For tw telecom, Steady Growth Plus Big Investments in Q4

February 11th, 2014 by · 2 Comments

After tw telecom announced a major expansion across 27 markets back in November, they didn’t waste much time.  The biggest feature of the company’s Q4 earnings report yesterday was a $119.8M in capex associated with the project including a ‘strategic market expansion capital lease’.    As for the rest of the report, tw telecom reported its usual clockwork revenue growth and indicated next year will see a somewhat faster pace.

($ in millions) Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Comments
– Data & Internet Services 197.8 202.1 209.6 215.9 223.7 Steady, strong growth
– Network Services 81.0 78.9 78.5 76.1 75.4 Continued erosion
– Voice Services 92.1 92.3 93.1 93.9 94.3 Steady growth
– Intercarrier Compensation 7.0 7.9 8.3 7.3 6.6 Fluctuated lower, accounting for differencewith street estimates
Total Revenue 377.9 381.2 389.5 393.2 400.0 Street:400.6
M-EBITDA 138.3 136.0 137.3 138.5 140.7
M-EBITDA Margin 36.6% 35.7% 35.3% 35.2% 35.2% Reflecting expansion projects
Adj. Earnings per share 0.11 0.09 0.12 0.12 0.11 Without one time events, 0.12
Revenue Churn 0.9% 0.8% 0.9% 1.0% 0.8% Improving over the prior quarter
Capital Expenditures 99.6 90.9 101.0 102.0 208.0  Includes $119.8 for capital leases forthe previously announced market expansion.
On-net buildings added 497 498 616 566 607 Passing the 20K milestone
Free Cash Flow 17.5 23.9  16.1 16.3 (34.1) Without the expansion capital lease they generated 85.7

Total revenue came in slightly under the street, but this can be largely chalked up to the lower intercarrier compensation number (which will be trending down regardless), everything else seemed as expected.  Margins continue to be a bit lower in light of the various product development and market expansion projects the company put in place in 2013, which raised expenses in order to hopefully drive higher future growth.  And while they didn’t give quantitative guidance, tw does say that their overall growth rate in 2014 should be higher than it has been in 2013.

In the initial version of this article, I ‘deduced’ that Zayo must be the supplier for all that fiber tw telecom will need for its expansion based on the parallel items from Zayo’s supplemental data.  As it turns out, a reader points out that tw telecom disclosed exactly this back in November, so I’m a bit late on that — I had simply missed that line in their 10-Q.  Oh well.  It certainly makes perfect sense for tw telecom to partner with Zayo for such a move, as the former’s preference for enterprise connectivity complements Zayo’s more wholesale and dark fiber approach.


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