Time Warner Telecom Tops $1 Billion in 2007

By Khali Henderson

In its first full year of operations following its acquisition of Xspedius, Time Warner Telecom Inc. (NASDAQ: TWTC) reported $1.084 billion in revenue for the year ended Dec. 31, solidifying its position as a super-tier 2 carrier behind two other post-merger CLECs, PAETEC Communications and XO Communications Inc.

The consolidated company (Time Warner Telecom/Xspedius) grew total revenue by $271.3 million or 33 percent for the year. It also grew enterprise revenue to $747.7 million, a 49 percent increase. Carrier revenue grew 7 percent to $291.4 million. The company also reported modified EBITDA of $339 million and a net loss of $40.3 million for the year. Fourth quarter 2007 results were $279.5 million in revenue, $93.3 million in modified EBITDA and a net loss of $5.3 million.

Time Warner Telecom acquired Xspedius in fall 2006. That year the company freed itself from controlling owner, Advance/Newhouse, and refinanced its debt.

These events set the stage for 2007 to be a pivotal year, not only to successfully complete our integration, but also to implement a much stronger operational foundation to support future growth, said Time Warner Telecoms Chairman, CEO and President Larissa Herda in Tuesdays earnings call. The significance and magnitude of this achievement cannot be over-emphasized. The fact that within 12 months of a major acquisition the combined companies operations have been converted into one consolidated foundation of networks, systems, processes and organization is rarely, if ever, achieved in this business. Even more notable is that TWT has been able to deliver solid financial and operating results during this very demanding integration period.

Herda said that despite all the resources focused on integration and accompanying low efficiency, the combined company grew revenue per employee, testifying to an ability to scale the business.

We have a wealth of opportunity with the markets we acquired, she said. We are leveraging a multistep approach in our most recently acquired markets in three key areas.

The first step was integrating acquired markets that overlap with core markets.

The second was investing in non-overlap markets, adding strategic personnel, including a general manager, sales people, technicians and engineering support. Additionally, the company added its strongest-selling advanced products, including IP-based services, such as Ethernet. None of these markets previously had the skills or products to produce optimal results and that is why we see them as a key opportunity for growth, she said, noting progress in the first 10 markets where it has deployed this strategy. One such market, Nashville, Tenn., added 10 new on-net buildings in the last half of 2007 along with 50 new and existing customers, she added as an example.

Finally, she said, Time Warner Telecom is leveraging the newly acquired markets to serve multicity customers. Weve already seen favorable traction from this extended reach and we expect more in the future, she said, noting proposals to muilticity enterprises in the pipeline have grown more than 40 percent in the past six months and many include the new markets.

Other initiatives also contributed to the integration. In 2007 the company turned over half of its sales people and sales engineers, enabling it to upgrade its talent in advanced data services and help fuel its enterprise sales initiatives. While these employees will take 12 months to 18 months to reach full productivity, Herda said the company saw an uptick in performance from new hires in the latter half of 2007.

The company also added customer relationship specialists in its acquired markets to cultivate sales to existing customers, freeing up sales people to target new accounts. Using this same technique with its earlier GST acquisition, the company increased revenue retention from 96 percent to more than 99 percent.

She said 2007 has laid the groundwork for the company to consider future opportunities more efficiently, including market expansion, product capabilities or some other type of transaction. Future acquisitions, she noted, are more likely to be for added capabilities as the company is contented with its presence in the 75 markets it serves today.

In 2008, the company, which has the use of its name through June, expects to spend up to $7 million on rebranding.

Time Warner Telecom Inc. www.twtelecom.net

PAETEC Communications www.paetec.com

XO Communications Inc. www.xo.com