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Press Release -- July 30th, 2014
Source: TW Telecom
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tw telecom Reports Second Quarter 2014 Results

Delivers Accelerated Revenue Growth Rate of 7.8% Year Over Year and 2.8% Sequentially
Strategic Market Expansion Execution on Track
Announced Merger with Level 3 Communications, Inc.

LITTLETON, Colo., July 30, 2014 /PRNewswire/ -- tw telecom inc. (TWTC), a leading national provider of managed services, including Business Ethernet, converged and IP VPN solutions to enterprises across the U.S. and to their global locations, today announced its second quarter 2014 financial results, including $419.7 million of revenue, $11.1 million of net income, $138.4 million of Modified EBITDA1 ("M-EBITDA"), or $142.5 million of M-EBITDA excluding merger-related costs8, $109.3 million of net cash provided by operating activities and $20.0 million of levered free cash flow3.

"We delivered another quarter of strong financial and operational results including accelerating our revenue growth as we successfully executed on our growth initiatives," said Larissa Herda, tw telecom's Chairman and CEO.  "We also announced a merger agreement with Level 3 during the quarter, bringing together our complementary businesses by combining tw telecom's premier domestic network with Level 3's extensive international network to create what we believe will be an enhanced competitive position to provide customers greater capabilities and services.  Our focus between now and the closing of the merger is to continue to execute on our financial and operational goals," said Herda.

Highlights for the Second Quarter 2014

  • Grew total revenue at a higher rate, including 2.8% sequentially and 7.8% year over year
  • Grew enterprise revenue 2.3% sequentially and 8.7% year over year
  • Grew data and Internet revenue 3.8% sequentially and 15.0% year over year
  • Generated net income of $11.1 million, or $0.08 basic EPS, or $13.5 million of net income, or $0.10 basic EPS excluding merger-related costs8
  • Achieved M-EBITDA of $138.4 million, representing a 33.0% M-EBITDA margin1or 33.9% excluding merger-related costs8
  • Delivered $109.3 million of net cash provided by operating activities
  • Achieved $20.0 million of levered free cash flow, or $24.1 million excluding merger-related costs8

Business Trends

"We achieved strong comprehensive results this quarter, including an accelerated revenue growth rate of 7.8% year over year, which represents the 39th consecutive quarter of sequential revenue growth," said Mark Peters, tw telecom's Executive Vice President and Chief Financial Officer.  "We also delivered a healthy Modified EBITDA margin while continuing to generate cash and maintain our strong balance sheet."

The Company's growth initiatives have resulted in strong second quarter bookings7, or sales, which grew compared to the same period in the prior year and over the prior quarter.

Based on strong business trends, the Company remains confident in its previous outlook for revenue and Modified EBITDA margin.  This included the expectation that its 2014 revenue growth rate will be greater than that of 2013 and Modified EBITDA margin (excluding merger-related costs) will begin to expand toward the end of the year, as a result of anticipated higher revenue growth.

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 seasonality of sales and installations5, usage, rate changes, disputes, settlements, repricing for contract renewals, and fluctuations in revenue churn, expenses, capital expenditures and taxes and fees.

Merger Announcement

On June 15th, the Company entered into an Agreement and Plan of Merger with Level 3 Communications, Inc. and certain subsidiaries, which is subject to closing conditions, including regulatory clearances and shareholder approval.

Strategic Market Expansion

The Company continues to advance its previously announced strategic market expansion initiative to extend its metro fiber footprint into five new high demand markets and accelerate the density of its metro-fiber footprint in more than a third of its existing markets.  Year to date through July 30, the Company has activated 16 of its 33 targeted markets.

Operational Metrics

Revenue churn4 was 0.9% for the second quarter of 2014, comparable to the same quarter last year and up slightly from 0.8% in the prior quarter. As a component of revenue churn, revenue lost from customers fully disconnecting service remained low at 0.2% for the second quarter of 2014, which is consistent with the prior quarter and the same quarter last year, and indicative of a loyal customer base, effective customer experience strategy and competitive product portfolio.

The Company served more than 29,700 customers as of June 30, 2014.  Customer churn4 was 0.8% for both the second quarter of 2014 and the prior quarter, down from 0.9% in the same quarter last year.  Additionally, the Company ended the quarter with approximately 34,000 fiber route miles, the majority of which were metro miles.

Capital Investments

Total capital investments for the second quarter decreased sequentially by $7.0 million and year over year by $5.8 million, primarily reflecting efficiency gains, favorable equipment pricing and the timing of projects.

The Company reduced its previous annual capital investment guidance for 2014 from $440 to $460 million to $420 to $440 million.  The largest component of this revised guidance relates to savings on the strategic market expansion.  This includes greater volume discounts of equipment purchases and more efficient integration of the network than originally forecasted.  The balance of the reduced guidance reflects continuous improvements in inventory management, automation and equipment redeployment as well as the ability to utilize the Company's infrastructure to deliver product enhancements more economically.

Capital investments ("cap-ex") for the second quarter of 2014 were as follows ($ in 000's):

Capital Expenditures

Actuals

Guidance

Three Months Ended

Full Year

Jun. 30

Mar. 31

Jun. 30

2014

2014

2013

2014

Cap-ex - excluding strategic market expansion integration capital (1)

$    86,439

$    94,345

$  100,958

$385,000-$405,000

As a percentage of revenue

20.6%

23.1%

25.9%

Cap-ex - for strategic market expansion integration capital(1)

8,741

7,825

-

35,000

Total Capital Expenditures

$    95,180

$  102,170

$  100,958

$420,000-$440,000

(1)

Investments from the Company's recent strategic market expansion includes capital to fully integrate and connect its expanded market reach into its national network and operating infrastructure.

Intercarrier Compensation

Intercarrier compensation revenue represented 1% of total revenue in the second quarter.  Under an FCC order, intercarrier compensation rates are declining over a six-year period that began in 2012.  The next rate decrease occurs in the third quarter of 2014, which is expected to decrease revenue by approximately $1 million for the balance of the year, before any impacts in fluctuations of minutes of use or carrier settlements.

Year over Year Results – Second Quarter 2014 compared to Second Quarter 2013

Revenue for the second quarter of 2014 was $419.7 million compared to $389.5 million for the second quarter last year, representing a year over year increase of $30.2 million, or 7.8%.  Revenue grew primarily due to ongoing enterprise revenue growth.  Key changes in revenue included:

  • $25.6 million increase in revenue from enterprise customers, or 8.7% year over year, driven primarily by data and Internet services
  • $1.5 million increase in revenue from carriers, reflecting growth in Ethernet services, offset by churn and repricing for contract renewals, primarily in network services
  • $4.8 million increase in taxes and fees reflecting the initiation of billing for certain regulatory fees not previously charged, growth in revenue subject to these charges and an increase in rates
  • $1.6 million decrease in intercarrier compensation revenue, primarily reflecting the impact of a mandatory FCC rate reduction in July 2013

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

  • 15.0% increase for data and Internet services, primarily driven by an increase in strategic Ethernet and VPN-based products, Internet and other services, partially offset by churn and repricing.  Data and Internet revenue represents 60% of total revenue for the quarter compared to 56% a year ago
  • 1.9% increase in voice services, primarily from converged and other voice solutions and an increase in usage based services, partially offset by churn.  Voice services revenue represented 19% of total revenue for the quarter compared to 20% a year ago
  • 11.6% decrease in network services, primarily from the impact of churn and repricing, largely from carrier customers.  Network services revenue represents 14% of total revenue for the quarter compared to 17% a year ago in part reflecting the transition from network services to Ethernet-based technologies

Operating Costs

Operating costs for the second quarter of 2014 increased year over year, which primarily included increases in network access costs as a result of revenue growth including increases in services to customer locations outside the Company's markets, an increase in taxes and fees and higher employee-related costs to support ongoing growth and the Company's growth initiatives, as well as annual merit-based salary increases.  Operating costs as a percentage of revenue were 43.2% for the quarter compared to 42.1% for the same period last year.  Modified gross margin6 as a percentage of revenue was 56.9% for the quarter, a decrease from 58.0% in the same period last year, primarily due to higher taxes and fees and network access costs.

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 of costs capitalized for labor and overhead on capital projects.

Selling, General and Administrative Costs ("SG&A")

SG&A costs increased year over year, primarily as a result of higher employee-related costs, including expansion of sales and sales support personnel to support the Company's growth initiatives, annual merit-based salary increases, commissions and incentives, somewhat offset by financing costs incurred in the prior year that did not recur.  In addition, SG&A costs were impacted by $4.1 million of merger-related costs. As a result, SG&A costs as a percentage of revenue increased to 25.9% for the quarter from 24.8% for the same period last year.

Net Income

Net income was $11.1 million for the second quarter of 2014 compared to $17.3 million from the same period last year, reflecting higher depreciation expense resulting from net asset additions, $4.1 million of merger-related costs and higher interest expense, offset by lower income tax expense.  The Company delivered basic earnings per share of $0.08 for the current quarter as compared to $0.12 for the same period last year.  Excluding merger-related costs, net income was $13.5 million or $0.10 basic earnings per share.

M-EBITDA

M-EBITDA was $138.4 million for the second quarter of 2014, an increase of 0.7% from the same period last year, reflecting revenue growth that was largely offset by higher employee-related costs primarily to support the Company's growth initiatives, as well as merger-related costs and increased commissions and incentives.

M-EBITDA margin for the quarter was 33.0% as compared to 35.3% last year.  The change in quarterly margin was due to merger-related costs, costs associated with growth initiatives, taxes and fees and network access costs. Excluding $4.1 million of merger-related costs, M-EBITDA margin was 33.9% for the quarter.

Sequential Results – Second Quarter 2014 compared to First Quarter 2014

Revenue for the second quarter of 2014 was $419.7 million, as compared to $408.3 million for the first quarter of 2014, an increase of $11.4 million, or 2.8%, representing the 39th consecutive quarter of sequential growth.  Revenue grew primarily due to ongoing enterprise growth.  Key changes in revenue included:

  • $7.3 million increase in enterprise revenue, or 2.3% sequential growth, driven primarily by data and Internet services
  • $1.0 million increase in carrier revenue, reflecting growth in Ethernet services, somewhat offset by churn and repricing, primarily in network services
  • $2.7 million increase in taxes and fees reflecting the initiation of billing for certain regulatory fees not previously charged, growth in revenue subject to these charges and an increase in rates
  • $0.5 million increase in intercarrier compensation revenue

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

  • 3.8% increase for data and Internet services, primarily driven by an increase in strategic Ethernet and VPN-based products, Internet and other services, partially offset by churn and repricing
  • 0.7% increase in voice services, primarily reflecting an increase in converged solutions and usage based services, partially offset by churn
  • 2.9% decrease in network services, primarily reflecting the impact of churn and repricing, largely from carriers

Operating Costs

Operating costs increased sequentially, reflecting higher network access costs as a result of revenue growth and an increase in taxes and fees and employee-related costs, primarily in support of the Company's growth initiatives and annual merit-based salary increases.  Operating costs were 43.2% of revenue for the second quarter and 42.6% for the first quarter.  Modified gross margin for the second quarter as a percentage of revenue was 56.9%, a decline from 57.5% in the first quarter largely due to higher taxes and fees as well as employee-related costs.

Selling, General and Administrative Costs

SG&A costs increased sequentially, primarily reflecting merger-related costs and annual merit-based salary increases, somewhat offset by a reduction in payroll taxes, commissions and incentives.  SG&A costs were 25.9% of revenue for the second quarter, or 24.9% excluding $4.1 million of merger-related costs, a decrease from 26.2% for the first quarter largely due to the reduction in payroll taxes, commissions and incentives.

Net Income

Net income was $11.1 million for the second quarter compared to $9.8 million in the first quarter, primarily reflecting higher M-EBITDA, largely attributable to revenue growth, and a reduction in debt extinguishment costs and interest expense, partially offset by $4.1 million of merger-related costs, higher depreciation and income tax expense.  The Company delivered basic earnings per share of $0.08 for the second quarter compared to $0.07 for the first quarter.  Excluding $4.1 million of merger-related costs for the quarter, net income was $13.5 million or $0.10 basic earnings per share.

M-EBITDA

M-EBITDA was $138.4 million for the second quarter, an increase of 1.1% from the first quarter primarily as a result of revenue growth, largely offset by $4.1 million in merger-related costs.  M-EBITDA margin was 33.0% for the second quarter compared to 33.5% for the first quarter.  Excluding $4.1 million of merger-related costs in the quarter, M-EBITDA margin was 33.9%.

tw telecom plans to conduct a webcast conference call to discuss its earnings results on July 31, 2014 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 "Investors."

(1) Modified EBITDA (or "M-EBITDA") is defined as net income or loss before depreciation, amortization, accretion, impairment charges and other income and losses, interest expense, debt extinguishment costs, interest income, income tax expense or benefit, cumulative effect of change in accounting principle, and non-cash stock-based compensation expense.  The Company defines Modified EBITDA margin as M-EBITDA divided by total revenue.

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

(3) Levered free cash flow is defined as Modified EBITDA less capital expenditures and net interest expense from operations (excluding debt extinguishment costs, non-cash interest expense and deferred debt costs), which is reconciled to Net Cash provided by (used in) operating activities in the supplemental information posted on the Company's website.

(4) Revenue churn is defined for the period as average lost recurring monthly billing from a customer's partial or complete disconnection of services (excluding repricing impacts and usage) compared to reported revenue.  Customer churn is defined for the period as average monthly customer turnover compared to the average monthly customer count.

(5) Installations reflect monthly recurring charges for services from signed customer sales that are installed and recognized as revenue from the date of installation.

(6) The Company defines modified gross margin as total revenue less operating costs excluding non-cash stock-based compensation expense.  

(7) Bookings, or sales, are defined as monthly recurring charges for services from signed customer contracts.  The timing of when these sales are installed and recognized into revenue varies based on the underlying contract.

(8) Net income, Basic EPS, Modified EBITDA, Modified EBITDA margin and Levered Free Cash Flow excluding merger related costs are Non-GAAP measures and are reconciled in the supplemental earnings materials to the most comparable GAAP measures.

Financial Measures

The Company provides financial measures using U.S. 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 and for operating performance and liquidity.  Modified EBITDA is reconciled to Net Income (Loss), the most comparable GAAP measure for operating performance within the Consolidated Operations Highlights and in the supplemental information posted on the Company's website.  Modified EBITDA, as a measure of liquidity, is also reconciled to Net Cash provided by operating activities 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 operating activities and also to Modified EBITDA 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.  Management uses modified gross margin internally to assess on-going operations.  Modified gross margin is reconciled to gross margin in the financial tables.

The Company provides Net Income, Basic EPS, Modified EBITDA, Modified EBITDA margin and Levered Free Cash Flow excluding merger-related costs, which management believes is useful to analysts and investors to enhance the comparability of results to prior periods and help identify operating trends.  The supplemental information posted to the Company's website reconciles these measures to the most comparable GAAP measure.

Forward Looking Statements

The statements in this press release and related conference call concerning the outlook for 2014 and beyond, including statements regarding product and platform plans, growth prospects, market opportunities, market expansion and its implementation, sales growth, cash flow and cash balances, growth initiatives, customer opportunities, network capabilities, sales and installations timing, demand, revenue growth, revenue growth rate, Modified EBITDA and margin trends, expense trends, service disconnections, business trends and fluctuations, expected capital expenditures and the expected merger with Level 3 Communications, Inc. 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 SEC filings, especially the section entitled "Risk Factors" and elsewhere in its 2013 Annual Report on Form 10-K and in its quarterly report on Form 10-Q for the quarter ended June 30, 2014 to be filed hereafter, including the risk that the closing of the merger is subject to regulatory and other conditions, some of which may not be satisfied on a timely basis, or at all, and the risk that uncertainty regarding the pending merger could adversely affect the company's ability to retain employees and could cause customers to delay decisions concerning purchases, which could adversely affect revenue, earnings and cash flow, regardless of whether the merger is ultimately completed. 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.

About tw telecom

tw telecom, headquartered in Littleton, Colo., is a leading national provider of managed services, including Business Ethernet, converged and IP VPN solutions for enterprises throughout the U.S. and globally. tw telecom also delivers secure, scalable private connections for transport data networking, Internet access, voice, VPN, VoIP and security to large organizations and communications services companies. Employing a resilient fiber network infrastructure, robust product portfolio and its own Intelligent Network capabilities, tw telecom delivers customers overall economic value, an industry-leading quality service experience, and improved business productivity. Please visit www.twtelecom.com for more information.

tw telecom inc.

Consolidated Operations Highlights

(Dollars in thousands)

Unaudited (1)

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

Growth %

2014

2013

Growth %

Revenue

Data and Internet services 

$253,031

$220,063

15.0%

$496,702

$431,784

15.0%

Voice services 

77,919

76,437

1.9%

155,280

152,467

1.8%

Network services

56,667

64,079

-11.6%

115,034

129,034

-10.8%

Service Revenue

387,617

360,579

7.5%

767,016

713,285

7.5%

Taxes & fees

25,412

20,622

23.2%

48,164

41,216

16.9%

Intercarrier compensation 

6,674

8,282

-19.4%

12,816

16,191

-20.8%

Total Revenue

419,703

389,483

7.8%

827,996

770,692

7.4%

Expenses

Operating costs 

181,391

164,131

355,430

325,213

Gross Margin

238,312

225,352

472,566

445,479

Selling, general and administrative costs 

108,613

96,438

215,445

190,000

Depreciation, amortization and accretion

84,185

75,652

166,641

150,047

Operating Income 

45,514

53,262

-14.5%

90,480

105,432

-14.2%

Interest expense 

(23,274)

(20,487)

(47,309)

(42,033)

Non-cash interest expense and deferred debt costs 

(1,599)

(1,057)

(3,212)

(7,851)

Debt extinguishment costs

-

(399)

(1,282)

(399)

Interest income

109

173

257

450

Income before income taxes

20,750

31,492

-34.1%

38,934

55,599

-30.0%

Income tax expense

9,601

14,145

17,994

25,108

Net Income

$11,149

$17,347

-35.7%

$20,940

$30,491

-31.3%

SUPPLEMENTAL INFORMATION TO RECONCILE MODIFIED GROSS MARGIN AND MODIFIED EBITDA

Gross Margin

$238,312

$225,352

$472,566

$445,479

Add back non-cash stock-based compensation expense

545

545

1,084

1,128

Modified Gross Margin

238,857

225,897

5.7%

473,650

446,607

6.1%

Selling, general and administrative costs

108,613

96,438

215,445

190,000

Add back non-cash stock-based compensation expense

8,107

7,869

16,954

16,748

Modified EBITDA

138,351

137,328

0.7%

275,159

273,355

0.7%

Non-cash stock-based compensation expense

8,652

8,414

18,038

17,876

Depreciation, amortization and accretion

84,185

75,652

166,641

150,047

Net interest expense 

23,165

20,314

47,052

41,583

Non-cash interest expense and deferred debt costs

1,599

1,057

3,212

7,851

Debt extinguishment costs

-

399

1,282

399

Income tax expense

9,601

14,145

17,994

25,108

Net Income

$11,149

$17,347

$20,940

$30,491

Modified Gross Margin %

56.9%

58.0%

57.2%

57.9%

Modified EBITDA Margin %

33.0%

35.3%

33.2%

35.5%

Levered Free Cash Flow ("LFCF")

Modified EBITDA

$138,351

$137,328

0.7%

$275,159

$273,355

0.7%

Less: Cap-Ex, excluding strategic market expansion integration capital (2)

86,439

100,958

-14.4%

180,784

191,811

-5.7%

Less: Net interest expense

23,165

20,314

14.0%

47,052

41,583

13.2%

LFCF, excluding strategic market expansion integration capital (2)

28,747

16,056

79.0%

47,323

39,961

18.4%

Capex - Strategic market expansion integration capital (2)

8,741

-

NM

16,566

-

NM

Levered Free Cash Flow

$20,006

$16,056

24.6%

$30,757

$39,961

-23.0%

(1)

For complete financials and related footnotes, please refer to the Company's SEC filings.

(2)

Strategic market expansion integration capital represents capital investments for the Company's strategic market expansion which includes integration capital to connect the strategic market expansion into its national network and operating infrastructure.

tw telecom inc.

Consolidated Operations Highlights

(Dollars in thousands)

Unaudited (1)

Three Months Ended

Jun. 30

Mar. 31

2014

2014

Growth %

Revenue

Data and Internet services

$253,031

$243,671

3.8%

Voice services 

77,919

77,361

0.7%

Network services

56,667

58,367

-2.9%

Service Revenue

387,617

379,399

2.2%

Taxes & fees

25,412

22,752

11.7%

Intercarrier compensation 

6,674

6,142

8.7%

Total Revenue

419,703

408,293

2.8%

Expenses

Operating costs 

181,391

174,039

Gross Margin

238,312

234,254

Selling, general and administrative costs 

108,613

106,832

Depreciation, amortization and accretion

84,185

82,456

Operating Income 

45,514

44,966

1.2%

Interest expense

(23,274)

(24,035)

Non-cash interest expense and deferred debt costs 

(1,599)

(1,613)

Debt extinguishment costs

-

(1,282)

Interest income

109

148

Income before income taxes

20,750

18,184

14.1%

Income tax expense

9,601

8,393

Net Income

$11,149

$9,791

13.9%

SUPPLEMENTAL INFORMATION TO RECONCILE MODIFIED GROSS MARGIN AND MODIFIED EBITDA

Gross Margin

$238,312

$234,254

Add back non-cash stock-based compensation expense

545

539

Modified Gross Margin

238,857

234,793

1.7%

Selling, general and administrative costs

108,613

106,832

Add back non-cash stock-based compensation expense

8,107

8,847

Modified EBITDA

138,351

136,808

1.1%

Non-cash stock-based compensation expense

8,652

9,386

Depreciation, amortization and accretion

84,185

82,456

Net interest expense

23,165

23,887

Non-cash interest expense and deferred debt costs 

1,599

1,613

Debt extinguishment costs

-

1,282

Income tax expense

9,601

8,393

Net Income

$11,149

$9,791

Modified Gross Margin %

56.9%

57.5%

Modified EBITDA Margin %

33.0%

33.5%

Levered Free Cash Flow ("LFCF")

Modified EBITDA

$138,351

$136,808

1.1%

Less: Cap-Ex, excluding strategic market expansion integration capital (2)

86,439

94,345

-8.4%

Less: Net interest expense

23,165

23,887

-3.0%

LFCF, excluding strategic market expansion integration capital (2)

28,747

18,576

54.8%

Capex - Strategic market expansion integration capital (2)

8,741

7,825

11.7%

Levered Free Cash Flow

$20,006

$10,751

86.1%

(1)

For complete financials and related footnotes, please refer to the Company's SEC filings.

(2)

Strategic market expansion integration capital represents capital investments for the Company's strategic market expansion which includes integration capital to connect the strategic market expansion into its national network and operating infrastructure.

tw telecom inc.

Highlights of Results Per Share

Unaudited (1) (2) 

Three Months Ended

Jun. 30

Mar. 31

Jun. 30

2014

2014

2013

Weighted Average Shares Outstanding (thousands)

Basic 

136,360

138,088

147,071

Diluted (2)

137,814

140,097

148,342

Basic Income per Common Share

Prior to impacts of merger-related costs, net of tax effects

$0.10

$0.07

$0.12

Merger-related costs, net of tax effects

(0.02)

-

-

Total

$0.08

$0.07

$0.12

Diluted Income per Common Share

Prior to impacts of merger-related costs, net of tax effects

$0.10

$0.07

$0.11

Merger-related costs, net of tax effects

(0.02)

-

-

Total

$0.08

$0.07

$0.11

As of

Jun. 30

Mar. 31

Jun. 30

2014

2014

2013

Common shares (thousands)

Actual Shares Outstanding

138,052

137,909

147,618

Unvested Restricted Stock Units and Restricted Stock Awards (thousands)

3,716

3,742

4,199

Options (thousands)

Options Outstanding 

346

486

1,762

Options Exercisable 

345

483

1,606

Options Exercisable and In-the-Money

345

483

1,606

(1)

For complete financials and related footnotes, please refer to the Company's SEC filings.

(2)

Stock options and restricted stock units/awards are excluded from the computation of diluted weighted average sharesoutstanding if inclusion would be anti-dilutive. See the Company's SEC filings for more details.

tw telecom inc.

Condensed Consolidated Balance Sheet Highlights

(Dollars in thousands)

Unaudited (1)

Jun. 30

Mar. 31

Jun. 30

2014

2014

2013

ASSETS

Cash, equivalents, and short term investments

$363,727

$355,233

$614,420

Receivables

113,422

105,101

116,470

Less: allowance

(7,087)

(6,290)

(6,705)

Net receivables

106,335

98,811

109,765

Prepaid expenses and other current assets

25,745

23,734

28,817

Deferred income taxes

54,026

54,026

76,160

Total other current assets

79,771

77,760

104,977

Property, plant and equipment

4,849,680

4,775,473

4,421,375

Less:  accumulated depreciation 

(3,115,543)

(3,049,210)

(2,874,081)

Net property, plant and equipment 

1,734,137

1,726,263

1,547,294

Deferred income taxes

79,426

88,332

77,582

Goodwill

412,694

412,694

412,694

Intangible assets, net of accumulated amortization

9,089

10,322

14,557

Other assets, net 

42,245

43,129

33,897

Total other non-current assets

543,454

554,477

538,730

Total

$2,827,424

$2,812,544

$2,915,186

LIABILITIES AND STOCKHOLDERS' EQUITY 

Current Liabilities

Accounts payable and accrued carrier costs

$75,171

$82,708

$85,648

Deferred revenue

49,248

48,561

47,501

Accrued taxes, franchise and other fees

54,029

52,969

57,747

Accrued interest 

22,732

28,740

19,408

Accrued payroll and benefits

54,469

42,820

47,174

Current portion of debt and lease obligations

8,147

8,878

203,902

Other current liabilities

31,160

37,772

37,571

Total current liabilities

294,956

302,448

498,951

Long-Term Debt and Capital Lease Obligations 

Floating rate senior secured debt - Term Loan B, due 4/17/2020, net of unamortized discount

512,649

513,856

517,477

5 3/8% senior unsecured notes, due 10/1/2022 issued Oct 2012

480,000

480,000

480,000

5 3/8% senior unsecured notes, due 10/1/2022 issued Aug 2013, net of unamortized discount

434,673

434,209

-

6 3/8% senior unsecured notes, due 9/1/2023

350,000

350,000

-

2 3/8% convertible senior debentures, due 4/1/2026 

-

-

196,497

8% senior unsecured notes, due 3/1/2018, net of unamortized discount

-

-

428,195

Capital lease obligations

145,703

145,894

23,536

Less: current portion

(8,147)

(8,878)

(203,902)

Total long-term debt and capital lease obligations

1,914,878

1,915,081

1,441,803

Long-Term Deferred Revenue

19,792

19,871

21,615

Other Long-Term Liabilities 

42,838

42,590

44,203

Stockholders' Equity 

554,960

532,554

908,614

Total

$2,827,424

$2,812,544

$2,915,186

(1)

For complete financials and related footnotes, please refer to the Company's SEC filings.

tw telecom inc.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

Unaudited (1)

Three Months Ended

Jun. 30

Mar. 31

Jun. 30

2014

2014

2013

Cash flows from operating activities:

Net Income

$11,149

$9,791

$17,347

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and accretion

84,185

82,456

75,652

Deferred income taxes

9,235

8,017

13,672

Stock-based compensation expense

8,652

9,386

8,414

Amortization of discount on debt and deferred debt costs

1,599

1,613

1,055

Loss on debt extinguishment

-

1,282

399

Changes in operating assets and liabilities:

Accounts receivable, net

(7,524)

8,447

(5,335)

Prepaid expenses and other current and noncurrent assets

(1,949)

(603)

(1,759)

Accounts payable and accrued carrier costs

(3,508)

4,720

3,989

Accrued interest

(6,587)

6,905

(1,078)

Accrued payroll and benefits

11,721

(9,815)

13,457

Deferred revenue, current and noncurrent

608

15

(96)

Other current and noncurrent liabilities

1,699

(6,989)

(757)

Net cash provided by operating activities

109,280

115,225

124,960

Cash flows from investing activities:

Capital expenditures

(94,365)

(101,633)

(99,709)

Purchase of investments

(57,572)

(51,703)

(106,591)

Proceeds from sale of investments

60,000

69,509

91,051

Other investing activities, net

1,503

4,338

1,775

Net cash used in investing activities

(90,434)

(79,489)

(113,474)

Cash flows from financing activities:

Net proceeds (tax withholdings) from issuance of common stock upon exercise of stock options and vesting of restricted stock awards and units

2,217

(10,380)

26,401

Purchases of treasury stock

(8,394)

(104,170)

(142,683)

Excess tax benefits (shortfalls) from stock-based compensation

382

412

343

Proceeds from modification of debt, net of financing costs

-

-

49,684

Retirement of debt obligations

-

(24,418)

(256,289)

Payment of debt and capital lease obligations

(1,727)

(2,760)

(387)

Net cash used in financing activities

(7,522)

(141,316)

(322,931)

Increase (decrease) in cash and cash equivalents

11,324

(105,580)

(311,445)

Cash and cash equivalents at the beginning of the period

178,839

284,419

731,710

Cash and cash equivalents at the end of the period

$190,163

$178,839

$420,265

Supplemental disclosures cash, equivalents and short term investments

Cash and cash equivalents at the end of the period

$190,163

$178,839

$420,265

Short term investments

173,564

176,394

194,155

Total of cash, equivalents and short term investments

$363,727

$355,233

$614,420

Supplemental disclosures of cash flow information:

Cash paid for interest

$29,549

$17,083

$21,909

Cash paid for income taxes, net of refunds

$2,390

($76)

$4,537

Cash paid for debt extinguishment costs

-

$939

$469

Addition of capital lease obligation

$815

$537

$1,249

Supplemental information to reconcile capital expenditures:

Capital expenditures per cash flow statement

$94,365

$101,633

$99,709

Addition of capital lease obligations

815

537

1,249

Total capital expenditures

$95,180

$102,170

$100,958

(1)

For complete financials and related footnotes, please refer to the Company's SEC filings.

tw telecom inc.

Selected Operating Statistics

Unaudited (1)

Three Months Ended

2013

2014

Mar. 31

Jun. 30

Sept. 30

Dec. 31

Mar. 31

Jun. 30

Operating Metrics:

Buildings  (2) 

18,466

19,082

19,648

20,255

20,778

21,332

Headcount 

Total Headcount

3,191

3,287

3,327

3,397

3,407

3,465

Sales Associates 

578

612

633

664

664

666

Customers 

Total Customers 

28,292

28,526

28,855

29,227

29,521

29,783

(1)

For complete financials and related footnotes, please refer to the Company's SEC filings.

(2)

Reflects on-net buildings and ILEC Local Serving Offices (LSOs) directly served by the Company's fiber network.

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