tw telecom’s Margins Dip As It Invests For Higher Growth Rates

February 11th, 2013 by · 1 Comment

For the fourth quarter, TW Telecom (NASDAQ:TWTC, news, filings) posted higher than expected revenues but came in lower than I had expected for both EBITDA and earnings per share.  Mostly this was due to some hiring they have been doing to put in place the personnel necessary to drive a higher growth rate, plus the effects of October’s balance sheet move.  The company boosted its sales force by 5.7% and added other support staff rather faster than I expected they might.  Here are their Q4 numbers in some context:

($ in millions) Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Comments
– Data & Internet Services 171.6 176.8 182.5 189.2 197.8 +4.5%, a very solid number
– Network Services 85.4 84.8 83.0 81.3 81.0 matching the trend
– Voice Services 86.7 89.6 91.0 91.1 92.1 +1.1% growth
– Intercarrier Compensation 7.6 7.6 8.0 7.5 7.0
Total Revenue 351.5 358.9 364.5 368.9 377.9 Ahead of expectations
M-EBITDA 128.1 131.8  134.0 136.5 138.3 Higher revenue offset by sales force growth.
M-EBITDA Margin 36.3% 36.7% 36.8% 37.0% 36.6%  
Earnings per share 0.11 0.13  0.13 0.14 0.11 Below analyst estimates, higher GAAP interest
Revenue Churn 0.8% 1.0% 0.9% 0.8% 0.9%
Capital Expenditures 86.6 79.1 80.8 83.9 99.6 Forecasting $360-370M for 2013
On-net buildings added 566 467 462 552 497 continuing the present trend
Free Cash Flow 25.6 37.3 37.7  37.2 17.5 lower due mainly to higher capex

Revenue was boosted by a one-time settlement of $2.2M, which means that sequentially they aren’t expecting much of a jump in the first quarter.  Likewise, EBITDA margins for the quarter ahead will be slowed down by seasonal shifts in costs.  In addition to the higher sales headcount, tw telecom is planning further product differentiation for 2013, which also ate into EBITDA a bit.

Operationally, they added 497 buildings to their network – right on target.  Additionally, they ‘found’ another 532 previously connected on-net buildings ‘during alignment of key operating systems’, giving them 17,948 and putting them within shooting range of the 20K milestone next year.  Capex rose substantially during the quarter due to an IP backbone upgrade and some strategic fiber purchases – I wonder where they’re buying fiber.  They forecast 2013 capex of $360-370M, suggesting that the low 90s will be the new quarterly number.


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Categories: Fiber Networks · Financials · Metro fiber

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  • We operate in a highly competitive commodity industry and believe it is appropriate to maintain a conservative balance sheet and to maintain financial flexibility. During the fourth quarter of 2012, we issued $350 million of 3.25% unsecured notes due in 2019 and our cash balance at December 31, 2012 was $746 million, including $36 million related to the non-controlling interest in Egypt. We invest our cash only in highly rated instruments that have maturities of three months or less to ensure preservation of capital and appropriate liquidity. Also during the fourth quarter, we extended the maturity on our revolving credit facility to 2016 and increased the amount to $400 million.

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