Aug 10, 2005 11:45 AM,

XO gains ground

By Ed Gubbins

XO Communications cut its net loss by 31% sequentially--and by about a third from a year earlier--to $29.5 million in the second quarter. Its $362 million in second-quarter revenue was flat sequentially but up 30% from a year earlier. Excluding nonrecurring adjustments, EBITDA grew more than 150% sequentially.

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The competitive local exchange carrier also announced 15% sequential growth in the amount of voice-over-IP traffic traversing its IP network, which reached more than 1.6 billion minutes in the quarter. Earlier this month, the carrier reported having 1000 customers already for the XOptions VoIP service bundle it launched nationwide three months ago, introducing the service to two new markets--Minneapolis/St. Paul and San Antonio, Texas--during the second quarter.

At least one analyst suggested XO’s progress could stem in part from the successful integration of the assets of Allegiance Telecom, which XO acquired last year.

“XO reported good progress in 2Q05, possibly reflecting the benefits of integration with Allegiance and stabilization in the company's core business,” Thomas Weisel Partners analyst Vik Grover wrote in a research note issued last night, raising his 2005 revenue and EBITDA expectations for XO 7% and 57%, respectively. “Although as a whole, revenue growth was encouraging, we would have rather seen XO make its numbers in the more important data and integrated access lines than in the more commoditized voice bucket.”

Second-quarter revenue from integrated voice and data services was down 1.4% sequentially but up more than 61% year-over-year to nearly $65.9 million, contributing about 18% of XO’s service revenue in the quarter. Voice revenue was up both 33% year-over-year and 1.2% sequentially to $188 million. Data revenue was up nearly 13% year-over-year and roughly flat sequentially to nearly $108 million.

This spring, the company hired Jeffries & Co. to help it explore “strategic alternatives,” citing the industry’s current competitive and regulatory environments and the pending mergers of XO’s larger competitors.