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8-K - FORM 8-K - Inteliquent, Inc.d8k.htm

Exhibit 99.1

 

MEDIA CONTACT:   INVESTOR CONTACT:
Ilissa Miller   Jim Polson
Jaymie Scotto & Associates   Neutral Tandem
1-866-695-3629   1-866-268-4744
pr@jaymiescotto.com  
Twitter: @NeutralTandem  

Neutral Tandem Announces Second Quarter 2011 Financial Results

Highlights

 

   

Revenue of $65.1 million, an increase of 45.4% from $44.8 million in Q2’10

 

   

Pretax income of $12.9 million, down 3.5% from $13.4 million in Q2’10

 

   

Net income of $7.1 million, down 17.0% from $8.5 million in Q2’10

 

   

Adjusted EBITDA (as defined below) of $22.8 million, an increase of 15.0% from $19.8 million in Q2’10

 

   

Company now estimates it will be at the high end of full-year Revenue projections

CHICAGO, August 9, 2011 – Neutral Tandem, Inc. (NASDAQ: TNDM), a leading provider of global interconnection services, today announced its financial results for the second quarter ended June 30, 2011.

“We are pleased with the results of our voice and Ethernet services for the quarter,” said Ed Evans, Chief Executive Officer of Neutral Tandem. “Accordingly, we now estimate that we will be at the high end of the full-year revenue projections we provided on March 14, 2011. As we look forward to the remainder of the year, we remain focused at executing on our business plan with respect to our existing service offerings, as well as building a platform for future growth by developing new services that will appeal to customers worldwide.”

Second Quarter Results

Revenue increased 45.4% to $65.1 million for the three months ended June 30, 2011, compared to $44.8 million for the three months ended June 30, 2010. The increase in second quarter 2011 revenue was primarily related to the inclusion of Tinet’s revenue in our results, as well as an increase in the number of minutes carried over our network as compared to the second quarter of 2010.

Billed minutes increased 25.5% to 32.5 billion minutes for the three months ended June 30, 2011, compared to 25.9 billion minutes for the three months ended June 30, 2010.

Network and facilities expenses for the three months ended June 30, 2011 were $26.3 million, compared to $14.6 million for the three months ended June 30, 2010. This increase was largely due to an increase in our network capacity expenses to accommodate greater traffic volumes as well as the inclusion of Tinet’s network and facilities expenses in our results for the


second quarter. Combined operating expenses consisting of Operations, Sales and Marketing, and General and Administrative expenses were $18.8 million for the three months ended June 30, 2011, compared to $12.9 million for the three months ended June 30, 2010. The increase primarily resulted from the inclusion of Tinet’s operating expenses in our results for the second quarter along with higher employee expenses, including additional headcount. Depreciation and amortization expense was $7.4 million for the three months ended June 30, 2011, compared to $4.1 million for the three months ended June 30, 2010. This increase was primarily a result of the inclusion of Tinet’s depreciation and amortization expenses in our results for the second quarter and adding equipment to our switch locations.

Income from operations for the three months ended June 30, 2011 was $12.6 million, or 19.4% of revenue, compared to $13.2 million for the three months ended June 30, 2010, or 29.5% of revenue.

Pretax income for the three months ended June 30, 2011 was $12.9 million, compared to a pretax income of $13.4 million for the three months ended June 30, 2010.

Income tax expense for the three months ended June 30, 2011 was $5.8 million, compared to $4.9 million for the three months ended June 30, 2010. The effective tax rate for the three months ended June 30, 2011 was approximately 45.3% compared to an effective tax rate of approximately 36.4% for the three months ended June 30, 2010. The difference primarily results from the local tax impact of our foreign operations.

Net income for the three months ended June 30, 2011 was $7.1 million, or $0.20 per diluted share, compared to $8.5 million, or $0.25 per diluted share, for the three months ended June 30, 2010. The decrease in net income was primarily due to increased network expense, employee expenses and depreciation expense.

Adjusted EBITDA, a non-GAAP financial measure, for the three months ended June 30, 2011 was $22.8 million compared to $19.8 million for the three months ended June 30, 2010. Adjusted EBITDA margin, a non-GAAP financial measure, for the three months ended June 30, 2011 was 35.0%, down from 44.3% for the three months ended June 30, 2010. The decrease in Adjusted EBITDA margin was primarily related to higher network, facilities and employee expenses. See “Use of Non-GAAP Financial Measures” below for a discussion of the presentation of Adjusted EBITDA and reconciliation to net income.

Conference Call & Web Cast

The second quarter conference call will be held on Tuesday, August 9, 2011 at 9:00 a.m. (ET). A live web cast of the conference call as well as a replay will be available online on the company’s corporate web site at www.neutraltandem.com. Participants can also access the call by dialing 877-941-2332 (within the United States and Canada), or 480-629-9819 (international callers). A replay of the call will be available approximately two hours after the call has ended and will be available until 11:59 p.m. (ET) on Friday, September 9, 2011. To access the replay, dial 800-406-7325 (within the United States and Canada), or 303-590-3030 (international callers) and enter the conference ID number: 4460161#.


Cautions Concerning Forward Looking Statements

This press release contains “forward-looking statements” that involve substantial risks and uncertainties. All statements, other than statements of historical fact, included in this press release regarding Neutral Tandem‘s strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipates,” “believes,” “expects,” “estimates,” “projects,” “plans,” “intends,” “may,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Factors that might cause such differences include, but are not limited to: the impact of current and future regulation, including intercarrier compensation reform currently pending at the Federal Communications Commission; the effects of competition, including direct connects; the risks associated with our ability to successfully develop and market international voice services and Ethernet services, many of which are beyond our control and all of which could delay or negatively affect our ability to offer or market international voice and Ethernet services; the ability to develop and provide other new services; the risk that our business and the Tinet business will not be integrated successfully; technological developments; the ability to obtain and protect intellectual property rights; the impact of current or future litigation; the potential impact of any future acquisitions, mergers or divestitures; natural or man-made disasters; the ability to attract, develop and retain executives and other qualified employees; changes in general economic or market conditions, including currency fluctuations; and other important factors included in our reports filed with the Securities and Exchange Commission, particularly in the “Risk Factors” section of our Annual Report on Form 10-K for the period ended December 31, 2010 and Quarterly Report on Form 10-Q for the period ended March 31, 2011, as such Risk Factors may be updated from time to time in subsequent reports. Furthermore, such forward-looking statements speak only as of the date of this press release. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

About Neutral Tandem, Inc.

Headquartered in Chicago, Neutral Tandem, Inc. provides voice, data and video interconnection services worldwide. Neutral Tandem recently acquired Tinet, a global carrier focused on the IP Transit and Ethernet wholesale market. The acquisition combines Neutral Tandem‘s interconnection services for wireless, wireline, cable and broadband companies with Tinet‘s global IP backbone. Collectively, Neutral Tandem provides voice, IP Transit and Ethernet solutions to carriers, service providers, and content management firms worldwide. With over 100 Ethernet sites, the company is now the largest global Ethernet interconnection provider, a top 10 global IPv4 backbone provider and has a leading IPv6 network. Please visit Neutral Tandem‘s website at www.neutraltandem.com and follow us on Twitter@NeutralTandem.

For Neutral Tandem media inquiries, please contact Ilissa Miller at Jaymie Scotto & Associates +1.866.695.3629 or pr@jaymiescotto.com.

The condensed consolidated statements of income, balance sheets and statements of cash flows are unaudited and subject to reclassification.


NEUTRAL TANDEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Revenue

   $ 65,090      $ 44,757      $ 131,508      $ 89,586   

Operating expense:

        

Network and facilities expense (excluding depreciation and amortization)

     26,254        14,574        52,073        28,935   

Operations

     9,354        5,713        18,773        11,234   

Sales and marketing

     3,109        535        6,468        1,045   

General and administrative

     6,361        6,660        16,419        13,060   

Depreciation and amortization

     7,414        4,095        14,520        8,043   

Gain on disposal of fixed assets

     (6     (22     (12     (67
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     52,486        31,555        108,241        62,250   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     12,604        13,202        23,267        27,336   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other (income) expense

        

Interest expense

     —          —          —          4   

Interest income

     (17     (72     (30     (126

Other (income) expense

     346        (86     360        (211

Foreign exchange gain

     (622     —          (2,385     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     (293     (158     (2,055     (333
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     12,897        13,360        25,322        27,669   
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes

     5,845        4,861        10,086        10,701   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 7,052      $ 8,499      $ 15,236      $ 16,968   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.21      $ 0.26      $ 0.45      $ 0.51   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.20      $ 0.25      $ 0.44      $ 0.50   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding:

        

Basic

     33,987        33,039        34,119        33,213   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     34,415        33,486        34,555        33,674   
  

 

 

   

 

 

   

 

 

   

 

 

 


NEUTRAL TANDEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

     June 30,
2011
    December 31,
2010
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 73,802      $ 106,674   

Receivables

     44,153        38,610   

Deferred income taxes-current

     1,493        1,855   

Other current assets

     9,217        7,647   
  

 

 

   

 

 

 

Total current assets

     128,665        154,786   

Intangible assets-net

     33,018        31,506   

Goodwill

     53,308        49,098   

Property and equipment—net

     80,071        77,683   

Restricted cash

     962        962   

Other assets

     2,087        1,492   
  

 

 

   

 

 

 

Total assets

   $ 298,111      $ 315,527   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 12,242      $ 13,748   

Accrued liabilities:

    

Taxes payable

     696        664   

Circuit cost

     12,469        10,508   

Rent

     1,261        1,285   

Payroll and related items

     4,013        3,770   

Other

     4,788        2,968   
  

 

 

   

 

 

 

Total current liabilities

     35,469        32,943   

Other liabilities

     1,270        914   

Deferred income taxes-noncurrent

     9,726        10,387   
  

 

 

   

 

 

 

Total liabilities

     46,465        44,244   

Commitments and contingencies

    

Shareholders’ equity:

    

Preferred stock—par value of $.001; 50,000,000 authorized shares; no shares issued and outstanding at June 30, 2011 and December 31, 2010

     —          —     

Common stock—par value of $.001; 150,000,000 authorized shares; 31,393,185 shares and 33,166,242 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively

     31        33   

Additional paid-in capital

     180,221        171,343   

Less treasury stock, at cost; 3,083,446 at June 30, 2011 and no shares at December 31, 2010

     (50,106     —     

Accumulated other comprehensive income (loss)

     4,240        (2,117

Retained earnings

     117,260        102,024   
  

 

 

   

 

 

 

Total shareholders’ equity

     251,646        271,283   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 298,111      $ 315,527   
  

 

 

   

 

 

 


NEUTRAL TANDEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Six Months Ended
June 30,
 
     2011     2010  

Cash Flows From Operating Activities:

    

Net income

   $ 15,236      $ 16,968   

Adjustments to reconcile net cash flows from operating activities:

    

Depreciation and amortization

     14,520        8,043   

Deferred income taxes

     (815     (3,456

Gain on disposal of fixed assets

     (12     (67

Non-cash share-based compensation

     9,427        4,824   

Changes in fair value of ARS

     —          (923

Changes in fair value of ARS Rights

     —          712   

Excess tax deficiency (benefit) associated with share-based payments

     43        (101

Changes in assets and liabilities:

    

Receivables

     (4,612     2,864   

Other current assets

     (410     329   

Other noncurrent assets

     (2,784     25   

Accounts payable

     (3,086     (144

Accrued liabilities

     3,099        180   

Noncurrent liabilities

     272        —     
  

 

 

   

 

 

 

Net cash flows from operating activities

     30,878        29,254   
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Purchase of equipment

     (12,805     (5,246

Proceeds from sale of equipment

     12        72   

Increase in restricted cash

     —          (467

Purchase of other investment

     (500  

Proceeds from the redemption of ARS

     —          11,450   
  

 

 

   

 

 

 

Net cash flows from investing activities

     (13,293     5,809   
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Proceeds from the exercise of stock options

     160        29   

Restricted shares withheld to cover employee taxes paid

     (668     —     

Excess tax benefit (deficiency) associated with share-based payments

     (43     101   

Payments made for repurchase of common stock

     (50,106     (9,556

Principal payments on long-term debt

     —          (235
  

 

 

   

 

 

 

Net cash flows from financing activities

     (50,657     (9,661
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     200     

Net Increase (Decrease) In Cash And Cash Equivalents

     (32,872     25,402   

Cash And Cash Equivalents—Beginning

     106,674        161,411   
  

 

 

   

 

 

 

Cash And Cash Equivalents—End

   $ 73,802      $ 186,813   
  

 

 

   

 

 

 

Supplemental Disclosure Of Cash Flow Information:

    

Cash paid for interest

   $ —        $ 242   

Cash paid for taxes

   $ 9,891      $ 12,308   

Supplemental Disclosure Of Noncash Flow Items:

    

Investing Activity—Accrued purchases of equipment

   $ 4,090      $ 1,844   
  

 

 

   

 

 

 


Use of Non-GAAP Financial Measures

In this press release we disclose “Adjusted EBITDA”, which is a non-GAAP financial measure. For purposes of SEC rules, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure, calculated and prepared in accordance with generally accepted accounting principles in the United Sates (GAAP).

EBITDA is defined as net income before (a) interest expense, net (b) income tax expense and (c) depreciation and amortization. Adjusted EBITDA is defined as EBITDA as further adjusted to eliminate non-cash share-based compensation, foreign exchange gain on intercompany loans and other expenses – stock buyback . We believe that the presentation of Adjusted EBITDA included in this press release provides useful information to investors regarding our results of operations because it assists in analyzing and benchmarking the performance and value of our business. We believe that presenting Adjusted EBITDA facilitates company-to-company operating performance comparisons of companies within the same or similar industries by backing out differences caused by variations in capital structure, taxation and depreciation of facilities and equipment (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance. These measures provide an assessment of controllable operating expenses and afford management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance. They provide an indicator for management to determine if adjustments to current spending decisions are needed. Furthermore, we believe that the presentation of Adjusted EBITDA has economic substance because it provides important insight into our profitability trends, as a component of net income, and allows management and investors to analyze operating results with and without the impact of depreciation and amortization, interest and income tax expense, non-cash share-based compensation, foreign exchange gain on intercompany loans and other expenses – stock buyback. Accordingly, these metrics measure our financial performance based on operational factors that management can impact in the short-term, namely the operational cost structure and expenses of our business. In addition, we believe Adjusted EBITDA is used by securities analysts, investors and other interested parties in evaluating companies, many of which present an EBITDA measure when reporting their results. Although we use Adjusted EBITDA as a financial measure to assess the performance of our business, the use of Adjusted EBITDA is limited because it does not include certain material costs, such as depreciation, amortization and interest, necessary to operate our business. We disclose the reconciliation between EBITDA and Adjusted EBITDA and net income below to compensate for this limitation. While we use net income as a significant measure of profitability, we also believe that Adjusted EBITDA, when presented along with net income, provides balanced disclosure which, for the reasons set forth above, is useful to investors in evaluating our operating performance and profitability. Adjusted EBITDA included in this press release should be considered in addition to, and not as a substitute for, net income as calculated in accordance with generally accepted accounting principles as a measure of performance.

The following is a reconciliation of net income to EBITDA and Adjusted EBITDA:


NEUTRAL TANDEM, INC. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

(Unaudited)

(Dollars in thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
    Twelve Months Ended
December 31,
 
     2011     2010     2011     2010     2011 (1)  

Net income

   $ 7,052      $ 8,499      $ 15,236      $ 16,968      $ 30,100   

Interest expense(income), net

     (17     (72     (30     (122     (100

Provision for income taxes

     5,845        4,861        10,086        10,701        20,000   

Depreciation and amortization

     7,414        4,095        14,520        8,043        31,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 20,294      $ 17,383      $ 39,812      $ 35,590      $ 81,000   

Other expenses—stock buyback

     330        —          330        —          —     

Foreign exchange gain on intercompany loan

     (677     —          (2,622     —          —     

Non-cash share-based compensation

     2,845        2,433        9,427        4,824        12,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 22,792      $ 19,816      $ 46,947      $ 40,414      $ 93,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The amounts expressed in this column are based on current estimates as of the date of this press release.

This reconciliation is based on the midpoint of the guidance range announced by the Company on March 14, 2011.