— Grew revenue 5% for the year –
— Achieved 36.0% M-EBITDA margin for 2009, a 160 basis point expansion over 2008 —
— Delivered $98 million levered free cash for 2009, an 84% improvement over 2008 —
— Grew EPS to $0.19 per share for 2009 from ($0.05) loss per share in 2008 —
LITTLETON, Colo. – February 8, 2010 – tw telecom inc. (NASDAQ:TWTC, news, filings), a leading provider of managed voice, Internet and data networking solutions for business customers, today announced its fourth quarter 2009 financial results, including $307.9 million of revenue, $113.9 million in Modified EBITDA1 (“M-EBITDA”), $25.7 million in levered free cash flow3 and net income of $11.1 million, or $0.07 earnings per share.
For the year ended December 31, 2009, the Company reported $1.2 billion in revenue, $436.7 million of M-EBITDA, $97.5 million in levered free cash flow and net income of $27.6 million, or $0.19 earnings per share.
“We delivered strong comprehensive financial and operational results in 2009,” said Larissa Herda, tw telecom’s Chairman, CEO and President. “We grew revenue, drove strong margins higher, and generated increased cash flow, while we strategically invested and maintained healthy liquidity. In 2010, we plan to further invest in growth initiatives including equipping our networks with new capabilities, launching new products and services, and implementing tools to better serve enterprise customers. All of these initiatives are focused on capturing greater market share and driving revenue growth.”
Highlights for the Year – 2009 compared to 2008
| • | Grew total revenue 5% year over year and enterprise revenue 8% |
| • | Grew M-EBITDA to $436.7 million, an increase of 9% |
| • | Achieved modified gross margin5 of 58.7%, an 80 basis point improvement |
| • | Achieved 36.0% M-EBITDA margin, a 160 basis point improvement |
| • | Achieved net income of $27.6 million, or $0.19 earnings per share for 2009, compared to a net loss of $7.3 million, or $0.05 loss per share for 2008 |
| • | Delivered levered free cash flow of $97.5 million, or 8% of revenue, compared to $53.2 million, or 5% of revenue for 2008, an 84% improvement |
| • | Ended the year with $470.8 million in cash, equivalents, and short term investments, a 34% increase over December 31, 2008 |
Business Trends
“We continued to scale the business as demonstrated by our ability to accelerate cash generation and grow returns, while strategically investing for long term growth,” said Mark Peters, tw telecom’s Executive Vice President and Chief Financial Officer. “We expect our ongoing investments and strong execution will allow us to drive to higher revenue growth, although economic headwinds are likely to continue in the near term.” The Company continues in a strong liquidity position of $471 million in cash, equivalents and short term investments, with no significant debt maturities until 2013.
Operational Metrics
Reflecting the current economic environment, revenue churn4 was 1.2% for the current quarter and prior quarter, as well as the same quarter last year. As a component of revenue churn, revenue lost from customers fully disconnecting service remained low at 0.3% for both the current and prior quarter, as well as the same quarter last year, reflecting a strong and stable customer base. The Company expects total revenue churn to remain elevated and to continue to pressure revenue growth.
The Company had approximately 28,000 customers as of December 31, 2009. Customer churn4 was 1.2% for the current quarter and prior quarter, down from 1.3% for the same period last year. The majority of the turnover was from small customers, and the Company expects this churn will continue.
The Company ended the fourth quarter with over 27,000 route miles (including more than 20,000 miles of metro miles), over 10,000 buildings on net6 and 2,870 employees, including 522 sales associates.
Other Trends
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 for contract renewals, and fluctuations in revenue churn, expenses and capital expenditures.
The Company expects the first quarter of 2010 will be impacted by historical trends, including lower seasonal revenue growth and a sequential cost increase due to resetting of payroll taxes and other employee related costs.
Capital Expenditures
Capital expenditures were $72.3 million for the quarter compared to $59.9 million for the prior quarter and $72.9 million for the same period last year. The $12.4 million sequential increase reflects the timing of projects for infrastructure, capacity and other IT initiatives. For the year, capital investments were $274.9 million as compared to $276.9 million for the prior year.
The Company expects capital investments for 2010 to be approximately $275 to $300 million. The Company expects the majority of the full year capital investments to be tied to new sales opportunities.
Highlights for the Fourth Quarter 2009
| • | Grew total revenue 5% year over year and 1% sequentially |
| • | Grew enterprise revenue 6% year over year and 1% sequential |
| • | Grew data and Internet revenue 16% year over year and 4% sequentially |
| • | Grew M-EBITDA 9% year over year and 4% sequentially |
| • | Achieved a 37.0% M-EBITDA margin, a 160 basis point improvement year over year and 110 basis point improvement sequentially |
| • | Grew EPS to $0.07 per share, a $0.06 improvement year over year |
| • | Delivered $25.7 million of levered free cash flow, representing 8% of revenue |
Year over Year Results – Fourth Quarter 2009 compared to Fourth Quarter 2008
Revenue
Revenue for the quarter was $307.9 million compared to $294.6 million for the fourth quarter last year, representing a year over year increase of $13.3 million, or 5%. Key changes in revenue included:
| • | $13.9 million increase in revenue from enterprise customers, or 6% year over year, representing 30 consecutive quarters of enterprise growth |
| • | $1.9 million decrease in revenue from carriers. Growth in new sales was outpaced by churn and repricing for contract renewals |
| • | $1.3 million increase in intercarrier compensation related primarily to fluctuations in disputes and volume as well as rate changes |
By product line, the percentage change in revenue year over year was as follows:
| • | 16% increase for data and Internet services, primarily due to continued success with Ethernet and IP-based product sales, partially offset by churn |
| • | Voice services were flat, reflecting ongoing sales of bundled and other local product sales offset by churn |
| • | 5% decrease for network services, due to churn and repricing for contract renewals that outpaced sales, partially offset by growth in co-location and high capacity services |
M-EBITDA and Margins
M-EBITDA grew to $113.9 million for the quarter, an increase of 9%, or $9.7 million from the same period last year. The growth in M-EBITDA represents the contribution from revenue growth, cost efficiencies from network and other optimization efforts and lower bad debt expense, partially offset with an increase in employee costs.
Operating costs for the quarter increased primarily due to increased network access costs associated with higher revenue and increased employee related costs, partially offset by network and other cost efficiencies. Operating costs as a percent of revenue were 42% for the current period compared to 43% for the same period last year.
Selling, general and administrative costs (“SG&A”) increased year over year, primarily reflecting higher employee costs partially offset by a decrease in bad debt. Bad debt expense was $0.3 million for the quarter and $3.9 million for the same period last year, representing 0.1% of quarterly revenue for the current quarter and 1.3% for the same period last year. SG&A costs as a percent of revenue were 23% for the current quarter and 24% for the same period last year.
Modified gross margin was 58.2% for the current quarter compared to 57.6% for the same period last year, a 60 basis point improvement. M-EBITDA margin for the quarter was 37.0% as compared to 35.4% for the same period last year, a 160 basis point improvement.
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
For the quarter, the Company achieved net income of $11.1 million, or $0.07 per share, compared to net income of $0.9 million, or $0.01 per share, for the same period last year. The increase year over year in net income reflects strong M-EBITDA growth and lower net interest costs.
Sequential Results – Fourth Quarter 2009 compared to Third Quarter 2009
Revenue
Revenue for the quarter was $307.9 million, as compared to $304.8 million for the third quarter of 2009, an increase of $3.1 million, or 1%. Key changes in revenue included:
| • | $2.1 million increase in enterprise revenue, representing 1% sequential growth |
| • | $1.0 million decrease in revenue from carrier customers primarily reflecting new sales offset by churn and the repricing of renewed customer contracts |
| • | $2.0 million increase in intercarrier compensation primarily for fluctuations in disputes and volume, as well as rate changes |
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 partially offset by churn |
| • | 1% decrease in voice services, reflecting ongoing sales of bundled and other local products offset by churn |
| • | 3% decrease in network services, primarily due to sales that were outpaced by ongoing churn and repricing for customer contract renewals |
M-EBITDA and Margins
M-EBITDA was $113.9 million for the quarter, compared to $109.4 million for the prior quarter, reflecting a 4% increase. The growth in M-EBITDA represents contribution from revenue growth, cost efficiencies from network and other optimization efforts, and a decrease in bad debt expense and employee related costs.
Operating costs increased primarily reflecting increased network access costs associated with higher revenue as well as fluctuations in cost settlements, partially offset by network optimization efforts. Operating costs were 42% of revenue for both quarters.
SG&A costs decreased primarily reflecting decreases in employee related costs and bad debt expense. Bad debt expense decreased to $0.3 million from $1.8 million sequentially, representing 0.1% and 0.6% of quarterly revenue, respectively. SG&A was 23% of revenue for the current period as compared to 24% for the prior quarter.
Modified gross margin was 58.2% compared to 58.6% for the prior quarter, a 40 basis point reduction. M-EBITDA margin was 37.0% for the quarter, compared to 35.9% for the prior quarter, a 110 basis point increase.
Net Income
For the quarter, the Company reported net income of $11.1 million, or $0.07 per share, compared to net income of $7.7 million, or $0.05 per share for the prior quarter. The increase in net income sequentially primarily reflects M-EBITDA growth.
Summary
“Through our ongoing strong financial and operational execution, we delivered great results in 2009 and we’re strategically well positioned to propel our enterprise business and achieve long term growth,” said Herda.
tw telecom plans to conduct a webcast conference call to discuss its earnings results on February 9, 2010 at 9:00 a.m. MST (11:00 a.m. EST). To access the webcast and the financial and other information to be discussed in the webcast, visit www.twtelecom.com under “Investor Relations.”
| Investor Relations: | Media Relations: | |
| Carole Curtin 303 566-1000 | Pat Mulcahy 303 566-1470 | |
| carole.curtin@twtelecom.com | patrick.mulcahy@twtelecom.com | |
| (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, impairment charges and other gains 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. |
| (2) | 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. |
| (3) | The Company defines levered free cash flow as Modified EBITDA less capital expenditures and net interest expense from operations (but excludes debt extinguishment costs and non cash interest expense and deferred debt 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. |
| (4) | The Company defines revenue churn as the average lost recurring monthly billing from a customer’s partial or complete disconnection of services (excluding repricing impacts and usage) compared to reported revenue for the quarter. Customer churn is defined as the average monthly customer turnover compared to the average monthly customer count. |
| (5) | 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. |
| (6) | Fiber connected buildings on-net represent locations to which the Company’s fiber is directly connected with lit electronics. This does not include buildings which are exclusively Local Serving Office locations or buildings with fiber but no lit electronics. |
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 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 (used in) 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 Consolidated Operations Highlights.
Forward Looking Statements
The statements in this press release concerning the outlook for 2010 and beyond, including expansion plans, growth prospects, market opportunities, bookings, future economic conditions, sales and installations timing, revenue growth, churn, re-pricing for contract renewals, business trends and fluctuations, seasonality, expense trends, product plans, first quarter 2010 results and costs 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 SEC filings, 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 September 30, 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.
About tw telecom
tw telecom, headquartered in Littleton, Colo., provides managed network services, specializing in Ethernet and data networking, Internet access, local and long distance voice, VPN, VoIP and network security, to enterprise organizations and communications services companies throughout the U.S. including their global locations. As a leading provider of integrated and converged network solutions, tw telecom delivers customers overall economic value, quality service, and improved business productivity. For more information please visit www.twtelecom.com.
tw telecom inc.
Consolidated Operations Highlights
(Dollars in thousands)
Unaudited (1)
| Three Months Ended December 31, |
Twelve Months Ended December 31, |
|||||||||||||||||||||
| 2009 | 2008 | Growth % | 2009 | 2008 | Growth % | |||||||||||||||||
| Revenue | ||||||||||||||||||||||
| Data and Internet services | $ | 124,799 | $ | 107,538 | 16 | % | $ | 472,647 | $ | 399,928 | 18 | % | ||||||||||
| Network services | 90,463 | 95,577 | -5 | % | 370,859 | 387,339 | -4 | % | ||||||||||||||
| Voice services | 82,860 | 82,985 | 0 | % | 333,274 | 334,692 | 0 | % | ||||||||||||||
| Service Revenue | 298,122 | 286,100 | 4 | % | 1,176,780 | 1,121,959 | 5 | % | ||||||||||||||
| Intercarrier compensation | 9,812 | 8,546 | 15 | % | 34,610 | 37,060 | -7 | % | ||||||||||||||
| Total Revenue | 307,934 | 294,646 | 5 | % | 1,211,390 | 1,159,019 | 5 | % | ||||||||||||||
| Expenses | ||||||||||||||||||||||
| Operating costs | 129,855 | 126,229 | 503,960 | 491,375 | ||||||||||||||||||
| Gross Margin | 178,079 | 168,417 | 707,430 | 667,644 | ||||||||||||||||||
| Selling, general and administrative costs | 71,355 | 70,614 | 297,290 | 291,985 | ||||||||||||||||||
| Depreciation, amortization, and accretion | 74,290 | 73,468 | 296,167 | 285,783 | ||||||||||||||||||
| Operating Income | 32,434 | 24,335 | 113,973 | 89,876 | ||||||||||||||||||
| Interest expense (3) | (15,815 | ) | (18,677 | ) | (64,583 | ) | (75,311 | ) | ||||||||||||||
| Non cash interest expense and deferred debt costs (2) (3) | (4,969 | ) | (4,628 | ) | (19,418 | ) | (18,025 | ) | ||||||||||||||
| Interest income | 33 | 566 | 360 | 6,308 | ||||||||||||||||||
| Other loss | — | — | — | (7,767 | ) | |||||||||||||||||
| Income (Loss) before income taxes | 11,683 | 1,596 | 30,332 | (4,919 | ) | |||||||||||||||||
| Income tax expense | 587 | 697 | 2,746 | 2,347 | ||||||||||||||||||
| Net Income (Loss) | $ | 11,096 | $ | 899 | $ | 27,586 | $ | (7,266 | ) | |||||||||||||
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