Third Quarter 2008 Highlights * Revenue of $31.2 million, up 38.1% from $22.6 million in 3Q'07 * Pretax income of $9.5 million, compared to $3.5 million for 3Q'07 * Net income of $6.2 million, compared to $2.0 million for 3Q'07 * Adjusted EBITDA (as defined below) of $13.4 million, up 81.1% from $7.4 million in 3Q'07 * Billed Minutes of 15.9 billion, an increase of 48.6% over 3Q'07 * Commenced operations in nine additional markets
CHICAGO, Oct. 28, 2008 (GLOBE NEWSWIRE) -- Neutral Tandem, Inc. (Nasdaq:TNDM), a leading provider of tandem interconnection services, today announced its third quarter 2008 financial results.
"We are very pleased with our third quarter results. Our performance reflects Neutral Tandem's continued success in executing on our strategic priorities to broaden our geographic presence, expand our interconnections with new and existing customers, and increase the types of traffic we carry across our network," said Rian Wren, President and Chief Executive Officer of Neutral Tandem. "We will continue to focus on effectively managing our resources to meet our objectives across each of these key initiatives."
Third Quarter Results
Revenue increased 38.1% to $31.2 million for the three months ended September 30, 2008, compared to $22.6 million during the three months ended September 30, 2007. The increase in third quarter revenue was primarily related to an increase in the number of minutes carried over our network.
Billed minutes increased 48.6% to 15.9 billion minutes for the three months ended September 30, 2008, compared to 10.7 billion minutes for the three months ended September 30, 2007.
Network and facilities expenses for the three months ended September 30, 2008 were $11.2 million, compared to $8.2 million for the three months ended September 30, 2007. This increase was largely due to greater traffic volumes carried over our network and an increase in the number of markets in which we operate. Combined operating expenses consisting of Operations, Sales and Marketing, and General and Administrative expenses were $7.6 million for the three months ended September 30, 2008, compared to $7.2 million for the three months ended September 30, 2007. The increase primarily resulted from higher employee expenses, including additional headcount to grow the business, offset by a decrease in litigation expenses.
Pretax income for the three months ended September 30, 2008 was $9.5 million, up over 171% from $3.5 million for the three months ended September 30, 2007.
Income tax expense for the three months ended September 30, 2008 was $3.3 million, compared to income tax expense of $1.6 million for the three months ended September 30, 2007. The effective tax rate for the three months ended September 30, 2008 was approximately 34.7%.
Net income for the three months ended September 30, 2008 was $6.2 million, or $0.19 per diluted share, compared to $2.0 million, or $0.08 per diluted share, for the three months ended September 30, 2007.
Adjusted EBITDA, a non-GAAP measure, for the three months ended September 30, 2008 was $13.4 million, up 81.1% compared to $7.4 million for the three months ended September 30, 2007. The Adjusted EBITDA margin for the three months ended September 30, 2008 was 42.9%, up from 32.7% for the three months ended September 30, 2007. This increase in Adjusted EBITDA margin was driven by the continued scaling of our operating expenses, as well as network efficiency and optimization efforts. See "Use of Non-GAAP Financial Measures" below for a discussion of the presentation of Adjusted EBITDA and a reconciliation to net income.
We also expanded our footprint to commence operations in nine new markets during the third quarter of 2008. We operated in 91 markets as of September 30, 2008, as compared to 56 markets as of September 30, 2007.
Year-to-Date Results
Revenue was $86 million for the nine months ended September 30, 2008, compared to $60.7 million during the nine months ended September 30, 2007, an increase of 41.7%.
Billed minutes for the nine months ended September 30, 2008 were 42.9 billion, up 46.9% from 29.2 billion minutes during the nine months ended September 30, 2007.
Pretax income for the nine months ended September 30, 2008 was $24.7 million, up 194% from $8.4 million during the nine months ended September 30, 2007.
Income tax expense for the nine months ended September 30, 2008 was $8.9 million, compared to income tax expense of $3.9 million for the nine months ended September 30, 2007. The effective tax rate during the nine months ended September 30, 2008 was approximately 36%.
Net income was $15.8 million for the nine months ended September 30, 2008, or $0.48 per diluted share, compared to $4.5 million, or $0.18 per diluted share during the nine months ended September 30, 2007.
Adjusted EBITDA, a non-GAAP measure, for the nine months ended September 30, 2008 was $34.6 million, up approximately 74.7% compared to $19.8 million during the nine months ended September 30, 2007. The Adjusted EBITDA margin for the nine months ended September 30, 2008 was 40.2%, up from 32.6% for the nine months ended September 30, 2007. Included in Adjusted EBITDA for the nine months of 2008 is the impairment of fixed assets of $0.2 million and other expense of $0.6 million incurred in connection with our follow-on offering of common stock earlier this year. See "Use of Non-GAAP Financial Measures" below for a discussion of the presentation of Adjusted EBITDA and a reconciliation to net income.
Business Outlook
Based on actual results for the first nine months of 2008 and management's current belief about minute-based revenue trends, expenses and the competitive environment, Neutral Tandem affirms its 2008 forecast for the following metrics and continues to estimate:
* Revenue for the full year of 2008 is expected to be between $117 million and $121 million. * Adjusted EBITDA, a non-GAAP financial measure, for the full year of 2008 is expected to be between $47 million and $49 million. * Billed minutes for the full year of 2008 are estimated to be between 59.5 billion and 61.5 billion minutes.
In addition, we are revising our projections with respect to capital expenditures and the number of new markets in which we will commence operations. Neutral Tandem now estimates that:
* Capital expenditures for the full year of 2008 are expected to be between $21 million and $23 million, down from the previous forecast range of $23 million and $25 million. * Operations to commence in 35 new markets during the full year of 2008, up from the previous forecast of 30 new markets.
Wren commented, "Despite the current challenging economic environment, we are pleased with our execution across our strategic initiatives. Going forward, we believe that our investments in advanced technologies and the strength of our service offerings will enhance our ability to drive shareholder value."
Webcast and Conference Call
A webcast and conference call will be held today, October 28 at 10:00 a.m. Eastern Time. A live webcast of the conference call as well as a replay will be available online on the company's corporate website at www.neutraltandem.com. Participants can also access the call by dialing 877-801-6172 (within the United States and Canada), or 303-262-2140 (international callers). A replay of the call will be available approximately two hours after the call has ended and will be available until approximately 11:59 p.m. (CST) on November 28, 2008. To access the replay, dial 800-405-2236 (within the United States and Canada), or 303-590-3000 (international callers) and enter the conference ID number: 11121257#.
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. Neutral Tandem may not actually achieve the plans, intentions or expectations disclosed in its forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements Neutral Tandem makes. Factors that might cause such differences include, but are not limited to: the impact of current and future regulation affecting the telecommunications industry; technological developments; the effects of competition; 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 Neutral Tandem's reports filed with the Securities and Exchange Commission, particularly in the "Risk Factors" section of Neutral Tandem's Annual Report on Form 10-K for the period ended December 31, 2007 and Quarterly Report on form 10-Q for the period ended June 30, 2008. Neutral Tandem does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
About Neutral Tandem, Inc.
Headquartered in Chicago, Neutral Tandem, Inc. is a leading provider of tandem interconnection services to wireless, wireline, cable and broadband providers. Founded in 2003, Neutral Tandem facilitates inter-carrier communications with a cost-effective alternative to the Incumbent Local Exchange Carrier (ILEC) network. Neutral Tandem's solutions build redundancy, security and operational efficiencies into the nation's telecommunications infrastructure. As of September 30, 2008, Neutral Tandem was capable of connecting approximately 372 million telephone numbers assigned to carriers. 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 consolidated balance sheets and statement of cash flows are unaudited and subject to reclassification.
NEUTRAL TANDEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2008 2007 2008 2007
-------- -------- -------- --------
Revenue $ 31,154 $ 22,617 $ 85,958 $ 60,740
Operating Expense:
Network and facilities expense
(excluding depreciation and
amortization) 11,215 8,199 29,711 21,417
Operations 4,288 3,354 12,485 11,734
Sales and marketing 466 392 1,461 1,235
General and administrative 2,801 3,467 9,013 7,373
Depreciation and amortization 3,561 2,795 9,647 7,766
Impairment of fixed assets -- -- 195 --
Loss (gain) on disposal of
fixed assets -- 23 -- (138)
-------- -------- -------- --------
Total operating expense 22,331 18,230 62,512 49,387
-------- -------- -------- --------
Income from operations 8,823 4,387 23,446 11,353
-------- -------- -------- --------
Other (income) expense
Interest expense, including
debt discount of $22, $30,
$73 and $107 respectively 208 395 757 1,318
Interest income (870) (222) (2,567) (639)
Other expense -- -- 550 --
Change in fair value of
warrants -- 681 -- 2,312
-------- -------- -------- --------
Total other (income) expense (662) 854 (1,260) 2,991
-------- -------- -------- --------
Income before income taxes 9,485 3,533 24,706 8,362
Provision for income taxes 3,321 1,561 8,875 3,911
-------- -------- -------- --------
Net income $ 6,164 $ 1,972 $ 15,831 $ 4,451
======== ======== ======== ========
Net income per share:
Basic $ 0.19 $ 0.37 $ 0.50 $ 0.84
======== ======== ======== ========
Diluted $ 0.19 $ 0.08 $ 0.48 $ 0.18
======== ======== ======== ========
Weighted average number of
shares outstanding:
Basic 32,009 5,320 31,626 5,320
======== ======== ======== ========
Diluted 33,312 25,024 33,190 24,781
======== ======== ======== ========
NEUTRAL TANDEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
Sept. 30, Dec. 31,
2008 2007
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $106,280 $112,020
Receivables 16,709 12,104
Deferred tax asset-current 3,040 2,242
Other current assets 1,390 1,016
-------- --------
Total current assets 127,419 127,382
Property and equipment -- net 42,570 37,410
Restricted cash 419 419
Investments and other assets 19,949 805
-------- --------
Total assets $190,357 $166,016
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,272 $ 575
Accrued liabilities:
Circuit cost 3,538 5,694
Rent 1,176 1,163
Payroll and related items 2,893 1,692
Other 2,363 2,768
Current installments of long-term debt 3,505 4,384
-------- --------
Total current liabilities 15,747 16,276
Other liabilities 570 527
Deferred tax liability -- noncurrent 4,214 2,095
Long-term debt -- excluding current installments 698 3,196
-------- --------
Total liabilities 21,229 22,094
Commitments and contingencies
Shareholders' equity:
Preferred stock--par value of $.001; 50,000,000
authorized shares; no shares issued and
outstanding at September 30, 2008 and
December 31, 2007 -- --
Common stock -- par value of $.001; 150,000,000
authorized shares; 32,165,591 shares and
30,832,939 shares issued and outstanding at
September 30, 2008 and December 31, 2007,
respectively 32 32
Warrants -- 6,920
Additional paid-in capital 149,324 132,889
Accumulated other comprehensive loss (140) --
Accumulated earnings 19,912 4,081
-------- --------
Total shareholders' equity 169,128 143,922
-------- --------
Total liabilities and shareholders' equity $190,357 $166,016
======== ========
NEUTRAL TANDEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------
2008 2007
-------- --------
Cash Flows From Operating Activities:
Net income $ 15,831 $ 4,451
Adjustments to reconcile net cash flows from
operating activities:
Depreciation and amortization 9,647 7,766
Deferred tax 1,408 979
Impairment of fixed assets 195 --
Gain on disposal of fixed assets -- (138)
Non-cash share-based compensation 2,027 667
Amortization of debt discount 73 107
Changes in fair value of warrants -- 2,312
Changes in assets and liabilities:
Receivables -- net (4,605) (3,440)
Other current assets (374) (1,418)
Other noncurrent assets 229 25
Accounts payable 1,175 245
Accrued liabilities (1,347) 6,046
Noncurrent liabilities 43 206
-------- --------
Net cash flows from operating activities 24,302 17,808
-------- --------
Cash Flows From Investing Activities:
Purchase of equipment (14,480) (11,462)
Proceeds from sale of equipment -- 218
Increase in restricted cash -- (22)
Purchase of investments (25,150) --
Sale of investments 5,550 --
-------- --------
Net cash flows from investing activities (34,080) (11,266)
-------- --------
Cash Flows From Financing Activities:
Net proceeds from the issuance of common shares -- 10
Cash paid for stock issuance costs -- (931)
Proceeds from the issuance of common shares
associated with stock option exercise 7,488 --
Principal payments on long-term debt (3,450) (4,195)
-------- --------
Net cash flows from financing activities 4,038 (5,116)
-------- --------
Net Increase (Decrease) In Cash And Cash
Equivalents (5,740) 1,426
Cash And Cash Equivalents -- Beginning 112,020 20,084
-------- --------
Cash And Cash Equivalents -- End $106,280 $ 21,510
======== ========
Supplemental Disclosure Of Cash Flow Information:
Cash paid for interest $ 675 $ 1,063
======== ========
Cash paid for taxes $ 3,201 $ 2,276
======== ========
Cash refunded for taxes $ -- $ 542
======== ========
Supplemental Disclosure Of Noncash Flow Items:
Investing Activity -- Accrued purchases of
equipment $ 985 $ 5,161
======== ========
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 the change in the fair value of warrants and 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 the change in fair value or warrants 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)
----------------------------------------------------------- --------
Twelve
Months
Three Months Ended Nine Months Ended Ended
September 30, September 30, Dec. 31,
------------------ ------------------ --------
2008 2007 2008 2007 2008(1)
---- ---- ---- ---- -------
Net income $ 6,164 $ 1,972 $ 15,831 $ 4,451 $ 21,900
Interest expense
(income), net (662) 173 (1,810) 679 (2,300)
Provision for income
taxes 3,321 1,561 8,875 3,911 12,600
Depreciation and
amortization 3,561 2,795 9,647 7,766 13,100
-------- -------- -------- -------- --------
EBITDA $ 12,384 $ 6,501 $ 32,543 $ 16,807 $ 45,300
Non-cash share-based
compensation 988 232 2,027 667 2,700
Change in fair value
of warrants -- 681 -- 2,312
-------- -------- -------- -------- --------
Adjusted EBITDA $ 13,372 $ 7,414 $ 34,570 $ 19,786 $ 48,000
======== ======== ======== ======== ========
(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 in this press release.