Level 3 Communications, Inc. (NASDAQ: LVLT) is not out of the woods when it comes to its earnings. The wholesale data packet carrier to large internet and telecom outfits tried to highlight the growth in its Core Network Services revenue and Consolidated Adjusted EBITDA along with margin expansion and positive free cash flow . Unfortunately, after all these years it is still losing money. The benefit from the Netflix Inc. (NASDAQ: NFLX) pact is not yet reflected in its earnings.
Revenue was $921 million for Q4-2010 versus $912 million the prior quarter and versus $924 million for the fourth quarter 2009. The revenues were slightly lower at $3.65 billion for al of 2010 as well. For the quarter, Thomson Reuters had estimates of just over $920 million.
The net loss for the fourth quarter was $52 million, or -$0.03 EPS versus estimates of -$0.10 EPS from Thomson Reuters. Unfortunately, that figure included a $0.06 tax benefit from the release of foreign deferred tax valuation allowances. The loss in the third quarter was -$0.10 EPS and its Q4-2009 loss was -$0.11 EPS.
Consolidated Adjusted EBITDA grew to $226 million in Q4, up from $218 million in Q3 and up from $217 million in Q4-2009.
The area that grew (partly) was its Core Network Services revenue. Communications Revenue for the fourth quarter 2010 was $904 million, versus $895 million in the third quarter 2010 and $906 million for the fourth quarter 2009. Communications Revenue for the full year 2010 was $3.59 billion, compared to $3.70 billion for the full year 2009. Communications cost of revenue for the fourth quarter 2010 was $352 million, compared to $353 million in the third quarter 2010 and $361 million in the fourth quarter 2009. Communications gross margin increased to 61.1% for the fourth quarter 2010, compared to 60.6% for the third quarter 2010 and 60.2% in the fourth quarter 2009.
For the full year 2011, Level 3 sees Core Network Services revenue sequential growth and it expects that the consolidated adjusted EBITDA will rise in 2011 in line with Core Network Services revenue growth. The communications deferred revenue balance was $887 million at the end of the fourth quarter 2010, compared to $890 million at the end of the third quarter 2010 and $902 million at the end of the fourth quarter 2009. Here is the kicker and the problem in evaluating Level 3 despite the Netflix Inc. (NASDAQ: NFLX) pact: Level 3 expects Free Cash Flow for the full year 2011 to be negative.
The company said its free cash flow was $73 million and its unlevered cash flow was $183 million. As of December 31, 2010, Level 3 had some $618 million in cash and short-term securities, and it also listed some $120 million in restricted cash. Its direct long-term debt was also listed as $6.268 billion. After the close of the quarter, Level 3 issued $605 million aggregate in two separate note sale transactions, of which $305 million was for cash and about $300 million was in exchange for its 9% Convertible Senior Discount Notes due 2013. The Company also announced the redemption of its 5.25% Convertible Senior Notes due 2011.
Level 3 shares closed at $1.29 yesterday and shares are so far indicated down 5.4% at $1.22 in active pre-market trading. The 52-week range is $0.83 to $1.77. Until Level 3 figures out a way to get out from under so much debt, this is a story that is always going to be a difficult sell to investors. Positive EBITDA and positive cash flow here and there is so 1990’s. Investors want real earnings now.
JON C. OGG
Top Gaining Stocks
Top Losing Stocks