- Achieved 34.0% M-EBITDA margin -

- Delivered $29 million levered free cash flow year to date -

- Grew Modified EBITDA 19% year over year -

- Delivered positive net income -

LITTLETON, Colo., Aug. 11 /PRNewswire-FirstCall/ -- tw telecom inc. (Nasdaq: TWTC), a leading provider of managed voice and data networking solutions for business customers, today announced its second quarter 2008 financial results, including $290.2 million of revenue, $98.8 million in Modified EBITDA(1) ('M-EBITDA') and net income of $.7 million.

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'We delivered strong results this quarter, which included achieving positive net income and continued levered free cash flow creation,' said Larissa Herda, tw telecom's Chairman, CEO and President. 'We achieved strong performance, which was particularly impressive when considering the prevailing economic headwinds, while we continued to invest in significant ongoing customer opportunities. Our results demonstrate the strength of our product portfolio, which leverages our metro capabilities across a diverse nationwide fiber footprint. We continue to focus on mission critical needs of enterprise customers and believe tw telecom is well positioned for the long term with the strength of our fiber based network, innovative cost effective solutions, the ability to win market share and a strong balance sheet.'

    Highlights for the Quarter
    For the quarter ending June 30, 2008, the Company --
    -- Grew total revenue 3% sequentially and 8% year over year
    -- Grew enterprise revenue 24 consecutive quarters including 4%
       sequentially and 14% year over year
    -- Grew enterprise revenue to 72% of total revenue from 68% in the same
       period last year
    -- Grew data and Internet revenue 5% sequentially and 24% year over year
    -- Grew M-EBITDA 6% sequentially and 19% year over year
    -- Achieved a 34.0% M-EBITDA margin, a 100 basis point improvement
       sequentially
    -- Delivered $13.0 million of levered free cash flow(4), representing 4%
       of revenue, which included $5.0 million for integration and branding
       expenditures
    -- Completed brand launch of tw telecom on July 1

Year over Year Results -- Second Quarter 2008 compared to Second Quarter 2007

Revenue

Revenue for the quarter was $290.2 million representing a year over year increase of $22.2 million, or 8%. Key changes in revenue included:

    -- $26.2 million increase in revenue from enterprise customers, or 14%
       year over year, representing 24 consecutive quarters of enterprise
       growth
    -- $1.8 million decrease in revenue from carriers.  Growth in new sales
       was outpaced primarily by disconnects, including $2.4 million from one
       wireless customer and repricing of renewed customer contracts
    -- $2.2 million decrease in intercarrier compensation related to an
       increase in disputes, rate reductions and discontinuation of certain
       acquired products

By product line, the percentage change in revenue year over year was as follows:

    -- 24% increase for data and Internet services(5), primarily due to
       continued success with Ethernet and IP-based product sales
    -- 5% increase for voice services(6), primarily due to the strength of
       bundled and other local product sales
    -- 1% increase for network services(7), primarily due to new customer
       sales and a reduction in disputes, partially offset by disconnects

M-EBITDA and Margins

M-EBITDA grew to $98.8 million for the quarter from $83.0 million for the same period last year, a 19% increase, or $15.8 million. The increase in M-EBITDA primarily reflects solid revenue growth and integration cost synergies. Included in M-EBITDA are integration and branding expenses. Effective in 2008, the Company continues to separately track integration related capital expenditures but no longer is tracking any remaining operating-related integration expenses. Branding expenses totaled $2.2 million for the quarter and integration and branding expenses totaled $2.3 million for the same period last year.

Operating costs for the quarter increased primarily reflecting increased network access costs associated with additional sales partially offset by integration cost synergies, higher employee costs, and additional costs to launch new product capabilities in 16 acquired markets. Operating costs as a percent of revenue declined to 42% for the current period compared to 43% for the same period last year, reflecting synergies and scaling of the business.

Selling, general and administrative costs ('SG&A') were flat year over year, including increased branding costs and higher employee costs, offset by lower integration costs and bad debt expense. Bad debt expense was $1.0 million for the quarter and $1.4 million for the same period last year, representing less than 1% of quarterly revenue for both periods. SG&A costs as a percent of revenue declined to 26% for the quarter as compared to 28% for the same period last year reflecting synergies and scaling of the business.

Modified gross margin(8) was 58.5% for the current quarter compared to 57.4%, from the same period last year, a 110 basis point improvement. M-EBITDA margin for the quarter was 34.0% as compared to 31.0% from the same period last year, a 300 basis point improvement. The improvement in margins between periods primarily reflects synergies and scaling of the business.

The Company utilizes a fully burdened modified gross margin, including network costs, and personnel costs for customer care, provisioning, network maintenance, technical field and network operations, excluding non-cash stock-based compensation expense.

Net Income and Loss

For the quarter the Company reported net income of $.7 million, or $0.00 per share compared to a net loss of $9.6 million, a loss of $0.07 per share for the same period last year. The achievement of positive net income reflected strong M-EBITDA growth, partially offset by an increase in depreciation expense related to new capital assets placed in service, and a $4.1 million impairment loss on certain long-term investments.

Sequential Results -- Second Quarter 2008 compared to First Quarter 2008

Revenue

Revenue for the quarter was $290.2 million, as compared to $282.6 million for the first quarter, an increase of $7.6 million, or 3%. Key changes in revenue included:

    -- $7.3 million increase in enterprise revenue, or 4% sequentially, from
       enterprise customers reflecting strong growth including increased
       usage revenue, offset by $1.0 million net decrease in revenue from
       acquired customers due to discontinued products and churn from very
       small customers
    -- $.8 million increase in revenue from carrier customers resulting from
       new sales and a decrease in disputes, partially offset by repricing of
       renewed customer contracts and $.9 million of disconnects from one
       wireless customer
    -- $.5 million decrease in intercarrier compensation related primarily to
       an increase in disputes partially offset by increased usage

By product line, the percentage change in revenue sequentially was as follows:

    -- 5% increase for data and Internet services, primarily due to continued
       success with Ethernet and IP based product sales
    -- 2% increase for voice services, primarily due to the strength of
       bundled and other local product sales and usage
    -- 2% increase in network services primarily due to ongoing customer sales
       and lower disputes partially offset by repricing of renewed customer
       contracts

M-EBITDA and Margins

M-EBITDA was $98.8 million for the quarter, as compared to $93.4 million for the prior quarter, a 6% increase. Included in M-EBITDA were branding expenses which totaled $2.2 million for the quarter and $.4 million for the prior quarter.

Operating costs were relatively unchanged between quarters and as a percent of revenue were 42% for the current quarter compared to 43% for the prior quarter. SG&A costs were relatively unchanged, representing 26% of revenue for both quarters.

Modified gross margin was 58.5% compared to 57.6% for the prior quarter. M-EBITDA margin was 34.0% for the quarter, as compared to 33.0% in the prior quarter, a 100 basis point expansion. Excluding expenses associated with the Company's brand launch, M-EBITDA margin was 34.8% for the quarter compared to 33.2% for the prior quarter. The change in M-EBITDA and margins primarily reflects revenue growth and integration cost synergies.

Net Income and Loss

For the quarter the Company reported net income of $.7 million, or $0.00 per share compared to a net loss of $.9 million, a loss of $0.01 per share for the prior quarter. The achievement of positive net income, reflected strong M-EBITDA growth, partially offset by an increase in depreciation expense related to new capital assets placed in service, and a $4.1 million impairment loss on certain long-term investments.

Margin and Other

'Our results were strong for the quarter,' said Mark Peters, tw telecom's Executive Vice President and Chief Financial Officer. 'We experienced strong margin expansion by executing on both revenue opportunities and integration cost savings. Our performance for the quarter yielded us a 34.0% M-EBITDA margin, which is already within our targeted post-integration guidance range of mid-30%. We are pleased with our performance and see opportunities to further expand our M-EBITDA margin while balancing this goal with our objectives of revenue and cash flow growth.'

'Our diverse nationwide local market presence, comprehensive product portfolio and strong customer base helped generate another strong quarter,' said Peters. 'Although we have seen some select pockets of pressure from the macro economic environment on a local market basis, our overall market strength largely offset these impacts, and our sales funnel was strong for the quarter. Customer churn was 1.5% for the current quarter compared to 1.3% for the same period last year and was 1.4% for the prior quarter. The vast majority of the higher customer turnover was from our very small acquired(2) customers that are below our service profile and we expect this churn may continue. We believe these customers were likely also impacted by the soft economy.' Revenue churn remained near historical levels at 1.2% for the current quarter as compared to 1.1% for the same period last year, and 1.1% for the prior quarter.

The Company continues to expect normal business fluctuations to impact sequential trends in revenue, margins and cash flow. This includes the timing of sales and installations, seasonality of sales and usage, disputes, repricing of contract renewals and ongoing revenue churn, which includes the impact from carrier customers related to their consolidation activities and network grooming.

The Company rebranded itself as tw telecom on July 1, 2008.