TWTelecom confronts gorilla with good news

Before inviting questions from analysts on the company’s second-quarter earnings call today, Larissa Herda, TWTelecom’s chief executive officer addressed what she called “the 800-pound gorilla in the room” (usually called “the elephant”): the economy.

And what the company reported was relatively positive, backed up by a quarter in which TWTelecom’s revenue grew 3% sequentially and 8% from a year earlier to $290 million and its net income, unlike a year ago, turned positive.

Though the overall economy continues to produce “headwinds,” Herda said, business is still growing strong, and the company’s second-quarter sales funnel looks healthy, which bodes well for the company’s fourth-quarter performance, she said.

“I believe many if not most businesses are re-evaluating purchase decisions to make sure they’re making the optimal choice for this business cycle,” Herda said. “We believe the economy is causing customers to shop for the best value...including total cost of ownership. Those requirements are creating opportunity for our business.”

Herda estimated the company likely lost $1 million in gross revenue during the quarter thanks to the troubled mortgage industry, consistent with the first quarter. And the economy may be lengthening sales cycles slightly, she said, adding, “It’s hard to tell.”

It could also be impacting churn. TWtelecom’s customer churn rose to 1.5% in the quarter from 1.4.% in the first quarter and 1.3% a year earlier. But the company said the “vast majority” of churning customers were small businesses, which, although a particular target of its cable competitors, are not especially prized by TWtelecom, Herda said. The carrier inherited a lot of small business customers through its acquisition of Expedius and is working to upsell as many as it can and let the rest go. “In some cases, we don’t have a product to offer them long-term,” Herda said. “Either we’re not competitive for that small-business customer from a price standpoint or don’t have the service capability to serve them. And the margins are so low -- and sometimes non-existent -- that we really don’t want them.”