PAETEC Grows in Q2, Mostly From Acquired Revenue

Competitive carrier PAETEC (news, filings) reported earnings today.  The company has spent the economic storm mostly treading water when it comes to revenue, while striving to increase EBITDA margins through cost savings.  Those overall trends didn’t change much this quarter, which is summarized below in context of the prior quarters:

$ in millions	Q1/09	Q2/09	Q3/09	Q4/09	Q1/10	Q2/10
Revenue	399.2	395.2	395.6	390.1	390.1	396.1
EBITDA	63.9	63.5	64.2	65.2	65.5	65.1
Earnings	-3.3	-16.5	-6.5	-2.4	-9.5	-7.5
Capex	27.2	30.0	27.7	36.6	29.5	31.4
Free Cash Flow	34.0	36.3	36.5	28.7	36.1	33.7
Gross Margin	50.2%	50.1%	50.8%	50.8%	50.6%	50.3%
EBITDA Margin	15.8%	16.1%	16.2%	16.7%	16.8%	16.4%

Revenues increased pretty nicely during the quarter, slightly exceeding analyst expectations.  However, most of this was due to revenue contributed by acquired companies.  Margins and EBITDA has remained flat lately, and that didn’t change this quarter.

PAETEC maintained its full year guidance for revenues of $1590-1630M and EBITDA of $260-275M.  That implies that revenues in the third and fourth quarters will increase to an average of above $400M each with modest increases to EBITDA.  Given further impacts from acquired revenues plus an improving (albeit slowly) economy seem to suggest that to be reasonable.

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Categories: CLEC · Financials