAAP components of the reconciliation
are different from those provided in an earlier reconciliation.
Level 3
Communications, Inc. and Consolidated Subsidiaries
|
Outlook
|
|
|
|
Adjusted EBITDA
Outlook
|
|
Twelve Months Ended
December 31, 2017
|
|
|
Range
|
($ in
millions)
|
|
Low
|
|
High
|
Net
Income
|
|
$
|
500
|
|
|
$
|
590
|
|
Income Tax
Expense
|
|
330
|
|
|
360
|
|
Total Other
Expense
|
|
570
|
|
|
550
|
|
Depreciation and
Amortization Expense
|
|
1,360
|
|
|
1,340
|
|
Non-Cash Compensation
Expense
|
|
180
|
|
|
160
|
|
Adjusted
EBITDA
|
|
$
|
2,940
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Cash Flow
Outlook
|
|
Twelve Months Ended
December 31, 2017
|
|
|
Range
|
($ in
millions)
|
|
Low
|
|
High
|
Net Cash Provided
by Operating Activities
|
|
$
|
2,420
|
|
|
$
|
2,520
|
|
Capital
Expenditures
|
|
(1,320)
|
|
|
(1,360)
|
|
Free Cash
Flow
|
|
$
|
1,100
|
|
|
$
|
1,160
|
|
Attachment
#1
|
LEVEL 3
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
Consolidated
Statements of Income
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
(dollars in millions,
except per share data)
|
June 30,
2017
|
March 31,
2017
|
June 30,
2016
|
|
|
|
|
Revenue
|
$
2,061
|
$
2,048
|
$
2,056
|
|
|
|
|
Costs and
Expenses
|
|
|
|
Network access
costs
|
675
|
691
|
676
|
Network related
expenses
|
337
|
336
|
339
|
Depreciation and
amortization
|
330
|
320
|
310
|
Selling, general and
administrative expenses
|
366
|
364
|
357
|
Total
Costs and Expenses
|
1,708
|
1,711
|
1,682
|
|
|
|
|
Operating
Income
|
353
|
337
|
374
|
|
|
|
|
Other Income
(Expense):
|
|
|
|
Interest
income
|
3
|
2
|
1
|
Interest
expense
|
(132)
|
(134)
|
(140)
|
Loss on modification
and extinguishment of debt
|
—
|
(44)
|
(40)
|
Other, net
|
(1)
|
4
|
(5)
|
Total
Other Expense
|
(130)
|
(172)
|
(184)
|
|
|
|
|
Income Before Income
Taxes
|
223
|
165
|
190
|
|
|
|
|
Income Tax
Expense
|
(69)
|
(70)
|
(34)
|
|
|
|
|
Net Income
|
$
154
|
$
95
|
$
156
|
|
|
|
|
Basic Earnings per
Common Share:
|
|
|
|
Net Income per
Share
|
$
0.42
|
$
0.26
|
$
0.44
|
Weighted-Average
Shares Outstanding (in thousands)
|
362,385
|
361,461
|
357,924
|
|
|
|
|
Diluted Earnings per
Common Share:
|
|
|
|
Net Income per
Share
|
$
0.42
|
$
0.26
|
$
0.43
|
Weighted-Average
Shares Outstanding (in thousands)
|
365,002
|
364,121
|
361,250
|
Attachment
#2
|
LEVEL 3
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
Consolidated
Balance Sheets
|
(unaudited)
|
|
|
|
|
|
June 30,
|
March 31,
|
June 30,
|
(dollars in
millions)
|
2017
|
2017
|
2016
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and cash
equivalents
|
$
1,056
|
$
1,947
|
$
1,291
|
Marketable
securities
|
1,127
|
—
|
—
|
Restricted cash and
securities
|
5
|
7
|
8
|
Receivables, less
allowances for doubtful accounts
|
707
|
712
|
839
|
Other
|
141
|
141
|
140
|
Total Current
Assets
|
3,036
|
2,807
|
2,278
|
|
|
|
|
Property, Plant and
Equipment, net
|
10,392
|
10,285
|
10,073
|
Restricted Cash and
Securities
|
29
|
31
|
31
|
Goodwill
|
7,737
|
7,731
|
7,739
|
Other Intangibles,
net
|
809
|
861
|
1,020
|
Deferred Tax
Assets
|
3,235
|
3,305
|
3,395
|
Other
Assets
|
49
|
51
|
50
|
Total
Assets
|
$25,287
|
$ 25,071
|
$24,586
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
693
|
$
750
|
$
762
|
Current portion of
long-term debt
|
306
|
307
|
7
|
Accrued payroll and
employee benefits
|
178
|
148
|
160
|
Accrued
interest
|
97
|
101
|
131
|
Current portion of
deferred revenue
|
262
|
275
|
268
|
Other
|
162
|
153
|
170
|
Total Current
Liabilities
|
1,698
|
1,734
|
1,498
|
|
|
|
|
Long-Term Debt, less
current portion
|
10,584
|
10,581
|
10,871
|
Deferred Revenue,
less current portion
|
1,058
|
1,044
|
1,027
|
Other
Liabilities
|
632
|
631
|
637
|
Total
Liabilities
|
13,972
|
13,990
|
14,033
|
|
|
|
|
Stockholders'
Equity
|
11,315
|
11,081
|
10,553
|
Total Liabilities and
Stockholders' Equity
|
$25,287
|
$ 25,071
|
$24,586
|
Attachment
#3
|
LEVEL 3
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
Consolidated
Statements of Cash Flows
|
(unaudited)
|
|
|
|
|
|
Three Months
Ended
|
|
June 30,
|
March 31,
|
June 30,
|
(dollars in
millions)
|
2017
|
2017
|
2016
|
|
|
|
|
Cash Flows from
Operating Activities:
|
|
|
|
Net income
|
$
154
|
$
95
|
$
156
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation and amortization
|
330
|
320
|
310
|
Non-cash
compensation expense attributable to stock awards
|
39
|
48
|
31
|
Loss on
modification and extinguishment of debt
|
—
|
44
|
40
|
Accretion of debt discount and amortization of debt issuance
costs
|
4
|
5
|
5
|
Accrued
interest on long-term debt, net
|
(4)
|
(28)
|
—
|
Deferred
income taxes
|
57
|
62
|
20
|
Gain on
sale of property, plant and equipment and other assets
|
—
|
—
|
(1)
|
Other,
net
|
(3)
|
(5)
|
6
|
Changes
in working capital items:
|
|
|
|
Receivables
|
10
|
6
|
(25)
|
Other
current assets
|
(4)
|
(32)
|
(5)
|
Payables
|
(59)
|
42
|
84
|
Deferred
revenue
|
—
|
50
|
(4)
|
Other
current liabilities
|
37
|
(68)
|
14
|
Net Cash Provided by
Operating Activities
|
561
|
539
|
631
|
|
|
|
|
Cash Flows from
Investing Activities:
|
|
|
|
Capital
expenditures
|
(328)
|
(368)
|
(367)
|
Change in restricted
cash and securities, net
|
4
|
—
|
839
|
Purchases of
marketable securities
|
(1,127)
|
—
|
—
|
Proceeds from sale of
property, plant and equipment and other assets
|
—
|
—
|
1
|
Net Cash (Used in)
Provided by Investing Activities
|
(1,451)
|
(368)
|
473
|
|
|
|
|
Cash Flows from
Financing Activities:
|
|
|
|
Long-term debt
borrowings, net of issuance costs
|
—
|
4,569
|
(1)
|
Payments on and
repurchases of long-term debt and capital leases
|
(2)
|
(4,613)
|
(815)
|
Net Cash Used in
Financing Activities
|
(2)
|
(44)
|
(816)
|
|
|
|
|
Effect of Exchange
Rates on Cash and Cash Equivalents
|
1
|
1
|
(1)
|
|
|
|
|
Net Change in Cash
and Cash Equivalents
|
(891)
|
128
|
287
|
|
|
|
|
Cash and Cash
Equivalents at Beginning of Period
|
1,947
|
1,819
|
1,004
|
|
|
|
|
Cash and Cash
Equivalents at End of Period
|
$ 1,056
|
$
1,947
|
$ 1,291
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
Cash interest
paid
|
$
129
|
$
153
|
$
133
|
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multimedia:http://www.prnewswire.com/news-releases/level-3-reports-second-quarter-2017-results-300498573.html
SOURCE Level 3 Communications, Inc.