Level 3's Q4 enterprise service revenues offset declines in data center segment

Level 3's momentum in providing network services to large business customers continued to bode well in the fourth quarter as Core Network Services (CNS) rose to $1.49 billion, easing ongoing declines in its wholesale business.

Once again enterprise services were a key star. Led by data and Internet services growth, enterprise was the key revenue driver in CNS, rising 10 percent to $1.01 billion.

Within the CNS segment, Level 3 also reported gains in IP and data services and transport and fiber, which rose 8.9 percent and 4.5 percent to $873 million and $585 million, respectively. Meanwhile, colocation and data center services declined 5.5 percent to $155 million.

As seen in earlier quarters, wholesale revenues were down again in the fourth quarter due to declines in wholesale voice services and other services. Total wholesale revenues for the quarter were $480 million, down year-over-year from $504 million in the same period a year ago.

On a regional basis, North America was the dominant market with revenues of $1.08 billion, up from $1.03 billion in the fourth quarter of 2013. Likewise, North American revenue for the full year was $4.2 million, an increase over $3.9 billion for 2013.

In EMEA and Latin America, Level 3 reported that overall revenues declined to $218 million and $191 million, down from $223 million and $195 million in the fourth quarter of 2013, respectively. Interestingly, the EMEA region saw enterprise revenues jump to $143 million from $134 million, while Latin America wholesale revenues remained flat at $41 million.

Level 3 also reported positive revenue trends for tw telecom, growing 7.7 percent year-over-year to $433 million. Similar to earlier quarters, data and Internet services were $271 million, up from $235 million in the year earlier quarter. However, tw telecom did report that network services declined to $53 million from $60 million in the fourth quarter of 2013.

From an overall financial perspective, Level 3's consolidated revenue was $1.9 billion, up from $1.6 billion in the fourth quarter of 2013 and $6.7 billion for the full year 2014 compared to $6.313 billion for the full year 2013.

Financial analysts said that while Level 3 still faces a long and involved integration process of the tw telecom assets it purchased last year, they said the revenue progress was promising.

"Both legacy Level 3 North America and legacy tw telecom maintained healthy growth rates in Q4, with no discernable deceleration in sales attributable to merger-related disruptions: Level 3 North America enterprise revenue was up 11.2% YoY and 4.2% sequentially, and tw telecom was up 8.2% YoY and 2.0% sequentially," wrote Nick Del Deo, CFA and analyst for MoffettNathanson, in a research report. "It's too early to say Level 3 is totally out of the woods when it comes to integration risk, as there's still a lot of work to be done, but these stats bode well for the future."

For 2015, the service provider forecast it will grow adjusted EBITDA 12 to 16 percent from a starting point of $2.3 billion. Sunit Patel, CFO of Level 3, said in the earnings release that this figure "represents the combined company's full year adjusted EBITDA including acquisition-related expenses."

Shares of Level 3 were listed at $53.22, up $1.83 or 3.56 percent, in Wednesday morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Special report: Wireline telecom earnings in the fourth quarter of 2014

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Level 3's enterprise revenues offset weaker wholesale results