Earnings Preview Marathon: TW Telecom, Abovenet, Cogent, PAETEC

November 3rd, 2010 by · 1 Comment

Occasionally, the planets align in a certain formation or something and everyone in the sector picks the same day to release earnings.  This November 4 is one of those times, with a dozen or so providers deciding that there is strength in numbers, or perhaps just safety.  Four of those providers are operators of substantial metro and intercity fiber that I cover regularly - TW Telecom (NASDAQ:TWTC, news, filings), abvt, Cogent Communications (NASDAQ:CCOI, news, filings), and PAETEC (news, filings) - and therefore in the interests of brevity I will limit myself to this group when making projections in advance of the announcements.

TW Telecom - You can usually set your watch by TW Telecom's earnings report, and I suspect this time will be no different.  Revenues will grow, EBITDA margin will be consistent, and earnings per share may edge up a penny - or not.  I have long watched for signs of an acceleration toward double digit overall revenue growth for TW, and higher capex levels do suggest that could happen - however it seems prudent to remain relatively conservative in outlook.

($ in millions) Q3/09 Q4/09 Q1/10 Q2/10

Q3/10

(my estimate)

Total Revenue $304.8 $307.9 $311.2 $316.8 $320-322
M-EBITDA $109.4 $113.9 $114.2 $114.4 $115-120
M-EBITDA Margin 35.9% 37.0% 36.7% 36.1% 36-37%
Earnings per share 0.05 0.07 0.08 0.10 0.10-0.11
Revenue Churn 1.2% 1.2% 0.9% 1.0% ~1%
Capital Expenditures $59.9 $72.3 $80.9 $85.0 $70-90
Free Cash Flow $33.8 $25.7 $17.5 $15.2 positive


Abovenet - For the strongest growth by a public company in the metro fiber business, Abovenet has been the clear leader since finally emerging from the netherworld of the MFN days.  As promised, they announced expansions into several markets over the summer and have clearly been spending for the future.  That hadn't shown up in the first half numbers, but I think it will show up in spades in the second half, both in capex and in expenses, which will hold back EBITDA and margin growth.

$ in millions Q3/09 Q4/09 Q1/10 Q2/10

Q3/10

(my estimate)

2010

(Guidance)

Revenue $92.4 $94.3 $97.2 $100.7 $102-104 $400-410
Adj. EBITDA $40.7 $39.2 $42.6 $45.7 $44-45
EBITDA Margin 44.0% 41.6% 43.8% 45.4% ~43-45% +/= 2009
Capex $26.5 $38.7 $27.4 $30.1 $50 $150-160
EPS (diluted) $0.88 $0.921 $0.52 $0.62 $0.55-0.65


Cogent - Of all bandwidth operators this year, Cogent has won the award for quietness - something it was never really known for before now.  We just haven't heard much from them in terms of PR all year.  That said, they have been chugging along steadily in terms of revenue growth and have made progress toward the long sought goal of positive earnings.  I don't think they quite make it there this quarter, but it's remotely possible.

$ in millions Q3/09 Q4/09 Q1/10 Q2/10

Q3/10

(my estimate)

Revenue $60.2 $62.5 $62.8 $64.4 $66-67
EBITDA $17.0 $17.4 $17.5 $18.9 $19-20
Earnings per share -0.07 -0.03 -0.01 -0.02 -$0.02 to 0
Gross Margin 57.8% 55.9% 55.3% 54.8% 54-55%
EBITDA Margin 28.2% 27.8% 27.9% 29.3% 28-29%


PAETEC - Throughout the economic storms of the past two years, PAETEC has mostly treaded water in terms of revenue while driving EBITDA slowly higher. Their purchase of Cavalier will change the equation some when it closes with the doubling of their fiber footprint, but for now I expect to see the status quo continue, with slightly higher revenues driven by a full quarter from several minor acquisitions and a bit of organic growth.  They seem likely to be heading for the low end of full year guidance, and IMHO could narrow the range to match when they report.

$ in millions Q3/09 Q4/09 Q1/10 Q2/10

Q3/10

(my estimate)

FY2010

(guidance)

Revenue $395.6 $390.1 $390.1 $396.1 $400-402 $1590-1630
EBITDA $64.2 $65.2 $65.5 $65.1 $66-67 $260-275
Capex 27.7 36.6 29.5 31.4 $30-40
Free Cash Flow 36.5 28.7 36.1 33.7 $25-35
Gross Margin 50.8% 50.8% 50.6% 50.3% ~50%
EBITDA Margin 16.2% 16.7% 16.8% 16.4% ~16.5%


That's all for now, assuming you made it this far.  I will follow up on Thursday morning of course.

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Categories: Financials · Metro fiber

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