No less than three of the largest operators of metro fiber reported earnings today: TW Telecom, XO Communications, and Abovenet. Together, that represents nearly 15,0000 lit buildings. So how did they do? Pretty well overall, no negative surprises despite what may have been the toughest economic quarter in a very long time.
With the one of the largest competitive metro footprints in the US and not many other distractions, TW Telecom (NASDAQ:TWTC, news, filings) makes for an excellent economic bellweather for the metro fiber business. The company reported earnings today, and the verdict was pretty good. Revenues of $297.6M were up sequentially from $294.6M in Q4, despite the economic weakness that is shading everything right now. Ebitda grew only slightly from $104.2M to $104.4M, due to seasonally higher costs in the first quarter. In fact, higher than expected EBITDA led to higher than expected earnings per share of $0.02, defying the analysts who predicted a first quarter loss based on a combination of the economy and seasonality. Overall, a very solid quarter for TW Telecom.
XO Holdings (news, filings) has plenty of metro fiber also, but it adds more of the CLEC angle on the quarter – and I was expecting the economy to cause them some pain. However, revenues of $377.8M were up slightly sequentially from $375.2M in Q4, and EBITDA of $28.1M was seasonally lower sequentially but far better than the $5.5M in Q1 2008. Growth in the company’s ‘Core Broadband’ revenues was especially strong, up $9.5M sequentially (4.25%) despite the economy. Overall, I’d have to say that XO surprised me by hanging so tough, their rap is that their revenues are of lower quality and churn from legacy services has for years largely counterbalanced growth in newer services even when the economy was good.
And of course, there was today’s almost historic event, the first on-time quarterly earnings report plus conference call from abvt since 2001 – well actually the CC is tomorrow, but still. Expectations are hard to gauge because nobody publicly covers this stock yet, though we should expect that to change soon though as their listing on the NYSE starts tomorrow. Revenues fell to $85.4M sequentially from from $89.8M in the fourth quarter, but were up from $70.9M in last year’s quarter. EBITDA of $38.2M was unexpectedly high, but is expected to return to normal levels for the year overall. Abovenet’s reported revenue growth in 2008 of some 26% was simply huge for the metro fiber sector. The economy will ensure that won’t be repeated obviously, but the company’s guidance of $340-350M is probably rather conservative given that annualizing $85.4M gets you to $341.6. Either that or there is churn coming, but for a company coming out of public hibernation – conservative guidance would seem like the way to go. I don’t really have a feel for where they are yet, we shall see.
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Categories: Financials · Metro fiber
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Boy, that XO EBITDA figure really stands out as low. Seems like there is a huge oppty to get that to at least 15-20% of revenue.
Even if you assume XO has 0% ebitda margins on its legacy TDM business (which is a declining business), that implies ~11% margins on their growing data/voice business which should be more comparable to TWTC. But TWTC gets ebitda margins in the mid 30%s. So my guess as to why XO’s margins are so low is that they must have a lot more off-net business relative to TWTC (ie. paying others for network). Love to hear others thoughts though.
Ronin, I would agree that a poor Type 2 model exists at XO where they pay little attention to the Gross margin in an effort to close a deal. That fact, coupled with industry-low pricepoints on core business equals low EBIDTA. Add to that, the high churn and a rough economy, and you start to wonder…….what happens next?
Rumors exist that Level 3 castaways Hobbs and O’Hara are in the wings to deliver their own brand of fun to the management team though I hope that Mr Icahn is smarter than that.