TW Telecom Management Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 7.13 | About: tw telecom (TWTC)

TW Telecom (NASDAQ:TWTC)

Q3 2013 Earnings Call

November 07, 2013 11:00 am ET

Executives

Carole Curtin

Larissa L. Herda - Chairman, Chief Executive Officer and President

Mark A. Peters - Chief Financial Officer and Executive Vice President

Michael A. Rouleau - Senior Vice President of Business Development & Regulatory

Analysts

Brett Feldman - Deutsche Bank AG, Research Division

Simon Flannery - Morgan Stanley, Research Division

Michael J. Funk - BofA Merrill Lynch, Research Division

Barry McCarver - Stephens Inc., Research Division

Colby Synesael - Cowen and Company, LLC, Research Division

Michael Rollins - Citigroup Inc, Research Division

Donna Jaegers - D.A. Davidson & Co., Research Division

David Michael Dixon - FBR Capital Markets & Co., Research Division

Operator

Good morning, and welcome to TW Telecom's Third Quarter 2013 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, ma'am.

Carole Curtin

Good morning, and welcome to our conference call. We're pleased to have you join us today. To review our results for the quarter, please visit our website at www.twtelecom.com, where you can find our press release, supplemental quarterly information and SEC filings.

Before we start, I'd also like to draw your attention to our Safe Harbor statement included in our supplemental material, which you can find on our website. Information on our quarterly earnings materials and our discussion today contain 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 our website. I'd also like to point out that our earnings materials and discussion contain certain non-GAAP financial measures. You can find reconciliations between the non-GAAP and GAAP financial measures in the materials on our website. And I'm pleased to introduce TW Telecom's Chairman, CEO and President, Larissa Herda.

Larissa L. Herda

Thanks, Carole. Hi, everyone, and thank you for joining us today. We achieved another successful quarter as we delivered solid top line performance, including revenue growth of 6.6% year-over-year and 1% sequentially, working our 36th consecutive quarter of sequential growth. We also delivered ongoing healthy margins and positive cash flow while absorbing the cost of our targeted growth initiatives. On the operational front, we achieved solid progress with our growth plans. For our product initiatives, this quarter, we introduced additional Ethernet capabilities that build on our industry-leading portfolio and growth engine. We also achieved recognition by Light Reading, who awarded us the Most Innovative Ethernet Optical Solution of The Year award for our E-Access or one-to-many solution. And we obtained the Metro Ethernet Forum's first ever E-Access carrier Ethernet 2.0 certification. All of which reinforces our ongoing Ethernet leadership position and market differentiation as we continue to drive our data and Internet growth engine. As it relates to our sales reach initiative, we exceeded our full year goal of growing sales executives by 10%, and we expect to further increase the size of our team this year given the opportunities we see in the market.

Turning to our financial accomplishments. We continued our effective balance sheet management. We raised $800 million of debt during the quarter, we efficiently settled our convertible debt obligation and we also retired more than $400 million of our 8% bonds, achieving a very cost-effective debt structure. Additionally, we returned value to our shareholders as we completed our $300 million share repurchase plan, and amended our revolver agreement to permit our new $500 million share repurchase plan of which we've executed $50 million or 10% of the plan through October. To recap the quarter, we've demonstrated strong financial and operational execution. Clearly, our team is very focused on revenue growth as we're executing every month on enhancing, expanding and selling into our local market, rapidly delivering new services and capabilities to customers every quarter, automating capabilities to benefit both our customers and our own operations, innovating some of the most amazing technical capabilities in the industry, and engaging with leading cloud and data center players to create impressive new product and service opportunities. These activities are designed to enhance and grow our Ethernet and core services to drive accelerated revenue growth as we continue to advance our leading-edge innovation for capabilities such as our Constellation Platform, which reflects our longer-term vision. We believe all of our efforts are setting us up for continued enterprise leadership and ongoing industry-leading results. Clearly, we're not waiting on the economy and we've not hesitated because of the politicians. Instead, we are full speed ahead. As we see opportunities, we are pursuing them. Building on our growth strategy, yesterday, we announced the significant new market expansion. This initiative enabled us to rapidly grow our market density in more than 1/3 of our markets, as well as enter 5 new markets to drive additional revenue growth and greater cash flow. We've structured this market expansion for rapid execution and success as we leverage our prudent investment model, our national network and Ethernet leadership, and the fact that we have this amazing scalable platform to rapidly roll out products across our expanding national footprint. We've done this before, and we're confident that this is a great growth opportunity. We believe our strong financial execution, continued growth initiatives and operational excellence, as well as our recently announced market expansion, all position us well for the future. Now I'll hand the call over to Mark for more details on our results. Mark.

Mark A. Peters

Thanks, Larissa, and hello, everyone. I am going to review our quarterly financial results, share some further progress on our growth initiatives, walk you through our recent balance sheet activities and provide some more color on our recently announced market expansion. Let me start with our financial results for the quarter. Turning to our revenue highlights, we posted solid revenue growth and delivered our 36th consecutive quarter of top line growth, again demonstrating our ongoing consistent performance. Total revenue grew 6.6% year-over-year and 1% sequentially reflecting our ongoing ability to grow our business and take share.

Turning to our revenue growth engine. Our data and Internet revenue now represents 55% of our total revenue, and for the quarter, grew 3% sequentially and 14.1% year-over-year. Before we move to Modified EBITDA, I want to recap 2 specific items related to revenue that we discussed with you last quarter. Our overall revenue growth was impacted this quarter by a large carrier disconnect that decreased our network services revenue, as well as an intercarrier compensation rate decrease. Combined, these items negatively impact revenue by total of about $2 million sequentially. Modified EBITDA margin was 35.2% compared to 37% in the same period last year, and 35.3% in the prior quarter. The vast majority of the decline in margin this quarter as compared to the same quarter last year is due to the cost associated with our growth initiatives, which impacted both operating and SG&A costs.

We continue to generate cash even as we continue to reinvest in the business, including in our success-based projects, as well as our new growth initiatives. Our levered free cash flow as a percentage of total revenue was 4.1% for the quarter reflecting levered free cash flow of about $16.3 million.

Moving to the bottom line. After excluding $38.9 million of debt extinguishment cost and $5.3 million in executive retirement costs, along with related income tax impacts, we generated net income of $16.8 million and our earnings per share were $0.12, in line with the prior quarter. This compares to a reported loss of $9.4 million or a loss of $0.07 per share.

Let me push the demand sale in the overall market. We continue to experience a lot of ongoing customer interest in our products, as well as customer demand to reach more and more locations to deliver complex solutions. And while this remains a very competitive market, we're continuing to consistently produce strong results. For instance, we've grown our revenue sequentially every quarter for the past 9 years. And our sales of bookings this year have grown year-to-date as compared to the same period last year. In fact, we had our best ever third quarter sales, although again not yet high enough to allow us to grow our total revenue at an accelerated rate. So why can we continue to grow our top line revenue in such a consistent manner? It starts with our unique and differentiated data and Internet portfolio, which continues to grow at double-digit rates. And that's because we're investing in innovation, enhancing our customer service, increasing our market reach and expanding our sales field network and IT talent. We're making these investments to enhance our growth next year and beyond and to provide the momentum required to further accelerate our growth rate. Our growth initiatives are on track and we look forward to the contribution to higher sales growth as we enter next year.

Turning to a bit more color on our investing. Our CapEx grew for the first 9 months of the year and over the same period last year, primarily due to increased success-based investments and our growth initiatives. We expect our annual capital investment to be about $380 million this year, the high end of our prior guidance range, which is before the expected impact of our market expansion that we'll talk more about in a moment.

Moving to our growth initiatives. Larissa has already mentioned our strong progress in our products and ongoing innovation and the expansion of our sales resources. As far as sales associates, we're pleased with the fact that we've had great success in a very competitive market in hiring some strong, targeted talent to support our growth plans. We expect our sales team to increase a bit further by year-end and to continually increase in future quarters to keep pace with our growing business opportunities.

Now let me recap our balance sheet activities for the quarter. We've been very active and opportunistic with our balance sheet. As we shared with you last quarter, by early August, we had fully settled our convertible debt, completed our $300 million share repurchase plan and launched a new $500 million program. As Larissa mentioned, in August, we raised $800 million in new financing that allowed us to retire about $407 million of our 8% bond, as well as increase our liquidity for general corporate purposes, such as investing in the business, including our market expansion and executing on our share repurchase plan. As a result of these activities, we achieved a blended borrowing rate of 4.9% as of September 30 with our nearest large maturity not due for about 7 years. And we executed $328 million in share repurchases year-to-date through the end of October.

Next, I want to provide some color on the market expansion we announced yesterday. We're constantly evaluating ways to augment our growth plans to accelerate our market reach and this expansion enables us to bring our innovation and differentiation to more customers faster. As part of our market expansion, we'll enter 5 new markets and we see great opportunities for these new locations. We're also expanding our addressable reach in more than 1/3 of our existing markets as we pursue targeted opportunities within these markets. By accelerating the expansion of our existing markets using our established, operational team and infrastructure, and entering new markets where our customers already have networking needs, we are gaining rapid access to current market demand and an accelerated path to greater revenue opportunities. Additionally, we believe that this market expansion compliments current growth initiatives, provide significant value to customers and enables us to accelerate market share gains, drive greater density and enhance our market return. As you all know, our financial model is based on time and investment in our market, which creates market density that, in turn, drives local market returns in our overall margins and cash flow. And we believe that this market expansion will accelerate that process in our existing markets. Because of all the innovation we're doing, we think speed to market is critical, which is why we are doing this expansion now.

Turning to the financial details. We expect to record approximately $120 million of CapEx in the fourth quarter to reflect the capital lease obligation, which will be paid over 20 years. We also intend to invest about $50 million in 2014 for additional infrastructure to rapidly integrate fiber into our network. And given our desire for a rapid roll out, we plan to hire additional sales support and operational personnel next year to support this project with the expectation that we will deliver incremental sales contribution in 2014 and generate incremental positive Modified EBITDA from this project in 2015.

In closing, we're seeing a lot of market opportunities to grow our business. As a result, we're investing in products and services, market expansion and market reach to go after these opportunities. As a result, the cycle of accelerated investment will naturally continue to pressure margins in 2014 as we engage in these growth initiatives to pursue the demand we see in the market. We believe market opportunities, our nationwide capabilities and our track record of being able to successfully execute growth initiatives will allow margins to expand over time and allow cash flow to grow.

With that, I'll hand the call back over to Larissa.

Larissa L. Herda

Thanks, Mark. I'd like to provide you better insight into what we're doing as an organization to meet the evolving needs of our customers and drive increased revenue growth. I'm going to first walk you through the needs and challenges of CIOs of enterprise organizations; second, discuss how our service portfolio is constantly evolving to meet the challenges facing our customers; and third, explain how we're creating new opportunities to expand our data and Internet growth by connecting enterprises to their world. We're achieving this through flexible network solutions, partnering with powerful technology partners -- players, and continuing to be a leading innovator in this space.

Let's start first with the challenges of our enterprise customers. CIOs in these organizations are being required to meet their own organization's growing business volumes, as well as address their increasing network demands driven by their customers. At the same time, they're faced with obtaining advanced technology expertise, either in-house or through third-party solutions, while they're addressing capacity demands, but in a way that does not overcommit resources or leave them unprepared for their increasing needs. And they're doing all this while trying to control their costs and margins. The world for enterprises is changing rapidly and constantly. And the feedback that we're getting is that there's a sense of enterprises being a bit overwhelmed with all of the complex and urgent businesses decisions they have to make to be responsive to their business needs.

In fact, we recently talked to one of our Fortune 500 customer that gave some perspective to the frenetic pace of their environment. He said that the lifecycle of the new application from development to use and ultimately retirement for his business has shortened from a period of 5 to 10 years to a new cycle of 18 months to no longer than 3 years. This demonstrates that challenges are coming at the IT organization faster and in greater numbers, and enterprises have to leverage new flexible technology solutions to keep pace versus the rigid telco 1.0 structures of the past.

It's a balancing act for the CIO's brick-and-mortar decision versus consume-as-you-go choices. But by that, I mean, do they serve their needs in-house? Extend outside their 4 walls and leverage the cloud? Or use a hybrid solution? Here are some of their broad IT choices.

For instance, do they buy 50 servers and have all the associated fixed costs or consume it elastically? If they have growing disaster recovery needs, do they manage their needs in-house, or do they use a cloud solution? Or should they consider a hybrid type of solution by utilizing their own data centers, third-party data center and the cloud, and if so, in what configuration and for which applications? As it relates to their operations, here are some specific IT user challenges. For instance, how should they manage their e-mail archiving needs? On-site with expensive storage, or off-site using storage as they need it? When the HR department needs to build a new site for the annual benefits enrollment, which last 6 weeks, should they buy new servers or build it in a cloud? And when marketing says they need to double their website capacity for a promotion, should they buy infrastructure or rent servers and storage? These are all real-time questions and challenges for enterprise customers. Which takes me to my second point on how we're evolving our networks to meet this ever-growing pace and scope of challenges that customers are trying to address. We know that to be a leader in our space, we must address the fact that networks can no longer be static, or they will limit the CIO's ability to deploy the solutions they need. Instead, we believe that networks should be flexible, automated, elastic and real time to address our customers' changing needs. This is a very effective and unique position for selling telecom services. And that's what we're doing with our advanced Ethernet capabilities, Intelligent Network services, and our future Constellation Platform, as well as products like our enterprise-wide voice-over-IP capabilities. We evolve and grow as customers do, which makes us a powerful business partner. Let me tell you what that looks like in real life. Here are some examples of how we grow every day with customers as we enable their applications, sometimes with the cloud, and sometimes without it. Our first example is about a customer that has data replication issues, and how our Intelligent Network services helps solve these challenges. With our second customer, we're helping them extend beyond their own 4 walls, for data backup and recovery solution by leveraging both a private and public data center for a new hybrid cloud solution, reflecting a continued growing trend of clouded option. Both of these customers were grappling with real-time problems that represent challenges many CIOs are faced with today. And for both customers, we solve their challenges with our advanced solutions.

Let's talk about our first example, which is a large construction materials distributor, headquartered in St. Paul, with 14 branch locations throughout the upper Midwest. This customer connects to their headquarters to our collocation facility where their storage area network, PBX, Internet access and various business applications reside. We originally provided a VPN solution and a couple of low-speed Ethernet connections for this customer. Over time, the volume of the data and complexity of their business grew significantly. As a result, applications were competing for bandwidth and our customer was having difficulty completing their data replication without negatively impacting their end-user's applications on the same connection, especially latency-sensitive applications, such as voice-over-IP calls. As their trusted adviser, we worked with the customer to solve these business challenges. And we were able to expand their service beyond our manage services offering that they were already using to a more powerful solution by, first, adding our E-Line Ethernet service with greater capacity to provide bandwidth and alleviate congestion between their site and our collocation facility; second, by adding our Enhanced Management for them to see every segment of their network performance; and third, by adding our Dynamic Capacity to provide flexible bandwidth, including our alert-driven feature to automatically address their network congestion, to mitigate their latency-related issues. Now with all these capabilities, the customer can replicate data in line with their business needs, and simultaneously run real-time traffic without any latency impact while dramatically improving the overall performance of their data replication application. So this is a great example of how we can help a customer evolve their network to meet their new requirements.

So now let's move to our second customer example, which includes a large retail tire operation. We had been serving about 85 locations for this customer with our managed services. As their needs evolved, we added our Ethernet services for large capacity locations, and then later added our Intelligent Network capabilities to help address their business needs. Our customer's most recent challenge was figuring out how to cost-effectively replicate the data at their retail stores, transmitted to their corporate headquarters. Their dilemma was that developing a business continuity solution could mean a substantial increase in the cost of the IT infrastructure. Instead of costly new infrastructure, we helped them find another solution by partnering with Bluelock, a virtual data center provider specializing in backup and recovery capabilities to support enterprise application environments. By leveraging our recent partnership with Bluelock, we were able to solve our customer's business continuity requirements for a virtualized storage solution by combining the power of TW Telecom's Ethernet and Dynamic Capacity services with the Bluelock's recovery-as-a-service cloud capability. With this solution, our customer was able to replicate his data on a daily basis at a fraction of the cost it would have taken to build more dedicated IT infrastructure. And the network enabled the solution by automatically expanding bandwidth with our Alerts Driven Dynamic Capacity during their backup cycle. As a result of our partnering efforts, TW Telecom and Bluelock enabled a hybrid cloud solution that solved this customer's challenges through a combined network and application solution with our -- which our customer could rapidly put into place to secure their data.

Before we leave the customer examples, I want to share one more aspect of how we're working to improve enterprise connectivity to their applications. There's been ongoing industry-wide frustration with the amount of time and complexity associated with connecting an enterprise-as-a-cloud application to the data center, and ultimately, to the application provider. Amazon, which is a leader in providing cloud applications to enterprises, is constantly searching for new -- for more efficient ways of doing business and has had great success in this area. As you all know, they are about ease-of-use and speed. Like a few other select carriers, we partnered with Amazon to enable their direct connect service, to connect enterprises with their application with dedicated capacity, which gets them to the door of the third-party data center. However, we've gone a few steps further by going through the data center directly to Amazon, eliminating steps and bundling the solution all the way to the application, making this connection much easier and faster which no other carrier has done. We enabled the solution with another new innovative capability that we just launched called our new eLynk Express service, a capability similar to our E-Access Ethernet service. eLynk is a flexible Ethernet connection that makes consuming the cloud environment as easy as accessing the Internet, but with secure, elastic Ethernet services. So this is another great example of leveraging a powerful partner opportunity.

I hope these examples give you a perspective on the challenges we're solving for enterprises. Now let me recap how we're creating a spectrum of opportunities to leverage for ongoing revenue growth. We attack the market in many different ways, and our growth is not dependent on any one innovation or solution. We are -- we also are continually leveraging our existing products as we layer on features and capabilities to address customers' growing needs. And we evaluate customers' current and future demand, always working on new and innovative solutions. Additionally, we're innovating solutions with industry -- leading industry partners, and here is the powerful part, we're really just starting to scratch the surface of these partnering opportunities. Together with our growth initiatives, we have many possibilities to drive ongoing revenue growth. So let me wrap up my comments so we can take on -- take Q&A by saying our business is strong, we're continuing to generate cash, and as always, we're finding great opportunities to drive more growth in the business and in turn, to drive shareholder value. Thank you for joining us today and for your support of TW Telecom. Before we turn the call to Q&A, I'd like to introduce John Blount, our Chief Operating Officer; and Mike Rouleau, our SVP of Business Development and Strategy, who will be joining us for our Q&A session. Now I will turn the call over to Keith for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Brett Feldman with Deutsche Bank.

Brett Feldman - Deutsche Bank AG, Research Division

I was hoping we could talk a little bit more about the decision to go into new markets. I'm curious, are you making this decision here because you had existing customers who are asking for you to have more of a presence or was it maybe just an opportunity that you identified on your own? And then secondly, are you looking to have the same type of presence in these new markets as you currently have, or is it maybe more isolated, for example, there might be a data center presence that you want to have access to but you're not necessarily interested in the entire city?

Larissa L. Herda

Great question, Brett, I'm glad you asked it. So yes, yes, yes and yes, to some degree. So let me give you a couple of perspectives here. First of all, yes, we have customers driving us into these markets. If you look at where these markets are and you look where our current markets are, there's just an enormous corridor of opportunity there. We're in all the major markets in Ohio, for instance. Boston and Philly really fill out our whole East Coast. Salt Lake City is really a gateway that we go through already to the West Coast and to the Southwest. And so there's -- we already serve customers in these markets, and it's not unusual. Years ago, I remember, we went into the city of Dallas because we were in every other major city in Texas. Every single customer in Texas wanted us to go to Dallas for them and it turns out, Dallas became our quickest, fastest growing city in the history of the company. So we sure hope that happens here. But I would say, so part of it is absolutely driven by customer demand. That is a big part of it. The other part of it is opportunistic. Deals happen when they happen and sometimes, if you wait, they may never have the right set of circumstances to happen again. And as you -- and that is the case with this. As you all know, we've talked a lot in the past about how many deals we look at. And this is in the context of M&A because we really look at this deal in a very similar way. It's like an acquisition to us. And we looked at every deal, probably almost every deal out there that's been sold has passed by us at least once or twice in the process. And fundamentally, I think it's important to recognize that there is no company out there that has a business that's just like ours who runs the business like we do, has customers and revenue that look like ours. So there's kind of a benchmark that we look at when we're looking at these types of things. We found time after time, as we've looked at acquisitions that have been out there that you don't only just get what you want, but you also get a lot of what you don’t want. And on top of that, you can pay a lot for it. And in any acquisition, we would have received a lot of complexity, a lot of unproductive work to clean up large swaths of network, revenue, customers that either we didn't need or we didn't want. And what we have found, and you can see in the market, you can look at every telecom deal that's happened out here, you endure years, literally, of customer churn that inevitably happens. And sometimes, it's worth it. Sometimes it's absolutely worth it. For instance, with Expedia, we ended up going through a little bit of pain, as most companies do. But we ended up with something just amazingly strategic for us. And it built out our -- most of our national footprint and did a lot of great things for our company. But in addition to all of the issues associated with integrating an acquisition, since none of these companies really look out like us that have been sold in the past 5 years, we have found that we inevitably have to invest a lot of money to bring their networks up to our standard to make them look like us. That -- in order to look like us so that we can leverage the assets the way we think the assets need to be leveraged. So the economics just haven't worked out for anything that we've seen really since Expedia. And our view is, if you're going to do an acquisition, it better build shareholder value and it better be strategic, it's not to do it just to get bigger. And then on top of that, as we've been talking about, we're doing amazing things with innovation that require a lot of our resources and a lot of focus to the -- just the incredible complexity of it. And acquisitions do inhibit that process and make no mistake about it, that innovation that we are doing is critical to creating ongoing shareholder value in the future. So it is a business priority. So when we looked at this transaction, we viewed it like we would view an acquisition. But the big difference is that we were able to put together a deal that gave us what we wanted, where we want it, as quickly as we wanted it, in a package that made incredible sense to us financially. And very importantly, this is right in our wheelhouse. This is who we are. We build and expand networks. And this is not a distraction. The only difference is that, we are just doing this a lot faster, quite frankly, because we can. And it also means we're going to see positive results faster and as we've stated, we expect to start seeing revenue on this next year and that is pretty incredible for something of this size.

Brett Feldman - Deutsche Bank AG, Research Division

Just a quick follow-up, if you don't mind. Seeing as how you do have customers asking you to expand at these markets, does that mean you're kind of coming on -- into the game here with a nice sales funnel? And then you also mentioned, you already have some customers in those markets. I assume they're connected via special access. Does your business case here assume that you can move a lot over to your own fiber quickly?

Larissa L. Herda

The answer to those are yes. We have customers already in these markets, we have customers that we serve that are headquartered in our other markets that have circuits going into those markets. We have something we call the heat map that kind of looks at all the special access services we buy across the country, and guess what? A lot of them go into these markets. So sure, there's opportunities for that. We did not base our business model on those types of synergies, but certainly, they will, like a deal, like an acquisition, they will exist, right? And quite frankly, that's the case with some of the regional fiber assets that we're acquiring, too. We're going to be putting -- these are the same services that we have in other carriers over that network, too. So those, obviously, are all helpful in the economic model, but we didn't base the economic model on that. We also have customers that reside in those markets that we sell to in our other markets that have always wanted us to come to those markets. So there's a lot of that going back and forth, which obviously plays into our beliefs that we believe that we'll start seeing revenue from these activities in 2014.

Operator

And we'll take our next question from Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley, Research Division

Just following up on the market expansion. You've referenced some margin pressure, you've referenced some sales hiring. Can you give us a little bit more color on the sizing of that? And is that something we'll see you kind of bring it all out in Q1 or does it go ratably through the year? And then on the $50 million of CapEx to complete the project, is that basically a 1-year spend, so $10 million, $15 million a quarter for the duration of '14?

Mark A. Peters

Let me take that one. Let's start with the CapEx first. The CapEx is primarily to take these networks and interconnect them with our national network. So those will be chunky. I'm wouldn't say they're going to spread evenly. If -- so we want to do that as rapidly as we can. So I'd be delighted if that was all done in the first half of the year. But we'll have to see as we begin executing on the programs and pooling those all, integrating those with our local and international infrastructure.

Simon Flannery - Morgan Stanley, Research Division

Front-end loaded, yes?

Mark A. Peters

That will be the desire, but again, it's -- the devil will be in the details as we start executing on the plan. Then we talked about the EBITDA margin and we'll talk more about that as we talk about our fourth quarter earnings, a lot of it, the impact on EBITDA margin will be around bringing a new sales team to target area, both in the existing markets, as well as the overlapping markets. Because when you think about the existing markets, we're getting more density there. We're constantly creating density in those existing markets, that's what we do all the time. What this does is just does it in -- much faster in those markets and we'll be putting sales teams in to make sure that there's incremental opportunities and growth on those markets. So it takes a lot to bring sales head on -- have sales heads and the related support functions. So that, again, we'll see if it's more front-end loaded as we sync that up with our actual execution and plans for the actual putting out the new infrastructure.

Larissa L. Herda

Simon, you're familiar, as I think, all the analysts are and our long-term investors with our 1/3, 1/3, 1/3 slide. And our thesis, and quite frankly, our entire business plan, when you look at that slide, that's how it works, right? And it's time and investment in those markets. Well we decided that we don't want to wait for the time part of it because there is plenty of opportunity there. And since we have an opportunity to be able to acquire the fiber in places that we had planned to go at some point in the future anyhow, we're moving that time process up to a lot sooner. So it's absolutely -- we think, it's pretty exciting, quite frankly, because we can do it. And so we have plans around all of those to do that. So yes, there's pressure in the near term but it's all for the right reasons.

Simon Flannery - Morgan Stanley, Research Division

Okay. Any other expenses besides the lease cost and the sales people?

Mark A. Peters

Yes. So there will be operations folks to operate the network, in particular in the newer markets, we'll have to put ops of folks in there, too. We have new networks in these markets, so we'll have to hire resources there. And then just ancillary resources around that to support the expanded kind of in the cable [indiscernible], some new pathing, some new opportunity, the new buildings that we're going past to start supporting sales initiatives.

Larissa L. Herda

The good news in the existing markets that we're expanding in, we have substantial operational infrastructure there from a people standpoint, as well as leadership. So we will be leveraging that. You don't have to add as many people when you already have a market, they're just doing a market expansion. You may just have to add new sales team, which may include management, maybe a technician as opposed to a General Manager does that -- the other things. So there's -- it's a very economic way for us to drive more revenue and cash flow growth. The new markets, on the other hand, will require a little bit more. But getting back actually to a question, Brett, that I never answered, we're going to be starting with thinner headcount in those markets because some of the opportunities that we've already outlined are going -- that come don't require as many heads and then they will become a bit more success-based. And that's how we manage some of the EBITDA hit in those markets. So as we see the success and we get traction, similar to how we've done other markets, then the markets grow over time. And that's a method that's worked really well for us and that's how we'll be doing those markets.

Operator

And we'll go next to the line of Michael Funk with Bank of America Merrill Lynch.

Michael J. Funk - BofA Merrill Lynch, Research Division

First one, just on revenue and growth. A number of carriers entered the year more optimistic about growing enterprise revenue, some of your earlier comments were also more optimistic, maybe some of the results coming in. So if you can first comment on maybe the market challenges versus execution year-to-date in growing revenue. And then the second, if you can just remind me about your leverage target, if you look at 2014 some incremental spending on both CapEx and headcount, how are you thinking about that target?

Larissa L. Herda

So with regard to -- we are actually meeting the expectations that we had set for ourselves this year. And you always want things to go faster but they generally never do. And we take a look at the enterprise and enterprises dieing, that's -- we still see a lot of strength in that area. We never expected the growth initiatives that we put in place to really start seeing any uptick in the bookings, which is the sales contract side of the equation until the fourth quarter. So -- and I think we'll probably see that. Time will tell. Fourth quarter, first quarter, you can never really determine these exactly. But for instance, I was just reviewing the other day, we have -- on a quarterly basis, we evaluate the new sales people who have come into the company and how they're progressing. And so I was specifically interested in the generation that came in the fourth quarter of last year because it does take about a year for sales people to get productive. So if we hired someone in December, which is when most of the increase happened, by the way, in our sales force last year happened at the end of the quarter, then those people should start be producing next quarter, right? And they are following -- what was great to see is that they are following the trajectory in terms of their ramp that we were expecting, which is exciting to me because it tells me that they will continue to improve. And then the new generation each quarter that we have hired since then who really aren't producing much of anything right yet, are going to start producing into 2014. So just the sheer volume of people that we've added, the programs that we've put around them, the very strategic way we've hired them, they're very -- we've been very selective and we're hiring, I would say, a much higher quality in terms of experience and technical knowledge. We're hiring -- this type of people we're hiring these days, they have to understand the environment that I talked about in the script. What's the environment that the customer is living in, what kind of problems do they have? And understand applications of what that means to the network and solve those types of problems. So it's a -- we're hiring some really quality people, which is very exciting. So I think from the respective -- as we look at the various different initiatives that we've put in place, and that we've been working on all year, they're tracking. And so far, it's still early on the sales, you headcount because we did expect them to produce yet. But they are in their ramp, they're not at quota yet, but they're on the right ramp. As a general group, again, I'm talking fourth quarter last year generation and we'll see how the rest of them do, it's still too soon to tell. So nothing in this industry happens really fast, really quickly. But once all these initiatives start to kick in, we think that -- we feel pretty good about seeing those results.

Mark A. Peters

And then going to the leverage comment, we don't -- we haven't really said, here's what our target to leverage is. We're really sensitive to looking at our balance sheet, looking at our leverage, looking at the history of the industry and to stay in a place where we have the flexibility to do all the things we're doing. We put ourselves in a place that we don't have to choose from good alternatives, so we've been able to invest in our growth initiatives, invest in our innovation, we've been able invest in this expansion thing that we're talking about to expand really what we do, do it faster, as well as continue to execute on our share buyback program. So -- in fact, we're putting ourselves in this place of having the flexibility to do it all, I just think that's a great way for us to continue to create this long-term shareholder value. So if look to the year, we've done a lot of financing to deliver that -- what was a weighted average, cost of our debt less than 5% at the end of the quarter. Our growth leverages, they -- they're kind of pretty much in the same neighborhood, about 3.3x kind of EBITDA on a growth basis. Now we have started using the cash, we ended the year, last year, with about -- just about $1 billion of cash purposely. And we put that to work with the convert, we put it to work with our investment in our stock buyback program. And that leverage has gone up by almost a full turn throughout the year. As we continue to put that cash to work, investing in the business and returning to shareholders with stock buyback. So -- and overall, we said, we feel comfortable with the cash balance. Again, not a static target that we're going to reach and hold confident in any point in time. We're comfortable with the cash balance around that $300 million level. Again, it will fluctuate up and down depending on different activities we undertake at different points in time. So we think that provides us the flexibility we need in this business to invest the growth and also to write out on [ph] our business cycle.

Operator

And we'll take our next question from Barry McCarver with Stephens Incorporated.

Barry McCarver - Stephens Inc., Research Division

I guess, a couple questions. First off, as it relates to the balance sheet, the stock buyback has been great, great use of the balance sheet with the programs you're putting in place now for the expansion. Thoughts on what you might be thinking about for the buybacks for next year. And then secondly, more operationally, thinking about your customer base, I'm wondering if you could give us an idea of the growth today, how much of it is coming from expansion by existing customers versus you moving into new buildings and bringing in a totally new customer?

Larissa L. Herda

So -- you want to talk about balance sheet first?

Mark A. Peters

Sure, sure. So as we look at our buyback program, the timing and -- we haven't been specific in the timing of that $500 million program. We have, obviously, moved and took out, I think, a pretty short time, $50 million or about 10% of the new program this year. And we'll continue to look at it and I think you'll see us being thoughtful and I think somewhat consistent in our use of the program, at least, will be consistent. But as we progress, we don't have to, again, be -- it doesn't change the investments, the expansion plan, it doesn't prohibit us from continuing to execute on the program.

Larissa L. Herda

Barry, with regard to the customer base and customers buying -- revenue coming from new versus -- new customers versus existing customers, you get a lot from both. That -- it hasn't really changed in terms of the mix, we get more -- a bit more of our revenue from existing customers. But you have to bring in new customers, too. What has changed or what has really been evolving, especially as we've come out over the past 1.5 years or so with all these new products, is the size and the complexity of the customers that we're dealing with. We're in deals that we never would have imagined 2 or 3 years ago being in. And we're getting them. And so -- and I think that has a lot to do with our vision for the future, as well as just the amazing innovation that we're developed -- delivering right now, customers can't get a lot of what we're doing from really anybody else. So that aspect of our business, and as we've said, we have a saying around here that says, complexity is our friend. And I think that it is because not as many companies can compete in the space that we're competing in. And it keeps your business from becoming commoditized. And years ago, we decided we were going to go after that medium to large customer that was more complex. And we also decided that fiber is important because it helps us control the cost structure, it helps us control the service experience for the customer. But what's becoming more and more important these days are the services and the capabilities that we're providing to these customers, the solutions that we're providing over that fiber network. We're not in that old, big fat dumb pipe business anymore. Yes, there's parts of our business that have that. But that is not where the growth is coming from. As you can see, we have double-digit growth in our data and Internet revenue stream and that is what we're feeding with all the innovation that we have out there. And that's where the future growth of the business comes from. And so, that part of the business has changed, I think, dramatically in the last 5 years. But especially in the past few years, even more so, we're just -- we just seem to be playing in a -- just a different category these days.

Barry McCarver - Stephens Inc., Research Division

If I can squeeze in one more. Kind of tell us what's going on with special access rates. Are you feeling that -- the pushback from the big guys again?

Larissa L. Herda

So -- well, the -- it's an ongoing saga of our life, right? So the special access, there's a lot of stuff going on the regulatory environment I won't get into with regard to special access, but the latest that has been irritating for all of us in the carrier space and quite frankly, should be for business customers as well, is -- has been AT&T's announcement, they're going to get rid of long-term contracts in general, which means long-term contract pricing. And the way most carriers could do a lot of volume with these large ILECs as you find kind of an overall agreement for a long-term contract that helps you get less expensive pricing on the individual circuit. And AT&T put off the last -- they put off actually doing their filing for a few weeks, but we're anticipating they're going to. But it effectively, if they go -- if it goes into effect, it's going to effectively increase pricing for everybody in the country that uses AT&T services. So it's not just the carriers, but it's the end-user customers. It's going to be the small business customers, it's going to be the enterprise customers, it's anybody's who's benefiting today from either buying services from a competitive carrier, for those type 2 circuits or buys them directly because they're going to get rid of those long-term contract pricing. We think that the only way a company can do that is if they have monopoly power. Because if there was competition in an industry where prices continue to go down to actually effectively raise prices, is -- I mean, you have to be a monopoly. And we're hoping that -- and we -- there's initiative right now at the FCC to request data on special access all around the country from all the carriers that we are anxious for the FCC to move forward with because we believe that the data is -- will speak the truth and it will reflect very clearly that there are many places in the United States where there is no other carrier but the incumbent to be able to get those services from. And without competition, prices go up. And so -- and then we're seeing that behavior. So it is possible that, that could cause price increases in special access effectively, fairly immediately for most carriers in the United States. So we are working with the carrier community and we're hoping that logic will prevail. But we really -- that's just one of those things, that really, you don't know until it happens. But we understand that AT&T plans to actually file the day before the Thanksgiving holiday, the 25th, I think, of November. And it effectively goes into play something like 15 days later. So they're cleverly timing it so that we all miss a few days of trying to get our point across. So we're hoping that they're reasonable and they understand the impact to their customers, and quite frankly, to the business -- the entire business community who will be affected by this.

Operator

And we'll take our next question from Colby Synesael with Cowen.

Colby Synesael - Cowen and Company, LLC, Research Division

Two, if I may. First up, I just wanted to go to your comments about how you expect margins to increase in 2015. And historically, I think what you've been saying is that we would expect margin would actually start to increase when we saw revenue growth start to increase. And I'm curious if that relationship still holds and therefore, we should be implying that's all for the expectation when you expect revenue to start accelerate. And then my second question just has -- just a point of clarity. Of the 30,000 fiber op now that you have today, 23,000, Metro; [indiscernible] 7,000, regional, how many of those are actually your fiber op miles where you guys have actually dug the trenches there, have acquired somebody who's dug the trenches as opposed to the fiber that you're going to be getting now and when you guys mentioned you're expanding your network by 17%, what exactly do you mean by that?

Larissa L. Herda

So, Colby, it's an interesting question, I can't give you the answer to that, but a lot of it is stuff that we've dug ourselves. But every carrier in the United States, if you were to ask them that question, I doubt they could probably answer it because all carriers do a combination of -- that build fiber both on the long-haul and the Metro do a lot of their own construction, a lot of acquiring fiber long-term leases, things like that. But when you own fiber, when you have a fiber lease that will certainly outlast my lifetime, you own it. So it really doesn't matter whether you're the ones physically constructing it, the fiber is there and you own it. So you have all the rights of an owner. So I don't think it's really -- I'm not sure -- the purpose of the question, but it effectively doesn't matter. It just depends on -- you're just acquiring it in a different way. So in that regard, I think...

Mark A. Peters

And the way we look at it is fiber have built so it becomes economic.

Larissa L. Herda

Right.

Mark A. Peters

As well -- again, there are -- the influence in this particular expansion, our 20-year lease with 2 10-year renewals. So I think my kids will be retired by then.

Larissa L. Herda

Like I said, I'm not sure I'm going to be alive when that -- you never know, but I will say, to Mark's point, we could not have built this network for the economics associated with this deal. And that's one of the reasons -- I mean this is very opportunistic.

Mark A. Peters

And definitely not this quickly.

Larissa L. Herda

And definitely not as quickly. There's something -- we probably wouldn't have gotten this done for 10 years. So we're accelerating this. This is a big acceleration of what we were hoping to do in the future. But it would have been a lot more costly and taken a lot more time. On the margin side?

Mark A. Peters

Yes. I think I'm not sure -- I'll answer the question, see if I'm answering the right question. But when we talk about our margins and the pressure going into '14, it's a combination of both the growth initiatives, which we expect to continue to trail into '14 because we put those sales force and you can see from our financial, it's primarily in the S-part because of our SG&A, the large increase because of the sales headcount. They were hired in throughout the year, they have the full year impact next year. It doesn't change our expectations on when the sales and the revenue is going to start growing. So we expect the sales to start coming and then start diminishing the impact of those costs next year. But it doesn't change overnight. So our expectations on that haven't changed. And then, obviously, from the expansion plan, the increased sales headcount to get incremental sales on top of our other growth initiatives will be another cost, the other stuff we have to put in place that will burn [ph] the margins in '14. So all this stuff, it's all stuff, like Larissa mentioned before, we do this all the time, we're just doing some of it faster especially when we think about the expansion plan. And it's so complementary of everything else that we're doing in our business. So we're just really excited about getting rolling on that now.

Colby Synesael - Cowen and Company, LLC, Research Division

Can you just clarify the 17%? I'm sorry, Larissa, if I cut you off.

Larissa L. Herda

Go ahead.

Mark A. Peters

Yes, the 17%, if you look at our route miles, it would be a 17% increase on the route miles that we recorded at the Metro.

Operator

And we'll take our next question from Michael Rollins from Citi Investment.

Michael Rollins - Citigroup Inc, Research Division

I think you've talked about some of these issues in some of the questions. But maybe just from a high-level perspective, if I look at your gross invested capital base, I think that we've talked about this before in your usual forums, when you look at the growth of that over the last few years, and you look at the growth of revenue or EBITDA or discretionary unlevered cash flow using your maintenance capital numbers that you put in your slide decks, there hasn't been a lot of change in any of those relationships. And so, what does it take to get more utilization out of the existing invested capital where you could actually start driving increasing returns on capital or, alternatively, are we just hitting the max where new projects just have a diminishing marginal rate of return, whether it's because of competition or pricing or the cost to deploy fiber today versus years ago? Just curious for your insights into that.

Mark A. Peters

Right. Yes, I guess I'll step back and say again from a macro level, as we look at our ROIC, we try and invest the capital on an aggregate level over the last several years. It's been growing quite nicely and quite consistently except for a couple -- recently, when we're doing some targeted stuff, it hasn't continued expanding at the rate that it had been. Because of the fact that we're in an investment cycle right now, that we're seeing opportunities to expand our reach and expand our capabilities. I think some kind of a unique point in our history, in our evolution, as we are doing such different things. And it's important for us to get in front of that with our enterprise customers and give -- make sure that our capabilities are on the data center, our capabilities are in all the business parts that we're going to. It's we are in a high investment cycle now. Our return threshold haven't changed. We're just doing it faster. So then, when you think about that -- kind of that's how I talked about it in my remarks, is the time and investment, we're moving the investment up to try to shorten that time. But there's more investment now that's been causing those numbers, when you look at your return on invested capital over the last few years just because of this high investment cycle. In the period of time that we can do it, we see the opportunity and it's important to make those moves when you can.

Larissa L. Herda

And especially -- and if you look at what's going on with competition, you have a lot of the competitors who are cutting in a lot of areas. They could be cutting people, they're not making big investments in CapEx or they've diverted a lot of their investment into other parts of their business, a lot of the large incumbents are really wireless companies, right? And so that's where a lot of their investment goes. So we really have an opportunity here. We obviously, we have the financial flexibility to be able to do all these things, which really puts us in a very unique position to take advantage of deploying this innovation and accelerating this -- the fiber deployment. And all these things are just really setting us up really well for accelerated growth, and obviously, cash flow growth in the future.

Michael Rollins - Citigroup Inc, Research Division

If I could just follow up, Mark, if you could, just to level set the way maybe you think investors should think about return on investment capital. Can you share with us the way that you define it internally and maybe give us a milestone or bogey as to where that return on capital is today?

Mark A. Peters

Yes. As you know there are a 100 ways to calculate ROIC. And so I don't have the actual calculation in front of me, so I'm not going to get into the details of that. But we have shown that when we do the calculation, we're push upwards of 12% on our ROIC, which you can see from our presentation. So if -- however you calculate it, and you can calculate it in different ways, if the progress in the model is working and it has worked consistently when you look at it. So it's -- we've been generating this consistent growth in our business. When we think about our growth rate, we generated this quarter over 6.5% total top line growth, not a subsegment of our revenue, total growth.

Larissa L. Herda

I'd like to know how many companies of our size or larger have actually done that in our -- in the services sector, not -- maybe some smaller ones, and there's a lot of large numbers there. But -- and doing that but also maintaining the kind of margins that we have, also making all of this investments, also buying back shares is a pretty amazing thing.

Mark A. Peters

But to get to that, we expect, clearly, the ROIC and the expansion of -- that I talked about, the 12%, again that's the pretax we have a big [indiscernible] well, still. We're in an investment cycle that's so important for our business now is to continue that 9 years of having consistent sequential growth in the top line. It's what we are, it's what we do. And like Larissa mentioned before, we're not in the commodity business. We're in a unique part of -- we don't even call it telecom, the telecom world in our space, and we think the opportunities are terrific and that's why it's important for us to take these steps and make the investments today.

Operator

And we'll take our next question from Donna Jaegers with D.A. Davidson.

Donna Jaegers - D.A. Davidson & Co., Research Division

Just one follow-up for Mark, I guess. On the burden that the fiber leases will put on gross margins, can you sort of help us wrap our heads around that so I can get it right in my model, so I don’t come in with too high a number for you guys?

Mark A. Peters

Yes. So the -- from the capital lease, so the $120 million or so that we'll book in the fourth quarter, that's going to go down through depreciation and amortization from a -- from where that cost is going to go. It's like building it, all right? So it's an asset, so it will depreciate. And then there'll be other costs, we'll have maintenance costs will be associated with it. They will also be associated because how the economy works, there will be an interest expense that will come in as a result of it. But it will hit -- there will be some amount that will hit OpEx related to the maintenance and we'll see if we can give you more guidance when we get through the fourth quarter.

Donna Jaegers - D.A. Davidson & Co., Research Division

Okay. And then just one quick follow-up on this executive retirement charge in the third quarter, can you sort of explain what that was?

Larissa L. Herda

We had a 20-year veteran retire and so that was basically their part of their retirement package.

Donna Jaegers - D.A. Davidson & Co., Research Division

Wow. So every 20-year veteran that retires is going to have that same sort of hit to the numbers?

Larissa L. Herda

No, no. It just was a very senior person. It was a senior executive and had accumulated a lot -- some -- keep in mind, we don't have retirement plans in our business. And if you look at every other telecom company in our sector, they all have similar types of programs. But it was -- it was Paul Jones. He was in his late 60s. And yes, that was with some stock acceleration and a little bit of cash as part of the retirement. So yes.

Operator

And we'll take our next question from Davis Hebbard [ph] from Wells Fargo Securities.

Unknown Analyst

Actually, my questions have been answered.

Operator

And we'll take our last question from David Dixon with FBR Capital Markets.

David Michael Dixon - FBR Capital Markets & Co., Research Division

Question, Larissa, around customer buying patterns on the carrier side. I wondered if you're seeing or expecting to see any change with AT&T's aggressive fiber push going forward? And then secondly, I was just curious what we're seeing from some of the other operators is evidence of having discounting on the access piece when enterprise customers are starting to bundle, or seek [ph] the bundle of cloud services and access? In some cases, access is being given away depending on those cloud services being purchased. So I wondered if you could provide some insight there on whether you're seeing that as well. And then lastly, just a question for Mark, perhaps, on this automation thing and automated software-centric networking. Do you think there's a greater importance as we kind of look at end-to-end connectivity establishing that from the enterprise to the application? Larissa, you mentioned the example with the Amazon web services, and I just wondered whether that requires us to build our scale networks, end-to-end connectivity versus a dependence on these SLA-based top 2 circuits whether the price is changing or not. Running an SDN controller over those third-party networks is challenging. That would be great to get some insight there, too.

Larissa L. Herda

All right. Well, let me take a crack at these and I've got my team here if they want to add to whatever it is I'm going to say. So on the first question, customer buying patterns. So with regards specifically, you're asking have the changed with regard or do we expect them to change with regard to AT&T's fiber build out. I don't think that's going to change the customers' buying pattern. And AT&T has a lot of fiber out there to begin with in most of the markets that we serve and most of the building -- a lot of the buildings that we go into of theirs, they have fiber or they have an option to buy fiber capacity from somebody. So I don't think that -- I think customers' buying pattern have been changing. But I think it's more around the complexity and the fact that it's a little confusing for them out there because there are so many different options. And so I think customers have to think harder about what they're going to do and how they're going to do it and how different applications that are coming up in front of them are going to affect their network. And that's one of the reasons why, by the way, our -- all the flexible services that we're providing are so interesting to them because it gives them some breathing room. So that if they buy network capacity from us and they find that it's not enough, well, they can just flex it up on their own. And so that's a really unique capability from them. But I think AT&T's going to do what they're going to do. There's a lot of companies out there building fibers. So that in itself, I don't think will be changing the customers' buying patterns. I think there's much bigger things going on out there that will.

David Michael Dixon - FBR Capital Markets & Co., Research Division

And no change in what I can do would buy from you, to clarify, Larissa, no change there?

Larissa L. Herda

No, no. I don't think so. I mean, all the carriers -- I think most of the carriers, if not all of them, buy from us, buy capacity, services from us. What we are -- what is changing, and is probably more -- maybe a more relevant comment for me to -- for me to talk about is what they're buying. And so what's happening is, because more carriers are starting, and some of them are just starting to offer Ethernet services, we're finding that a lot of us, we know -- TDM, our network services revenue line has been going down for quite a few years. And some of that, a lot of that revenue comes from carriers. Those carriers are buying a lot more Ethernet and we're actually seeing quite good demand coming from carriers on the Ethernet side. So that's changing in terms of what companies are buying from us, especially companies like the big carriers like an AT&T or any -- Sprint, or any of the other carriers that would typically buy services from us, so they're buying more Ethernet, so -- and that's a good thing. With regard to the -- are we seeing evidence of discounts of -- on access with cloud bundles? We don't compete with that kind of stuff. I mean, that might be for small business stuff that's going on. We don't provide cloud, we enable it and we partner. So we have this open garden philosophy that it has also proven to be extremely effective with the various different cloud providers out there because we don't compete with them, we partner with them. And we are a very critical part of the sale. And so -- and that has proven to be very effective in -- as we go out there and we talk to customers. The reality is, there's no cloud without the network. So for people to say, oh, the network is just this commodity or -- the network is absolutely required. And we're finding that especially with dedicated capacity, it's even more -- it's more important because the customers -- enterprise customers in order to use the cloud wants the security of a dedicated network. And that's why we're providing them with that Ethernet connectivity and the flexibility with that. So no, we're not seeing any evidence of that kind of discounting to the customer base that we sell to. I didn't really quite understand your last question, did you want to...

Michael A. Rouleau

No, I was just going -- this is Mike. I was just follow on to your last comment about discounting. When you think about who the cloud providers are, those application services, the infrastructure service providers that customers most demand, right, it's folks like Amazon and others that really don't have a network, right? So this is a discrete buy of access. And as Larissa highlighted on the call, we're -- we've got a foot into sort of both camps, if you will, in giving customers with our eLynk Express capability. A bundled approach, an easy way to buy access into those infrastructure services that Amazon provides. And as we move down the road, so this sort of gets to your next question about SDN controllers, as we move down that path with our Constellations platform, that we will then be able to build on demand access services, those ethernet capabilities into those cloud providers directly and make it a more immediate dynamic environment for the customer as they match up their cloud consumption.

Larissa L. Herda

And I don't think that's in lieu of SLAs. I think the SLAs are extremely important.

Michael A. Rouleau

I think that's the point, right?

Larissa L. Herda

Exactly.

Michael A. Rouleau

With our Ethernet capabilities and eLynk Express, and we're delivering Ethernet service level agreements.

Larissa L. Herda

Right. Does that answer your question?

David Michael Dixon - FBR Capital Markets & Co., Research Division

Yes, it does. It's very helpful.

Larissa L. Herda

Okay, all right, great. And I think that's it. Well, sorry, we ran over a little bit. So hopefully, we answered more of your questions. Thanks a lot for all your time today, and thanks for your support of TW Telecom. Have a good day.

Operator

This concludes today's program. We thank you for your participation. You may disconnect at any time.

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Time Warner Tcom (TWTC): FQ3 EPS of $0.12 misses by $0.01. Revenue of $393.2M (+6.6% Y/Y) beats by $0.47M. (PR)