Telecom Ramblings

Today we got our first look at XO Communications (XOHO.OB) since Carl Icahn refinanced their debt early in the third quarter with large amounts of preferred stock. Despite the opinion of the Washington Post the other day, XO did not disappoint and the effects of the economic crisis on its performance were not detectable this quarter. In their earnings release, the company announced a solid revenue growth and unexpectedly strong EBITDA:

Revenue growth came from Core Data and IP, offset by Core Integrated Voice, whereas legacy services remained flat. The big story though was cost control with both COS and SG&A down
measurably from the start of the year on increasing revenue, resulting in unexpectedly high EBITDA of $43.4M.

The company reiterated its 2008 guidance, which now seems to be an easy hoop to jump through. It seems clear that they will fall in the top end of their range, and may even beat the top revenue number. However, in this environment it is prudent to be cautious, leaving guidance in place rather than narrowing it gives them a cushion for Q4.

As for their balance sheet, the company has some $356.0M in cash and marketable securities, and can probably expect another $57.4M from the ATLT litigation sometime in the fourth quarter. Balanced against long term debt (or out-of-the-money preferred stock) of $1015, their net debt will be roughly $600M. For EBITDA in their guidance range of $95-120M, that means that current market valuations still leave the common with little value – but we knew that.

However, if the company can maintain and extend their EBITDA performance into 2009 to average $50M/quarter, that would seem to change the equation.  It would help a lot if the company would talk to its shareholders a bit, let us know how things are beyond the PR. It remains to be seen of course whether Icahn has any plans for XO during this financial crisis, will he wait it out or will he use XO’s assets as leverage in a more aggressive move?