Second Quarter 2010 Highlights
  • Revenue of $44.8 million, an increase of 8.5% from $41.2 million in Q2'09
  • Adjusted EBITDA (as defined below) of $19.8 million, a decrease of 4.7% from $20.8 million in Q2'09
  • Net income of $8.5 million, a decrease of 20.4% compared to $10.7 million for Q2'09
  • Billed minutes of 25.9 billion, an increase of 21.5% over Q2'09

CHICAGO, July 29, 2010 (GLOBE NEWSWIRE) -- Neutral Tandem, Inc. (Nasdaq:TNDM), a leading provider of tandem interconnection services, today announced its second quarter 2010 financial results.

"We are pleased with our solid second quarter financial results," said Rian Wren, President and Chief Executive Officer of Neutral Tandem. "While we face certain challenges in our local transit business, we continue to gain traction with our newer service offerings. As a result, consistent with our announcement on May 5, 2010, we continue to project that our full year financial results will be toward the lower end of the estimates we announced on February 16, 2010. We believe that our core business offerings and strong balance sheet will provide us with a platform that will allow us to grow by developing innovative new product offerings, such as our Ethernet eXchange."

Second Quarter Results

Revenue increased 8.5% to $44.8 million for the three months ended June 30, 2010, compared to $41.2 million during the three months ended June 30, 2009. The increase in second quarter 2010 revenue was primarily related to an increase in the number of minutes carried over our network as compared to the second quarter of 2009.

Billed minutes increased 21.5% to 25.9 billion minutes for the three months ended June 30, 2010, compared to 21.3 billion minutes for the three months ended June 30, 2009.

Network and facilities expenses for the three months ended June 30, 2010 were $14.6 million,compared to $12.4 million for the three months ended June 30, 2009. This increase was largely due to greater traffic volumes carried over our network and an increase in our network capacity. Combined operating expenses consisting of Operations, Sales and Marketing, and General and Administrative expenses were $12.9 million for the three months ended June 30, 2010, compared to $9.0 million for the three months ended June 30, 2009. The increase primarily resulted from higher employee expenses, including additional headcount, as well as increased professional expenses.

Income from operations for the three months ended June 30, 2010 was $13.2 million, or 29.5% of revenue, compared to $16.6 million for the three months ended June 30, 2009, or 40.2% of revenue.

Pretax income for the three months ended June 30, 2010 was $13.4 million, compared to pretax income of $16.7 million for the three months ended June 30, 2009.

Income tax expense for the three months ended June 30, 2010 was $4.9 million, compared to $6.1 million for the three months ended June 30, 2009. The effective tax rate for the three months ended June 30, 2010 was approximately 36.4% compared to an effective tax rate of approximately 36.2% for the three months ended June 30, 2009.

Net income for the three months ended June 30, 2010 was $8.5 million, or $0.25 per diluted share, compared to $10.7 million, or $0.31 per diluted share, for the three months ended June 30, 2009. The decrease in net income was primarily due to increased network expense, employee expenses, professional fees and depreciation expense.

Adjusted EBITDA, a non-GAAP financial measure, for the three months ended June 30, 2010 was $19.8 million, down 4.7% compared to $20.8 million for the three months ended June 30, 2009. Adjusted EBITDA margin, a non-GAAP financial measure, for the three months ended June 30, 2010 was 44.3%, down from 50.4% for the three months ended June 30, 2009. The decrease in Adjusted EBITDA margin was primarily related to higher professional fees and network expenses.  See "Use of Non-GAAP Financial Measures" below for a discussion of the presentation of Adjusted EBITDA and a reconciliation to net income. 

We expanded our footprint by commencing operations in 9 new markets for the three months ended June 30, 2010.  We operated in 155 markets as of June 30, 2010, as compared to 118 markets as of June 30, 2009.

Conference Call & Web Cast

The second quarter conference call will be held on Thursday, July 29, 2010 at 10:00 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 877-941-6010 (within the United States and Canada), or 480-629-9773 (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 Monday, August 30, 2010.  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: 4331059#.

Cautions Concerning Forward Looking Statements

This press release contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our actual results to differ materially from those expressed or implied by such forward-looking statements.  Such forward-looking statements include any expectations relating to earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results; statements concerning new products or services; statements related to future capital expenditures; statements related to future economic conditions or performance; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing.  These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," or "will," and similar expressions or variations.  These statements are based on the beliefs and assumptions of our management based on information currently available to them.  Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements.  Factors that might cause such differences include, but are not limited to: the impact of current and future regulation affecting the telecommunications industry; the effects of competition, including direct connects; the ability to develop and provide new services; technological developments; natural or man-made disasters; the impact of current or future litigation; the ability to attract, develop and retain executives and other qualified employees; the ability to obtain and protect intellectual property rights; changes in general economic or market conditions; 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, 2009and Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, 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. is a leading provider of interconnection services to wireless, wireline, cable and broadband telephony companies.  Neutral Tandem's solutions build redundancy, security and operational efficiencies into the nation's telecommunications infrastructure.  Neutral Tandem's solutions include both voice and Ethernet interconnection services.  Neutral Tandem recently announced plans to launch 14 Ethernet eXchanges at the following locations: Atlanta, Boston, Chicago, Dallas, Denver, Detroit, Houston, Los Angeles, Miami, New York, Philadelphia, San Francisco, Seattle and Washington, D.C. Please visit Neutral Tandem's website at: www.neutraltandem.com

The Neutral Tandem, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3797

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,
  2010 2009 2010 2009
         
Revenue  $ 44,757  $ 41,235  $ 89,586  $ 79,484
Operating expense:        
Network and facilities expense (excluding depreciation and amortization)  14,574   12,432  28,935  23,894
Operations  5,713  4,849  11,234  9,804
Sales and marketing  535  474  1,045  998
General and administrative  6,660  3,704  13,060  7,093
Depreciation and amortization  4,095  3,199  8,043  7,240
Gain on disposal of fixed assets  (22)  --   (67)  (25)
Total operating expense  31,555  24,658  62,250  49,004
Income from operations  13,202  16,577  27,336  30,480
         
Other (income) expense:        
Interest expense, including debt discount of $0, $22, $0 and $44, respectively  --  94  4  227
Interest income  (72)  (257)  (126)   (548)
Other (income) expense  (86)  1  (211)  (241)
         
Total other income  (158)  (162)  (333)  (562)
Income before income taxes  13,360  16,739  27,669  31,042
Provision for income taxes  4,861  6,065  10,701  11,324
Net income  $ 8,499  $ 10,674  $ 16,968  $ 19,718
Net income per share:        
Basic  $ 0.26  $ 0.32  $ 0.51  $ 0.60
Diluted  $ 0.25  $ 0.31  $ 0.50  $ 0.59
Weighted average number of shares outstanding:        
Basic  33,039  33,018  33,213  32,774
Diluted  33,486  33,948  33,674  33,682
 
 
NEUTRAL TANDEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
  June 30, December 31,
  2010 2009
ASSETS    
Current assets:    
Cash and cash equivalents  $ 186,813  $ 161,411
Receivables  21,972  24,836
Deferred income taxes-current  1,655  800
Other current assets  7,344  18,912
Total current assets  217,784  205,959
Property and equipment—net  47,676  49,679
Restricted cash  907  440
Other assets  486  512
Total assets  $ 266,853  $ 256,590
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
Accounts payable  $ 1,889  $ 1,235
Accrued liabilities:    
Taxes payable  546  429
Circuit cost  3,498  4,012
Rent  1,042  1,073
Payroll and related items  2,380  1,914
Other  2,745   2,704
Current installments of long-term debt  --  235
Total current liabilities  12,100  11,602
Deferred income taxes-noncurrent  1,556  4,157
Total liabilities  13,656  15,759
Commitments and contingencies    
Shareholders' equity:    
Preferred stock—par value of $.001; 50,000,000 authorized shares; no shares issued and outstanding    
at June 30, 2010 and December 31, 2009  --  --
Common stock—par value of $.001; 150,000,000 authorized shares; 33,041,676 shares and    
33,628,501 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively  33  34
Additional paid-in capital  166,780  171,381
Retained earnings  86,384  69,416
Total shareholders' equity  253,197  240,831
Total liabilities and shareholders' equity  $ 266,853  $ 256,590
 
 
NEUTRAL TANDEM, INC. AND SUBSIDIARIES
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
  Six Months Ended June 30,
  2010 2009
     
Cash Flows From Operating Activities:    
Net income  $ 16,968  $ 19,718
Adjustments to reconcile net cash flows from operating activities:    
Depreciation and amortization  8,043  7,240
Deferred income taxes  (3,456)  596
Gain on disposal of fixed assets  (67)  (25)
Non-cash share-based compensation  4,824  1,940
Amortization of debt discount  --  44
Changes in fair value of ARS  (923)  (726)
Changes in fair value of ARS rights   712  485
Excess tax benefit associated with stock option exercise  (101)  (8,157)
Changes in assets and liabilities:    
Receivables  2,864  (6,367)
Other current assets  329  169
Other noncurrent assets  25  48
Accounts payable  (144)  969
Accrued liabilities   180  10,341
     
Net cash flows from operating activities  29,254  26,275
     
Cash Flows From Investing Activities:    
Purchase of equipment  (5,246)  (4,365)
Proceeds from sale of equipment  72  27
Increase in restricted cash  (467)  --
Proceeds from the redemption of ARS  11,450  --
     
Net cash flows from investing activities  5,809  (4,338)
     
Cash Flows From Financing Activities:    
Proceeds from the issuance of common shares associated    
with stock option exercise  29  3,877
Excess tax benefit associated with stock option exercise  101  8,157
Payments made for repurchase of common stock  (9,556)  --
Principal payments on long-term debt  (235)  (1,784)
Net cash flows from financing activities  (9,661)  10,250
     
Net Increase In Cash And Cash Equivalents  25,402  32,187
Cash And Cash Equivalents—Beginning  161,411  110,414
Cash And Cash Equivalents—End  $ 186,813  $ 142,601
     
Supplemental Disclosure Of Cash Flow Information:    
Cash paid for interest  $ 242  $ 117
Cash paid for taxes  $ 12,308  $ 5,086
     
Supplemental Disclosure Of Noncash Flow Items:    
Investing Activity—Accrued purchases of equipment  $ 1,844  $ 2,177

 

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. 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 and non-cash share-based compensation.  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,
  2010 2009 2010 2009 2010 (1)
Net income  $ 8,499  $ 10,674  $ 16,968  $ 19,718  $ 39,500
Interest expense(income), net  (72)  (163)  (122)  (321)  (500)
Provision for income taxes  4,861  6,065  10,701  11,324  22,000
Depreciation and amortization  4,095  3,199  8,043  7,240  16,500
EBITDA  $ 17,383  $ 19,775  $ 35,590  $ 37,961  $ 77,500
Non-cash share-based compensation  2,433  1,019  4,824  1,940  11,000
Adjusted EBITDA  $ 19,816  $ 20,794  $ 40,414  $ 39,901  $ 88,500
           
(1)   This reconciliation is based on the midpoint of the guidance range announced in our February 16, 2010 press release.
CONTACT:  Neutral Tandem, Inc.          Media Contact:           Gerard Laurain             (312) 384-8041          Investor Contact:           Jim Polson            1-866-268-4744

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