Along with their usual very solid but very predictable earnings report for Q3 they released last night, tw telecom tossed in a major new network expansion to shake things up. The company already boasts the most on-net buildings for a competitive network operator and maintained its torrid pace to hit 20,000 of them by the end of the year. But in a much less common expansion move for tw telecom, they making moves into five brand new markets as well as making major new investments in 27 of their existing ones.
Those new markets include their first markets in Pennsylvania (Philadelphia) and New England (Boston), as well as Richmond, Cleveland, and Salt Lake City. The full list of the other 27 you can find in their PR, but it constitutes more than a third of their existing markets, so this isn't a minor move. It includes investments in regional and metro dark fiber to get them started and to hook everything up. The plans are big enough to impact their numbers going forward, and will show up as $120M of capital leases in Q4 and some $50M of extra capex in 2014.
It looks as if tw telecom has finally made up its mind what else to do with the cash it generates. They have eschewed M&A and lately spent it on stock buybacks, but in terms of expansions have pursued depth rather than new breadth. They've spent most of 2013 tuning their nextgen Ethernet capabilities, and now a new geographically expansionist tw telecom will take those capabilities to a lot more customers especially in the largest markets.
As for Q3 earnings themselves, enterprise revenues were strong while a bit of carrier churn slowed down network services revenue. Overall revenues came in slightly ahead of analyst expectations, but within the usual error bars. EBITDA and margins were in the usual range, while earnings per share were a penny light after taking out the one time charges from debt refinancing etc. Here's a quick table of their results in some context:
|($ in millions)||Q3/12||Q4/12||Q1/13||Q2/13||Q3/13||Comments|
|- Data & Internet Services||189.2||197.8||202.1||209.6||215.9||Steady growth|
|- Network Services||81.3||81.0||78.9||78.5||76.1||Higher churn from one customer here|
|- Voice Services||91.1||92.1||92.3||93.1||93.9||Steady growth|
|- Intercarrier Compensation||7.5||7.0||7.9||8.3||7.3||Fluctuates|
|M-EBITDA Margin||37.0%||36.6%||35.7%||35.3%||35.2%||Reflecting product dev|
|Adj. Earnings per share||0.14||0.11||0.09||0.12||0.12||Loss of $0.07 including one time items|
|On-net buildings added||552||497||498||616||566||Looks like 20K by New Years is a gimme|
|Free Cash Flow||37.2||17.5||23.9||16.1||16.3|
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