Paetec Returns to Growth in Q3

In the latest sign that the telecom space has turned a corner, national CLEC PAETEC (news, filings) grew sequentially in the third quarter.  In its earnings report this morning, revenues of $395.7M were up from the second quarter, albeit only by $500K.  Nevertheless, this reverses the trend consisting of three consecutive sequential revenue declines amidst revenue pressure, and it beat analyst projections of $392.6 as assembled by Yahoo Finance.  Despite the economy, Paetec has maintained its EBITDA and positive cash flow all year through cost savings, and this quarter’s EBITDA of $64.2M and free cash flow of $36.5M did not disappoint.  Guidance for both revenue and EBITDA for the full year 2009 were reiterated.

All in all, yet another reasonable but certainly not flashy quarter from the telecom sector.  The economic environment is definitely better now than it was 6 months ago, but on the other hand we aren’t exactly seeing the sector rocket back just yet.  Well, maybe the equipment sector is showing such signs, but not service providers so far.

It has now been 18 months since Paetec bought McLeod, is it time for their next acquisition yet?  Probably not for anything large, but you never know.  After all, the company was named as a suitor for XO last year just as the bottom fell out, so they probably aren’t done yet if they get the chance.  Until this week’s Windstream buyout, I would have said that NuVox was a potential target, but there are others that make sense – Integra especially.  On the other hand, the company itself could be a juicy morsel to someone with the fiber to put all that revenue on.

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Categories: CLEC · Financials