2 q14 external earnings presentation_final

Issued on July 29, 2014 © 2014 Level 3 Communications, LLC. All Rights Reserved

July 29, 2014

Second Quarter 2014 Results

Issued on July 29, 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 Global Crossing 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 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.

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 second quarter of 2013 was $15 million. SG&A, Adjusted EBITDA and

Adjusted EBITDA margin for the second quarter of 2013 have been adjusted on a pro forma basis to include

the $15 million to present the results on a consistent basis with the accrual of bonus compensation expense in

2014 as 100 percent cash.


Second Quarter 2014 Highlights

3

CNS revenue grew 6.9% YoY

Enterprise CNS revenue grew 11% YoY

Gross margin increased to 62.3% in 2Q14

Adjusted EBITDA of $459 million or $463 million,

excluding $4 million of tw telecom transaction-related

fees

Generated Free Cash Flow of $62 million


$884 $905

$939 $962

$984

2Q13 3Q13 4Q13 1Q14 2Q144

CNS By Region CNS By Customer Type

CNS revenue grew to $1.479

billion or 6.9% YoY on a constant

currency basis

Enterprise CNS grew 11% YoY on

a constant currency basis:

13% YoY from North America

10% YoY from Latin America

8.1% YoY from EMEA(1)

CNS revenue churn(2) was 1.4%

compared to 1.5% in the second

quarter 2013

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)

71%

16%

13%

North America EMEA Latin America

34%

66%

Wholesale Enterprise


Level 3 Gross Margin and SG&A

5

Gross Margin improvement driven

by high margin CNS revenue growth and optimization initiatives

SG&A benefitted from 3Q13

headcount reductions, offset by

merit increases in the quarter

Gross Margin($ in millions)

SG&A(1)(2)(3)

($ in millions)

(1) SG&A excludes non-cash compensation expense

(2) Second quarter 2014 SG&A expense includes $4 million of tw telecom transaction related fees

(3) Second quarter 2013 SG&A expense is adjusted to include the $15 million in bonus-related non-cash compensation and to exclude $13 million of severance charges

$949

$1,012

60.6%62.3%

2Q13 2Q14

GM $ GM %

$564 $553

36.0%

34.0%

2Q13 2Q14

SG&A SG&A % total revenue


Level 3 Adjusted EBITDA and Capital Expenditures

6

Year to date, Adjusted EBITDA

growth of 21% compared to the

year ago period

Year to date, capital expenditures as

a percent of total revenue were 12%

Continue to target 12-13% for the

full year 2014

Adjusted EBITDA(1)(2)

($ in millions)

Capital Expenditures($ in millions)

(1) Second quarter 2013 Adjusted EBITDA and resulting Adjusted EBITDA margin are adjusted to include the $15 million in bonus-related non-cash compensation

and to exclude $13 million of severance charges

(2) Second quarter 2014 Adjusted EBITDA excludes $4 million of tw telecom transaction related fees

$385

$463

24.6%

28.5%

2Q13 2Q14

Adj EBITDA Adj EBITDA % of Total Revenue

$208

$241

2Q13 2Q14


Level 3 Free Cash Flow

7

Free Cash Flow improved by $54

million YoY, driven by high

margin CNS revenue growth and

disciplined cost management

Free Cash Flow – Year over Year($ in millions)

Free Cash Flow – Rolling Four Quarters ($ in millions)

Strong improvement of $256

million in Free Cash Flow on a

rolling four quarter basis

$8

$62

2Q13 2Q14

($109)

$147

2Q13 2Q14


$475 $300

$3,420 $3,471

$640

2014 2015 2016 2017 2018 2019 2020 2021

Debt Maturity Profile

8

Net Debt to Adjusted EBITDA ratio was 4.4x, compared to 5.1x in the second

quarter 2013

Focused on the lower end of target leverage range of 3 to 5 times

Average interest rate was 6.8%, compared to 7.4% in the second quarter 2013

2015 maturity is 7% Convertible Senior Notes that convert at $27 per share

Cash on hand as of June 30, 2014 of $637 million

Note: Maturity chart excludes capital leases and other debt of approximately $80 million

June 30, 2014($ in Millions)


Full Year 2014 Standalone Business Outlook

9

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


Appendix


Revenue by Region

11

($ in millions)

2Q13 1Q14 2Q14

2Q14/

2Q13

%Change

Constant

Currency

2Q14/

1Q14

%Change

Constant

Currency

2Q14

% CNS

CNS Revenue ($ in millions)

North America 970$ 1,043$ 1,051$ 8.3 % 0.7 % 71 %

Wholesale 367$ 368$ 367$ (0.2)% (0.4)% 25 %

Enterprise 603$ 675$ 684$ 13.4 % 1.3 % 46 %

EMEA 220$ 225$ 229$ (1.8)% 0.8 % 16 %

Wholesale 88$ 87$ 86$ (7.7)% (1.9)% 6 %

Enterprise 132$ 138$ 143$ 2.2 % 2.5 % 10 %

Latin America 189$ 189$ 199$ 9.7 % 3.4 % 13 %

Wholesale 40$ 40$ 42$ 7.2 % 2.5 % 3 %

Enterprise 149$ 149$ 157$ 10.4 % 3.6 % 10 %

Total 1,379$ 1,457$ 1,479$ 6.9 % 1.1 % 100 %

Wholesale 495$ 495$ 495$ (0.9)% (0.5)% 34 %

Enterprise 884$ 962$ 984$ 11.2 % 1.8 % 66 %

Total CNS 1,379$ 1,457$ 1,479$ 6.9 % 1.1 %

Wholesale Voice Services

and Other Revenue 186$ 152$ 146$ (21.2)% (3.7)%

Total Revenue 1,565$ 1,609$ 1,625$ 3.5 % 0.6 %

Level 3 Communications


Level 3 Communications($ in millions)

Core Network Services Revenue 2Q13 1Q14 2Q14

2Q14/

2Q13

%Change

2Q14/

1Q14

%Change

2Q14

% CNS

Colocation and Datacenter Services 145$ 145$ 146$ 0.7 % 0.7 % 10 %

Transport and Fiber 480$ 502$ 508$ 5.8 % 1.2 % 34 %

IP and Data Services 522$ 573$ 588$ 12.6 % 2.6 % 40 %

Voice Services (Local and

Enterprise) 232$ 237$ 237$ 2.2 % —% 16 %

Total Core Network Services 1,379$ 1,457$ 1,479$ 7.3 % 1.5 % 100 %

Wholesale Voice Services and

Other 186$ 152$ 146$ (21.5)% (3.9)%

Total Revenue 1,565$ 1,609$ 1,625$ 3.8 % 1.0 %

Services Revenue

12

2Q14 Percent of CNS

Revenue by Service

Type

10%

16%

34%

40%

Colocation and DataCenter Services

Voice Services(Local and Enterprise)

Transport & Fiber

IP and Data Services


Non-GAAP Reconciliation


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.



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).

Gross Margin ($) is defined as total revenue less cost of revenue from the Consolidated Statements of

Operations.

Gross Margin (%) is defined as gross margin ($) divided by total revenue. Management believes that

gross 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.



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.


Debt is defined as total gross debt, including capital leases from the Consolidated Balance Sheet.

Net Debt to Last Twelve Months (LTM) Adjusted EBITDA Ratio is defined as debt, reduced by cash

and cash equivalents and divided by LTM Adjusted EBITDA.




Unlevered Cash Flow is defined as net cash provided by (used in) operating activities less capital

expenditures, plus cash interest paid and less interest income all as disclosed in the Consolidated

Statements of Cash Flows or the Consolidated Statements of Operations. Management believes that

Unlevered Cash Flow is a relevant metric to provide to investors, as it is an indicator of the operational

strength and performance of the company and, measured over time, provides management and investors

with a sense of the underlying business’ growth pattern and ability to generate cash. Unlevered Cash Flow

excludes cash used for acquisitions and debt service and the impact of exchange rate changes on cash and

cash equivalents balances.

There are material limitations to using Unlevered Cash Flow to measure the company’s cash performance

as it excludes certain material items such as payments on and repurchases of long-term debt, interest

income, cash interest expense and cash used to fund acquisitions. Comparisons of Level 3’s Unlevered

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 accounts receivable and

accounts payable and capital expenditures. Unlevered Cash Flow should not be used as a substitute for net

change in cash and cash equivalents in the Consolidated Statements of Cash Flows.



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.



2013

($ in millions) Q2(2) Q1 Q2(1) YTD 2014 YTD 2013(1)

Consolidated Net Income (Loss) 55$ 112$ (11)$ 167$ (86)$

Income Tax Expense (Benefit) 12 7 11 19 25

Total Other Expense 193 145 153 338 372

Depreciation and Amortization

Expense 187 184 199 371 393

Non-cash Compensation Expense 16 10 33 26 55

Consolidated Adjusted EBITDA 463$ 458$ 385$ 921$ 759$

Consolidated Revenue 1,625$ 1,609$ 1,565$ 3,234$ 3,142$

Adjusted EBITDA Margin 28.5 % 28.5 % 24.6 % 28.5 % 24.2 %

Level 3 Communications, Inc. and Consolidated SubsidiariesAdjusted EBITDA

2014

(1) Adjusted EBITDA and the resulting Adjusted EBITDA Margin includes $15 million in non-cash

bonus related compensation in the f irst and second quarters of 2013 and excludes $13 million and

$3 million of severance charges in the f irst and second quarter of 2013, respectively.

(2)Consolidated Net Income, Adjusted EBITDA and the resulting Adjusted EBITDA Margin in the

second quarter of 2014 excludes $4 million of tw telecom transaction-related fees.



($ in millions) Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 2013 Q2 2014

Net Cash Provided by Operating

Activities 70$ 400$ 7$ 216$ 104$ 386$ 141$ 303$ 693$ 934$

Capital Expenditures (227) (198) (169) (208) (194) (189) (163) (241) (802) (787)

Free Cash Flow (157) 202 (162) 8 (90) 197$ (22)$ 62$ (109)$ 147$

Cash Interest Paid 234 123 190 145 178 161 128 149 692 616

Interest Income — — — — — — — — — —

Unlevered Cash Flow 77$ 325$ 28$ 153$ 88$ 358$ 106$ 211$ 583$ 763$

Rolling Four

Quarter Basis

Level 3 Communications, Inc. and Consolidated SubsidiariesCash Flows

2012 2013 2014


($ in millions)

Debt 8,386$

Cash and Cash Equivalents (637)

Net Debt 7,749$

LTM Adjusted EBITDA 1,768$

Net Debt to LTM Adjusted EBITDA Ratio 4.4

Level 3 Communications, Inc. and Consolidated Net Debt to LTM Adjusted EBITDA ratio as of June 30, 2014


Investor Relations

2 q14 external earnings presentation_final