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. Are we rounding that corner and how robust could FCF be? Why did interest rate swaps suddenly appear as a condition attached to 2013 FCF guidance? In an attempt to find answers we’ll look at the business outlook presented by management and use this guidance as a framework to project 2013 FCF for each quarter and longer term annual FCF over five years.
LVLT released its fourth-quarter and full-year results on Feb. 12. The market was not pleased with results or comments relating to forward growth. Here are some highlights (emphasis added):
“For the first quarter 2013, we expect to see a slight decline in CNS revenue on a sequential basis, due to the typical reversal in the seasonally strong fourth quarter revenue. Adjusting for the special items in the fourth quarter, with the expected decline in CNS revenue and increase in payroll taxes, we expect Adjusted EBITDA to be roughly flat in the first quarter 2013 compared to the fourth quarter 2012.”
“We expect low double digit percentage growth in Adjusted EBITDA, compared to full year 2012 reported Adjusted EBITDA of $1.459 billion. We expect to be Free Cash Flow positive for the full year, excluding interest rate swap obligations.
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