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tw telecom (TWTC)

Q4 2012 Earnings Call

February 12, 2013, 11:00 a.m. ET


Carole Curtin

Larissa L. Herda - Chairman, CEO and President

Mark A. Peters - CFO and EVP

John Blount – Chief Operating Officer

Mike Rouleau – SVP of Business Development Strategy


Simon Flannery - Morgan Stanley

Brett Feldman – Deutsche Bank AG

Colby Snyesael – Cowen and Company, LLC

Barry McCarver - Stevens

Frank G. Louthan - Raymond James & Associates, Inc.

Michael Rollins - Citigroup Inc

Timothy K. Horan - Oppenheimer & Co. Inc.

Donna Jaegers - D.A. Davidson & Co.

Thomas O. Seitz - Jefferies & Company, Inc.



Good morning, and welcome to tw telecom’s fourth quarter 2012 conference call. Today’s call is being recorded. With us from the company is Chairman, Chief Executive Officer, and President, Ms. Larissa Herda and Executive Vice President and Chief Financial Officer, Mr. Mark Peters. At this time, I'll turn the call over to Carole Curtin, Vice President of Investor Relations. Please go ahead.

Carole Curtin

Welcome everyone to tw telecom's conference call. We're pleased to have you join us today.

To review our results for the quarter, please see our website at where you can find our press release, supplemental quarterly information, and SEC filings.

Before we start, I'd like to draw your attention to our Safe Harbor statement included in our supplemental materials, which you can find on our website. Information on our quarterly earnings materials in our discussion today contain statements about expected future events and financial results that are forward-looking and are subject to risks and uncertainties. A discussion of factors that may cause our results to differ materially from our expectations is contained in our filings with the SEC under risk factors and elsewhere available on our website.

I would also like to point out that our earnings materials and discussion contain certain non-GAAP financial measures. You can find reconciliations between the non-GAAP and GAAP financial measures in the materials on our website.

Now I'm pleased to introduce tw telecom's Chairman, CEO, and President, Larissa Herda.

Larissa Herda

Thanks, Carole. Hi, everyone and thank you for joining us today.

2012 was another good year. We strategically advanced our new product and network capabilities. At the same time, we once again achieved strong comprehensive financial results. So let me start by recapping a few of our operational and strategic accomplishments.

We delivered industry leading innovation with the rapid deployment of our new intelligent network capabilities. And while we've been setting the foundation in place for some time, our team's ability to design, test, operationalize, train, launch, and commence selling the first two phases of these new capabilities in 2012 was a substantial accomplishment. And even better, we're already starting to see the results.

Through our ongoing innovation, we're becoming a disruptive force in the industry. And we're changing the game. That's because we're challenging enterprise's operating paradigm by re-defining how customers think about their enterprise eco-system substantially changing choice and flexibility for customers and dramatically improving the interaction between our customer's networks and applications to make them more successful.

Our business is focused on ongoing execution while constantly positioning ourselves for the future. For example, our commitment to Ethernet has been unprecedented. And was one of our early disruptive efforts of changing both our business and the industry and we led that charge. For more than a decade, our innovation has consistently resulted in us being recognized as a top three provider in Ethernet nationally. We continued that differentiation with recent innovations, such as our E-Access or one to many services that enables Ethernet access across our entire network from a single connection point as well as our intelligent network capabilities to provide dynamic capacity for Ethernet services.

Much like the success of our Ethernet services, we expect our new intelligent network to increase the trajectory of strategic services over time. And since the launch of these new intelligent network capabilities, they're doing just what we had expected, which is opening more doors and closing more deals for the sales of our strategic services.

We delivered some very innovative capabilities in 2012, which did not go unnoticed in the industry. In November, we were recognized with several awards including the prestigious 2012 North America Carrier Ethernet award for best business Ethernet application by the metro Ethernet forum for our unique and innovative dynamic capacity capabilities.

Summing up the year, we executed well strategically, operationally, and financially. 2012 was another milestone in our growth story, which demonstrates our ability to innovate and differentiate our capabilities, produce strong financial results, and drive shareholder value, all of which were possible due to our ongoing strategic choices.

As we look to 2013, we expect to provide customers with unprecedented visibility and control over their networks, which we believe will accelerate the momentum in our business through several growth initiatives including enabling new disruptive technologies for increased innovation and differentiation, growing our sales force for greater distribution capabilities to increase our sales trajectory, and automating new network functionality for more dynamic customer interaction and connectivity options. Our initiatives are all focused on increasing the momentum in our business including the sale of our strategic services and our part of our long-term vision of moving our business from a leading managed network provider to a leading provider of instantaneous network enablement solutions for enterprise and IT environments through our future installation platform, which we're introducing the vision of today.

Our constellation platform will break all the rules of the traditional Telco operating model. By leveraging everything we've built from our massive fiber infrastructure and one network platform to our intelligent network, we will be taking enterprise networking and cloud enablement to another level by providing our customers the ability to instantaneously click and connect dedicated network services to hundreds of data centers and thousands of applications in an incremental use what you need for as long as you need it and pay as you go strategy.

These future platform capabilities will enable enterprise's needs for implementing corporate wide networks while offering them unprecedented choice. We believe our industry has never seen breakthrough capabilities like this before.

There's a titanic shift in the data center and cloud world that has been occurring, which is disrupting the market. With our intelligent network and our future constellation platform, we believe we're right in the middle of some very large and growing demand and well positioned to capitalize on these opportunities by changing the game. So I'll talk more about that in a moment.

But first, Mark is going to review our results and new growth initiatives.

Mark A. Peters

Thanks, Larissa, and hello everyone.

Today, I'm going to provide some financial highlights for both the year and the fourth quarter. And then spend some time on our 2013 growth initiatives including our expectations for capital and margins.

Let me start with our financial highlights for the full year. As you know from our press release, revenue grew for the eighth consecutive year. And for 2012, revenue grew 7.6% driven by our data and internet growth engine, which grew 15.4% for the year. The 7.6% top line growth drove an 8.6% growth in M-EBITDA and a 36.8% margin. Plus $77 million in net income, which was a 33% increase from last year. This growth in M-EBITDA plus lower CapEx as a percentage of revenue compared to the prior year resulted in $130 million in levered free cash flow, a 42% increase over last year.

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