RESTON, Va., March 16 /PRNewswire-FirstCall/ -- XO Holdings, Inc. (BULLETIN BOARD: XOHO.OB) today reported its fourth quarter and full year 2006 financial and operational results. For the fourth quarter of 2006, XO Holdings (XOH) reported revenue of $355.3 million, $23.2 million of adjusted EBITDA(1) and a net loss of $31.1 million. For the year ended December 31, 2006, XOH reported $1.41 billion of revenue, $94.8 million of adjusted EBITDA and a net loss of $143.8 million allocable to common shareholders. XOH operates two business segments, XO Communications, LLC (XOC), its nationwide wireline telecommunications business, and Nextlink Wireless, Inc. (Nextlink), its wireless business.
"This was a strong and pivotal year for the company, setting the stage for a promising 2007," said Carl Grivner, XO Holdings' Chief Executive Officer. "For the full year, our core services revenue grew 5 percent and data and IP services revenue grew 16 percent year-over-year. This is the result of increased customer demand and improving industry dynamics. During the year, we aligned the company into three customer-focused operating units and lit our new inter-city network to drive revenue growth. As a result of our initiatives and network investment, the company is well-positioned to expand its share of the enterprise and carrier services markets, leveraging our unrivalled combination of metro, inter-city and wireless networks."
(Revenue in Q4 Q3 Q4 2006 2005 %Change %Change
millions) 2006 2006 2005 Q42006 - 2006 -
Q42005 2005
Data and IP
Services(a) $117.4 $114.2 $99.7 $445.2 $384.4 18% 16%
Integrated/
Voice
Services(b) $85.2 $88.5 $92.0 $354.5 $375.8 (7%) (6%)
Total Core
Services $202.6 $202.7 $191.7 $799.7 $760.2 6% 5%
Other
Services(c) $152.7 $149.6 $159.6 $611.9 $673.4 (4%) (9%)
Total
Revenue 355.3 $352.3 $351.3 $1,411.6 $1,433.6 1% (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 a subset of Core Services, are
defined as integrated services and carrier voice services.
(c) Other Services are defined as all small business services, Data below
T1, web hosting, interactive voice response and XO One services.
Highlights for the Quarter and Full Year 2006
For the quarter ending and year ending December 31, 2006:
-- Core Services revenue grew 6% in the fourth quarter 2006 compared to
same period last year and 5% for the full year 2006 compared to the
previous year
-- Data and IP Services revenue grew 18% in the fourth quarter 2006
compared to same period last year and 16% for the full year 2006
compared to the previous year
-- Launched new IP services and enhanced existing data and IP services
portfolio, including expansion of nationwide Ethernet services
footprint, launch of VoIP Origination service, launch of broadband
wireless networks and services in nine metropolitan markets, and
enhancements to award-winning business VoIP solution, XOptions Flex
-- Lit the industry's most-advanced, low-cost nationwide inter-city
network, enabling the Company to more than double network capacity and
offer a broader range of higher-speed data transport services to
content providers, enterprises and service providers
-- Increased revenue per employee by 13% year-over-year from $312,000 to
$354,000
-- Maintained stable cash balance despite investments inter-city network
and new IP services
Fourth Quarter and Full Year 2006 Financial Results
Q4 2006 Q3 2006 Q4 2005 2006 2005
Revenue (millions)
XOC $355.3 $351.8 $351.2 $1,410.9 $1,433.4
Nextlink 0.3 0.8 0.1 1.3 0.2
Eliminations (0.3) (0.3) - (0.5) -
XOH $355.3 $352.3 $351.3 $1,411.6 $1,433.6
Gross Margin(2)
(millions)
XOC $207.4 $209.8 $196.2 $813.5 $845.5
Nextlink 0.2 0.7 0.1 1.1 0.2
XOH $207.6 $210.5 $196.3 $814.6 $845.7
Adjusted EBITDA(1)
(millions)
XOC $26.2 $35.7 $17.9 $106.8 $111.6
Nextlink (2.9) (1.9) (1.8) (12.0) (3.1)
XOH $23.2 $33.8 $16.2 $94.8 $108.5
Capital Expenditures
(millions)
XOC $35.6 $31.7 $23.2 $114.6 $86.2
Nextlink $1.7 $0.4 $0.2 $4.3 $0.5
XOH $37.3 $32.1 $23.3 $118.9 $86.7
Cash (millions) $168.6 $164.6 $176.8 $168.6 $176.8
XO Communications
Revenue from the Company's commercial VoIP service, XOptions Flex grew 260 percent to $12.6 million in the fourth quarter of 2006 compared to $3.5 million in the same period last year. For the full year 2006, XOptions Flex revenue was $35.7 million compared to $4.9 million in 2005, an increase of 636 percent.
"We saw solid revenue growth in our data and IP services which include our commercial VoIP, Dedicated Internet Access and Ethernet services," said Tom Cady, president of XO Business Services. "We continue to invest in expanding our IP services portfolio to drive revenue growth with existing and new customers. We are also very excited about our new VoIP and private networking solutions for 2007, including our recently launched MPLS IP-VPN service. Moving forward, all of these initiatives are intended to strengthen our position in the small and medium-sized business segment and expand XO's presence in the larger enterprise market," said Cady.
Revenue from the Company's carrier VoIP services, which includes VoIP Termination and VoIP Origination, grew 328 percent to $7.7 million in the fourth quarter of 2006 compared to $1.8 million in the same period last year. For the full year 2006, Carrier VoIP services revenue was $25.8 million compared to $3.4 million in 2005, an increase of 658 percent.
"We are seeing strong demand by wholesale customers for high-capacity network services, driven by ever-increasing amounts of bandwidth-intensive and content-related services such as social networking, streaming video and VoIP as well as increased broadband deployment and speeds," said Ernie Ortega, president of XO Carrier Services. "During the year, we signed 89 new cable, carrier, content and Internet-centric customers for our wholesale inter-city transport services. Through the investment in our new, next generation long haul network, we have greatly expanded our addressable market for inter-city network transport, IP transit and collocation services and have increased our competitive position by operating the industry's most advanced, low-cost transport network. Customers recognize our services and support as the best in the industry, demonstrated by our Carrier Excellence awards in the past year from ATLANTIC-ACM for best wholesale VoIP services, Best Data Quality and Best Sales Reps."
Nextlink
"2006 was the inaugural year for Nextlink -- launching our business, distribution channels, networks and services," said Bob Beran, president of Nextlink. "We built out wireless networks and successfully launched service in nine markets, and through our direct and indirect sales channels we established our relationships with multiple carriers, mobile operators and enterprise customers. In addition, our partnership with XO Communications is a very strong distribution channel for our services and is enabling XO to expand its local reach and reduce local network access costs."
About XO Holdings
XO Holdings (BULLETIN BOARD: XOHO.OB) is the holding company of XO Communications, LLC (XOC) and Nextlink Wireless, Inc. (Nextlink).
XO Communications is a leading provider of national and local telecommunications services to businesses, large enterprises and communications service providers. XOC offers a broad 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. XOC provides these services over an advanced, nationwide facilities-based IP network and serves 75 metropolitan markets across the United States. For more information, visit http://www.xo.com/.
Nextlink provides broadband wireless services to the wireless and wireline communications service provider, business and government markets. As one of the nation's largest holders of fixed wireless spectrum, Nextlink delivers high-quality, carrier-grade wireless access 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 additional information, visit http://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.
Cautionary Language Concerning Forward-Looking Statements
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, Nextlink's ability to expand its addressable market and reduce local network access costs, the benefit from new initiatives and enhancements to the enterprise and carrier markets, our ability to expand our Ethernet footprint and related sales growth, our ability to expand our market through new VoIP and private networking initiatives; the demand for XOC's core communications services, and XOC's ability to benefit from increased network capacity and additional services from its inter-city fiber optic long haul network. 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 Nextlink and XO may differ materially from the future results, performance, and/or achievements expressed or implied by these 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 Holdings, Inc. (as the successor issuer to XO Communications, Inc.) with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2006 and its quarterly reports on Form 10-Q. XO undertakes no obligation to update any forward-looking statements.
This press release contains certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available below in the section entitled "Non-GAAP Financial Measures."
Accompanying financial statements follow below.
XO HOLDINGS, INC.
Consolidated Statements of Operations
(unaudited)
(Amounts in thousands, except for share and per share data)
Three Months Ended Years Ended
December 31, December 31, December 31, December 31,
2006 2005 2006 2005
Revenue:
XOC $355,330 $351,164 $1,410,874 $1,433,416
Nextlink 283 117 1,261 206
Eliminations (303) - (519) -
Total revenue 355,330 351,281 1,411,616 1,433,622
Costs and expenses:
Cost of service
(exclusive of
depreciation and
amortization)
XOC 147,948 154,949 597,409 587,904
Nextlink 73 - 137 -
Eliminations (303) - (519) -
Total cost of
service 147,718 154,949 597,027 587,904
Selling, operating,
and general
XOC 181,643 178,302 708,818 734,089
Nextlink 3,159 1,869 13,162 3,261
Total selling,
operating, and
general 184,802 180,171 721,980 737,350
Depreciation and
amortization
XOC 49,846 56,084 199,732 228,435
Nextlink 77 1,947 5,028 6,327
Total depreciation
and amortization 49,923 58,031 204,760 234,762
Loss from operations
XOC (24,107) (38,171) (95,085) (117,012)
Nextlink (3,026) (3,699) (17,066) (9,382)
Loss from operations $(27,133) $(41,870) $(112,151) $(126,394)
Interest income, net 2,484 2,542 8,691 8,850
Investment gain
(loss), net 5,156 1,014 5,193 1,950
Interest expense, net (8,139) (8,571) (32,077) (34,291)
Other non-operating
expenses - 3,380 - 3,380
Net loss $(27,632) $(43,505) $(130,344) $(146,505)
Preferred stock
accretion (3,438) (3,239) (13,486) (12,703)
Net loss applicable
to common shares $(31,070) $(46,744) $(143,830) $(159,208)
Net loss per common
share, basic and
diluted $(0.17) $(0.26) $(0.79) $(0.88)
Weighted average
shares, basic and
diluted 182,001,285 181,933,035 181,970,946 181,933,035
Gross margin (2) $207,592 $196,332 $814,589 $845,718
Adjusted EBITDA:
XOC 26,194 17,917 106,816 111,558
Nextlink (2,949) (1,752) (12,038) (3,055)
Total adjusted EBITDA
(1) $23,245 $16,165 $94,778 $108,503
XO HOLDINGS, INC.
Consolidated Balance Sheets
(Amounts in thousands)
As of As of
December 31, December 31,
2006 2005
Cash and cash equivalents $168,563 $176,838
Marketable and other
securities 2,420 7,150
Accounts receivable, net 131,168 137,564
Prepaid Expenses and other
current assets 30,859 34,106
Property and equipment,
net 678,233 717,627
Broadband wireless
licenses and other
intangibles, net 63,507 91,779
Other assets, net 41,361 37,661
Total assets $1,116,111 $1,202,725
Accounts payable and other
current liabilities $319,641 $296,213
Long-term debt and accrued
interest payable 336,650 301,113
Other long-term
liabilities 58,430 65,755
Class A convertible
preferred stock 230,542 217,056
Total stockholders' equity 170,848 322,588
Total liabilities,
convertible preferred
stock and stockholders'
equity $1,116,111 $1,202,725
Non-GAAP Financial Measures
(1) Adjusted EBITDA is a non-GAAP financial measure, which we define as net income (loss) before depreciation, amortization, asset impairment charge, interest expense, interest income, investment gains or losses, income tax expense or benefit, cumulative effect of change in accounting principle and stock-based compensation. 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 and is used in our budgeting process. Adjusted EBITDA as defined here may not be comparable to similarly titled measures reported by other companies due to differences in accounting policies. Management has historically adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide the most accurate measure of our core operating results and as a means to evaluate period-to-period results. We have chosen to provide this information to investors to enable them to perform more meaningful comparisons of past, present and future operating results and as a means to evaluate the results of core on-going operations. Adjusted EBITDA as defined here does not have the same meaning as EBITDA as defined in our secured credit facility agreement. A reconciliation of adjusted EBITDA to net loss is included below:
XO HOLDINGS, INC.
Reconciliation of Net Loss to Adjusted EBITDA
(unaudited)
(Dollars in thousands)
Three Months Ended Years Ended
December September December December December
31, 2006 30, 2006 31, 2005 31, 2006 31, 2005
Net loss $(27,632) $(22,972) $(43,505) $(130,344) $(146,505)
Depreciation and
amortization 49,923 50,103 58,031 204,760 234,762
Interest income,
net (2,484) (2,111) (2,542) (8,691) (8,850)
Interest
expense, net 8,139 8,550 8,571 32,077 34,291
Other non-
operating
expenses - - (3,380) - (3,380)
EBITDA $27,946 $33,570 $17,175 $97,802 $110,318
Stock-based
compensation 455 285 4 2,169 135
Investment
(gain) loss, net (5,156) (37) (1,014) (5,193) (1,950)
Adjusted EBITDA $23,245 $33,818 $16,165 $94,778 $108,503
XOC
Reconciliation of Loss from Operations to Adjusted EBITDA
(unaudited)
(Dollars in thousands)
Three Months Ended Years Ended
December September December December December
31, 2006 30, 2006 31, 2005 31, 2006 31, 2005
Loss from
operations $(24,107) $(13,000) $(38,171) $(95,085) $(117,012)
Depreciation and
amortization 49,846 48,454 56,084 199,732 228,435
EBITDA $25,739 $35,454 $17,913 $104,647 $111,423
Stock-based
compensation 455 285 4 2,169 135
Adjusted EBITDA $26,194 $35,739 $17,917 $106,816 $111,558
NEXTLINK
Reconciliation of Loss from Operations to Adjusted EBITDA
(unaudited)
(Dollars in thousands)
Three Months Ended Years Ended
December September December December December
31, 2006 30, 2006 31, 2005 31, 2006 31, 2005
Loss from
operations $(3,026) $(3,570) $(3,699) $(17,066) $(9,382)
Depreciation
and amortization 77 1,649 1,947 5,028 6,327
EBITDA $(2,949) $(1,921) $(1,752) $(12,038) $(3,055)
Stock-based
compensation - - - - -
Adjusted EBITDA $(2,949) $(1,921) $(1,752) $(12,038) $(3,055)
(2) Gross margin is a non-GAAP financial measure, which we define as revenue less cost of service, and excludes depreciation and amortization expenses. Gross margin is not intended to replace operating income (loss), net income (loss), cash flow or other measures of financial performance reported in accordance with generally accepted accounting principles in the United States. Rather, we consider gross margin to be an important financial measure of our operating performance related solely to providing telecommunications services to our customers without taking into account expenditures that are not directly related to providing such services. We believe that gross margin allows management to further assess (i) our operating performance, (ii) profitability across our customer base and (iii) trends in our competitive and regulatory environments. 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. We believe gross margin provides investors with an alternative means to evaluate the results of our operations. Gross margin as used in this document may not be comparable to similarly titled measures reported by other companies due to differences in accounting policies and differences in definition of gross margin. Therefore, we provide additional information on the components of gross margin throughout this report and provide the reconciliations to the most comparable GAAP financial measure. The following tables reconcile reported net loss to gross margin, as defined above, for the respective periods presented (dollars in thousands):
XO HOLDINGS, INC.
Reconciliation of Net Loss to Gross Margin
(unaudited)
(Dollars in thousands)
Three Months Ended Years Ended
December September December December December
31, 2006 30, 2006 31, 2005 31, 2006 31, 2005
Net loss $(27,632) $(22,972) $(43,505) $(130,344) $(146,505)
Selling,
operating and
general 184,802 $176,961 180,171 721,980 737,350
Depreciation
and amortization 49,923 $50,103 58,031 204,760 234,762
Interest $
income, net (2,484) (2,111) (2,542) (8,691) (8,850)
Investment
gain (loss), net (5,156) $(37) (1,014) (5,193) (1,950)
Interest expense,
net 8,139 $8,550 8,571 32,077 34,291
Other non-
operating
expenses - - (3,380) - (3,380)
Gross margin $207,592 $210,494 $196,332 $814,589 $845,718
XOC
Reconciliation of Loss from Operations to Gross Margin
(unaudited)
(Dollars in thousands)
Three Months Ended Years Ended
December September December December December
31, 2006 30, 2006 31, 2005 31, 2006 31, 2005
Loss from
operations $(24,107) $(13,000) $(38,171) $(95,085) $(117,012)
Selling,
operating and
general 181,643 174,353 178,302 708,818 734,089
Depreciation and
amortization 49,846 $48,454 56,084 199,732 228,435
Gross margin $207,382 $209,807 $196,215 $813,465 $845,512
NEXTLINK
Reconciliation of Loss from Operations to Gross Margin
(unaudited)
(Dollars in thousands)
Three Months Ended Years Ended
December September December December December
31, 2006 30, 2006 31, 2005 31, 2006 31, 2005
Loss from
operations $(3,026) $(3,570) $(3,699) $(17,066) $(9,382)
Selling, operating
and general 3,159 2,608 1,869 13,162 3,261
Depreciation and
amortization 77 $1,649 1,947 5,028 6,327
Gross margin $210 $687 $117 $1,124 $206
Limitations on the Use of Non-GAAP Measures
The use of adjusted EBITDA and gross margin has certain limitations. Our presentation of adjusted EBITDA and gross margin may be different from the presentation used by other companies, and therefore comparability may be limited. Depreciation expense for various long-term assets, interest expense, income taxes and other items have been and will be incurred and are not reflected in the presentation of adjusted EBITDA and gross margin. Each of these items should also be considered in the overall evaluation of our results. Additionally, adjusted EBITDA does not consider capital expenditures and other investing activities and should not be considered as a measure of our liquidity. We compensate for these limitations by providing the relevant disclosure of our depreciation, interest and income tax expense, capital expenditures and other items both in our reconciliations to the GAAP financial measures and in our consolidated financial statements, all of which should be considered when evaluating our performance.
Adjusted EBITDA and gross margin are used in addition to and in conjunction with results presented in accordance with GAAP. Adjusted EBITDA and gross margin should not be considered as an alternative to net income, operating income or any other operating performance measure prescribed by GAAP, nor should these measures be relied upon to the exclusion of GAAP financial measures. Adjusted EBITDA and gross margin reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. Management strongly encourages investors to review our financial information in its entirety and not to rely on a single financial measure.