Level 3 Surges on Positive Outlook

Claiming its acquisition headaches are clearing up, Level 3 Communications Inc. (NYSE: LVLT) reported a second-quarter outlook good enough to boost shares more than 17 percent.

Level 3 was up 42 cents (17.7%) to $2.79 midday after the company reported first-quarter earnings.

On a call with analysts this morning, CEO Jim Crowe pointed out that demand continues to grow, thanks mostly to increased use of streaming video. “Over 10 billion videos were viewed in February alone -- an increase of 66 percent,” said Crowe. “We benefit directly from those trends." (See Level 3: Video Will Drive Optical Spending.)

No one argues with the video part. It's Level 3's business situation that has some investors concerned, since the company has struggled mightily with acquisitions including service providers Broadwing and Telcove. (See Level 3 Feels Integration Irritation, Level 3 Integration Aches Continue, and Level 3 Acquisitions Begin to Gel.)

“Our problems were not caused by market demand, but rather bottlenecks in our service activation. We believe we can now say this problem is largely behind us,” Crowe said, reaffirming many of the things the company outlined to Light Reading during a visit last month. (See Level 3 Stays the Course.)

“We are on track to migrate to Unity,” said Crowe in reference to the company's new order provisioning platform.

Crowe pointed out, however, that many of the efficiency improvements apply to Level 3’s legacy products and that many of its acquisitions are still running on less efficient systems. By year’s end, two thirds of the core businesses should be migrated to Unity, he says. And while more service activation delays are likely, investors apparently are relieved at any sign that Level 3 can finally convert sales into revenues.

Crowe also remarked during the call that no further management changes are expected after COO and co-founder Kevin O’Hara resigned abruptly last month amidst a potential power struggle with CFO Sunit Patel. (See Power Struggle at Level 3?)

For its first quarter, which ended March 31, Level 3 reported a net loss of $181 million, or 12 cents per share, on revenues of $1.09 billion. Last year it lost $647 million, or 44 cents per share, on revenues of $1.06 billion. Analysts had expected losses of 11 cents per share, according to Reuters Research . (See Level 3 Reports Q1.)

— Raymond McConville, Reporter, Light Reading

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