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Level 3 Communications, Inc. Q3 2009 Earnings Call Transcript — Seeking Alpha



Level 3 Communications, Inc. (LVLT)

Q3 2009 Earnings Call Transcript

October 28, 2009 10:30 am ET


Valerie Finberg – VP, IR

Jim Crowe – CEO

Sunit Patel – EVP and CFO

Jeff Storey – President and COO


Mike McCormack – JPMorgan

David Dixon – FBR Capital Markets

Frank Louthan – Raymond James

Chris Larsen – Piper Jaffray

Tim Horan – Oppenheimer

Ana Goshko – Banc of America

Michael Rollins – Citigroup

Michael Funk – Banc of America

Jonathan Chaplin – Credit Suisse



Good day and welcome to the Level 3 Communications Incorporated third quarter 2009 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the call over to Valerie Finberg, Vice President of Investor Relations. Please go ahead.

Valerie Finberg

Thank you, Jessica. Good morning everyone, and thank you for joining us for the Level 3 Communications third quarter 2009 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 Buddy Miller our Vice Chair.

Before we get started I wanted to mention that in addition to the press release and financial exhibits, our presentation summarizing our results, which Sunit will be referencing in his remarks is available on our website at on the Investor Relations home page. To view this presentation, from the Investor Relations home page click on the link titled 3Q ’09 earnings presentation.

I also need to cover our Safe Harbor statement, which can be found on page two of 3Q ’09 our earnings presentation. And that says that information in this call and in the presentation contains 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.

Also, please note that on today’s call 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, in the Investor Relations section.

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

Jim Crowe

Thanks, Valerie. As is our practice in our prepared remarks, Sunit will discuss financial results for the quarter. Jeff will discuss operational matters, including segment results. I’ll provide some brief summary comments, and then we’ll open it up to questions. Sunit?

Sunit Patel

Thank you, Jim and good morning everyone. Before I review our detailed results, I’ll start with some of the key points highlighted on page three of our presentation. As we have now mentioned for a few quarters, sequential revenue performance for Core Network Services continues to improve, and we expect that to continue again next quarter.

We are reiterating our business outlook for the full-year 2009, and we expect adjusted EBITDA to increase next quarter. Since we reported our previous quarter, we have continued to make progress on the balance sheet by improving our liquidity and paying down near-term debt.

Turning to the detailed results for the third quarter on slide four, Core Services revenue was $859 million, and declined 2% sequentially from the second quarter of 2009. About two-thirds of the decline was in the low margin wholesale voice services revenue.

More importantly, Core Network Services revenue was $701 million this quarter, a 1% sequential decline from $707 million in the second quarter of 2009. This marks an improvement from the 3% sequential decline from the first quarter to the second quarter of 2009, and from the 7% sequential decline from the fourth quarter of 2008 to the first quarter of 2009.

Wholesale Voice Services revenue was $158 million this quarter, compared to $170 million in the second quarter of 2009, and $173 million in the third quarter of last year. As we have indicated previously, we do expect volatility in Whole Voice Services revenue, since that business is mostly a highly competitive spot market business, and we manage for margin contribution versus revenue growth.

Our revenue base continues to diversify the breakdown of Core Communication Services revenue by market group was $485 million for Wholesale Markets, or 56% of revenue, $209 million for Business Markets, or 24% of revenue, $82 million for Content Markets or 10% of revenue, and $83 million for Europe, also 10% of revenue. Excluding the SVC contract, our top 10 customers represented 26% of communications revenue compared to 27% last year.

Turning to Core Network Services revenue by customer segment, our Wholesale Markets revenue grew 1% to $342 million in the third quarter of 2009, compared to $340 million in the second quarter of 2009. This was an improvement compared to a sequential decline of 5% in the second quarter.

Business Markets revenues declined by 4% this quarter to $203 million compared to $212 million in the second quarter of 2009. Sequential performance in the Business Market Group worsened a little from the 2% sequential decline we saw in the prior quarter.

For Content Markets revenues declined slightly to $81 million in the third quarter from $82 million in the second quarter. Content Markets sequential decline of 1% was an improvement from the 4% decline we experienced in the prior quarter. Our European Markets revenue increased 3% to $75 million in the third quarter of 2009, compared to $73 million in the second quarter of 2009.

In constant currency terms European revenues declined 3% sequentially in the third quarter 2009 compared to flat sequential performance in the prior quarter. Jeff, will discuss in more detail our performance in each of the customer facing markets, but at a high level we see strong sales performance from several segments across the business and improving churn.

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