More Growth, Free Cash Flow at tw telecom

May 2nd, 2012 by · 7 Comments

Competitive metro fiber operator TW Telecom (NASDAQ:TWTC, news, filings) easily beat my own guesses on most fronts yesterday with its first quarter earnings report.  Revenues were a bit higher than expectations, while margins, EBITDA, and earnings per share all expanded.  Free cash flow was above the usual range due to lower capex and a slight dip in on-net building additions.  Here’s a quick tabular summary.

($ in millions) Q1/11 Q2/11 Q3/11 Q4/11 Q1/12(actual)
– Data & Internet Services 152.2 158.2 164.7 171.6 176.8
– Network Services 89.5 88.9 86.9 85.4 84.8
– Voice Services 83.0 83.6 85.2 86.7 89.6
– Intercarrier Compensation 7.8 8.7 7.7 7.6 7.6
Total Revenue 332.5 338.4 344.5 351.5 358.9
M-EBITDA 121.4 123.2 125.0 128.1 131.8
M-EBITDA Margin 36.5% 36.4% 36.3% 36.3% 36.7%
Earnings per share 0.08 0.09 0.10 0.11 0.13
Revenue Churn 1.0% 0.9% 1.0% 0.8% 1.0%
Capital Expenditures 79.3 90.9 86.0 86.6 79.1
On-net buildings added 512 569 561 566 467
Free Cash Flow 26.1 16.5 23.2 25.6 37.3

The strongest bit of growth came, interestingly enough, from voice services – just a bit faster than the usual leader: data and internet.  There’s a bit of headwind ahead for total revenues, as intercarrier compensation reform will lead to a drop of $2M quarterly from that segment during the second half.  But in general the growth trend remains in place, the only question being what it will take to boost it into double digits.  Churn was a bit higher sequentially but within historical levels.

tw added less than 500 buildings to its network for the first time in a half dozen quarters, although 467 is nothing to sneeze at.  This is also reflected in lower company capex for the quarter, which in turn led to a bigger free cash flow number.  This is probably just a fluctuation, as the company overall seems to be following the same path forward that it has for some time now.

tw is also enhancing its product portfolio to include enhanced Ethernet and Intelligent Network capabilities over the next few quarters, improving its ability to serve as the link between the enterprise, the datacenter, and the cloud.

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Categories: Financials · Metro fiber

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7 Comments So Far

  • skcusljj says:

    hey schmuckinsurance, where’s your revenue seasonality? Oh, there is none. The only material Q1 revenue seasonality from this sector comes stuffing Q1 funnel opportunities into Q4 to meet the guidance.

    Just a hunch, but I would guess that the weaker the Q1 revenue, the more stuffing that took place in Q4.

    Let’s review your extremely obnoxious comment to my legitimate question about the presence of revenue seasonality:

    “if you don’t understand telco seasonality you may be better off asking your boy Jim Cramer to explain it than wasting anyone’s time with it.”

    and this gem where you found the time to attack me but couldn’t find the time to explain the revenue seasonality that was so obvious.

    “Honestly, I don’t want Rob to waste the time and that doesn’t mean I am signing up for it either. If you are serious, do an industry regression on sales by quarter. or just do it for a few companies. Otherwise, just call the sellside and ask.”

  • schmuckinsurance says:

    So much spam, let me just sort through some of what you posted and now I promise this will be my last post to you.

    TW talked about the sales cycle on this morning’s call which and their accomplishment of growing over it. Does this mean it exists or doesn’t?

    You quoted the exact same thing from TW’s 2011 transcript, “In the first quarter of 2011, we did not experience the seasonal slowing of revenue that we have historically experienced.” Does that mean they have or have not seen seasonality historically?

    So that is TW saying it twice, I mentioned Simon Flannery referencing it in his note last night. He has been covering telecom for an eternity. Short of proving it to you in numbers which I have refused to do., if you don’t trust Rob’s trained eye, TW Telecom or Morgan Stanley then prove them wrong. Put industry sales in a model and see what the typical sequential growth rates are, Q3->Q4 vs. Q4->Q1. They don’t compare, end of story.

  • skcusljj says:

    Schmuckinsurance, I’m glad you brought up the Morgan Stanley note you cited. I have not read it, nor do i have access to it, but the portion you quoted had to do with measures other than Revenue. Specifically, capex and margin.

    My question was very simple. Why do you propose there is seasonality in telecom?

    And to accurately quote the 2011Q1 TWTC 10q, it states ““Although our business is not inherently seasonal in nature…”

    You didn’t answer my question as to why there is seasonality in telecom, but merely attacked it, as if attacking the question somehow makes the question illegitimate.

    If there is seasonality in telecom, there should be a reason for it. This business is not “inherently seasonal in nature” so if there is a Q1 dip, there should be a consistent explanation for it. If the explanations vary, from Q1 to Q1, then something else is going on.

    An econometrician would seek a statistically relevant explanatory variable. If one Q1 decline is attributable to a reduction in Private Line spend, but the next Q1 is attributable to a reduction in Wholesale Voice and the next decline to a reduction in ATM and the next to Hosted Voice, then something else is clearly going on and seasonality does not sufficiently explain the Q1 dips.

    • skcusljj says:

      My comments should read seasonality in REVENUE as that was the basis of my original question. I certainly believe there is seasonality in cash flow from working capital adjustments and capex spending. (It is for that reason I believe that looking at quarterly cash flow is meaningless.)

  • skcusljj says:

    Finally, schmuckinsurance, I don’t trust “Rob’s trained eye” and he knows that. ALTHOUGH I BELIEVE ROB DOES AN EXCELLENT JOB WITH THIS BLOG, I’m not aware that he is a trained financial analyst. So I don’t know why his “eye” is financially trained or why you think it is. And the fact that Simon Flannery’s been covering telecom “for an eternity”, well, so was Jack Grubman and clearly his radar was way off. As was Frank Quattrone’s, the investment banker, who helped build the telecom bubble. He too had been around for years.

    As investors our job is to challenge assumptions, not just accept them because some executive says something on a call or because a sell-side analyst whose firm has an investment banking interest in the company puts it in a research note.

    Read the transcript of today’s Herbalife earnings call where (buyside) hedge fund manager, David Einhorn raised serious questions about herbalife’s accounting. You’ll notice there are no buyside analysts on LVLT earnings calls, only sell-side analysts.

  • Eponymous says:

    Verizon kills DSL seasonality myth
    September 20, 2007 — 6:59am ET – FierceTelecom

    Who hasn’t listened to a quarterly earnings call of some telecom company and heard a CEO explain revenue declines as result of seasonal trends in customer spending? Maybe there’s some validity to it in consumer electronics markets where people buy a lot more around the holidays and less in earlier quarters, but in the world of telecom services, I always wondered if it was a mythical excuse for doing poorly.

    This week, Verizon CEO Ivan Seidenberg struck fear into the hearts of many a sales rep when he disagreed with the notion of seasonal spending on broadband access services. Too bad, because a lot of companies had sought to explain away last quarter’s slow broadband growth by blaming it on a slow spending season, rather than some indication that penetration has found a long-term plateau.

    • skcusljj says:

      Epnoymous, nice…don’t worry, schmuck’s going to now say that DSL is a consumer product and LVLT and TWTC are not in that space.

      But VZ is in the wholesale space (and breaks out those numbers) and yet they don’t attribute reductions in Q1 wholesale spending to seasonality. In fact, the words season, seasonal or seasonality don’t make an appearance anywhere in the VZ 10Q.

      VZ’s Q1 global wholesale revenue is down year over year, but VZ doesn’t blame it on some fantasy seasonality.

      “Enterprise and wholesale customers continue to be adversely affected by the economy, resulting in delayed decision-making regarding spending, particularly on information technology”

      See p. 18

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