Time Warner Telecom Cuts Losses

LITTLETON, Colo. -- Time Warner Telecom Inc. (NASDAQ: TWTC), a leading provider of managed voice and data networking solutions for business customers, today announced its fourth quarter 2003 financial results, including $169.4 million in revenue, $58.9 million in EBITDA1, and a net loss of $(21.3) million.

For the year ended December 31, 2003, the Company reported revenue of $669.6 million, EBITDA of $232.3 million, and a net loss of $(89.3) million.

"In 2003, we launched several initiatives to put us on a path for growth and we have performed well against those goals," said Larissa Herda, Time Warner Telecom’s Chairman, CEO and President. "We continued with new product innovation to meet our customers’ needs and to further our strategy of leveraging our extensive local and regional fiber networks. We successfully launched our metro Ethernet and IP based products in the first quarter, and expanded the offerings through the fourth quarter."

"Our business continues on a path toward growth and profitability as we generate success in the enterprise segment, especially with our data and Internet products. In 2003, we increased our enterprise customer count by 22% and related revenue by 21% for the year. While contraction in our carrier revenue and lower intercarrier compensation rates overshadowed this enterprise growth, we believe we are focused on the right growth engine for the future. In 2004, we will continue to focus on differentiating Time Warner Telecom in the marketplace with an innovative set of product offerings," said Herda.

Results from Operations

Revenue

Revenue for the quarter was $169.4 million, as compared to $175.1 million for the same period last year, representing a $5.7 million decrease. The primary components of the change included:

By product line, the percentage change in revenue for the fourth quarter over the same period last year was as follows:

Excluding the settlement and other revenue from WorldCom, the change in revenue for the fourth quarter over the same period last year included a 35% increase for data and Internet revenue, an 11% increase for switched services and a 5% decrease for transport services.

Settlement

In September, as part of WorldCom, Inc.’s bankruptcy proceedings, the Company resolved a number of open disputes and claims which were recognized in the third quarter. In addition, both parties agreed on a claim related to WorldCom’s rejection of certain contracts. In the fourth quarter, Time Warner Telecom monetized this claim by selling it to a third party for approximately $7 million in cash. The sale of the claim, along with resolution of certain other disputes, resulted in recognition of $9.2 million of revenue in the fourth quarter.

Disconnects

The Company continues to experience customer disconnects primarily associated with the overall economic environment and continued customer network optimization. Disconnects in the quarter resulted in the loss of $2.9 million of monthly revenue, of which $0.1 million was related to WorldCom. While disconnects increased in the last half of 2003, they are down 23% from 2002, excluding WorldCom. For the year, disconnects resulted in the loss of $13.3 million of monthly revenue, of which $3.6 million was related to WorldCom.

EBITDA and Margins

EBITDA for the quarter was $58.9 million, reflecting a 3% increase from the same period last year. Excluding settlements related to reciprocal compensation and WorldCom in both periods, and certain cost savings of $7.0 million in the fourth quarter of 2002, EBITDA increased 10% to $49.7 million.

EBITDA margin was 35% for the quarter as compared to 33% for the same period last year. Excluding settlements and the cost savings referenced above, EBITDA margin was 31% for the fourth quarter of 2003 compared to 27% for the same period last year.

Gross margin was 61% for the quarter as compared to 64% for the same period last year. Excluding settlements and the cost savings referenced above, gross margin was 59% for both periods. 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.

Net Loss

The Company reported a net loss of $(21.3) million, or $(.19) per share, for the fourth quarter of 2003, compared to a net loss of $(243.7) million or $(2.12) per share for the same period last year. The full year net loss for 2003 was $(89.3) million or $(.78) per share, as compared to $(366.0) million or $(3.19) per share for 2002. In the fourth quarter of 2002, the Company recorded an asset impairment charge of $212.7 million.

Other Operating Highlights

As of December 31, 2003, the Company reported $478.6 million in cash and marketable securities. The Company is in compliance with all of its financing agreements.

Progress on 2003 Initiatives

Expand Sales and Marketing Efforts

"We met our goals by expanding our sales force through the number of sales personnel, as well as the skills and knowledge base of our entire sales force, and our efforts are being reflected in the growth in our enterprise business," said Herda.

Increase Network Investments

"Our continued goal is to leverage our fiber network in order to maximize the return on our investment," said David Rayner, Time Warner Telecom’s Senior Vice President and Chief Financial Officer. The Company launched an initiative in 2003 to increase its market opportunities through extension of its local networks, increased fiber connections to buildings and expansion of its data services infrastructure. Capital expenditures were $44.9 million for the quarter and $129.7 million for the year, compared to $12.7 million and $104.8 million for the same respective periods in 2002. Of the $129.7 million capital expenditures for the year, approximately two thirds were used to expand existing markets and add new buildings to the network.

“We continue to experience positive momentum in expanding our network with one of the highest quarters in our history for net additions to buildings on our fiber network,” said Rayner. The Company closes 2003 with nearly 4,200 buildings served directly by the Company’s fiber network, a 17% increase from 2002. This reflects the more than 600 net building additions connected by fiber in 2003, with approximately half occurring in the fourth quarter. Additionally, the Company increased its metro route miles by 8% for 2003 over the prior year. In 2004, the Company expects capital expenditures to be $150 to $175 million, which includes costs for continued expansion of its network.

Launch New Products

The Company is expanding its networks to reach more customer buildings and to continually add new products and services that ride over its networks. The Company launched its metro Ethernet services in March of 2003 and expanded the product suite in the fourth quarter with the introduction of “Extended Native LAN,” which allows customers to connect distant locations throughout Time Warner Telecom’s national footprint.

“Our metro Ethernet products use technology that most of our customers already have in place, and will leverage our existing network infrastructure and national IP backbone,” said Herda. “Metro Ethernet creates great cost efficiencies and scalability for our customers.”

Outlook for 2004

“Our goals for 2004 are an extension of the work we started in 2003,” said Herda. “This includes expanding our sales opportunities through an ongoing focus on enterprise customers, by increasing our network reach and providing product innovation to serve our customers’ needs. While we believe disconnects and pricing pressures will remain in the business, we are excited by the growth prospects of our data and Internet services to our enterprise customers. We are focused on measured, rational, long-term growth,” concluded Herda.

Time Warner Telecom Inc.