XO Punches the Clock

XO reported earnings last night, and despite their focus on the SME and on leased ILEC connections in this economic environment, they came through largely unscathed.  Revenues of $367.4M were up just 1.7% over Q1, but for XO any growth is better than the last few years.  As usual, their data and IP revenues grew at a healthier clip, but their integrated voice and legacy TDM services held up ok – hence overall they managed growth.  What we can say is that any effects from the economy were negligible, and it seems more and more that PAETEC’s difficulties are largely company specific.

Adjusted EBITDA was $26.1, restoring what was lost in Q1’s $7M number.  That improvement was driven by very good gross margins of 42%, counterbalancing Q1’s rather weak number.  That seems to imply fluctuations in timing moreso than improvement in operations, but we need more data to really say.  Nextlink grew at a very healthy clip, all it has to do is do that for about 2 more years and its revenues might exceed the size of a rounding error compared to the rest.  If that happens I promise to take them seriously… haha.

With their refinancing complete, albeit under dispute, XO seems poised to keep improving from here.  They maintained their guidance, which means they are projecting EBITDA to average $31 quarterly the rest of the way – that would be an improvement.  Revenue guidance implies little growth from here so the EBITDA number seems to come from an improving revenue mix.  That is the result of the company’s efforts to focus on exploiting its assets constructively, using its fiber effectively and seeking sticker growth.

Improvement is good, but XO remains an underperforming company that would be worth more in other hands.  Logic says someone buys them out this year, but of course logic has said the same thing for a long time now.

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Categories: Financials · Internet Backbones · Metro fiber