Full Year 2008 Highlights
* Revenue of $120.9 million, up 41.2% from $85.6 million in
2007
* Pretax income of $36.8 million, up 194.4% from $12.5 million
for 2007
* Net income of $24 million, compared to $6.3 million for 2007
* Adjusted EBITDA (as defined below) of $51.4 million, up 73.1%
from $29.7 million in 2007
* Billed minutes of 61 billion, an increase of 48.8% over 2007
* Commenced operations in 36 additional markets
CHICAGO, Feb. 5, 2009 (GLOBE NEWSWIRE) -- Neutral Tandem, Inc. (Nasdaq:TNDM), a leading provider of tandem interconnection services, today announced its fiscal year 2008 and fourth quarter financial results.
"We believe this year's strong financial results, achieved amidst an unprecedented economic environment, are a direct reflection of the progress we have made in executing on our strategic growth initiatives," stated Rian Wren, President and Chief Executive Officer of Neutral Tandem. "We believe that the market opportunities and favorable industry trends that exist currently will continue to present us with attractive prospects to expand our business and bring new products and services to our customers."
Fourth Quarter Results
Revenue increased 40.7% to $34.9 million for the three months ended December 31, 2008, compared to $24.8 million during the three months ended December 31, 2007. The increase in fourth quarter revenue was primarily related to an increase in the number of minutes carried over our network.
Billed minutes increased 53.4% to 18.1 billion minutes for the three months ended December 31, 2008, compared to 11.8 billion minutes for the three months ended December 31, 2007.
Network and facilities expenses for the three months ended December 31, 2008 were $10.6 million, compared to $8.7 million for the three months ended December 31, 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 $8 million for the three months ended December 31, 2008, compared to $6.4 million for the three months ended December 31, 2007. The increase primarily resulted from higher employee expenses, including additional headcount associated with our business growth.
Income from operations for the three months ended December 31, 2008 was $11.9 million, or 34.1% of revenue, compared to $6.4 million for the three months ended December 31, 2007, or 25.8% of revenue.
Pretax income for the three months ended December 31, 2008 was $12.1 million, up over 195% from $4.1 million for the three months ended December 31, 2007.
Income tax expense for the three months ended December 31, 2008 was $3.9 million, compared to income tax expense of $2.3 million for the three months ended December 31, 2007. The effective tax rate for the three months ended December 31, 2008 was approximately 32%, compared to an effective tax rate of approximately 56% for the three months ended December 31, 2007.
Net income for the three months ended December 31, 2008 was $8.2 million, or $0.25 per diluted share, compared to $1.8 million, or $0.06 per diluted share, for the three months ended December 31, 2007.
Adjusted EBITDA, a non-GAAP measure, for the three months ended December 31, 2008 was $16.8 million, up 69.7% compared to $9.9 million for the three months ended December 31, 2007. The Adjusted EBITDA margin for the three months ended December 31, 2008 was 48.1%, up from 39.9% for the three months ended December 31, 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. In addition, included in Adjusted EBITDA for the three months ended December 31, 2008 is other expense of $0.6 million related to a write-down of an investment in auction rate securities offset by one time income items totaling $0.6 million. 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 during the fourth quarter of 2008. We operated in 100 markets as of December 31, 2008, as compared to 64 markets as of December 31, 2007.
Full Year Results
Revenue was $120.9 million for fiscal year 2008, compared to $85.6 million during fiscal year 2007, an increase of 41.2%.
Billed minutes for fiscal year 2008 were 61 billion, up 48.8% from 41 billion minutes during fiscal year 2007.
Network and facilities expenses for fiscal year 2008 were $40.3 million, compared to $30.2 million for fiscal year 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 $30.9 million during fiscal year 2008, compared to $26.7 million for fiscal year 2007. The increase was primarily due to higher employee expenses, including additional headcount associated with our business growth.
Income from operations for fiscal year 2008 was $35.4 million, or 29.3% of revenue, compared to $17.7 million for fiscal year 2007, or 20.7% of revenue.
Pretax income for fiscal year 2008 was $36.8 million, up 194.4% from $12.5 million during fiscal year 2007.
Income tax expense for fiscal year 2008 was $12.8 million, compared to income tax expense of $6.2 million for fiscal year 2007. The effective tax rate during fiscal year 2008 was approximately 35%, compared to an effective tax rate of approximately 50% for fiscal year 2007.
Net income was $24 million for fiscal year 2008, or $0.72 per diluted share, compared to $6.3 million, or $0.24 per diluted share during fiscal year 2007.
Adjusted EBITDA, a non-GAAP measure, for fiscal year 2008 was $51.4 million, up approximately 73.1% compared to $29.7 million during fiscal year 2007. The Adjusted EBITDA margin for fiscal year 2008 was 42.5%, up from 34.7% for fiscal year 2007. Included in Adjusted EBITDA for fiscal year 2008 is the impairment of fixed assets of $0.2 million and other expenses totaling $1.1 million, partially offset by one time income items totaling $0.6 million. The other expense of $1.1 million consists of $0.5 million incurred in connection with our follow-on offering in 2008 and a $0.6 million write down related to an investment in auction rate securities. 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
Neutral Tandem's forecasts are based on actual results for the full year 2008, and management's current belief about minute-based revenue trends, expenses, and the competitive environment.
Neutral Tandem estimates:
-- Revenue for the full year of 2009 is expected to be between
$151 million and $158 million.
-- Adjusted EBITDA, a non-GAAP financial measure, for the full
year of 2009 is expected to be between $66 million and $70
million.
-- Billed minutes for the full year of 2009 are estimated to
be between 81 billion and 85 billion minutes.
-- Capital expenditures for the full year of 2009 are expected
to be between $18 million and $20 million.
-- Operations to commence in 30 new markets during the full year
of 2009.
Wren concluded, "I am very pleased with the excellent results for 2008. Neutral Tandem's performance demonstrates the success of our balanced approach to pursue new growth opportunities and manage resources to implement our strategic initiatives. We believe that the scalability of our business model, the strength of our service offerings and the commitment to meet our customers' needs will continue to drive the development of Neutral Tandem."
Webcast and Conference Call
A webcast and conference call will be held today, February 5, 2009 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 800-240-2430 (within the United States and Canada), or 303-262-2137 (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 March 7, 2009. 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: 11125691#.
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 Reports on form 10-Q for the periods ended June 30, 2008 and September 30, 2008, respectively. 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 telephony companies. 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 December 31, 2008, Neutral Tandem was capable of connecting approximately 391 million telephone numbers assigned to carriers. Telephone numbers assigned to a carrier may not necessarily be assigned to, and in use by, an end user. 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 Year Ended
December 31, December 31,
-----------------------------------------
2008 2007 2008 2007
------------------ -------------------
Revenue $34,944 $24,815 $120,902 $85,555
Operating Expense:
Network and facilities
expense (excluding
depreciation and
amortization) 10,616 8,746 40,327 30,163
Operations 4,444 3,802 16,929 15,536
Sales and marketing 479 535 1,940 1,770
General and
administrative 3,091 2,053 12,104 9,426
Depreciation and
amortization 4,376 3,310 14,023 11,076
Impairment of fixed
assets -- -- 195 --
Gain on disposal of
fixed assets (11) (6) (11) (144)
------- ------- -------- -------
Total operating
expense 22,995 18,440 85,507 67,827
------- ------- -------- -------
Income from operations 11,949 6,375 35,395 17,728
------- ------- -------- -------
Other (income) expense
Interest expense,
including debt
discount of $22, 32,
95 and $139
respectively 167 350 924 1,668
Interest income (907) (682) (3,474) (1,321)
Other expense 581 -- 1,131 --
Change in fair value of
warrants -- 2,607 -- 4,919
------- ------- -------- -------
Total other (income)
expense (159) 2,275 (1,419) 5,266
------- ------- -------- -------
Income before income taxes 12,108 4,100 36,814 12,462
Provision for income taxes 3,919 2,293 12,794 6,204
------- ------- -------- -------
Net income $ 8,189 $ 1,807 $ 24,020 $ 6,258
======= ======= ======== =======
Net income per share:
Basic $ 0.25 $ 0.09 $ 0.76 $ 0.68
======= ======= ======== =======
Diluted $ 0.25 $ 0.06 $ 0.72 $ 0.24
======= ======= ======== =======
Weighted average number
of shares outstanding:
Basic 32,277 20,907 31,790 9,248
======= ======= ======== =======
Diluted 33,379 30,416 33,236 26,378
======= ======= ======== =======
NEUTRAL TANDEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
Dec. 31, Dec. 31,
2008 2007
---------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 110,414 $112,020
Receivables 16,785 12,104
Deferred tax asset-current 3,003 2,242
Other current assets 1,795 1,016
---------- --------
Total current assets 131,997 127,382
Property and equipment-net 45,266 37,410
Restricted cash 440 419
Investments and other assets 18,802 805
---------- --------
Total assets $ 196,505 $166,016
========== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 258 $ 575
Accrued liabilities:
Circuit cost 3,358 5,694
Rent 1,183 1,163
Payroll and related items 952 1,692
Other 2,192 2,768
Current installments of
long-term debt 2,961 4,384
---------- --------
Total current liabilities 10,904 16,276
Other liabilities 191 527
Deferred tax liability-noncurrent 5,309 2,095
Long-term debt -excluding current
installments 235 3,196
---------- --------
Total liabilities 16,639 22,094
Commitments and contingencies
Shareholders' equity:
Preferred stock-par value of
$.001; 50,000,000 authorized
shares; no shares issued and
outstanding December 31, 2008
and December 31, 2007 -- --
Common stock-par value of
$.001; 150,000,000
authorized shares;
32,357,383 shares and
30,832,939 shares issued and
outstanding at December 31,
2008 and December 31, 2007,
respectively 32 32
Warrants -- 6,920
Additional paid-in capital 151,733 132,889
Accumulated earnings 28,101 4,081
---------- --------
Total shareholders' equity 179,866 143,922
---------- --------
Total liabilities and
shareholders' equity $ 196,505 $166,016
========== ========
NEUTRAL TANDEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Year Ended December 31,
-------------------------------
2008 2007
---------- --------
Cash Flows From Operating
Activities:
Net income $ 24,020 $ 6,258
Adjustments to reconcile net
cash flows from operating
activities:
Depreciation and
amortization 14,023 11,076
Deferred tax 2,453 526
Impairment of fixed assets 195 --
Gain on disposal of fixed
assets (11) (144)
Non-cash share-based
compensation 3,067 906
Amortization of debt
discount 95 139
Changes in fair value of
warrants -- 4,919
Changes in fair value of
auction rate securities 1,957 --
Change in fair value of
rights agreement (1,376) --
Tax benefit associated with
stock option exercise (7,600) --
Changes in assets and
liabilities:
Receivables-net (4,681) (4,228)
Other current assets (844) (150)
Other noncurrent assets 247 174
Accounts payable (25) (671)
Accrued liabilities 3,534 5,228
Noncurrent liabilities 98 108
---------- --------
Net cash flows from
operating activities 35,152 24,141
---------- --------
Cash Flows From Investing
Activities:
Purchase of equipment (22,301) (20,149)
Proceeds from sale of
equipment 11 224
Increase in restricted cash (21) (22)
Purchase of investments (25,150) --
Sale of investments 6,325 --
---------- --------
Net cash flows from
investing activities (41,136) (19,947)
---------- --------
Cash Flows From Financing
Activities:
Proceeds from the issuance
of common shares associated
with stock option exercise 1,257 1,924
Proceeds from the issuance
of common shares, net of
issuance cost -- 91,279
Tax benefit associated with
stock option exercise 7,600 --
Principal payments on
long-term debt (4,479) (5,461)
---------- --------
Net cash flows from
financing activities 4,378 87,742
---------- --------
Net Increase in Cash and
Cash Equivalents (1,606) 91,936
Cash and Cash Equivalents
-Beginning 112,020 20,084
---------- --------
Cash and Cash Equivalents-End $ 110,414 $ 112,020
========== ========
Supplemental Disclosure of
Cash Flow Information:
Cash paid for interest $ 1,022 $ 1,258
========== ========
Cash paid for taxes $ 3,264 $ 3,385
========== ========
Cash refunded for taxes $ -- $ 542
========== ========
Supplemental Disclosure of
Noncash Flow Items:
Investing Activity-Accrued
purchases of equipment $ 171 $ 463
========== ========
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 of 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)
------------------ -------------------- ---------
Three Months Ended Year Ended Year Ended
December 31, December 31, Dec. 31,
------------------ -------------------- --------
2008 2007 2008 2007 2009 (1)
-------- ------- -------- ------- --------
Net income $ 8,189 $ 1,807 $ 24,020 $ 6,258 $ 31,800
Interest
expense
(income),
net (740) (332) (2,550) 347 (2,500)
Provision
for income
taxes 3,919 2,293 12,794 6,204 18,500
Depreciation
and
amortization 4,376 3,310 14,023 11,076 15,000
-------- ------- -------- ------- --------
EBITDA $ 15,744 $ 7,078 $ 48,287 $ 23,885 $62,800
Non-cash
share-based
compensation 1,040 239 3,067 906 5,200
Change in
fair value
of warrants -- 2,607 -- 4,919 --
-------- ------- -------- ------- --------
Adjusted
EBITDA $ 16,784 $ 9,924 $ 51,354 $29,710 $ 68,000
======== ======= ======== ======= ========
(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.