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tw telecom inc. (TWTC)

Morgan Stanley Technology, Media & Telecom Conference

February 26, 2013 3:45 pm ET


Mark A. Peters - Chief Financial Officer and Executive Vice President

Larissa L. Herda - Chairman, Chief Executive Officer and President

Michael A. Rouleau - Former Senior Vice President of Business Development & Strategy


Edward Katz - Morgan Stanley, Research Division


Edward Katz - Morgan Stanley, Research Division

Okay. Good afternoon, everybody. So it's my great pleasure to introduce the TW Telecom management team. Larissa Herda, on my left here, CEO; Mark Peters, the CFO; and Mike Rouleau, who is Head of the Business Development and Strategy.

Please note that all important disclosures including personal holding disclosures and Morgan Stanley disclosures appear at the Morgan Stanley public website at, or at the registration desk.

So great to have you all in here today. And Mark, you want to read the disclosures?

Mark A. Peters

I have to do our legal stuff, too. So information on this webcast contain statements about expected future plans and expectations that are forward-looking and are subject to risks and uncertainties. A discussion of factors that may cause the results to differ materially from our expectations is included in our 2012 Form 10-K especially the section entitled Risk Factors.

Edward Katz - Morgan Stanley, Research Division

Thank you. So Larissa, last year was the year of the Intelligent Network, now, we have Constellation. Maybe you can start by sort of just giving us a big picture overview of what we should be looking for out of the company in 2013, what are your main priorities to drive growth?

Larissa L. Herda

Sure. Hi, everybody. So as we look at 2013, we obviously reflect on our past track record of very consistent performance year after year after year. We've had 8 years of every quarter consistent revenue growth, great margins, strong margins in our business, good cash flows. And -- but last year, we also saw a declining revenue growth rate in our business and as we looked at the year and the things that we wanted to do to get back to accelerating growth rate, it became really clear to us that along with our innovation that we've been doing a very good job of over the years, we needed to simply increase the size of our sales force as well. And we haven't really increased our sales force since 2009. And over the course of last year, we had -- we spent a lot of time evaluating how we wanted to increase our sales force. We see -- we saw good sales over the course of the year, strong sales, better sales than the previous year, but just not good enough to continue the trend of accelerating our revenue growth rate. So for us, a lot of it is a numbers game, increasing the numbers of salespeople. But we don't like just increasing the numbers. We like to -- we've always been very methodical and strategic about how we do this. And so last year, as we were attriting some of our lower end sales force, we started to add a higher end sales force. And there were certain parts of our organization where we felt that would most benefit because of the business opportunity that we saw from an increase. So for instance, our national enterprise sales organization has -- because of the -- primarily, a lot of it's because of the new product offerings that we had and are going to have, have entered much more strategic dialogue with enterprises who are very interested in doing business with us. That sales organization needs to grow. We just simply don't have enough of them, given the market opportunity out there. Our federal sales organization has really gotten a lot of traction in the past couple of years. And it needs to grow. That's a longer selling cycle, but they're mature and we've made some really great inroads in some various different agencies that we know that we can expand on very effectively now. That's going to grow. Our indirect sales force, which has really been doing a great job for us over the past couple of years is providing us with access to customers that we never would have had an opportunity to sell to before because of their relationship. And so therefore, that's an area for a quicker growth because they generally come to us with relationships, and there's a lot of demand out to there for relationships with us that we've had somewhat limited because of the size of the organization. And we always like to try it and see if we like it before we expand it. And we like it, so we're going to expand it. And then, just our market -- our local market, we have a number of markets where we're underpenetrated and -- but the management teams in those markets have gotten -- have shown track records now. They're maturing, they're ready for new sales teams. So when you combine the new product innovation that we've been coming out with in the future, along with these incremental increases in our sales organization across the country, now, these are a couple of the dials that we're tweaking, so to speak, to get back to accelerated growth.

You mentioned the Constellation network. That's a future, right? We wanted to talk to investors about the vision of the Constellation network, which kind of is an overarching theme and vision for the business. But the idea behind that is to make it easier for customers to acquire dedicated services. And to make it instantaneous. And to make it flexible. And we're starting with the data center ecosystem because we've hundreds, over 400 third-party data centers on our fiber network. Plus, we've got thousands of enterprise data centers on our network. And so we connect them all virtually by our fiber. So we decided, and this was after a lot of conversations with customers, why do we need to do business with all of these companies the same way a telecom company has done business for all of these years? Why do we need to stick to the 100-year-old provisioning cycles and telco ordering cycle? Why don't we do something different? And as an inspiration, look at what -- look at the iPads and the iPhones and the instantaneous communication. And to some degree, the Internet is an inspiration. But how do you provide that type of connectivity, but on a dedicated secure circuit but is fast as you could do that? And so we've been working with a number of the data center companies who have been also very inspired by this theme because the telco world is slow, it's cumbersome and it's slower to revenue for them. Whereas if we can provide them a more instantaneous connection to their customers, they get revenues faster, we get revenues faster. And if we can do it in an automated fashion, and that's really one of the keywords for us, is automation, then we obviously can really scale this opportunity quite aggressively.

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