Level 3 jumps on margin improvement, solid guidance


Though its Q4 revenue was down 1% Y/Y, Level 3's (LVLT +9.5%) adjusted EBITDA rose 14% to $466M, and its adjusted EBITDA margin by 490 bps to 29.1%.

In addition, the carrier is guiding for its core network services  (CNS) ops (90% of Q4 revenue) to grow at a faster clip than 2013's 2.9% rate; that suggests total revenue growth could beat a 1.7% consensus.

Also: Level 3 forecasts adjusted EBITDA will grow 11%-14% from 2013 levels, and that free cash flow will total $225M-$275M vs. -$47M in 2013.

Q4 CNS revenue rose 4.1% Y/Y in constant currency to $1.44B, as 11% increases in North American enterprise and Latin American revenue offset a 4% and 5% drops in EMEA and North American wholesale revenue. Wholesale voice and other revenue plunged 29% to $179M.

Contributing to EBITDA growth: Gross margin rose 200 bps Y/Y to 61.4%, and SG&A spend fell 6% to $518M.

Level 3 ended Q4 with $7.8B in net debt. Thanks to refinancing moves and redemptions, interest expense fell to $649M in 2013 from $733M in 2012, and is expected to drop to $560M in 2014. After spending 12% of its revenue on capex in 2013, the company expects to spend 12%-13% in 2014.

Q4 results, PR

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