Level 3 Communications (LVLT) Reports 2Q05 Results In Line With Our Forecasts

Level 3 Communications (LVLT) reported 2Q05 financial results generally to exactly in line with our forecasts.  Please note the disclaimer before reading further. 

Some key 2Q05 figures:

• Communications revenue was reported at $371m versus our forecast of $370m.
• Communications gross profit was reported at $261m versus our forecast of $278m.
• Communications gross margin was reported at 70.4% versus our forecast of 75%.
• EBITDA reported at $101m versus our forecast of $100m.
• "Consolidated OBIDA" reported at $111m, exactly in line with our forecast of $111m.
• EBIT reported at ($65)m versus our ($75)m forecast.
• Net interest expense reported at $129m, exactly in line with our forecast of $129m.
• Net loss reported at ($188)m versus our ($204)m forecast.
• Capital spending reported at $85m versus our $62m forecast.
• Net cash and marketable securities reported at $1380m versus our forecast of $1583.8m
• Total debt reported at $5946m versus our forecast of $6090m.

For more details, please see our LVLT 2Q05 Forecast vs. Actual Results worksheet at Maverick Society of Investment Research, or contact me directly.

Some things I found particularly interesting from the conference call.

• Top 10 customers, communications, AT&T, bT, Cingular, Earthlink, Microsoft, Savvis, SBC, Time Warner Inc, United Online, and Verizon, together respresent 52% of communications revenue. 
• Growth and firming of prices in core revenue transport and IP.   The company sees some supply constraints in the market for OC192. 
• As a result of recent merger activity, some companies have re-engaged LVLT in contract discussions.  They rather do business with LVLT than a RBOC.
• Company lost a large customer for a low margin product.
• Company continues to upgrade and light new parts of its network. 
• 3Q05 guidance for communications revenue at $345-365m, versus 2Q05 results of $371m.

My take:

• Lack of near-term catalysts.
• But no near-term cash constraints. 
• Potential significant impact of dilution from convertible debt needs to be analyzed in further.
• Potentially significant more risk than reward in holding the stock. 

Comments

[ed]

if you keep this up, you'll have to change the name of the site to "telecom equity research blog" and apply for membership to david jackson's network. - ed