As expected, glbc issued its Q2/2010 earnings report this afternoon after the market closed. The top line revenue number of $630M was lower than the street had it pegged at, but this was due to a $20M reduction in the company's low margin wholesale voice business after the company raised prices in an effort to improve those margins. Much of the rest of the company's numbers weren't too far off from the guesses I made yesterday, though I was a bit too optimistic on GCUK revenues. Here is a quick tabular summary putting the company's quarter in the context of the past four quarters:
|$ in millions||Q2/09||Q3/09||Q4/09||
|Total Invest & Grow||539||553||557||554||555||2300-2375|
|Cost of Revenue||432||443||461||455||431|
|Free Cash Flow||-10||+52||+72||-72||-13
10 to 60
|Capex & Capital Leases||54||33||49||55||63|
* segment numbers exclude intra-company revenues
Revenues: The biggest surprise for me was in fact due to currency fluctuations in the UK, without which GCUK revenues would have risen by about 1% - still a bit weak but the economic headwinds are tough over there. The ROW and especially the GC Impsat segments were stronger in terms of revenue, but nothing unexpected. But revenue growth as a whole hasn't surged yet, and the ramp to guidance in the second half remains steep.
Of course, the biggest surprise in terms of raw revenue was actually the wholesale voice number, but that is outside of the core 'invest & grow' segment for a reason and cutting out $20M there had little impact on OIBDA because of the very low margins they get on that business. According to the company, this pricing action is a continuation of the strategic resizing of this business that has happened several times, not a response to worsening market conditions for this business. I wonder who this revenue went to...
OIBDA & Costs: The actual OIBDA number of $93M was actually a bit higher than my own projection, reflecting improvements in both cost of revenue and SG&A. The bulk of the cost of revenue decline was of course related to the wholesale voice pricing action, but not all of it. The OIBDA contribution from the ROW segment of $32M was quite an improvement sequentially, with that segment's invest & grow revenues actually contributing about 10% OIBDA margins this quarter.
Free Cash Flow: Free cash flow was -13M, or right in the middle of my own projected range of -25M to zero. To make guidance they will therefore need positive free cash flow in the second half in the range of $95-145M, which they managed easily last year.
M&A Activity: According to the company, merger conversations in the industry as a whole are still pretty active though of course they won't comment about details. When asked about the recent such noise in the metro fiber space, they suggested that it would be hard for them to stitch together smaller metro assets and that they are more likely to be involved in other activity.
Guidance: The company left its earlier guidance in place, meaning that when adjusted for constant currency they feel they are still on track. There is some solid growth needed in the second half to make the revenue numbers, and I suspect the street will continue to take a 'show me' approach on this, of course.
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