TWTC

tw telecom inc. (TWTC)

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TW Telecom (TWTC)

Q3 2012 Earnings Call

November 06, 2012 11:00 am ET

Executives

Carole Curtin

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

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

Analysts

Simon Flannery - Morgan Stanley, Research Division

Colby Synesael - Cowen and Company, LLC, Research Division

Michael J. Funk - BofA Merrill Lynch, Research Division

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

Timothy K. Horan - Oppenheimer & Co. Inc., Research Division

Michael Rollins - Citigroup Inc, Research Division

Brett Feldman - Deutsche Bank AG, Research Division

Donna Jaegers - D.A. Davidson & Co., Research Division

Thomas O. Seitz - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good morning, and welcome to tw telecom's Third 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 will turn the call over to Carole Curtin, Vice President of Investor Relations. Please go ahead.

Carole Curtin

Welcome to the tw telecom's conference call. We're very pleased to have you join us. To review our results for the quarter, please visit our website at www.twtelecom.com, where you can find our press release, supplemental quarterly information and SEC filings.

Before we start, I would like to draw your attention to our Safe Harbor statement included in our supplemental materials, which you can find on our website.

Information in our quarterly earnings materials and 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'd 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 L. Herda

Thanks, Carol. Hi, everyone, and thank you for joining us today. Before I get started with our earnings discussion, I just wanted to comment on the storm. We have many family, friends, employees, customers and investors who have been impacted by the storm this past week, and our hearts go out to everyone. Thankfully, all of our employees are safe and like many employees at other telecom network providers, they continue to work very hard for our customers.

We prepared well for the storm and we probably had a little bit of luck, too. Overall, thus far, we've been very fortunate as our entire East Coast network has experienced only modest service disruptions. Our teams continue to be mobilized to ensure our impacted customers' networks are restored as quickly as possible, and we believe that revenue and cost impact, for now, appear to be low.

And I just wanted to thank all of our employees for their incredible dedication and professionalism throughout this disaster. As always, I'm in awe of our team, who will stop at nothing for our customers, and others in their communities that are in need.

So now getting back to earnings. We delivered our 32nd consecutive quarter of revenue growth along with strong margins and cash flow, underscoring our ongoing long-term consistent performance.

Today, I want to take some time to talk about what we've been seeing in the marketplace, as well as update you on our progress with some very differentiated new products and capabilities.

But first, let me start with the enterprise market.

For the past 3 or 4 months, we've all been hearing some mixed signals from others in the telecoms sector regarding the enterprise space. So let me turn to our own operations and share what we've been seeing.

Our business remains in a great market position, and our new product opportunities are very exciting. We continue to roll out our Intelligent Network with ongoing leadership in the Ethernet space, including the launch of a new, differentiated and compelling Ethernet offering. We also achieved solid overall comprehensive results for the quarter, including 7.1% year-over-year revenue growth driven by our data and Internet revenue, which grew at a higher rate this quarter than the last 2 quarters, as data and Internet now represent 51% of our total revenue.

In addition for the quarter, we delivered a 37% modified EBITDA margin, 8.5% sequential growth in net income and 44% growth year-over-year as well as a 10% levered free cash flow margin. Our customer metrics remain healthy as our revenue churn was low, and we continue to grow our customer base. So a solid quarter for overall financial results, including ongoing revenue growth, strong modified EBITDA margin, coupled with substantial cash production.

Turning to our sales trends. Sales were lower this quarter primarily in September, coming off a very strong second quarter and they strengthened as we started the fourth quarter with strong October sales, a solid sales funnel and a lot of customer interest in our new products. So we've seen fluctuations in our sales trends throughout the year, but continued to see a strong funnel of ongoing opportunities as we introduced new and differentiated solutions.

So let me now touch on our sales force. As we mentioned before, throughout the past year, we transitioned more of our sales talent to move upmarket, to focus on the growing opportunities to address larger enterprises with our evolving product portfolio. This contributed to a slight contraction in our sales force compared to this time last year, but allowed us to put the right talent in the right places, and we're ready to grow that group again. So you can expect to see us increase our direct sales force over the next year. In addition, our success with our indirect sales force -- given our success with our indirect sales force, we expect to grow that sales channel as well, to help achieve greater local coverage in each of our local markets. We believe these additional resources will help leverage our new product capabilities to further penetrate our market.

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