TMCnet News
Time Warner Telecom Reports Strong Second Quarter 2007 ResultsLITTLETON, Colo., Aug. 7 /PRNewswire-FirstCall/ -- Time Warner Telecom Inc. , a leading provider of managed voice and data networking solutions for business customers, today announced its second quarter 2007 financial results, including $268.0 million of revenue, $83.0 million in Modified EBITDA(1) ("M-EBITDA") and a net loss of $9.6 million. "We continue to deliver strong organic enterprise revenue growth, drive sales momentum, and achieve solid margins while integrating a major expansion of our operations," said Larissa Herda, Time Warner Telecom's Chairman, CEO and President. "We have made substantial progress in all phases of our integration which includes organizational, network and systems changes that impact virtually all aspects of our business. We achieved this progress while accelerating the growth of our enterprise business. Integrating our operations and continuing to leverage our ability to serve the growing enterprise demand is where we are focused and why we are well positioned to capture greater market share." Highlights for the Quarter "Core(2)" operations exclude the results from acquired operations and related integration costs. "Acquired(3)" operations exclude integration costs. Both core and acquired exclude the impact of a reclassification of certain fees and taxes(4). For the quarter ending June 30, 2007, the Company -- -- Grew total revenue 40% year over year and 3% sequentially -- Included core growth of 9% year over year and 3% sequentially -- Grew enterprise revenue 57% year over year and 5% sequentially Enterprise revenue represents 68% of total revenue for the quarter -- Included core growth of 19% year over year and 5% sequentially -- Grew data and Internet revenue 53% year over year and 12% sequentially (7% sequential growth excluding the impact of the change in categories for certain products of the acquired operations(5)) -- Included core growth of 30% year over year and 7% sequentially -- Produced $83.0 million of M-EBITDA and a 31% M-EBITDA margin -- Delivered ($13.8) million of levered free cash flow(7), which included $15.3 million for integration and branding expenditures, or $1.5 million before these items Year over Year Results -- Second Quarter 2007 compared to Second Quarter 2006 Revenue Revenue for the quarter was $268.0 million, as compared to $191.3 million for the second quarter of 2006, an increase of $76.7 million, or 40%. The core operations reflected a 9% growth over the same period last year. Key changes in revenue included: (Core results exclude the impact of the reclassification for certain taxes and fees(4)) -- $62.5 million increase in revenue from enterprise customers, which included the impact of the acquired operations and a $21.6 million, or a 19% increase, from core operations -- $7.1 million increase in revenue from carriers, which included the impact of the acquired operations and a $4.0 million decrease from core operations with $3.7 million due to disconnects from one wireless customer -- $2.9 million increase in intercarrier compensation primarily related to the acquired operations -- $4.2 million increase to account for certain taxes and fees on a gross versus net basis(4) By product line, the percentage change in revenue year over year was as follows: -- 53% increase for data and Internet services(8), which included the impact of the acquired operations and core growth. Core operations grew 30% due primarily to success with Ethernet and IP-based product sales -- 80% increase for voice services(9), which included the impact of the acquired operations and core growth. Core operations grew 13% due primarily to strength across the product portfolio -- 13% increase for network services(10) due to the acquired operations. Core operations decreased 4% due primarily to disconnects from one wireless carrier and normal renewals of carrier contracts at current market pricing -- 33% increase in intercarrier compensation primarily related to the acquired operations. Core operations increased 3% Monthly revenue churn was 1.1% for both the current quarter and the same period last year; however this reflects a decrease from the prior quarter which was 1.2%. The Company expects to experience ongoing revenue churn, including disconnects from carrier customers related to their merger activities and network grooming. Growth in the core operations customer counts remained strong. Consolidated customer counts decreased due to a higher churn rate for the acquired operations' customer segment, as well as conversion of the acquired customer base to a common customer profile(12) during integration. The acquired customer churn had an impact of less than $1 million reduction in revenue for the quarter, while the change in the customer profile had no impact on revenue. The Company expects churn and reduction in customer counts from the acquired operations may continue as the Company completes its integration. M-EBITDA and Margins M-EBITDA grew $13.4 million to $83.0 million for the quarter, a 19% increase over the same period last year primarily reflecting strong core revenue growth and the impact of the acquired operations. M-EBITDA included $2.3 million of integration and branding costs in the quarter, and none in the same period last year. Operating costs increased primarily reflecting the impact of the acquisition and related higher network access costs 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 acquisition of the acquired operations as well as increased employee costs, including higher sales incentive costs associated with revenue growth. SG&A as a percent of revenue decreased to 28% for the current quarter from 29% for the same period last year, reflecting operating efficiencies. M-EBITDA margin was 31% for the quarter as compared to 36% for the same quarter last year. Modified gross margin(11) was 57% for the current quarter compared to 64% for the same period last year. The difference in margins between periods primarily reflects higher access costs related to the acquired operations. 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 $9.6 million, a loss of $.07 per share for the quarter compared to a net loss of $40.4 million, a loss of $.34 per share for the second quarter of 2006. The decrease in the net loss reflects strong M-EBITDA growth, debt extinguishment costs of $25.8 million for the second quarter of last year that did not recur, offset by an increase in depreciation expense related to both the acquired assets and new capital expenditures placed in service. Sequential Results -Second Quarter 2007 compared to First Quarter 2007 Revenue Revenue for the quarter was $268.0 million, as compared to $261.4 million for the first quarter of 2007, an increase of $6.6 million, or 3%. Revenue from core operations grew 3% over the prior quarter. Key changes in revenue included: (Core results exclude the impact of the reclassification for certain taxes and fees(4)) -- $7.4 million increase in revenue from enterprise customers. This included a $7.1 million sequential increase for core operations, or a 5% increase -- $2.2 million decrease in revenue from carrier customers, which included a $1.2 million decrease from core operations with $.9 million due to disconnects from one wireless customer -- $1.4 million increase to account for certain taxes and fees on a gross versus net basis(4) By product line, the percentage change in revenue sequentially was as follows: -- 12% increase for data and Internet services, which included strong core growth (7% growth excluding the impact of the change in categories for certain acquired products from voice revenue(5)). Core operations included 7% growth due primarily to success with Ethernet and IP-based product sales -- Voice services were stable with the prior quarter (5% growth excluding the change in categories for certain acquired products to data and Internet revenue(5)). Core operations increased 7% due primarily to strength across the product portfolio -- 2% decrease in network services due to disconnects and normal renewals of carrier contracts at current market pricing. Core operations included a 2% decrease with nearly half related to disconnects from one wireless customer M-EBITDA and Margins M-EBITDA was $83.0 million for the quarter, as compared to $76.3 million for the prior quarter, a 9% increase or $6.6 million. M-EBITDA margin was 31% for the quarter, as compared to 29% in the prior quarter. Modified gross margin was 57% for the quarter as compared to 55% in the prior quarter. The change in M-EBITDA and margins primarily reflects strong revenue growth, integration cost synergies, seasonal reduction in payroll taxes, and improved access costs due to volume discounts and network optimization. Net Loss The Company's net loss was $9.6 million, a loss of $.07 per share for the quarter compared to a net loss of $13.8 million, or a loss of $.10 per share for the prior quarter. The decrease in net loss per share reflects strong M-EBITDA growth partially offset by an increase in depreciation expense related to new capital expenditures placed in service. Integration Milestones The Company achieved substantial progress integrating its acquired operations through three major integration initiatives including organizational, systems and network activities. -- Organizational Integration -- The Company's organizational integration is complete resulting in a single organization for sales, customer care, field operations, marketing and headquarter functions, and two integrated national operations centers each with the capability to provision nationwide across all customers and major company products. The Company completed its expected employee-related integration cost synergies as of the end of the second quarter. -- Systems Integration -- The Company now has a common data and system infrastructure serving all customers nationwide. As of July, the Company has completed its major systems integration including human resources, financial, sales, customer management, billing, provisioning, network and surveillance systems. This means that all employees are using a common platform to perform these functions. This integration included substantial data conversions, process implementation and training. These changes were designed to maximize operating efficiencies, expand the Company's scalability to serve growing market demand, and enable excellent customer care. -- Network Integration -- The Company has fully integrated its transport, voice, IP, long distance and national SS7 signaling networks, enabling the Company's full product suite in the majority of the acquired markets. The Company completed its rollout of additional product capabilities to ten acquired markets and has begun selling its full product suite in these markets. In addition, the Company continues to optimize, groom and migrate network circuits. This effort is underway and on schedule to conclude in the first half of 2008 to fully realize the expected cost savings. "We are very pleased with our integration progress," said John Blount, Time Warner Telecom's Chief Operating Officer. "We have maintained the momentum of our core business while very efficiently moving through a large acquisition. Our employees did a great job in stepping up to this large integration effort, thereby avoiding a large portion of planned integration operating costs and at the same time accelerating the availability of our full product capabilities into the acquired markets. Our systems are integrated and now we continue the hard work of refining our workflow and processes in order to optimize the newly integrated operations. Completing the important process of network grooming will take time, but we expect it will result in us realizing our greatest cost synergies." The Company continues to expect that integration cost synergies will be primarily realized in late 2007 and into 2008. For 2007, the Company continues to expect $35 to $45 million in integration expenditures, with the mix changing to reflect the Company's expectation of $5 to $7 million in operating costs, reflecting the efficiencies of the Company's integration activities, and $30 to $38 million in capital expenditures, reflecting increased capacity and acceleration of the rollout of new product capabilities. Other The Company has extended the right to use its existing Time Warner Telecom name through June of 2008. Prior to extending this licensing agreement the Company had began a branding initiative that resulted in approximately $1 million of expenses in the second quarter. The Company plans to continue certain activities throughout 2007 leading to a name change in 2008. Costs for the remainder of 2007 are expected to be less than $1 million. M-EBITDA Margin Outlook "We have made substantial progress on integration and our remaining activities are on track," said Mark Peters, Time Warner Telecom's Executive Vice President and Chief Financial Officer. "We are pleased with our financial results this quarter. Our organic revenue growth and excellent integration progress, both in terms of cost synergies and efficiencies, are reflected in our margin growth. 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. We anticipate reaching pre-acquisition M-EBITDA margins during the summer of 2008." Capital Expenditures (excluding Integration capital investments) Excluding integration capital investments, capital expenditures were $65.6 million for the second quarter. For 2007, consistent with prior guidance, the Company expects capital expenditures, excluding integration investments, to be approximately $230 to $250 million, which will primarily be used to fund growth opportunities. Summary "We continue to leverage our leadership position in the enterprise marketplace by delivering customers innovative solutions with our customer service, network and product capabilities which we are extending throughout our expanded footprint with the successful integration of our acquired operations. We remain focused on delivering strong enterprise growth, driving sales momentum and growing cash flow," said Herda. Time Warner Telecom Inc. plans to conduct a webcast conference call to discuss its earnings results on August 8 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 non-cash stock-based compensation expense. (2) Core operations are defined as the Company's operations excluding the results from the acquired operations and the related integration costs, and excluding the impact of the reclassification to present certain taxes and fees on a gross versus net basis as described in Note 4 below. (3) Acquired operations are defined as the results of the acquisition of Xspedius Communications, LLC since October 31, 2006, excluding integration costs and excluding the impact of the reclassification to present certain taxes and fees on a gross versus net basis as described in Note 4 below. (4) 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. See details on pages 14 and 15 for more details. (5) As part of integration the company changed the categories for certain products of its acquired operations from voice to data and Internet revenue to reflect the nature of the data and Internet component of its bundled voice services. The related impact was $3.8 million sequentially from the second quarter of 2007 compared to the first quarter of 2007. (6) 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. (7) 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. (8) 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. (9) Voice services contain traditional and next generation voice capabilities, including voice services from stand alone and bundled products, long distance, 800 services, and VoIP. (10)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. (11)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. (12)As a result of integrating the acquired customers into the Company's billing system, the Company began applying its core operations convention of counting customer accounts under one common ownership to the acquired operations' customer, resulting in a reduction of customer counts for the acquired operations in the second quarter. 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. 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 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, 2007 2006 Growth % 2007 2006 Growth % Revenue Network services $97,590 $86,436 13% $197,560 $172,792 14% Voice services 80,295 44,647 80% 160,225 87,579 83% Data and Internet services 78,540 51,458 53% 148,421 99,575 49% Service Revenue 256,425 182,541 40% 506,206 359,946 41% Intercarrier compensation 11,593 8,757 32% 23,204 17,539 32% Total Revenue 268,018 191,298 40% 529,410 377,485 40% Expenses Operating costs 115,067 69,371 232,447 139,429 Gross Margin 152,951 121,927 296,963 238,056 Selling, general and administrative costs 75,624 55,814 148,097 109,776 Depreciation, amortization, and accretion 68,605 62,367 134,745 122,496 Operating Income 8,722 3,746 14,121 5,784 Interest expense (22,709) (24,468) (46,171) (53,162) Debt extinguishment costs - (25,777) - (25,777) Interest income 4,547 6,094 9,086 10,489 Loss before income taxes (9,440) (40,405) (22,964) (62,666) Income tax expense 145 7 430 7 Net Loss ($9,585) ($40,412) ($23,394) ($62,673) SUPPLEMENTAL INFORMATION TO RECONCILE MODIFIED GROSS MARGIN AND MODIFIED EBITDA Gross Margin $152,951 $121,927 $296,963 $238,056 Add back non-cash stock-based compensation expense 858 492 1,710 981 Modified Gross Margin 153,809 122,419 26% 298,673 239,037 25% Selling, general and administrative costs 75,624 55,814 148,097 109,776 Add back non-cash stock-based compensation expense 4,792 2,966 8,735 5,318 Modified EBITDA 82,977 69,571 19% 159,311 134,579 18% Non-cash stock- based compensation expense 5,650 3,458 10,445 6,299 Depreciation, amortization, and accretion 68,605 62,367 134,745 122,496 Net Interest expense 18,162 18,374 37,085 42,673 Debt extinguishment costs - (25,777) - (25,777) Income tax expense 145 7 430 7 Net Loss ($9,585) ($40,412) ($23,394) ($62,673) Modified Gross Margin % 57% 64% 56% 63% Modified EBITDA Margin % 31% 36% 30% 36% Free Cash Flow: Modified EBITDA $82,977 $69,571 $159,311 $134,579 Less: Capital Expenditures 78,582 50,757 133,686 88,703 Unlevered Free Cash Flow 4,395 18,814 25,625 45,876 Less: Net interest expense 18,162 18,374 37,085 42,673 Levered Free Cash Flow ($13,767) $440 ($11,460) $3,203 Costs included in M-EBITDA reported above (2) Integration costs $1,327 - $3,096 - Branding costs 994 - 1,206 - Total $2,321 - $4,302 - Expenditures included in Capital Expenditures above (2) Integration costs $13,020 - $18,886 - Branding costs - - - - Total $13,020 - $18,886 - (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. Time Warner Telecom Inc. Consolidated Operations Highlights (Dollars in thousands) Unaudited (1) Three Months Ended June 30, March 31, 2007 2007 Growth % Revenue Network services $97,590 $99,970 -2% Voice services (3) 80,295 79,930 0% Data and Internet services (3) 78,540 69,881 12% Service Revenue 256,425 249,781 3% Intercarrier compensation 11,593 11,611 0% Total Revenue 268,018 261,392 3% Expenses Operating costs 115,067 117,380 Gross Margin 152,951 144,012 Selling, general and administrative costs 75,624 72,473 Depreciation, amortization, and accretion 68,605 66,140 Operating Income 8,722 5,399 Interest expense (22,709) (23,462) Interest income 4,547 4,539 Loss before income taxes (9,440) (13,524) Income tax expense 145 285 Net Loss ($9,585) ($13,809) SUPPLEMENTAL INFORMATION TO RECONCILE MODIFIED GROSS MARGIN AND MODIFIED EBITDA Gross Margin $152,951 $144,012 Add back non-cash stock-based compensation expense 858 852 Modified Gross Margin 153,809 144,864 6% Selling, general and administrative costs 75,624 72,473 Add back non-cash stock-based compensation expense 4,792 3,943 Modified EBITDA 82,977 76,334 9% Non-cash stock-based compensation expense 5,650 4,795 Depreciation, amortization, and accretion 68,605 66,140 Net Interest expense 18,162 18,923 Income tax expense 145 285 Net Loss ($9,585) ($13,809) Modified Gross Margin % 57% 55% Modified EBITDA Margin % 31% 29% Free Cash Flow Modified EBITDA $82,977 $76,334 Less: Capital Expenditures 78,582 55,104 Unlevered Free Cash Flow 4,395 21,230 Less: Net interest expense 18,162 18,923 Levered Free Cash Flow ($13,767) $2,307 Costs included in M-EBITDA reported above (2) Integration costs $1,327 $1,769 Branding costs 994 212 Total $2,321 $1,981 Expenditures included in Capital Expenditures above (2) Integration costs $13,020 $5,866 Branding costs - - Total $13,020 $5,866 (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 reclassed certain revenue of its acquired operations from voice to data and Internet revenue to reflect the nature of the data and Internet component of its bundled voice product. The related impact was $3.8 million sequentially. Excluding this reclass voice revenue grew 5% and data and Internet grew 7%. Time Warner Telecom Inc. Highlights of Results Per Share Unaudited (1) (2) (3) Three Months Ended 6/30/07 3/31/07 6/30/06 Weighted Average Shares Outstanding (thousands) Basic and Diluted 144,736 143,768 120,069 Basic and Diluted Loss per Common Share ($0.07) ($0.10) ($0.34) As of 6/30/07 3/31/07 6/30/06 Common shares (thousands) Actual Shares Outstanding 144,887 144,554 120,595 Options (thousands) Options Outstanding 12,097 12,559 16,410 Options Exercisable 7,428 7,642 11,320 Options Exercisable and In-the-Money 3,208 3,262 6,676 (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. Time Warner Telecom Inc. Condensed Consolidated Balance Sheet Highlights (Dollars in thousands) Unaudited (1) June 30, March 31, 2007 2007 ASSETS Cash and equivalents, and short- term investments $299,184 $305,851 Receivables 87,017 80,103 Less: allowance (11,852) (11,887) Net receivables 75,165 68,216 Other current assets 35,638 32,308 Property, plant and equipment 2,904,088 2,827,069 Less: accumulated depreciation (1,603,951) (1,540,161) Net property, plant and equipment 1,300,137 1,286,908 Other Assets 537,718 541,990 Total $2,247,842 $2,235,273 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $43,587 $41,157 Deferred revenue 24,411 23,356 Accrued taxes, franchise and other fees 80,336 77,395 Accrued interest 17,253 10,419 Accrued payroll and benefits 30,634 28,540 Accrued carrier costs 39,954 40,936 Current portion of debt and lease obligations 6,623 6,449 Other current liabilities 33,997 33,321 Total current liabilities 276,795 261,573 Long-Term Debt and Capital Lease Obligations Floating rate senior secured debt - Term Loan B, due 1/7/2013 597,000 598,500 9 1/4% senior unsecured notes, due 2/15/2014 400,368 400,382 2 3/8% convertible senior debentures, due 4/1/2026 373,750 373,750 Capital lease obligations 8,547 8,150 Less: current portion (6,623) (6,449) Total long-term debt and capital lease obligations 1,373,042 1,374,333 Long-Term Deferred Revenue 20,640 20,993 Other Long-Term Liabilities 19,928 19,526 Stockholders' Equity 557,437 558,848 Total $2,247,842 $2,235,273 (1) For complete financials and related footnotes, please refer to the Company's SEC filings. Time Warner Telecom Inc. Consolidated Statements of Cash Flows (Dollars in thousands) Unaudited (1) Three Months Ended 6/30/07 3/31/07 Cash flows from operating activities: Net Loss ($9,585) ($13,809) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, amortization, and accretion 68,605 66,140 Stock-based compensation 5,650 4,795 Deferred debt issue, amortization, and other 584 573 Changes in operating assets and liabilities: Receivables, prepaid expense and other assets (6,090) 1,331 Accounts payable, deferred revenue, and other liabilities 11,370 (19,573) Net cash provided by operating activities 70,534 39,457 Cash flows from investing activities: Capital expenditures (78,127) (55,104) Cash paid for acquisitions, net of cash acquired (538) (1,080) Purchases of investments (87,432) (5,246) Proceeds from maturities of investments 5,345 88,500 Proceeds from sale of assets and other investing activities (148) (87) Net cash (used in) provided by investing activities (160,900) 26,983 Cash flows from financing activities: Net proceeds from issuance of common stock upon exercise of stock options and in connection with the employee purchase plan 2,524 15,214 Net proceeds (costs) from issuance of debt - (850) Payment of debt and capital lease obligations (1,564) (1,810) Net cash provided by financing activities 960 12,554 Increase (decrease) in cash and cash equivalents (89,406) 78,994 Cash and cash equivalents at the beginning of the period 300,547 221,553 Cash and cash equivalents at the end of the period $211,141 $300,547 Supplemental disclosures of cash flow information: Cash paid for interest $15,906 $29,983 Addition of capital lease obligation $455 - Summary of cash and cash equivalents and short-term investments: Cash and cash equivalents at end of the period $211,141 $300,547 Investments 88,043 5,304 $299,184 $305,851 Supplemental information to reconcile capital expenditures: Capital expenditures per cash flow statement $78,127 $55,104 Addition of capital lease obligation 455 - Total capital expenditures $78,582 $55,104 (1) For complete financials and related footnotes, please refer to the Company's SEC filings. 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 Operating Metrics: Route Miles Metro 13,913 14,053 14,409 17,786 18,092 18,324 Regional 7,015 7,015 7,015 6,884 6,884 6,922 Total 20,928 21,068 21,424 24,670 24,976 25,246 Buildings (2) Fiber connected buildings (on-net) 6,185 6,433 6,672 7,457 7,689 7,884 Type II (4) 16,865 17,623 18,355 18,953 19,622 20,221 Total 23,050 24,056 25,027 26,410 27,311 28,105 Networks Class 5 Switches 38 38 38 71 71 71 Soft Switches 34 35 35 35 35 35 Headcount Total Headcount 2,055 2,105 2,129 2,784 2,778 2,817 Sales Associates (3) 330 331 342 482 490 497 Customers Total Customers (5) 12,181 12,642 13,081 31,516 31,431 31,342 (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. (4) Excludes Type II buildings for the acquired operations. (5) 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. Time Warner Telecom Inc. Consolidated Operations Highlights - Year over Year (Dollars in millions) Unaudited (1) Revenue -- Three Months Ended 6/30/07 6/30/06 Core Acquired Core Acquired Opera- Opera- Total Opera- Opera- Total tions tions Reclass Revenue tions tions Reclass Revenue (2) (3) (4) (2) (3) Revenue Network serv- ices $83.1 $13.0 $1.5 $97.6 $86.4 - - $86.4 Voice serv- ices 50.3 27.3 2.7 80.3 44.7 - - 44.7 Data and Internet serv- ices 66.8 11.7 - 78.5 51.5 - - 51.5 Service Revenue 200.2 52.0 4.2 256.4 182.6 - - 182.6 Inter- carrier compen- sation 9.0 2.6 - 11.6 8.7 - - 8.7 Total Revenue $209.2 $54.6 $4.2 $268.0 $191.3 - - $191.3 Year over Year Change Yr over Yr Growth Core Acquired Opera- Opera- Sub Total Core Total tions tions Total Reclass Revenue Operations Revenue Revenue Network serv- ices ($3.3) $13.0 $9.7 $1.5 $11.2 -4% 13% Voice serv- ices 5.6 27.3 32.9 2.7 35.6 13% 80% Data and Internet services 15.3 11.7 27.0 - 27.0 30% 53% Service Revenue 17.6 52.0 69.6 4.2 73.8 10% 40% Inter- carrier compen- sation 0.3 2.6 2.9 - 2.9 3% 33% Total Revenue $17.9 $54.6 $72.5 $4.2 $76.7 9% 40% Revenue by Customer Type-- Three Months Ended 6/30/07 6/30/06 Core Acquired Core Acquired Opera- Opera- Total Opera- Opera- Total tions tions Reclass Revenue tions tions Reclass Revenue Enterprise Revenue $138.1 $40.9 $4.0 $183.0 $116.5 - - $116.5 Carrier Revenue 62.1 11.1 0.2 73.4 66.1 - - 66.1 200.2 52.0 4.2 256.4 182.6 - - 182.6 Inter- carrier Compen- sation 9.0 2.6 - 11.6 8.7 - - 8.7 $209.2 $54.6 $4.2 $268.0 $191.3 - - $191.3 Year over Year Change Yr over Yr Growth Core Acquired Opera- Opera- Sub Total Core Total tions tions Total Reclass Revenue Operations Revenue Enterprise Revenue $21.6 $40.9 $62.5 $4.0 $66.5 19% 57% Carrier Revenue (4.0) 11.1 7.1 0.2 7.3 -6% 11% 17.6 52.0 69.6 4.2 73.8 10% 40% Inter- carrier Compen- sation 0.3 2.6 2.9 - 2.9 3% 33% $17.9 $54.6 $72.5 $4.2 $76.7 9% 40% Capital Expenditures -- Three Months Ended 6/30/07 6/30/06 Cap-Ex Cap-Ex Ongoing Operations $65.6 $50.8 Integration (5) 13.0 - Total Capital Expenditures $78.6 $50.8 (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) Core operations reflect the operations of the Company before the acquisition and the related incurrence of integration costs and excluding the reclassification note (4). (3) Acquired operations represent the operations acquired from Xspedius Communications, LLC on October 31, 2006. (4) The Company implemented a reclassification to present gross versus net, certain taxes and fees which were offset in operating costs, resulting in no impact on M-EBITDA or net income. (5) Integration costs represents the cost of integrating and consolidating the acquired operations. Time Warner Telecom Inc. Consolidated Operations Highlights - Sequential (Dollars in millions) Unaudited (1) Revenue -- Three Months Ended 6/30/07 3/31/07 Core Acquired Core Acquired Opera- Opera- Total Opera- Opera- Total tions tions Reclass Revenue tions tions Reclass Revenue (2) (3),(6) (4) (2) (3),(6) (4) Revenue Network serv- ices $83.1 $13.0 $1.5 $97.6 $85.0 $13.4 $1.6 $100.0 Voice serv- ices 50.3 27.3 2.7 80.3 47.0 31.7 1.2 $79.9 Data and Internet services 66.8 11.7 - 78.5 62.3 7.6 - $69.9 Service Revenue 200.2 52.0 4.2 256.4 194.3 52.7 2.8 249.8 Inter- carrier compen- sation 9.0 2.6 - 11.6 9.0 2.6 - 11.6 Total Revenue $209.2 $54.6 $4.2 $268.0 $203.3 $55.3 $2.8 $261.4 Sequential Change Sequential Growth Core Acquired Opera- Opera- Sub Total Core Total tions tions Total Reclass Revenue Operations Revenue (6) Revenue Network services($1.9) ($0.4) ($2.3) ($0.1) ($2.4) -2% -2% Voice services 3.3 (4.4) (1.1) 1.5 0.4 7% 0% Note 6 Data and Internet services 4.5 4.1 8.6 - 8.6 7% 12% Note 6 Service Revenue 5.9 (0.7) 5.2 1.4 6.6 3% 3% Inter- carrier compen- sation - - - - - 0% 0% Total Revenue $5.9 ($0.7) $5.2 $1.4 $6.6 3% 3% Revenue by Customer Type -- Three Months Ended 6/30/07 3/31/07 Core Acquired Core Acquired Opera- Opera- Total Opera- Opera- Total tions tions Reclass Revenue tions tions Reclass Revenue Enterprise Revenue $138.1 $40.9 $4.0 $183.0 $131.0 $40.6 $2.8 $174.4 Carrier Revenue 62.1 11.1 0.2 73.4 63.3 12.1 - 75.4 200.2 52.0 4.2 256.4 194.3 52.7 2.8 249.8 Inter- carrier Compen- sation 9.0 2.6 - 11.6 9.0 2.6 - 11.6 $209.2 $54.6 $4.2 $268.0 $203.3 $55.3 $2.8 $261.4 Sequential Change Sequential Growth Core Acquired Opera- Opera- Sub Total Core Total tions tions Total Reclass Revenue Operations Revenue Enterprise Revenue $7.1 $0.3 $7.4 $1.2 $8.6 5% 5% Carrier Revenue (1.2) (1.0) (2.2) 0.2 (2.0) -2% -3% 5.9 (0.7) 5.2 1.4 6.6 3% 3% Inter- carrier Compen- sation - - - - - 0% 0% $5.9 ($0.7) $5.2 $1.4 $6.6 3% 3% Capital Expenditures -- Three Months Ended 6/30/07 3/31/07 Cap-Ex Cap-Ex Ongoing Operations $65.6 $49.2 Integration (5) 13.0 5.9 Total Capital Expenditures $78.6 $55.1 (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) Core operations reflect the operations of the Company before the acquisition and the related incurrence of integration costs and excluding the reclassification in note (4). (3) Acquired operations represent the operations acquired from Xspedius Communications, LLC on October 31, 2006. (4) The Company implemented a reclassification to present gross versus net, certain taxes and fees which were offset in operating costs, resulting in no impact on M-EBITDA or net income. (5) Integration costs represents the cost of integrating and consolidating the acquired operations. (6) As part of integration, the Company changed the categories for certain products of its acquired operations from voice to data and Internet revenue to reflect the nature of the data and Internet component of its bundled voice product. The related impact was $3.8 million sequentially. Excluding this reclass voice revenue grew 5% and data and Internet grew 7%. Time Warner Telecom Inc. CONTACT: Investor Relations, Carole Curtin, +1-303-566-1000,[email protected], or Media Relations, Bob Meldrum, +1-303-566-1354,[email protected], both of Time Warner Telecom Inc. Web site: http://www.twtelecom.com/ |