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Ceragon - High Capacity Wireless Backhaul Solutions
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XO Holdings Reports First Quarter 2006 Results

5/12/06 - XO Holdings, Inc. (OTC Bulletin Board: XOHO.OB) reported its first quarter 2006 financial and operational results. For the first quarter ended March 31, 2006, XO Holdings reported $349.7 million in revenue, $17.4 million in adjusted EBITDA(2), and a net loss of $43.7 million. XO Holdings ("XOH") operates the business in two segments. XO Communications, LLC ("XOC") operates the wireline business, and Nextlink Wireless, Inc. ("Nextlink") operates the wireless business.

Highlights for First Quarter 2006: XOC (wireline business)

  • Adjusted EBITDA increased 1% to $22.5 million from $22.2 million in the same period last year
  • Strong sequential growth in new commercial and wholesale IP services: Launched in April 2005, XOptions Flex closed quarter with 3,900 total new customers, generating $5.3 million in first quarter revenue as compared to $3.5 million in the fourth quarter of 2005.
  • Expanded wholesale VoIP services portfolio during the quarter, generating $4.3 million in first quarter revenue as compared to $1.8 million in the fourth quarter of 2005
  • Carried more than 2.9 billion minutes of VoIP traffic across nationwide IP network, representing a 32 percent increase over fourth quarter of 2005

Nextlink (broadband wireless business)

  • Officially launched Nextlink on April 24, 2006 offering wireless backhaul, high-speed network access, and network redundancy in six metropolitan markets
  • Achieved revenue of $0.1 million, compared to $0.2m in all of 2005

XO Holdings Chief Executive Officer, Carl J. Grivner said, "We are very pleased with the success of our new voice over IP solutions for businesses and service providers and are excited about the enhanced capabilities of our long haul fiber network and the recent launch of Nextlink, which holds one of the largest arrays of fixed wireless spectrum assets. Operationally, we continued to make strides in reducing our costs and growing revenue from our core services and new strategic IP services."

Revenue from XOC in the first quarter of 2006 was $349.6 million compared to $351.2 million in the fourth quarter of 2005 and $361.5 million in the first quarter of 2005. Revenue from Nextlink was $0.1 million in the first quarter of 2006 compared to $0.0 million in the first quarter of 2005.

Revenue from voice services -- consisting of local, long distance and other voice services -- was $179.4 million in the first quarter of 2006 compared with $177.6 million in the fourth quarter of 2005 and $186.3 million for the first quarter of 2005. Revenue from core voice services grew, but this was offset by XOC's deliberate de-emphasis of sales of non-core voice services. Revenue from data services -- consisting of Internet access, network access and web hosting -- was $103.8 million in the first quarter of 2006 compared with $107.4 million in the fourth quarter of 2005 and $108.4 million for the first quarter of 2005. Revenue from core data services such as Collocation, Ethernet and Multi-Transport Network Services grew modestly, but this was offset by declines in revenue from non-core services like dial-up internet access, digital subscriber line and stand-alone hosting services. Revenue from integrated services -- consisting of integrated data and voice services -- was $66.3 million in the first quarter of 2006 compared with $66.5 million in the fourth quarter of 2005 and $66.8 million for the first quarter of 2005. Revenue from core integrated services grew as a result of strong acceptance of XOptions Flex, but this was offset by XOC's deliberate de- emphasis of sales to non-core integrated services.

Gross margin, as such term is used here, for XOC in the first quarter of 2006 was $195.2 million, or 55.8% of revenue, compared to $196.2 million, or 55.9% of revenue, in the fourth quarter of 2005 and $213.6 million, or 59.1% of revenue, in the first quarter of 2005. Cost of service for the first quarter of 2006 increased compared to the same period in 2005, largely as a result of the adverse impact from the Triennial Review Remand Order as discussed in the "Regulatory Overview" section of XOH's Form 10-Q quarterly report. Gross margin for Nextlink in the first quarter of 2006 was $0.1 million, or 100% of revenue. Nextlink is currently providing services between wireless hubs and remotes for which there is no corresponding cost of services. In the future Nextlink expects to incur cost of service as the product and customer base expands.

SOG expenses for XOC in the first quarter of 2006 were $173.7 million, or 49.7% of revenue, compared with $178.7 million, or 50.9% of revenue, in the fourth quarter of 2005 and $191.5 million, or 53.0% of revenue, in the first quarter of 2005. The improvements as a percentage of revenue are largely attributable to back office efficiencies as a result of system automation and consolidation of functions. SOG expenses for Nextlink in the first quarter of 2006 were $5.2 million compared with $0.2 million in the first quarter of 2005. Nextlink incurred $2.9 million of professional and legal services expenses related to the now terminated sale of the Company's wireline business.

Adjusted EBITDA, as such term is used here for XOC in the first quarter of 2006 was $22.5 million compared with $17.5 million in the fourth quarter of 2005 and $22.2 million in the first quarter of 2005. Adjusted EBITDA for the first quarter of 2006 included favorable carrier settlements of $9.9 million, compared with $12.4 million in the first quarter of 2005. Adjusted EBITDA for Nextlink in the first quarter of 2006 was ($5.1) million compared to ($0.2) million in the first quarter of 2005.

Net loss for XOH in the first quarter of 2006 was $43.7 million, or ($0.26) per share, compared with a net loss of $43.5 million, or ($0.26) per share, in the fourth quarter of 2005 and a net loss of $42.9 million, or ($0.25) per share, in the first quarter of 2005.

Capital expenditures for XOC were $20.9 million in the first quarter of 2006 compared to $21.5 million in the first quarter of 2005. Capital expenditures for Nextlink were $1.9 million in the first quarter of 2006 compared to $0.0 million in the first quarter of 2005.

During the first quarter of 2006, XOH's balance of cash and cash equivalents decreased to $161.4 million compared to $176.8 million at the end of the fourth quarter of 2005. Negative cash flow was substantially driven by timing issues of cash payments versus accruals.

On April 24, 2006, XOH launched Nextlink, a new broadband wireless company with spectrum coverage in 75 metropolitan markets that offers broadband services to mobile and wireline communications service providers, businesses and government agencies. Nextlink is now offering services in Dallas, Los Angeles, Miami, San Diego, Tampa and Washington, DC, and expects to launch service in additional markets over the next two years. Nextlink offers wireless backhaul and network redundancy and diversity services utilizing broadband radio signals transmitted between points of presence location within a line-of-sight over distances of up to seven miles.

On April 17, 2006, XOC launched the second phase of XOptions Flex to include business trunks and PRIs. This enhancement expands the addressable market for XOptions Flex to support businesses with as many as 160 employees at each location.

On March 20, 2006, XOC announced it is deploying the Infinera DTN optical system in a major upgrade of its 18,000-mile nationwide long haul fiber optic network. The new Infinera equipment will enable XO to upgrade to the simplicity, flexibility and efficiency of digital fiber optics. Among the benefits, XO will double its network capacity, boost reliability, enhance management of its network infrastructure, and significantly accelerate the provisioning and delivery of higher capacity data services to enterprise and service provider customers.

On March 20, 2006, XOC launched Ethernet over copper services, allowing XOC to offer Ethernet services to a larger target market.

XO Holdings is the holding company of XO Communications, LLC and Nextlink Wireless, Inc. 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.

By Robert Hoskins

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