XO Holdings (news, filings) had finished off 2010 with two quarters of solid revenue growth and higher EBITDA margins, but saw a sequential decline in both in the first quarter of 2011 driven by churn in long distance voice services. Actually though, while they don’t say much on the subject of seasonality (or anything else really), Q1 pretty much always looks like this for XO so it didn’t surprise me to see EBITDA margins beneath 10% again. Over the same quarter last year, XO saw improvements across the board – though nothing spectacular. Here’s a quick summary of their numbers in context:
|$ in millions||Q4/09||Q1/10||Q2/10||Q3/10||Q4/10||Q1/11|
|– Strategic Core||208.4||234.9||237.8|
|Cost of Revenue||212.7||208.5||218.9||218.3||223.7||229.6|
|Adj. EBITDA margin||11.5%||8.2%||10.6%||15.8%||15.1%||9.3%|
Revenue: XO reconfigured it’s reportable segments into Strategic Core, Legacy, and Non-Core. Because of that we have rather fewer historical numbers to compare with. However, as one might expect from the names, Strategic Core revenues were up, Legacy revenues were down a bit, and Non-Core revenues got hammered. Most of the non-core revenues lost were long distance voice, as a result of “targeted price adjustments implemented to improve margins.” Perhaps they will find their way to another second half ramp.
Costs & Margins: Both cost of revenue and SG&A went up sequentially, and gross margins fell 4% over the same period last year. When revenue declines while costs increase, EBITDA doesn’t generally fare well – hence the sequential drop to $35.7M, still better than last year’s $30.6M due to better SG&A performance. Hopefully as the year goes on we will see a return to something like last quarter’s EBITDA margins of 15%+.
Cash: Cash on hand fell back only slightly to $56.6m, and the company has yet to tap into the promissory note that Icahn extended back in October. So while they still obviously need to raise money for any expansion plans, things seem relatively stable otherwise.
Icahn’s buyout offer update – Nothing. No word since the special committee brought in JP Morgan to advise them 6 weeks ago. Recent rumors have them at least talking to potential buyers now though, which is the only thing that might explain why it has taken four months now to formulate some sort of response to Icahn’s offer of $0.70 per share. Perhaps we will hear something before the Q2 report in three months?
If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!Categories: CLEC · Financials