XO Comm (NASDAQ:XOCM)
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RESTON, Va., Nov. 9 /PRNewswire-FirstCall/ -- XO Communications, Inc. (OTC:XOCM.OB) (BULLETIN BOARD: XOCM.OB) today reported its third quarter 2005 financial and operational results.
Revenue for the third quarter ended September 30, 2005 was $358.7 million compared with $362.2 million in the second quarter of 2005 and $391.9 million reported in the third quarter of 2004. Consolidated net loss for the third quarter of 2005 was $30.6 million, compared with a consolidated net loss of $29.5 million in the second quarter of 2005 and a consolidated net loss of $41.8 million in the third quarter of 2004. Consolidated adjusted EBITDA(1) for the third quarter of 2005 was $34.0 million compared with consolidated adjusted EBITDA of $36.4 million in the second quarter of 2005 and a $20.5 million consolidated adjusted EBITDA loss in the third quarter of 2004. Consolidated adjusted EBITDA for the third quarter of 2005 included favorable carrier settlements of $8.5 million, compared with $10.5 million for the second quarter of 2005 and $9.4 million for the third quarter of 2004.
"We continued to make progress against our financial goals by narrowing our net loss year over year, delivering positive EBITDA for the fifth consecutive quarter, and generating positive cash-flow for the second consecutive quarter," said Carl Grivner, CEO of XO Communications. "Our new IP-based commercial and wholesale product offerings have been well-received by the market, demonstrated by the fact that we have signed nearly 2,000 new customers of XOptions Flex, our new VoIP services bundle for businesses, since its launch earlier this year."
"The recently announced sale of XO's wireline telecommunications business will mark a new chapter for XO," added Grivner. "The transaction will create a new wireless business that will be debt free and have more than $300 million in cash. With its financial position and national spectrum coverage, the new wireless business will be uniquely positioned as one of the nation's leading pure-play broadband wireless companies. The privately held XO national wireline business will have a restructured balance sheet and will be in a stronger position to move forward as the nation's largest competitive provider of telecommunications services to businesses."
Revenue from voice services -- consisting of local, long distance and other voice services -- was $182.0 million in the third quarter of 2005 compared with $188.5 million in the second quarter of 2005 and $214.7 million for the third quarter of 2004. Revenue from data services -- consisting of Internet access, network access and web hosting -- was $108.8 million in the third quarter of 2005 compared with $107.8 million in the second quarter of 2005 and $110.0 million for the third quarter of 2004. Revenue from integrated services -- consisting of integrated data and voice services -- was $67.9 million in the third quarter of 2005 compared with $65.9 million in the second quarter of 2005 and $67.2 million for the third quarter of 2004.
Gross margin(2) for the third quarter of 2005 was $211.7 million compared to $224.1 million in the second quarter of 2005 and $229.9 million in the third quarter of 2004. Selling, operating and general (SOG) expenses for the third quarter of 2005 were $177.7 million compared to $187.8 million in the second quarter of 2005 and $209.4 million in the third quarter of 2004. As a percentage of revenue, SOG expenses for the third quarter of 2005 were 50 percent compared to 52 percent for the second quarter of 2005 and 53 percent in the third quarter of 2004. The improvements in SOG expenses year-over-year as a percentage of revenue were primarily due to greater efficiencies resulting from the integration of the acquired Allegiance Telecom operations and XO's ongoing cost reduction initiatives.
Cash, cash equivalents and marketable securities increased by $0.6 million to $280.2 million in the third quarter of 2005 compared to $279.6 million at the end of the second quarter of 2005.
Quarter Highlights and Recent Announcements
Last week, XO announced an agreement that will create a leading provider of fixed broadband wireless services to businesses and service providers. In order to create and finance the fixed wireless business, XO will sell its national wireline telecommunications business for $700 million in cash to Elk Associates LLC, an entity owned by XO's controlling stockholder, Carl Icahn. Following the sale, the Company will retain its fixed broadband wireless spectrum assets and be uniquely positioned to be a leading provider of fixed broadband wireless services nationally as one of the largest holders of fixed wireless licenses in the 28 GHz-31 GHz spectrum range covering more than 70 U.S. major metropolitan markets. The proceeds from the sale of the wireline business will be used to repay XO's outstanding long-term debt, to offer to redeem, at the closing of the sale, XO's outstanding preferred stock and to fund growth and development of the wireless business. Once the sale is completed, the wireless business will be debt-free and is currently expected to have in excess of $300 million in cash to fund its operations and for other corporate purposes. The transaction is anticipated to close in late 2005 or early 2006. The "XO Communications" brand name will be transferred to the private company and thereby will remain with the national wireline telecommunications business. XO anticipates operating its fixed wireless business under a new name.
On September 20, 2005, XO announced that it signed its 1,500th XOptions Flex customer just five months after launching the service nationwide. XOptions Flex is the industry's first voice over IP (VoIP) services bundle for businesses that combines unlimited local and long distance calling, dedicated Internet access and web hosting services for a flat monthly price. XOptions Flex also received INTERNET TELEPHONY magazine's Excellence Award for 2005, which singled out XOptions Flex for delivering solutions that improve VoIP and IP telephony.
XO announced that it is broadening its nationwide Wholesale Local Voice services platform to support competitive local exchange carriers (CLECs) that offer local and long distance services to residential customers in competition with the regional Bell operating companies (RBOCs). XO can now help CLECs focused on residential customers transition off of the RBOCs' unbundled network element platform (UNE-P) and utilize central office and transport services from XO in order to continue to cost-effectively deliver telephone services to their customers.
XO announced that it carried more than 1.8 billion minutes of VoIP traffic across the XO IP network during the third quarter of 2005. VoIP traffic grew by 17 percent during the quarter due to an increased usage of XO's commercial and wholesale VoIP solutions.
XO also announced a number of customer wins during the third quarter. These included Pandora Networks, the Sacramento Kings, SunRocket, and a $7 million, five-year contract to provide data and voice services to MinolConnect that will enable MinolConnect to provide local and long distance telephone and high-speed Internet services to 6,300 apartment units owned and operated by Olen Residential in the Las Vegas metropolitan area.
About XO Communications
XO Communications is a leading provider of national and local telecommunications services to businesses, large enterprises and telecommunications companies. XO offers a complete portfolio of services, including local and long distance voice, dedicated Internet access, private networking, data transport, and Web hosting services as well as bundled voice and Internet solutions. XO provides these services over an advanced, national facilities-based IP network and serves more than 70 metropolitan markets across the United States. For more information, visit http://www.xo.com/.
Forward Looking Statement Note
The statements contained in this release that are not historical facts are "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties. These statements include those describing XO's expected future business and network operations and results of operations, XO's ability to continue to achieve projected synergies and revenue from the acquisition of Allegiance Telecom's assets, XO's ability to increase sales, XO's ability to continue to implement effective cost containment measures, XO's ability to service the growing demand for high-bandwidth broadband wireless services, and XO's ability to increase sales once it begins operating under a new name. Management cautions the reader that these forward-looking statements are only predictions and are subject to a number of both known and unknown risks and uncertainties and actual results, performance, and/or achievements of XO to differ materially from the future results, performance, and/or achievements expressed or implied by the forward-looking statements as a result of a number of factors. These factors include, without limitation, those risks and uncertainties described from time to time in the reports filed by XO Communications, Inc. with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2004 and its quarterly reports on Form 10-Q. XO undertakes no obligation to update any forward-looking statements.
XO, XOptions, XOIP, XOptions Flex, National Local Exchange Carrier, Allegiance, and all related marks are either registered trademarks or trademarks of XO Communications, Inc. in the United States and/or other countries.
XO COMMUNICATIONS, INC.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except for share and per share data)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2005 2004 2005 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue $358,672 $391,885 $1,082,341 $931,013
Costs and expenses:
Cost of service
(exclusive of
depreciation and
amortization) 147,009 161,946 432,955 390,729
Selling, operating,
and general 177,712 209,427 557,179 542,129
Depreciation and
amortization 57,269 56,739 176,731 112,501
Loss from operations $(23,318) $(36,227) $(84,524) $(114,346)
Interest income 2,488 554 6,308 2,147
Investment gain
(loss), net (676) 487 936 (2,851)
Interest expense, net (9,128) (6,593) (25,720) (19,044)
Net loss $(30,634) $(41,779) $(103,000) $(134,094)
Preferred stock
accretion (3,221) (1,839) (9,464) (1,839)
Net loss applicable
to common shares $(33,855) $(43,618) $(112,464) $(135,933)
Net loss per common
share, basic and
diluted $(0.19) $(0.24) $(0.62) $(0.89)
Weighted average
shares, basic and
diluted 181,933,035 181,933,035 181,933,035 152,479,324
XO COMMUNICATIONS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
As of As of
September 30, June 30,
2005 2005
(Unaudited) (Unaudited)
Cash, cash equivalents, and
marketable securities $280,202 $279,598
Accounts receivable, net 138,732 137,683
Other current assets 29,542 33,121
Property and equipment, net 742,447 764,729
Broadband wireless licenses and
other intangibles, net 103,138 115,567
Other assets, net 44,614 44,917
Total assets $1,338,675 $1,375,615
Accounts payable and other current
liabilities $295,660 $311,128
Long-term debt and accrued interest
payable 391,887 382,646
Other long-term liabilities 67,623 67,502
Class A convertible preferred stock 213,817 210,596
Total stockholders' equity 369,688 403,743
Total liabilities, convertible
preferred stock and stockholders'
equity $1,338,675 $1,375,615
(1) Adjusted EBITDA is defined as net income or loss before depreciation,
amortization, interest expense, interest income, investment gain
(loss), impairment charges, restructuring charges, and asset
writedowns. Adjusted EBITDA is not intended to replace operating
income (loss), net income (loss), cash flow and other measures of
financial performance reported in accordance with generally accepted
accounting principles in the United States. Rather, Adjusted EBITDA is
an important measure used by management to assess operating
performance of the company. Adjusted EBITDA as defined here may not be
comparable to similarly titled measures reported by other companies
due to differences in accounting policies. Additionally, Adjusted
EBITDA as defined here does not have the same meaning as EBITDA as
defined in our secured credit facility agreement, or as EBITDA as
defined in our SEC filings. A reconciliation of Adjusted EBITDA to
net loss is included below:
XO COMMUNICATIONS, INC.
Reconciliation of Net Loss to Adjusted EBITDA
(Dollars in thousands)
Three Months Ended Nine Months Ended
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2005 2005 2004 2005 2004
(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Net loss $(30,634) $(29,507) $(41,779) $(103,000) $(134,094)
Depreciation and
amortization 57,269 61,097 56,739 176,731 112,501
Interest income (2,488) (1,919) (554) (6,308) (2,147)
Investment (gain)
loss, net 676 (1,891) (487) (936) 2,851
Interest expense, net 9,128 8,588 6,593 25,720 19,044
Adjusted EBITDA $33,951 $36,368 $20,512 $92,207 $(1,845)
(2) Gross margin is defined as revenue less cost of service, and excludes
depreciation and amortization. Gross margin is not intended to replace
operating income (loss), net income (loss), cash flow and other
measures of financial performance reported in accordance with
generally accepted accounting principles in the United States. Rather,
gross margin is an important measure used by management to assess
operating performance of the company. Additionally, we believe that
gross margin is a standard measure of operating performance that is
commonly reported and widely used by analysts, investors, and other
interested parties in the telecommunications industry. Gross margin as
defined here may not be comparable to similarly titled measures
reported by other companies due to differences in accounting policies.
A reconciliation of Gross Margin to net loss is included below:
XO COMMUNICATIONS, INC.
Reconciliation of Net Loss to Gross Margin
(Dollars in thousands)
Three Months Ended Nine Months Ended
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2005 2005 2004 2005 2004
(Unaudited)(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Net loss $(30,634) $(29,507) $(41,779) $(103,000) $(134,094)
Selling, operating
and general 177,712 187,772 209,427 557,179 542,129
Depreciation and
amortization 57,269 61,097 56,739 176,731 112,501
Interest income (2,488) (1,919) (554) (6,308) (2,147)
Investment (gain)
loss, net 676 (1,891) (487) (936) 2,851
Interest expense,
net 9,128 8,588 6,593 25,720 19,044
Gross margin $211,663 $224,140 $229,939 $649,386 $540,284
DATASOURCE: XO Communications, Inc.
CONTACT: Chad Couser of XO Communications, +1-703-547-2746,
Web site: http://www.xo.com/