11/09/07
XO Holdings Reports Third Quarter 2007 Financial Results
- Total Revenue Up 2% to $359.4 Million Compared to Previous Quarter
- Data and IP Services Revenue Up 27% Year over Year and 12% Over Previous Quarter
- Adjusted EBITDA of $29 Million and Net Loss of $4.5 Million
- Launched Enterprise Solutions Group and Completed 800 Gbps Network Capacity Expansion
- Signed Nationwide Broadband Wireless Reseller Agreement with Global Crossing
HERNDON, VA - XO Holdings, Inc. (OTCBB: XOHO.OB) today reported its third quarter 2007 financial and operational results. For the third quarter of 2007, XO Holdings, Inc. (XOH) reported revenue of $359.4 million, $29.0 million of adjusted EBITDA and a net loss of $4.5 million. XOH operates two business segments, XO Communications, LLC (XOC), its nationwide wireline telecommunications business, and Nextlink Wireless, Inc. (Nextlink), its wireless business.
“Revenue in the third quarter was our highest quarterly revenue in two years, demonstrating continued strong demand for our data and IP services for enterprises and high-capacity network services for carriers and service providers,” said Carl Grivner, XO Holdings’ chief executive officer.
“With our expanded IP services portfolio and increased focus on the enterprise market we are expanding the number of customer opportunities with higher-margin data and IP services. Enterprise customers accounted for one third of all new sales orders within XO Business Services, up from 24 % in the first quarter of this year. Demand for wholesale high-capacity network s ervices continues to be strong, and our ongoing network investments give us the ability to quickly meet customer demand.”
“Overall, our strategic investments in new IP services, network enhancements and enterprise and carrier customer initiatives will increase our growth opportunities in 2008.”
Service Revenue
| (dollars in millions) | Q3 2007 | Q2 2007 | Q3 2006 | % Change Sequential | % Change Year-over-Year |
|---|---|---|---|---|---|
| Data and IP Services(a) | $138.6 | $123.7 | $108.9 | 12% | 27% |
| Integrated/Voice Services(b) | $80.2 | $81.4 | $89.1 | (1%) | (10%) |
| Total Core Services | $218.8 | $205.1 | $198.0 | 7% | 11% |
| Other Services(c) | $140.6 | $147.8 | $154.3 | (5%) | (9%) |
| Total Revenue | $359.4 | $352.9 | $352.3 | 2% | 2% |
(a) Data and IP Services, which are a subset of Core Services, are defined as Collocation, Dedicated Internet Access, Ethernet, MTNS, Private Line, VPN, Carrier VoIP and Commercial VoIP.
(b) Integrated/Voice Services, which are subsets of Core Services, are defined as integrated services and carrier voice services.
(c) Other Services are defined as all small business services, sub- T1 (i.e. dial, DSL), web hosting, interactive voice response and XO One services.
Third Quarter 2007 Financial Results
| (dollars in millions) | Q3 2007 | Q2 2007 | Q3 2006 | % Change Sequential | % Change Year-over-Year |
|---|---|---|---|---|---|
| Revenue | |||||
| XOC | $359.2 | $352.8 | $351.8 | 2% | 2% |
| Nextlink | $0.5 | $0.3 | $0.7 | 67% | (29%) |
| Eliminations | $(0.3) | $(0.2) | $(0.2) | - | - |
| XOH | $359.4 | $352.9 | $352.3 | 2% | 2% |
| Gross Margin(1) | |||||
| XOC | $218.1 | $202.5 | $209.8 | 8% | 4% |
| Nextlink | $0.3 | $0.2 | $0.7 | 50% | (57%) |
| XOH | $218.4 | $202.7 | $210.5 | 8% | 4% |
| Adjusted EBITDA(2) | |||||
| XOC | $32.2 | $24.2 | $35.8 | 33% | (10%) |
| Nextlink | $(3.2) | $(2.4) | $(1.9) | 33% | 68% |
| XOH | $29.0 | $21.8 | $33.9 | 33% | (14%) |
| Net Loss | |||||
| XOH | $(4.5) | $(36.4) | $(23.0) | (88%) | (80%) |
| Capital Expenditures | |||||
| XOC | $63.9 | $65.8 | $31.7 | (3%) | 102% |
| Nextlink | $1.5 | $2.5 | $0.4 | (40%) | 275% |
| XOH | $65.4 | $68.3 | $32.1 | (4%) | 104% |
(1) Gross Margin is a Non-GAAP financial measure. See the discussion below entitled “Non-GAAP Financial Measures.”
(2) Adjusted EBITDA is a Non-GAAP financial measure. See the discussion below entitled “Non-GAAP Financial Measures.”
Commentary
Consolidated revenue for the three months ended September 30, 2007 was $359.4 million, a 2% increase over both the prior quarter and the same period in 2006. The increase in revenue was driven primarily by growth revenue from the Company’s in Data and IP Services, which increased 12% from the prior quarter and 27% from the same period in 2006. The Company continued strong growth in its collocation, commercial VoIP, dedicated Internet access, Ethernet, IP-VPN and high-capacity private line network services. This growth was partially offset by declines in both Traditional Voice Services and Integrated Voice and Data Services. Revenue from these services continued to be adversely impacted by the Company’s shift away from traditional circuit-switched voice services, instead focusing on next-generation IP-basedservices. Carrier VoIP revenue decreased due to recent challenges experienced by some customers in this category. The Company’s consolidated revenue for the three months ended September 30, 2007 also benefited from certain carrier private line settlements in the third quarter of 2007.
The improvement in net loss benefited from, among other things, $21.5 million received related to the beneficial settlement of a legal matter regarding the Company’s holding of Global Crossing debt securities.
The following are third quarter 2007 highlights from the Company’s business segments: XO Communications and Nextlink.
XO Communications Highlights
• Total sales bookings up 14% compared to same period last year.
• Continued strong demand for high-capacity long haul network services with number of orders up 146% compared to same period last year.
• Wholesale network transport business signed with 55 new carrier, content provider and Internet-centric customers in the third quarter 2007.
• Completed 800Gbps long haul network capacity upgrade on major coast-to-coast network routes.
• Revenue from XOptions Flex, the Company’s flagship business VoIP service, grew more than 100% to $20.4 million compared with $10.0 million in the same period last year.
• Revenue from the Company’s carrier VoIP services, which include VoIP Origination and VoIP Termination, declined 37% to $4.2 million compared to $6.6 million in the same period last year.
• Launched Enterprise Solutions Group to drive expansion into enterprise market.
• Enterprise customers, defined as businesses that have a total monthly telecommunications spend of $25,000 or more a month, accounted for 33% of total new sales orders within XO Business Services in third quarter 2007 compared to 24% in first quarter 2007.
• Expanded IP services portfolio with the launch of three new services: XO SIP, XO One iPBX and XOptions Flex with MPLS IP-VPN.
Nextlink Highlights
• Revenue increased 67% compared to previous quarter.
• Signed nationwide reseller agreement with Global Crossing, allowing Global Crossing to utilize Nextlink’s nationwide broadband wireless networks and services for high-capacity metro and last mile access solutions.
Other Developments
The Company continues to generate substantial needs for cash. The current strategy contains elements, including increased levels of capital expenditures to better serve customers, that the Company will not be able to execute without additional financing. As described in greater detail under the sections entitled “Liquidity and Capital Resources” and “Risk Factors” in the Company’s Quarterly Report on Form 10-Q filed with the SEC today, the Company is actively pursuing various alternatives to enable it to avoid future violations of its covenants under its Credit Facility and to provide the Company with sufficient working capital to execute its current business strategy.
On November 5, 2007, the Company obtained another waiver of compliance with the EBITDA covenant of the Credit Facility through September 30, 2008, in accordance with the terms of the Credit Facility.
About XO Holdings
XO Holdings, Inc. (OTCBB: XOHO.OB) is the holding company of XO Communications, LLC (XOC) and Nextlink Wireless, Inc. (Nextlink).
XO Communications is a leading provider of 21st century communications services for businesses and communications services providers, including 50 percent of the Fortune 500 and leading cable companies, carriers, content providers and mobile operators. Utilizing its unique and powerful nationwide IP network and extensive local metro networks and broadband wireless facilities, XO Communications offers customers a broad range of managed voice, data and IP services in 75 metropolitan markets across the United States. For more information, visit www.xo.com.
Nextlink provides alternative access, backhaul and diverse network solutions and services for the carrier, business and government markets. As o ne of the nation’s largest holders of fixed wireless spectrum, Nextlink delivers high-quality, carrier-grade broadband wireless solutions that scale to meet the demands of today’s converged world of communications – supporting next-generation mobile and wireline voice, data and video applications. For more information, visit www.nextlink.com.
XO, XOptions, XOptions Flex and all related marks are either registered trademarks or trademarks of XOC in the United States and/or other countries. Nextlink is a registered trademark of Nextlink Wireless, Inc. in the United States and/or other countries.
This press release contains certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available in the section entitled “Non-GAAP Financial Measures" along with accompanying financial statements at the location under Investor Relations at:
http://www.xo.com/about/investors/financials/XOH_Q3_2007_Financial_Results_Tables.pdf.
For more information contact:
Chad Couser / XO Communications
703-547-2746
chad.couser@xo.com
