PAETEC Holds On Tight

Alternative network services provider PAETEC (PAET) reported earnings this morning, offering us perhaps one of the last remaining datapoints before we enter a long winter.  All that gloom out there just makes it feel like it’s going to be a cold one, doesn’t it?  Anyhow, PAETEC had a disastrous Q2 stumble – at least in the markets opinion given that the stock is down to $0.80 from $6 back on August 1 or 86%.  Indeed, they did take an axe to guidance at the time, and everyone assumed there was yet another shoe, or perhaps a ski boot, to drop somewhere.

So how did they do?  Well, not so bad really.  Here’s the quick table:

Revenues were actually a bit above where they might have been, EBITDA was similarly tame, gross margins held steady, and capex was unsurprising too.  All in all, what remains of 2008 guidance looks rather achievable even assuming more weakness. They took a big non-cash charge to goodwill, but that’s just an admission that things haven’t panned out too well lately and we already knew that didn’t we?

As promised, the company bought back some stock, 2.5M share in all, and they even replaced an interest rate swap such that interest expense will drop by $10M annually next summer.  Earlier this month, the company drew down the rest of its revolver.  With no maturities until 2012, apparently sufficient cash, and no covenant issues, one has to wonder why the market thinks the ground is going to swallow them up. But the media will probably focus on the writeoff, we’ll see.

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Categories: CLEC · Financials