As expected, glbc issued its Q2/2010 earnings report this afternoon after the market closed. The top line revenue number of $630M was lower than the street had it pegged at, but this was due to a $20M reduction in the company’s low margin wholesale voice business after the company raised prices in an effort to improve those margins. Much of the rest of the company’s numbers weren’t too far off from the guesses I made yesterday, though I was a bit too optimistic on GCUK revenues. Here is a quick tabular summary putting the company’s quarter in the context of the past four quarters:
| $ in millions | Q2/09 | Q3/09 | Q4/09 |
Q1/10 |
Q2/10 |
FY2010 (guidance) |
|---|---|---|---|---|---|---|
| GCUK* | 113 | 117 | 123 | 119 | 113 | |
| GC Impsat* | 119 | 125 | 128 | 127 | 132 | |
| ROW* | 307 | 311 | 306 | 308 | 310 | |
| Total Invest & Grow | 539 | 553 | 557 | 554 | 555 | 2300-2375 |
| Wholesale Voice | 94 | 89 | 93 | 94 | 74 | |
| Total Revenue | 633 | 643 | 651 | 648 | 630 | |
| Cost of Revenue | 432 | 443 | 461 | 455 | 431 | |
| SG&A | 108 | 109 | 107 | 116 | 106 | |
| OIBDA | 93 | 91 | 83 | 77 |
93 |
390-440 |
| Free Cash Flow | -10 | +52 | +72 | -72 | -13 |
10 to 60 |
| Capex & Capital Leases | 54 | 33 | 49 | 55 | 63 |
* segment numbers exclude intra-company revenues
Revenues: The biggest surprise for me was in fact due to currency fluctuations in the UK, without which GCUK revenues would have risen by about 1% – still a bit weak but the economic headwinds are tough over there. The ROW and especially the GC Impsat segments were stronger in terms of revenue, but nothing unexpected. But revenue growth as a whole hasn’t surged yet, and the ramp to guidance in the second half remains steep.
Of course, the biggest surprise in terms of raw revenue was actually the wholesale voice number, but that is outside of the core ‘invest & grow’ segment for a reason and cutting out $20M there had little impact on OIBDA because of the very low margins they get on that business. According to the company, this pricing action is a continuation of the strategic resizing of this business that has happened several times, not a response to worsening market conditions for this business. I wonder who this revenue went to…
OIBDA & Costs: The actual OIBDA number of $93M was actually a bit higher than my own projection, reflecting improvements in both cost of revenue and SG&A. The bulk of the cost of revenue decline was of course related to the wholesale voice pricing action, but not all of it. The OIBDA contribution from the ROW segment of $32M was quite an improvement sequentially, with that segment’s invest & grow revenues actually contributing about 10% OIBDA margins this quarter.
Free Cash Flow: Free cash flow was -13M, or right in the middle of my own projected range of -25M to zero. To make guidance they will therefore need positive free cash flow in the second half in the range of $95-145M, which they managed easily last year.
M&A Activity: According to the company, merger conversations in the industry as a whole are still pretty active though of course they won’t comment about details. When asked about the recent such noise in the metro fiber space, they suggested that it would be hard for them to stitch together smaller metro assets and that they are more likely to be involved in other activity.
Guidance: The company left its earlier guidance in place, meaning that when adjusted for constant currency they feel they are still on track. There is some solid growth needed in the second half to make the revenue numbers, and I suspect the street will continue to take a ‘show me’ approach on this, of course.
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Categories: Financials · Internet Backbones
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A show me approach by Wrong Street, you say? The stock has moved up nearly 25 percent in exactly five business days with aggregate revenues now being known to have slipped QoQ while cash and liquidity is in a down trend too, with Wall Street saying “Show Me,” versus shooting it for dead leading up to this. This dog meat is holding its own after hours also.
I like your recently abandoned MNA prediction better at this juncture. Where’s the announcement?
I haven’t abandoned M&A as a likely event for GLBC this year, it’s just that in the short term the idea seems to have cooled off. The likely buyer that I have mentioned, LVLT, would probably be more likely to make a move if its earnings tomorrow suggest enough improvement to gain the favor of the lenders they would need to finance it. But who knows what Q3 will bring.
The question about who knows what tomorrow may bring, short or long term, makes players needing to mate in a commodity business having been positioned as a zero sum game, one where exchanging vicious blows on a daily basis is commonplace, more compelling sooner rather than later including tomorrow.
Come to think of it, this bandwidth business remains worse than a “zero sum game,” since that the “pricing” that keeps getting exchanged in “aggregate” across the whole sector, remains in “decline.” Some like Donna, have blamed (3) on it.
I once coined (3)’s quarterly report, like the one the masters will be lamenting over tomorrow, a “Loss Report” in lieu “Earnings Report,” due to their incessant red ink bleeding for nearly 50 quarters soon.
I think I’ll rename the bandwidth business as a, “Negative Sum Game,” with the exception of the criminals, charlatans, carnival barkers, snake oil salesmen, and circus clowns who represent certain insiders, their financiers, in addition to those walking around the tent’s perimeter edges looking for death defying acrobatic acts from Wrong Street, the most destructive FINANCIER in the history of the world!
For the record, “Longinvestor,” a Fairfax nosy body, has stated the story for (3) will NOT begin to occur in Q2 nor Q3 for that matter! I don’t expect him to be wrong nor has he been since beginning to open his yapper across various venues. imo
In their CC, Global Crossing said they now expect to be on the lower end of guidance for the full year.
On Jim Crowe’s CC, he attempted to tell Mr. Market that his competition isn’t CLEC’s, for the most part, at all. Does Time Warner Telecom’s sales force know this? Ask Donna.
He went on to say that (3)’s biz plan is specifically focused on targeting “incumbent” carriers building by building with his usual banter about what a huge opportunity this represents for them in aggregate. How many more years with mixed results before this finally occurs at the TOP LINE exponentially in the double digit growth rate zone? Was he attempting to dismiss my post last night? If so, should one think these CLEC’s are entering into price fixing and direct assaults against the incumbents? Ask Dave Rusin!
His emphasis being that (3)’s sales efforts are not a bunch of hyenas from different families chasing after the same carcass. According to him, it’s one on one, toe to toe battles, with titans versus best suited CLEC’s. There were sprinkles of confirmation by Jeff Storey along these lines inclusive of their usual statement that “execution” is all up to them. We are still counting at least eight years of paltry results.
Well, you’ve done a crumby job again, boys and girls, notwithstanding Wrong Street starting to warm up to this next GAFF you’re spinning while the newest “supply choke point” and “constraints” that are encumbering the space ensues. There’s the next excuse we’ll hear regarding their “size” and “economies of scale” not having been enough to relieve the pressure into tomorrow’s purchasing needs by their customers. We can’t sell because we can’t get the parts to make the connections!
What he told Donna was best of all, however. He said and I paraphrase, that his stock is “significantly undervalued” but depending upon the opportunity it can still be used as collateral all the way down here. Terrible collateral, no matter how you look at it, if you ask me. Can you add some more color to that Jim, and identify how many multiples of today’s stock price, “significantly undervalued” means this time?
Anna Goshko is concerned about the most important metric their balance sheet is draining at this time, like I am, although Sunit Patel assured her that his friends at USURY will be there to save them again, when the need arises. With friends like that on the interest rate pedal, who needs enemies?
They’ve even got “Europe” on the table this time. How sad for what is supposed to be a “Big (3)” intent on ruling the internet across the globe.
Hats off to Longinvestor for being a wonderful nosy body at Fairfax. Let all casual, passive investors remember that, this is an “INSIDERS GAME” always and forever regardless of what Buffett says. imo
as always the market has the last word
15% down|||
the market did not like the results|||| I do not like it at all too
wake up Mr Legere!!! less tourism travels , and more action!!!!!
Rob will be right. At some point in the yet to be disclosed future, Buffett’s Goldmen will facilitate joining these two ugly ducklings together. “It’s so simple.” Ask Charles T. Munger. imo