Neutral Tandem's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Neutral Tandem, Inc. (IQNT)

Q2 2012 Earnings Conference Call

August 7, 2012 10:00 am ET

Executives

G. Edward Evans – Chief Executive Officer

Richard Monto – Senior Vice President of External Affairs, General Counsel and Secretary

Surendra Saboo – President and Chief Operating Officer

Robert M. Junkroski – Executive Vice President and Chief Financial Officer

Analysts

Simon Flannery – Morgan Stanley & Co. LLC

Barry McCarver – Stephens, Inc.

George Sutton – Craig-Hallum Capital Group LLC

Hamed Khorsand – BWS Financial, Inc.

Donna Jaegers – D. A. Davidson & Co.

Timothy Horan – Oppenheimer Securities

Steven J. Beckert – Robert W. Baird & Co.

Brian Grad – DLS Capital Management LLC

Presentation

Operator

Good morning, ladies and gentlemen. Thank you standing by. Welcome to the Inteliquent Second Quarter 2012 Earnings Call. During today’s presentation, all parties will be in a listen-only mode, and following the presentation, the conference will be opened for question. (Operator Instructions) This conference is being recorded today, August 7, 2012.

And I would now like to turn the conference over to Richard Monto, General Counsel. Please go ahead.

Richard Monto

Thank you, and welcome to the Inteliquent’s Second Quarter 2012 Earnings Conference Call. In our remarks today, we will include statements that are considered forward-looking within the meaning of federal securities laws. The forward-looking statements are based on current expectations and are subject to substantial risks and uncertainties that may cause actual results to differ materially from the forward-looking statements.

A description of certain of these risks and uncertainties accompanying these forward-looking statements can be found in our earnings release issued today and in certain of our SEC filings. Inteliquent undertakes no obligation to update any forward-looking statements. In our remarks, we will also refer to non-GAAP financial measures, which we believe in combination with GAAP results, provide additional analytic tools to understand our operations. Tables that reconcile non-GAAP financial measures to GAAP results are also included in our earnings release issued today.

Now, for the substance of the call, I’d like to hand the call over to Ed Evans, Inteliquent’s CEO.

G. Edward Evans

Thank you, Richard, and good morning, everyone. Thank you for joining us today to discuss our second quarter results. Today, I’ll provide a brief summary of our operational results for the second quarter. Surendra Saboo, our President and COO, will take you through a more detailed look at our operational performance; and then Rob Junkroski, our CFO, will provide a detailed review of our financial performance. We will provide time for questions following the prepared comments.

Before I discuss our performance for the second quarter, I’d like to update you on the proposed dividend recapitalization and discretionary stock repurchase program we announced earlier today. Our Board of Directors regularly review strategic alternatives available to enhance shareholder value. Several months ago, our Board of Directors took the additional step of forming a Special Committee to review the strategic options available to the company. The Special Committee with significant input from the management team presented the results of its review to the full Board at a recent Board meeting.

The review of our options was wide ranging including a possible sale of the company, merger and acquisition opportunities, recapitalization options, as well as balance sheet efficiency. The Special Committee engaged Lazard as its financial advisor and Kirkland & Ellis as its legal advisor.

During our most recent Board meeting, the Special Committee recommended and the full Board approved our intention to move forward with the dividend recapitalization and discretionary stock repurchase program.

The proposed recapitalization plan will include raising $75 million to $100 million in debt through a new Term A loan. The proceeds of the loan will be combined with $80 million of cash on our balance sheet, and will be paid out as a special one-time dividend to shareholders. Assuming we are successful in raising the $75 million to $100 in new debt, the one-time cash dividend would be in a range of approximately $4.80 to $5.65 per share.

We are engaging with commercial banks regarding the debt component of the recapitalization, and anticipate completing the transaction around the end of the third quarter or shortly thereafter.

Of course as indicated in our press release issued earlier today, this plan is contingent on our ability to successfully access the commercial bank market and raise the new debt as well as a variety of other factors described in our press release. Please refer to the press release for a full discussion of those factors.

Raising $75 million to $100 million in debt will lever the company to about 1 to 1.5 times adjusted EBITDA. We believe this level of debt is very manageable. Even after paying out the cash dividend, we will still have about $30 million in cash on the balance sheet.

Additionally, we will continue to have significant capacity to pursue acquisitions, if we identify an asset we would like to acquire. Also we anticipate securing a revolving line of credit that will remain undrawn unless needed at some time in the future.

As also mentioned in our press release, the Board of Directors has authorized the company to repurchase up to $50 million of stock in the open market. The stock repurchase program will expire in three years. We do not currently have any plans to repurchase any stock under this program. But we believe it make sense to have this authorization in place to allow us to repurchase shares opportunistically if price levels become attractive. I want to emphasize however, that in the near-term, it is our intention to pay the special one-time cash dividend and not repurchase shares.

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