Exhibit 99.1
| | |
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 Reports Strong Third Quarter 2007 Results
– Grew enterprise revenue 5% sequentially
resulting in 21 consecutive quarters of enterprise revenue growth –
– Based on successful integration efforts, Company continues the rollout
of full product suite to four more acquired markets –
– M-EBITDA margin reflects strength in enterprise business
and efficient integration and cost synergies –
LITTLETON, Colo. – November 7, 2007 – Time Warner Telecom Inc. (NASDAQ: TWTC), a leading provider of managed voice and data networking solutions for business customers, today announced its third quarter 2007 financial results, including $274.8 million of revenue, $86.4 million in Modified EBITDA1(“M-EBITDA”) and a net loss of $11.6 million.
“We continue to deliver strong enterprise revenue growth, drive sales momentum, and achieve solid margins,” said Larissa Herda, Time Warner Telecom’s Chairman, CEO and President. “We have substantially completed our integration, and continue to optimize our operations and pursue cost synergies to streamline our ongoing operating structure. Our efforts are focused on leveraging our national footprint and robust product portfolio to drive further penetration of the enterprise market place and grow our market share.”
Highlights for the Quarter
For the quarter ending September 30, 2007, the Company –
| | • | | Grew total revenue 40% year over year and 3% sequentially |
| | • | | Grew enterprise revenue 60% year over year and 5% sequentially |
| | • | | Grew enterprise revenue to 70% of total revenue for the quarter |
| | • | | Grew data and Internet revenue 53% year over year and 5% sequentially (7% sequentially excluding the impact of the change in categories for certain products of the acquired operations6) |
| | • | | Produced $86.4 million of M-EBITDA and a 31.5% M-EBITDA margin |
| | • | | Delivered $9.1 million of levered free cash flow5, which included $7.6 million for integration and branding expenditures, or $16.7 million before these items |
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Year over Year Results –Third Quarter 2007 compared to Third Quarter 2006
Revenue
Revenue for the quarter was $274.8 million, as compared to $196.1 million for the third quarter of 2006, an increase of $78.7 million, or 40%. Key changes in revenue3 included:
| | • | | $68.3 million increase in revenue from enterprise customers, which included the impact of the acquired operations2and strong growth |
| | • | | $4.2 million increase in revenue from carriers, including the impact of the acquired operations which was partially offset by $4.1 million due to disconnects from one wireless customer |
| | • | | $2.4 million increase in intercarrier compensation primarily related to the acquired operations |
| | • | | $3.8 million increase to account for certain taxes and fees on a gross versus net basis3 |
By product line, the percentage change in revenue year over year was as follows:
| | • | | 53% increase for data and Internet services7, which included the impact of the acquired operations and strong growth due to success with Ethernet and IP-based product sales |
| | • | | 80% increase for voice services8, which included the impact of the acquired operations and strong growth due to strong bundled product sales |
| | • | | 13% increase for network services9which included the acquired operations partially offset by disconnects from one wireless carrier |
| | • | | 27% increase in intercarrier compensation primarily related to the acquired operations |
Monthly revenue churn improved to 1.0% for the quarter, as compared to 1.1% for both the prior quarter and the same quarter last year. The Company continues to expect ongoing revenue churn, including disconnects from carrier customers related to their merger activities and network grooming.
M-EBITDA and Margins
M-EBITDA grew $15.2 million to $86.4 million for the quarter, a 21% increase over the same period last year primarily reflecting strong revenue growth and the impact of the acquired operations. M-EBITDA included $1.2 million of integration and branding costs in the quarter, and $.1 million in the same period last year. Operating costs increased primarily reflecting the impact of the acquisition and related increased network access costs associated with additional sales, which were partially offset by integration synergies, and the change in 2007 to present certain taxes and fees on a gross versus net basis. Selling, general and administrative costs (“SG&A”) increased primarily reflecting the impact of the acquired operations as well as increased incentive-based compensation for sales employees and non-cash stock based compensation. Also, in the third quarter of 2006, the Company experienced a decrease in bad debt expense related to bad debt recoveries, which did not recur in the current quarter. SG&A as a percent of revenue was 28% for both periods.
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M-EBITDA margin was 31.5% for the quarter as compared to 36.3% for the same quarter last year. Modified gross margin10was 57.2% for the current quarter compared to 62.5% for the same period last year. The difference in margins between periods primarily reflects higher access costs related to the acquired operations and the margin impact to present certain taxes and fees on a gross versus net basis, partially offset by the benefit of integration synergies.
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 $11.6 million, a loss of $.08 per share for the quarter compared to a net loss of $11.3 million, a loss of $.09 per share for the third quarter of 2006. The increase in the net loss reflects strong M-EBITDA growth in the current quarter, offset by an increase in depreciation expense related to both the acquired assets and new capital expenditures placed in service and a $2.4 million charge to recognize an estimated loss on certain investments.
Sequential Results –Third Quarter 2007 compared to Second Quarter 2007
Revenue
Revenue for the quarter was $274.8 million, as compared to $268.0 million for the second quarter of 2007, an increase of $6.8 million, or 3%. Key changes in revenue3 included:
| | • | | $9.3 million increase in revenue from enterprise customers resulting in the highest sequential increase to date from organic growth. The increase included the impact of several large customer installations in the latter part of the second quarter which had a full quarter impact to revenue in the current quarter |
| | • | | $1.9 million decrease in revenue from carrier customers, which included a decrease of $.6 million due to disconnects from one wireless customer, as well as fluctuations in customer settlements |
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 (7% growth excluding the impact of the change in categories for certain acquired products6) |
| | • | | 3% increase for voice services (1% growth excluding the impact of the change in categories for certain acquired products6) |
| | • | | 1% increase in network services primarily due to increased high-bandwidth enterprise sales partially offset by carrier disconnects |
M-EBITDA and Margins
M-EBITDA was $86.4 million for the quarter, as compared to $83.0 million for the prior quarter, a 4% increase or $3.4 million. M-EBITDA margin was 31.5% for the quarter, as
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compared to 31% in the prior quarter. Modified gross margin remained virtually unchanged from the prior quarter. The change in M-EBITDA and M-EBITDA margin primarily reflects strong revenue growth, and integration synergies partially offset by growth in costs to support the Company’s rollout of its full product suite in the acquired markets. Operating costs increased primarily related to growth in revenue, network technicians added to support the product rollout and fluctuations in settlements.
Net Loss
The Company’s net loss was $11.6 million, a loss of $.08 per share for the quarter compared to a net loss of $9.6 million, or a loss of $.07 per share for the prior quarter. The increase in net loss per share reflects strong M-EBITDA growth offset by an increase in depreciation expense related to new capital expenditures placed in service and a $2.4 million charge to recognize an estimated loss on certain investments.
Integration
The Company continues to expect that integration cost synergies will be primarily realized in the next few quarters. For 2007, the Company continues to expect to spend $35 to $45 million for integration, including $5 to $7 million in operating costs, and $30 to $38 million in capital expenditures. Based on its successful integration, the Company is accelerating the rollout of its full product suite to four additional acquired markets in the fourth quarter.
M-EBITDA Margin Outlook
“Progress on our integration has been impressive and we are on track with our expected cost synergies,” said Mark Peters, Time Warner Telecom’s Executive Vice President and Chief Financial Officer. “We continue to focus on investing in the business, while balancing revenue growth, margins and cash flow. This philosophy will continue as we remain focused on achieving mid-30% M-EBITDA margins during the summer of 2008. As in the past, we expect future quarterly margins will be impacted by the timing of sales, installations, seasonality and other normal business fluctuations, as well as integration synergies and costs.”
Capital Expenditures (excluding Integration investments)
Excluding integration investments, capital expenditures were $52.8 million for the third quarter. For 2007, the Company is narrowing its guidance for capital expenditures, excluding integration investments, to $230 to $240 million, which will primarily be used to fund growth opportunities.
Summary
“We remain focused on optimizing our businesses by delivering strong enterprise growth, driving sales momentum and growing cash flow by leveraging our national footprint and robust product portfolio to further penetrate the enterprise market place and grow our market share,” said Herda.
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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, impairment charges and other gains and losses, interest expense, debt extinguishment costs, interest income, income tax expense or benefit, cumulative effect of change in accounting principle, and non-cash stock-based compensation expense.
(2) Acquired operations are defined as the results of the acquisition of Xspedius Communications, LLC since October 31, 2006.
(3) In 2007 the Company revised its presentation for certain state and regulatory taxes and fees billed to customers by presenting them on a gross versus net basis. This has no impact on M-EBITDA or net income, but increased revenue and operating expenses and decreased the modified gross and M-EBITDA margins.
(4) The Company defines unlevered free cash flow as Modified EBITDA less capital expenditures. Unlevered free cash flow is reconciled to Net Cash provided by (used in) operating activities in the supplemental information posted on the Company’s website.
(5) 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.
(6) As part of the integration, the Company changed the categories for certain products of its acquired operations between Data and Internet and Voice services to reflect the nature of the bundled voice services. The related impact was $1.8 million in the third quarter of 2007. This had no impact on enterprise, carrier or total revenue.
(7) 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.
(8) Voice services contain traditional and next generation voice capabilities, including voice services from stand alone and bundled products, long distance, 800 services, and VoIP.
(9) Network services include transmission speeds up to OC 192 to carrier and enterprise customers. These services transmit voice, data, image, as well as enable transmission for storage, using state-of-the-art fiber optics.
(10) The Company defines modified gross margin as Total Revenue less operating costs excluding non-cash stock-based compensation expense. Modified gross margin is reconciled to gross margin in the financial tables.
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, within the Consolidated Operations Highlights and in the supplemental information posted on the Company’s website.
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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 stock-based 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 in the Consolidated Operations Highlights.
Forward Looking Statements
The statements in this press release concerning the outlook for 2007 and beyond, including expansion plans, growth prospects, expected margins, sales activity, expected customer disconnections, expected cost synergies, integration and branding costs, integration activities and results 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 2006 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, | |
| | | 2007 | | | 2006 | | | Growth % | | | 2007 | | | 2006 | | | Growth % | |
Revenue | | | | | | | | | | | | | | | | | | | | | | |
Network services | | $ | 98,669 | | | $ | 87,312 | | | 13 | % | | $ | 296,229 | | | $ | 260,104 | | | 14 | % |
Voice services | | | 82,475 | | | | 45,932 | | | 80 | % | | | 242,700 | | | | 133,511 | | | 82 | % |
Data and Internet services | | | 82,359 | | | | 53,995 | | | 53 | % | | | 230,780 | | | | 153,570 | | | 50 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Service Revenue | | | 263,503 | | | | 187,239 | | | 41 | % | | | 769,709 | | | | 547,185 | | | 41 | % |
Intercarrier compensation | | | 11,290 | | | | 8,870 | | | 27 | % | | | 34,494 | | | | 26,409 | | | 31 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Total Revenue | | $ | 274,793 | | | $ | 196,109 | | | 40 | % | | $ | 804,203 | | | $ | 573,594 | | | 40 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | | | | | | | | |
Operating costs | | | 118,412 | | | | 74,018 | | | | | | | 350,859 | | | | 213,447 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Gross Margin | | | 156,381 | | | | 122,091 | | | | | | | 453,344 | | | | 360,147 | | | | |
Selling, general and administrative costs | | | 75,695 | | | | 54,409 | | | | | | | 223,792 | | | | 164,185 | | | | |
Depreciation, amortization, and accretion | | | 71,580 | | | | 62,028 | | | | | | | 206,325 | | | | 184,524 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Operating Income | | | 9,106 | | | | 5,654 | | | | | | | 23,227 | | | | 11,438 | | | | |
Interest expense | | | (22,623 | ) | | | (21,759 | ) | | | | | | (68,794 | ) | | | (74,921 | ) | | | |
Debt extinguishment costs | | | — | | | | — | | | | | | | — | | | | (25,777 | ) | | | |
Interest income | | | 4,528 | | | | 4,754 | | | | | | | 13,614 | | | | 15,243 | | | | |
Other income/(loss) | | | (2,415 | ) | | | — | | | | | | | (2,415 | ) | | | — | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Loss before income taxes | | | (11,404 | ) | | | (11,351 | ) | | | | | | (34,368 | ) | | | (74,017 | ) | | | |
Income tax expense | | | 179 | | | | — | | | | | | | 609 | | | | 7 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net Loss | | ($ | 11,583 | ) | | ($ | 11,351 | ) | | | | | ($ | 34,977 | ) | | ($ | 74,024 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| |
SUPPLEMENTAL INFORMATION TO RECONCILE MODIFIED GROSS MARGIN AND MODIFIED EBITDA | | | | |
| | | | | | |
Gross Margin | | $ | 156,381 | | | $ | 122,091 | | | | | | $ | 453,344 | | | $ | 360,147 | | | | |
Add back non-cash stock-based compensation expense | | | 897 | | | | 491 | | | | | | | 2,607 | | | | 1,472 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Modified Gross Margin | | | 157,278 | | | | 122,582 | | | 28 | % | | | 455,951 | | | | 361,619 | | | 26 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative costs | | | 75,695 | | | | 54,409 | | | | | | | 223,792 | | | | 164,185 | | | | |
Add back non-cash stock-based compensation expense | | | 4,848 | | | | 3,026 | | | | | | | 13,583 | | | | 8,344 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Modified EBITDA | | | 86,431 | | | | 71,199 | | | 21 | % | | | 245,742 | | | | 205,778 | | | 19 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Non-cash stock-based compensation expense | | | 5,745 | | | | 3,517 | | | | | | | 16,190 | | | | 9,816 | | | | |
Depreciation, amortization, and accretion | | | 71,580 | | | | 62,028 | | | | | | | 206,325 | | | | 184,524 | | | | |
Net Interest expense | | | 18,095 | | | | 17,005 | | | | | | | 55,180 | | | | 59,678 | | | | |
Debt extinguishment costs | | | — | | | | — | | | | | | | — | | | | 25,777 | | | | |
Other income/(loss) | | | 2,415 | | | | — | | | | | | | 2,415 | | | | — | | | | |
Income tax expense | | | 179 | | | | — | | | | | | | 609 | | | | 7 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net Loss | | ($ | 11,583 | ) | | ($ | 11,351 | ) | | | | | ($ | 34,977 | ) | | ($ | 74,024 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Modified Gross Margin % | | | 57.2 | % | | | 62.5 | % | | | | | | 56.7 | % | | | 63.0 | % | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Modified EBITDA Margin % | | | 31.5 | % | | | 36.3 | % | | | | | | 30.6 | % | | | 35.9 | % | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Free Cash Flow: | | | | | | | | | | | | | | | | | | | | | | |
Modified EBITDA | | $ | 86,431 | | | $ | 71,199 | | | | | | $ | 245,742 | | | $ | 205,778 | | | | |
Less: Capital Expenditures | | | 59,254 | | | | 48,171 | | | | | | | 192,940 | | | | 136,874 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Unlevered Free Cash Flow | | | 27,177 | | | | 23,028 | | | | | | | 52,802 | | | | 68,904 | | | | |
Less: Net interest expense | | | 18,095 | | | | 17,005 | | | | | | | 55,180 | | | | 59,678 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Levered Free Cash Flow | | $ | 9,082 | | | $ | 6,023 | | | | | | ($ | 2,378 | ) | | $ | 9,226 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Costs included in M-EBITDA reported above (2) | | | | | | | | | | | | | | | | | | | | | | |
Integration costs | | $ | 1,208 | | | | — | | | | | | $ | 4,304 | | | | — | | | | |
Branding costs | | | 14 | | | | 141 | | | | | | | 1,220 | | | | 141 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,222 | | | $ | 141 | | | | | | $ | 5,524 | | | $ | 141 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Expenditures included in Capital Expenditures above (2) | | | | | | | | | | | | | | | | | | | | | | |
Integration costs | | $ | 6,423 | | | | — | | | | | | $ | 25,309 | | | | — | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| (1) | For complete financials and related footnotes, please refer to the Company's SEC filings. |
| (2) | Represents costs to integrate the acquired operations and execute a branding plan. All amounts are included in the reported results above. |
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Time Warner Telecom Inc.
Consolidated Operations Highlights
(Dollars in thousands)
| | | | | | | | | | | |
| | | Three Months Ended | |
| | | September 30,
2007 | | | June 30,
2007 | | | Growth % | |
Revenue | | | | | | | | | | | |
Network services | | $ | 98,669 | | | $ | 97,590 | | | 1 | % |
Voice services (3) | | | 82,475 | | | | 80,295 | | | 3 | % |
Data and Internet services (3) | | | 82,359 | | | | 78,540 | | | 5 | % |
| | | | | | | | | | | |
Service Revenue | | | 263,503 | | | | 256,425 | | | 3 | % |
Intercarrier compensation | | | 11,290 | | | | 11,593 | | | -3 | % |
| | | | | | | | | | | |
Total Revenue | | $ | 274,793 | | | $ | 268,018 | | | 3 | % |
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Operating costs | | | 118,412 | | | | 115,067 | | | | |
| | | | | | | | | | | |
Gross Margin | | | 156,381 | | | | 152,951 | | | | |
Selling, general and administrative costs | | | 75,695 | | | | 75,624 | | | | |
Depreciation, amortization, and accretion | | | 71,580 | | | | 68,605 | | | | |
| | | | | | | | | | | |
Operating Income | | | 9,106 | | | | 8,722 | | | | |
Interest expense | | | (22,623 | ) | | | (22,709 | ) | | | |
Interest income | | | 4,528 | | | | 4,547 | | | | |
Other income/(loss) | | | (2,415 | ) | | | — | | | | |
| | | | | | | | | | | |
Loss before income taxes | | | (11,404 | ) | | | (9,440 | ) | | | |
Income tax expense | | | 179 | | | | 145 | | | | |
| | | | | | | | | | | |
Net Loss | | ($ | 11,583 | ) | | ($ | 9,585 | ) | | | |
| | | | | | | | | | | |
|
SUPPLEMENTAL INFORMATION TO RECONCILE MODIFIED GROSS MARGIN AND MODIFIED EBITDA | |
| | | |
Gross Margin | | $ | 156,381 | | | $ | 152,951 | | | | |
Add back non-cash stock-based compensation expense | | | 897 | | | | 858 | | | | |
| | | | | | | | | | | |
Modified Gross Margin | | | 157,278 | | | | 153,809 | | | 2 | % |
| | | | | | | | | | | |
Selling, general and administrative costs | | | 75,695 | | | | 75,624 | | | | |
Add back non-cash stock-based compensation expense | | | 4,848 | | | | 4,792 | | | | |
| | | | | | | | | | | |
Modified EBITDA | | | 86,431 | | | | 82,977 | | | 4 | % |
| | | | | | | | | | | |
Non-cash stock-based compensation expense | | | 5,745 | | | | 5,650 | | | | |
Depreciation, amortization, and accretion | | | 71,580 | | | | 68,605 | | | | |
Net Interest expense | | | 18,095 | | | | 18,162 | | | | |
Other income/(loss) | | | 2,415 | | | | — | | | | |
Income tax expense | | | 179 | | | | 145 | | | | |
| | | | | | | | | | | |
Net Loss | | ($ | 11,583 | ) | | ($ | 9,585 | ) | | | |
| | | | | | | | | | | |
Modified Gross Margin % | | | 57.2 | % | | | 57.4 | % | | | |
| | | | | | | | | | | |
Modified EBITDA Margin % | | | 31.5 | % | | | 31.0 | % | | | |
| | | | | | | | | | | |
Free Cash Flow | | | | | | | | | | | |
Modified EBITDA | | $ | 86,431 | | | $ | 82,977 | | | | |
Less: Capital Expenditures | | | 59,254 | | | | 78,582 | | | | |
| | | | | | | | | | | |
Unlevered Free Cash Flow | | | 27,177 | | | | 4,395 | | | | |
Less: Net interest expense | | | 18,095 | | | | 18,162 | | | | |
| | | | | | | | | | | |
Levered Free Cash Flow | | $ | 9,082 | | | ($ | 13,767 | ) | | | |
| | | | | | | | | | | |
Costs included in M-EBITDA reported above (2) | | | | | | | | | | | |
Integration costs | | $ | 1,208 | | | $ | 1,327 | | | | |
Branding costs | | | 14 | | | | 994 | | | | |
| | | | | | | | | | | |
Total | | $ | 1,222 | | | $ | 2,321 | | | | |
| | | | | | | | | | | |
Expenditures included in Capital Expenditures above (2) | | | | | | | | | | | |
Integration costs | | $ | 6,423 | | | $ | 13,020 | | | | |
| | | | | | | | | | | |
| (1) | For complete financials and related footnotes, please refer to the Company's SEC filings. |
| (2) | Represents costs to integrate the acquired operations and execute a branding plan. All amounts are included in the reported results above. |
| (3) | As part of integration, the Company changed the categories for certain products of its acquired operations between Data and Internet and voice services to reflect the nature of the bundled voice product. The related impact was $1.8 million sequentially. Excluding this reclass Data and Internet grew 7% and voice services grew 1%, respectively. |
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Time Warner Telecom Inc.
Highlights of Results Per Share
Unaudited (1) (2) (3)
| | | | | | | | | | | | |
| | | Three Months Ended | |
| | | 9/30/07 | | | 6/30/07 | | | 9/30/06 | |
Weighted Average Shares Outstanding (thousands) | | | | | | | | | | | | |
| | | |
Basic and Diluted | | | 145,174 | | | | 144,736 | | | | 121,659 | |
| | | | | | | | | | | | |
| | | |
Basic and Diluted Loss per Common Share | | ($ | 0.08 | ) | | ($ | 0.07 | ) | | ($ | 0.09 | ) |
| | | | | | | | | | | | |
| |
| | | As of | |
| | | 9/30/07 | | | 6/30/07 | | | 9/30/06 | |
Common shares (thousands) | | | | | | | | | | | | |
Actual Shares Outstanding | | | 145,602 | | | | 144,887 | | | | 122,823 | |
| | | | | | | | | | | | |
| | | |
Options (thousands) | | | | | | | | | | | | |
| | | |
Options Outstanding | | | 11,530 | | | | 12,097 | | | | 14,336 | |
| | | | | | | | | | | | |
| | | |
Options Exercisable | | | 7,111 | | | | 7,428 | | | | 9,843 | |
| | | | | | | | | | | | |
| | | |
Options Exercisable and In-the-Money | | | 2,958 | | | | 3,208 | | | | 5,355 | |
| | | | | | | | | | | | |
| (1) | For complete financials and related footnotes, please refer to the Company's SEC filings. |
| (2) | As of December 31, 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,
2007 | | | June 30, 2007 | |
| ASSETS | | | | | | | | |
Cash and equivalents, and short-term investments | | $ | 307,078 | | | $ | 299,184 | |
Receivables | | | 91,330 | | | | 87,017 | |
Less: allowance | | | (11,039 | ) | | | (11,852 | ) |
| | | | | | | | |
Net receivables | | | 80,291 | | | | 75,165 | |
Other current assets | | | 27,124 | | | | 35,638 | |
Property, plant and equipment | | | 2,959,945 | | | | 2,904,088 | |
Less: accumulated depreciation | | | (1,669,005 | ) | | | (1,603,951 | ) |
| | | | | | | | |
Net property, plant and equipment | | | 1,290,940 | | | | 1,300,137 | |
Other Assets | | | 534,563 | | | | 537,718 | |
| | | | | | | | |
Total | | $ | 2,239,996 | | | $ | 2,247,842 | |
| | | | | | | | |
| | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | |
Current Liabilities | | | | | | | | |
Accounts payable | | $ | 39,786 | | | $ | 43,587 | |
Deferred revenue | | | 24,986 | | | | 24,411 | |
Accrued taxes, franchise and other fees | | | 80,173 | | | | 80,336 | |
Accrued interest | | | 9,874 | | | | 17,253 | |
Accrued payroll and benefits | | | 37,216 | | | | 30,634 | |
Accrued carrier costs | | | 39,187 | | | | 39,954 | |
Current portion of debt and lease obligations | | | 6,950 | | | | 6,623 | |
Other current liabilities | | | 31,240 | | | | 33,997 | |
| | | | | | | | |
Total current liabilities | | | 269,412 | | | | 276,795 | |
| | |
Long-Term Debt and Capital Lease Obligations | | | | | | | | |
Floating rate senior secured debt—Term Loan B, due 1/7/2013 | | | 595,500 | | | | 597,000 | |
9 1/4% senior unsecured notes, due 2/15/2014 | | | 400,354 | | | | 400,368 | |
2 3/8% convertible senior debentures, due 4/1/2026 | | | 373,750 | | | | 373,750 | |
Capital lease obligations | | | 9,027 | | | | 8,547 | |
Less: current portion | | | (6,950 | ) | | | (6,623 | ) |
| | | | | | | | |
Total long-term debt and capital lease obligations | | | 1,371,681 | | | | 1,373,042 | |
| | |
Long-Term Deferred Revenue | | | 20,072 | | | | 20,640 | |
Other Long-Term Liabilities | | | 20,322 | | | | 19,928 | |
| | |
Stockholders' Equity | | | 558,509 | | | | 557,437 | |
| | | | | | | | |
Total | | $ | 2,239,996 | | | $ | 2,247,842 | |
| | | | | | | | |
| (1) | For complete financials and related footnotes, please refer to the Company's SEC filings. |
10
Time Warner Telecom Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Unaudited (1)
| | | | | | | | |
| | | Three Months Ended | |
| | | 9/30/07 | | | 6/30/07 | |
Cash flows from operating activities: | | | | | | | | |
Net Loss | | ($ | 11,583 | ) | | ($ | 9,585 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | |
Depreciation, amortization, and accretion | | | 71,580 | | | | 68,605 | |
Stock-based compensation | | | 5,745 | | | | 5,650 | |
Deferred debt issue, amortization, and other | | | 3,000 | | | | 584 | |
Changes in operating assets and liabilities: | | | | | | | | |
Receivables, prepaid expense and other assets | | | (4,130 | ) | | | (6,090 | ) |
Accounts payable, deferred revenue, and other liabilities | | | (6,247 | ) | | | 11,370 | |
| | | | | | | | |
Net cash provided by operating activities | | | 58,365 | | | | 70,534 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Capital expenditures | | | (58,633 | ) | | | (78,127 | ) |
Cash paid for acquisitions, net of cash acquired | | | 4,015 | | | | (538 | ) |
Purchases of investments | | | (74,295 | ) | | | (87,432 | ) |
Proceeds from maturities of investments | | | 91,667 | | | | 5,345 | |
Proceeds from sale of assets and other investing activities | | | (25 | ) | | | (148 | ) |
| | | | | | | | |
Net cash used in investing activities | | | (37,271 | ) | | | (160,900 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Net proceeds from issuance of common stock upon exercise of stock options and in connection with the employee stock purchase plan | | | 6,910 | | | | 2,524 | |
Payment of debt and capital lease obligations | | | (1,660 | ) | | | (1,564 | ) |
| | | | | | | | |
Net cash provided by financing activities | | | 5,250 | | | | 960 | |
| | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 26,344 | | | | (89,406 | ) |
Cash and cash equivalents at the beginning of the period | | | 211,141 | | | | 300,547 | |
| | | | | | | | |
Cash and cash equivalents at the end of the period | | $ | 237,485 | | | $ | 211,141 | |
| | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | |
Cash paid for interest | | $ | 30,068 | | | $ | 15,906 | |
| | | | | | | | |
Addition of capital lease obligation | | $ | 621 | | | $ | 455 | |
| | | | | | | | |
Summary of cash and cash equivalents and short-term investments: | | | | | | | | |
Cash and cash equivalents at end of the period | | $ | 237,485 | | | $ | 211,141 | |
Investments | | | 69,593 | | | | 88,043 | |
| | | | | | | | |
| | $ | 307,078 | | | $ | 299,184 | |
| | | | | | | | |
Supplemental information to reconcile capital expenditures: | | | | | | | | |
Capital expenditures per cash flow statement | | $ | 58,633 | | | $ | 78,127 | |
Addition of capital lease obligation | | | 621 | | | | 455 | |
| | | | | | | | |
Total capital expenditures | | $ | 59,254 | | | $ | 78,582 | |
| | | | | | | | |
| (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)
| | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | 2006 | | 2007 |
| | | Mar. 31 | | Jun. 30 | | Sept. 30 | | Dec. 31 | | Mar. 31 | | Jun. 30 | | Sept. 30 |
Operating Metrics: | | | | | | | | | | | | | | |
| | | | | | | |
Route Miles | | | | | | | | | | | | | | |
Metro | | 13,913 | | 14,053 | | 14,409 | | 17,786 | | 18,092 | | 18,324 | | 18,520 |
Regional | | 7,015 | | 7,015 | | 7,015 | | 6,884 | | 6,884 | | 6,922 | | 6,921 |
| | | | | | | | | | | | | | |
Total | | 20,928 | | 21,068 | | 21,424 | | 24,670 | | 24,976 | | 25,246 | | 25,441 |
| | | | | | | |
Buildings (2) | | | | | | | | | | | | | | |
Fiber connected buildings, on-net | | 6,185 | | 6,433 | | 6,672 | | 7,457 | | 7,689 | | 7,884 | | 8,109 |
| | | | | | | |
Networks | | | | | | | | | | | | | | |
Class 5 Switches | | 38 | | 38 | | 38 | | 71 | | 71 | | 71 | | 70 |
Soft Switches | | 34 | | 35 | | 35 | | 35 | | 35 | | 35 | | 35 |
Headcount | | | | | | | | | | | | | | |
Total Headcount | | 2,055 | | 2,105 | | 2,129 | | 2,784 | | 2,778 | | 2,817 | | 2,876 |
Sales Associates (3) | | 330 | | 331 | | 342 | | 482 | | 490 | | 497 | | 519 |
Customers | | | | | | | | | | | | | | |
Total Customers (4) | | 12,181 | | 12,642 | | 13,081 | | 31,516 | | 31,431 | | 31,342 | | 31,440 |
| | | | | | | | | | | | | | |
| (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. |
| (3) | Includes Sales Account Executives and Customer Care Specialists. |
| (4) | Consolidated customer counts reflect higher churn for the acquired operations' customer segment as well as conversion of the acquired customer base to a common customer profile in the second quarter of 2007. |
12
