The national metro fiber operator TW Telecom (NASDAQ:TWTC, news, filings) reported its Q2 earnings after the market closed, with its conference call on tap for tomorrow. Revenues and earnings per share were each a bit lighter than I expected, but still within the usual error bars. Here’s a quick table in context of the prior four quarters:
| ($ in millions) | Q2/11 | Q3/11 | Q4/11 | Q1/12 | Q2/12 |
|---|---|---|---|---|---|
| – Data & Internet Services | 158.2 | 164.7 | 171.6 | 176.8 | 182.5 |
| – Network Services | 88.9 | 86.9 | 85.4 | 84.8 | 83.0 |
| – Voice Services | 83.6 | 85.2 | 86.7 | 89.6 | 91.0 |
| – Intercarrier Compensation | 8.7 | 7.7 | 7.6 | 7.6 | 8.0 |
| Total Revenue | 338.4 | 344.5 | 351.5 | 358.9 | 364.5 |
| M-EBITDA | 123.2 | 125.0 | 128.1 | 131.8 | 134.0 |
| M-EBITDA Margin | 36.4% | 36.3% | 36.3% | 36.7% | 36.8% |
| Earnings per share | 0.09 | 0.10 | 0.11 | 0.13 | 0.13 |
| Revenue Churn | 0.9% | 1.0% | 0.8% | 1.0% | 0.9% |
| Capital Expenditures | 90.9 | 86.0 | 86.6 | 79.1 | 80.8M |
| On-net buildings added | 569 | 561 | 566 | 467 | 462 |
| Free Cash Flow | 16.5 | 23.2 | 25.6 | 37.3 | 37.7 |
Voice revenues continued their recent strength, while network revenues took the brunt of some churn from a large customer and some transport repricing. Data and internet services grew as always, but probably at a slightly slower pace than analysts had hoped. Overall, churn was in the usual ballpark.
tw telecom added another 462 buildings to its on-net footprint to reach 16,367 — not quite keeping pace with last year but still far and away the fastest among the competitive operators. Sales headcount dipped below 550 for the first time in quite a while, I look forward to more color on that. Modified EBITDA margins grew slightly to 36.8%, edging toward 37% again.
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Categories: Financials · Metro fiber
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thx Rob
Early market open TW Telecom is down ( only 2 %) but still down. Is this a possible message to TW that status quo will not be rewarded and they need to change to a more aggressive business model ?
Seems like normal movement based on relatively ho-hum results, but not a message being sent really. Consistency can be a good thing too, you know, even if it isn’t terribly exciting to watch. Personally though, I think tw may be ready to move on XO in the next month or two.
Rob,
What makes you think that tw will move on XO in the next month or two? That seems too specific to be just a hunch.
Nevertheless, just a hunch. The timing being based on XO and Icahn’s probable testing of the waters. Haven’t heard any specific rumors.
I sure hope they know what the heck they are doing if that is in the works. The cultures of tw and XO could not be more diverse, and that counts for a lot in a successful integration after being such a calm steady hand in CLEC land these last few years. tw would be best served rapidly gutting it for assets and selling off the trash than trying to integrate portfolios, in my opinion.
rob, twtc grew their revenue 8% year over year but had to spend 25% of their revenue on capex to do it. why do you think they have such a high number?
High EBITDA margins generally mean high capex in this segment, and tw is adding piles of on-net buildings to make revenue sticky for the long term.
I’ll throw a hunch of mine out there to match Rob’s. I think TWTC is the seller. If you listened to the presentation they gave at Oppenheimer today, you could easily come away with the idea that they were there to explain their merits to a potential buyer. Ways I noticed it: (1) Played up the good to great company comparisons the analyst made. (2) Hit mgmt continuity more than a few times. (3) Slowing capex. (4) Hit dynamic capacity product for roughly 2/3rds of the presentation which only reinforced the network integrity to ALL listeners.
The aforementioned hypothesis is easy to make on a hunch but all throw out out 4 pieces of specifics which add varying degrees of weight.
(1) CTL met with Goldman today. The takeaway I noted was they said they will continue to evaluate M&A with a focus on revenue growth, not traditional LEC assets. They think pieces are in place to support a topline turnaround. Somewhat separately, CTL They will invest $1Bn in fiber this year. Want to add revenue growth, how about more fiber?
(2) I have heard from a handful of people that Qwest has long looked at TWTC pre-CTL deal.
(3) The FCC ruling on CLEC-Cable combinations was pushed out from June in September. If CTL doesn’t act soon, there will be other deep pocket bidders with less headwinds at the table.
(4) Buyer’s Valuations(currency) are up whether it is CTL 52-week highing or TWC which is all time highing. Match that with economic growth that is getting even harder to come by with the economic recovery’s topline fading.
(5) If ABVT got 9.2x forecasted EBITDA, TWTC actually can soundly make the case for something higher in multiple terms. I am not sure they get it, but could this be the first asset I can remember which went for a double digit ebitda multiple on strongly growing ebitda. I don’t know enough to know Larissa’s target multiple but she has always aimed high.
managements don’t usually ever get the idea to sell themselves. that usually comes from the shareholders.
all the stuff they said at the presentation was targeted directly at wall street, in effect, writing their sales reports for them. twtc will be sold. and when it happens management won’t like it one bit. because many of them (possibly including ceo coo and cfo) will be looking for work. they will be flush. but still, looking for work. managements love the status quo. they crave stability. the higher ups have good things going and they don’t want to rock the boat.
so yes twtc would make a good acquisition candidate. but management is not making any phone calls to buyers.
In the end who can say? They have been buying back stock and sitting on plenty of cash. Combined with a slow-down in capex, the signs could also point to they are looking to acquire, which they should have been doing for awhile now instead of sit on the sidelines.