Global Crossing Earnings Preview

On Tuesday morning we hear how the world has been treating another next-generation carrier – Global Crossing.  A combination of M&A rumors and management turnover have raised speculation that the company will be sold soon, but the price it would bring remains unclear.  The company has substantially improved its operations throughout the past year and a half, meaning they are just weak rather then spectacularly horrible like they used to be.

Here is a quick preview on what to expect for Q2’s results:

	Q1/08	Q2/08
Wholesale voice	$$112M	$$112M	Should be flat
Enterprise/Data	$517M	$532M	Growth around 3% quarterly
Total	$630M	$645M

On a geographic basis, one would expect revenue to fall in the neighborhood of GCUK $156M, GC Impsat $99M, and ROW $396M, less intersegment revenues of $6M.

Adjusted Gross Margins should be around 53.5%, up slightly due to improving revenue mix.  The remainder of their costs tend to be hard to model, they jump around quite a bit.  On the one hand this might show uncertainty in their operating model, but it may simply be that they provide more granularity on these expenses rather than lumping them into just a COGS and SG&A.  One should generally expect them to fall in the ranges:

Real Estate	$100M	+/- 5M
3rd Party Maintenance	$28M	probably flat
Cost of Equipment Sales	$25M	varies +/- 10M
SG&A	$115M	including $10M stock comp

In order to meet the lower bar of guidance, Global Crossing needs a quarterly EBITDA ramp of about 10M on average, e.g. a progression of 66,76,86,96 for $324M.  However, their guidance is not terribly aggressive, and we should look for them to track toward the midpoint, with a bias toward the end of the year.  Hence, a Q2 EBITDA number of around $80M +/- 5M is probably where should expect them to come in at.

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Categories: Financials · Internet Backbones