- Achieved 35.1% M-EBITDA margin, a 210 basis point expansion year over year
- Delivered $14 million levered free cash flow, or 5% of revenue
- Produced $3 million of Net Income, reflecting $0.02 earnings per share1,
representing growth of $0.05 per share year over year
LITTLETON, Colo. – May 11, 2009 – tw telecom inc. (NASDAQ: TWTC), a leading provider of managed voice, Internet and data networking solutions for business customers, today announced its first quarter 2009 financial results, including $297.6 million of revenue, $104.4 million in Modified EBITDA2 (“M-EBITDA”) and net income of $2.9 million.
“We performed well in a difficult economic environment, delivering another solid quarter,” said Larissa Herda, tw telecom’s Chairman, CEO and President. “We continued to grow revenue, deliver impressive margins and generate solid cash flow while maintaining our strong liquidity. Profitably growing revenue is our top priority as we leverage customer demand for our Ethernet, IPVPN, Internet solutions and our recently launched managed services. We expect ongoing headwinds from the economy, therefore we remain nimble with a very disciplined approach. At the same time we continue to position for the future by investing in the customer experience and strategic development of our network reach and product portfolio.”
Highlights for the First Quarter 2009
•Grew total revenue 5% year over year and 1% sequentially
•Grew enterprise revenue 9% year over year and 2% sequentially
•Grew data and Internet revenue 21% year over year and 4% sequentially
•Grew M-EBITDA 12% year over year, and was nearly flat sequentially
•Achieved a 35.1% M-EBITDA margin, a 210 basis point improvement year over year
•Delivered $14.5 million of levered free cash flow4, representing 5% of revenue
•Ended the quarter with $353.2 million in cash and equivalents, and sequentially improved days sales outstanding for receivables and decreased bad debt expense
•Implemented FASB Staff Position APB 14-1 for convertible debt, which increased non cash interest expense and decreased net income, thereby lowering EPS with various impacts to the balance sheet, including decreasing debt.
Business Trends
“We are pleased with our strong margins and continued strong liquidity,” said Mark Peters, tw telecom’s Executive Vice President and Chief Financial Officer. “We generated solid revenue growth, which was driven by record fourth quarter sales somewhat offset by persistently higher revenue churn. Coming off that record quarter, our sales started the year at levels below the same period for the prior year, but grew throughout the quarter. Overall, the trends in the business remain steady.”
The Company continues in a strong liquidity position with no significant debt maturities until 2013, $353 million in cash and equivalents, an undrawn revolver, and no financial maintenance covenants unless it draws its revolver5.
Churn
Reflecting the current economic environment, revenue churn6 was 1.3% compared to 1.2% for the prior quarter and 1.1% for the same quarter last year. The Company expects elevated revenue churn to continue to pressure revenue growth.
Customer churn6 was 1.3% for the current and prior quarter, down from 1.4% for the same quarter last year. The majority of the turnover was from small acquired customers that are below the Company’s service profile and the Company expects this churn will continue.
Other items for 2009
The Company continues to expect business fluctuations to impact sequential trends in revenue, margins and cash flow. This includes the timing as well as any seasonal nature of sales and installations, usage, disputes, repricing of contract renewals and ongoing revenue churn. Given the current economic environment, seasonal and other trends may differ from historical experience.
As of January 1, 2009, the Company adopted mandated FASB Staff Position APB 14-1 (“FSP APB 14-1”), which addresses changes in accounting for certain convertible debt instruments. The impact of this pronouncement was to record a discount on the Company’s convertible debt to reflect the fair value at issuance. Adoption of this pronouncement, which was retrospectively applied to all periods presented in its financial statements, increased non cash interest expense, decreased net income, and decreased debt along with other balance sheet impacts. See the Company’s supplemental earnings slides for further details.
Capital Expenditures
Capital expenditures were $73.4 million for the quarter compared to $72.9 million for the prior quarter and $59.6 million for the same period last year. The increase primarily reflects $9.7 million for an opportunistic purchase of fiber assets and other market and collocation expansions, which were driven by customer demand. For 2009, the Company expects total capital expenditures to be approximately $250 to $275 million with the majority of the capital tied to new sales opportunities.
Year over Year Results –First Quarter 2009 compared to First Quarter 2008
Revenue
Revenue for the quarter was $297.6 million compared to $282.6 million for the first quarter last year, representing a year over year increase of $15 million, or 5%. Key changes in revenue included:
•$19.0 million increase in revenue from enterprise customers, or 9% year over year, representing 27 consecutive quarters of enterprise growth
•$2.7 million decrease in revenue from carriers. Growth in new sales was outpaced by churn, including $1.5 million lost revenue from one wireless customer, and repricing of renewed customer contracts
•$1.3 million decrease in intercarrier compensation related primarily to rate reductions
By product line, the percentage change in revenue year over year was as follows:
•21% increase for data and Internet services, primarily due to continued success with Ethernet and IP-based product sales
•Voice services, remained relatively unchanged reflecting growth in bundled and other local product sales offset by churn
•3% decrease for network services, primarily due to churn and repricing for contract renewals primarily related to carrier customers, partially offset by an increase in collocation services
M-EBITDA and Margins
M-EBITDA grew to $104.4 million for the quarter from $93.4 million for the same period last year, a 12% increase, or $11.1 million. The growth in M-EBITDA represents the contribution from revenue growth, cost synergies from network optimization efforts and overall efficiency gains, partially offset with higher bad debt expense.
Operating costs for the quarter increased primarily due to increased network access costs associated with growth in customer installations of service, partially offset by grooming and employee-related cost efficiencies. Operating costs as a percent of revenue were 42% for the current period compared with 43% for the same period last year.
Selling, general and administrative costs (“SG&A”) increased year over year, primarily reflecting increased bad debt expense and higher employee costs for incentive based sales compensation due to growth in revenue, partially offset by employee-related cost efficiencies. Bad debt expense was $3.5 million for the quarter and $.9 million for the same period last year, representing 1.2% of quarterly revenue for the current quarter and .3% for the same period last year. SG&A costs as a percent of revenue declined to 25% for the quarter as compared to 26% for the same period last year, reflecting cost efficiencies and scaling of the business.
Modified gross margin7 was 58.7% for the current quarter compared to 57.6% for the same period last year, a 110 basis point improvement. M-EBITDA margin for the quarter was 35.1% as compared to 33.0% for the same period last year, a 210 basis point improvement. The improvement in margins between periods primarily reflects contributions from revenue growth, efficiencies and scaling of the business, partially offset by higher bad debt expense.
The Company utilizes a fully burdened modified gross margin, including network costs, and personnel costs for customer care, provisioning, network maintenance, technical field and network operations, excluding non-cash stock-based compensation expense.
Net Income and Loss
For the quarter, the Company achieved a $0.05 per share improvement in EPS with net income of $2.9 million, or $0.02 per share for the current quarter compared to a net loss of $4.8 million, or a loss of $0.03 per share, for the same period last year. Net income for the quarter reflects strong M-EBITDA growth partially offset by increased depreciation. The increase in depreciation represents increased capital investments partially offset by an increase in fully depreciated assets. The impact of adoption of FSP APB 14-1 decreased earnings per share by $0.03 and $0.02 for the current quarter and the same period last year, respectively.
Sequential Results –First Quarter 2009 compared to Fourth Quarter 2008
Revenue
Revenue for the quarter was $297.6 million, as compared to $294.6 million for the fourth quarter of 2008, an increase of $3.0 million, or 1%. Key changes in revenue included:
•$4.1 million increase in enterprise revenue, representing 2% sequential growth
•$1.2 million decrease in revenue from carrier customers reflecting new sales offset by repricing of renewed customer contracts and churn
•$0.1 million increase in intercarrier compensation
By product line, the percentage change in revenue sequentially was as follows:
•4% increase for data and Internet services, primarily due to continued success with Ethernet and IP based product sales
•Voice services were relatively unchanged with continued churn offset by increased usage
•2% decrease in network services, primarily due to ongoing disconnects and contract repricing, partially offset by an increase in collocation services
M-EBITDA and Margins
M-EBITDA was $104.4 million for the quarter, compared to $104.2 million for the prior quarter. The Company experienced a $4.0 million increase in costs from the resetting of payroll taxes and other employee related costs. The Company deferred its annual merit raises one month and therefore expects an additional increase in employee costs by approximately $2.0 million in the second quarter reflecting the full quarter impact.
Operating costs decreased primarily reflecting network optimization efforts, fluctuations in field related costs for fuel, utility and repairs & maintenance, partially offset by higher employee costs related to resetting of payroll taxes and other employee related costs. Operating costs were 42% of revenue for the quarter compared to 43% for the prior quarter.
SG&A costs increased primarily reflecting higher employee costs related to resetting of payroll taxes and other employee related costs partially offset by reduced bad debt expense. Bad debt expense decreased to $3.5 million from $3.9 million sequentially, representing 1.2% and 1.3% of quarterly revenue, respectively. SG&A was 25% of revenue for the current quarter compared to 24% for the prior quarter.
Modified gross margin was 58.7% compared to 57.6% for the prior quarter. M-EBITDA margin was 35.1% for the quarter, compared to 35.4% for the prior quarter. The change inM-EBITDA and margins primarily reflects contributions from revenue growth and lower field costs offset by the increase in employee related costs.
Net Income
For the quarter, the Company reported net income of $2.9 million, or $0.02 per share, compared to net income of $.9 million, or $0.01 per share for the prior quarter. Net income reflects stable M-EBITDA and decreased interest costs. The impact of adoption of FSP APB 14-1 decreased earnings per share by $0.03 and $0.02 for the current quarter and the prior quarter, respectively.
Summary
“Profitably growing revenue is our top priority as we continue to leverage our strategic position, develop new products and actively pursue opportunities to grow our business,” said Herda.
tw telecom plans to conduct a webcast conference call to discuss its earnings results on May 12 at 9:00 a.m. MDT (11:00 a.m. EDT). To access the webcast and the financial and other information to be discussed in the webcast, visit www.twtelecom.com under “Investor Relations.”
Financial Measures
The Company provides financial measures using generally accepted accounting principles (“GAAP”) as well as adjustments to GAAP measures to describe its business trends, including Modified EBITDA. Management believes that its definition of Modified EBITDA (see above) is a standard measure of operating performance and liquidity that is commonly reported and widely used by analysts, investors, and other interested parties in the telecommunications industry because it eliminates many differences in financial, capitalization, and tax structures, as well as non-cash and non-operating income or charges to earnings. Modified EBITDA is not intended to replace operating income (loss), net income (loss), cash flow, and other measures of financial performance and liquidity reported in accordance with GAAP. Management uses Modified EBITDA internally to assess on-going operations and it is the basis for various financial covenants contained in the Company’s debt agreements. Modified EBITDA is reconciled to Net Income (Loss), the most comparable GAAP measure, within the Consolidated Operations Highlights and in the supplemental information posted on the Company’s website.
In addition, management uses unlevered and levered free cash flow, which measure the ability of M-EBITDA to cover capital expenditures. The Company uses these cash flow definitions to eliminate certain non-cash costs. Levered and unlevered free cash flow are reconciled to Net Cash provided by (used in) operating activities in the supplemental information posted on the Company’s website. The Company also provides an adjustment to the measure gross margin by eliminating the impact of non-cash stock-based compensation expense related to the adoption of SFAS 123R. Management uses modified gross margin internally to assess on-going operations. Modified gross margin is reconciled to gross margin in the Consolidated Operations Highlights.
Forward Looking Statements
The statements in this press release concerning the outlook for 2009 and beyond, including expansion plans, growth prospects, churn, business fluctuations, sales activity, timing of sales and installations, expense trends, the impact of accounting changes, seasonality, business trends, repricing of contract renewals, revenue growth, margins and cash flow trends, market opportunities, and expected capital expenditures are forward-looking statements that reflect management’s views with respect to future events and financial performance. These statements are based on management’s current expectations and are subject to risks and uncertainties. Important factors that could cause actual results to differ materially from those in the forward looking statements include the risks disclosed in the Company’s filings with the SEC, especially the section entitled “Risk Factors” in its 2008 Annual Report on Form 10-K and in its quarterly report on Form 10-Q for the quarter ended March 31, 2009. tw telecom undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Possibly Similar posts (auto generated):
- PAETEC Q4 2009 and full year 2009 PAETEC Holding Corp. (NASDAQ GS: PAET) today announced fourth quarter 2009 and full year 2009 financial and operating results. “We...
- Time Warner Telecom reports strong Q3 2007 Time Warner Telecom Inc. (NASDAQ: TWTC), a leading provider of managed voice and data networking solutions for business customers, today...
- Qwest Q4 2009 and Qwest 2009 full year Qwest Reports Fourth Quarter and Full Year 2009 Results Fourth Quarter and Full Year Highlights Full year adjusted free cash...
{ 0 comments… add one now }