XO Holdings reported higher adjusted EBITDA and a narrower loss, despite lower revenues for its primary unit, XO Communications. For the third quarter, the company had $352.3 million in revenue, $33.9 million in adjusted EBITDA and a net loss of $23.0 million.

XO Communications did grow its XOFlex customer base by 1450 to more than 7000.

“We continue to see strong demand for XO Communications’ core communications services, including commercial and wholesale voice over IP services and high-bandwidth network transport services,” said Carl Grivner, Chief Executive Officer of XO Holdings. “We expect that XO Communications’ position in the market will benefit from the initiatives we have undertaken to focus around enterprise and carrier services markets, the enhancements to our long haul network and the positive impacts of consolidation in the market. Nextlink also continues to expand its addressable market by building out networks in more cities, developing carrier partnerships and its new reseller program.”

Revenue for XO Communications in the third quarter of 2006 was $351.8 million compared to $354.2 million in the second quarter of 2006 and $358.6 million in the third quarter of 2005. Sales, operating and general expenses for XOC declined to $174.3 million, compared with $179.1 million in the second quarter of 2006 and $177.1 million in the third quarter of 2006. As a result, Adjusted EBITDA for XOC in the third quarter of 2006 increased to $35.8 million, compared with $22.4 million in the previous and $34.4 million in the year-previous quarter. XOC improved its gross margin to 59.6% of revenue, up from 56.8% in the second quarter.

XO Holdings’ other unit, Nextlink, had revenue of $800,000, compared to $100,000 in both the second quarter of 2006 and the third quarter of 2005. Nextlink’s expenses rose to $2.6 million from $2.2 million in the second quarter and $600,000 in the year-previous quarter, as the wireless operation expanded into multiple markets. Adjusted EBITDA was a loss of $1.9 million, compared to a loss of $2.1 million in the second quarter and $500,000 in the third quarter of 2005.

The company said it has obtained a waiver of compliance from an affiliate of Carl Icahn, its primary investor, that will prevent accelerated repayment requirements until Dec. 31, 2007 based on a covenant that establishes a minimum consolidated EBITDA.