Currency Storm Clouds Global Crossing's Quarter

International network and IP services company glbc reported earnings overnight, meeting all the guidance they had previously given. However, as with Level 3 Communications (NYSE:LVLT, news, filings) last week, the financial crisis left its mark with foreign exchange adjustments large enough to make everything really hard to read. Full year guidance for both revenue and EBITDA appeared trivial to reach based on strong performance in the first three quarters. Indeed they made it, but because of the turbulence in the exchange rates it was closer than it might have been.

Revenues were $642M in Q4, down $25M sequentially due to a $43M unfavorable foreign exchange impact. Indeed, it was in GCUK and GC Impsat that revenues took a hit, whereas absolute growth was only to be found in the perennially struggling rest-of-world (ROW) segment whose revenues are primarily in dollars. Fortunately, costs also fell, such that EBITDA of $96M actually rose $8M sequentially and the company generated positive free cash flow. I think this is roughly in-line with expectations, but who really knows these days.

The company gave guidance for 2009 that takes into account the currency markets with revenue of $2.5B-2.6B, stating that in constant currency terms this would be growth in the mid to high single digits, but in actual dollars flat to down. They also give OIBDA guidance of $320-380M rather than adjusted cash EBITDA guidance as before, for 2008 OIBDA was $273M, implying pretty good growth in 2009. And more importantly, they projected positive free cash flow for the full year of $50-100M.

Such volatility in the currency markets makes the results of companies with a large international revenue component very hard to evaluate. Overall, it looked like a similar quarter as that of Level 3: revenues look much worse than they are because of foreign exchange but sales seem solid, EBITDA continues to grow, and free cash flow will be positive.

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Categories: Financials · Internet Backbones