TW Telecom Q3 Preview

November 5th, 2008 by · 2 Comments

Telecom services company TW Telecom (TWTC) reports earnings before the market opens on Thursday, so let’s look at some expectations.  The company reported stellar Q2 earnings but a month later issued a prophetic warning that economic weakness was spreading.  In the way only Wall Street can, the company’s stock price was first punished for being honest and then punished again anyway when proved right, bottoming out at an insane intraday low of $4.39 just last week.  It has since rebounded sharply and sits at $8.08 as I write this post.

Their quarterly numbers so far this year and my Q3 estimates are summarized here:

Q1/08 Q2/08 Q3/08
Network $96.8M $98.8M $99.0M
Data $92.8M $97.3M $98.5M
Voice $83.1M $84.7M $83.5M
Intercarrier $9.9M $9.3M $9.5M
Total $282.6M $290.1M $290.5M
Adjusted Gross Margins 57.6% 58.5% 58.8%
mEBITDA $93.4M $98.7M $100.0M
mEBITDA Margin 33.0% 34.0% 34.4%
EPS $-0.01 $0.00 $0.04

In light of TW Telecom’s September comments, I am not predicting a huge quarter in any way.  I do think revenues will be up, but just slightly as trends in growth and churn offset each other.  Continued steady margin improvement should also be there, nothing spectacular incrementally but marching steadily toward 35% ebitda margins.  In Q2, earnings per share would have been $0.03 without an impairment charge, so $0.04 is not a big change either.

As I have said many times and many ways on this blog, those who own and operate their own fiber have much more to fall back on in hard times than those who don’t.  Their customers are stickier, their competitive landscape less crowded, and their margins are healthier to boot.  With one of the largest metro fiber footprints, TW Telecom has been rock solid for a long while.  Economic problems may cause short term disruptions but they also give companies like this a chance to separate from the pack.  TW Telecom has no cash fears and no reason to pull back on capital expenditures, so I expect they will add the usual 200-300 buildings to their metro fiber footprint.

The one thing that always bugs me about this company is that they never seem to *do* anything, no risks at all.  Yeah, I know that’s probably a good thing, but still it is boring!  However, not doing anything rash has left TW Telecom in a good position to buy assets now with many valuations at levels not seen since the dark days of the last telecom winter, will Larissa finally make a move?

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Categories: CLEC · Financials · Metro fiber

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2 Comments So Far

  • carlk says:

    Paltry annual revenue growth @ barely two percent, combined with rapid churn and extensive install dates, as much as six months time,, makes this security look very unattractive. There’s not growth here! They seem to be getting serious price competition inside their core business, too. Any guesses who that might be?

  • nekod says:

    Growth what? Can hear you through the headwinds…buildings with fiber they own =solid— slow, steady, and moving forward = smart —Sales force=tough
    Solid+Smart+Tough= going no where
    Price competition = they come and they go

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