Nationwide CLEC XO Holdings (news, filings) finally got around to reporting its fourth quarter earnings this afternoon, with mixed results. Revenues of $375.8M were down sequentially from $382M in the prior quarter, as strong growth in core broadband services was more than counterbalanced by declines in core integrated voice and legacy TDM services. However, EBITDA of $43.3M wasn’t bad, maintaining EBITDA margins of 11.5% despite the decline. And the company reported net income of $13.3M due to investment gains.
However, the company did not make any balance sheet moves in preparation for the maturity of its class A preferred stock, which will cost them about $217M in just a little over two weeks. That will leave the company with some $147M pro forma cash and equivalents on the balance sheet, which is a rather low number for a telecommunications company of this size. Costs tend to be weighted toward the first half of the year, so that number is probably lower already and the investment gains seen in 2009 are not expected to recur.
XO agrees that it will need to raise capital to continue to fund the capital needs of its business, and again raised the possibility of buying other CLECs. However, they maintained their bias against high yield debt, which limits their options rather severely since their stock price is still in the $0.75 range. If they were to raise capital by selling stock, however, there’s only so many cheap shares they could issue without having Icahn’s share drop below the 80% he needs to maintain access to those tax assets he likes so much. And any deal with Icahn himself for more capital would likely receive an instant legal response from minority shareholders.
Given that its smaller cousin itcd managed to raise $320M just last week while eliminating restrictive covenants, it’s hard to imagine XO couldn’t do the same if it wanted to. Reading between the lines, XO is basically saying that its best course is to let Icahn buy out minority shareholders like he wanted to last year, which didn’t go over very well at the time. So instead they’re telling us what they’re not going to do rather than what they are going to do. The situation remains unstable, but in the case of XO I wouldn’t expect anything else.
Note: I have updated my charts of relative revenue growth, EBITDA margin, capital expenditures, and (EBITDA-capex)/revenue across the sector to reflect XO’s Q4/2009 results.
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Categories: CLEC · Financials
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Carl Icahn chose to delay the 10-K to the Jews Passover and the Christian Holy Week when most traders were gone. As homersimpsonbush said, “the value here is not necessarily in the EBITDA but in the revenue book and how much it would be worth to an operator with a different cost structure (like LVLT or TWTC).”
The words about refinance serves as a test balloon, and might predict a deal nearing. It could also be an excuse or a ladder for Icahn to come down in the backdrop of the resign of Adam Dell – one of the pillar members of the “independent” BOD.
However, any deal under 3.75 would be difficult to please R2 and many other minority shareholders (at least 12 million shares) with the Hillenmeyer’s class action case sealed in the Delaware Chancery Court.
All the lawyers specialized in class action would be thrilled should that indeed happen.
Dear XO:
Stop competing on price and your revenue and margins will go up! Churn out unprofitable customers … how did you “win” them in the first place? Do you pay sales commission for unprofitable or high risk/bad debt customers? Let some other low baller get these customers and go bankrupt.
Try competing against the ILECs .. not other CLECs. ILECs still have a lot of market share well over 80% after 14-years.
Now what I don’t know but my gut tells me XO Management is between a rock and a hard spot with Uncle Carl as the largest share owner … probably a lot of mother may I and/or do this or else … just my opinion.
The low EBITDA margins are not reflective of a metro carrier that owns fiber … something just ain’t right … at 11.5% — there are fiber-less companies doing better by renting facilities from their largest competitor Ma Bell.
Good luck!!
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_X/threadview?m=te&bn=43914&tid=3234&mid=3234&tof=1&frt=2#3234
Stop Carl Icahn’s New Attempt to Steal – R2 Letter
1-Apr-10 08:01 pm
http://sec.gov/Archives/edgar/data/1111634/000089742310000065/xoholdings13da4.htm
Mr. Icahn will likely try to convince the board that it is in the company’s best interest to allow him to convert his $217.4MM of Class A preferred stock into equity or an equity-linked security. Not only does the company have ample liquidity to completely cash out the Class A preferred stock, but the company could also easily raise enough debt to completely cash this stock out given its recent improvement in operating trends and the strength of the debt capital markets. We believe it would be a tragedy for minority shareholders if the board were to let Mr. Icahn exchange his Class A preferred shares into anything with an equity component. If he is able to surpass 90%, the minority shareholders will be subject to possibly being merged out of existence, and Mr. Icahn will have succeeded in destroying minority shareholder value while being the sole beneficiary of that destruction.
Rest assured, we are going to do everything in our power to ensure that justice is served and that the rights of minority shareholders are protected. Should Mr. Icahn succeed in pressuring you to hand over the company to him through what we view as this back door method, we would pursue all legal remedies available to us, including holding each of you personally liable to the maximum extent permitted by law, for this latest infraction in trampling the rights of minority shareholders. Please stand up and do the right thing!
2-Apr-10 04:03 am
What a soap opera!
Without R2, XO would have been in Icahn’s pocket years ago. He’s got to be shocked by the growing firestorm over XO, which he must have figured was an easy addition to his empire.
……
2-Apr-10 03:17 pm
Not necessarily just R2.
Another time bomb – the class action representing all minority shareholders brought by the former XO executive Hillenmeyer in the Delaware Chancery Court is ticking with even more powerful explosion to the Icahn empire.
Carl Icahn’s destructive nature has prevented him from converting XO – with a total $8 billion invested in a decade – into a legitimate business with multi-billion dollars revenue and market cap. That would be several times more than he could grab with the NOLs and steal from minority shareholders. Carl Icahn has lost the opportunity of doing constructive works like Warren Buffet while choosing to go to grave being cursed by tens of thousand people robbed by this predator and theft as claimed, “I create nothing! I own.” in the movie “Wall Street”.
XO is Carl’s sandbox …
Let it be Quicksand, then! imo