Level 3 posts Q2 net loss of $731 million

Level 3 Communications today announced an expected sharp increase in its second-quarter loss and expressed an intent to target larger, more stable customers.

According to Kevin O’Hara, president and COO, the company is shifting its focus towards landing “large transport deals for the carrier segment of the marketplace.” By doing so, Level 3 hopes to dramatically reduce the large number of disconnects, largely from failing customers, which continue to plague the company’s bottom line.

“The capital market shakeout that started to occur in the second half of last year, and accelerated in the first half of this year, put some of the customers that we had secured under pressure,” he said.

O’Hara added that this occurred at the same time the company’s backbone and metropolitan networks were starting to come on line. Though Level 3 “always anticipated” targeting large purchasers of bandwidth as its network was completed, “the meltdown that we have seen in the second quarter caused us to accelerate this transition and [we] now focus the majority of our sales dollars on the more established customer base,” he said.

In the first half of the year, Level 3 has landed contracts with major carriers and service providers, including Time Warner Telecom, Microsoft Network, and France Telecom. Most recent was a deal announced this week with Verizon Communications, through which Level 3 will provide co-location services to the carrier’s global network. Two hubs will be created in Level 3 gateway centers in Los Angeles and Miami; Verizon Global Solutions will occupy about 3500 square feet in each center.

The Los Angeles hub will serve the western United States, connecting customers there to western Canada, Asia and Mexico. The Miami hub will provide connections to the Caribbean, Latin America and South America. In addition, Level 3 will also provide transport services via dedicated bandwidth through its (3)Link Private Line service.

These successes reflect the revised focus within Level 3’s sales organization and is clearly a step in the right direction, O’Hara said.

“In fact, if you look at the top-50 customer targets as we have targeted them, we had new or incremental sales to 37 of 50 in the first half of this year,” he explained. “We believe that the disconnect problem we have been experiencing will be behind us by the end of this year and the overall credit quality of our customer base will be very good as a result of replacing those disconnected customers with revenue from the financially strong companies.”

Bettering analysts estimates, Level 3 posted a net loss for second quarter 2001 of $731 million, or $1.99 per share, including a one-time charge of $136 million related primarily to a restructuring announced earlier in the quarter. This compares with a net loss of $281 million, 77 cents per share, last year. Revenues for the second quarter were $389 million, a 66 percent increase over the $234 million posted in the second quarter of 2000.

For the six-month period ended June 30, 2001, Level 3 reported a net loss of $1.3 billion, or $3.44 per share, on revenues of $838 million.

In a conference call, Sureel Choksi, Level 3’s chief financial officer, reaffirmed the company’s guidance for the remainder of the year. For fiscal 2001, Level 3 is projecting a net loss for the year of $7.50 per share, including one-time charges, on revenues of about $2.1 billion.

“We have not seen any changes in our business relative to when we provided updated financial projections about a month ago,” he said. “Sales cycles continue to be protracted for several customers and we continue to experience a high level of disconnects. We continue to believe that we will see the effects of an economic recovery beginning either late this year or early next year.”