TW Telecom reported results after the bell today, their conference call is tomorrow morning. The speedy release was understandable though, because their results were powerful. Revenues of $290.1M exceeded most forecasts as did EBITDA of $98.8M, and most importantly they did in fact break through to positive earnings of $0.7M, although that just barely rounded down to an EPS of $0.00. In fact, if one discounts the $4M impairment charge, the underlying business produced an EPS of $0.03. To compare with my own projections last night, here is the table:
|Q1/08||Q2/08 est||Q2/08 act|
|Adjusted Gross Margins||57.6%||57.8%||58.5%|
Macroeconomic worries have weighed on earnings throughout the economic sector, but except for the case of PAETEC, the economy has not hurt anyone much. But TW Telecom just blew on past those worries, the only place in which the macroeconomic environment showed up was in a slight sequential increase in churn from 1.4% to 1.5% that came from their less sticky acquired assets. They expressed no worries for the remainder of the year, and I'm inclined to believe them.
I believe these results should reassure the street about TW Telecom. Its positive earnings, solid cashflow, and healthy growth should allow them access to the capital markets that others in the sector probably don't have. Hence, I think the time is now right for CEO Larissa Herda to make her move on whatever asset she has her eye on. She has proven she can integrate telecom assets quite effectively, TW Telecom stock remains high enough to use as currency, and valuations are low across the sector. The timing only gets worse from here, as Level 3 and others might be back in the game when winter comes along. My bet remains that she will make a play for XO.
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