XO Profit Drops But Broadband Services Fuel Sales

XO Communications revenue grew by $3.7 million in the third quarter, even as net income fell by $6.6 million.

In the three months ended Sept. 30, the parent company of XO Communications reported $385.7 million in sales a 1 percent increase from a year ago while profit dropped 35 percent from $19 million to $12.4 million. XO said the net income mostly resulted from gains from the sale of $16.3 million worth of marketable securities.

The majority of XOs revenue came from broadband services such as IP VPN, Ethernet and dedicated Internet access, all of which generated $228.8 million, up $25 million from 2009s third quarter.

As expected, adoption of legacy and voice products continues to decline. XOs integrated/voice sector brought in $51.7 million in revenue, a 21 percent drop, and the legacy/TDM unit contributed $105.2 million, a 7 percent decrease. XO said in a press release it will continue moving away from tradition telecom services to a broadband-driven business model.”

XO spent much of the third quarter expanding its footprint, an initiative requiring extensive capex. Indeed, XO spent $171.8 million in capex, compared to $148.9 million a year earlier, as it extended its Ethernet-over-copper network, for example, by more than 30 percent, launching in additional cities including Charlotte, N.C., and Buffalo and Rochester, N.Y.

At the same time, XOs costs and expenses which cover services and networks operations rose from $382 million a year ago to $385.7 million. However, XOs selling, general and administrative outlay fell from $120.3 million to $106.6 million. In a filing with the Securities and Exchange Commission, XO said that was due to changes in employee benefits and lower payroll and related costs.

All in all, the news pleased investors: Shares of XO last traded 4 percent higher, at 65 cents, by 10 a.m. Eastern.

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