Tomorrow after the market closes, international IP solutions and backbone operator glbc reports its Q4 and full year 2010 earnings. To tell the truth, I don’t really have a good idea what to expect. Last quarter the company reduced guidance in the face of lowered GCUK earnings and greater seasonality in conferencing, but they still left themselves a big hill to climb to make it. The company seems adamant that they’re on track and analysts are expecting them to come close, so let’s take a look at what their numbers might look like if they reach the bottom rung of their guidance – here’s a scenario I came up with:
|$ in millions||Q4/09||
|– GC Impsat*||131||129||134||145||153||561|
|– Intersegment Eliminations||(13)||(6)||(6)||(6)||(6)||(24)|
|Total Invest & Grow||557||554||555||568||598||2275|
|– Wholesale Voice||93||94||74||79||80||322|
|– Cost of Revenue||461||455||431||440||454||1780|
|Free Cash Flow||72||(72)||(13)
|Capex & Capital Leases||49||55||63||43||50||211|
* in the past, I have excluded intersegment revenue from each segment’s revenues, but I have reversed that choice to start 2011
Revenue: There’s no way around it, they need a step function in revenue to get anywhere near guidance. They do expect non-recurring items to contribute though, partly projects and partly early terminations. So what would make it? Well, a return to sequential growth in GCUK plus 5.5% sequential growth from both GC Impsat and the Rest of World segments would do it. Impsat has been steady and strong, but you can’t get there without a very solid surge in ROW revenues. One familiar wildcard is of course currency fluctuations, the impact of which I cannot judge.
OIBDA: An increase of 30M of invest & grow revenue helps to get OIBDA to the bottom of guidance, but it still takes some pretty good OIBDA margins which reflect that termination revenue they are expecting and which probably come without pesky expenses. This scenario therefore has Q4 margins rising to about 18%.
Free Cash Flow: The extra OIBDA and seasonality in working capital make this ramp not as difficult to make the bottom rung. If they do hit the revenue number, then it shouldn’t be hard to make. Capex though is hard to gauge.
Conclusions: The bottom line here is that if they make revenue guidance, they’ll impress me – especially if a solid portion of it does look sustainable. I’ve been watching the sector long enough to not believe in sudden bursts in revenue in advance, so I can’t bring myself to do so now even though I’d really like to see it. As I said, I don’t really know what to expect – but if pressed I’d guess they come up slightly short on guidance but perhaps inline with the street’s expectations. As for 2011 – well that’s a new ballgame entirely.
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