TW Telecom Powers Through Q4

February 8th, 2010 by · 14 Comments

Competitive fiber and data provider TW Telecom (NASDAQ:TWTC, news, filings) reported Q4 earnings today in the same way it seems to do every quarter - quietly yet powerfully, and with total disregard for the daily economic weather forecast.  For the full year, revenues grew 5% despite the recession. Data and internet services rose some 16% on the year, while network services fell 5% and voice services were basically flat.  Here is a quick table summarizing the company's Q4 performance:

Q1/09 Q2/09 Q3/09 Q4/09
- Data/Internet 112.0 115.8 120.0 124.8
- Network 93.9 93.2 92.3 90.5
- Voice 83.1 83.5 83.8 82.9
- Intercarrier Compensation 8.6 8.4 7.8 9.8
Total Revenue 297.6 301.1 304.8 307.9
Cost of Revenue 123.7 123.2 127.2 129.9
SG&A 75.8 75.5 74.6 71.4
M-EBITDA 104.4 108.9 109.4 113.9
M-EBITDA Margin 35.1% 36.2% 35.9% 37.0%
Earnings per share 0.02 0.04 0.05 0.07
Revenue Churn 1.3% 1.3% 1.2% 1.2%
Capital Expenditures 73.4 69.2 59.9 72.3
Free Cash Flow 14.5 23.6 33.8 25.7

Revenues of $307.9M were up sequentially from $304.8M in the prior quarter, which was rock solid but not spectacular.  Modified EBITDA of $113.9M rose more quickly, as modified EBITDA margins reached a new high of 37% for the quarter.  Will they find their way to 38% or even 39% in 2010?  Earnings per share of $0.07 were better than expected.

As for 2010, the company doesn't give much in the way of formal guidance but we barely need it.  Churn is expected to continue at similar levels and pressure revenue somewhat, but the real question is whether sales across the sector pick up.  If they do, I think we ought to expect TW Telecom to return to double digit revenue growth before long.

It has now been over 3 years since the company purchased Xspedius in one of the more successful fiber M&A events of the last consolidation phase.  As I have mentioned, I suspect they are now ready for more - and with their stock price up and the credit markets open, the time seems ripe.  All they need is a willing target, hmmm....

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Categories: Financials · Metro fiber

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14 Comments So Far


  • Anonymous says:

    My 2 cents…

    This company is too reserved. Don’t get me worng, they have run an excellent business since inception with their strategy in owning network and focusing on mid-sized customers along with their ethernet product, but their cautious nature, I believe, has cost them dearly in terms of acquisition opportunities. Just like the way they blew other m&a deals by over analyzing and taking too long with their DD.

    The real story in this sector today, is the ability to drive outsized shareholder returns through acquisition. This is the result of tremendous synergies with potential deals. A fact even more mangified due to TWTC’s vast metro networks.

    Believe it or not, outside of acquisitions TWTC could be run much leaner and drive much higher cash flow than what they are currently doing. Its a comfortable management team which needs to be shaken a bit by its shareholders.

    • Rob Powell says:

      I tend to agree that they are too reserved and they could drive large amounts of shareholder value by leveraging their networks as a consolidation platform as well as a growth engine.

      However, I am biased since I prefer to write about more interesting and hence riskier things. I do think they are likely to make such a move this year, the time seems right.

    • DaveRusin says:

      I agree …. the prevailing theory of 2010 consolidation is that PE firms will out bid strategic firms for metro assets — causing the strategics to pay a lot more 3-4 years down the road.

  • carlk says:

    Hardly jealous at all, Rob. I believe Anonymous has it right. Moreover, would it not be fair to say that (3)’s tripping all over themselves-integration mess- for more than two years now, hasn’t aided and abetted some of their success?

    BTW, if (3) performs like your projections, I will be more critical of them versus this soccer mom’s team. Have her children grown past the field yet so she can devote more time to the business? 🙂

    Lastly, (3)’s numbers must be driven by finishing the consolidation of zombies past who who wouldn’t be here had they NOT DECIMATED their shareholders previously!

    The jury is still out on how harsh dilution over decimation will become. imo

    • Rob Powell says:

      I would agree that TW has benefited from Level 3’s operational difficulties in places, but I don’t think the effect is all that extensive. Both are so small relative to the ILECs that their overlap isn’t the driving force in the enterprise market.

  • carlk says:

    This is an example of the sloppiest business journalism I have ever seen, attempting to promote HYPE with false data. One wonders whether Associated Press wrote it-no author being referenced-by ignorance or design. This is a microcosm of how an average investor might be FLEECED by a dubious Wall Street Machine! For shame on AP! IMO

    http://finance.yahoo.com/news/Tw-Telecoms-4Q-profit-soars-apf-1820030983.html?x=0&.v=2

    • Rob Powell says:

      The link you reference is standard formula earnings release writing, designed to hit the wires within 15 minutes of the PR itself and thus be best by simply being first. They do it for companies in all sectors.

      • carlk says:

        It’s a bad formula that is RECKLESS at a minimum, and should be used by investors as a REASON for placing, Associated Press (AP), last in their minds!

  • carlk says:

    From this perspective, (3)’s massive footprint comparatively, along with their large direct and indirect sales channels, continues to open and make available revenue streams which TITANS will cry over later! The list of technology players now selling in their CDN space, for example, makes me very optimistic versus TWTC’s more limited opportunities.

    At the same time, I have been conditioned to expect disappointment from those (3) fools! 🙂

  • en_ron_hubbard says:

    Rob,

    You highlited the 37% EBITDA margins but there were a couple of items in Q4 which benefited and may not be recurring
    <>

    Nonetheless this company continues to chug along in a verty difficult environment.

    • en_ron_hubbard says:

      OOPS, your site does not permit some sorts of pasting. The two items were unusually low bad debt expense and positive dispute resolutions on intercarrier billings which represented the entire improvement in EBITDA margins.

  • The_highwayman says:

    Anonymous,

    The real story in this sector today, is the ability to drive outsized shareholder returns through acquisition.

    yeah that strategy has worked out real well for LVLT……

    The key to driving outsized shareholder returns through MNA is having the ability to integrate completely and create value…..

    the right MNA has to be approached carefully and then integrated completely to drive the synergies and then produce the value to generate the returns you state the shareholders want….

    just look at LVLT to see what happens when you allow puffery, arrogance and an open check book….

    I also think we will see the same disaster fall on Windstream….

    going half cocked into any MNA can produce exactly the opposite of high return…..

    Just as being overly cautious can lead to analysis to paralyis syndrome….

    a balance has to be in place….

  • carlk says:

    Is Highwayman suggesting this balance between extreme arrogance and over caution might create a merger of TWTC, whose name change has still not been effected, and (3)?

    Is he still quoting REVENUES tied to (3) PR’s as well?

    Does he still stand by his comments that (3) is MIA in Asia?

    I expect certain analysts who endorse simply chugging along might come out with an upgrade of TWTC this morning too! imo 🙂

  • DaveRusin says:

    I see the oil and water starting to separate in the telecom space — those that can grow margins over those that can’t.

    Give Wall Street a year or so to figure out that it’s about quality not quantity of customers (top line growth for the sake of top line growth).

    TW Telecom spelled it out — so far of the 18,000 customers that came with the Expedius acquisition, they have churned out 14,000 — and still forcing some churn.

    Whomever picked up the 14,000 customer TW Telecom cut is the company or companies you want to short …

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