Exhibit 99.1
| | |
CONTACTS: | | |
| Investor Relations: | | Media Relations: |
| Carole Curtin | | Bob Meldrum |
| carole.curtin@twtelecom.com | | bob.meldrum@twtelecom.com |
| 303-566-1000 | | 303-566-1354 |
Time Warner Telecom Delivers Continued Strong Results
For the Third Quarter and Completes Key Strategic Events
— Delivers 10% total revenue growth and 16% Enterprise revenue growth year over year —
— Completes secondary offering resulting in non-controlled organization and 55% increased shareholder float –
— Completes refinancing activities yielding improved flexibility, lower interest costs and extended maturities —
— Completes strategic acquisition of Xspedius Communications, LLC. (“Xspedius”) —
LITTLETON, Colo. – November 7, 2006 – Time Warner Telecom Inc. (NASDAQ: TWTC), a leading provider of managed voice and data networking solutions for business customers, today announced its third quarter 2006 financial results, including $196.1 million in revenue, $71.2 million in Modified EBITDA1(“M-EBITDA”) and a net loss of $11.3 million.
“We continue to execute major initiatives and achieve results which strengthen our business, including completion of key financing and equity activities, closure of a strategic acquisition and delivery of ongoing strong quarterly performance,” said Larissa Herda, Time Warner Telecom’s Chairman, CEO and President. “Momentum continues in our business as we expand our leadership position in serving growing customer demand for complex, cost effective solutions for business customers across their local campuses, throughout a city or nationwide.”
Highlights for the Quarter
For the quarter ending September 30, 2006, the Company –
| | • | | Achieved levered free cash flow2 for the quarter of $6.1 million and $9.3 million for the first nine months of 2006 |
| | • | | Grew total revenue $18.3 million year over year, an increase of 10%, and $4.8 million sequentially, an increase of 3% |
| | • | | Grew enterprise revenue $16.0 million year over year, an increase of 16%, and $3.1 million sequentially, an increase of 3% |
| | • | | Grew data and Internet revenue $12.5 million year over year, an increase of 30%, and $2.5 million sequentially, an increase of 5% |
| | • | | Produced 14% growth in M-EBITDA year over year, as well as delivered a 63% modified gross margin4 and 36% M-EBITDA margin |
| | • | | Grew fiber connected buildings by 16% to more than 6,600 buildings and increased customers by 14% year over year, reflecting continued strong enterprise growth |
1
Year over Year Results –Third Quarter 2006 compared to Third Quarter 2005
Revenue
Revenue was $196.1 million for the current quarter, as compared to $177.8 million for the third quarter of 2005, an increase of $18.3 million, or 10%. The revenue growth was driven primarily by a $16.0 million increase in revenue from enterprise customers and a $1.9 million increase in carrier revenue.
By product line, the percentage change in revenue year over year was as follows:
| | • | | 30% increase for Data and Internet services5 due to success with Ethernet and IP-based product sales |
| | • | | 9% increase for Voice services6 due to growth in bundled voice products |
| | • | | 2% increase for Network services7due to increased enterprise and carrier sales and dispute settlements |
Monthly revenue churn of 1.1% for the quarter remained flat with the prior quarter and the same period last year. 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 $8.8 million to $71.2 million for the third quarter of 2006, reflecting a 14% increase over the same period last year. The increase in M-EBITDA primarily reflects strong revenue growth, accompanied by improving margins.
Excluded from M-EBITDA, but included in operating and selling, general and administrative costs (“SG&A”), is non-cash stock-based compensation expense under SFAS 123R, which was adopted in the first quarter of 2006. Operating and SG&A costs 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. Excluding these costs, operating costs and SG&A costs decreased as a percent of revenue as compared to the same period last year.
Margins for the quarter improved with an increase in modified gross margin to 63% from 62% and M-EBITDA margin to 36% from 35%, 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 $11.3 million, a loss of $.09 per share for the quarter, compared to a net loss of $23.4 million or a loss of $.20 per share for the third quarter of 2005. Excluding the non-cash stock-based compensation expense, the loss per share improved by $.14 per share to $.06 loss per share for the current quarter, compared to $.20
2
loss per share for the same period last year. The decrease in the net loss reflects the strong M-EBITDA growth as well as significant net interest savings due to refinancing events in the first half of 2006 and the fourth quarter of 2005.
Sequential Results – Third Quarter 2006 compared to Second Quarter 2006
Revenue
Revenue for the quarter was $196.1 million, as compared to $191.3 million for the second quarter of 2006, an increase of $4.8 million sequentially. The revenue growth was driven primarily by a $3.1 million increase in revenue from enterprise customers and $1.0 million from carrier customers.
By product line, the percentage change in revenue sequentially was as follows:
| | • | | 5% increase for Data and Internet services due to success with Ethernet and IP-based product sales |
| | • | | 3% increase for Voice services due to growth in bundled voice products |
| | • | | 1% increase in Network services due to increased carrier sales and dispute settlements |
M-EBITDA and Margins
M-EBITDA was $71.2 million for the third quarter of 2006 versus $69.6 million for the second quarter of 2006, for a sequential increase of 2%. The increase in M-EBITDA primarily reflects strong revenue growth and decreased SG&A costs, offset by an increase in operating costs. Operating costs reflect higher direct costs associated with the growth in revenue, including adding capacity to the IP backbone, and fluctuations in certain dispute and settlement costs. SG&A improved primarily due to a decrease in bad debt expense. Margins for the quarter included modified gross margin of 63%, compared to 64% last quarter, and M-EBITDA margin of 36% for both quarters.
Net Loss
The Company’s net loss was $11.3 million, a loss of $.09 per share for the quarter, compared to a net loss of $40.4 million or $.34 loss per share for the second quarter. Excluding debt extinguishment costs and non-cash stock-based compensation expense, the loss per share improved by $.03 per share sequentially to $.06 loss per share for the current quarter, as compared to $.09 loss per share for the prior quarter. The decrease in the net loss reflects M-EBITDA growth, reduced interest expense, and $25.8 million of debt extinguishment costs in the second quarter that did not recur this quarter.
Other Operating Highlights
Capital Expenditures
Capital expenditures include continued expansion and enhancement of its network, products and systems, and were $48.2 million for the quarter, versus $39.7 million for the same period last year. The Company expects capital expenditures for 2006 to be around the high end
3
of its previous guidance, or approximately $185 million, which excludes investments made for the Xspedius integration.
Key Strategic Events
Completes Secondary Equity Offering — Resulting in Non-Controlled Company
In September, the Company facilitated a secondary common stock offering by its Class B shareholders for 43.5 million shares of Class A common stock at $17.50 per share. With this transaction, all the outstanding Class B shares were converted to Class A common stock, which increased the Company’s float by 55% and gave 100% of voting control to Class A shareholders. The Company did not receive any proceeds from the offering.
Completes Financing Activities — Providing Improved Flexibility & Lower Interest Costs
In October, the Company completed a new $700 million credit facility including a $600 million Term Loan B (“Term Loan”) maturing in January 2013 and a $100 million Revolving Credit Facility (the “Revolver”) maturing in October 2011. Initial pricing on the Term Loan is Eurodollar plus 2.25%. The Revolver replaced a $110 million secured revolving credit facility, and is currently undrawn. The Company has fully drawn the Term Loan and used the proceeds as follows:
| | • | | $200 million to extinguish on October 6, its existing senior secured Term Loan B facility including accrued interest |
| | • | | $250 million to redeem on November 6, its Second Priority Senior Secured Floating Rate Notes (“Floating Rate Notes”), including a premium of 102 percent of par, or $4.8 million, and accrued interest |
| | • | | $150 million was used on October 31, to fund a portion of the acquisition of Xspedius |
Proforma for these financing events, the Company’s gross debt increased by $161 million. In the fourth quarter the Company will expense $6.3 million for deferred loan costs and $4.8 million for the redemption premium relating to the retired debt.
“The financing events which we completed this fall, as well as those earlier this year, have significantly improved our capital structure,” said Mark Peters, Time Warner Telecom’s Senior Vice President and Chief Financial Officer. “We have put a financing structure in place that lends additional flexibility to the business and reduces our interest expense significantly.”
Completes Acquisition of Xspedius – Expanding footprint to 75 combined markets
On October 31, the Company completed its strategic acquisition of Xspedius Communications, LLC. Under the terms of the agreement, the Company paid $216 million in cash and 18.2 million shares of Class A common stock, which includes an adjustment for working capital. “This strategic acquisition further expands our sales opportunity, network reach and market density for serving medium to large enterprise customers across the U.S.,”
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said Herda. The acquisition increases the number of markets served by the Company from 44 to 75 and enhances the Company’s ability to further fuel its enterprise growth.
The Company expects Xspedius’ stand alone operations to generate in 2007 approximately $230 to $250 million of revenue, $40 to $50 million of M-EBITDA, and $20 to $25 million in unlevered free cash flow3. The Company expects to achieve significant annualized cost synergies of approximately $40 to $50 million within 12 to 18 months of closing, and expects $40 to $50 million of one time investments to integrate the business. Due to the acceleration of closing the Xspedius acquisition, integration activities will begin and therefore the Company expects to incur $8 to $12 million of these one time investment costs in the fourth quarter of 2006, including about half of which is for capital expenditures.
Summary
“Our strong organic revenue growth and key strategic initiatives position us as a continued leader in the enterprise marketplace and for long-term financial success,” said Herda.
Time Warner Telecom Inc. plans to conduct a webcast conference call to discuss its earnings results on November 8 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 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 unlevered 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. Modified gross margin is reconciled to gross margin on pages 7 and 8 of the financial tables. |
| (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. |
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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 unlevered 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 unlevered 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 7 and 8 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 visitwww.twtelecom.com for more information.
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Time Warner Telecom Inc.
Consolidated Operations Highlights
(Dollars in thousands)
Unaudited (1)
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2006 | | | 2005 | | | Growth % | | | 2006 | | | 2005 | | | Growth % | |
Revenue | | | | | | | | | | | | | | | | | | | | | | |
Network services(formerly dedicated transport) (2) | | $ | 87,312 | | | $ | 85,498 | | | 2 | % | | $ | 260,104 | | | | 256,311 | | | 1 | % |
Data and Internet services | | | 53,995 | | | | 41,467 | | | 30 | % | | | 153,570 | | | | 118,082 | | | 30 | % |
Voice services(formerly switched services) (2) | | | 45,932 | | | | 42,134 | | | 9 | % | | | 133,511 | | | | 123,541 | | | 8 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Service Revenue | | | 187,239 | | | | 169,099 | | | 11 | % | | | 547,185 | | | | 497,934 | | | 10 | % |
Intercarrier compensation (3) | | | 8,870 | | | | 8,758 | | | 1 | % | | | 26,409 | | | | 26,274 | | | 1 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Total Revenue | | | 196,109 | | | | 177,857 | | | 10 | % | | | 573,594 | | | | 524,208 | | | 9 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | | | | | | | | |
Operating costs (4) | | | 74,018 | | | | 68,395 | | | | | | | 213,447 | | | | 201,919 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Gross Margin | | | 122,091 | | | | 109,462 | | | | | | | 360,147 | | | | 322,289 | | | | |
Selling, general and administrative costs (4) | | | 54,409 | | | | 47,071 | | | | | | | 164,185 | | | | 141,763 | | | | |
Depreciation, amortization and accretion | | | 62,028 | | | | 59,595 | | | | | | | 184,524 | | | | 176,273 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Operating Income | | | 5,654 | | | | 2,796 | | | | | | | 11,438 | | | | 4,253 | | | | |
Interest expense | | | (21,759 | ) | | | (29,764 | ) | | | | | | (74,921 | ) | | | (90,441 | ) | | | |
Debt extinguishment costs | | | — | | | | — | | | | | | | (25,777 | ) | | | (8,573 | ) | | | |
Interest income | | | 4,754 | | | | 3,527 | | | | | | | 15,243 | | | | 9,103 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Loss before income taxes | | | (11,351 | ) | | | (23,441 | ) | | | | | | (74,017 | ) | | | (85,658 | ) | | | |
Income tax expense | | | — | | | | — | | | | | | | 7 | | | | 150 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net Loss | | | ($11,351 | ) | | | ($23,441 | ) | | | | | | ($74,024 | ) | | | ($85,808 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
|
| SUPPLEMENTAL INFORMATION TO RECONCILE MODIFIED GROSS MARGIN AND MODIFIED EBITDA | |
| | | | | | |
Gross Margin | | $ | 122,091 | | | $ | 109,462 | | | | | | $ | 360,147 | | | $ | 322,289 | | | | |
Add back non-cash stock-based compensation expense | | | 491 | | | | — | | | | | | | 1,472 | | | | — | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Modified Gross Margin | | | 122,582 | | | | 109,462 | | | 12 | % | | | 361,619 | | | | 322,289 | | | 12 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative costs | | | 54,409 | | | | 47,071 | | | | | | | 164,185 | | | | 141,763 | | | | |
Add back non-cash stock-based compensation expense | | | 3,026 | | | | — | | | | | | | 8,344 | | | | — | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Modified EBITDA | | | 71,199 | | | | 62,391 | | | 14 | % | | | 205,778 | | | | 180,526 | | | 14 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Non-cash stock-based compensation expense | | | 3,517 | | | | — | | | | | | | 9,816 | | | | — | | | | |
Depreciation, amortization and accretion | | | 62,028 | | | | 59,595 | | | | | | | 184,524 | | | | 176,273 | | | | |
Net Interest expense | | | 17,005 | | | | 26,237 | | | | | | | 59,678 | | | | 81,338 | | | | |
Debt extinguishment costs | | | — | | | | — | | | | | | | 25,777 | | | | 8,573 | | | | |
Income tax expense | | | — | | | | — | | | | | | | 7 | | | | 150 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net Loss | | | ($11,351 | ) | | | ($23,441 | ) | | | | | | ($74,024 | ) | | | ($85,808 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Modified Gross Margin % | | | 63 | % | | | 62 | % | | | | | | 63 | % | | | 61 | % | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Modified EBITDA Margin % | | | 36 | % | | | 35 | % | | | | | | 36 | % | | | 34 | % | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Free Cash Flow: | | | | | | | | | | | | | | | | | | | | | | |
Modified EBITDA | | $ | 71,199 | | | $ | 62,391 | | | | | | $ | 205,778 | | | $ | 180,526 | | | | |
Less: Capital Expenditures | | | 48,171 | | | | 39,670 | | | | | | | 136,874 | | | | 121,468 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Unlevered Free Cash Flow | | | 23,028 | | | | 22,721 | | | | | | | 68,904 | | | | 59,058 | | | | |
Less: Net interest expense | | | 17,005 | | | | 26,237 | | | | | | | 59,678 | | | | 81,338 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Levered Free Cash Flow | | $ | 6,023 | | | | ($3,516 | ) | | | | | $ | 9,226 | | | | ($22,280 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| (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 page 5 of 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. |
7
Time Warner Telecom Inc.
Consolidated Operations Highlights
(Dollars in thousands)
Unaudited (1)
| | | | | | | | | | | |
| | | Three Months Ended | |
| | | September 30,
2006 | | | June 30,
2006 | | | Growth % | |
Revenue | | | | | | | | | | | |
Network services(formerly dedicated transport) (2) | | $ | 87,312 | | | $ | 86,436 | | | 1 | % |
Data and Internet services | | | 53,995 | | | | 51,458 | | | 5 | % |
Voice services(formerly switched services) (2) | | | 45,932 | | | | 44,647 | | | 3 | % |
| | | | | | | | | | | |
Service Revenue | | | 187,239 | | | | 182,541 | | | 3 | % |
Intercarrier compensation (3) | | | 8,870 | | | | 8,757 | | | 1 | % |
| | | | | | | | | | | |
Total Revenue | | | 196,109 | | | | 191,298 | | | 3 | % |
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Operating costs (4) | | | 74,018 | | | | 69,371 | | | | |
| | | | | | | | | | | |
Gross Margin | | | 122,091 | | | | 121,927 | | | | |
Selling, general and administrative costs (4) | | | 54,409 | | | | 55,814 | | | | |
Depreciation, amortization and accretion | | | 62,028 | | | | 62,367 | | | | |
| | | | | | | | | | | |
Operating Income | | | 5,654 | | | | 3,746 | | | | |
Interest expense | | | (21,759 | ) | | | (24,468 | ) | | | |
Debt extinguishment costs | | | — | | | | (25,777 | ) | | | |
Interest income | | | 4,754 | | | | 6,094 | | | | |
| | | | | | | | | | | |
Loss before income taxes | | | (11,351 | ) | | | (40,405 | ) | | | |
Income tax benefit | | | — | | | | 7 | | | | |
| | | | | | | | | | | |
Net Loss | | | ($11,351 | ) | | | ($40,412 | ) | | | |
| | | | | | | | | | | |
|
| SUPPLEMENTAL INFORMATION TO RECONCILE MODIFIED GROSS MARGIN AND MODIFIED EBITDA | |
| | | |
Gross Margin | | $ | 122,091 | | | $ | 121,927 | | | | |
Add back non-cash stock-based compensation expense | | | 491 | | | | 492 | | | | |
| | | | | | | | | | | |
Modified Gross Margin | | | 122,582 | | | | 122,419 | | | 0 | % |
| | | | | | | | | | | |
Selling, general and administrative costs | | | 54,409 | | | | 55,814 | | | | |
Add back non-cash stock-based compensation expense | | | 3,026 | | | | 2,966 | | | | |
| | | | | | | | | | | |
Modified EBITDA | | | 71,199 | | | | 69,571 | | | 2 | % |
| | | | | | | | | | | |
Non-cash stock-based compensation expense | | | 3,517 | | | | 3,458 | | | | |
Depreciation, amortization and accretion | | | 62,028 | | | | 62,367 | | | | |
Net Interest expense | | | 17,005 | | | | 18,374 | | | | |
Debt extinguishment costs | | | — | | | | 25,777 | | | | |
Income tax expense | | | — | | | | 7 | | | | |
| | | | | | | | | | | |
Net Loss | | | ($11,351 | ) | | | ($40,412 | ) | | | |
| | | | | | | | | | | |
Modified Gross Margin % | | | 63 | % | | | 64 | % | | | |
| | | | | | | | | | | |
Modified EBITDA Margin % | | | 36 | % | | | 36 | % | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Free Cash Flow | | | | | | | | | | | |
Modified EBITDA | | $ | 71,199 | | | $ | 69,571 | | | | |
Less: Capital Expenditures | | | 48,171 | | | | 50,757 | | | | |
| | | | | | | | | | | |
Unlevered Free Cash Flow | | | 23,028 | | | | 18,814 | | | | |
Less: Net interest expense | | | 17,005 | | | | 18,374 | | | | |
| | | | | | | | | | | |
Levered Free Cash Flow | | $ | 6,023 | | | $ | 440 | | | | |
| | | | | | | | | | | |
| (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 page 5 of 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. |
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Time Warner Telecom Inc.
Highlights of Results Per Share
Unaudited (1) (2) (3)
| | | | | | | | | |
| | | Three Months Ended | |
| | | 9/30/06 | | | 6/30/06 | | | 9/30/05 | |
Weighted Average Shares Outstanding (thousands) | | | | | | | | | |
Basic and Diluted | | 121,659 | | | 120,069 | | | 116,330 | |
| | | | | | | | | |
Basic and Diluted Loss per Common Share | | | | | | | | | |
Loss per share before debt extinguishment costs and non-cash stock-based compensation expense | | ($0.06 | ) | | ($0.09 | ) | | ($0.20 | ) |
Impact of debt extinguishment costs | | — | | | (0.22 | ) | | — | |
Impact of non-cash stock-based compensation expense | | (0.03 | ) | | (0.03 | ) | | — | |
| | | | | | | | | |
As Reported | | ($0.09 | ) | | ($0.34 | ) | | ($0.20 | ) |
| | | | | | | | | |
| |
| | | As of | |
| | | 9/30/06 | | | 6/30/06 | | | 9/30/05 | |
Common shares (thousands) | | | | | | | | | |
Actual Shares Outstanding | | 122,823 | | | 120,595 | | | 116,626 | |
| | | | | | | | | |
Options (thousands) | | | | | | | | | |
Options Outstanding | | 14,336 | | | 16,410 | | | 18,749 | |
| | | | | | | | | |
Options Exercisable | | 9,843 | | | 11,320 | | | 13,360 | |
| | | | | | | | | |
Options Exercisable and In-the-Money | | 5,355 | | | 6,676 | | | 4,067 | |
| | | | | | | | | |
| (1) | For complete financials and related footnotes, please refer to the Company’s SEC filings. |
| (2) | As of September 30, 2006 only Class A common shares remain outstanding. |
| (3) | Stock options, restricted stock units and convertible debt subject to conversion were excluded from the computation of weighted average shares outstanding because their inclusion would be anti-dilutive. |
9
Time Warner Telecom Inc.
Condensed Consolidated Balance Sheet Highlights
(Dollars in thousands)
Unaudited (1)
| | | | | | | | |
| | | September 30,
2006 | | | June 30,
2006 | |
| ASSETS | | | | | | | | |
Cash and equivalents, and short-term investments | | $ | 345,121 | | | $ | 328,296 | |
Receivables | | | 65,629 | | | | 56,224 | |
Less: allowance | | | (7,395 | ) | | | (9,320 | ) |
| | | | | | | | |
Net receivables | | | 58,234 | | | | 46,904 | |
Other current assets | | | 27,519 | | | | 31,740 | |
Property, plant and equipment | | | 2,601,746 | | | | 2,561,501 | |
Less: accumulated depreciation | | | (1,422,315 | ) | | | (1,368,323 | ) |
| | | | | | | | |
Net property, plant and equipment | | | 1,179,431 | | | | 1,193,178 | |
Other Assets | | | 109,251 | | | | 100,663 | |
| | | | | | | | |
Total | | $ | 1,719,556 | | | $ | 1,700,781 | |
| | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
Current Liabilities | | | | | | | | |
Accounts payable | | $ | 36,306 | | | $ | 32,950 | |
Deferred revenue | | | 18,622 | | | | 18,198 | |
Accrued taxes, franchise and other fees | | | 57,289 | | | | 55,593 | |
Accrued interest | | | 13,737 | | | | 20,814 | |
Accrued payroll and benefits | | | 37,017 | | | | 25,634 | |
Current portion of debt and lease obligations | | | 3,038 | | | | 3,563 | |
Other current liabilities | | | 75,094 | | | | 71,136 | |
| | | | | | | | |
Total current liabilities | | | 241,103 | | | | 227,888 | |
Long-Term Debt and Capital Lease Obligations | | | | | | | | |
Floating rate senior secured debt - Term Loan B due 11/30/2010 (2) | | | 198,500 | | | | 199,000 | |
Floating rate senior secured notes, due 2/15/2011 (3) | | | 240,000 | | | | 240,000 | |
9 1/4% senior unsecured notes, due 2/15/2014 | | | 400,410 | | | | 400,424 | |
2 3/8% convertible senior debentures, due 4/1/2026 | | | 373,750 | | | | 373,750 | |
Capital lease obligations | | | 8,919 | | | | 9,518 | |
Less: current portion | | | (3,038 | ) | | | (3,563 | ) |
| | | | | | | | |
Total long-term debt and capital lease obligations | | | 1,218,541 | | | | 1,219,129 | |
Long-term Deferred Revenue | | | 18,226 | | | | 18,554 | |
Other Long-Term Liabilities | | | 9,083 | | | | 8,882 | |
Stockholders’ Equity | | | 232,603 | | | | 226,328 | |
| | | | | | | | |
Total | | $ | 1,719,556 | | | $ | 1,700,781 | |
| | | | | | | | |
| (1) | For complete financials and related footnotes, please refer to the Company’s SEC filings. |
| (2) | This debt was refinanced on October 6, 2006. |
| (3) | These notes were fully redeemed on November 6, 2006. |
10
Time Warner Telecom Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Unaudited (1)
| | | | | | | | |
| | | Three Months Ended | |
| | | 9/30/06 | | | 6/30/06 | |
Cash flows from operating activities: | | | | | | | | |
Net Loss | | ($ | 11,351 | ) | | ($ | 40,412 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities | | | | | | | | |
Depreciation, amortization, and accretion | | | 62,028 | | | | 62,367 | |
Stock-based compensation | | | 3,517 | | | | 3,457 | |
Deferred debt issue, extinguishment costs and premium on debt | | | 779 | | | | 26,653 | |
Changes in operating assets and liabilities: | | | | | | | | |
Receivables and prepaid expense | | | (9,915 | ) | | | (7,901 | ) |
Accounts payable, deferred revenue, and other liabilities | | | 4,943 | | | | 5,769 | |
| | | | | | | | |
Net cash provided by operating activities | | | 50,001 | | | | 49,933 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Capital expenditures | | | (48,171 | ) | | | (50,378 | ) |
Purchases of investments | | | (59,545 | ) | | | (117,739 | ) |
Proceeds from maturities of investments | | | 153,116 | | | | 118,600 | |
Proceeds from sale of assets and other investing activities | | | (89 | ) | | | 37 | |
| | | | | | | | |
Net cash provided by (used in) investing activities | | | 45,311 | | | | (49,480 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Net proceeds from issuance of common stock upon exercise of stock options | | | 12,746 | | | | 6,094 | |
Net proceeds from issuance of common stock in connection with the employee purchase plan | | | 1,362 | | | | — | |
Net proceeds from issuance of debt | | | (73 | ) | | | (159 | ) |
Payment of capital lease obligations | | | (552 | ) | | | (657 | ) |
Retirement of debt obligations | | | — | | | | (420,252 | ) |
Payment of debt obligations | | | (500 | ) | | | (500 | ) |
| | | | | | | | |
Net cash provided by (used in) financing activities | | | 12,983 | | | | (415,474 | ) |
| | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 108,295 | | | | (415,021 | ) |
Cash and cash equivalents at the beginning of the period | | | 130,826 | | | | 545,847 | |
| | | | | | | | |
Cash and cash equivalents at the end of the period | | $ | 239,121 | | | $ | 130,826 | |
| | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | |
Cash paid for interest | | $ | 28,700 | | | $ | 19,082 | |
| | | | | | | | |
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 | | $ | 239,121 | | | $ | 130,826 | |
Investments | | | 106,000 | | | | 197,470 | |
| | | | | | | | |
| | $ | 345,121 | | | $ | 328,296 | |
| | | | | | | | |
Supplemental information to reconcile capital expenditures: | | | | | | | | |
Capital expenditures per cash flow statement | | $ | 48,171 | | | $ | 50,378 | |
Addition of capital lease obligation | | | — | | | | 379 | |
| | | | | | | | |
Total capital expenditures | | $ | 48,171 | | | $ | 50,757 | |
| | | | | | | | |
| (1) | For complete financials and related footnotes, please refer to the Company’s SEC filings. |
11
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 | | Sept. 30 |
Operating Metrics: | | | | | | | | | | | | | | |
Route Miles | | | | | | | | | | | | | | |
Metro | | 12,835 | | 13,053 | | 13,427 | | 13,589 | | 13,913 | | 14,053 | | 14,409 |
Regional | | 7,015 | | 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 | | 21,424 |
Buildings (2) | | | | | | | | | | | | | | |
Fiber connected buildings (on-net) | | 5,281 | | 5,501 | | 5,752 | | 5,982 | | 6,185 | | 6,433 | | 6,672 |
Type II | | 14,576 | | 15,057 | | 15,581 | | 16,246 | | 16,865 | | 17,623 | | 18,355 |
| | | | | | | | | | | | | | |
Total | | 19,857 | | 20,558 | | 21,333 | | 22,228 | | 23,050 | | 24,056 | | 25,027 |
Networks | | | | | | | | | | | | | | |
Class 5 Switches | | 39 | | 39 | | 38 | | 38 | | 38 | | 38 | | 38 |
Soft Switches | | 20 | | 26 | | 32 | | 34 | | 34 | | 35 | | 35 |
Headcount | | | | | | | | | | | | | | |
Total Headcount | | 2,019 | | 2,029 | | 2,022 | | 2,034 | | 2,055 | | 2,105 | | 2,129 |
Sales Associates (3) | | 317 | | 312 | | 312 | | 318 | | 330 | | 331 | | 342 |
Customers | | | | | | | | | | | | | | |
Total Customers | | 10,740 | | 11,088 | | 11,439 | | 11,834 | | 12,181 | | 12,642 | | 13,081 |
| (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. |
12
