TWTC - Sector: Services --- Industry: Communications Services

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Time Warner Telecom Inc.
10475 Park Meadows Drive
Littleton, CO 80124
United States - Map
Phone: 303-566-1000
Fax: 303-566-1008
Web Site: http://www.twtelecom.com

DETAILS  
Index Membership: N/A
Sector: Technology
Industry: Telecom Services - Domestic
Full Time Employees: 2,784


BUSINESS SUMMARY  
Time Warner Telecom, Inc. provides managed voice and data networking solutions to business customers and organizations in the United States. It offers network, local, and long distance voice services, data transmission services, high-speed dedicated Internet access, and intercarrier services. The company provides network services for voice, data, image, and video transmission, which include pop-to-pop special access, interexchange carrier special access, private lines, metropolitan and regional connectivity, and transport arrangements. Its voice services include business access line, access trunks, local toll service, local telephone service, long distance service, and bundled services. The company's data services include point-to-point native local area network (NLAN), point-to-multipoint NLAN, multipoint NLAN, customer-direct NLAN, switched NLAN, extended NLAN, wholesale NLAN, storage transport solutions, managed security services, and Internet protocol virtual private network service. Time Warner's Internet services include high-speed and traditional Internet services. Further, it offers intercarrier services, such as switched access service; and origination and termination of long distance calls, and the termination of local calls. The company's customers include enterprise organizations in healthcare, finance, higher education, distribution, manufacturing, professional services, and hospitality industries; and state, local, and federal government entities. It also serves long distance carriers, incumbent local exchange carriers, competitive local exchange carriers, wireless communications companies, and Internet service providers. The company was founded in 1993 and is headquartered in Littleton, Colorado.

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Press Release Source: Time Warner Telecom Inc.


Time Warner Telecom Reports Strong Second Quarter 2007 Results
Tuesday August 7, 5:03 pm ET 
- Achieves higher margins reflecting strength in enterprise business, and efficient integration and cost synergies -
- Grew core operation's Data & Internet revenue by 30% year over year -
- Grew core enterprise revenue 19% year over year - accelerating from prior quarter -
- Completes major systems integration - now operating under integrated nationwide platform for network, maintenance, surveillance, ordering, provisioning and billing systems -


LITTLETON, Colo., Aug. 7 /PRNewswire-FirstCall/ -- Time Warner Telecom Inc. (Nasdaq: TWTC - News), a leading provider of managed voice and data networking solutions for business customers, today announced its second quarter 2007 financial results, including $268.0 million of revenue, $83.0 million in Modified EBITDA(1) ("M-EBITDA") and a net loss of $9.6 million.
"We continue to deliver strong organic enterprise revenue growth, drive sales momentum, and achieve solid margins while integrating a major expansion of our operations," said Larissa Herda, Time Warner Telecom's Chairman, CEO and President. "We have made substantial progress in all phases of our integration which includes organizational, network and systems changes that impact virtually all aspects of our business. We achieved this progress while accelerating the growth of our enterprise business. Integrating our operations and continuing to leverage our ability to serve the growing enterprise demand is where we are focused and why we are well positioned to capture greater market share."

Highlights for the Quarter

"Core(2)" operations exclude the results from acquired operations and related integration costs. "Acquired(3)" operations exclude integration costs. Both core and acquired exclude the impact of a reclassification of certain fees and taxes(4).


    For the quarter ending June 30, 2007, the Company --

    -- Grew total revenue 40% year over year and 3% sequentially
       -- Included core growth of 9% year over year and 3% sequentially

    -- Grew enterprise revenue 57% year over year and 5% sequentially
       Enterprise revenue represents 68% of total revenue for the quarter
       -- Included core growth of 19% year over year and 5% sequentially

    -- Grew data and Internet revenue 53% year over year and 12% sequentially
       (7% sequential growth excluding the impact of the change in categories
       for certain products of the acquired operations(5)) -- Included core
       growth of 30% year over year and 7% sequentially

    -- Produced $83.0 million of M-EBITDA and a 31% M-EBITDA margin

    -- Delivered ($13. million of levered free cash flow(7), which included
       $15.3 million for integration and branding expenditures, or $1.5
       million before these items


    Year over Year Results -- Second Quarter 2007 compared to Second Quarter
    2006

Revenue

Revenue for the quarter was $268.0 million, as compared to $191.3 million for the second quarter of 2006, an increase of $76.7 million, or 40%. The core operations reflected a 9% growth over the same period last year. Key changes in revenue included:


    (Core results exclude the impact of the reclassification for certain taxes
     and fees(4))

    -- $62.5 million increase in revenue from enterprise customers, which
       included the impact of the acquired operations and a $21.6 million, or
       a 19% increase, from core operations

    -- $7.1 million increase in revenue from carriers, which included the
       impact of the acquired operations and a $4.0 million decrease from core
       operations with $3.7 million due to disconnects from one wireless
       customer

    -- $2.9 million increase in intercarrier compensation primarily related to
       the acquired operations

    -- $4.2 million increase to account for certain taxes and fees on a gross
       versus net basis(4)


    By product line, the percentage change in revenue year over year was as
    follows:

    -- 53% increase for data and Internet services(, which included the
       impact of the acquired operations and core growth.  Core operations
       grew 30% due primarily to success with Ethernet and IP-based product
       sales

    -- 80% increase for voice services(9), which included the impact of the
       acquired operations and core growth.  Core operations grew 13% due
       primarily to strength across the product portfolio

    -- 13% increase for network services(10) due to the acquired operations.
       Core operations decreased 4% due primarily to disconnects from one
       wireless carrier and normal renewals of carrier contracts at current
       market pricing

    -- 33% increase in intercarrier compensation primarily related to the
       acquired operations.  Core operations increased 3%


Monthly revenue churn was 1.1% for both the current quarter and the same period last year; however this reflects a decrease from the prior quarter which was 1.2%. The Company expects to experience ongoing revenue churn, including disconnects from carrier customers related to their merger activities and network grooming.

Growth in the core operations customer counts remained strong. Consolidated customer counts decreased due to a higher churn rate for the acquired operations' customer segment, as well as conversion of the acquired customer base to a common customer profile(12) during integration. The acquired customer churn had an impact of less than $1 million reduction in revenue for the quarter, while the change in the customer profile had no impact on revenue. The Company expects churn and reduction in customer counts from the acquired operations may continue as the Company completes its integration.

M-EBITDA and Margins

M-EBITDA grew $13.4 million to $83.0 million for the quarter, a 19% increase over the same period last year primarily reflecting strong core revenue growth and the impact of the acquired operations. M-EBITDA included $2.3 million of integration and branding costs in the quarter, and none in the same period last year. Operating costs increased primarily reflecting the impact of the acquisition and related higher network access costs which were partially offset by integration synergies, and the change in 2007 to present certain taxes and fees on a gross versus net basis. Selling, general and administrative costs ("SG&A") increased primarily reflecting the acquisition of the acquired operations as well as increased employee costs, including higher sales incentive costs associated with revenue growth. SG&A as a percent of revenue decreased to 28% for the current quarter from 29% for the same period last year, reflecting operating efficiencies.

M-EBITDA margin was 31% for the quarter as compared to 36% for the same quarter last year. Modified gross margin(11) was 57% for the current quarter compared to 64% for the same period last year. The difference in margins between periods primarily reflects higher access costs related to the acquired operations.

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 Loss

The Company's net loss was $9.6 million, a loss of $.07 per share for the quarter compared to a net loss of $40.4 million, a loss of $.34 per share for the second quarter of 2006. The decrease in the net loss reflects strong M-EBITDA growth, debt extinguishment costs of $25.8 million for the second quarter of last year that did not recur, offset by an increase in depreciation expense related to both the acquired assets and new capital expenditures placed in service.

Sequential Results -Second Quarter 2007 compared to First Quarter 2007

Revenue

Revenue for the quarter was $268.0 million, as compared to $261.4 million for the first quarter of 2007, an increase of $6.6 million, or 3%. Revenue from core operations grew 3% over the prior quarter. Key changes in revenue included:


    (Core results exclude the impact of the reclassification for certain taxes
     and fees(4))

    -- $7.4 million increase in revenue from enterprise customers.  This
       included a $7.1 million sequential increase for core operations, or a
       5% increase

    -- $2.2 million decrease in revenue from carrier customers, which included
       a $1.2 million decrease from core operations with $.9 million due to
       disconnects from one wireless customer

    -- $1.4 million increase to account for certain taxes and fees on a gross
       versus net basis(4)


    By product line, the percentage change in revenue sequentially was as
    follows:

    -- 12% increase for data and Internet services, which included strong core
       growth (7% growth excluding the impact of the change in categories for
       certain acquired products from voice revenue(5)).  Core operations
       included 7% growth due primarily to success with Ethernet and IP-based
       product sales

    -- Voice services were stable with the prior quarter (5% growth excluding
       the change in categories for certain acquired products to data and
       Internet revenue(5)).  Core operations increased 7% due primarily to
       strength across the product portfolio

    -- 2% decrease in network services due to disconnects and normal renewals
       of carrier contracts at current market pricing.  Core operations
       included a 2% decrease with nearly half related to disconnects from one
       wireless customer


M-EBITDA and Margins

M-EBITDA was $83.0 million for the quarter, as compared to $76.3 million for the prior quarter, a 9% increase or $6.6 million. M-EBITDA margin was 31% for the quarter, as compared to 29% in the prior quarter. Modified gross margin was 57% for the quarter as compared to 55% in the prior quarter. The change in M-EBITDA and margins primarily reflects strong revenue growth, integration cost synergies, seasonal reduction in payroll taxes, and improved access costs due to volume discounts and network optimization.

Net Loss

The Company's net loss was $9.6 million, a loss of $.07 per share for the quarter compared to a net loss of $13.8 million, or a loss of $.10 per share for the prior quarter. The decrease in net loss per share reflects strong M-EBITDA growth partially offset by an increase in depreciation expense related to new capital expenditures placed in service.

Integration Milestones

The Company achieved substantial progress integrating its acquired operations through three major integration initiatives including organizational, systems and network activities.


    -- Organizational Integration -- The Company's organizational integration
       is complete resulting in a single organization for sales, customer
       care, field operations, marketing and headquarter functions, and two
       integrated national operations centers each with the capability to
       provision nationwide across all customers and major company products.
       The Company completed its expected employee-related integration cost
       synergies as of the end of the second quarter.

    -- Systems Integration -- The Company now has a common data and system
       infrastructure serving all customers nationwide.  As of July, the
       Company has completed its major systems integration including human
       resources, financial, sales, customer management, billing,
       provisioning, network and surveillance systems.   This means that all
       employees are using a common platform to perform these functions.  This
       integration included substantial data conversions, process
       implementation and training.  These changes were designed to maximize
       operating efficiencies, expand the Company's scalability to serve
       growing market demand, and enable excellent customer care.

    -- Network Integration -- The Company has fully integrated its transport,
       voice, IP, long distance and national SS7 signaling networks, enabling
       the Company's full product suite in the majority of the acquired
       markets.  The Company completed its rollout of additional product
       capabilities to ten acquired markets and has begun selling its full
       product suite in these markets.  In addition, the Company continues to
       optimize, groom and migrate network circuits.  This effort is underway
       and on schedule to conclude in the first half of 2008 to fully realize
       the expected cost savings.


"We are very pleased with our integration progress," said John Blount, Time Warner Telecom's Chief Operating Officer. "We have maintained the momentum of our core business while very efficiently moving through a large acquisition. Our employees did a great job in stepping up to this large integration effort, thereby avoiding a large portion of planned integration operating costs and at the same time accelerating the availability of our full product capabilities into the acquired markets. Our systems are integrated and now we continue the hard work of refining our workflow and processes in order to optimize the newly integrated operations. Completing the important process of network grooming will take time, but we expect it will result in us realizing our greatest cost synergies."

The Company continues to expect that integration cost synergies will be primarily realized in late 2007 and into 2008. For 2007, the Company continues to expect $35 to $45 million in integration expenditures, with the mix changing to reflect the Company's expectation of $5 to $7 million in operating costs, reflecting the efficiencies of the Company's integration activities, and $30 to $38 million in capital expenditures, reflecting increased capacity and acceleration of the rollout of new product capabilities.

Other

The Company has extended the right to use its existing Time Warner Telecom name through June of 2008. Prior to extending this licensing agreement the Company had began a branding initiative that resulted in approximately $1 million of expenses in the second quarter. The Company plans to continue certain activities throughout 2007 leading to a name change in 2008. Costs for the remainder of 2007 are expected to be less than $1 million.

M-EBITDA Margin Outlook

"We have made substantial progress on integration and our remaining activities are on track," said Mark Peters, Time Warner Telecom's Executive Vice President and Chief Financial Officer. "We are pleased with our financial results this quarter. Our organic revenue growth and excellent integration progress, both in terms of cost synergies and efficiencies, are reflected in our margin growth. As in the past, we expect future quarterly margins will be impacted by the timing of sales, installations, seasonality and other normal business fluctuations, as well as integration synergies and costs. We anticipate reaching pre-acquisition M-EBITDA margins during the summer of 2008."

Capital Expenditures (excluding Integration capital investments)

Excluding integration capital investments, capital expenditures were $65.6 million for the second quarter. For 2007, consistent with prior guidance, the Company expects capital expenditures, excluding integration investments, to be approximately $230 to $250 million, which will primarily be used to fund growth opportunities.

Summary

"We continue to leverage our leadership position in the enterprise marketplace by delivering customers innovative solutions with our customer service, network and product capabilities which we are extending throughout our expanded footprint with the successful integration of our acquired operations. We remain focused on delivering strong enterprise growth, driving sales momentum and growing cash flow," said Herda.

Time Warner Telecom Inc. plans to conduct a webcast conference call to discuss its earnings results on August 8 at 9:00 a.m. MDT (11:00 a.m. EDT). To access the webcast and the financial and statistical information to be discussed in the webcast, visit http://www.twtelecom.com under "Investor Relations."


    (1) The Company uses a modified definition of EBITDA to eliminate certain
        non-cash and non-operating income or charges to earnings to enhance
        the comparability of its financial performance from period to period.
        Modified EBITDA (or "M-EBITDA") is defined as net income or loss
        before depreciation, amortization, accretion, asset impairment charge,
        interest expense, debt extinguishment costs, interest income,
        investment gains and losses, income tax expense or benefit, cumulative
        effect of change in accounting principle, and non-cash stock-based
        compensation expense.

    (2) Core operations are defined as the Company's operations excluding the
        results from the acquired operations and the related integration
        costs, and excluding the impact of the reclassification to present
        certain taxes and fees on a gross versus net basis as described in
        Note 4 below.

    (3) Acquired operations are defined as the results of the acquisition of
        Xspedius Communications, LLC since October 31, 2006, excluding
        integration costs and excluding the impact of the reclassification to
        present certain taxes and fees on a gross versus net basis as
        described in Note 4 below.

    (4) In 2007 the Company revised its presentation for certain state and
        regulatory taxes and fees billed to customers by presenting them on a
        gross versus net basis.  This has no impact on M-EBITDA or net income,
        but increased revenue and operating expenses and decreased the
        modified gross and M-EBITDA margins.  See details on pages 14 and 15
        for more details.

    (5) As part of integration the company changed the categories for certain
        products of its acquired operations from voice to data and Internet
        revenue to reflect the nature of the data and Internet component of
        its bundled voice services. The related impact was $3.8 million
        sequentially from the second quarter of 2007 compared to the first
        quarter of 2007.

    (6) The Company defines unlevered free cash flow as Modified EBITDA less
        capital expenditures. Unlevered free cash flow is reconciled to Net
        Cash provided by (used in) operating activities in the supplemental
        information posted on the Company's website.

    (7) The Company defines levered free cash flow as Modified EBITDA less
        capital expenditures and net interest expense from operations (but
        excludes debt extinguishment costs).  Levered free cash flow is
        reconciled to Net Cash provided by (used in) operating activities in
        the supplemental information posted on the Company's website.

    ( Data and Internet services include services that enable customers to
        connect their internal computer networks and to access external
        networks, including Internet at high speeds using Ethernet protocol.
        Services include metro and wide area Ethernet, virtual private network
        solutions and Internet access.

    (9) Voice services contain traditional and next generation voice
        capabilities, including voice services from stand alone and bundled
        products, long distance, 800 services, and VoIP.

    (10)Network services include transmission speeds up to OC 192 to carrier
        and enterprise customers.  These services transmit voice, data,
        image, as well as enable transmission for storage, using
        state-of-the-art fiber optics.

    (11)The Company defines modified gross margin as Total Revenue less
        operating costs excluding non-cash stock-based compensation expense.
        Modified gross margin is reconciled to gross margin in the financial
        tables.

    (12)As a result of integrating the acquired customers into the Company's
        billing system, the Company began applying its core operations
        convention of counting customer accounts under one common ownership
        to the acquired operations' customer, resulting  in a reduction of
        customer counts for the acquired operations in the second quarter.


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 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 2007 and beyond, including expansion plans, growth prospects, expected margins, sales activity, expected customer disconnections, expected cost synergies, integration and branding costs, integration activities and results 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 summarized in the Company's filings with the SEC, especially the section entitled "Risk Factors" in its 2006 Annual Report on Form 10-K. Time Warner Telecom undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

About Time Warner Telecom

Time Warner Telecom Inc., headquartered in Littleton, Colo., provides managed network services, specializing in Ethernet and transport data networking, Internet access, local and long distance voice, VoIP and security, to enterprise organizations and communications services companies throughout the U.S. As a leading provider of integrated and converged network solutions, Time Warner Telecom delivers customers overall economic value, quality service, and improved business productivity. Please visit www.twtelecom.com for more information.

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Source: Time Warner Telecom Inc.

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Forgot to give you the chart.......

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updated chart look...