TWTC (MM)

Time Warner Telecom Announces Third Quarter 2003 Results - Company Records Impact of WorldCom Settlement - LITTLETON, Colo., Oct. 27 /PRNewswire-FirstCall/ -- Time Warner Telecom Inc. , a leading provider of metro and regional optical broadband networks and services to business customers, today announced its third quarter 2003 financial results, including $172.4 million in revenue, $74.6 million in EBITDA(1), and a net loss of $(5.7) million. "Our business continues to perform well as we generate success in the enterprise segment, especially with our metro Ethernet and IP based products," said Larissa Herda, Time Warner Telecom's Chairman, CEO and President. "We resolved disputed items and claims with WorldCom, and, in addition, believe that what we had anticipated in bankruptcy related disconnects, is behind us. While total disconnects are up slightly this quarter from last, they are 30% lower for the first nine months of 2003, as compared to the same period last year, excluding the WorldCom disconnects. We continue to grow our end-user customer base and differentiate Time Warner Telecom in the marketplace with an innovative set of product offerings." Results from Operations WorldCom Settlement As part of WorldCom, Inc.'s bankruptcy proceedings, the bankruptcy court approved the terms of a settlement with Time Warner Telecom that resolved a number of open disputes and claims through June 30, 2003, including amounts payable to and from each party. This settlement resulted in a net cash payment to Time Warner Telecom of $2.0 million, recognition in the third quarter of $5.2 million of revenue, and the reversal of $15.1 million of expenses, resulting in a $20.3 million favorable impact to EBITDA and Net Income. In addition, both parties agreed on amounts due to Time Warner Telecom related to rejection of certain contracts. Subsequent to the end of the quarter, Time Warner Telecom monetized this claim by selling it to a third party for approximately $7 million in cash, which will be recognized as revenue in the fourth quarter. Revenue Revenue for the quarter was $172.4 million, as compared to $167.2 million for the same period last year, representing a $5.2 million increase. The primary components of the change included: -- $15.1 million net increase in revenue from enterprise customers (non-carrier) -- $5.2 million favorable impact from the WorldCom settlement -- $3.9 million increase due to a reciprocal compensation settlement -- $11.4 million decrease due to lower revenue from WorldCom, excluding the settlement -- $5.2 million decrease in intercarrier compensation due primarily to mandated and contractual rate reductions and reduced minutes of use -- $2.4 million decrease from carriers, excluding WorldCom The change in revenue for the third quarter over the same period last year was as follows: -- 10% increase for data and internet (44% increase without the impact of the settlement and disconnects from WorldCom) due to success with Ethernet and IP product sales -- 8% increase for switched services (both with and without WorldCom settlement) primarily due to contract termination revenue -- 2% increase for dedicated transport services (1% decrease without the WorldCom settlement) Monthly revenue related to disconnects for the first nine months of the year totaled $10.3 million in 2003 and $10.2 million in 2002, including WorldCom related disconnects of $3.5 million and $.5 million in the respective periods. Revenue in the third quarter from WorldCom was $7.9 million, excluding the settlement revenue, a $4 million reduction from the prior quarter. EBITDA and Margins EBITDA for the quarter was $74.6 million, reflecting an 86% increase from the same period last year. EBITDA increased 26%, excluding the settlements described above. EBITDA margin was 43% for the quarter, or 31% excluding the settlements described above. This compares to 24% for the third quarter of 2002. Gross margin was 61% for the quarter, or 59% without the settlements. This compares to 58% for the third quarter 2002. The Company utilizes a fully burdened gross margin, including network costs, national IP backbone costs and personnel costs for customer care, provisioning, network maintenance, technical field and network operations. The current quarter margins reflect a reduction in bad debt expense as well as the Company's efforts to reduce costs across the business. For the third quarter of this year operating costs decreased nearly 6%, and selling, general and administrative costs decreased approximately 45%, or 18% excluding the impact of the WorldCom settlement, as compared to the same period last year. Net Loss The Company reported a net loss of $(5.7) million, or $(.05) per share, for the third quarter of 2003, or $(26.0) million or $(.23) per share without the benefit from the favorable impact of the WorldCom settlement. This compares to a net loss of $(48.4) million, or $(.42) per share, for the same period last year. The net loss narrowed primarily due to higher EBITDA and lower depreciation. Capital Expenditures Capital expenditures for the quarter were $34.5 million, as compared to $25.1 million for the same period last year. "Our focus to add more on-net buildings and expand our network reach remains unchanged," said David Rayner, Time Warner Telecom's Senior Vice President and Chief Financial Officer, "However, we believe it will be difficult to deploy our $150 million targeted capital for 2003 within the remainder of the current year. Despite a delay in the spending cycle into 2004 relative to our original plan, we continue to experience positive momentum in expanding our network. Approximately two-thirds of our year to date expenditures were used to expand our existing markets and add new buildings to the network." Operating Highlights As of September 30, 2003, the Company reported $464.5 million in cash and marketable securities. The Company is in compliance with all its financing agreements. The Company has increased its sales force by over 28% in the first nine months of 2003, which is solid progress against the goal of growing the sales force nearly 30% for the year. The new sales force has strong telecom experience as well as specialized data skills, which are key in selling to enterprise customers. The Company is expanding its networks to reach more customer buildings and to continually add new products and services that ride over its networks. Time Warner Telecom is broadly deploying its metro Ethernet services to reach more customer locations. The Company is growing its product family to include a launch of "Extended Native LAN" in the fourth quarter to connect its customers' diverse locations throughout Time Warner Telecom's national footprint. "Similar to our other metro Ethernet products, this will utilize technology that most of our customers already have in place and will leverage our existing network infrastructure and national IP backbone, creating great cost efficiencies and scalability," said Herda. "While the selling cycle remains long, we believe these complex products will provide the basis for a long-term relationship with our customers." Conclusion "Challenges remain in the business, including ongoing disconnects and pricing pressure on our most mature products, however, we remain focused on incremental initiatives to grow the business. These initiatives include increasing our sales opportunities through expanding our network and extending our product line. In addition, we remain committed to continued customer service and innovation. We intend to continue to wisely manage our cost structure while we remain focused on long-term growth," concluded Herda. Time Warner Telecom Inc. plans to conduct a webcast conference call to discuss its earnings results on October 28, 2003 at 9:00 a.m. MT (11:00 a.m. ET). To access the webcast and the financial and statistical information to be discussed in the webcast, visit http://www.twtelecom.com/ under "Investor Relations." Financial Measures The Company provides financial measures generated using generally accepted accounting principles ("GAAP") as well as adjustments to GAAP to describe its business trends. These measures include EBITDA, which is a widely recognized metric of operating performance and liquidity. EBITDA is not intended to replace operating income (loss), net income (loss), cash flow, and other measures of financial performance and liquidity reported in accordance with GAAP. Management believes that EBITDA is a standard measure of operating performance and liquidity that is commonly reported and widely used by analysts, investors, and other interested parties in the telecommunications industry because it eliminates many differences in financial, capitalization, and tax structures, as well as non-cash and non-operating charges to earnings. Management uses EBITDA internally to assess on-going operations and it is the basis for various financial covenants contained in the Company's debt agreements. The definition of EBITDA under the Company's credit facility differs from the definition of EBITDA used in this press release because the credit facility definition also eliminates certain non-cash losses within certain limits and certain extraordinary gains. EBITDA is reconciled to Net Loss, the most comparable GAAP measure to EBITDA, within the Consolidated Operating Highlights on Page 5. The Company uses recurring revenue to enhance the comparability of its revenue performance between periods (see page 10 for reconciliation to GAAP Revenue). The Company presented EBITDA, gross margins, EBITDA margins and recurring revenue without the impact of reciprocal compensation settlements to enhance comparability of those measures between periods. Due to the significant positive impact of the Company's settlement with WorldCom, Inc. in the third quarter, the Company has presented its selected operating statistics on page 10, both as reported and net of the settlement as well as a reconciliation between the two, in order to assist in understanding the impact of the settlement and Company's performance during the quarter net of the impact of that event. (1) EBITDA is defined as operating income or loss before depreciation and amortization expense and impairment charges. Forward Looking Statements The statements in this press release concerning the outlook for 2003 and beyond, including expansion plans, growth prospects, increased sales force, customer disconnects and expected capital expenditures are forward-looking statements that reflect management's views with respect to future events and financial performance. These statements are based on management's current expectations and are subject to risks and uncertainties. These risks include the risks summarized in the Company's filings with the SEC, especially the section entitled "Risk Factors" in its 2002 Annual Report on Form 10-K. Time Warner Telecom undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. About Time Warner Telecom Inc. Time Warner Telecom Inc., headquartered in Littleton, Colo., delivers "last-mile" broadband data, dedicated Internet access and voice services for businesses in 44 U.S. metropolitan areas. Time Warner Telecom Inc., one of the country's premier competitive telecom carriers, delivers fast, powerful and flexible facilities-based metro and regional optical networks to large and medium customers. Please visit http://www.twtelecom.com/ for more information. Time Warner Telecom Inc. Consolidated Operations Highlights (Dollars in thousands) Unaudited (1) (2) Three Months Ended September 30, 2003 2002 Growth % Revenue Dedicated transport services $94,066 $92,556 2% Switched services 38,957 36,078 8% Data and Internet services 25,700 23,410 10% 158,723 152,044 4% Intercarrier compensation (3) 9,842 15,121 -35% 168,565 167,165 1% Reciprocal Compensation Settlements 3,863 -- 100% Total Revenue 172,428 167,165 3% Expenses Operating costs 66,631 70,799 -6% Gross Margin 105,797 96,366 10% Selling, general and administrative 31,162 56,293 -45% EBITDA 74,635 40,073 86% Depreciation, amortization and accretion 56,408 58,263 Asset Impairment Charge -- 3,500 Operating Income (Loss) 18,227 (21,690) Interest expense (25,908) (26,760) Interest income 1,326 1,517 Investment gains and (losses), net 922 (1,283) Net loss before income taxes (5,433) (48,216) Income tax expense 225 150 Loss before cumulative effect of change in accounting principle (5,658) (48,366) Cumulative effect of change in accounting principle (4) -- -- Net Loss ($5,658) ($48,366) Capital Expenditures $34,529 $25,105 38% Gross Margin 61% 58% EBITDA Margin 43% 24% (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) See Page 10 for selected operating highlights. (3) Intercarrier Compensation includes switched access and recurring reciprocal compensation. (4) Reflects implementation of Statement of Financial Accounting Standards No. 143. Time Warner Telecom Inc. Consolidated Operations Highlights (Dollars in thousands) Unaudited (1) (2) Nine Months Ended September 30, 2003 2002 Growth % Revenue Dedicated transport services $269,420 $280,170 -4% Switched services 115,281 110,007 5% Data and Internet services 74,135 65,758 13% 458,836 455,935 1% Intercarrier compensation (3) 37,514 50,583 -26% 496,350 506,518 -2% Reciprocal Compensation Settlements 3,863 13,942 -72% Total Revenue 500,213 520,460 -4% Expenses Operating costs 198,461 216,966 -9% Gross Margin 301,752 303,494 -1% Selling, general and administrative 128,294 171,710 -25% EBITDA 173,458 131,784 32% Depreciation, amortization and accretion 164,876 172,769 Asset Impairment Charge -- 3,500 Operating Income (Loss) 8,582 (44,485) Interest expense (78,520) (78,435) Interest income 4,648 4,317 Investment gains and (losses), net 922 (3,240) Net loss before income taxes (64,368) (121,843) Income tax expense 675 450 Loss before cumulative effect of change in accounting principle (65,043) (122,293) Cumulative effect of change in accounting principle (4) 2,965 -- Net Loss ($68,008) ($122,293) Capital Expenditures $84,787 $92,096 -8% Gross Margin 60% 58% EBITDA Margin 35% 25% (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) See Page 10 for selected operating highlights. (3) Intercarrier Compensation includes switched access and recurring reciprocal compensation. (4) Reflects implementation of Statement of Financial Accounting Standards No. 143. Time Warner Telecom Inc. Highlights of Results Per Share Unaudited (1) Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Weighted Average Shares Outstanding (thousands) Basic and Diluted 114,936 114,827 114,931 114,772 Basic and Diluted Loss per Common Share Before the favorable impacts of the WorldCom settlement ($0.23) ($0.42) ($0.77) ($1.07) WorldCom Settlement $0.18 -- $0.18 -- As Reported ($0.05) ($0.42) ($0.59) ($1.07) Common shares (thousands) Actual Shares Outstanding 115,106 114,827 115,106 114,827 Options (thousands) Options Outstanding 18,074 14,129 18,074 14,129 Options Exercisable 8,366 6,002 8,366 6,002 Options Exercisable and "in the money" 741 -- 741 -- (1) For complete financials and related footnotes, please refer to the Company's SEC filings. Time Warner Telecom Inc. Condensed Consolidated Balance Sheet Highlights (Dollars in thousands) Unaudited (1) September 30, June 30, 2003 2003 Cash and Marketable Debt Securities $464,532 $505,237 Receivables 65,165 60,800 Less: allowance (17,084) (16,677) Net receivables 48,081 44,123 Other current assets 37,483 36,329 Property, plant and equipment 2,181,240 2,149,646 Less: accumulated depreciation (803,825) (750,331) Net property, plant and equipment 1,377,415 1,399,315 Other Assets 89,019 89,990 Total $2,016,530 $2,074,994 Current Liabilities Accounts payable $36,973 $32,863 Deferred revenue 33,228 41,607 Accrued taxes, franchise and other fees 75,583 71,942 Accrued interest 15,421 35,349 Accrued payroll and benefits 27,460 27,229 Current portion of debt and lease obligations 34,076 31,864 Other current liabilities 90,238 117,262 Total current liabilities 312,979 358,116 Long-Term Debt and Capital Lease Obligations 9.75% Senior unsecured notes 400,000 400,000 10.125% Senior unsecured notes 400,000 400,000 Senior secured debt 402,000 408,000 Capital lease obligations 8,921 9,505 Less: current portion (34,076) (31,864) Total long-term debt and capital lease obligations 1,176,845 1,185,641 Other Long-Term Liabilities 6,346 6,206 Stockholders' Equity 520,360 525,031 Total $2,016,530 $2,074,994 (1) For complete financials and related footnotes, please refer to the Company's SEC filings. Time Warner Telecom Inc. Financing Highlights -- Senior Secured Debt (Dollars in thousands) Unaudited (1) Financing Highlights (2) As of September 30, 2003 Total Undrawn Financing Outstanding Financing Revolver $380,000 -- $380,000 Term Loan A $220,000 $203,500 -- Term Loan B $200,000 $198,500 -- $800,000 $402,000 $380,000 Key Financial Covenants of Senior Secured Debt (2) As of September 30, 2003 Actual Ratio Required Ratio Consolidated Leverage Ratio 2.7 Not to exceed 6.75 Senior Leverage Ratio (0.0) Not to exceed 3.0 Consolidated Interest Coverage Ratio 2.4 Not to be less than 1.25 (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) For full terms and conditions of all Company financing agreements please refer to SEC filings. Time Warner Telecom Inc. Selected Operating Statistics Unaudited (1) Quarter Ended 2002 Mar. 31 Jun. 30 Sept. 30 Dec. 31 Operating Metrics: Route Miles Metro 10,091 10,433 10,549 10,696 Regional 6,835 6,835 6,835 6,694 Total 16,926 17,268 17,384 17,390 Fiber Miles Metro 534,974 570,690 575,315 586,721 Regional 229,568 229,569 229,569 237,256 Total 764,542 800,259 804,884 823,977 DS-O Equivalents (000s) (2) 16,954 16,994 17,793 18,225 Buildings (3) On-net 3,173 3,303 3,403 3,541 Type II 7,742 8,187 8,385 8,700 Total 10,915 11,490 11,788 12,241 Networks Class 5 Switches 41 41 41 41 Soft Switches 12 12 12 12 Headcount Total employees 2,376 2,182 1,913 1,893 Sales Account Executives 275 253 227 225 Customers 6,658 6,809 7,104 7,309 (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) Each DS-O equivalent provides 64 kilobits per second of bandwidth. (3) Buildings "On-net" represents customer locations to which the Company's fiber network is directly connected.Type II buildings are carried on the Company's fiber network, including the Company's switch for switched services, with a leased service from the Company's distribution ring to the customer location. Time Warner Telecom Inc. Selected Operating Statistics Unaudited (1) Quarter Ended 2003 Mar. 31 Jun. 30 Sept. 30 Operating Metrics: Route Miles Metro 11,075 11,170 11,345 Regional 6,694 6,694 6,694 Total 17,769 17,864 18,039 Fiber Miles Metro 602,988 604,668 614,942 Regional 237,277 269,759 274,459 Total 840,265 874,427 889,401 DS-O Equivalents (000s) (2) 17,974 17,798 18,444 Buildings (3) On-net 3,616 3,677 3,854 Type II 9,173 10,087 10,662 Total 12,789 13,764 14,516 Networks Class 5 Switches 41 41 41 Soft Switches 12 12 12 Headcount Total employees 1,916 1,932 2,010 Sales Account Executives 259 275 289 Customers 7,598 7,994 8,420 (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) Each DS-O equivalent provides 64 kilobits per second of bandwidth. (3) Buildings "On-net" represents customer locations to which the Company's fiber network is directly connected.Type II buildings are carried on the Company's fiber network, including the Company's switch for switched services, with a leased service from the Company's distribution ring to the customer location. Time Warner Telecom Inc. Selected Operating Statistics Unaudited (1) Quarter Ended 2002 Mar. 31 Jun. 30 Sept. 30 Dec. 31 Financial Metrics: (1), (3) Revenue ($000) Dedicated transport services $94,786 $92,828 $92,556 $93,758 Switched services 36,745 37,184 36,078 36,297 Data and Internet services 20,424 21,924 23,410 24,535 Subtotal 151,955 151,936 152,044 154,590 Intercarrier Compensation 16,764 18,698 15,121 15,335 Recurring Revenue 168,719 170,634 167,165 169,925 Reciprocal compensation settlements -- 13,942 -- 5,189 Total Revenue $168,719 $184,576 $167,165 $175,114 EBITDA Reconciliation ($000) As Reported (2) $38,633 $53,078 $40,073 $57,432 Less: Reciprocal compensation settlements -- ($13,942) -- ($5,189) Without Reciprocal compensation settlements $38,633 $39,136 $40,073 $52,243 Capital Expenditures ($000) $36,870 $30,121 $25,105 $12,735 Gross Margin (2), (3) As Reported 57% 61% 58% 64% Without Reciprocal compensation settlements 57% 57% 58% 63% EBITDA Margin (2), (3) As Reported 23% 29% 24% 33% Without Reciprocal compensation settlements 23% 23% 24% 31% (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) Fourth quarter 2002 EBITDA included $7 million in one time expense savings from reduced operating costs due to settlement and resolution of carrier billing charges. (3) The Company separately presents EBITDA, gross margin and EBITDA margin and recurring revenue without reciprocal compensation settlements to help enhance comparability of these measures between periods. Total Revenue represents the revenue reported on a GAAP basis. (4) For the third quarter of 2003, the Company is separately presenting the metrics shown above net of the WorldCom settlement in order to enhance comparability of those results between periods. Time Warner Telecom Inc. Selected Operating Statistics Unaudited (1) Quarter Ended 2003 Mar. 31 Jun. 30 Sept. 30 Sept. 30 (Note 4) Financial As WorldCom Net of Metrics: (1), (3) Reported Settle- Settle- ment ment Revenue ($000) Dedicated transport services $86,512 $88,842 94,066 2,824 $91,242 Switched services 39,891 36,433 38,957 95 38,862 Data and Internet services 24,304 24,131 25,700 2,245 23,455 Subtotal 150,707 149,406 158,723 5,164 153,559 Intercarrier Compensation 14,306 13,366 9,842 -- 9,842 Recurring Revenue 165,013 162,772 168,565 5,164 163,401 Reciprocal compensation settlements -- -- 3,863 -- 3,863 Total Revenue $165,013 $162,772 $172,428 $5,164 $167,264 EBITDA Reconciliation ($000) As Reported (2) $48,666 $50,157 $74,635 $20,292 $54,343 Less: Reciprocal compensation settlements -- -- (3,863) -- (3,863) Without Reciprocal compensation settlements $48,666 $50,157 $70,772 $20,292 $50,480 Capital Expenditures ($000) $22,373 $27,885 $34,529 -- $34,529 Gross Margin (2), (3) As Reported 60% 60% 61% n/a 60% Without Reciprocal compensation settlements 60% 60% 60% n/a 59% EBITDA Margin (2), (3) As Reported 29% 31% 43% n/a 32% Without Reciprocal compensation settlements 29% 31% 42% n/a 31% (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) Fourth quarter 2002 EBITDA included $7 million in one time expense savings from reduced operating costs due to settlement and resolution of carrier billing charges. (3) The Company separately presents EBITDA, gross margin and EBITDA margin and recurring revenue without reciprocal compensation settlements to help enhance comparability of these measures between periods. Total Revenue represents the revenue reported on a GAAP basis. (4) For the third quarter of 2003, the Company is separately presenting the metrics shown above net of the WorldCom settlement in order to enhance comparability of those results between periods. DATASOURCE: Time Warner Telecom Inc. CONTACT: Investor Relations, Carole Curtin, +1-303-566-1000, , or Media Relations, Bob Meldrum, +1-303-566-1354, , both of Time Warner Telecom Inc. Web site: http://www.twtelecom.com/

Copyright