LITTLETON, Colo., July 31 /PRNewswire-FirstCall/ -- Time Warner Telecom Inc. , a leading provider of managed voice and data networking solutions for business customers, today announced its second quarter 2006 financial results, including $191.3 million in revenue, $69.6 million in Modified EBITDA(1) ("M-EBITDA") and a net loss of $40.4 million.
"We continue to deliver strong, industry-leading revenue growth and impressive and expanding margins," said Larissa Herda, Time Warner Telecom's Chairman, CEO and President. "Our outstanding performance is driving further investment in customer solutions as well as in our product and network capabilities. These investments will help expand our leadership position in serving a growing customer demand for complex, cost effective solutions across a local campus, a city or nationwide to customers' headquarter, regional, and branch offices."
Highlights for the Quarter
For the quarter ending June 30, 2006, the Company --
* Grew un-levered free cash flow(3) by 20% for the quarter, and 26% for
the first six months compared to the same period last year. Levered
free cash flow(2) for the quarter was $.4 million
* Grew total revenue $16.5 million year over year, an increase of 9%, and
$5.1 million sequentially, an increase of 3%
* Grew enterprise revenue $16.4 million year over year, an increase of
17%, and $5.4 million sequentially, an increase of 5%
* Grew data and Internet revenue $11.5 million year over year, an increase
of 29%, and $3.3 million sequentially, an increase of 7%
* Produced 20% quarterly growth in M-EBITDA year over year, as well as
improved margins to 64% modified gross margin(4) and 36% M-EBITDA margin
* Grew fiber connected buildings by 17% to more than 6,400 buildings and
increased customers by 14% year over year, reflecting continued strong
enterprise growth
Year over Year Results -Second Quarter 2006 compared to Second Quarter 2005
Revenue
Revenue was $191.3 million for the current quarter, as compared to $174.8 million for the second quarter of 2005, an increase of $16.5 million. The revenue growth was driven primarily by a $16.4 million increase in revenue from enterprise customers.
By product line, the percentage change in revenue year over year was as follows:
* 29% increase for Data and Internet services(5) due to success with
Ethernet and IP-based product sales
* 9% increase for Voice services(6) due to growth in bundled voice
products
* 1% increase for Network services(7) due to increased enterprise sales
Monthly revenue churn was 1.1% for both the second quarter of 2006 and 2005. This reflected an improvement from the first quarter of 2006, which was 1.3%. 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 $11.5 million to $69.6 million for the second quarter of 2006, reflecting a 20% increase over the same period last year. The increase in M-EBITDA primarily reflects strong revenue growth, as well as an increase in operating and selling, general and administrative costs ("SG&A"). Excluded from M-EBITDA but included in operating and SG&A costs is non-cash stock-based compensation expense under SFAS 123R, which was adopted in the first quarter of 2006. Operating and SG&A include $.5 million and $3.0 million, respectively, for non-cash stock-based compensation expense in the current quarter which was not recognized in the prior year. Margins for the quarter improved with an increase in Modified gross margin to 64% from 62% and M-EBITDA margin to 36% from 33%, compared to the same period last year.
The Company utilizes a fully burdened modified gross margin, including network costs, and personnel costs for customer care, provisioning, network maintenance, technical field and network operations, excluding non-cash stock- based compensation expense.
Net Loss
The Company's net loss was $40.4 million, a loss of $.34 per share for the quarter, compared to a net loss of $27.2 million or $.23 loss per share for the second quarter of 2005. The loss per share before debt extinguishment costs and non-cash stock-based compensation expense improved by $.14 per share to $.09 loss per share for the current quarter, compared to $.23 loss per share for the same period last year. The increase in the net loss reflects the strong M-EBITDA growth offset by $25.8 million of debt extinguishment costs for financing activities in the current quarter, an impact of $.22 per share.
Sequential Results -Second Quarter 2006 compared to First Quarter 2006
Revenue
Revenue for the quarter was $191.3 million, as compared to $186.2 million for the first quarter of 2006, an increase of $5.1 million sequentially. The revenue growth was driven primarily by a $5.4 million increase in revenue from enterprise customers.
By product line, the percentage change in revenue sequentially was as follows:
* 7% increase for Data and Internet services due to success with Ethernet
and IP-based product sales
* 4% increase for Voice services due to growth in bundled voice products
* Network services remained stable with the prior quarter
M-EBITDA and Margins
M-EBITDA was $69.6 million for the second quarter of 2006 versus $65.0 million for the first quarter of 2006, or a sequential increase of 7%. The increase in M-EBITDA reflects strong revenue growth as well as growth in selling, general and administrative costs. Margins for the quarter improved with an increase in Modified gross margin to 64% from 63% and M-EBITDA margin to 36% from 35%, compared to the prior quarter.
Net Loss
The Company's net loss was $40.4 million, a loss of $.34 per share for the quarter, compared to a net loss of $22.3 million or $.19 loss per share for the first quarter. The loss per share before debt extinguishment costs and non-cash stock-based compensation expense improved by $.08 per share sequentially to $.09 loss per share for the current quarter, compared to $.17 loss per share for the prior quarter. The increase in the net loss reflects the strong M-EBITDA growth and reduced interest expense offset by $25.8 million of debt extinguishment costs for financing activities in the current quarter, an impact of $.22 per share.
Other Operating Highlights
Capital Expenditures
Capital expenditures were $50.8 million for the quarter versus $42.5 million for the same period last year. In concert with growing customer wins for large customer applications, the Company expects capital expenditures for 2006 to be approximately $175 to $185 million, which includes the cost of continued expansion and enhancement of its network, products and systems.
Financing Activities
In March, the Company called for the redemption of $400 million principal amount of its 10 1/8% senior notes, which were redeemed May 1, 2006. The Company expensed a $20.3 million call premium and $5.5 million of deferred debt costs related to the redemption in the current quarter. The Company funded the redemption with $362 million of net proceeds from its first quarter 2006 convertible debt offering and $58 million of cash on hand.
Growing Network and Product Capabilities
During the current quarter, the Company continued to expand its capabilities for data and Internet services though an expansion of its product portfolio which increases its Ethernet and IP VPN capabilities to reach satellite and branch customer locations through both the Company's fiber connected buildings as well as off-net capabilities. These capabilities will serve customers both inside and outside the Company's current national fiber footprint.
Summary
"Our strong organic revenue growth and expanding margins are industry-leading and impressive," said Herda. "With this strong performance, we are continuing to invest in the business to achieve further growth both in the terms of the size and nature of our customer wins, and also in ongoing penetration of the enterprise marketplace."
Time Warner Telecom Inc. plans to conduct a webcast conference call to discuss its earnings results on August 1 at 9:00 a.m. MDT (11:00 a.m. EDT). 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, debt extinguishment costs, interest income,
investment gains and losses, income tax expense or benefit, cumulative
effect of change in accounting principle, and, beginning the first
quarter of 2006, non cash stock-based compensation expense. (See a
discussion below of Modified EBITDA under "Financial Measures".)
(2) The Company defines levered free cash flow as Modified EBITDA less
capital expenditures and net interest expense from operations (but
excludes debt extinguishment costs). Levered free cash flow is
reconciled to Net Cash provided by (used in) operating activities in
the supplemental information posted on the Company's website.
(3) The Company defines un-levered free cash flow as Modified EBITDA less
capital expenditures. Un-levered free cash flow is reconciled to Net
Cash provided by (used in) operating activities in the supplemental
information posted on the Company's website.
(4) The Company defines modified gross margin as Total Revenue less
operating costs excluding non-cash stock-based compensation expense
under SFAS 123R.
(5) Data and Internet services include services that enable customers to
connect their internal computer networks and to access external
networks, including Internet at high speeds using Ethernet protocol.
Services include metro and wide area Ethernet, virtual private network
solutions and Internet access.
(6) Voice services contain traditional and next generation voice
capabilities, including voice services from stand alone and bundled
products, long distance, 800 services, and VoIP.
(7) Network services include transmission speeds up to OC 192 to carrier
and enterprise customers. These services transmit voice, data, image,
storage and video, using state-of-the-art fiber optics.
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 and levered free cash flow, which measure the ability of M-EBITDA to cover capital expenditures. The Company uses these cash flow definitions to eliminate certain non-cash costs. Levered and un-levered free cash flow are reconciled to Net Cash provided by (used in) operating activities in the supplemental information posted on the Company's website.
The Company also provides an adjustment to the measure gross margin by eliminating the impact of non-cash compensation expense related to the adoption of SFAS 123R. Management uses Modified gross margin internally to assess on-going operations. Modified gross margin is reconciled to gross margin, on pages 6 and 7 of the financial tables.
Forward Looking Statements
The statements in this press release concerning the outlook for 2006 and beyond, including expansion plans, growth prospects, sales activity, expected customer disconnections, 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 2005 Annual Report on Form 10-K. 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
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. Please visit http://www.twtelecom.com/ for more information.
Time Warner Telecom Inc.
Consolidated Operations Highlights
(Dollars in thousands)
Unaudited (1)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 Growth % 2006 2005 Growth %
Revenue
Network services
(formerly dedicated
transport) (2) $86,436 $85,165 1% $172,792 170,813 1%
Data and Internet
services 51,458 39,919 29% 99,575 76,615 30%
Voice services
(formerly switched
services) (2) 44,647 40,957 9% 87,579 81,407 8%
Service Revenue 182,541 166,041 10% 359,946 328,835 9%
Intercarrier
compensation (3) 8,757 8,736 0% 17,539 17,516 0%
Total Revenue 191,298 174,777 9% 377,485 346,351 9%
Expenses
Operating costs (4) 69,371 66,717 139,429 133,524
Gross Margin 121,927 108,060 238,056 212,827
Selling, general
and administrative
costs (4) 55,814 49,913 109,776 94,692
Depreciation,
amortization and
accretion 62,367 58,672 122,496 116,678
Operating Income 3,746 (525) 5,784 1,457
Interest expense (24,468) (29,453) (53,162) (60,677)
Debt extinguishment
costs (25,777) -- (25,777) (8,573)
Interest income 6,094 2,855 10,489 5,576
Net loss before
income taxes (40,405) (27,123) (62,666) (62,217)
Income tax expense 7 75 7 150
Net Loss ($40,412) ($27,198) ($62,673) ($62,367)
SUPPLEMENTAL INFORMATION TO RECONCILE MODIFIED GROSS MARGIN AND
MODIFIED EBITDA
Gross Margin $121,927 $108,060 $238,056 $212,827
Add back non-cash
stock-based
compensation
expense 492 -- 981 --
Modified Gross
Margin 122,419 108,060 13% 239,037 212,827 12%
Selling, general
and administrative
costs 55,814 49,913 109,776 94,692
Add back non-cash
stock-based
compensation
expense 2,966 -- 5,318 --
Modified EBITDA 69,571 58,147 20% 134,579 118,135 14%
Non-cash stock-based
compensation expense 3,458 -- 6,299 --
Depreciation,
amortization and
accretion 62,367 58,672 122,496 116,678
Net Interest expense 18,374 26,598 42,673 55,101
Debt extinguishment
costs 25,777 -- 25,777 8,573
Income tax expense 7 75 7 150
Net Loss ($40,412) ($27,198) ($62,673) ($62,367)
Modified Gross
Margin % 64% 62% 63% 61%
Modified EBITDA
Margin % 36% 33% 36% 34%
Free Cash Flow:
Modified EBITDA $69,571 $58,147 $134,579 $118,135
Less: Capital
Expenditures 50,757 42,468 88,703 81,798
Unlevered Free Cash
Flow 18,814 15,679 45,876 36,337
Less: Net interest
expense 18,374 26,598 42,673 55,101
Levered Free Cash
Flow $440 ($10,919) $3,203 ($18,764)
(1) For complete financials and related footnotes, please refer to the
Company's SEC filings.
(2) The Company has modified the name of its revenue categories in order
to provide further clarity. This change reflects only a change in
title and is consistent with reporting in prior periods. Please see
the press release for a further description.
(3) Intercarrier Compensation includes switched access and reciprocal
compensation.
(4) The Company adopted SFAS 123R effective January 1, 2006 for non-cash
stock-based compensation.
Time Warner Telecom Inc.
Consolidated Operations Highlights
(Dollars in thousands)
Unaudited (1)
Three Months Ended
June 30, March 31,
2006 2006 Growth %
Revenue
Network services (formerly dedicated
transport) (2) $86,436 $86,356 0%
Data and Internet services 51,458 48,117 7%
Voice services (formerly switched
services) (2) 44,647 42,932 4%
Service Revenue 182,541 177,405 3%
Intercarrier compensation (3) 8,757 8,782 0%
Total Revenue 191,298 186,187 3%
Expenses
Operating costs (4) 69,371 70,058
Gross Margin 121,927 116,129
Selling, general and administrative
costs (4) 55,814 53,962
Depreciation, amortization and
accretion 62,367 60,129
Operating Income 3,746 2,038
Interest expense (24,468) (28,694)
Debt extinguishment costs (25,777) --
Interest income 6,094 4,395
Net loss before income taxes (40,405) (22,261)
Income tax benefit 7 --
Net Loss ($40,412) ($22,261)
SUPPLEMENTAL INFORMATION TO RECONCILE MODIFIED GROSS MARGIN AND
MODIFIED EBITDA
Gross Margin $121,927 $116,129
Add back non-cash stock-based
compensation expense 492 489
Modified Gross Margin 122,419 116,618 5%
Selling, general and administrative
costs 55,814 53,962
Add back non-cash stock-based
compensation expense 2,966 2,352
Modified EBITDA 69,571 65,008 7%
Non-cash stock-based compensation
expense 3,458 2,841
Depreciation, amortization and
accretion 62,367 60,129
Interest expense 18,374 24,299
Debt extinguishment costs 25,777 --
Income tax benefit 7 --
Net Loss ($40,412) ($22,261)
Modified Gross Margin % 64% 63%
Modified EBITDA Margin % 36% 35%
Free Cash Flow
Modified EBITDA $69,571 $65,008
Less: Capital Expenditures 50,757 37,946
Unlevered Free Cash Flow 18,814 27,062
Less: Net interest expense 18,374 24,299
Levered Free Cash Flow $440 $2,763
(1) For complete financials and related footnotes, please refer to the
Company's SEC filings.
(2) The Company has modified the name of its revenue categories in order
to provide further clarity. This change reflects only a change in
title and is consistent with reporting in prior periods. Please see
the press release for a further description.
(3) Intercarrier Compensation includes switched access and reciprocal
compensation.
(4) The Company adopted SFAS 123R effective January 1, 2006 for non-cash
stock-based compensation.
Time Warner Telecom Inc.
Highlights of Results Per Share
Unaudited (1)
Three Months Ended
6/30/06 3/31/06 6/30/05
Weighted Average Shares Outstanding
(thousands)
Basic and Diluted 120,069 118,231 116,131
Basic and Diluted Loss per Common Share
Loss per share before debt
extinguishment costs and non-cash
stock-based compensation expense ($0.09) ($0.17) ($0.23)
Impact of debt extinguishment costs (0.22) -- --
Impact of non-cash stock-based
compensation expense (0.03) (0.02) --
As Reported ($0.34) ($0.19) ($0.23)
As of
6/30/06 3/31/06 6/30/05
Common shares (thousands)
Actual Shares Outstanding 120,595 119,527 116,167
Options (thousands)
Options Outstanding 16,410 17,448 19,269
Options Exercisable 11,320 11,833 13,277
Options Exercisable and In-the-Money 6,676 7,235 2,476
(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)
June 30, March 31,
2006 2006
ASSETS
Cash and equivalents, and short-term
investments
Cash and equivalents, and
short-term investments $328,296 $321,521
Funds held for debt redemption (2) -- 420,252
Total cash and equivalents, and
short-term investments 328,296 741,773
Receivables 56,224 56,380
Less: allowance (9,320) (10,108)
Net receivables 46,904 46,272
Other current assets 31,740 27,736
Property, plant and equipment 2,561,501 2,515,887
Less: accumulated depreciation (1,368,323) (1,311,352)
Net property, plant and equipment 1,193,178 1,204,535
Other Assets 100,663 106,154
Total $1,700,781 $2,126,470
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $32,950 $29,906
Deferred revenue 18,198 18,405
Accrued taxes, franchise and
other fees 55,593 58,372
Accrued interest 20,814 15,695
Accrued payroll and benefits 25,634 25,318
Current portion of debt and
lease obligations (3) 3,563 404,175
Other current liabilities 71,136 70,577
Total current liabilities 227,888 622,448
Long-Term Debt and Capital Lease
Obligations
Floating rate senior secured debt -
Term Loan B due 11/30/2010 (4) 199,000 199,500
Floating rate senior secured
notes, due 2/15/2011 240,000 240,000
9 1/4% senior unsecured notes,
due 2/15/2014 400,424 400,437
10 1/8% senior unsecured notes,
due 2/1/2011 -- 400,000
2 3/8% convertible senior
debentures, due 4/1/2026 373,750 373,750
Capital lease obligations 9,518 9,829
Less: current portion (3,563) (404,175)
Total long-term debt and capital
lease obligations 1,219,129 1,219,341
Long-term Deferred Revenue 18,554 18,812
Other Long-Term Liabilities 8,882 8,680
Stockholders' Equity 226,328 257,189
Total $1,700,781 $2,126,470
(1) For complete financials and related footnotes, please refer to the
Company's SEC filings.
(2) Represents call of $400 million of principal for 10 1/8% senior
unsecured notes and related premium of $20.3 million.
(3) March 31, 2006 includes $400 million of 10 1/8% senior unsecured notes
redeemed May 1, 2006.
(4) 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 1/8% senior unsecured notes are refinanced to a maturity date
no earlier than November 30, 2013.
Time Warner Telecom Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Unaudited (1)
Three Months Ended
6/30/06 3/31/06
Cash flows from operating activities:
Net Loss ($40,412) ($22,261)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation, amortization, and accretion 62,367 60,129
Stock-based compensation 3,457 2,841
Deferred debt issue, extinguishment
costs and premium on debt 26,653 939
Changes in operating assets and
liabilities:
Receivables and prepaid expense (7,901) 583
Accounts payable, deferred
revenue, and other liabilities 5,769 (31,805)
Net cash provided by operating
activities 49,933 10,426
Cash flows from investing activities:
Capital expenditures (50,378) (37,946)
Purchases of investments (117,739) (161,075)
Proceeds from maturities of investments 118,600 149,792
Proceeds from sale of assets and
other investing activities 37 68
Net cash used in investing
activities (49,480) (49,161)
Cash flows from financing activities:
Net proceeds from issuance of common
stock upon exercise of stock options 6,094 11,435
Net proceeds from issuance of common
stock in connection with the
employee purchase plan -- 660
Net proceeds from issuance of debt (159) 362,525
Payment of capital lease obligations (657) (372)
Retirement of debt obligations (420,252) --
Payment of debt obligations (500) (500)
Net cash (used in) provided by
financing activities (415,474) 373,748
(Decrease) increase in cash and
cash equivalents (415,021) 335,013
Cash and cash equivalents at the
beginning of the period 545,847 210,834
Cash and cash equivalents at the
end of the period $130,826 $545,847
Supplemental disclosures of cash flow
information:
Cash paid for interest $19,082 $47,773
Cash paid for debt extinguishment costs $20,252 --
Addition of capital lease obligation $379 --
Summary of Cash and equivalents and
short-term investments:
Cash and cash equivalents at end of
the period $130,826 $545,847
Investments 197,470 195,926
$328,296 $741,773
Supplemental information to reconcile
capital expenditures:
Capital expenditures per cash
flow statement $50,378 $37,946
Addition of capital lease obligation 379 --
Total capital expenditures $50,757 $37,946
(1) For complete financials and related footnotes, please refer to the
Company's SEC filings.
Time Warner Telecom Inc.
Selected Operating Statistics
Unaudited (1)
Quarter Ended
2005 2006
Mar. 31 Jun. 30 Sept. 30 Dec. 31 Mar. 31 Jun. 30
Operating Metrics:
Route Miles
Metro 12,835 13,053 13,427 13,589 13,913 14,053
Regional 7,015 7,015 7,015 7,015 7,015 7,015
Total 19,850 20,068 20,442 20,604 20,928 21,068
Buildings (2)
Fiber connected
buildings
(on-net) 5,281 5,501 5,752 5,982 6,185 6,433
Type II 14,576 15,057 15,581 16,246 16,865 17,623
Total 19,857 20,558 21,333 22,228 23,050 24,056
Networks
Class 5
Switches 39 39 38 38 38 38
Soft Switches 20 26 32 34 34 35
Headcount
Total Headcount 2,019 2,029 2,022 2,034 2,055 2,105
Sales
Associates (3) 317 312 312 318 330 331
Customers
Total
Customers 10,740 11,088 11,439 11,834 12,181 12,642
(1) For complete financials and related footnotes, please refer to the
Company's SEC filings.
(2) Fiber connected buildings (e.g. "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 voice services, with a leased
service from the Company's distribution ring to the customer location.
(3) Includes Sales Account Executives and Customer Care Specialists.
