Nationwide CLEC XO Holdings (news, filings) finally got around to reporting its fourth quarter earnings this afternoon, with mixed results. Revenues of $375.8M were down sequentially from $382M in the prior quarter, as strong growth in core broadband services was more than counterbalanced by declines in core integrated voice and legacy TDM services. However, EBITDA of $43.3M wasn't bad, maintaining EBITDA margins of 11.5% despite the decline. And the company reported net income of $13.3M due to investment gains.
However, the company did not make any balance sheet moves in preparation for the maturity of its class A preferred stock, which will cost them about $217M in just a little over two weeks. That will leave the company with some $147M pro forma cash and equivalents on the balance sheet, which is a rather low number for a telecommunications company of this size. Costs tend to be weighted toward the first half of the year, so that number is probably lower already and the investment gains seen in 2009 are not expected to recur.
XO agrees that it will need to raise capital to continue to fund the capital needs of its business, and again raised the possibility of buying other CLECs. However, they maintained their bias against high yield debt, which limits their options rather severely since their stock price is still in the $0.75 range. If they were to raise capital by selling stock, however, there's only so many cheap shares they could issue without having Icahn's share drop below the 80% he needs to maintain access to those tax assets he likes so much. And any deal with Icahn himself for more capital would likely receive an instant legal response from minority shareholders.
Given that its smaller cousin itcd managed to raise $320M just last week while eliminating restrictive covenants, it's hard to imagine XO couldn't do the same if it wanted to. Reading between the lines, XO is basically saying that its best course is to let Icahn buy out minority shareholders like he wanted to last year, which didn't go over very well at the time. So instead they're telling us what they're not going to do rather than what they are going to do. The situation remains unstable, but in the case of XO I wouldn't expect anything else.
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