Fiber-optic network operator Level 3 Communications Inc. said Thursday its losses nearly tripled in the second quarter to $188 million, leaving investors unimpressed that it beat Wall Street’s expectations.
It was the company’s 28th quarterly loss in the past 29 quarters. Level 3’s net second-quarter loss of 27 cents per share far surpassed its loss of $63 million, or 9 cents per share, in the second quarter of 2004.
Revenue for the quarter was $910 million, down from $918 million in the second quarter of last year. The company, which built a network in the 1990s that hasn’t drawn enough use, also reported long-term debt of $5.07 billion as of March 31.
Level 3 executives tried to look on the bright side, saying it was an “encouraging quarter” given that losses were not as bad as analysts’ expectations.
“While the top line is not growing in absolute terms at a rate we find acceptable, this is the result of the competing trends between the decline in managed modems and DSL and the healthy growth we’re seeing in the other parts of our business,” Kevin O’Hara, president and chief operating officer, said during a conference call Thursday.
Revenue from information services increased 3 percent to $520 million, while revenue from Level 3’s communications division fell 5 percent to $371 million. Part of the drop came after one of the company’s largest customers decided to roll most of its traffic off Level 3’s network, executives said.
Yet Voice over Internet Protocol, or VoIP, calling services is one area where the company expects growth.
Analysts remain skeptical because growth in the company’s VoIP division has been disappointing, especially in the second-quarter when revenues decreased by $1 million to $25 million.
“One of the concerns is that VoIP should have been growing rapidly; that was supposed to be their big growth sector,” said Donna Jaegers, an analyst for Janco Partners in Denver.
In addition, Level 3 continues to burn through cash, worrying investors, she said.
“What investors want to see, before any chance of seeing earnings, is that they reduce the amount of cash they burn every quarter,” Jaegers said. “And we’re not seeing clear signs of that.”
Despite the rapid cash burn and slow VoIP growth, Level 3 isn’t in jeopardy of filing for bankruptcy, Jaegers said.
“The good news is that with the financing they’ve completed in the first half, they have enough staying power to continue,” Jaegers said.
Staff writer Kimberly Johnson can be reached at 303-820-1088 or kjohnson@denverpost.com.
