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CommentsXO Holdings, Inc. today reported its fourth quarter and full year 2005 financial and operational results.
Revenue for the fourth quarter ended December 31, 2005 was $351.3 million compared with $358.7 million in the third quarter of 2005 and $369.4 million reported in the fourth quarter of 2004. Revenue for the year ended December 31, 2005 was $1.43 billion compared with $1.3 billion for the prior year. The increase in revenue in 2005 reflects a full year of revenue from the acquired Allegiance Telecom assets compared to six months of revenue from the Allegiance Telecom assets in 2004.
Consolidated net loss for the fourth quarter of 2005 was $43.5 million, compared with a consolidated net loss of $30.6 million in the third quarter of 2005 and a consolidated net loss of $271.4 million in the fourth quarter of 2004. Consolidated net loss for the full year 2005 was $146.5 million compared with $405.5 million for the prior year.
Consolidated adjusted EBITDA(1) for the fourth quarter of 2005 was $16.2 million compared with consolidated adjusted EBITDA of $34.0 million in the third quarter of 2005 and $21.9 million consolidated adjusted EBITDA in the fourth quarter of 2004. Consolidated adjusted EBITDA for the fourth quarter of 2005 included favorable carrier settlements of $7.6 million, compared with $8.5 million for the third quarter of 2005 and $11.9 million of selling, operating and general (SOG) expense settlements for the fourth quarter of 2004. Consolidated adjusted EBITDA for the full year 2005 was $108.4 million compared with $20.0 million for the prior year.
"In 2005, XO made substantial financial and operational progress over the previous year," said Carl Grivner, CEO of XO Holdings. "We completed the integration of the Allegiance Telecom network and operations, showing significant cost savings during the first full year of results for the combined XO and Allegiance Telecom businesses. In addition, year over year we reduced our net loss, delivered significantly increased adjusted EBITDA and improved our margins."
"Last year, XO also introduced a number of new services, expanding our portfolio of commercial and wholesale VoIP services as well as wholesale local voice solutions for UNE-P impacted carriers. In less than a year since its launch, our award-winning VoIP services bundle, XOptions Flex, has been deployed by more than 3,000 businesses across the country," added Grivner.
Revenue from voice services -- consisting of local, long distance and other voice services -- was $177.9 million in the fourth quarter of 2005 compared with $182.0 million in the third quarter of 2005 and $186.1 million for the fourth quarter of 2004. For the full year 2005, revenue from voice services was $734.7 million compared to $673.3 million for the prior year.
Revenue from data services -- consisting of Internet access, network access and web hosting -- was $106.9 million in the fourth quarter of 2005 compared with $108.8 million in the third quarter of 2005 and $116.2 million for the fourth quarter of 2004. For the full year 2005, revenue from data services was $431.9 million compared to $414.8 million for the prior year.
Revenue from integrated services -- consisting of integrated data and voice services -- was $66.5 million in the fourth quarter of 2005 compared with $67.9 million in the third quarter of 2005 and $67.2 million for the fourth quarter of 2004. For the full year 2005, revenue from integrated services was $267.1 million compared to $212.3 million for the prior year.
Gross margin(2) for the fourth quarter of 2005 was $196.3 million compared to $211.7 million in the third quarter of 2005 and $207.4 million in the fourth quarter of 2004. Gross margin for the full year 2005 was $845.7 million compared to $747.7 million for the prior year.
Selling, operating and general (SOG) expenses for the fourth quarter of 2005 were $180.2 million compared to $177.7 million in the third quarter of 2005 and $185.5 million in the fourth quarter of 2004. SOG expenses for the full year 2005 were $737.4 million compared to $727.7 million for the prior year.
Cash, cash equivalents and marketable securities decreased by $96.2 million to $184.0 million in the fourth quarter of 2005 compared to $280.2 million at the end of the third quarter of 2005 and $251.3 million at the end of the fourth quarter of 2004. The decline in cash was due to an early payment of $100.0 million of principal outstanding under the company's credit facility.
Detailed financials for the fourth quarter and full year 2005 are available at http://xo.com/about/investors/financials/XOQ42005Financials.pdf.
Recent Announcements and Highlights for the Quarter and Full Year
Wireline Asset Sale
On November 4, 2005, XO announced an agreement, as amended March 1, 2006, that provides that XO will sell its national wireline telecommunications business to Elk Associates LLC, an entity owned by XO's controlling stockholder, Carl Icahn, for $625 million in cash and the buyer's assumption of $75 million of debt under XO's existing credit facility. 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. metropolitan markets. The proceeds from the sale of the wireline business will be used to repay XO's remaining outstanding long-term debt, to offer to redeem, at the closing of the sale, XO's outstanding preferred stock, to fund growth and development of the wireless business, and for other corporate purposes. 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 the second quarter of 2006. The "XO Communications" brand name will remain with the national wireline telecommunications business. XO anticipates operating its fixed wireless business under a new name.
Restructuring Merger
On March 6, 2006, the company announced that it had streamlined its corporate structure by creating a new holding company for the XO businesses. Under the terms of the reorganization, XO Communications, Inc. merged with and into XO Communications, LLC, a wholly-owned subsidiary of XO Holdings, Inc., the new holding company for the XO wireless and wireline businesses. XO Communications, LLC operates as the holding company's national wireline telecommunications business and XO LMDS Holdings, Inc. operates as the holding company's fixed broadband wireless business. Prior to the reorganization, XO Communications, Inc. formed XO Holdings, Inc. as its direct wholly-owned subsidiary, which in turn formed XO Communications, LLC as its direct wholly- owned subsidiary.
Products/Services
XO VoIP Termination. In February 2005, XO launched XO VoIP Termination service, which enables broadband telephony providers, cable companies and other service providers that offer VoIP services to businesses and consumers to hand over VoIP traffic directly to XO for termination to domestic locations nationwide.
XOptions Flex. In April 2005, XO announced the nationwide launch of XOptions Flex, 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 in 45 markets nationwide. Other XOptions Flex milestones achieved during the year include:
* Additional market launches in Colorado Springs, Minneapolis/St. Paul, Pittsburgh and San Antonio * XOptions Flex received INTERNET TELEPHONY magazine's Excellence Award for 2005 * In August 2005, XO signed its 1,000th XOptions Flex customer * In September 2005, XO signed its 1,500th XOptions Flex customer * In November 2005, XO signed its 2,000th XOptions Flex customer
XO Wholesale Local Voice. In August 2005, XO expanded its 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). The XO Wholesale Local Voice services platform allows CLECs focused on residential customers to 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 in 70 metropolitan markets across the United States.
IP Network
VoIP Traffic. During the second quarter of 2005, XO carried more than 1.6 billion minutes of VoIP traffic across the XO IP network. During the third quarter of 2005, XO carried more than 1.8 million minutes of VoIP traffic across the XO IP network. During the fourth quarter of 2005, XO carried more than 2.2 billion minutes of VoIP traffic across the XO IP network.
About XO Holdings
XO Holdings is the holding company of XO Communications, LLC and XO LMDS Holdings. 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. XO LMDS Holdings is one of the nation's largest owners of fixed wireless spectrum covering more than 70 metropolitan markets nationwide and provides wireless broadband services to businesses, wireless service providers and other carriers. 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 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. (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, 2005 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 in the United States and/or other countries.
XO HOLDINGS, INC. Condensed Consolidated Statements of Operations (Dollars in thousands, except for share and per share data) Three Months Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 (Unaudited) (Unaudited) Revenue $351,281 $369,407 $1,433,622 $1,300,420 Costs and expenses: Cost of service (exclusive of depreciation and amortization) 154,949 162,006 587,904 552,735 Selling, operating, and general 180,171 185,537 737,350 727,666 Depreciation and amortization 58,031 65,280 234,762 177,781 Goodwill impairment charge - 212,530 - 212,530 Loss from operations $(41,870) $(255,946) $(126,394) $(370,292) Investment and interest income (loss), net 3,556 (8,334) 10,800 (9,037) Interest expense, net (8,571) (7,170) (34,291) (26,214) Other non-operating expenses 3,380 - 3,380 - Net loss $(43,505) $(271,450) $(146,505) $(405,543) Preferred stock accretion (3,239) (3,070) (12,703) (4,910) Net loss applicable to common shares $(46,744) $(274,520) $(159,208) $(410,453) Net loss per common share, basic and diluted $(0.26) $(1.51) $(0.88) $(2.57) Weighted average shares, basic and diluted 181,933,035 181,933,035 181,933,035 159,883,403 XO HOLDINGS, INC. Condensed Consolidated Balance Sheets (Dollars in thousands) As of As of December 31, December 31, 2005 2004 Cash, cash equivalents, and marketable securities $183,988 $251,289 Accounts receivable, net 137,564 150,101 Other current assets 34,106 50,864 Property and equipment, net 717,627 820,536 Broadband wireless licenses and other intangibles, net 91,779 139,866 Other assets, net 37,661 46,729 Total assets $1,202,725 $1,459,385 Accounts payable and other current liabilities $296,213 $329,542 Long-term debt and accrued interest payable 301,113 366,247 Other long-term liabilities 65,755 73,691 Class A convertible preferred stock 217,056 204,353 Total stockholders' equity 322,588 485,552 Total liabilities, convertible preferred stock and stockholders' equity $1,202,725 $1,459,385 (1) Adjusted EBITDA is defined as net income or loss before depreciation, amortization, interest expense, investment and interest income (loss), net, 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 HOLDINGS, INC. Reconciliation of Net Loss to Adjusted EBITDA (Dollars in thousands) Three Months Ended December 31, September 30, December 31, 2005 2005 2004 (Unaudited) (Unaudited) (Unaudited) Net loss $(43,505) $(30,634) $(271,450) Goodwill impairment charge - - 212,530 Depreciation and amortization 58,031 57,269 65,281 Investment and interest income (loss), net (3,556) (1,812) 8,334 Interest expense, net 8,571 9,128 7,170 Other non-operating expenses (3,380) - - Adjusted EBITDA $16,161 $33,951 $21,865 Year Ended December 31, December 31, 2005 2004 (Unaudited) (Unaudited) Net loss $(146,505) $(405,543) Goodwill impairment charge - 212,530 Depreciation and amortization 234,762 177,781 Investment and interest income (loss), net (10,800) 9,037 Interest expense, net 34,291 26,214 Other non-operating expenses (3,380) - Adjusted EBITDA $108,368 $20,019 (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 HOLDINGS, INC. Reconciliation of Net Loss to Gross Margin (Dollars in thousands) Three Months Ended December 31, September 30, December 31, 2005 2005 2004 (Unaudited) (Unaudited) (Unaudited) Net loss $(43,505) $(30,634) $(271,450) Selling, operating and general 180,171 177,712 185,537 Goodwill impairment charge - - 212,530 Depreciation and amortization 58,031 57,269 65,280 Investment and interest income (loss), net (3,556) (1,812) 8,334 Interest expense, net 8,571 9,128 7,170 Other non-operating expenses (3,380) - - Gross margin $196,332 $211,663 $207,401 Year Ended December 31, December 31, 2005 2004 (Unaudited) (Unaudited) Net loss $(146,505) $ (405,543) Selling, operating and general 737,350 727,666 Goodwill impairment charge - 212,530 Depreciation and amortization 234,762 177,781 Investment and interest income (loss), net (10,800) 9,037 Interest expense, net 34,291 26,214 Other non-operating expenses (3,380) - Gross margin $ 845,718 $ 747,685
Source: XO Holdings, Inc.
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