Level 3 Communications Misses The Boat (LVLT)

Douglas A. McIntyre

Level 3 Communications Inc. (NASDAQ:LVLT) is seeing shares take a haircut in immediate reaction trading to earnings pre-market.  The company beat revenues with $1.061 Billion in revenues versus $1.04 Billion estimates.  That is up from $1.052 Billion in Q2 2007.

But the company is lowering EBITDA guidance for 2007 and 2008.  The quotes below sum it all up:
“While we continued to grow Core Communications Services revenues and we did meet our guidance measures in the third quarter, the company had difficulties with provisioning orders for its services,” said James Q. Crowe, CEO of Level 3. “The breadth of the problem was greater than we had earlier diagnosed, and we did not increase provisioning capacity as we had expected. This increase in provisioning capacity was necessary to meet the revenue increases we had previously projected. As a result, we are lowering our Consolidated Adjusted EBITDA guidance for the full year 2007 and the full year 2008. We are disappointed by our performance, particularly given the strength of the current market. We believe we have identified the underlying causes of our provisioning constraints, and we have begun to implement additional changes. We are focused on correcting this issue as quickly as possible.”

In the third quarter, Level 3’s top 10 customers, in alphabetical order, were Alltel, AT&T Inc., British Telecom, Comcast Corporation, Commonwealth of Pennsylvania, EarthLink, Inc., Qwest Communications International Inc., Time Warner, Inc., Verizon Communications and Vonage Holdings Corporation. Including the SBC contract, these top 10 customers represent 32 percent of Total Communications revenue, and excluding the SBC contract, 27 percent of Total Communications revenue.  The communications deferred revenue balance decreased to $930 million at the end of the third quarter 2007.

On a separate note, the company before earnings issued a statement that doctors said there is no evidence that pituitary tumors have returned to the company’s CEO.  Shares were down 5%, but now shares are down 8% pre-market at $3.95 in pre-market trading.  Unfortunately that will be a 52 week low and the 52-week trading range is $4.14 to $6.80.

Jon C. Ogg
October 23, 2007