Level 3 Communications, Inc. (LVLT)

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Level 3 Communications, Inc. (LVLT)

Citi Global Entertainment, Media & Telecommunications Conference

January 05, 2012 2:10 pm ET

Executives

Sunit S. Patel - Chief Financial Officer and Executive Vice President

Analysts

Unknown Analyst

Michael Rollins - Citigroup Inc, Research Division

Presentation

Michael Rollins - Citigroup Inc, Research Division

Good morning or good afternoon depending on where you are. For those joining us via webcast, I'm Mike Rollins, Telecom Analyst at Citi Investment Research and Analysis. We're going to continue our next fireside chat track with a focus on the wholesale and the enterprise segments of the telecom market with Level 3 Communications. I'd to welcome back Sunit Patel, Executive Vice President and Chief Financial Officer for Level 3.

Sunit S. Patel

Thank you. I'm happy to be here.

Question-and-Answer Session

Michael Rollins - Citigroup Inc, Research Division

Thanks for joining us. Maybe just to kick it off, you had a very busy year.

Sunit S. Patel

Yes.

Michael Rollins - Citigroup Inc, Research Division

Just closed recently the Global Crossing acquisition, and maybe you could just set the stage with some of -- any sort of key thoughts exiting 2011 and what your operational and strategic priorities are for 2012?

Sunit S. Patel

Yes, thanks, good place to start. So we're now 3 months into the transaction. We closed Global Crossing in early October, so we had early January. And I would say that at this stage, everything we talked about at the announcement and at the earnings release and what we see today has been consistent. We haven't seen anything that has surprised us as such. I think for all the integration planning that we went through has paid off as we sit here today with finishing our budgets for 2012 looking at everything. We can be or feel good about everything we talked about at the time of the announcement, whether it's synergy realization targets, timing of that, where we are from an integration perspective, it is probably worth a quick update. So in the past 3 months I would say we have organized the company, generally the organization's well defined right down to the bottom layers. Our sales people all know what customers they're going to be covering. We're kicking off our sales conference next week in Florida, the thousand-plus sales force, sales engineers, product managers. Commission plans are finalized. So those all will be communicators so I think -- and also similarly, our sales people will have visibility to combine company revenues by customer for the customers they are covering, contracts, pricing comparisons. So a lot of work has been done from that perspective at the sales force, which is the main thing, making sure that from a customer perspective and a customer-experience perspective, we are well organized to go to market. So I think all of that is going well. Now obviously the key -- back to your priorities for this year, the key now is execution. I think with all the planning has paid off dividends in terms of organizational clarity, the sales force being able to go to market, and now its execution both on cost savings, on synergies, on the SG&A side, on the CapEx side and on the access cost side. And I'd say that given that we just finished up budgets for 2012, I think everyone has a pretty clear idea what they have to achieve that they've generally bought into, what they have to achieve and signed up for. So we feel pretty good.

Michael Rollins - Citigroup Inc, Research Division

As we think about putting the 2 companies together, the companies operated differently in some respect, the ways in which Global Crossing may have sold capacity for cash up front, sometimes it's different than you, the way you may have done compensation, the way that they recognize some revenue versus you. Are there some things that investors just should be thinking through because we haven't really seen the third quarter pro forma by segment in all the details. So are there certain things that you would want to throw out there just to educate folks on what to expect?

Sunit S. Patel

Sure. Yes, I mean, I think that the good news is for both companies, any kind of upfront cash, revenues as a percent of the overall review base was small, probably a little smaller for Level 3, but you're talking a few percentage points. And I think that Global Crossing had more every quarter, onetime type of revenue that came through early contract terminations, those sorts of things, and Level 3 really didn't operate that way. So there was some difference there. In the scheme of a company of our size, $6.5 billion of revenues, roughly 30,000 customers, it's not really much. It's noise in the scheme of things, I would say. I don't think the accounting policies were that different in the -- to make any difference in the ways the number's going forward. Having said that, obviously, whenever you put the 2 companies together, you have an initial intercompany eliminations because everyone does business with each other in telecom. There's some purchase price, accounting adjustments. People have a flavor for that in terms of the second quarter pro forma that we published. But again, in the scheme of a $6.5 billion company, the adjustments are pretty small.

Michael Rollins - Citigroup Inc, Research Division

How should we think about the pace of integration from here? So as you've laid out your synergy target, some have wondered if that's certain, some have wondered how quickly you could accomplish it. What are your current thoughts on the confidence in the number and the timing over which you could recognize it?

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