Level 3 Communications Management Discusses Q2 2012 Results - Earnings Call Transcript

Level 3 Communications (LVLT)

Q2 2012 Earnings Call

July 25, 2012 9:00 am ET

Executives

Valerie Finberg

James Q. Crowe - Chief Executive Officer, Director and Member of Classified Business & Security Committee

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

Jeffrey K. Storey - President and Chief Operating Officer

Analysts

Ana Goshko - BofA Merrill Lynch, Research Division

Colby Synesael - Cowen and Company, LLC, Research Division

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

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

Timothy K. Horan - Oppenheimer & Co. Inc., Research Division

Michael J. Funk - BofA Merrill Lynch, Research Division

Simon Flannery - Morgan Stanley, Research Division

Michael Rollins - Citigroup Inc, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Level 3 Communications Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, July 25, 2012.

I would now like to turn the conference over to Valerie Finberg, Vice President of Investor Relations. You may begin, ma'am.

Valerie Finberg

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

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 2Q '12 earnings presentation, which says that 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 significantly 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 in the press release which is posted on our website at www.level3.com.

I will now turn the call over to Jim.

James Q. Crowe

Thanks, Valerie. In our prepared remarks, Sunit Patel will discuss financial results for the quarter and the outlook for the balance of the year. Jeff Storey will discuss operational matters, including segment results, provide an update on the status of integration planning and implementation. And I'll provide a short summary, and we'll open it up for questions. Sunit?

Sunit S. Patel

Thank you, Jim, and good morning, everyone. I'd like to begin with some of the highlights for the quarter, which can be found on Slide 3 of our presentation.

Overall, Core Network Services revenue grew 0.7% sequentially on a constant currency basis, with our enterprise business continuing to be a strong growth driver. Adjusted EBITDA increased to $353 million. We are on track to achieve our EBITDA guidance for 2012 and we continue to make progress this quarter in achieving EBITDA synergies.

Turning to the detailed results for the second quarter 2012 on Slide 4. Core Network Services grew 0.7% sequentially on a constant currency basis. This growth was primarily driven by our enterprise customers in all regions. Excluding U.K. government revenue, the company's consolidated CNS revenue grew 1.2% and enterprise CNS grew 2.1% on a constant currency basis.

On a year-over-year basis, CNS revenues grew 3.7%, adjusting for constant currency. Keep in mind, in the second quarter 2011, Global Crossing had $9 million in termination revenue, which if excluded would improve our year-over-year revenue performance.

On another positive note, our consolidated CNS sales orders, that is signed contracts for services, grew 17% in the second quarter over the first quarter. The second quarter marked a record quarter for sales orders for the combined company.

On a regional basis, North American CNS revenue grew 1.1% sequentially and on a constant currency basis, primarily from strong sequential growth of 1.8% from our enterprise customers. Wholesale was roughly flat compared to the first quarter.

In EMEA, our sequential CNS revenue declined 2.3% on a constant currency basis, primarily driven by an expected decline in the U.K. government revenue. As we have previously indicated, we expect our U.K. government revenue to decline this year. On a constant constants basis, wholesale CNS revenues declined 1.1% while enterprise CNS revenues improved 2.5% sequentially. Excluding the U.K. government business, EMEA CNS revenue grew 0.6%. Our sales order in the EMEA enterprise business improved nicely for the second quarter, and although EMEA is still in a state of transition, we expect to see stronger performance for the balance of the year.

CNS revenue for Latin American region grew sequentially at 2.3% on a constant currency basis, driven by strong growth in the enterprise business of 2.9%.

Also, voice services and other revenues was $200 million this quarter compared to $204 million in the first quarter. We continue to expect volatility in wholesale voice services revenue going forward as we manage our combined wholesale voice platform for margin growth.

At the bottom of Slide 4, for the second quarter of 2012 we experienced a slight uptick in CNS revenue churn from 1.3% to approximately 1.6% in the second quarter. The increase in disconnects is primarily attributable to a couple of legacy large Global Crossing customers, the majority of which are the U.K. government customers I mentioned earlier.

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

More from Stocks

Steel Stocks Are Monday's Biggest Losers From Cooling China Trade Tensions

Steel Stocks Are Monday's Biggest Losers From Cooling China Trade Tensions

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

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

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

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

Dow Rises Sharply as U.S.-China Trade Tensions Thaw

Dow Rises Sharply as U.S.-China Trade Tensions Thaw

GE's $11.1 Billion Deal With Wabtec Should Have Warren Buffett Feeling Very Sad

GE's $11.1 Billion Deal With Wabtec Should Have Warren Buffett Feeling Very Sad