PAETEC (PAET) plans to buy more companies over the next five years now that its board has approved a new strategic plan “to start looking a little bit more aggressively.”
That was the word from Keith Wilson, PAETEC’s CFO, on the company’s Nov. 5 third-quarter earnings conference call.
In fact, if the situation warrants, PAETEC may be willing to leverage a purchase four times its operating cash flow. That is, if, in “a very short period of time ... we can see network cost and expense synergies quickly bringing that down ... just like we did with US LEC and McLeod,” Wilson said.
Meanwhile, PAETEC also expects to invest in “high-quality people,” as well as product development, said PAETEC’s Chairman and CEO, Arunas Chesonis. That’s because, as the economy recovers, albeit slowly, companies still will rely on broadband to replace face-to-face meetings and to facilitate collaboration worldwide. Indeed, broadband adoption only will increase from here on out.
Nevertheless, while the demand bodes well for PAETEC, it does not necessarily translate into more customers, who have yet to rehire “the people they laid off in the last 18 months,” Chesonis explained in an exclusive interview with xchange and its sister publication VON on Thursday.
“We’re optimistic but we’re cautious about how fast everything’s going to crank up as far as new jobs created,” he said. “But that doesn’t mean usage can’t go up.”
3Q Losses Higher Than Last Year
Yet even as it looks for new opportunities, PAETEC is keeping its current financials in mind. On Thursday the Rochester, N.Y.-based CLEC reported third-quarter 2009 earnings that, while not mind-blowing, highlighted it is riding out the recession with promise.
“Even though we are still experiencing a difficult economic environment, we grew enterprise business over 1 percent from the second quarter to third quarter of this year," Chesonis told analysts.
On a regional basis, though, and like its peers, PAETEC is dealing with fewer sales in areas where unemployment is high and demand from verticals such as real estate is low.
"You can expect that in locations like California, Florida, [business] still tends to get harder hit," Chesonis said.
However, PAETEC is "actually seeing some good sales results" in parts of the Midwest, even as key markets such as Michigan have been slammed by the automotive industry's collapse, Chesonis said.
All of those factors contributed to PAETEC’s third-quarter losses of $6.5 million. Still, that’s better than the same period last year, when the Rochester, N.Y.-based company lost $6.9 million. Revenue was down, though – in 2008, sales amounted to $406.1 million. This time around they came to $395.7 million. Fewer carrier-services sales helped account for that drop – those deals fell by $1.5 million.
