Level 3 Communications, Inc. (NASDAQ: LVLT) has just reported earnings and there is enough to challenge the bulls and bears alike.   The wholesale dataline carrier posted earnings at -$0.08 EPS on a net loss basis and revenues on a consolidated basis were $1.07 billion.  First Call had estimates at -$0.09 EPS and $1.07 billion in revenues.

The carrier also noted that its consolidated adjusted EBITDA was $255million, with communications adjusted EBITDA of $257 million andcommunications adjusted EBITDA margin rose to 24.4% from 20.6% in theyear earlier quarter.

Communications deferred revenue was listed as $910 million at the endof the third quarter 2008, down from $939 million at the end of thethird quarter 2007 and down from the second quarter 2008 at $932million.

The company’s consolidated free cash flow was -$4 million.  It reducedits outstanding debt by $179 million in September and October, and ithad approximately $587 million of unrestricted cash and marketablesecurities at the end of the quarter.  On a pro forma basis aftergiving effect to these exchange transactions, the company hadapproximately $6.66 billion of debt outstanding at September 30, 2008.

The company is not signaling any immunity from telecom spending norfrom a slower economy.  It noted longer sales cycles in wholesale andbusiness markets, and has said it has seen a decrease in the contentmarket sales.

Level 3 narrowed and adjusted previous guidance ranges for 2008 withCore Communications Services revenue to grow approximately 7.5% from2007 and it narrowed its range for 2008 Consolidated Adjusted EBITDAguidance to $980 million to $1.0 billion (within previously issuedguidance of $950 million to $1.1 billion).  It see continued growth inboth Core Communications Services revenue and Consolidated AdjustedEBITDA, as well as positive free cash flow performance.

Level 3 said that it still expects to be free cash flow positive for the second half of 2008 and for the full year 2009.

Shares have been hit really hard in the last market drop and during thecredit crunch.  Its shares closed at $1.23 yesterday and its 52-weektrading range is now $1.18 to $4.48.  So far we are seeing a 7% gainpre-market to $1.32 on more than 130,000 shares.

Jon C. Ogg
October 23, 2008

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