XO Q4 2009 results & FY 2009 (OTCBB:XOHO)

XO Holdings, Inc. (OTCBB: XOHO) today announced its 2009 fourth quarter and full year financial and operational results, reporting yearover- year growth in adjusted EBITDA and net income. Total revenue for 2009 was $1.5 billion, an increase of $43.7 million, or 3.0%, compared to 2008. Adjusted EBITDA (a non-GAAP financial measure) increased 38.7% to $152.6 million for the full year 2009, compared to $110.0 million for 2008. Loss from operations for 2009 was $47.2 million, compared to $84.8 million in 2008. The company recognized a net income of $21.8 million in 2009, compared to a net loss of $75.3 million in 2008. Net income (loss) included net investment gains of $60.0 million and $19.2 million for 2009 and 2008, respectively.
Total revenue for the fourth quarter of 2009 was $375.8 million, an increase of $0.6 million, or 0.2%, compared to the same period last year. Adjusted EBITDA was $43.3 million in the fourth quarter of 2009, compared to $34.4 million in the same period last year. Loss from operations for the fourth quarter 2009 was $13.1 million, compared to $18.7 million in the fourth quarter of 2008. Net income for the fourth quarter 2009 was $13.3 million compared to $21.5 million for the year-ago period. Fourth quarter net income for 2009 and 2008 was impacted by $25.7 million and $30.5 million in net investment gains, respectively.

“In 2009, XO continued to deliver high quality broadband services to businesses and carriers throughout the United States and, as a result, we have seen strong revenue growth, particularly within our core services offerings,” said Carl Grivner, Chief Executive Officer of XO Holdings. “In the year ahead, we’ll continue to execute upon our business strategy and remain focused on advancing high-growth sectors of our business.”
Fourth Quarter and Full Year 2009 Financial Results ($ in millions)

Q4 2009 Q3 2009 Q4 2008 2009 2008
——— ——— ——— ——— ———
Revenue $ 375.8 $ 382.0 $ 375.2 $ 1,521.3 $ 1,477.6
——— ——— ——— ——— ———
Adjusted EBITDA (1) $ 43.3 $ 44.1 $ 34.4 $ 152.6 $ 110.0
——— ——— ——— ——— ———
Adjusted EBITDA % (2) 11.5% 11.5% 9.2% 10.0% 7.4%
——— ——— ——— ——— ———
Net Income (Loss) $ 13.3 $ 19.0 $ 21.5 $ 21.8 $ (75.3)
——— ——— ——— ——— ———
Capital Expenditures $ 50.1 $ 57.2 $ 42.0 $ 199.0 $ 217.0
——— ——— ——— ——— ———
(1) Adjusted EBITDA is a Non-GAAP financial measure. See the footnote
discussion accompanying the financial statements.
(2) Adjusted EBITDA % is adjusted EBITDA divided by revenue. See the
footnote discussion accompanying the financial statements.
Core Services
Revenues derived from core broadband services such as high-speed Internet access, Ethernet,
IP, private line and wavelength services continued to grow steadily throughout the year, but
were partially offset by the planned and anticipated decline in XO’s Legacy/TDM services. In the
fourth quarter of 2009, broadband services generated $209.8 million in revenue, up 16.6%
compared to the same period last year. For the full year 2009, broadband services generated
$798.4 million in revenue, up 19.0% from 2008 and represents 52.5% of total revenue for 2009,
compared to 45.4% of total revenue for 2008.
Fourth Quarter and Full Year 2009 Service Revenue
% Change
————
Q4
2009-
Q4 2009-
($ in millions) Q4 2009 Q3 2009 Q4 2008 2009 2008 2008 2008
——- ——- ——- ——— ——— —– —–
Core Broadband(1) $ 209.8 $ 199.9 $ 180.0 $ 798.4 $ 670.6 16.6% 19.0%
——- ——- ——- ——— ——— —– —–
Core Integrated
Voice $ 59.2 $ 69.2 $ 71.7 $ 271.8 $ 317.4 -17.4% -14.4%
——- ——- ——- ——— ——— —– —–
Core Total $ 269.0 $ 269.1 $ 251.7 $ 1,070.2 $ 988.0 6.9% 8.3%
——- ——- ——- ——— ——— —– —–
Legacy TDM
Services $ 106.8 $ 112.9 $ 123.5 $ 451.1 $ 489.6 -13.5% 7.9%
——- ——- ——- ——— ——— —– —–
Total Revenue $ 375.8 $ 382.0 $ 375.2 $ 1,521.3 $ 1,477.6 0.2% 3.0%
——- ——- ——- ——— ——— —– —–
(1) Formerly reported as “Core Data and IP Services”
Fourth Quarter Network and Operations Highlights
Throughout 2009, XO continued to execute upon its strategy of providing best-in-class
broadband products and services to mid-sized businesses, large enterprises and wholesale
customers throughout the United States. Specific to the fourth quarter of 2009, it successfully
grew its product portfolio, expanded its network footprint, reached new customers and garnered
recognition from some of the industry’s leading organizations and publications.
Most notably, XO’s Business Services division launched its XO Enterprise SIP offering. This new
product gives multi-location businesses the flexibility and scalability to transform their distributed
voice network architecture into a more centralized and cost-effective VoIP solution. During the
fourth quarter of 2009, XO Business Services also expanded its network footprint to include the
Inland Empire region of southern California. As the second largest metropolitan area in southern
California, the Inland Empire comprises thousands of businesses and more than four million
people, making the area ripe with opportunity for XO Business Services.
XO Carrier Services continued to elevate its profile as a tier 1 internet provider of wholesale
broadband services to ISPs and carriers. One notable Carrier customer win from the fourth
quarter of 2009 included Star View, a supplier of business-ready IP communications solutions.
Star View selected XO Carrier Service to provide Dedicated Internet Access and Ethernet over
Copper transport services. As a result, Star View is well positioned to offer its customers highspeed,
high-capacity VoIP services at competitive prices.
During the fourth quarter of 2009, XO was also recognized by leading technology organizations
for its product innovation and information technology (IT) leadership. XO’s Chief Information
Officer, Robert Geller, was named one of Computerworld’s Premier 100 IT Leaders for deploying
innovative IT solutions that help XO achieve its strategic business objectives. XO also received
the New Paradigm Resource Group’s (NPRG) Communications Innovation Award in the “Most
Innovative Virtualized Services” category. Specifically, the research firm recognized XO for its
leadership in the convergence of software and network infrastructure services and virtualized
solutions offerings, including its Software-as-a-Service multi-modal mass notification service, XO
Connect.
Corporate Highlights
On July 9, 2009, XO redeemed 304,314 shares of Class A preferred stock from entities
unaffiliated with the Chairman of the Company’s Board of Directors (“The Chairman”) at an
aggregate purchase price of approximately $18.4 million. On January 15, 2010, XO redeemed all
remaining 599,137 shares of Class A preferred stock held by entities unaffiliated with the
Chairman at an aggregate purchase price of approximately $41.4 million. ACF Holding is the
record holder of the remaining 3,096,549 shares of Class A preferred stock (the “ACF Holding
Shares”). XO is required to redeem any outstanding ACF Holding Shares for cash at an aggregate
liquidation preference of up to $217.4 million at a date no later than April 15, 2010.
XO’s primary capital needs are to finance the cost of operations, to acquire capital assets in
support of the Company’s operations, to fund the redemption of the Class A preferred stock and
to take advantage of opportunities to enhance the Company’s competitive position. XO believes
that to remain competitive with much larger telecom and cable companies, significant additional
capital expenditures will be required to enhance and operate the Company’s fiber network. In
order to maintain XO’s competitive position, the Company intends to raise additional capital and
continue to explore various alternatives to obtain additional capital. XO continues to believe that
these alternatives should not include an issuance of high yield debt because such an issuance
would be deleterious to XOH for the following reasons: 1) the high cost of such debt will
negatively affect the Company’s ability to compete in the current highly competitive
telecommunications environment; and 2) the burdensome restrictive covenants associated with
such debt would impair XO’s ability to pursue potential strategic investments and to take
advantage of other opportunities which may be necessary for the Company to compete in such
environment. In addition, XO believes that certain opportunities exist today in the highly
competitive telecommunications industry that may not recur such as, but not limited to, the
acquisition of other CLECs. For all the above reasons, XO intends to raise additional capital and
continues to explore various alternatives to obtain additional capital in the near future.
About XO Holdings
XOH 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, extensive local metro networks and broadband wireless facilities, XOH
offers customers a broad range of managed voice, data and IP services in 85 metropolitan
markets across the United States. For more information, visit www.xo.com.
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 our ability to execute
upon our business strategy, remain focused on advancing high-growth sectors of our business,
pursue growth and acquisition opportunities and generate funds from operations or from future
financing sufficient to fund our business plan and repay our scheduled obligations. 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 Holdings, Inc. 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. Other factors to consider also include the risk
factors described from time to time in the reports filed by XO Holdings, Inc. with the Securities
and Exchange Commission, including its Annual Report on Form 10-K for the year ended
December 31, 2009 and its quarterly reports on Form 10-Q. XO Holdings, Inc. undertakes no
obligation to update any forward-looking statements, except as otherwise required by law.
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
accompanying financial statements.
Accompanying financial statements located at http://www.xo.com/about/Pages/investor.aspx
XO HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
———————— ————————
Three Months Ended Twelve Months Ended
December 31, December 31,
———————— ————————
2009 2008 2009 2008
———– ———– ———– ———–
(Unaudited) (Unaudited)
Revenue $ 375,839 $ 375,166 $ 1,521,288 $ 1,477,610
Cost of service
(exclusive of
depreciation and
amortization) 212,698 218,901 879,979 871,445
Selling, general and
administrative 120,009 122,085 489,427 497,616
Depreciation and
amortization 50,551 48,713 180,144 189,228
Impairment of LMDS
Licenses – – 8,282 –
Loss on disposal of
assets 5,699 4,171 10,688 4,134
———– ———– ———– ———–
Total costs and
expenses 388,957 393,870 1,568,520 1,562,423
———– ———– ———– ———–
Loss from operations (13,118) (18,704) (47,232) (84,813)
Investment gain, net 25,695 30,489 59,986 19,187
Interest income
(expense), net 521 4,680 10,276 (13,924)
Other income – 2 – 257
———– ———– ———– ———–
Net income (loss)
before income taxes 13,098 16,467 23,030 (79,293)
Income tax benefit
(expense) 167 4,995 (1,195) 4,012
———– ———– ———– ———–
Net income (loss) 13,265 21,462 21,835 (75,281)
Preferred stock
accretion (20,318) (19,316) (79,642) (41,794)
———– ———– ———– ———–
Net income (loss)
allocable to common
shareholders $ (7,053) $ 2,146 $ (57,807) $ (117,075)
=========== =========== =========== ===========
Net income (loss)
allocable to common
shareholders per
common share, basic
and diluted $ (0.04) $ 0.01 $ (0.32) $ (0.64)
=========== =========== =========== ===========
Weighted average
shares, basic and
diluted 182,075 182,075 182,075 182,075
=========== =========== =========== ===========
Total adjusted EBITDA $ 43,267 $ 34,439 $ 152,565 $ 109,994
=========== =========== =========== ===========
XO HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
————————
December 31,
————————
2009 2008
———– ———–
Cash and cash equivalents $ 363,159 $ 256,747
Marketable and other securities 1,320 117,148
Accounts receivable, net 153,745 152,622
Other current assets 29,248 41,200
Property and equipment, net 749,930 724,404
Broadband wireless licenses and other
intangibles, net 45,233 53,515
Other assets, net 67,123 30,348
———– ———–
Total assets $ 1,409,758 $ 1,375,984
=========== ===========
Accounts payable and other current liabilities $ 297,799 $ 314,903
Other long-term liabilities 125,731 84,930
Class A convertible preferred stock 255,011 259,948
Class B convertible preferred stock 614,912 573,795
Class C perpetual preferred stock 223,958 200,877
Total stockholders’ deficit (107,653) (58,469)
———– ———–
Total liabilities, preferred stock and
stockholders’ deficit $ 1,409,758 $ 1,375,984
=========== ===========
XO HOLDINGS, INC.
Reconciliation of Net Loss to Adjusted EBITDA
(Dollars in thousands)
——————————-
Three Months Ended ——————–
——————————- Twelve Months Ended
December September December December 31,
31, 30, 31, ——————–
2009 2009 2008 2009 2008
——— ——— ——— ——— ———
(Unaudited)(Unaudited)(Unaudited)
Net income (loss)
before income taxes $ 13,098 $ 19,584 $ 16,467 $ 23,030 $ (79,293)
Depreciation and
amortization 50,551 43,288 48,713 180,144 189,228
Loss on disposal of
assets 5,699 912 4,171 10,688 4,134
Impairment of LMDS
licenses – – – 8,282 –
Investment gain, net (25,695) (16,271) (30,489) (59,986) (19,187)
Interest (income)
expense, net (521) (3,556) (4,680) (10,276) 13,924
Other income – – (2) – (257)
——— ——— ——— ——— ———
EBITDA 43,132 43,957 34,180 151,882 108,549
Stock-based
compensation 135 128 259 683 1,445
——— ——— ——— ——— ———
Adjusted EBITDA $ 43,267 $ 44,085 $ 34,439 $ 152,565 $ 109,994
========= ========= ========= ========= =========