Level 3 Records Profit, Buoyed by Network-Services Growth

Level 3 Communications on Wednesday reported $149 million in profit for the second quarter compared to a $13 million loss for the same quarter in 2015.

Overall revenue of slightly less than $2.06 billion fell just short of analysts’ expectations. It also was down a hair from the year-ago quarter.

Level 3's Jeff StoreyThe company reported a $40 million charge for the modification and extinguishment of debt, compared to a $163 million charge in the second quarter of last year.

“With our focus on profitable growth combined with the strong operating leverage in the business, we continued to deliver expanded margins and improved profitability,” said Jeff Storey, Level 3’s president and CEO. “We continue to invest in the business, remain confident in our ability to meet the networking needs of our enterprise customers and believe we can deliver stronger revenue growth in the future.”

Analysts have been buzzing about possible M&A. Wells Fargo analyst Jennifer Fritzsche said she sees Level 3 as more of a near-term buyer than seller.

Core network services (CNS) revenue – the crux of partner sales – in the second quarter totaled $1.6 billion in North America and almost $1.96 billion globally, compared to $1.55 billion, and a reported $1.94 billion, respectively, for the year-ago quarter.{ad}

“We continued to grow core network services revenue this quarter, and saw improvement in both EMEA and Latin America enterprise CNS revenue,” said Sunit Patel, Level 3’s executive vice president and CFO. “In North America, in conjunction with a two-year contract extension, we issued a $5 million credit during the quarter. While this renewal put pressure on revenue in the short term, it also provides more than $100 million of additional revenue during the extension period, providing significant benefit to Level 3 over the long term. Additionally, revenue was affected due to higher disconnects at the lower end of our enterprise customer base.”

North America enterprise CNS revenue grew almost 6 percent year over year. Excluding the credit from the contract renewal, North America enterprise CNS revenue was up 6.4 percent from the year-ago quarter.

“During the quarter, we also saw pressure in wholesale CNS revenue from previous consolidations,” Patel said. “As a result, wholesale CNS revenue declined year over year in all three regions (North America, EMEA and Latin America).”

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