TNS, Inc. Announces First Quarter 2008 Financial Results
RESTON, Va., May 05, 2008 (BUSINESS WIRE) --
Company: TNS Inc (TNS)
TNS, Inc. (NYSE: TNS), a leading provider of business-critical, cost-effective data communications services for transaction-oriented applications, today reported its first quarter 2008 results.
Total revenue for the first quarter of 2008 increased 15.8% to $84.1 million from first quarter 2007 revenue of $72.7 million. Gross margin in the first quarter of 2008 was 51.6%, an increase of 510 basis points from first quarter 2007 gross margin of 46.5%.
First quarter 2008 GAAP net income was $1.6 million, or $0.06 per share, versus first quarter 2007 GAAP net loss of $3.2 million, or $(0.13) per share. Included in selling, general and administrative expenses for the first quarter 2008 was a $0.9 million pre-tax benefit associated with the settlement of a state sales tax liability. Included in the first quarter of 2007 is a pre-tax charge to earnings of $0.9 million related to executive severance. Excluding these items and the related tax effects from both periods, first quarter 2008 net income was $0.7 million, or $0.03 per share, versus a net loss of $2.6 million, or $(0.11) per share, in first quarter 2007.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) before stock compensation expense for the first quarter of 2008 increased 47.8% to $19.7 million versus $13.4 million for the first quarter of 2007. Excluding the first quarter 2008 pre-tax benefit and the first quarter 2007 pre-tax charge, EBITDA before stock compensation expense increased 31.8% to $18.9 million from $14.3 million.
As previously reported, beginning in 2008 TNS has lowered the tax rate used in the calculation of adjusted earnings to 20% from the 38% rate used previously (see "Financial Measures" below). This 20% rate approximates the Company's expected cash tax rate following changes recently implemented to align the Company's tax structure more closely with its business operations.
Adjusted earnings, reported on the 20% tax rate for both periods, grew 78.6% to $8.3 million, or $0.33 per share, for the first quarter of 2008 compared to adjusted earnings of $4.6 million, or $0.19 per share, for the first quarter of 2007. Excluding the first quarter 2008 benefit and the first quarter 2007 charge, first quarter 2008 adjusted earnings grew 40.1% to $7.5 million, or $0.30 per share, from $5.4 million, or $0.22 per share, in first quarter 2007. (EBITDA before stock compensation expense, adjusted earnings and adjusted earnings per share are non-GAAP measures. See "Financial Measures" below for a discussion of these metrics.) The table below clarifies adjusted earnings and adjusted earnings per share calculated on both the 38% and the 20% tax rates, and excludes the first quarter 2008 benefit and first quarter 2007 charge.
(In millions, except per share and share amounts)
First
Quarter First Quarter
2008 2007
---------- ------------------------------------------
At 20% At 20% At 38%
Rate Rate % Change Rate % Change
Revenues $84.1 $72.7 15.8% $72.7 15.8%
Calculation of
adjusted
earnings
-----------------
Pretax adjusted
earnings $9.4 $6.7 40.1% $6.7 40.1%
Taxes $1.9 $1.3 40.1% $2.5 (24.0)%
---------- ---------- --------- ---------- ----------
After tax
adjusted
earnings $7.5 $5.4 40.1% $4.2 80.7%
Earnings per
share $0.30 $0.22 36.7% $0.17 76.5%
Weighted average
diluted shares
outstanding 24,807,068 24,205,783 2.5% 24,205,783 2.5%
Henry H. Graham, Jr., CEO, commented, "TNS is off to a great start in 2008, with first quarter revenues and adjusted earnings exceeding our outlook. Sales continue to grow strongly, driving increases in earnings and cash flow. Sales growth was mainly attributable to increased transaction volumes of our international POS business and the ongoing integration of our card-not-present services in our International Services Division and the ramp of new cable customers in our Telecommunication Services Division. Our Financial Services Division also performed well with sales of large bandwidth installations progressing in line with expectations during the quarter. While POS division sales were below our expectations, we continued to install new broadband sites during the quarter. Overall, our momentum in sales, profitability and cash flow generation continues, positioning us very well to achieve our growth objectives for the year."
Financial Review:
First Quarter 2008
-- First quarter 2008 total revenue increased 15.8% to $84.1 million from first quarter 2007 revenue of $72.7 million. Included in revenue are the following components:
-- Revenue from the International Services Division
increased 31.8% to $37.2 million from first quarter 2007
revenue of $28.2 million. On a constant dollar basis, first
quarter 2008 revenues would have increased 23.8% to $34.9
million. Excluding the benefit of foreign exchange, ISD
revenue increased primarily through higher transaction
volumes and increased broadband connections from POS
customers in Europe, the inclusion of Dialect revenue, and
additional connections from financial services customers.
-- Revenue from the Financial Services Division increased
10.3% to $10.7 million from first quarter 2007 revenue of
$9.7 million as a result of continued growth in the number
of customer connections and endpoints as well as increases
in the average revenue per endpoint from higher bandwidth
installations.
-- Revenue from the Telecommunication Services Division
increased 19.7% to $17.8 million from first quarter 2007
revenue of $14.9 million due to additional cable customer
traffic which more than offset the effect of pricing
compression.
-- Revenue from the POS Division decreased 7.3% to $18.4
million on 1.31 billion transactions from $19.8 million in
first quarter 2007 on 1.43 billion transactions. The
decrease in POS division revenue was primarily attributable
to a customer moving a portion of its dial-up volume off
the Company's network in connection with this customer's
vendor diversification policy. This was partially offset by
revenue generated from managed broadband products.
-- First quarter 2008 gross margin increased 510 basis points to 51.6% from 46.5% in the first quarter of 2007. The improvement in gross margin was primarily a result of increased contributions from ISD, the company's highest gross margin division, and continued focus on cost control of key supplier contracts in our POS division.
Outlook:
For the Full Year 2008, TNS continues to anticipate:
(In millions, except per share amounts)
Full Year Full Year
2008 2007
------------- ---------------------------------
At 20% At 38%
At 20% Rate Rate % Change Rate % Change
Revenues $355 - $363 $325.6 9% - 11% $325.6 9% - 11%
Calculation of adjusted
earnings
-----------------------
Pretax adjusted
earnings $46.2 - $50.2 $40.6 14% - 24% $40.6 14% - 24%
Taxes $9.2 - $10.0 $8.1 14% - 24% $15.4 (40%-35)%
------------- ------ --------- ------ ---------
After tax adjusted
earnings $37.0 - $40.2 $32.5 14% - 24% $25.2 47% - 60%
Earnings per share $1.50 - $1.63 $1.24 12% - 22% $1.04 44% - 57%
For the Second Quarter of 2008, TNS anticipates:
(In millions, except per share amounts)
Second Second
Quarter Quarter
2008 2007
------------- --------------------------------
At
At 20% 38%
At 20% Rate Rate % Change Rate % Change
Revenues $88 - $90 $79.4 11% - 13% $79.4 11% - 13%
Calculation of adjusted
earnings
------------------------
Pretax adjusted earnings$12.2 - $13.4 $9.2 33% - 46% $9.2 33% - 46%
Taxes $2.5 - $2.7 $1.8 33% - 46% $3.5 (29%-33)%
------------- ------ --------- ----- ---------
After tax adjusted
earnings $9.7 - $10.7 $7.4 33% - 46% $5.7 70% - 88%
Earnings per share $0.39 - $0.43 $0.30 30% - 43% $0.24 63% - 79%
Please note that both the Full Year 2008 Outlook and the 2007 Full Year and Second Quarter results exclude the non-recurring items previously disclosed.
Dennis L. Randolph, Jr., Executive Vice President and CFO, commented, "TNS' first quarter 2008 results demonstrate the benefits of our highly scaleable model and increased operating leverage that converted solid top-line execution into adjusted earnings growth. During the quarter, we generated over $9 million in free cash flow, representing substantial growth over last year, and prepaid an additional $4 million of long-term debt. We are re-affirming our guidance for the full year and establishing a second quarter outlook that we expect will result in adjusted earnings growth of 30%-43%."
Financial Measures
In addition to the results presented in accordance with generally accepted accounting principles, or GAAP, in this press release, the company presents EBITDA before stock compensation expense, adjusted earnings and adjusted earnings per share, which are non-GAAP measures. EBITDA is determined by taking income from operations and adding back certain non-cash items, including amortization of intangible assets, depreciation and amortization of property and equipment and stock compensation expense. Adjusted earnings is determined by taking pretax income or loss after equity in net loss of unconsolidated affiliates and adding back certain non-cash items, including amortization of intangible assets, stock compensation expense and the write-off of debt issuance costs, and the result is tax effected at a 20% rate (2007: 38%). The company believes that these non-GAAP measures, viewed in addition to and not in lieu of the company's reported GAAP results, provide useful information to investors because these metrics provide a more focused measure of operating results. These metrics are an integral part of the company's internal reporting to measure operations of the company and the performance of senior management. A reconciliation to comparable GAAP measures is available in the accompanying schedule. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other companies.
Conference Call
TNS will hold a conference to discuss first quarter 2008 results today, May 5, 2008, at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 617-597-5347, passcode #90310965. The call is also being webcast, and there will be an accompanying slide presentation, which can be accessed at www.tnsi.com. For those who cannot listen to the live broadcast, a replay of the call will be available from May 5, 2008, at 7:00 p.m. Eastern Time through May 12, 2008, and can be accessed by dialing 617-801-6888, passcode #90137913.
About TNS
Transaction Network Services (TNS) is an international data communications company that enables payments, money and voices to move around the world.
TNS' mission is to enable the world to transact. It does this through a broad range of networking, data communications and value added services, which it provides to many of the world's leading retailers, banks/processors, telecommunications companies and financial markets.
Since its inception in 1990, TNS has designed and implemented multiple data networks, each designed specifically for the transport of transaction-oriented data. TNS' networks support a variety of widely accepted communications protocols and are designed to be scalable and accessible by multiple methods. Today, TNS has offices throughout the world serving customers in 28 countries with the ability to provide services in other countries. For further information about TNS, please visit www.tnsi.com.
Forward-Looking Statements
The statements contained in this release that are not historical facts are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in, or implied by, the forward-looking statements. The company has attempted, whenever possible, to identify these forward-looking statements using words such as "may," "will," "should," "projects," "estimates," "expects," "plans," "intends," "anticipates," "believes," and variations of these words and similar expressions. Similarly, statements herein that describe the company's business strategy, prospects, opportunities, outlook, objectives, plans, intentions or goals are also forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: the company's reliance upon a small number of customers for a significant portion of its revenue; competitive factors such as pricing pressures; uncertainties related to the updated international tax planning strategy implemented by the company; the company's ability to grow its business domestically and internationally by generating greater transaction volumes, acquiring new customers or developing new service offerings; fluctuations in the company's quarterly results because of the seasonal nature of the business and other factors outside of the company's control; the company's ability to identify, execute or effectively integrate acquisitions; increases in the prices charged by telecommunication providers for services used by the company; the company's ability to adapt to changing technology; additional costs related to compliance with the Sarbanes-Oxley Act of 2002, any revised New York Stock Exchange listing standards, Securities and Exchange Commission (SEC) rule changes or other corporate governance issues; and other risk factors described in the company's annual report on Form 10-K filed with the SEC on March 17, 2008. In addition, the statements in this press release are made as of May 5, 2008. The company expects that subsequent events or developments will cause its views to change.
The company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectations or otherwise. These forward-looking statements should not be relied upon as representing the company's views as of any date subsequent to May 5, 2008.
TNS, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended
March 31, March 31,
2008 2007
Revenues $ 84,125 $ 72,661
Operating expenses:
Cost of network services 40,707 38,871
Engineering and development 7,199 6,362
Selling, general, and administrative 19,445 17,175
Depreciation and amortization of property and
equipment 5,967 5,804
Amortization of intangible assets 6,098 6,112
Total operating expenses(1,2) 79,416 74,324
Income (loss) from operations 4,709 (1,663)
Interest expense (3,709) (3,967)
Interest income and other income 249 890
Income (loss) before income taxes and equity
in net loss of unconsolidated affiliates 1,249 (4,740)
Income tax benefit 352 1,577
Equity in net loss of unconsolidated
affiliates - (64)
Net income (loss) 1,601 (3,227)
Basic earnings per share:
Net income (loss) $ 0.07 $ (0.13)
Diluted earnings per share:
Net income (loss) $ 0.06 $ (0.13)
Basic weighted average common shares
outstanding 24,309,655 24,135,264
Diluted weighted average common shares
outstanding 24,807,068 24,135,264
FOOTNOTES:
(1) Included in operating expenses for the first quarter of 2008 is
a pretax benefit related to the settlement of a state sales tax
liability of $0.9 million. First quarter 2008 net income
excluding the $0.9 million settlement was approximately $0.7
million, or $0.03 per share.
(2) Included in operating expenses for the first quarter of 2007 is
a pre-tax charge to earnings of approximately $0.9 million
related to severance. First quarter 2007 net loss excluding the
$0.9 million pre-tax charge was $2.6 million, or $0.11 per
share.
TNS, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, December 31,
2008 2007
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 22,856 $ 17,805
Accounts receivable, net 72,707 75,112
Other current assets 14,032 15,517
------------ ------------
Total current assets 109,595 108,434
Property and equipment, net 56,545 55,376
Goodwill and identifiable intangible assets,
net 189,135 193,843
Other assets 27,469 25,445
------------ ------------
Total assets $ 382,744 $ 383,098
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and other
current liabilities $ 57,312 $ 57,069
Deferred revenue 18,276 18,521
------------ ------------
Total current liabilities 75,588 75,590
Long-term debt 201,500 205,500
Other liabilities 6,901 9,736
------------ ------------
Total liabilities 283,989 290,826
Total stockholders' equity 98,755 92,272
------------ ------------
Total liabilities and stockholders' equity$ 382,744 $ 383,098
============ ============
TNS, Inc.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31, March 31,
2008 2007
---------- -----------
Net income (loss) $ 1,601 $ (3,227)
Non-cash items 13,343 16,296
Working capital items 726 (4,646)
----------------------
Net cash provided by operating activities: 15,670 8,423
Purchases of property and equipment, net (6,664) (4,896)
Proceeds from sale of property and equipment - 2,164
----------------------
Net cash used in investing activities: (6,664) (2,732)
Proceeds from issuance of long-term debt, net - 221,949
Repayment of long-term debt (4,000) (123,313)
Restricted cash for dividend payment - (102,267)
Proceeds from tax benefits for stock option
expense 200 -
Payment of long-term debt financing costs (75) -
Proceeds from stock option exercise 587 30
Purchase of treasury stock (1,233) (690)
----------------------
Net cash used in by financing activities: (4,521) (4,291)
Effect of exchange rates on cash and cash
equivalents 566 10
----------------------
Net increase in cash and cash equivalents 5,051 1,410
Cash and cash equivalents, beginning of period 17,805 17,322
----------------------
Cash and cash equivalents, end of period $ 22,856 $ 18,732
======================
TNS, Inc.
Reconciliation of Non-GAAP Information
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended
March 31, March 31,
2008 2007
---------- ----------
EBITDA before stock compensation expense:
Income (loss) from operations(GAAP) $ 4,709 $ (1,663)
Add back the following items:
Depreciation and amortization of property
and equipment 5,967 5,804
Amortization of intangible assets 6,098 6,112
Stock compensation expense 2,965 3,100
EBITDA before stock compensation
-------------------------
Expense (1,2) $ 19,739 $ 13,353
=========================
Adjusted Earnings:
Income (loss) before income taxes and
equity in net loss of unconsolidated
affiliates (GAAP) $ 1,249 $ (4,740)
Add back the following items:
Equity in net loss of unconsolidated
affiliates - (64)
Amortization of intangible assets 6,098 6,112
Other debt related costs - 1,368
Stock compensation expense 2,965 3,100
-------------------------
Adjusted earnings before income taxes 10,312 5,776
Income tax provision at 20%(3) (2,062) (1,155)
-------------------------
Adjusted earnings (4,5) $ 8,250 $ 4,621
=========================
Weighted average common shares - diluted 24,807,068 24,205,783
Adjusted earnings per common share - diluted
(6) $ 0.33 $ 0.19
FOOTNOTES:
(1) Excluding the $(0.9) million pretax benefit from the state sales
tax settlement, EBITDA before stock compensation expense for the
first quarter of 2008 was $18.9 million.
(2) Excluding the $0.9 million pre-tax charge for severance, EBITDA
before stock compensation expense for the first quarter of 2007
was $14.3 million.
(3) Income tax provision for both 2007 and 2008 has been calculated
using a 20% rate. As previously reported under the company's 38%
old tax rate, the income tax provision for the first quarter of
2007 was $2.2 million.
(4) Excluding the $0.9 million pretax benefit from the state sales tax
settlement, adjusted earnings for the first quarter of 2008 were
$7.5 million, or $0.30 per share.
(5) Excluding the $0.9 million pre-tax charge for severance, adjusted
earnings for the first quarter of 2007 were $5.4 million, or
$0.22 per share based on the 20% tax rate.
(6) Adjusted earnings per common share for the first quarter of 2007,
based on the 38% old tax rate were $0.15 per share and excluding
the severance charge was $0.17 per share, as previously reported.
SOURCE: TNS, Inc.
TNS, Inc. Investor Relations, 703-453-8459 investorrelations@tnsi.com or Lippert/Heilshorn & Associates Jody Burfening/Carolyn Capaccio, 212-838-3777
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Company: TNS Inc (TNS)
