Continuing with this week’s post-earning season analysis of competitive telecom companies, we look at EBITDA minus Capex, normalized by Revenue. In other words, something that might be called an adjusted operating cash flow margin. What we really want is to subtract maintenance capex, which would give us a number that the bond guys weigh heavily because it measures how much cash the business could generate if it weren’t re-investing the surplus for growth. But that’s a number we rarely if ever have, so we will make do with what we have and see what we can see:
The first thing that jumps out at me here is that Sprint Nextel (NYSE:S, news, filings) and Level 3 Communications (NYSE:LVLT, news, filings) are at the top, they turn a high percentage of their EBITDA into operating cashflow. They do so because they have lots of debt to service and revenue pressure as well, and in this recession they have been trying to eke every last bit of cash they can.
Right there with them though in the 15-20% range are the metro fiber specialists: TW Telecom (NASDAQ:TWTC, news, filings), abvt, and RCN Metro. These companies are on the top of yesterday’s big spenders list (i.e. capex) because they are currently spending heavily on expansion, but they aren’t spending it all.
In the middle near 10% after Q3 are the companies with the less metro fiber: PAETEC (news, filings), itcd, and glbc. Raul is right that the margin is much smaller between the metro-fiber-heavy and the metro-fiber-light, but it is still apparent.
And down on the bottom in the neighborhood of zero (in Q3) were cbey, Cogent Communications (NASDAQ:CCOI, news, filings), and XO Holdings (news, filings). Now, XO had to be on the bottom of a chart like this, because they hug the bottom of the EBITDA margin chart and they’re still investing and adding markets anyway. CBeyond is not just fiber-light, it is also spending its capex aggressively, adding several new markets all the time and spending what they bring in to do so. Cogent went from the top half of the list down to the bottom half over the last three quarters, which parallels their capex surge lately. I guess they’re attempting to accelerate into the turn of the recession.
Overall the trend for the last 7 quarters is clearly upwards, as the economy has driven nearly everyone to maximize the cash coming in, whether that be by cutting capex or finding cost savings under every rock. But while they are doing so, some of these companies are growing and some are shrinking, which I’ll look into via relative revenue growth in a later post.
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Categories: CLEC · Financials · Metro fiber
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Rob– you have gmail which should facilitate your comparative analysis work.
Take Sprint out of the mix …
… all these companies combined and healthy private companies were to merge — you still do not have numbers – market cap, cash flows, valuation — not even close to an ILEC.
In my opinion, every company should be pumping every dollar in excess they have into getting away from, off of and gaining independence from the ILEC heroin of regulated network pieces and parts aka special access and loops.
Once again, no CEO on you list should have a big ego, all of us together in a mega merger would still be looking way up at a bunch of giants.
Sad to say, but the ego’s persist ….
Dave.
To the extent you have an interest I can forward to you a Raymond James piece from’ 07 regarding fiber V’s leased loops (the facts haven’t changed that much). It’s an interesting read. Just give me an email address.
drusin@afsnetworks.com
Watch out for a mail from a Mrwabbit.
dave;
its been my thought that the ILEC’s are going to fall very fast at some point in the future (hence the 6+% divvy).
you have apple touch, skype, wimax and prepays bringing down average rev per user in wireless. while migration to IP is crushing their wireline business. also, i think the special access interest from washington, if nothing else, will cap profits in certain markets. as for their investments in TV etc. let’s face it there are some real competitors there (comcast, DTV etc). i guess what im saying is that when you look at the debt on their balance sheet, and the competitive pressures, they remind me of the directory business about 5 years ago. everyone knew they were going to have problems with their debt service, and then IT happened, whatever that was, and things came crashing down. ILEC’s are the next auto co’s imho.
Maybe you’ll feel more comfortable after those Ilec’s market caps fall from their CLIFFS instead?
Whose EGO will be responsible for that????
With the exception that, unlike the auto manufacturers, it will be UNNECESSARY to reinvigorate, replicate or replace the copper barons’ networks. They won’t even be vestigial in lieu of becoming extinct.
Go ask Ivan, because he has already crashed head first into the tree again, except this time he arose with a new epiphany about an all IP world.
Rather than standing by his union brothers on this trip, he began laying them off by the thousands!