More Long Term Investments for tw telecom in Q1

May 7th, 2013 by · Leave a Comment

For TW Telecom (NASDAQ:TWTC, news, filings), the first quarter of 2013 had a lot in common with the prior quarter as the company spends more on future growth initiatives while taking a bit of a hit on margins.  Expectations-wise, they were a tad light on all fronts, coming in two cents short of the composite analyst estimates over on Yahoo Finance.  Here's a quick tabular summary:

($ in millions) Q1/12 Q2/12 Q3/12 Q4/12 Q1/13
(actual)
Comments
- Data & Internet Services 176.8 182.5 189.2 197.8 202.1  
- Network Services 84.8 83.0 81.3 81.0 78.9  
- Voice Services 89.6 91.0 91.1 92.1 92.3  
- Intercarrier Compensation 7.6 8.0 7.5 7.0 7.9
Total Revenue 358.9 364.5 368.9 377.9 381.2 A bit light, but within range
M-EBITDA 131.8  134.0 136.5 138.3 136.0
M-EBITDA Margin 36.7% 36.8% 37.0% 36.6% 35.7% Lowest m-EBITDA margin in 3 years!
Earnings per share 0.13  0.13 0.14 0.11 0.09  
Revenue Churn 1.0% 0.9% 0.8% 0.9% 0.8%
Capital Expenditures 79.1 80.8 83.9 99.6 90.9 On target for full year guidance
On-net buildings added 467 462 552 497 498 Keeping up their torrid pace.
Free Cash Flow 37.3 37.7  37.2 17.5 23.9

The biggest surprise here is m-EBITDA margins of 35.7%, which is the lowest they've turned in since the first quarter of 2009.  In the fourth quarter they took on an additional 60 headcount (40 in sales), and this quarter they added another 41 (but just 4 in sales).  So it's no secret where the extra expenses are going.  They're planning to roll out further managed services as the year goes on, as well as 40/100G offerings and their constellation network platform, in the interests of a potentially higher growth rate down the line.

Meanwhile, tw telecom has been very busy lately working on its balance sheet.  By the end of the quarter they'd bought back $60M of stock, and in the 5 weeks since have bought back another $45.5M.  And following the refinancing of their term loan last month, they've been out in the market buying up their convertible debt to the tune of $145.1M with the other 60% expected to follow in the near term.  They stated their intention to keep cash levels above $300M going forward, suggesting more moves to come given the $913M they finished Q1 with.

Last fall, the rumors were that tw telecom was about to be gobbled up by CenturyLink.  The long term investments for growth and the resulting m-EBITDA margin compression don't really fit with that thesis, and suggest to me that tw does not really see itself as a consolidation target at this time.  But likewise, they don't seem any more interested in pursuing inorganic growth than they have over the past few years.

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Categories: Financials · Metro fiber

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