Allegiance sees fourth straight revenue drop

Bankrupt CLEC Allegiance Telecom posted its fourth consecutive quarter of declining revenue yesterday, with $188.2 million in third-quarter revenue, a sequential decline of 4.3%.

According to Allegiance, approximately two-thirds of the sequential revenue decline (its biggest quarterly drop so far this year) was due to FCC rate reductions for switched access and reciprocal compensation, which are also largely to blame for the $31.3 million (14.3%) decline in revenue Allegiance has seen since last year’s third quarter.

In addition, the company’s shrinking customer premises equipment (CPE) business also contributed to the revenue loss. Allegiance acquired Worldcom’s CPE provisioning business in June 2002 for $30 million in cash with the expectation that the business would contribute more than $30 million per quarter. After filing Chapter 11 bankruptcy in May, the company said in court documents that it was considering selling its CPE business.

However, Allegiance said its cost-cutting efforts are still driving it toward profitability. Excluding restructuring charges, the company claims to have reached positive "adjusted EBITDA" (which excludes "recurring non-cash charges to operations for the management ownership allocation charge, deferred compensation expense, and goodwill impairment charges") and positive free cash flow from operations (which is "adjusted EBITDA" minus capital expenditures) for the first time in its history. The company was not immediately available to elaborate.

Allegiance reduced its headcount by 400 (or 12%) during the third quarter. The company now has 2,912 employees, down from 4,198 a year ago. It has cut the staff of its CPE business by 22% over the past year, leaving it with 613 employees.

Allegiance had about $284.6 million in unrestricted cash and short-term investments at the end of the third quarter, a sequential increase of $15.4 million.