Level 3 Communications, Inc. (NYSE:LVLT) Q2 2016 Earnings Conference Call - Final Transcript

Jul 27, 2016 • 10:00 am ET


Level 3 Communications, Inc. (NYSE:LVLT) Q2 2016 Earnings Conference Call - Final Transcript


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Ladies and gentlemen, thank you for standing by and welcome to the Level 3 second-quarter 2016 earnings conference call. (Operator Instructions)

As a reminder, this conference is being recorded on Wednesday, July 27, 2016. I would now like to turn the conference over to the VP of Corporate Communications and Investor Relations, Ms. Valerie Finberg. Please go ahead.

Valerie Finberg

Thank you, Frank. Good morning, everyone, and thank you for joining us for the Level 3 Communications second-quarter 2016 earnings call. With us on the call today are Jeff Storey, President and Chief Executive Officer; and Sunit Patel, Executive Vice President and Chief Financial Officer. (Forward-Looking Cautionary Statements)

With that, I will turn the call over to Jeff.

Jeff Storey

Thanks, Valerie. Good morning, everyone, and thank you for joining us. As you can see from our results, we continue to see good margin expansion, growth in adjusted EBITDA and free cash flow, solid sequential growth in EMEA enterprise CNS revenue, and strong growth in both sequential and year-over-year LatAm enterprise CNS revenue. While we are pleased with our overall performance, we were not pleased with the revenue growth in North America enterprise CNS, and believe we have room to improve.

Our focus on driving profitable revenue growth through taking share in the market has not changed. While results are never linear and North America enterprise CNS revenue growth was below our expectations, we did see strong year-over-year and sequential CNS revenue growth from large multinational customers.

We also continue to see the market moving towards Level 3, as our customers networking requirements continue to grow and require the products and services we offer. Our focus on enterprise wireline services and our ability to solve our customers' challenges is a differentiating factor that is becoming more critical every day.

Sunit will go into more detail, but our capital investments, our relentless focus on execution, and the operating leverage we gain from scale and efficiency are consistent with our guiding principles of managing the business for growth and increasing free cash flow per share. As usual, after Sunit reviews the detailed financial results, I'll provide commentary on what we're seeing in the market. After that, we will open it up for your questions. Sunit?

Sunit Patel

Thank you, Jeff, and good morning, everyone. I'll quickly share a few financial highlights for the quarter, which can be found on slide 3 of our presentation. We grew core network services, or CNS, enterprise revenue by 5.3%. Excluding a contract renewal we mentioned in the press release and UK government revenue, we grew CNS enterprise revenue by 6.3%. We increased adjusted EBITDA by 10% to $715 million, and finally, we generated strong free cash flow of $264 million.

We continue to grow core network services revenue this quarter, and saw improvement in both EMEA and LatAm enterprise CNS revenue. In North America, as noted in the press release, we saw some headwinds in the quarter mostly due to a one-time event and slightly higher enterprise disconnects at the small end of