Level 3 Communications: Where’s The Cash?

Level 3 Communications (LVLT) with few exceptions has been burning through cash for most of its history.  Investors have been waiting a long time for sustainable FCF (free cash flow) to arrive only to be disappointed when it seemed just around the corner. We’ll look at the past pro-forma numbers and guidance to identify the long term trends for EBIDTA and free cash flow.

The acquisition of Global Crossing was completed in October, 2011.  LVLT then transferred the listing of its common stock to the New York Stock Exchange. In conjunction with listing on NYSE, the company affected a 1-for-15 reverse stock split of the Level 3 common stock.  LVLT released their fourth quarter and year end results on February 8 and provided 2012 guidance for the combined entity.

The main risk to any long term trends rest on how well the Global Crossing integration proceeds.  There are concerns that LVLT’s history includes some integration challenges. Beginning with the late-2005 acquisition of WilTel, Level 3 has established itself as an industry consolidator. During 2006, the company went on to acquire Progress Telecom, ICG, TelCove and Looking Glass Networks. In 2007, Level 3 acquired Broadwing, the Content Delivery Network services business of SAVVIS, Inc. and Servecast. It looked as if the company was turning the corner but underneath the company was experiencing major problems absorbing acquisitions such as:
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