Description

I submitted this company in August and it has declined 70% since then, in part due to the general market decline,
also for the facts discussed below.

In any event, a price decline of 70% and revenue increase of 292% year over year and 38% q over q shows the sales ramp for this company
On Jan 29, 2001 the company projected revenue of $1.7B in 2001 (100% increase) and $2.9B for 2002. It is worth noting that this company has meet or exceeded every target.

The value proposition here is that with a market cap of $10.6B the company is selling for less than its plant, property and equipment.
The company has invested $12-10B in fiber, conduit and electronics. I submit that T or WCOM would gladly pay a premium over $10B for the world's only all IP, end-to-end upgradeable network.

On Jan. 29, 2001 the company announced that it would go EBITDA positive, on a run rate basis, in 2001; a year earlier than forecast.

Gross margin are expected as follows:

2000 - 27% 2001 - 50% 2002 - 55%.

The company has between 4-5B in cash, which is important for reasons discussed below.

The company has been under a sustained and coordinated short attack as evidenced by two recent hit pieces in the near penny stock website know as thestreet.com.

The short position is two-fold:

1. There is a bandwidth glut and no carriers will be profitable because of the demand/supply equation.

2. All these telcos are the same and they have "a mountain of debt."

The glut theory is only valid if demand for internet backbone traffic is not growing at a fast rate. Today Reuters reported that a British firm, Analysis, expects the internet backbone market to have gross revenues of $225B in 2006.
It also predicts IP revenues to grow 20x over 5 years.

The important new information, that is not reported by the shorts, is that the bandwidth glut is only true as to fiber. It costs money to buy the equipment to activate the fiber. The CEO exploded this theory by demonstrating that the cost to light the fiber well-exceeded what the capital markets would now provide.

A key "moat" for LVLT is its strong cash position, its now completed network, and the inability of some of its competitors to raise money to light the fiber.

The "mountain of debt" issue was expanded by thestreet.com in the clever attack on LVLT's $3B shelf filing. The line was "a fully funded company that is not fully funded." The implication is that the $3B would go burnt for general operations and overhead.

The falsehood here, as far as I know, is that the $3B shelf would be tapped, if at all, only for new phases of construction in places where the company has not already built.
LVLT maintains a strict discpline of a phased build-out and success based expansion.

As an aside, the company has sold $4B of "dark fiber"; part of its network. GAAP doesn't allow all that cash to be reported in the year received but rather over 20 years. A non-balance sheet asset as it were.
Recall that the total network cost circa $10B to build.

The shorts also don't tell you that LVLT has $5.1B in backordered sales.

The people here are important. The CEO is James Q. Crowe and the Chairman is billionaire Walter Scott; both from the Kiewit Construction Company. At a recent conference Crowe suggested that the Kiewit ROI historical return is 30% and he expects to do better.

Crowe announced today that his discplined daily sale of a small percentage of his shares (he has almost 10M shares) has been modified. He will no longer accept today's market price but his irrevocable trust will only sell on a forward contract basis.

Finally, Weitz Funds of Omaha (known value investors) recently established a top ten position in LVLT.

Catalyst

Market cap less than assets in the ground, near 52 week low and potential short covering once falseshoods of shorts understood.