Level 3 Affirms 2001 Financial Guidance with Increases to Cash Revenue and Adjusted EBITDA; Introduces New Guidance for 2002
Company Unveils New Program for Large Communications Carriers with Annual Price Decline and Service Activation Commitments
NEW YORK, January 29, 2001 - Level 3 Communications, Inc. (Nasdaq:LVLT) announced today that it has set a new telecommunications standard with the industry's most rapidly constructed global fiber-optic network. In 30 months, Level 3 built a 20,000 mile multi-conduit intercity network and 32 multi-conduit metropolitan networks in North America and Europe. Additionally, the company constructed a transatlantic cable system connecting North America and Europe, and has secured 6 million square feet of technical space in 63 data centers serving 49 North American markets, 9 European markets and 2 Asian markets.
"The construction of our global communications network in only 30 months is an unprecedented accomplishment and a strong testament to the commitment of our employee-owners, construction and technology partners, and investors," said James Q. Crowe, chief executive officer of Level 3. "A continuously upgradeable network like ours is never truly complete, but we're extremely pleased to be able to move customer traffic from leased facilities and offer services on our own global broadband infrastructure in less than three years."
"Now that we've begun to operate our own global broadband network, we expect to achieve higher margins and greater service scalability and performance," said Kevin J. O'Hara, president and chief operating officer of Level 3. "Our continuously upgradeable multi-conduit network is unlike any communications network ever constructed. We can install new optical fiber through one of our metro or intercity network's empty conduits, rather than having to reconstruct the entire network. By properly matching new generations of fiber with rapidly improving optronics, we can reduce costs and provisioning time. This means that our customers can enjoy substantial cost advantages and bring innovative new services to market."
In a video presentation at the conference, Level 3 will demonstrate the network construction challenges that were overcome in this record setting time through the use of both conventional and innovative equipment and construction techniques, as well as the large number of permits and franchises that were required to be obtained in order to install its network. The video will also demonstrate, at actual speed, the rapid rate at which fiber can be deployed in a previously installed empty conduit. For example, whereas construction of Level 3's 16,000 mile U.S. intercity conduit system took approximately 30 months to complete, Level 3 currently estimates that it would take approximately six to nine months to fully install a second fiber optic cable in one of Level 3's empty conduits. This video will be available, along with the entire presentation from the conference, on Level 3's Web site www.Level3.com. Level 3 Unveils New Pricing and Service Program At this conference, Level 3 is focusing on its view of the competitive landscape and the company's current and anticipated new service offerings, and how these services position Level 3 to take advantage of its continuously upgradeable network. While providing additional details of its (3)Center Colocation, (3)CrossRoads, (3)Connect Modem and (3)Voice services, Level 3 also announced an innovative new optical transport program designed initially for large communications carriers that features annual price decline and service activation commitments. The new family of global transport services, called (3)Link, will be officially launched at CompTel?s 20th anniversary convention in February in Orlando, Florida. These offerings provide a cost-effective alternative for companies that might otherwise build communications networks or install electronics to "light" dark fiber. "Construction of our continuously upgradeable global network marks a new beginning for Level 3 by giving us full control over our network operating costs, quality of service, provisioning and pricing," said O'Hara. "We believe that (3)Link services will sharpen and accelerate our focus on providing highly competitive network services on a global basis, and is illustrative of Level 3's commitment to bringing Silicon Economics to the telecommunications industry."
Level 3 Updates Financial Guidance
Level 3 also announced today that it is affirming its 2001 financial guidance, with increases to cash revenue and adjusted EBITDA, and is formally introducing financial guidance for 2002. The company expects communications revenue of approximately $1.7 billion in 2001 and communications revenue of approximately $2.9 billion in 2002. "We are pleased to reaffirm or increase all of our 2001 financial guidance," said Sureel A. Choksi, chief financial officer of Level 3. "Industry leading revenue growth in 2001 of approximately 100 percent is an indication of our confidence in the opportunities ahead. We'd also like to reiterate that our business plan continues to be substantially prefunded through free cash flow break even."
Financial Projections
Communications Revenue:
Level 3 expects communications revenue to grow from $858 million in 2000 to approximately $1.7 billion in 2001 and $2.9 billion in 2002. Of the $1.7 billion in 2001 communications revenue, approximately $320 million will come from non-recurring dark fiber and infrastructure sales. Excluding non-recurring dark fiber and infrastructure sales, communications revenue falls into three categories: Transport, IP and Colocation, and Softswitch enabled services. For the year, Transport is expected to generate 35 to 40 percent of communications revenue, IP and Colocation 30 to 35 percent, and Softswitch enabled services - including reciprocal compensation - 30 to 35 percent. Level 3 has a current backlog of approximately $5.1 billion. Backlog is defined as total communications revenue that Level 3 expects to realize from signed contracts that have not been provisioned, as well as current revenue run-rate. Approximately 65 percent of our forecasted communications revenue for 2001 is included in the $5.1 billion backlog. Communications cash revenue, defined as communications revenue plus changes in cash deferred revenue, is expected to grow to approximately $2.4 to $2.6 billion in 2001, and $3.4 to $3.6 billion in 2002. Level 3 expects communications revenue for the first quarter of 2001 to be in the range of $360 to $370 million. Approximately $135 to $145 million of this revenue is expected to come from non-recurring dark fiber and infrastructure sales. Level 3 expects communications revenue to grow at a compounded annual percentage rate in the mid-60s and communications cash revenue to grow at a compounded annual percentage rate in the mid-50s between 2000 and 2005.
Information Services and Other Revenue:
Total information services and other revenue was $327 million in 2000, and is expected to decrease to $220 million for both 2001 and 2002, primarily due to reduced shipments under long-term coal contracts and the sale of the company's 50 percent interest in Walnut Creek Mining Company in 2000.
Gross Margin:
The gross margin for the communications business is expected to increase from 27 percent in 2000 to approximately 50 percent in 2001 and 55 percent in 2002. Consolidated gross margin is expected to be approximately 48 percent in 2001 and 53 percent in 2002.
Selling, General and Administrative Expenses (SG&A):
Consolidated SG&A expenses for the year 2001 are expected to be approximately 65 percent of total revenues in 2001 and drop to below 50 percent of total revenues in 2002. The total number of Level 3 employees is expected to increase to approximately 7,000 by the end of 2001.
EBITDA:
The company expects to turn consolidated EBITDA positive, excluding stock-based compensation, on a run-rate basis by the end of the year 2001, with EBITDA for the year 2002 reaching approximately $155 to $175 million. Consolidated adjusted EBITDA, defined as consolidated EBITDA plus changes in cash deferred revenue and adding back non-cash cost of goods sold, is expected to be approximately $600 to $700 million for the year 2001 and $750 to $850 million for 2002.
Earnings Per Share:
The company expects that the net loss per share will increase from $4.01 per share in 2000 to a net loss of approximately $7.50 per share in 2001, largely as a result of increases in stock-based compensation, net interest expense and depreciation expenses.
Capital Expenditures:
Capital expenditures for property, plant and equipment were $5.9 billion for the year 2000. The company previously expected to spend $6.3 billion for the year. As a result of timing differences, the remaining $400 million is expected to shift into 2001. Including this $400 million, total capital expenditures for the year 2001 are expected to be approximately $3.4 billion. Aggregate capital expenditures for 2000 and 2001 are in line with previous forecasts. The company expects capital expenditures to decrease in 2002 to approximately $2.0 to $2.5 billion. Capital expenditures estimates for 2001 reflect the acceleration of the second intercity fiber pull announced last year and the deferral of construction for Ring 3 of Level 3's pan-European network.
"Level 3 continually assesses the many business opportunities we have," said O'Hara. "In an effort to always deploy capital to maximize returns, we have reprioritized some of our capital projects." The company forecasts that it will be free cash flow break even in the first half of 2004, and remains substantially prefunded to free cash flow break even.
Analyst and Investors Conferences
The theme for Level 3's analyst and investor conference today in New York, and on January 31, 2001 in London, is "Breaking Away." "We've said all along that the telecommunications industry is experiencing a fundamental shift from a classic monopolistic, utility-based business model to a technology-driven business model, underscored heavily by the same move toward horizontal disaggregation that occurred in computing," said Crowe. "We've also said that this dramatic shift will create clear winners and losers. We believe strongly that with our global broadband infrastructure essentially complete, we're positioned to break away this year and become one of the winners."
In addition to presentations by Level 3 executives and Corning, Inc., today's conference in New York includes a Partners Exhibit Area where a number of Level 3's top customers and strategic technology partners will be featured. Demonstrations and information in the exhibit area will focus on customers' communications intensive services that Level 3 enables and the advanced technologies deployed by Level 3 in its network.
Exhibiting companies for the New York conference include Akamai Technologies; Corning Incorporated; Data Return Corporation; Enron Communications; Logictier; NaviPath, Inc.; Nortel Networks; RCN Corporation; Rhythms NetConnections, Inc.; Telseon; Yahoo! Inc.; and Yipes Communications. Exhibiting companies for the London conference on January 31 include Cap Gemini Ernst & Young; Data Return Corporation; Enron Communications; IC3; Hewlett-Packard Company; Nortel Networks; and surfEU.com Ltd.
About Level 3 Communications
Level 3 Communications, Inc. (NASDAQ: LVLT), an international communications company, operates one of the largest Internet backbones in the world, connecting 180 markets in 18 countries. The company serves a broad range of wholesale, enterprise and content customers with a comprehensive suite of services including: Internet Protocol (IP) services, broadband transport and infrastructure services, colocation services, voice and voice over IP services, content delivery and media distribution services. These services provide the building blocks to enable Level 3’s customers to meet their growing demands for advanced communications solutions. The company’s Web address is www.Level3.com.
"Level 3 Communications,” "Level 3," the red 3D brackets and the Level 3 Communications logo are registered service marks of Level 3 Communications, LLC in the United States and/or other countries. Level 3 services are provided by wholly owned subsidiaries of Level 3 Communications, Inc. Any other service, product or company names recited herein may be trademarks or service marks of their respective owners.
Forward-Looking Statement
Some of the statements that we make in this press release are forward looking in nature. These statements are based on management’s current expectations or beliefs. These forward looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside our control, which could cause actual events to differ materially from those expressed or implied by the statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to our ability to: successfully integrate acquisitions; increase the volume of traffic on our network; defend our intellectual property and proprietary rights; develop new products and services that meet customer demands and generate acceptable margins; successfully complete commercial testing of new technology and information systems to support new products and services; attract and retain qualified management and other personnel; and meet all of the terms and conditions of our debt obligations. Additional information concerning these and other important factors can be found within Level 3’s filings with the Securities and Exchange Commission. Statements in this press release should be evaluated in light of these important factors. Level 3 is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
