Time Warner Telecom Reports Solid Third Quarter 2005 Results

Time Warner Telecom Inc. (Nasdaq: TWTC), a leading provider of managed voice and data networking solutions for business customers, today announced its third quarter 2005 financial results, including $177.8 million in revenue, $62.4 million in Modified EBITDA(1) ("M-EBITDA") and a net loss of $23.4 million. "We delivered our fourth consecutive quarter of revenue growth with robust margins," said Larissa Herda, Time Warner Telecom's Chairman, CEO and President. "We demonstrated steady growth throughout our business, with continued impressive trends in growing our enterprise services and delivering data and Internet solutions. Our product set continues to evolve as we expand and target new data applications to meet customer demand." Highlights for the Quarter For the quarter ending September 30, 2005, the Company - * Grew total revenue $17.2 million year over year, an increase of 11%. Grew total revenue $3.0 million sequentially, an increase of 2% for the quarter * Grew enterprise revenue $15.8 million year over year, an increase of 19%. Grew enterprise revenue by $3.5 million sequentially, an increase of 4% for the quarter * Grew data and Internet revenue $9.8 million year over year, an increase of 31%. Grew data and Internet revenue by $1.5 million sequentially, an increase of 4% for the quarter * Carrier revenue grew $1.1 million year over year, representing 2% growth, and decreased $.9 million from the second quarter, a reduction of 1% * Produced M-EBITDA of $62.4 million, 62% gross margin and 35% M-EBITDA margin * Grew buildings served directly by the Company's fiber network by 19% to 5,752 and increased customers by 15%, year over year, reflecting continued strong enterprise growth * Received Frost & Sullivan Product Line Strategy Leadership Award for Ethernet Technology Sequential Results -- Third Quarter 2005 compared to Second Quarter 2005 Revenue Revenue for the quarter was $177.8 million, as compared to $174.8 million for the second quarter of 2005, an increase of $3.0 million sequentially. The primary components of the change included: * $3.5 million increase in revenue from enterprise customers across all lines of business * $.9 million decrease in carrier revenue, primarily due to fluctuations in dispute resolutions and contract settlements By product line, the percentage change in revenue for the third quarter over the second quarter was as follows: * 4% increase for data and Internet services due to success with Ethernet and IP-based product sales * 3% increase in switched services primarily due to growth in bundled voice products * Dedicated transport services remained relatively flat Disconnects remained the same sequentially, reflecting 1.1% monthly revenue churn for the second and third quarters of 2005. This compares to 1.7% monthly revenue churn for the third quarter of 2004, which reflects a significant decrease. The Company continues to experience carrier disconnects, including disconnects from a wireless carrier related to their merger activities and network grooming. M-EBITDA and Margins M-EBITDA grew $4.3 million to $62.4 million for the third quarter of 2005, a 7% increase sequentially. The increase primarily reflects strong revenue growth and a favorable improvement in selling, general and administrative costs in relation to total revenue. M-EBITDA margin was 35% for the quarter as compared to 33% reported in the second quarter of 2005. Gross margin remained strong at 62% for the second and third quarters of 2005. The Company utilizes a fully burdened gross margin, including network costs, and personnel costs for customer care, provisioning, network maintenance, technical field and network operations. Net Loss The Company's net loss narrowed to $23.4 million, a loss of $.20 per share for the quarter, compared to a net loss of $27.2 million, a loss of $.23 per share for the second quarter of 2005. The decrease in the net loss primarily reflects the growth in M-EBITDA. Year over Year Results -- Third Quarter 2005 compared to Third Quarter 2004 Revenue Quarterly revenue was $177.8 million for the current quarter as compared to $160.6 million for the third quarter of 2004, an increase of $17.2 million. The primary components of the change included: * $15.8 million increase in revenue from enterprise customers across all lines of business * $1.1 million increase from carriers due primarily to increased sales of dedicated transport services By product line, the percentage change in revenue year over year was as follows: * 31% increase for data and Internet services due to success with Ethernet and IP-based product sales * 7% increase for switched services, primarily due to growth in bundled voice products * 5% increase for dedicated transport services, primarily due to increased enterprise and carrier revenue M-EBITDA and Margins M-EBITDA grew $10.8 million to $62.4 million for the third quarter of 2005, reflecting a 21% increase over the same period last year. The increase reflects higher sales, and a favorable improvement in operating and selling, general and administrative costs in relation to revenue. M-EBITDA margin was 35% for the quarter as compared to 32% for the same quarter last year. Gross margin was 62% for the current quarter. This compared to 59% for the same period last year, reflecting strong year over year growth in revenue. Net Loss The Company's net loss narrowed to $23.4 million, a loss of $.20 per share, for the current quarter, compared to a net loss of $30.9 million, a loss of $.27 per share for the third quarter of 2004. The decrease in the net loss primarily reflects the growth in M-EBITDA offset by an increase in depreciation and amortization and a favorable reduction in net interest expense. Other Operating Highlights Capital Expenditures Capital expenditures were $39.7 million for the third quarter. This compares to $42.5 million for the second quarter of 2005 and $46.9 million for the third quarter of 2004. Capital expenditures for the nine months ended September 30, 2005, were $121 million compared to $122 million for the same period last year. For the first nine months of the year, the Company increased its investment in success based capital projects to 85% of total capital expenditures, as compared to 70% for the same period last year. This increase reflects ongoing enterprise opportunities as well as new product costs in 2004 that did not recur in 2005. For 2005, the Company expects capital expenditures to be approximately $160 to $170 million, which includes the cost of continued expansion of its network, products and systems. Other On November 3, the Company completed a $200 million bank term loan priced at Eurodollar plus 2.5%. In addition, on November 4, the Company called its remaining $200 million of 9 3/4% senior notes due 2008 at 101.625% of par, which it will fund with cash on hand. The redemption is expected to occur in December 2005. Subsequent to the redemption, the Company's nearest debt maturity is not until 2010. "We remained focused on revenue growth, capital efficiency and return on investment," said Mark Peters, Time Warner Telecom's Senior Vice President and Chief Financial Officer. "This focus has resulted in 15 consecutive quarters of un-levered free cash flow (2), and continued progress toward levered free cash flow (3) , as well as 31% data and Internet revenue growth and 19% enterprise revenue growth, year over year." For the third quarter of 2005 the Company produced $22.7 million of un-levered free cash flow and ($3.5) million of levered free cash flow. Summary "Our business continues to strengthen and grow," said Herda. "We continue to see robust enterprise opportunities in the marketplace. We are providing customers the ability to replace legacy networks with new data networks that provide great scalability, convergence and disaster recovery options. Time Warner Telecom has the innovative solutions, national market reach, and data networking expertise in enterprise solutions to drive ongoing customer opportunities," concluded Herda. Time Warner Telecom Inc. plans to conduct a webcast conference call to discuss its earnings results on November 8 at 9:00 a.m. MST (11:00 a.m. EST). To access the webcast and the financial and statistical information to be discussed in the webcast, visit http://www.twtelecom.com under "Investor Relations." (1) The Company uses a modified definition of EBITDA to eliminate certain non-cash and non-operating income or charges to earnings to enhance the comparability of its financial performance from period to period. Modified EBITDA (or "M-EBITDA) is defined as net income or loss before depreciation, amortization, accretion, asset impairment charge, interest expense, interest income, investment gains and losses, income tax expense and cumulative effect of change in accounting principle. (See a discussion below of Modified EBITDA under "Financial Measures".) (2) The Company defines un-levered free cash flow as Modified EBITDA less capital expenditures. Unlevered cash flow is reconciled to M-EBITDA in the supplemental information posted on the Company's website as noted above. (3) The Company defines levered free cash flow as Modified EBITDA less capital expenditure and net interest expense. Levered free cash flow is reconciled to M-EBITDA in the supplemental information posted on the Company's website as noted above. Financial Measures The Company provides financial measures using generally accepted accounting principles ("GAAP") as well as adjustments to GAAP measures to describe its business trends, including Modified EBITDA. Management believes that its definition of Modified EBITDA (see above) 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 income or charges to earnings. Modified 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 uses Modified EBITDA internally to assess on-going operations and it is the basis for various financial covenants contained in the Company's debt agreements. Modified EBITDA is reconciled to Net Loss, the most comparable GAAP measure to Modified EBITDA, within the Consolidated Operating Highlights. In addition, management uses un-levered free cash flow, which measures the ability of M-EBITDA to cover capital expenditures. Due to the significant positive impact in 2003 and 2004 of the Company's settlement with WorldCom, Inc. (now MCI Inc.), the Company has presented its selected operating statistics both as reported and net of the settlements as well as a reconciliation between the two, in order to assist in understanding the impact of the settlement and the Company's performance during the quarter net of the impact of that event. Forward Looking Statements The statements in this press release concerning the outlook for 2005 and beyond, including expansion plans, revenue trends, growth prospects, 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. Important factors that could cause actual results to differ materially from those in the forward looking statements include the risks summarized in the Company's filings with the SEC, especially the section entitled "Risk Factors" in its 2004 Annual Report on Form 10-K and the risks set forth in the material posted at http://www.twtelecom.com under "Investor Relations" for the Company's third quarter 2005 webcast. 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., provides managed network services, specializing in Ethernet and transport data networking, Internet access, local and long distance voice, VoIP and security, to enterprise organizations and communications services companies throughout the U.S. As a leading provider of integrated and converged network solutions, Time Warner Telecom delivers customers overall economic value, quality, service, and improved business productivity. As of September 30th, 2005, Time Warner Telecom had more than 20,000 route miles of its own local and regional fiber networks, a national IP backbone with 10 Gbps capacity, and over 5,700 buildings connected directly to its fiber networks. Please visit http://www.twtelecom.com for more information. Time Warner Telecom Inc. Consolidated Operations Highlights (Dollars in thousands) Unaudited (1) Three Months Ended 9/30/05 6/30/05 Growth % Revenu edicated transport services $85,498 $85,165 0%Switched services 42,134 40,957 3%Data and Internet services 41,467 39,919 4% 169,099 166,041 2%Intercarrier compensation (2) 8,758 8,736 0% Total Revenue 177,857 174,777 2% Expense perating costs68,395 66,717 3% Gross Margin109,462 108,060 1%Selling, general and administrative47,071 49,913 -6% Modified EBITDA 62,391 58,147 7%Depreciation, amortization and accretion59,595 58,672 Operating Income (Loss) 2,796 (525)Interest expense (29,764)(29,453)Interest income 3,527 2,855 Net loss before income taxes (23,441)(27,123)Income tax expense -- 75 Net Loss ($23,441) ($27,198) Capital Expenditures $39,670 $42,468 -7% Gross Margin 62%62% Modified EBITDA Margin 35%33% (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) Intercarrier Compensation includes switched access and reciprocal compensation. Time Warner Telecom Inc. Consolidated Operations Highlights (Dollars in thousands) Unaudited (1) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 Growth% 20052004 Growth% Revenue Dedicated transpor ervices $85,498 $81,175 5% $256,311 $248,887 3% Switched services 42,134 39,418 7% 123,541 116,852 6% Data and Interne ervices 41,467 31,708 31% 118,082 90,040 31% 169,099 152,301 11% 497,934 455,779 9% Intercarrie ompensation (2) 8,7588,287 6% 26,274 29,284 -10%$177,857 160,588 11% 524,208 485,063 8% Expenses Operating costs 68,395 65,550 4% 201,919 194,088 4% Gross Margin 109,462 95,038 15% 322,289 290,975 11% Selling, general an dministrative 47,071 43,432 8% 141,763 132,125 7% Modified EBITDA62,391 51,606 21% 180,526 158,850 14% Depreciation,amortization an ccretion 59,595 54,754 176,273 166,157 Operating Income (Loss) 2,796 (3,148)4,253 (7,307) Interest expense (29,764) (29,030) (99,014) (93,663) Interest income 3,5271,350 9,1033,893 Investment gains -- -- -- 710 Net loss before income taxes (23,441) (30,828) (85,658) (96,367) Income tax expense -- 75 150 525 Net Loss($23,441) ($30,903) ($85,808) ($96,892) Capital Expenditures $39,670 $46,880 -15% $121,468 $122,451 -1% Gross Margin 62% 59% 61% 60% Modified EBITDA Margin 35% 32% 34% 33% (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) Intercarrier Compensation includes switched access and reciprocal compensation. Time Warner Telecom Inc. Highlights of Results Per Share Unaudited (1) Three Months Ended 9/30/056/30/059/30/04 Weighted Average Shares Outstanding (thousands) Basic and Diluted 116,330116,131115,679 Basic and Diluted Loss per Common Shar s Reported ($0.20)($0.23)($0.27) As of 9/30/056/30/059/30/04 Common shares (thousands) Actual Shares Outstanding 116,626116,167115,785 Options (thousands) Options Outstanding18,749 19,269 19,619 Options Exercisable13,360 13,277 12,236 Options Exercisable and In-the-Money 4,067 2,476 1,856 (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 30,20052005 ASSETS Cash and equivalents, and short-term investments $377,059 $382,384 Receivables51,598 64,652 Less: allowance (10,531) (10,987) Net receivables 41,067 53,665 Other current assets 25,430 26,668 Property, plant and equipment 2,447,5732,412,340 Less: accumulated depreciation (1,199,789) (1,144,053) Net property, plant and equipment 1,247,7841,268,287 Other Assets 100,447 99,862 Total $1,791,787 $1,830,866 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $28,693 $33,309 Deferred revenue 21,971 20,261 Accrued taxes, franchise and other fees 63,975 64,975 Accrued interest 18,994 42,929 Accrued payroll and benefits25,231 29,192 Current portion of debt and lease obligations 1,943 2,385 Other current liabilities 73,495 66,134 Total current liabilities 234,302 259,185 Long-Term Debt and Capital Leas bligations Floating rate Senior secured notes, due 2/15/2011 240,000 240,000 9.25% Senior unsecured notes, due 2/15/2014 400,466 400,479 9.75% Senior unsecured notes, due 7/15/2008 200,000 200,000 10.125% Senior unsecured notes, due 2/1/2011 400,000 400,000 Capital lease obligations 10,374 11,258 Less: current portion (1,943) (2,385) Total long-term debt and capital lease obligations 1,248,8971,249,352 Long-term Deferred Revenue16,433 8,260 Other Long-Term Liabilities8,027 7,849 Stockholders' Equity284,128 306,220 Total $1,791,787 $1,830,866 (1) For complete financials and related footnotes, please refer to the Company's SEC filings. Time Warner Telecom Inc. Selected Operating Statistics Unaudited (1) Quarter Ended2004 Mar. 31 Jun.30 Sept. 30 Dec. 31 Operating Metrics: Route Miles Metro 11,998 12,247 12,453 12,375 Regional 6,694 6,694 6,694 6,794 Total18,692 18,941 19,147 19,169 Fiber Miles Metro 626,873 637,081 646,849 642,298 Regional273,963 273,963 273,963 275,163 Total 900,836 911,044 920,812 917,461 Buildings (2) On-net 4,350 4,576 4,839 5,074 Type II 12,502 13,114 13,895 14,139 Total16,852 17,690 18,734 19,213 Networks Class 5 Switches 41 41 40 39 Soft Switches12 12 12 13 Headcount Total Headcount1,982 1,971 1,990 1,986 Sales Associates (3) 305 310 323 314 Customers 9,209 9,632 9,982 10,396 Quarter Ended 2005 Mar. 31Jun. 30 Sept. 30 Operating Metrics: Route Miles Metro 12,835 13,053 13,427 Regional 7,015 7,015 7,015 Total 19,850 20,068 20,442 Fiber Miles Metro653,506662,156683,795 Regional 275,186275,186275,186 Total928,692937,342958,981 Buildings (2) On-net 5,281 5,501 5,752 Type II 14,576 15,057 15,581 Total 19,857 20,558 21,333 Networks Class 5 Switches 393938 Soft Switches 202632 Headcount Total Headcount 2,019 2,029 2,022 Sales Associates (3) 317 312 312 Customers 10,740 11,088 11,439 (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) 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. (3) Includes Sales Account Executives and Customer Care Specialists. Time Warner Telecom Inc. Selected Operating Statistics Unaudited (1) 2004Mar. 31 (Note 2) Financial Metrics: (1), (2) As MCI Net of Reported Settlement Settlement Revenue ($000)Dedicated transport services $84,160 $1,661$82,499Switched services 38,113 (25)38,138Data and Internet services 28,424 675 27,749 Subtotal 150,6972,311148,386Intercarrier Compensation10,952 -- 10,952 Total Revenue $161,649 $2,311 $159,338 Operating Costs64,317 -- 64,317Selling, general and administrative45,312 (400)45,712 Modified EBITDA (2) $52,020 $2,711$49,309 Capital Expenditures ($000)$31,548 --$31,548 Gross Margin (3) 60% n/a 60% Modified EBITDA Margin 32% n/a 31% 2004 Jun. 30Sept. 30 Dec. 31 Financial Metrics: (1), (2) AsAsAs Reported Reported Reported Revenue ($000)Dedicated transport services $83,552$81,175$83,690Switched services 39,321 39,418 41,053Data and Internet services 29,908 31,708 34,765 Subtotal 152,781152,301159,508Intercarrier Compensation10,045 8,287 8,516 Total Revenue $162,826 $160,588 $168,024 Operating Costs64,221 65,550 67,197Selling, general and administrative43,381 43,432 46,192 Modified EBITDA (2) $55,224$51,606$54,635 Capital Expenditures ($000)$44,023$46,880$49,382 Gross Margin (3) 61% 59% 60% Modified EBITDA Margin 34% 32% 33% 2005 Mar. 31Jun. 30 Sept. 30 Financial Metrics: (1), (2) AsAsAs Reported Reported Reported Revenue ($000)Dedicated transport services $85,648$85,165$85,498Switched services 40,450 40,957 42,134Data and Internet services 36,696 39,919 41,467 Subtotal 162,794166,041169,099Intercarrier Compensation 8,780 8,736 8,758 Total Revenue $171,574 $174,777 $177,857 Operating Costs66,807 66,717 68,395Selling, general and administrative44,779 49,913 47,071 Modified EBITDA (2) $59,988$58,147$62,391 Capital Expenditures ($000)$39,330$42,468$39,670 Gross Margin (3) 61% 62% 62% Modified EBITDA Margin 35% 33% 35% (1) For complete financials and related footnotes, please refer to the Company's SEC filings. (2) The Company separately presents Modified EBITDA, gross margin and Modified EBITDA margin without MCI settlements to help enhance comparability of these measures between periods. (3) The Company utilizes a fully burdened gross margin, including network costs, and personnel costs for customer care, provisioning, network maintenance, technical field and network operations.

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