TW Telecom's CEO Discusses Q2 2011 Results - Earnings Call Transcript

TW Telecom (TWTC)

Q2 2011 Earnings Call

August 09, 2011 11:00 am ET


Mark Peters - Chief Financial Officer and Executive Vice President

Larissa Herda - Chairman, Chief Executive Officer and President

Carole Curtin - Senior Director, Investor Relations


Colby Synesael - Cowen and Company, LLC

Donna Jaegers - D.A. Davidson & Co.

Robert Dezego - SunTrust Robinson Humphrey, Inc.

Barry McCarver - Stephens Inc.

Michael Rollins - Citigroup Inc

David Coleman - RBC Capital Markets, LLC

Frank Louthan - Raymond James & Associates, Inc.

Brett Feldman - Deutsche Bank AG



Good morning, and welcome to tw telecom's Second Quarter 2011 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 tw telecom's conference call. We're pleased to have you join us today. To review our results for the quarter, please visit 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 and discussion today contains 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 the website. I also want to point out that our earnings materials and discussion contain certain non-GAAP financial measures. You can find reconciliations between non-GAAP and GAAP financial measures in our 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. With all the recent headline news and market volatility, I'm pleased to deliver some good news. This is another great quarter for tw telecom as we again delivered strong comprehensive growth across the business. Let me share with you some indicators of our ongoing momentum. As we look at the marketplace, enterprise bandwidth needs continue to grow, increasing the demand from customers' networks and creating an opportunity for high-performance private data solutions such as ours. And we've seen that demand show up in our business as our sales funnel remains strong, primarily driven by data and Internet solutions, including the new product capabilities that we've launched last year.

Turning to our bookings. They reflected a continued strong level of sales with ongoing incremental growth, including traction from our direct as well as our newer indirect sales channels, making our highest level -- marking our highest level of bookings to date.

Another sign of momentum is the fact that buildings connected to our fiber network grew impressively as we continue to add more and more new customer locations. In fact, the first half of 2011, we've added nearly 60% more than we added for the first half for 2010, making this the strongest start to the year ever for expanding our fiber reach to customer locations.

Moving to our products. Demand for our IP VPN and Internet services continued to drive new revenue for both enterprise and carrier customers, demonstrated by our 30% year-to-date growth in the strategic product revenue. As we look at our products launched in 2010, I wanted to provide one last glimpse at our attraction as we mainstream these products into our overall portfolio. With these new products driving $180 million in new contract value since their launch last year, solutions like Converged Services and fractional 10 Gig Internet continue to resonate with customers and exceed our expectations. We expect a growing future benefit from continued new sales as we've just begun to leverage these products.

So you can see we continue to experience momentum in many aspects of our business, creating a steady and consistent growth engine that is clearly showing up in our results as our total revenue for both the quarter and the first half of the year grew nearly 7% year-over-year. In addition, we're also seeing strong sales momentum as we head into the second half of this year. We're pleased with the quarter as well as the opportunities ahead of us.

Mark will take you through our financial results, and later I'll come back and talk about how we expect to continue our growth and momentum into the future. Mark?

Mark Peters

Thanks, Larissa. This was another strong quarter building on the exceptional growth we posted last quarter. I'd like to touch on a few revenue highlights and then spend some time on where we're investing for the future, including how growth investments are being reflected in both our margins and capital investing.

First, let me add a bit more color on our revenue. We're pleased with our revenue growth this quarter, which grew 6.8% year-over-year and 1.8% sequentially. Additionally, revenue growth for the first 6 months of 2011 accelerated to 6.8% year-over-year compared to 4.9% for the same period last year. In fact, this is the strongest top line performance for the first half of the year that we've had in 3 years. We've also had terrific success in keeping our churn at historically low levels and in fact decreased this quarter to 0.9%, down from 1% for both last quarter and for the same period last year.

Looking into what is creating our growth, here are a few key metrics for the quarter. Our data and Internet revenue for the quarter grew 18% year-over-year and now represents 47% of our total revenue, up from 42% a year ago. So said another way, 47% of our revenue grew at 18%, which is a really powerful stable and consistent growth engine.

VPN and Ethernet products, which are a subset of data and Internet services, are the fastest-growing and most strategic solutions. These services for the quarter represented nearly half of our data and Internet revenue and grew at 29% compared to the same period last year. Looking forward, we expect demand for Ethernet services will remain strong for quite some time, supported by the overall market demand and our ability to continue to take share. The growth in demand is highlighted by industry analyst IDC, who predicts that Ethernet revenue for the industry will generate a CAGR of over 20% for the foreseeable future. Combining this growth with the fact that we're one of the top 3 Internet providers on the country, we believe we're well positioned to be a significant beneficiary of this growing market opportunity.

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