tw telecom Plans Major Expansion, Reports Usual Steady Growth

November 7th, 2013 by · 4 Comments

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.

TRImage_41 Nov. 07Those 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
Total Revenue 368.9 377.9 381.2 389.5 393.2 Street:386
M-EBITDA 136.5 138.3 136.0 137.3 138.5
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
Revenue Churn 0.8% 0.9% 0.8% 0.9% 1.0%
Capital Expenditures 83.9 99.6 90.9 101.0 102.0
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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Categories: Ethernet · Financials · Metro fiber

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4 Comments So Far

  • Anonymous says:

    who was the seller of the $140m fiber network?

  • Anonymous says:

    who else Zayo

  • beetlejuice says:

    That large and in so many spots, not sure Zayo would be the only one in the mix.

    This sort of answers the M&A question though right. If they were looking to buy or be bought, why would they be committing to this much all of a sudden.

    • Solace says:

      I keep expecting them to buy some things unrelated to infrastructure or customer base or fiber reach. More for their SDN stuff they keep saying they are doing. I saw a demo of it a few months ago. They cannot have so many smart people that they can build it all themselves. A lot of good SDN and app companies out there making no money because they have no network to complement. Time Warner could be the complement

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