TWT narrows loss

Time Warner Telecom announced improved results from a third quarter that included major financial events including closing of its acquisition of Xpedius, the metro fiber optic service provider TWT bought for $576million. The company achieved levered free cash flow for the quarter of $6.1 million and grew revenue by 10%, posting a narrower loss of $11.4 million, or 9 cents per share, versus a loss of $23.4 million, or 20 cents per share, during the same period a year ago.

Even in announcing those results, however, Larissa Herda, chairman, CEO and president of Time Warner Telecom, encouraged financial analysts to take a longer term view of the competitive service provider industry.

“We want to make sure the marketplace is focused on the long-term,” Herda said. “Quarter to quarter, we are going to fluctuate. We are a growth business and we have to continue to do that and we will continue to do that.”

That includes making capital investments to reach new customers, knowing that revenue from those customers will be reported much later, she said, and seeing quarter by quarter fluctuations in revenues based on seasonably and on a diverse mix of customers and customer types. “As we sell to larger customers, we see longer selling cycles,” she said. “You are going to have ebbs and flows in every quarter.” Overall, Time Warner Telecom is seeing significant growth in its enterprise business and relative stability on the carrier business, she said, including gaining business from AT&T and Verizon as they seek to avoid using each other’s networks.

Enterprise revenue $16.0 million year over year, an increase of 16%, and $3.1 million sequentially, an increase of 3%, the company reported. Time Warner Telecom had $196.1 million in revenue and $71.2 million in Modified EBITDA. The company recorded a 5% increase for data and Internet services which it attributed to the success of its Ethernet and IP-based product sales.

Other highlights, according to Herda, were:

• Completion of a secondary equity offering that eliminated its Class B shares and converted those to Class A.
• Completion of a new $700 million credit facility and debt refinancing that significantly cut interest expense. “We did all of this without taking our eye off the ball,” she added. “Our business remains on a strong trajectory.”
• Fast movement to integrate Xpedius using a dedicated transition team designed to keep distractions to a minimum and avoid business slowdown. Time Warner Telecom will move quickly to take advantage of Xpedius’ fiber assets to reach new customers and to sell TWT products to Xpedius’ existing customers. Time Warner Telecom has acquired the fiber optic company at its inflection point, when it was poised to grow but lacked the capital to extend its fiber network all the way to customers’ buildings, something TWT can do.

Xpedius is “a company that built a lot of fiber to a lot of places, but ran out of money and had to figure out how to put revenue on the network without spending more capex,” she said. “They went with a lower margin strategy – selling to the smaller customers” and buying copper access to those customers. Time Warner Telecom can leverage the fiber asset and be true to its strategy of offering all-fiber access to medium and large enterprises, Herda said.

“We will create an accelerated growth platform,” she said. “Expedius is a very dense fiber network. We will layer on our advanced services on that network.”