Wider Loss, Higher Revenue for Level 3

The company still expects to report positive consolidated free cash flow during the second quarter of 2004.
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Level 3 Communications

(LVLT)

said its loss widened in the second quarter, but revenue rose from a year ago and the company indicated that it surpassed its internal targets.

The company reported second-quarter revenue of $941 million, down from $1.23 billion for the previous quarter, but up from $750 million a year ago. Communications revenue rose to $434 million from $276 million last year. Information services revenue reached $491 million, up from $447 million a year ago.

Level 3 lost $462 million, or 95 cents a share, in the quarter, including an expense of $190 million, or 39 cents a share, related to the premium that was paid for the conversion of the company's 9% junior convertible subordinated notes due 2012.

The latest quarter also includes a loss of $9 million, or 2 cents a share, from discontinued operations. In the 2002 second quarter, Level 3 lost $156 million, or 39 cents a share.

Consolidated adjusted earnings before interest, taxes, depreciation and amortization was $113 million for the second quarter, compared with $95 million for the previous quarter.

"We exceeded our projections for the second quarter and continue to make steady progress," Level 3 said in a press release. "We saw modest improvements in our financial and operational metrics, including sales, for the communications business. However, sales cycles continue to be longer than we would like. Level 3 continues to be a strong financial partner for its customers given our high incremental margins and the financial strength of our balance sheet."

During the second quarter, cash flow was positive $65 million, vs. negative $24 million for the first quarter. As of June 30, Level 3's cash and marketable securities balance was $1.3 billion, including $400 million in restricted cash held as security under the company's senior secured credit facility.

Level 3 also continues to expect positive consolidated free cash flow during the second quarter of 2004. For 2003, the company now sees communications revenue of $1.98 billion to $2 billion, vs. prior estimates of $1.94 billion to $2.04 billion.

The company also said it remains comfortable with its outlook for information services revenue, communications gross margin and unlevered cash flow. Additionally, Level 3 raised its projection for consolidated EBITDA by $20 million.

The company said communications revenue will probably fall in the third quarter, mainly because of lower reciprocal compensation revenue. The decrease is being driven by the expiration of existing interconnection agreements, which have either been renegotiated or by the adoption of the Federal Communication Commission's mandated rates for dial-up traffic.

Shares of Level 3 were down 11 cents to $5.23 in recent

Nasdaq

trading.