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description
Issued on November 5, 2014 © 2014 Level 3 Communications, LLC. All Rights Reserved
November 5, 2014
Third Quarter 2014 Results
Issued on November 5, 2014
Cautionary Statement & Pro Forma Adjustment
2
Some statements made in this presentation are forward-looking in nature and 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 Level 3's control, which could cause actual events to differ
materially from those expressed or implied by the statements. Important factors that could prevent Level 3 from achieving its
stated goals include, but are not limited to, the company's ability to: successfully integrate the tw telecom acquisition or
otherwise realize the anticipated benefits thereof; manage risks associated with continued uncertainty in the global
economy; maintain and increase traffic on its network; develop and maintain effective business support systems; manage
system and network failures or disruptions; avert the breach of its network and computer system security measures; develop
new services that meet customer demands and generate acceptable margins; defend intellectual property and proprietary
rights; manage the future expansion or adaptation of its network to remain competitive; manage continued or accelerated
decreases in market pricing for communications services; obtain capacity for its network from other providers and
interconnect its network with other networks on favorable terms; attract and retain qualified management and other
personnel; successfully integrate the tw telecom and future acquisitions; effectively manage political, legal, regulatory,
foreign currency and other risks it is exposed to due to its substantial international operations; mitigate its exposure to
contingent liabilities; and meet all of the terms and conditions of its 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 presentation 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.
On Sept. 25, 2014, Level 3 filed a Form 8-K with the Securities and Exchange Commission which reported that it will provide
additional disclosure related to network related expense. Level 3 is now separating out “Network Related Expenses” from
Selling, General and Administrative (SG&A) expenses and is relabeling “Cost of Revenue” as “Network Access Costs.” The
definition of “Network Access Costs” and “Network Access Margin” are unchanged from the historic definitions of Cost of
Revenue and Gross Margin, respectively.
In 2013, the company accrued 60 percent of its annual employee bonus compensation expense in the form of equity and 40
percent in cash, compared to 100 percent cash in 2014. The amount of the bonus accrued as equity based compensation in
the third quarter of 2013 was $11 million. Network Related Expenses, SG&A, Adjusted EBITDA and Adjusted EBITDA
margin for the third quarter of 2013 have been adjusted on a pro forma basis to include the $11 million to present the results
on a consistent basis with the accrual of bonus compensation expense in 2014 as 100 percent cash.
Issued on November 5, 2014
Third Quarter 2014 Highlights
3
CNS revenue grew 5.8% YoY
Enterprise CNS revenue grew 9.1% YoY
Adjusted EBITDA of $471 million
Year to date, generated Free Cash Flow of $157
million
Issued on November 5, 2014
$905 $939
$962 $984 $992
3Q13 4Q13 1Q14 2Q14 3Q144
CNS By Region CNS By Customer Type
CNS revenue grew to $1.482
billion or 5.8% YoY on a constant
currency basis
Enterprise CNS grew 9.1% YoY on
a constant currency basis:
12% YoY from North America
8.3% YoY from Latin America
3.7% YoY from EMEA(1)
CNS revenue churn(2) was 1.4% in
3Q14 and flat YoY
Core Network Services
Revenue
(1) Excludes EMEA UK Government CNS revenue
(2) Level 3 measures revenue churn as disconnects of Core Network Services
monthly recurring revenue as a percent of Core Network Services revenue. This
calculation excludes usage. Also included in the churn calculations are customers
who are disconnecting existing service, but are replacing their old service with
new, generally higher speed services
Total Enterprise CNS Revenue ($ in millions, at actual rates)
33%
67%
Wholesale Enterprise
72%
15%
13%
North America EMEA Latin America
Issued on November 5, 2014
Level 3 Network Access Margin,
Network Related Expenses and SG&A
5
Network Access Margin
improvement driven by high margin
CNS revenue growth and
optimization initiatives
3Q14 SG&A benefitted from tax
and legal adjustments
Network Access Margin($ in millions)
Network Related and SG&A Expenses(1)(2)(3)(4)
($ in millions)
(1) Network Related expenses and SG&A exclude non-cash compensation expense
(2) Third quarter 2013 Network Related expenses have been adjusted to include $6 million in bonus-related non-cash compensation expense and to exclude $7 million of severance charges
(3) Third quarter 2013 SG&A is adjusted to include $5 million in bonus-related non-cash compensation expense and to exclude $23 million of severance charges
(4) Third quarter 2014 SG&A includes a benefit of $10 million from adjustments to our accrued liabilities for legal and tax matters and $7 million of tw telecom transaction and integration-
related expenses
$961
$1,022
61.2%62.7%
3Q13 3Q14
NAM $ NAM %
$305 $304
$252 $247
35.5%
33.8%
3Q13 3Q14
NRE SG&A NRE and SG&A Expenses % total revenue
$551$557
Issued on November 5, 2014
Year to date, capital expenditures
of 12.5% as a percent of total
revenue
Level 3 Adjusted EBITDA and Capital Expenditures
6
Continued double digit growth in
Adjusted EBITDA on a YoY
basis
Adjusted EBITDA(1)
($ in millions)
$404
$471
25.7%
28.9%
3Q13 3Q14
Adj EBITDA Adj EBITDA % of Total Revenue
$194 $204
3Q13 3Q14
Capital Expenditures($ in millions)
(1) Third quarter 2013 Adjusted EBITDA and resulting Adjusted EBITDA margin are adjusted to include the $11 million in bonus-related non-cash compensation expenses and to
exclude $30 million of severance charges
Issued on November 5, 2014
Level 3 Free Cash Flow
7
Free Cash Flow – Year to Date($ in millions)
($42)
$354
3Q13 3Q14
Free Cash Flow – Rolling Four Quarters ($ in millions)
Strong improvement in Free Cash
Flow on a rolling four quarter
basis
Year to date, Free Cash Flow
of $157 million
($244)
$157
3Q13 3Q14
Issued on November 5, 2014
$475 $300
$3,420 $3,471
$640
$3,000
2014 2015 2016 2017 2018 2019 2020 2021 2022
Debt Maturity Profile
8
Raised an aggregate of $3 billion through two capital markets transactions to
facilitate the closing of the tw telecom transaction
On July 29, 2014, $1 billion aggregate principal amount of 5.375% Senior Notes due 2022
On Oct. 31, 2014, $2 billion in a single Tranche B 2022 Term Loan
Note: Maturity chart excludes capital leases and other debt of approximately $225 million
Pro forma Sept. 30, 2014
($ in Millions)
Issued on November 5, 20149
Total revenue grew 8.0% and
Enterprise revenue grew 8.4%, on a
YoY basis
M-EBITDA increased 2.9% on a
YoY basis
Total Revenue($ in millions)
M-EBITDA(1)
($ in millions)
(1) Third quarter 2014 M-EBITDA includes $1 million of merger related costs
tw telecom Total Revenue and M-EBITDA
$139 $143
35.2%
33.6%
3Q13 3Q14
M-EBITDA M-EBITDA Margin %
$393 $425
3Q13 3Q14
Issued on November 5, 2014
Full Year 2014 Standalone Business Outlook
10
Reiterating the outlook for the full year 2014, excluding the effects from the
tw telecom acquisition:
For the full year 2014, expect CNS revenue growth to be higher than the 2.9%
growth we saw for the full year 2013
Expect Adjusted EBITDA growth of 14-18% for the full year 2014 compared to the
full year 2013 (from a starting point of $1.565 billion)
Expect Free Cash Flow of $250 to $300 million for the full year 2014
Expect GAAP interest expense of approximately $600 million
Expect net cash interest expense of approximately $560 million
Expect capital expenditures of approximately 12-13% of total revenue
Expect depreciation and amortization of approximately $750 million for the full year
2014
Expect GAAP income tax expense of approximately $70 million
Issued on November 5, 201411
Synergies Create Value
$240 million expected total run-rate
synergies
• $200 million of expected annualized run-
rate Adjusted EBITDA savings
• Expect to achieve 70% of annualized
Adjusted EBITDA savings within 18
months of closing
• $40 million of expected capital
expenditure synergies
Expect integration costs of $170 million
with: • 60% from operating expenses
• 40% from capital expenditures
• Expect to incur the majority of integration
expenses by the end of 2015.
NPV of Expected Synergies of $2.2
billion
Annualized Adjusted EBITDA Savings
55%45%
NetEx OpEx
Issued on November 5, 201412
Appendix
Issued on November 5, 201413
Revenue by Region
3Q13 2Q14 3Q14
CNS Revenue ($ in millions)
North America 987$ 1,051$ 1,063$ 7.7 % 1.2 % 72 %
Wholesale 365$ 367$ 368$ 1.0 % 0.5 % 25 %
Enterprise 622$ 684$ 695$ 11.6 % 1.6 % 47 %
EMEA 222$ 229$ 219$ (4.8)% (3.3)% 15 %
Wholesale 88$ 86$ 80$ (10.2)% (4.7)% 6 %
Enterprise 134$ 143$ 139$ (1.2)% (2.4)% 9 %
Latin America 188$ 199$ 200$ 8.6 % 0.9 % 13 %
Wholesale 39$ 42$ 42$ 9.9 % (0.2)% 3 %
Enterprise 149$ 157$ 158$ 8.3 % 1.2 % 10 %
Total 1,397$ 1,479$ 1,482$ 5.8 % 0.5 % 100 %
Wholesale 492$ 495$ 490$ (0.3)% (0.5)% 33 %
Enterprise 905$ 984$ 992$ 9.1 % 0.9 % 67 %
Total CNS 1,397$ 1,479$ 1,482$ 5.8 % 0.5 %
Wholesale Voice Services and
Other Revenue172 146 147 (14.8)% 0.2 %
Total Revenue 1,569$ 1,625$ 1,629$ 3.6 % 0.4 %
Level 3 Communications($ in millions)
3Q14
% CNS
3Q14/
3Q13%
Change
Constant
Currency
3Q14/
2Q14%
Change
Constant
Currency
At Actual Rates
Issued on November 5, 201414
Services Revenue
10%
16%
34%
40%
Colocation and DataCenter Services
Voice Services(Local and Enterprise)
Transport & Fiber
IP and Data Services
3Q14 Percent of CNS
Revenue by Service
Type
Level 3 Communications($ in millions at actual rates)
Core Network Services Revenue 3Q13 2Q14 3Q14
3Q14/
3Q13%
Change
3Q14/
2Q14%
Change
3Q14
% CNS
Colocation and Datacenter Services 144$ 146$ 147$ 2.1 % 0.7 % 10 %
Transport and Fiber 483 508 511 5.8 % 0.6 % 34 %
IP and Data Services 536 588 590 10.1 % 0.3 % 40 %
Voice Services (Local and
Enterprise)234 237 234 —% (1.3)% 16 %
Total Core Network Services 1,397$ 1,479$ 1,482$ 6.1 % 0.2 % 100 %
Wholesale Voice Services and
Other172 146 147 (14.5)% 0.7 %
Total Revenue 1,569$ 1,625$ 1,629$ 3.8 % 0.2 %
Issued on November 5, 201415
Level 3 Non-GAAP Reconciliation
Issued on November 5, 201416
Schedule To Reconcile To Non-GAAP Financial Metrics
Pursuant to Regulation G, the company is hereby providing definitions of non-GAAP financial metrics
and reconciliations to the most directly comparable GAAP measures.
The following describes and reconciles those financial measures as reported under accounting
principles generally accepted in the United States (GAAP) with those financial measures as adjusted
by the items detailed below and presented in the accompanying news release. These calculations are
not prepared in accordance with GAAP and should not be viewed as alternatives to GAAP. In keeping
with its historical financial reporting practices, the company believes that the supplemental
presentation of these calculations provides meaningful non-GAAP financial measures to help investors
understand and compare business trends among different reporting periods on a consistent basis.
In addition, measures referred to in the accompanying news release as being calculated “on a constant
currency basis” or "in constant currency terms" are non-GAAP metrics intended to present the relevant
information assuming a constant exchange rate between the two periods being compared. Such
metrics are calculated by applying the currency exchange rates used in the preparation of the prior
period financial results to the subsequent period results.
Issued on November 5, 201417
Schedule To Reconcile To Non-GAAP Financial Metrics
Consolidated Revenue is defined as total revenue from the Consolidated Statements of Operations.
Core Network Services Revenue includes revenue from colocation and datacenter services, transport and
fiber, IP and data services, and voice services (local and enterprise).
Network Access Costs includes leased capacity, right-of-way costs, access charges, satellite transponder
lease costs and other third party costs directly attributable to providing access to customer locations from the
Level 3 network, but excludes Network Related Expenses, and depreciation and amortization. Network Access
Costs do not include any employee expenses or impairment expenses; these expenses are allocated to
Network Related Expenses or Selling, General and Administrative Expenses.
Network Related Expenses includes certain expenses associated with the delivery of services to
customers and the operation and maintenance of the Level 3 network, such as facility rent, utilities,
maintenance and other costs, each related to the operation of its communications network, as well as salaries,
wages and related benefits (including non-cash stock-based compensation expenses) associated with
personnel who are responsible for the delivery of services, operation and maintenance of its communications
network, and accretion expense on asset retirement obligations, but excludes depreciation and amortization.
Issued on November 5, 201418
Schedule To Reconcile To Non-GAAP Financial Metrics
Network Access Margin ($) is defined as total Revenue less Network Access Costs from the
Consolidated Statements of Operations, and excludes Network Related Expenses.
Network Access Margin (%) is defined as Network Access Margin ($) divided by total Revenue.
Management believes that network access margin is a relevant metric to provide to investors, as it is a
metric that management uses to measure the margin available to the company after it pays third party
network services costs; in essence, a measure of the efficiency of the company’s network.
Adjusted EBITDA is defined as net income (loss) from the Consolidated Statements of Operations
before income taxes, total other income (expense), non-cash impairment charges, depreciation and
amortization and non-cash stock compensation expense.
Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by total revenue.
Issued on November 5, 201419
Schedule To Reconcile To Non-GAAP Financial Metrics
Management believes that Adjusted EBITDA and Adjusted EBITDA Margin are relevant and useful metrics to provide to
investors, as they are an important part of the company’s internal reporting and are key measures used by Management to
evaluate profitability and operating performance of the company and to make resource allocation decisions. Management
believes such measures are especially important in a capital-intensive industry such as telecommunications. Management
also uses Adjusted EBITDA and Adjusted EBITDA Margin to compare the company’s performance to that of its competitors
and to eliminate certain non-cash and non-operating items in order to consistently measure from period to period its ability to
fund capital expenditures, fund growth, service debt and determine bonuses. Adjusted EBITDA excludes non-cash
impairment charges and non-cash stock compensation expense because of the non-cash nature of these items. Adjusted
EBITDA also excludes interest income, interest expense and income taxes because these items are associated with the
company’s capitalization and tax structures. Adjusted EBITDA also excludes depreciation and amortization expense because
these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of
capital expenditures made in recent periods, which may be evaluated through cash flow measures. Adjusted EBITDA
excludes the gain (or loss) on extinguishment and modification of debt and other, net because these items are not related to
the primary operations of the company.
There are limitations to using Adjusted EBITDA as a financial measure, including the difficulty associated with comparing
companies that use similar performance measures whose calculations may differ from the company’s calculations.
Additionally, this financial measure does not include certain significant items such as interest income, interest expense,
income taxes, depreciation and amortization, non-cash impairment charges, non-cash stock compensation expense, the gain
(or loss) on extinguishment and modification of debt and net other income (expense). Adjusted EBITDA and Adjusted
EBITDA Margin should not be considered a substitute for other measures of financial performance reported in accordance
with GAAP.
Issued on November 5, 201420
Schedule To Reconcile To Non-GAAP Financial Metrics
Free Cash Flow is defined as net cash provided by (used in) operating activities less capital
expenditures as disclosed in the Consolidated Statements of Cash Flows. Management believes
that Free Cash Flow is a relevant metric to provide to investors, as it is an indicator of the
company’s ability to generate cash to service its debt. Free Cash Flow excludes cash used for
acquisitions, principal repayments and the impact of exchange rate changes on cash and cash
equivalents balances.
There are material limitations to using Free Cash Flow to measure the company’s performance as
it excludes certain material items such as principal payments on and repurchases of long-term
debt and cash used to fund acquisitions. Comparisons of Level 3’s Free Cash Flow to that of
some of its competitors may be of limited usefulness since Level 3 does not currently pay a
significant amount of income taxes due to net operating losses, and therefore, generates higher
cash flow than a comparable business that does pay income taxes. Additionally, this financial
measure is subject to variability quarter over quarter as a result of the timing of payments related
to interest expense, accounts receivable and accounts payable and capital expenditures. Free
Cash Flow should not be used as a substitute for net change in cash and cash equivalents on the
Consolidated Statements of Cash Flows.
Issued on November 5, 201421
Schedule To Reconcile To Non-GAAP Financial Metrics
(1) Adjusted EBITDA and the resulting Adjusted EBITDA Margin in the third quarter of 2014 includes $7 million of tw telecom transaction and integration-related fees and a
benefit of $10 million from adjustments to our accrued liabilities for legal and tax matters.
2014 2013
($ in millions) Q3 (1) Q3
Consolidated Net Income (Loss) 85$ (21)$
Income Tax Expense (Benefit) 8 14
Total Other Expense 169 159
Depreciation and Amortization
Expense 187 203
Non-cash Compensation Expense 22 30
Consolidated Adjusted EBITDA 471$ 385$
Consolidated Revenue 1,629$ 1,569$
Adjusted EBITDA Margin 28.9 % 24.5 %
Level 3 Communications, Inc. and Consolidated Adjusted EBITDA
Issued on November 5, 201422
Schedule To Reconcile To Non-GAAP Financial Metrics
2012
($ in millions) Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 2013 Q3 2014
Q3 YTD
2013
Q3 YTD
2014
Net Cash Provided by Operating
Activities 400$ 7$ 216$ 104$ 386$ 141$ 303$ 321$ 727$ 1,151$ 327$ 765$
Capital Expenditures (198) (169) (208) (194) (189) (163) (241) (204) (769) (797) (571) (608)$
Free Cash Flow 202$ (162)$ 8$ (90)$ 197$ (22)$ 62$ 117$ (42)$ 354$ (244)$ 157$
Level 3 Communications, Inc. and Consolidated SubsidiariesCash Flows
2013 2014 Rolling Four
Issued on November 5, 201423
tw telecom Non-GAAP Reconciliation
Issued on November 5, 201424
Schedule To Reconcile To tw telecom Non-GAAP Financial
Metrics
Pursuant to Regulation G, the Company is hereby providing definitions of tw telecom’s non-GAAP financial metrics and
reconciliations to the most directly comparable GAAP measures.
The following describes and reconciles those financial measures as reported under GAAP with those financial measures as
adjusted by the items detailed below and presented in the accompanying news release. These calculations are not prepared
in accordance with GAAP and should not be viewed as alternatives to GAAP. In keeping with its historical financial reporting
practices, the company believes that the supplemental presentation of these calculations provides meaningful non-GAAP
financial measures to help investors understand and compare business trends among different reporting periods on a
consistent basis.
The management of tw telecom provides financial measures using U.S. generally accepted accounting principles (“GAAP”) as
well as adjustments to GAAP measures to describe its business trends, including Modified EBITDA. Management believes
that its definition of Modified EBITDA is a standard measure of operating performance and liquidity that is commonly reported
and widely used by analysts, investors, and other interested parties in the telecommunications industry because it eliminates
many differences in financial, capitalization, and tax structures, as well as non-cash and non-operating income or charges to
earnings. Modified EBITDA is not intended to replace operating income (loss), net income (loss), cash flow, and other
measures of financial performance and liquidity reported in accordance with GAAP. Management uses Modified EBITDA
internally to assess on-going operations and it is the basis for various financial covenants contained in the Company’s debt
agreements and for operating performance and liquidity. Modified EBITDA is reconciled to Net Income (Loss), the most
comparable GAAP measure for operating performance within the Consolidated Operations Highlights.
Issued on November 5, 201425
Schedule To Reconcile To tw telecom Non-GAAP Financial
Metrics
Modified EBITDA (or “M-EBITDA”) is defined as net income or loss before depreciation,
amortization, accretion, impairment charges and other income and losses, interest expense, debt
extinguishment costs, interest income, income tax expense or benefit, cumulative effect of change in
accounting principle, and non-cash stock-based compensation expense. The Company defines
Modified EBITDA margin as M-EBITDA divided by total revenue.
Modified EBITDA Metric
Q3 2014
(in millions)
Net Income $ 13
Income Tax Expense 11
Interest Expenses, net of Interest Income 25
Non-Cash Stock Compensation 9
Depreciation, Amortization, Accretion 85
M-EBITDA, as reported $ 143
Merger-related costs 1
M-EBITDA, before merger-related costs $ 144
M-EBITDA Margin, before merger-related costs 33.8 %
M-EBITDA Margin, as reported 33.6 %
Issued on November 5, 201426
Schedule To Reconcile To tw telecom Non-GAAP Financial
Metrics
Modified EBITDA Metric
Q3 2013
(in millions)
Net Loss $ (9)
Income Tax Expense (4)
Debt Extinguishment Costs 39
Interest Expenses, net of Interest Income 21
Non-Cash Stock Compensation 13
Depreciation, Amortization, Accretion 79
M-EBITDA, before merger-related costs $ 139
M-EBITDA Margin, as reported 35.2 %