As they do each quarter, both XO Holdings (news, filings) and itcd have filed their 10-Q's with the SEC for the third quarter on the last day possible, bringing earnings season to a close for the telecom and internet infrastructure sectors. Neither company offered up any surprises bigger than the news each made in October, when Deltacom announced its expected acquisition by Earthlink and XO pre-announced guidance, some money from Icahn, and plans for a $200M rights offering. However, let's take a look at the details. Here are XO's Q3 numbers and remaining guidance in the context of the prior four quarters:
|$ in millions||Q3/09||Q4/09||Q1/10||Q2/10||Q3/10||
|Cost of Revenue||217.7||212.7||208.5||218.9||218.3|
|Adj. EBITDA margin||11.5%||11.5%||8.2%||10.6%||15.8%|
Everything in Q3 was of course inline with their recent guidance, including the promised EBITDA margin expansion to nearly 16%. We can see now that while an improving revenue mix and some revenue growth contributed, most of the margin expansion came from SG&A and hence probably from the headcount reductions and other actions in early summer. Broadband revenue growth was excellent, but was offset by declines in Integrated Voice that resulted from price increases. Indeed, I have heard that XO increased pricing across the board for T-1's and a variety of SME voice related services, in an effort to help improve margins.
As for Deltacom,I haven't traditionally offered a table of their performance and since this will likely be their last such report I'm not going to start now. Revenues of $110.9M were completely flat with the prior quarter, while EBITDA appears to have fallen back slightly to $21.8M, from $23.3M last quarter, as access costs rose sequentially - though there is always lumpiness there. Deltacom also had $2M in merger costs during the quarter, with another $6M expected. Once the Earthlink deal closes, I will increase the attention I pay to the company since it will be a substantial fiber operator, and an interesting one as I expect it will have an excess of earnings and cash flow as compared with others.
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