Level 3 Communications' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Level 3 Communications (LVLT)

Q1 2012 Earnings Call

May 03, 2012 9:00 am ET


Valerie Finberg -

James Q. Crowe - Chief Executive Officer and Director

Sunit S. Patel - Chief Financial Officer and Executive Vice President

Jeffrey K. Storey - President and Chief Operating Officer

Charles C. Miller - Vice Chairman, Executive Vice President and Director


Ana Goshko - BofA Merrill Lynch, Research Division

Christopher M. Larsen - Piper Jaffray Companies, Research Division

Colby Synesael - Cowen and Company, LLC, Research Division

Donna Jaegers - D.A. Davidson & Co., Research Division

Michael J. Funk - BofA Merrill Lynch, Research Division

Lisa Lam - Morgan Stanley, Research Division

Frank G. Louthan - Raymond James & Associates, Inc., Research Division



Ladies and gentlemen, thank you for standing by, and welcome to the Level 3 Communications First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, May 3, 2012. I would now like to turn the conference over to Valerie Finberg, Vice President of Investor Relations. You may begin.

Valerie Finberg

Thank you, Fran. Good morning, everyone, and thank you for joining us for the Level 3 Communications First Quarter 2012 Earnings Call. With us on the call today are Jim Crowe, Chief Executive Officer; Jeff Storey, President and Chief Operating Officer; Sunit Patel, Executive Vice President and Chief Financial Officer; and our Vice Chairman, Buddy Miller.

Before we get started, as a reminder, our press release and the presentation slides that accompany this call, as well as our detailed supplemental schedules, are all available in the Investor Relations section of the Level 3 website.

I need to cover our Safe Harbor statement, which can be found on Page 2 of our 1Q '12 earnings presentation, which says that the information on this call and in the presentation contain financial estimates and other forward-looking statements that are subject to risks and uncertainties. Actual results may vary from those statements. A discussion of factors that may affect future results is contained in Level 3's filings with the Securities and Exchange Commission. Finally, please note that on today's call and in the earnings presentation, we will be referring to certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the most comparable GAAP financial measures are available on the press release, which is posted on our website, at www.level3.com.

With that, I'll turn the call over to Jim.

James Q. Crowe

Thank you, Valerie. As is our normal practice in our prepared remarks this morning, our CFO, Sunit Patel, will discuss financial results for the quarter and the outlook for 2012. Our Chief Operating Officer, Jeff Storey, will discuss operational matters, including segment results, provide an update and status of integration, planning and implementation and some general remarks about the market and the industry. I'll provide some summary comments, then we'll open it up for questions and answers.


Sunit S. Patel

Thank you, Jim, and good morning, everyone. I'll start with Slide 3 on the external earnings presentation with the summary of the quarter. Overall, Core Network Services revenue grew 1.2% sequentially on a constant-currency basis, strengthening from the 0.8% growth we saw in the fourth quarter. We continue to make progress on achieving synergies as we integrate the Global Crossing acquisition. Adjusted EBITDA grew nicely during the quarter. We also made significant progress this quarter in achieving capital expenditure synergies.

Turning to the detailed results for the first quarter 2012 on Slide 4. We are pleased to see the 1.2% sequential Core Network Services revenue growth on a constant-currency basis, especially since the first quarter is genuinely a seasonally weaker quarter. This growth was primarily a result of strong gains from our enterprise customers in North America and Latin America. We saw growth from large enterprise and midmarket customers during the quarter.

On a constant-currency basis, enterprise CNS revenues grew 3% sequentially, outpacing the decline in wholesale revenues. On a regional basis, North American CNS revenues grew 2% sequentially, with 4% sequential growth from enterprise and a 2% sequential decline from wholesale. In EMEA, our sequential CNS revenue performance improved on a constant-currency basis, declining 0.8% sequentially compared to a 2% sequential decline in the fourth quarter. On a constant-currency basis, wholesale and enterprise CNS revenues were flat sequentially. U.K. government CNS revenues declined by 4% on a constant-currency basis as expected. Our sales orders in EMEA improved nicely over the course of the first quarter, and we believe the business has stabilized. We expect to see stronger CNS revenue growth performance in EMEA over the balance -- for the balance of the year.

CNS revenues for the Latin America region grew sequentially, at 2% on a constant-currency basis, driven by strong growth in the enterprise business of 3%. As is typical, in Latin America in the first quarter, wholesale CNS revenues declined 3% sequentially on a constant currency basis.

Across the business, our CDN revenue grew 8% sequentially and is about 2% of our CNS revenues. Wholesale voice and other revenue was $204 million this quarter compared to $211 million in the fourth quarter. As we are continuing to manage our combined wholesale voice platform for margin growth, we expect continued volatility in Wholesale Voice Services revenue going forward.

At the bottom of Slide 4, for the first quarter of 2012, Level 3 CNS revenue churn remained stable, at approximately 1.3%.

Turning to Slide 5. We saw improvement this quarter in gross margin at 58.6% compared to 58.2% in the fourth quarter of 2011, primarily as a result of growth in high incremental margin Core Network Services revenue, network optimization and synergy savings.

Read the rest of this transcript for free on seekingalpha.com

More from Stocks

Pegasystems Founder Explains Why He Has One of the Hottest Tech Stocks Around

Pegasystems Founder Explains Why He Has One of the Hottest Tech Stocks Around

9 Stocks Goldman Sachs Thinks Will Blow Wall Street's Performance Away in 2019

9 Stocks Goldman Sachs Thinks Will Blow Wall Street's Performance Away in 2019

Jim Cramer on U.S.-China Trade: The Media Has it Wrong

Jim Cramer on U.S.-China Trade: The Media Has it Wrong

Is Tesla's Stock Set to Nearly Double to $500?

Is Tesla's Stock Set to Nearly Double to $500?

Tesla's $78,000 Model 3 Is a Bargain. Here's Why

Tesla's $78,000 Model 3 Is a Bargain. Here's Why