I suppose I should have waited for the PR, since along with the $50M raised by XO Holdings (news, filings) came actual updated guidance. But then who expects anyone to raise guidance after hours on a Friday leading into a three day weekend? That’s when companies prefer to trickle unfavorable news into the market so that cooler heads prevail when the markets open again. Good news is for Monday or Tuesday mornings. But anyhow, XO’s updated guidance and the data one can derive from it looks quite good:
|
Q3/2010 (guidance) |
Q4/2010 (derived) |
Full Year 2010 (guidance) |
|
|---|---|---|---|
| Revenue | $383-386M | $380-394 | $1.52-1.53B |
| Adj.EBITDA | $60-65M | $54-69M | $190-200M |
| Capital Expenditures | $50-53M | $25-38M | $200-210M |
| Ending Cash Balance | $49-51M | $42-52M | $42-52M |
| ——– | |||
| Adj.EBITDA Margin | 15-17% | 14-18% | 12.5-13.2% |
At the bottom I have calculated the derived Adjusted EBITDA Margin implied by guidance. I have given XO a lot of grief over its lagging EBITDA margin performance, but if they manage a sustainable step upwards to 15% I will gladly offer my congratulations on making some real progress – though this hopefully would be just the first such stage. Since revenue doesn’t seem to be shifting as rapidly, one must assume that costs will be down in the second half. Perhaps those layoffs we reported here back in June actually did help profitability? That and the always shifting product mix of course.
Note also the lower capital expenditures forecast for Q4 – no doubt influenced at last by those dropping cash levels. Clearly they would prefer to have a larger capex budget, but it *appears* that XO will enter 2011 missing something they have long had too much of – cash burn. Is it time to let XO out of the doghouse? Maybe just for a little while? Not Icahn of course, he seems to like it in there. And the stock – well, he’s still gnawing on that bone. But the company & its operations perhaps?
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Categories: CLEC · Financials
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Rob,
I get slightly different implied Q4 EBITDA and CapX but not different enough to change your basic point– margins and cash burn are taking a big step forward and that is a good thing.
What is unclear is why cash does not rise by Y/E– there would need to be significant negative working capital movement for that to be the case since EBITDA minus CapX is in the $30 million range in Q4.
Going back to the “ITCD math” and again assuming meaningful merger savings this revised guidance results in a A SIGNIFICANT bump in implied value– $2.75 per share. If anyone can hold that thought over the long weekend then maybe we get a move on Tuesday. But this stock seems to exist in Bizzaro Land, so it probably goes down.
If it was difficult before for this Board of directors to approve a deal below $2.00, it will be imposssible now. So we remain in Limbo or Purgatory (p.s. I think the Pope gave up on Limbo– never seemed right to me that unbaptized babies remain forever in a holding pen– but he thinks that Purgatory remains a fine concept).
Cash flows are so variable they may simply be remaining conservative with regard to working capital, or perhaps there are one time charges involved.
Based on the allegations on the lawsuits regarding timing of expenses/revenues/earnings, looks like the accounting tricks might finally be catching up with actual performance. You can only delay recognizing earnings for so long… we might see some more unexpected improvements in margins in coming quarters. Adj EBITDA for 2011 should be at the very least 250 million with no operational improvements.
The for sale sign is about to be hung on the door. Look for a settlement on the two suits against Icahn before years end.