XO Checks In For Q1/2010

May 17th, 2010 by · 11 Comments

Competitive fiber operator XO Holdings (news, filings) reported its Q1/2010 earnings today after the market closed, which was as usual at the very last possible minute.  Revenues fell sequentially to $369.5M for the quarter as legacy revenues leaked away faster than the company’s Broadband operations could grow.  Adjusted EBITDA was $30.6M for 8.3% adjusted EBITDA margins, which is of course not a particularly inspiring number but par for the course for XO in the first quarter over the years.  Here are their results in the context of the past 4 quarters in tabular form:

$ in millions Q1/09 Q2/09 Q3/09 Q4/09 Q1/10
–Broadband 189.5 195.4 199.9 209.8 209.8
–Integrated Voice 73.7 75.4 69.2 59.2 55.9
–Legacy TDM 114.6 115.7 112.9 106.8 103.8
Total Revenues 377.8 385.6 382.0 375.8 369.5
Cost of Revenue 220.0


217.7 212.7 208.5
SG&A 130.0 119.1 120.3 120.0 130.6
Adjusted EBITDA 28.1 37.1 44.1 43.3 30.6
Capital Expenditures 40.3 51.4 57.2 50.1 64.2

Of particular interest though is the company’s cash position.  At the end of the quarter they had just $311.2M, and they spent $217.4M of that on April 15 to retire their class A preferred stock.  That leaves them with $93.7M pro forma now, minus what has been consumed since.  Capital expenditures rose to $64.2M in the quarter, their highest in some time – I wonder what they’re doing with it.

Now for a company with $1.5B in revenues, $93.7M in cash on the balance sheet is an unstable situation.  The company said once again that it intends to raise money but that it felt high yield debt would be detrimental due to the cost and the covenants.  Assuming they stick to their guns on the high yield debt prohibition, that leaves two main options:

  • dilution in some form – Whether in the form of sales of common, preferred, a rights offering, converts, etc
  • a sale of the company – or part of it, or whatever

In either case, it is sure to directly involve majority owner Carl Icahn, and therefore is sure to wind up in court somewhere.  I’d say something’s gotta give, but we’ve been at that stage for a while now.

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Categories: CLEC · Financials

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11 Comments So Far

  • Homer says:

    Actually1Q doesn’t look bad. Despite the sequencial and YOY 2% drop in the top line, they are forecasting higher revenue for 2010 vs 2009 (see p. 14). This means they see a significant ramp in revenue in the pipeline.

    Also, their margins continue to improve. Their net cost of revenues (not including disputed balances and pass through taxes adjustments) improved by 17.7 million from 1Q2009. This is equivalent to a a gross margin improvement from 43.8% to 47.4% over the last year. Of course, they are still well below where they should be.

    As far as cash in concerned, they are definitively not in an ideal situation but their total cash burn last quarter -which included a whopping 64 million in capex- was just 11 million. At the levels of capex expected for the rest of the year (45-55 million per quarter for the remainder of 2010), they look ok on the cash front for the next 12 months (which is what they confirm on the 10Q). This means Icahn can take all the time he wants to craft his next move. With Dell’s departure from the board, looks like he will need it.

    • billybob says:

      Who are you kidding?… total fraud by Icahn.. Total fraud by system. He will win and steal our shares… The SEC can do nothing about the impending summary judgement.. I just hope the judge get’s us the .80 Icahn previously promised..

      • NeedABoat! says:

        Come on Carl! Give us XO stock at $1.60 and I promise not to complain. Geez, with all of your buy/sells this week, help us lowly shareholders and buy us out at a decent price! Mama needs a new pair of shows and a new boat!

    • Rob Powell says:

      Cash burn benefited from a $20M swing in working capital which won’t be recurring every quarter. They can’t sustain capex levels this high for very long at all. But it does seem likely that spending levels will drop back to the usual range.

      As for promised revenue ramps, I’ll wait for further data.

      • Homer says:

        The point is XO is really not burning any cash as long as they keep capex in the 120-150 million/yr range…. plus with the improved revenue mix they are showing looks like they will start accumulating cash by 2012 even at fairly high capex levels.

        • Rob Powell says:

          True enough, but $120-150M would be down rather sharply from last year’s $200M. Given the first quarter’s capex, hitting your range would require a sub-$30M average for the next three quarters which seems a bit low. Sure they could do it, but it seems to me that it would limit them operationally.

          I simply cannot figure out why they can’t raise a bit of senior debt with minimal covenants at a reasonable rate when everyone else can.

          • Anonymous says:

            The reason why they won’t raise debt and are spending money like drunken sailors on shore leave is simple, Carl Ichan. He wants to put the company in dire straights so he can squash minority shareholders once and for all. A pack of Chimpanzees could bring this company to profitability.

  • Anonymous says:

    Level3 could probably get an extra 300-400 million EBITDA in a merger with XO. Since XO has no debt, Level3 could deleverage itself almost instantly and cut its borrowing costs by a third (or more!). An all stock deal in the works? anyone hear any chatter on something like this?

    • Rob Powell says:

      Actually, I doubt they could save that much with XO due to the high proportion of voice and other SME stuff sold out of the central office colos. That revenue would be cheaper to churn off than to bring on net, which is what Level 3 did with a fair chunk of Broadwing revenue.

      Nevertheless, it would be a major possibility if Icahn weren’t still trying to squeeze blood out of the remaining minority shareholders. I have heard no recent chatter on this, everyone seems to be waiting for Icahn to signal that he’s ready.

  • Dave Rusin says:

    What was the churn? If churn and GAAP growth are close, there is no organic growth.

    Best of class metro fiber companies are showing 14–20% growth net of churn …

    • Rob Powell says:

      They don’t give us churn data, and the metro fiber business within XO is buried rather deeply under all the other revenue sources, though I’m told that they are lighting buildings etc.

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