PAETEC (news, filings) turned in its final numbers for the fourth quarter and full year 2010, which are necessarily a bit more complicated to interpret than others due to their rather unique M&A strategy. In 2010 they added software, energy, cloud computing, managed services, and of course a CLEC called Cavalier. That last one is the biggest feature this quarter, even though it only closed in early December. Public analyst numbers are all over the place, meaning nobody was quite sure what this was going to look like. Anyhow, here's a quick snapshot of the Q4 numbers and guidance in context:
|$ in millions||Q4/09||Q1/10||Q2/10||Q3/10||
|Free Cash Flow||28.7||36.1||33.7||28.2||41.9|
|EBITDA Margin||16.7%||16.8%||16.4%||15.2%||16.8%||~18% (derived)|
Revenue: Revenue was up sequentially to $429.2, primarily on that injection of Cavalier revenue which was $23.2M. Without that, revenues would have declined by about $2.4M sequentially - giving back a bit of last quarter's surge. PAETEC expects to rake in over $2B in revenues in 2011 according to guidance, a number that assumes they will close their acquisition of XETA Technologies during the second quarter. Actually, I had thought that PAETEC might have to churn off more Cavalier revenue than that, as they weren't in great shape overall. Certainly organic revenue growth is unlikely for the year as they finish putting all the many pieces in the right places.
EBITDA & Margins: EBITDA was up to $72.1M in the fourth quarter, with 16.8% EBITDA margins. That's a pretty good number, restoring what was lost in the third quarter plus a bit extra for bonus. But it is guidance that caught my eye. 2011 EBITDA of $375-395M implies an EBITDA margin of around 18% or even a bit higher. That would be a good thing, will have to watch where it comes from. The Intellifiber assets should help them improve margins on the east coast, but only after some integration work I'd think.
Integration: Not included in EBITDA was $10.4M in integration expenses thus far. There will surely be more where that came from.
Conclusions: PAETEC has many pots in the fire, but it is the health and progress of the core CLEC business that is most critical in the end. The introduction of more fiber into their diet should help, if they can digest it properly. So far it looks promising, but all integration spreadsheets look good beforehand. 🙂
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