LITTLETON, Colo., Feb. 6 /PRNewswire-FirstCall/ -- Time Warner Telecom Inc. , a leading provider of managed voice and data networking solutions for business customers, today announced its fourth quarter 2005 financial results, including $184.5 million in revenue, $70.7 million in Modified EBITDA(1) ("M-EBITDA") and a net loss of $22.3 million. For the year ended December 31, 2005, the Company reported revenue of $708.7 million, M-EBITDA of $251.2 million and a net loss of $108.1 million.
"Our impressive trends in enterprise growth, strong margins and a growing customer base, continued this quarter," said Larissa Herda, Time Warner Telecom's Chairman, CEO and President. "We are growing our business by increasing our national reach and utilizing our core metro based services to deliver unique and innovative product capabilities over our national IP backbone."
Highlights for the Quarter
For the quarter ending December 31, 2005, the Company --
* Grew total revenue $16.5 million year over year, an increase of 10%.
Grew total revenue $6.7 million sequentially, an increase of 4% for the
quarter
* Grew enterprise revenue $16.0 million year over year, an increase of
18%. Grew enterprise revenue by $5.2 million sequentially, an increase
of 5% for the quarter
* Grew data and Internet revenue $10.0 million year over year, an increase
of 29%. Grew data and Internet revenue by $3.3 million sequentially, an
increase of 8% for the quarter
* Produced M-EBITDA of $70.7 million, 66% gross margin and 38% M-EBITDA
margin
* Grew buildings served directly by the Company's fiber network by 18% to
nearly 6,000 buildings and increased customers by 14%, year over year,
reflecting continued strong enterprise growth
* Completed a $200 million bank loan and redeemed $200 million of 9 3/4%
senior notes
* Achieved $29.7 million of un-levered free cash flow(2) for the quarter
which represented 16% of revenue. The Company approached breakeven on a
levered basis for the fourth quarter, at $1.5 million short of reaching
levered free cash flow(3)
Sequential Results -- Fourth Quarter 2005 compared to Third Quarter 2005
Revenue
Revenue for the quarter was $184.5 million, as compared to $177.8 million for the third quarter of 2005, an increase of $6.7 million sequentially. The primary components of the change included:
* $5.2 million increase in revenue from enterprise customers across all
lines of business
* $2.2 million increase in intercarrier compensation, primarily due to a
dispute settlement
By product line, the percentage change in revenue sequentially was as follows:
* 8% increase for data and Internet services due to success with Ethernet
and IP-based product sales
* 3% increase in switched services primarily due to growth in bundled
voice products
* Dedicated transport services remained flat
Disconnects represented 1.1% and 1.3% of monthly revenue churn for the third and fourth quarters of 2005, respectively. This compares to 1.2% monthly revenue churn for the fourth quarter of 2004. For the year, service disconnects were reduced by 17% over 2004. The Company expects to experience ongoing disconnects, including disconnects from carrier customers related to their merger activities and network grooming.
M-EBITDA and Margins
M-EBITDA grew $8.3 million to $70.7 million for the fourth quarter of 2005, a 13% increase sequentially. M-EBITDA margin was 38% for the quarter, as compared to 35% reported in the third quarter of 2005. Gross margin remained strong at 66% for the current quarter as compared to 62% in the third quarter. The increase in M-EBITDA and margins primarily reflects strong revenue growth, which included a $2.3 million dispute resolution for intercarrier compensation revenue, as well as an improvement in operating costs and other favorable cost settlements. Also reflected in the quarter was an increase in selling, general and administrative costs, which remained relatively stable in relation to total revenue.
The Company utilizes a fully burdened gross margin, including network costs, and personnel costs for customer care, provisioning, network maintenance, technical field and network operations.
Net Loss
The Company's net loss narrowed to $22.3 million, a loss of $.19 per share for the quarter, compared to a net loss of $23.4 million, a loss of $.20 per share for the third quarter of 2005. The decrease in the net loss primarily reflects the growth in M-EBITDA offset by higher depreciation and amortization and an increase in net interest expense, reflecting the financing related costs during the quarter.
Year over Year Results -- Fourth Quarter 2005 compared to Fourth Quarter 2004
Revenue
Quarterly revenue was $184.5 million for the current quarter, as compared to $168.0 million for the fourth quarter of 2004, an increase of $16.5 million. The primary components of the change included:
* $16.0 million increase in revenue from enterprise customers across all
lines of business
* $1.5 million decrease from carriers due primarily to fluctuations in
dispute resolutions and contract settlements
* $2.5 million increase in intercarrier compensation primarily due to a
dispute settlement
By product line, the percentage change in revenue year over year was as follows:
* 29% increase for data and Internet services due to success with Ethernet
and IP-based product sales
* 5% increase for switched services, primarily due to growth in bundled
voice products
* 2% increase for dedicated transport services, due to increased
enterprise revenue
M-EBITDA and Margins
M-EBITDA grew $16.1 million to $70.7 million for the fourth quarter of 2005, reflecting a 29% increase over the same period last year. M-EBITDA margin was 38% for the quarter as compared to 33% for the same quarter last year. Gross margin was 66% for the current quarter. This compared to 60% for the same period last year. The increase in M-EBITDA and margins primarily reflects strong revenue growth, which included a $2.3 million dispute resolution for intercarrier compensation revenue, as well as an improvement in operating costs and other favorable cost settlements. Also reflected in the quarter was an increase in selling, general and administrative costs, which remained stable in relation to total revenue.
Net Loss
The Company's net loss narrowed to $22.3 million, a loss of $.19 per share, for the current quarter, compared to a net loss of $36.1 million, a loss of $.31 per share for the fourth quarter of 2004. The decrease in the net loss primarily reflects the growth in M-EBITDA offset by higher depreciation and amortization and an increase in net interest expense, reflecting the financing related costs during the quarter.
Full year 2005 results compared to 2004 results
For the year 2005, the Company reported revenue of $708.7 million, M-EBITDA of $251.2 million, and a net loss of $108.1 million. Highlights for the year 2005 included:
* Grew total revenue $55.6 million or 9% for 2005, including 18% growth in
enterprise revenue while carrier revenue remained stable. Grew data and
Internet revenue by 30% for the year, driven by strong enterprise growth
* Reduced 2005 annual service disconnects by 17% over 2004
* Increased M-EBITDA by 18%, primarily due to increased sales, offset by
increased selling, general and administrative costs, which were flat as
a percent of total revenue
* Decreased the net loss by 19% primarily due to increased sales
* Completed refinancing of $400 million of debt and redeemed $400 million
of 9 3/4% senior notes, improving the effective interest costs and moved
the nearest debt maturity to 2010
* Achieved gross margin of 63% and M-EBITDA margin of 35%
* Grew un-levered free cash flow to $88.7 million, an increase of 113% for
the year
Other Operating Highlights
"Our enterprise business represents 57% of our total revenue this quarter and has been growing at a 18% compounded annual growth rate for the past three years, which has strengthened and diversified our business significantly," said Mark Peters, Time Warner Telecom's Senior Vice President and Chief Financial Officer. "With this enterprise focus we have achieved 9% growth in overall revenue, 18% growth in enterprise revenue and 30% growth in data and Internet revenue for 2005 compared to 2004. We also have achieved steady progress in our path to free cash flow with near breakeven levered free cash flow for the current quarter. All of this positions us to continue to grow the business."
Capital Expenditures
Capital expenditures were $41.0 million for the fourth quarter. This compares to $39.7 million for the third quarter of 2005 and $49.4 million for the fourth quarter of 2004. Capital expenditures for the year ended December 31, 2005, were $163 million compared to $172 million for the same period last year. For the year, the Company increased its investment in success based capital projects which reflects ongoing enterprise opportunities as well as new product investments in 2004 that did not recur in 2005. For 2006, the Company expects capital expenditures to be approximately $165 to $175 million, which includes the cost of continued expansion and enhancement of its network, products and systems.
Summary
"Our business continues to grow by concentrating on the right strategy and ongoing initiatives to capitalize on market demand," said Herda. "We see strong enterprise opportunities in the marketplace and continue to focus on innovative solutions, our national market reach, and our data networking expertise to drive ongoing customer and revenue growth," concluded Herda.
Time Warner Telecom Inc. plans to conduct a webcast conference call to discuss its earnings results on February 7 at 9:00 a.m. MST (11:00 a.m. EST). To access the webcast and the financial and statistical information to be discussed in the webcast, visit http://www.twtelecom.com/ under "Investor Relations."
(1) The Company uses a modified definition of EBITDA to eliminate certain non-cash and non-operating income or charges to earnings to enhance the comparability of its financial performance from period to period. Modified EBITDA (or "M-EBITDA) is defined as net income or loss before depreciation, amortization, accretion, asset impairment charge, interest expense, interest income, investment gains and losses, income tax expense and cumulative effect of change in accounting principle. (See a discussion below of Modified EBITDA under "Financial Measures".)
(2) The Company defines un-levered free cash flow as Modified EBITDA less capital expenditures. Unlevered cash flow is reconciled to M-EBITDA in the supplemental information posted on the Company's website as noted above.
(3) The Company defines levered free cash flow as Modified EBITDA less capital expenditure and net interest expense. Levered free cash flow is reconciled to M-EBITDA in the supplemental information posted on the Company's website as noted above.
Financial Measures
The Company provides financial measures using generally accepted accounting principles ("GAAP") as well as adjustments to GAAP measures to describe its business trends, including Modified EBITDA. Management believes that its definition of Modified EBITDA (see above) is a standard measure of operating performance and liquidity that is commonly reported and widely used by analysts, investors, and other interested parties in the telecommunications industry because it eliminates many differences in financial, capitalization, and tax structures, as well as non-cash and non-operating income or charges to earnings. Modified EBITDA is not intended to replace operating income (loss), net income (loss), cash flow, and other measures of financial performance and liquidity reported in accordance with GAAP. Management uses Modified EBITDA internally to assess on-going operations and it is the basis for various financial covenants contained in the Company's debt agreements. Modified EBITDA is reconciled to Net Loss, the most comparable GAAP measure to Modified EBITDA, within the Consolidated Operating Highlights and in the supplemental information posted on the Company's website. In addition, management uses un-levered free cash flow, which measures the ability of M-EBITDA to cover capital expenditures.
Due to the significant positive impact in 2003 and 2004 of the Company's settlement with WorldCom, Inc. (now MCI Inc.), the Company has presented its selected operating statistics both as reported and net of the settlements as well as a reconciliation between the two, in order to assist in understanding the impact of the settlement and the Company's performance during the quarter net of the impact of that event.
Forward Looking Statements
The statements in this press release concerning the outlook for 2005 and beyond, including expansion plans, revenue trends, growth prospects, and expected capital expenditures are forward-looking statements that reflect management's views with respect to future events and financial performance. These statements are based on management's current expectations and are subject to risks and uncertainties. Important factors that could cause actual results to differ materially from those in the forward looking statements include the risks summarized in the Company's filings with the SEC, especially the section entitled "Risk Factors" in its 2004 Annual Report on Form 10-K and the risks set forth in the material posted at http://www.twtelecom.com/ under "Investor Relations" for the Company's fourth quarter 2005 webcast. Time Warner Telecom undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
About Time Warner Telecom Inc.
Time Warner Telecom Inc., headquartered in Littleton, Colo., provides managed network services, specializing in Ethernet and transport data networking, Internet access, local and long distance voice, VoIP and security, to enterprise organizations and communications services companies throughout the U.S. As a leading provider of integrated and converged network solutions, Time Warner Telecom delivers customers overall economic value, quality, service, and improved business productivity. As of December 31, 2005, Time Warner Telecom had more than 20,000 route miles of its own local and regional fiber networks, a national IP backbone with 10 Gbps capacity, and nearly 6,000 buildings connected directly to its fiber networks. Please visit http://www.twtelecom.com/ for more information.
Time Warner Telecom Inc.
Consolidated Operations Highlights
(Dollars in thousands)
Unaudited(1)
Three Months Ended
12/31/05 9/30/05 Growth %
Revenue
Dedicated transport services $85,468 $85,498 0%
Switched services 43,267 42,134 3%
Data and Internet services 44,752 41,467 8%
173,487 169,099 3%
Intercarrier compensation(2) 11,032 8,758 26%
Total Revenue 184,519 177,857 4%
Expenses
Operating costs 62,598 68,395 -8%
Gross Margin 121,921 109,462 11%
Selling, general and
administrative 51,289 47,071 9%
Modified EBITDA 70,632 62,391 13%
Depreciation, amortization and
accretion 61,907 59,595
Operating Income 8,725 2,796
Interest expense (35,248) (29,764)
Interest income 4,117 3,527
Net loss before income
taxes (22,406) (23,441)
Income tax benefit (150) --
Net Loss ($22,256) ($23,441)
Capital Expenditures $41,053 $39,670 3%
Gross Margin 66% 62%
Modified EBITDA Margin 38% 35%
(1) For complete financials and related footnotes, please refer to the
Company's SEC filings.
(2) Intercarrier Compensation includes switched access and reciprocal
compensation.
Time Warner Telecom Inc.
Consolidated Operations Highlights
(Dollars in thousands)
Unaudited(1)
Three Months Ended Twelve Months Ended
December 31, December 31,
2005 2004 Growth % 2005 2004 Growth %
Revenue
Dedicated
transport
services $85,468 $83,690 2% $341,779 $332,577 3%
Switched
services 43,267 41,053 5% 166,808 157,905 6%
Data and Internet
services 44,752 34,765 29% 162,834 124,805 30%
173,487 159,508 9% 671,421 615,287 9%
Intercarrier
compensation(2) 11,032 8,516 30% 37,306 37,800 -1%
$184,519 168,024 10% 708,727 653,087 9%
Expenses
Operating costs 62,598 67,197 -7% 264,517 261,285 1%
Gross Margin 121,921 100,827 21% 444,210 391,802 13%
Selling,
general and
administrative 51,289 46,192 11% 193,052 178,317 8%
Modified
EBITDA 70,632 54,635 29% 251,158 213,485 18%
Depreciation,
amortization
and accretion 61,907 64,531 238,180 230,688
Operating
Income
(Loss) 8,725 (9,896) 12,978 (17,203)
Interest expense (35,248) (28,728) (134,262) (122,391)
Interest income 4,117 2,590 13,220 6,483
Investment gains -- -- -- 710
Net loss
before
income
taxes (22,406) (36,034) (108,064) (132,401)
Income tax
expense
(benefit) (150) 111 -- 636
Net Loss ($22,256) ($36,145) ($108,064) ($133,037)
Capital
Expenditures $41,053 $49,382 -17% $162,521 $171,833 -5%
Gross Margin 66% 60% 63% 60%
Modified EBITDA
Margin 38% 33% 35% 33%
(1) For complete financials and related footnotes, please refer to the
Company's SEC filings.
(2) Intercarrier Compensation includes switched access and reciprocal
compensation.
Time Warner Telecom Inc.
Highlights of Results Per Share
Unaudited(1)
Three Months Ended
12/31/05 9/30/05 12/31/04
Weighted Average Shares Outstanding
(thousands)
Basic and Diluted 116,915 116,330 115,797
Basic and Diluted Loss per Common
Share
As Reported ($0.19) ($0.20) ($0.31)
As of
12/31/05 9/30/05 12/31/04
Common shares (thousands)
Actual Shares Outstanding 117,382 116,626 115,806
Options (thousands)
Options Outstanding 19,512 18,749 19,224
Options Exercisable 13,158 13,360 12,871
Options Exercisable and
In-the-Money 4,022 4,067 2,120
(1) For complete financials and related footnotes, please refer to the
Company's SEC filings.
Time Warner Telecom Inc.
Condensed Consolidated Balance Sheet Highlights
(Dollars in thousands)
Unaudited(1)
December 31, September 30,
2005 2005
ASSETS
Cash and equivalents, and
short-term investments $393,523 $377,059
Receivables 58,535 51,598
Less: allowance (10,936) (10,531)
Net receivables 47,599 41,067
Other current assets 28,251 25,430
Property, plant and equipment 2,480,113 2,447,573
Less: accumulated depreciation (1,253,163) (1,199,789)
Net property, plant and
equipment 1,226,950 1,247,784
Other Assets 96,213 100,447
Total $1,792,536 $1,791,787
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $34,787 $28,693
Deferred revenue 20,478 21,971
Accrued taxes, franchise and
other fees 60,687 63,975
Accrued interest 35,211 18,994
Accrued payroll and benefits 28,757 25,231
Current portion of debt and
lease obligations 4,211 1,943
Other current liabilities 72,113 73,495
Total current liabilities 256,244 234,302
Long-Term Debt and Capital Lease
Obligations
Floating rate senior secured
debt -- Term Loan B due
11/30/2010 (2) 200,000 --
Floating rate senior secured
notes, due 2/15/2011 240,000 240,000
9.25% senior unsecured notes,
due 2/15/2014 400,451 400,466
10.125% senior unsecured notes,
due 2/1/2011 400,000 400,000
9.75% senior unsecured notes,
due 7/15/2008 -- 200,000
Capital lease obligations 10,122 10,374
Less: current portion (4,211) (1,943)
Total long-term debt and
capital lease obligations 1,246,362 1,248,897
Long-term Deferred Revenue 16,937 16,433
Other Long-Term Liabilities 8,479 8,027
Stockholders' Equity 264,514 284,128
Total $1,792,536 $1,791,787
(1) For complete financials and related footnotes, please refer to the
Company's SEC filings.
(2) Provides for an extension of the maturity date to November 30, 2012 if
on or before November 30, 2010 the Floating rate senior
secured notes and 10 1/4% senior unsecured notes due in 2011 are
refinanced to a maturity date no earlier than November 30, 2013.
Time Warner Telecom Inc.
Selected Operating Statistics
Unaudited(1)
Quarter Ended
2004
Mar. 31 Jun. 30 Sept. 30 Dec. 31
Operating Metrics:
Route Miles
Metro 11,998 12,247 12,453 12,375
Regional 6,694 6,694 6,694 6,794
Total 18,692 18,941 19,147 19,169
Fiber Miles
Metro 626,873 637,081 646,849 642,298
Regional 273,963 273,963 273,963 275,163
Total 900,836 911,044 920,812 917,461
Buildings (2)
On-net 4,350 4,576 4,839 5,074
Type II 12,502 13,114 13,895 14,139
Total 16,852 17,690 18,734 19,213
Networks
Class 5 Switches 41 41 40 39
Soft Switches 12 12 12 13
Headcount
Total Headcount 1,982 1,971 1,990 1,986
Sales Associates(3) 305 310 323 314
Customers 9,209 9,632 9,982 10,396
Quarter Ended
2005
Mar. 31 Jun. 30 Sept. 30 Dec. 31
Operating Metrics:
Route Miles
Metro 12,835 13,053 13,427 13,589
Regional 7,015 7,015 7,015 7,015
Total 19,850 20,068 20,442 20,604
Fiber Miles
Metro 653,506 662,156 683,795 690,088
Regional 275,186 275,186 275,186 275,186
Total 928,692 937,342 958,981 965,274
Buildings(2)
On-net 5,281 5,501 5,752 5,982
Type II 14,576 15,057 15,581 16,246
Total 19,857 20,558 21,333 22,228
Networks
Class 5 Switches 39 39 38 38
Soft Switches 20 26 32 34
Headcount
Total Headcount 2,019 2,029 2,022 2,034
Sales Associates(3) 317 312 312 318
Customers 10,740 11,088 11,439 11,834
(1) For complete financials and related footnotes, please refer to
the Company's SEC filings.
(2) Buildings "On-net" represents customer locations to which the
Company's fiber network is directly connected. Type II buildings are
carried on the Company's fiber network, including the Company's switch
for switched services, with a leased service from the Company's
distribution ring to the customer location.
(3) Includes Sales Account Executives and Customer Care
Specialists.
Time Warner Telecom Inc.
Selected Operating Statistics
Unaudited (1)
2004
Mar. 31 (Note 2)
Financial Metrics: (1), (2) As MCI Net of
Reported Settlement Settlement
Revenue ($000)
Dedicated transport services $84,160 $1,661 $82,499
Switched services 38,113 (25) 38,138
Data and Internet services 28,424 675 27,749
Subtotal 150,697 2,311 148,386
Intercarrier Compensation 10,952 -- 10,952
Total Revenue $161,649 $2,311 $159,338
Operating Costs 64,317 -- 64,317
Selling, general and administrative 45,312 (400) 45,712
Modified EBITDA(2) $52,020 $2,711 $49,309
Capital Expenditures ($000) $31,548 -- $31,548
Gross Margin(3) 60% n/a 60%
Modified EBITDA Margin 32% n/a 31%
2004
Jun. 30 Sept. 30 Dec. 31
Financial Metrics: (1), (2) As As As
Reported Reported Reported
Revenue ($000)
Dedicated transport services $83,552 $81,175 $83,690
Switched services 39,321 39,418 41,053
Data and Internet services 29,908 31,708 34,765
Subtotal 152,781 152,301 159,508
Intercarrier Compensation 10,045 8,287 8,516
Total Revenue $162,826 $160,588 $168,024
Operating Costs 64,221 65,550 67,197
Selling, general and administrative 43,381 43,432 46,192
Modified EBITDA (2) $55,224 $51,606 $54,635
Capital Expenditures ($000) $44,023 $46,880 $49,382
Gross Margin (3) 61% 59% 60%
Modified EBITDA Margin 34% 32% 33%
2005
Mar. 31 Jun. 30 Sept. 30 Dec. 31
Financial Metrics: (1), (2) As As As As
Reported Reported Reported Reported
Revenue ($000)
Dedicated transport services $85,648 $85,165 $85,498 $85,468
Switched services 40,450 40,957 42,134 43,267
Data and Internet services 36,696 39,919 41,467 44,752
Subtotal 162,794 166,041 169,099 173,487
Intercarrier Compensation 8,780 8,736 8,758 11,032
Total Revenue $171,574 $174,777 $177,857 $184,519
Operating Costs 66,807 66,717 68,395 62,598
Selling, general and
administrative 44,779 49,913 47,071 51,289
Modified EBITDA(2) $59,988 $58,147 $62,391 $70,632
Capital Expenditures ($000) $39,330 $42,468 $39,670 $41,053
Gross Margin(3) 61% 62% 62% 66%
Modified EBITDA Margin 35% 35% 35% 38%
(1) For complete financials and related footnotes, please refer to the
Company's SEC filings.
(2) The Company separately presents Modified EBITDA, gross margin and
Modified EBITDA margin without MCI settlements to help enhance
comparability of these measures between periods.
(3) The Company utilizes a fully burdened gross margin, including
network costs, and personnel costs for customer care, provisioning,
network maintenance, technical field and network operations.
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