INTELIQUENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
89,535
|
|
|
$
|
77,004
|
|
Receivables net of allowance of $2,072 and $900, respectively
|
|
|
32,280
|
|
|
|
22,200
|
|
Deferred income taxes current
|
|
|
957
|
|
|
|
720
|
|
Prepaid expenses
|
|
|
3,238
|
|
|
|
2,375
|
|
Other current assets
|
|
|
882
|
|
|
|
1,977
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
126,892
|
|
|
|
104,276
|
|
Property and equipment net
|
|
|
23,810
|
|
|
|
25,815
|
|
Restricted cash
|
|
|
345
|
|
|
|
125
|
|
Deferred income taxes noncurrent
|
|
|
3,924
|
|
|
|
5,495
|
|
Other assets
|
|
|
1,550
|
|
|
|
1,534
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
156,521
|
|
|
$
|
137,245
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
951
|
|
|
$
|
2,176
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Taxes payable
|
|
|
1,438
|
|
|
|
2,437
|
|
Circuit cost
|
|
|
9,377
|
|
|
|
8,987
|
|
Rent
|
|
|
2,060
|
|
|
|
2,071
|
|
Payroll and related items
|
|
|
3,639
|
|
|
|
3,079
|
|
Other
|
|
|
923
|
|
|
|
1,674
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
18,388
|
|
|
|
20,424
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock par value of $.001; 50,000 authorized shares; no shares issued and outstanding at June 30, 2014 and
December 31, 2013
|
|
|
|
|
|
|
|
|
Common stock par value of $.001; 150,000 authorized shares; 33,109 shares and 32,215 shares issued and outstanding at
June 30, 2014 and December 31, 2013, respectively
|
|
|
33
|
|
|
|
32
|
|
Less treasury stock, at cost; 3,351 shares at June 30, 2014 and December 31, 2013
|
|
|
(51,668
|
)
|
|
|
(51,668
|
)
|
Additional paid-in capital
|
|
|
211,584
|
|
|
|
203,989
|
|
Accumulated deficit
|
|
|
(21,816
|
)
|
|
|
(35,532
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
138,133
|
|
|
|
116,821
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
156,521
|
|
|
$
|
137,245
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
INTELIQUENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(In thousands, except per share amounts)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Revenue
|
|
$
|
54,881
|
|
|
$
|
53,449
|
|
|
$
|
111,098
|
|
|
$
|
112,737
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network and facilities expense (excluding depreciation and amortization)
|
|
|
23,129
|
|
|
|
24,053
|
|
|
|
48,019
|
|
|
|
48,689
|
|
Operations
|
|
|
7,202
|
|
|
|
7,508
|
|
|
|
14,509
|
|
|
|
15,306
|
|
Sales and marketing
|
|
|
818
|
|
|
|
1,526
|
|
|
|
1,494
|
|
|
|
3,560
|
|
General and administrative
|
|
|
5,254
|
|
|
|
4,535
|
|
|
|
9,054
|
|
|
|
9,034
|
|
Depreciation and amortization
|
|
|
3,010
|
|
|
|
3,699
|
|
|
|
6,151
|
|
|
|
8,212
|
|
(Gain) loss on disposal of fixed assets
|
|
|
(31
|
)
|
|
|
223
|
|
|
|
(31
|
)
|
|
|
223
|
|
Loss (gain) on sale of Americas data assets
|
|
|
|
|
|
|
(23,171
|
)
|
|
|
1,081
|
|
|
|
(23,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
39,382
|
|
|
|
18,373
|
|
|
|
80,277
|
|
|
|
61,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
15,499
|
|
|
|
35,076
|
|
|
|
30,821
|
|
|
|
50,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income)
|
|
|
17
|
|
|
|
(13
|
)
|
|
|
19
|
|
|
|
(52
|
)
|
Other (income) expense
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense (income)
|
|
|
15
|
|
|
|
(17
|
)
|
|
|
17
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
15,484
|
|
|
|
35,093
|
|
|
|
30,804
|
|
|
|
50,935
|
|
Provision for income taxes
|
|
|
6,036
|
|
|
|
741
|
|
|
|
12,163
|
|
|
|
4,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
9,448
|
|
|
|
34,352
|
|
|
|
18,641
|
|
|
|
46,588
|
|
Loss from discontinued operations, net of income tax provision
|
|
|
|
|
|
|
1,698
|
|
|
|
|
|
|
|
7,034
|
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
(794
|
)
|
|
|
|
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,448
|
|
|
$
|
33,448
|
|
|
$
|
18,641
|
|
|
$
|
40,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
|
$
|
1.05
|
|
|
$
|
0.57
|
|
|
$
|
1.44
|
|
Diluted
|
|
$
|
0.28
|
|
|
$
|
1.05
|
|
|
$
|
0.57
|
|
|
$
|
1.44
|
|
Loss per share discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
|
|
|
$
|
(0.03
|
)
|
|
$
|
|
|
|
$
|
(0.20
|
)
|
Diluted
|
|
$
|
|
|
|
$
|
(0.03
|
)
|
|
$
|
|
|
|
$
|
(0.20
|
)
|
Earnings per share net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
|
$
|
1.02
|
|
|
$
|
0.57
|
|
|
$
|
1.24
|
|
Diluted
|
|
$
|
0.28
|
|
|
$
|
1.02
|
|
|
$
|
0.57
|
|
|
$
|
1.24
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,832
|
|
|
|
31,629
|
|
|
|
32,554
|
|
|
|
31,585
|
|
Diluted
|
|
|
33,369
|
|
|
|
31,629
|
|
|
|
32,892
|
|
|
|
31,585
|
|
Dividends paid per share:
|
|
$
|
0.08
|
|
|
$
|
1.31
|
|
|
$
|
0.15
|
|
|
$
|
1.31
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
INTELIQUENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net income
|
|
$
|
9,448
|
|
|
$
|
33,448
|
|
|
$
|
18,641
|
|
|
$
|
40,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustments
|
|
|
|
|
|
|
5,078
|
|
|
|
|
|
|
|
4,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
|
|
|
|
5,078
|
|
|
|
|
|
|
|
4,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
9,448
|
|
|
$
|
38,526
|
|
|
$
|
18,641
|
|
|
$
|
45,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
INTELIQUENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
(In thousands)
|
|
2014
|
|
|
2013
|
|
Operating
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
18,641
|
|
|
$
|
40,348
|
|
Adjustments to reconcile net income to net cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,151
|
|
|
|
9,455
|
|
Deferred income taxes
|
|
|
1,334
|
|
|
|
(1,884
|
)
|
(Gain) loss on disposal of fixed assets
|
|
|
(31
|
)
|
|
|
490
|
|
Loss (gain) on disposal of Americas data assets
|
|
|
1,081
|
|
|
|
(23,171
|
)
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
(794
|
)
|
Non-cash share-based compensation
|
|
|
2,110
|
|
|
|
3,930
|
|
Loss on intercompany foreign exchange transactions
|
|
|
|
|
|
|
56
|
|
Excess tax (benefit) deficiency associated with share-based payments
|
|
|
(753
|
)
|
|
|
504
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(10,080
|
)
|
|
|
(3,860
|
)
|
Other current assets
|
|
|
(849
|
)
|
|
|
1,933
|
|
Other noncurrent assets
|
|
|
(16
|
)
|
|
|
(44
|
)
|
Accounts payable
|
|
|
(104
|
)
|
|
|
198
|
|
Accrued liabilities
|
|
|
(2,570
|
)
|
|
|
3,252
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
14,914
|
|
|
|
30,413
|
|
|
|
|
|
|
|
|
|
|
Investing
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(5,267
|
)
|
|
|
(7,982
|
)
|
Proceeds from sale of equipment
|
|
|
33
|
|
|
|
28
|
|
Proceeds from disposition of discontinued operations, net of transaction costs
|
|
|
|
|
|
|
9,709
|
|
Proceeds from disposition of Americas data assets, net of transaction costs
|
|
|
|
|
|
|
37,092
|
|
(Increase) decrease in restricted cash
|
|
|
(220
|
)
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities
|
|
|
(5,454
|
)
|
|
|
39,684
|
|
|
|
|
|
|
|
|
|
|
Financing
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
|
7,720
|
|
|
|
220
|
|
Restricted shares withheld to cover employee taxes paid
|
|
|
(477
|
)
|
|
|
(365
|
)
|
Dividends paid
|
|
|
(4,925
|
)
|
|
|
(42,650
|
)
|
Payments made for repurchase of common stock
|
|
|
|
|
|
|
(1,565
|
)
|
Excess tax benefit (deficiency) associated with share-based payments
|
|
|
753
|
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
3,071
|
|
|
|
(44,864
|
)
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
6
|
|
Net increase in cash and cash equivalents
|
|
|
12,531
|
|
|
|
25,239
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents Beginning
|
|
|
77,004
|
|
|
|
31,479
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents End
|
|
$
|
89,535
|
|
|
$
|
56,718
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
14,261
|
|
|
$
|
1,187
|
|
Supplemental disclosure of noncash flow items:
|
|
|
|
|
|
|
|
|
Investing activity Accrued purchases of equipment
|
|
$
|
621
|
|
|
$
|
1,122
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
INTELIQUENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF THE BUSINESS
Organization
Inteliquent, Inc. (the Company) provides voice telecommunications services primarily on a
wholesale basis. The Company offers these services using an all-IP network, which enables the Company to deliver global connectivity for a variety of media, including voice and, historically, data and video. The Companys solutions enable
carriers and other providers to deliver voice traffic or other services where they do not have their own network or elect not to use their own network. These solutions are sometimes called off-net services.
On April 30, 2013, the Company sold its global data business to Global Telecom & Technology, Inc. (GTT) for $54.5 million,
subject to certain adjustments. The total consideration consisted of $52.5 million in cash, subject to net working capital adjustments, and $2.0 million of non-cash commercial IP Transit and point-to-point Ethernet data network services to be
provided to the Company by GTT free-of-charge for a three-year period. The $2.0 million of non-cash commercial services was calculated based upon the discounted present value of the market cost of such services as of the date on which the commercial
services agreement was signed with GTT. In addition, the Company recorded in its condensed consolidated statement of income, as part of its gain amount on the sale of its global data business, approximately $2.4 million for divestiture-related
costs, including legal and advisory services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Interim Condensed Consolidated Financial Statements
The accompanying condensed consolidated balance sheets as of
June 30, 2014 and December 31, 2013, the condensed consolidated statements of income for the three and six months ended June 30, 2014 and 2013, the condensed consolidated statements of comprehensive income for the three and six months
ended June 30, 2014 and 2013, and the condensed consolidated statements of cash flows for the six months ended June 30, 2014 and 2013 are unaudited. The condensed consolidated balance sheet data as of December 31, 2013 was derived
from the audited consolidated financial statements which are included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2013. The accompanying condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and related notes contained in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission applicable to interim periods. Certain information and footnote disclosures normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the unaudited
interim condensed consolidated financial statements as of June 30, 2014 and for the three and six months ended June 30, 2014 and 2013 have been prepared on the same basis as the audited consolidated statements and reflect all adjustments,
which are normal recurring adjustments, necessary for the fair presentation of its statement of financial position, results of operations and cash flows. The results of operations for the three and six months ended June 30, 2014 are not
necessarily indicative of the operating results for any subsequent quarter, for the full fiscal year or any future periods.
Changes
in Presentation
On April 30, 2013, the Company sold its global data business to GTT for $54.5 million, subject to certain adjustments. The Company determined that the appropriate level in which to assess discontinued operations
was at its reporting unit level. As such, the Companys Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) reporting units of the global data business consist of results of operations and cash flows that can be clearly distinguished
from the rest of the entity and are therefore reflected in the condensed consolidated statements of income and in the condensed consolidated balance sheets as discontinued operations. Historical information related to these reporting units have been
reclassified accordingly. The Americas reporting unit of the global data business does not consist of results of operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the
entity. This reporting unit does not qualify for discontinued operations accounting treatment. Therefore, the Americas reporting unit of the global data business is reported in continuing operations in the condensed consolidated statements of income
and in the condensed consolidated balance sheets. Refer to Note 9, Business Disposition, for more information regarding the sale of the global data business.
7
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of 90 days or less to be cash and cash equivalents. The carrying values of the Companys cash and cash equivalents approximate fair value. At June 30, 2014, the Company had $37.7 million of cash
in banks and $51.8 million in three money market mutual funds. At December 31, 2013, the Company had $35.2 million of cash in banks and $41.8 million in three money market mutual funds.
Fair Value Measurements
Certain assets and liabilities are required to be recorded at fair value on a recurring
basis. Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants. Assets measured at fair value on a nonrecurring basis include long-lived assets held and used. The fair value of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values. The
three-tier value hierarchy, which prioritizes valuation methodologies based on the reliability of the inputs, is:
Level 1 Valuations
based on quoted prices for identical assets and liabilities in active markets.
Level 2 Valuations based on observable inputs other
than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or
can be corroborated by observable market data.
Level 3 Valuations based on unobservable inputs reflecting the Companys own
assumptions, consistent with reasonably available assumptions made by other market participants.
Property and Equipment
Property and equipment is recorded at cost. These values are depreciated over the estimated useful lives of the individual assets using the straight-line method. Any gains and losses from the disposition of property and equipment are included
in operations as incurred. The estimated useful life for network equipment and tools and test equipment is five years. The estimated useful life for computer equipment, computer software and furniture and fixtures is three years. Leasehold
improvements are amortized on a straight-line basis over an estimated useful life of five years or the life of the lease, whichever is less. The impairment of long-lived assets is periodically evaluated when events or changes in circumstances
indicate that a potential impairment has occurred.
Revenue Recognition
The Company generates revenue from sales of
its voice services. The Company maintains tariffs and executed service agreements with each of its customers in which specific fees and rates are determined. Voice revenue is recorded each month on an accrual basis based upon minutes of traffic
switched by the Companys network by each customer, which is referred to as minutes of use. The rates charged per minute are determined by contracts between the Company and its customers, or by filed and effective tariffs.
Prior to the sale of the Companys global data business in April 2013, IP Transit and Ethernet services revenues related to the
Companys Americas reporting unit for the first four months of 2013 were recorded each month on an accrual basis based upon bandwidth used by each customer. The rates charged were the total of a monthly fee for bandwidth (the Committed Traffic
Rate) plus additional charges for the sustained peak bandwidth used monthly in excess of the Committed Traffic Rate.
Earnings
(Loss) per Share
Basic earnings (loss) per share is computed based on the weighted average number of common shares and participating securities outstanding. Diluted earnings (loss) per share is computed based on the weighted average
number of common shares and participating securities outstanding adjusted by the number of additional shares that would have been outstanding during the period had the potentially dilutive securities been issued. Because the Company has capital that
is made up of both common shares and participating securities (non-vested shares), it is required to utilize the two-class method to calculate basic and diluted earnings (loss) per share. During the three and six months periods ended June 30,
2013, the Company distributed more cash, in the form of a dividend, than its current earnings for these periods, which resulted in negative undistributed earnings.
8
The following table presents a reconciliation of the numerators and denominators of basic and
diluted earnings (loss) per share of common stock based upon the two-class method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(In thousands, except per share amounts)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
9,448
|
|
|
$
|
34,352
|
|
|
$
|
18,641
|
|
|
$
|
46,588
|
|
Loss from discontinued operations, net of income tax provision
|
|
|
|
|
|
|
1,698
|
|
|
|
|
|
|
|
7,034
|
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
(794
|
)
|
|
|
|
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,448
|
|
|
$
|
33,448
|
|
|
$
|
18,641
|
|
|
$
|
40,348
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
32,832
|
|
|
|
31,629
|
|
|
|
32,554
|
|
|
|
31,585
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
537
|
|
|
|
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share
|
|
|
33,369
|
|
|
|
31,629
|
|
|
|
32,892
|
|
|
|
31,585
|
|
Earnings per share continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
0.29
|
|
|
$
|
1.05
|
|
|
$
|
0.57
|
|
|
$
|
1.44
|
|
Diluted as reported
|
|
$
|
0.28
|
|
|
$
|
1.05
|
|
|
$
|
0.57
|
|
|
$
|
1.44
|
|
Loss per share discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
|
|
|
$
|
(0.03
|
)
|
|
$
|
|
|
|
$
|
(0.20
|
)
|
Diluted as reported
|
|
$
|
|
|
|
$
|
(0.03
|
)
|
|
$
|
|
|
|
$
|
(0.20
|
)
|
Earnings per share net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
0.29
|
|
|
$
|
1.02
|
|
|
$
|
0.57
|
|
|
$
|
1.24
|
|
Diluted as reported
|
|
$
|
0.28
|
|
|
$
|
1.02
|
|
|
$
|
0.57
|
|
|
$
|
1.24
|
|
Outstanding share-based awards of 0.6 million, 4.3 million, 1.5 million and 4.3 million
were outstanding during the three months ended June 30, 2014 and June 30, 2013 and the six months ended June 30, 2014 and June 30, 2013, respectively, but were not included in the computation of diluted earnings per share because
the effect would have been antidilutive.
The undistributed earnings allocable to participating securities were $0.1 million and $0.2
million for the three months and six months ended June 30, 2014, respectively. The undistributed losses allocable to participating securities were $9.3 million and $2.4 million for the three months and six months ended June 30, 2013,
respectively.
Accounting for Stock-Based Compensation
The fair value of stock options is determined using the
Black-Scholes valuation model. This model takes into account the exercise price of the stock option, the fair value of the common stock underlying the stock option as measured on the date of grant and an estimation of the volatility of the common
stock underlying the stock option. Such value is recognized as expense over the service period, net of estimated forfeitures, using the straight line method. The estimation of stock awards that will ultimately vest requires judgment, and to the
extent actual results or updated estimates differ from the Companys current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected
forfeitures, including types of awards, employee class and historical experience. Actual results, and future changes in estimates, may differ from the Companys current estimates.
The amount of non-cash share-based expense recorded in the three months ended June 30, 2014 and 2013 was $1.1 million and $2.0 million,
respectively. The amount of non-cash share-based expense recorded in the six months ended June 30, 2014 and 2013 was $2.1 million and $3.9 million, respectively.
Compensation expense for non-vested shares is measured based upon the quoted closing market price for the stock on the date of grant. The
compensation cost is recognized on a straight-line basis over the vesting period. Refer to Note 5, Stock Options and Non-Vested Shares.
Stock Repurchase
On August 7, 2012, the Company announced that its Board of Directors authorized the repurchase of
up to $50.0 million of its outstanding common stock as part of a stock repurchase program. During the six months ended June 30, 2013, the Company repurchased approximately 0.3 million shares for $1.6 million under the program at an average
cost of $5.80 per share. The Company funded the purchase of the common shares using cash on hand. The stock repurchase was accounted for under the cost method, whereby the entire cost of the repurchased shares was recorded to treasury stock.
9
Foreign Currency Translation
As a result of the sale of the global data
business, the Company now operates substantially within the United States and is no longer exposed to any material foreign currency risk.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update
(ASU) No. 2014-09,
Revenue from Contracts with Customers
, that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant
judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The ASU is
effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Company has assessed the impact of this standard and does not believe that it will have a material impact on the
Companys financial position, results of operations or cash flows.
3. LEGAL PROCEEDINGS
From time to time, the Company is a party to legal proceedings arising in the normal course of its business. The Company
does not believe that it is a party to any pending legal action that could reasonably be expected to have a material effect on its business or operating results, financial position or cash flows.
4. INCOME TAXES
Income taxes were computed using an effective tax rate, which is subject to ongoing review and evaluation by the Company.
The Companys estimated effective income tax rate was 39.0% and 39.5% for the three and six months ended June 30, 2014, compared to 2.1% and 8.5% for the same respective periods last year.
The difference in the effective tax rate for the three and six months ended June 30, 2014 as compared to the three and six months ended
June 30, 2013 is due primarily to the tax impact of the sale of the data business in the prior year.
The Company has recorded a
valuation allowance against the capital loss created by the sale of its global data business and the Illinois EDGE Credit. The Company believes it is more likely than not that these assets will not be fully realized in the foreseeable future. The
realization of deferred tax assets is dependent upon whether the Company can generate future taxable income in the appropriate character and jurisdiction to utilize the assets. The amount of the deferred tax assets considered realizable is subject
to adjustment in future periods.
10
5. STOCK OPTIONS AND NON-VESTED SHARES
In 2003, the Company established the 2003 Stock Option and Stock Incentive Plan (2003 Plan), which provided for the issuance
of up to 4.7 million options and non-vested shares to eligible employees, officers and independent contractors of the Company. In 2007, the Company adopted the 2007 Equity Incentive Plan (2007 Plan) and ceased awarding equity grants under the
2003 Plan. As of June 30, 2014, the Company had granted a total of 2.1 million options and 0.5 million non-vested shares that remained outstanding under the 2007 Plan. Awards for 1.7 million shares, representing approximately
5.0% of the Companys outstanding common stock as of June 30, 2014, remained available for additional grants under the 2007 Plan.
The Company records non- cash share-based compensation expense in connection with any grant of options and non-vested shares to its employees.
The Company calculates the expense associated with its stock options and non-vested shares by determining the fair value of the options and non-vested shares.
Options
All
options granted under the 2003 Plan and the 2007 Plan have an exercise price equal to the market value of the underlying common stock on the date of the grant. During the three months ended June 30, 2014, the Company did not grant any options.
During the six months ended June 30, 2014, the Company granted less than 0.1 million options at a weighted average exercise price of $13.86. During the three months ended June 30, 2013, the Company did not grant any options. During
the six months ended June 30, 2013, the Company granted 0.7 million options at a weighted average exercise price of $3.40.
The
fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following table summarizes the assumptions used for estimating the fair value of options for the six months ended June 30,
2014 and June 30, 2013:
|
|
|
|
|
|
|
June 30,
2014
|
|
June 30,
2013
|
Expected life
|
|
7.2 years
|
|
7.3 years
|
Risk-free interest rate
|
|
2.08%
|
|
1.30%
|
Expected dividends
|
|
2.10%
|
|
|
Volatility
|
|
60.0%
|
|
45.0%
|
The weighted average fair value of options granted, as determined by using the Black-Scholes valuation model,
during the six months ended June 30, 2014 and 2013 was $6.90 and $1.64, respectively. The total grant date fair value of options that vested during the six months ended June 30, 2014 and 2013 was approximately $0.7 million and $0.8
million, respectively. The total intrinsic value (market value of stock option less option exercise price) of stock options exercised was $3.0 million and $0.5 million during the six months ended June 30, 2014 and 2013, respectively.
The following table summarizes activity under the Companys stock option plan for the six months ended June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(000)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
|
Weighted
Average
Remaining
Term (yrs)
|
|
Options outstanding January 1, 2014
|
|
|
2,991
|
|
|
$
|
12.91
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
40
|
|
|
|
13.86
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(739
|
)
|
|
|
10.51
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(221
|
)
|
|
|
20.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding June 30, 2014
|
|
|
2,071
|
|
|
$
|
13.03
|
|
|
$
|
6,137
|
|
|
|
5.46
|
|
Vested or expected to vest June 30, 2014
|
|
|
2,057
|
|
|
$
|
13.09
|
|
|
$
|
5,995
|
|
|
|
5.44
|
|
Exercisable June 30, 2014
|
|
|
1,523
|
|
|
$
|
16.07
|
|
|
$
|
1,039
|
|
|
|
4.37
|
|
The unrecognized compensation cost associated with options outstanding at June 30, 2014 and
December 31, 2013 was $1.4 million and $1.7 million, respectively. The weighted average remaining term that the compensation will be recorded was 2.2 years and 2.1 years as of June 30, 2014 and December 31, 2013, respectively.
11
Non-vested Shares
During the three and six months ended June 30, 2014, the Company granted 0.1 million and 0.2 million of non-vested shares,
respectively, to members of the Companys executive management team as well as various employees within the Company. During the three and six months ended June 30, 2013, the Company granted 0.2 million and 0.3 million non-vested
shares, respectively, to members of the Companys executive management team as well as various employees within the Company. The non-vested shares were issued as part of the 2007 Plan. The shares typically vest over a four-year period. The
fair value of the non-vested shares is determined using the Companys closing stock price on the grant date. Compensation cost, measured using the grant date fair value, is recognized over the requisite service period on a straight-line
basis.
A summary of the Companys non-vested share activity and related information for the six months ended June 30, 2014 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(000)
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
Non-vested shares outstanding January 1, 2014
|
|
|
477
|
|
|
$
|
9.66
|
|
|
|
|
|
Granted
|
|
|
192
|
|
|
|
13.12
|
|
|
|
|
|
Vested
|
|
|
(152
|
)
|
|
|
10.59
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares outstanding June 30, 2014
|
|
|
517
|
|
|
$
|
10.67
|
|
|
$
|
7,171
|
|
Non-vested shares vested or expected to vest June 30, 2014
|
|
|
483
|
|
|
$
|
10.67
|
|
|
$
|
6,696
|
|
The aggregate intrinsic value represents the total pre-tax intrinsic value based on the Companys closing
stock price of $13.87 on June 30, 2014. The amount changes based upon the fair market value of the Companys common stock.
The
unrecognized compensation cost associated with non-vested shares at June 30, 2014 and December 31, 2013 was $4.6 million and $3.9 million, respectively. The weighted average remaining term that the compensation will be recorded was 2.1
years and 1.7 years as of June 30, 2014 and December 31, 2013, respectively.
6. FAIR VALUE MEASUREMENT
The Companys money market funds are recognized and disclosed at fair value in the financial statements on a recurring
basis. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants as of the measurement date. Fair value is measured using the fair value hierarchy and related valuation
methodologies as defined in the authoritative literature. This guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the Companys assumptions about current market conditions. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1
- Quoted prices for identical instruments in active markets.
Level 2
- Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that
are not active and model-derived valuations, in which all significant inputs are observable in active markets.
Level 3
- Valuations
derived from valuation techniques, in which one or more significant inputs are unobservable.
The fair value of the Companys financial asset by
level in the fair value hierarchy as of June 30, 2014 and December 31, 2013 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
51,829
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
51,829
|
|
|
|
|
|
|
December 31, 2013
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
41,827
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,827
|
|
Valuation methodology
Level 1Quoted market prices in active markets are available for investments in money market funds. As such, these investments are
classified within Level 1.
12
7. CREDIT FACILITY
On March 5, 2013, the Company entered into a $15.0 million revolving credit facility. The credit facility has a term of
three years and an interest rate of LIBOR + 3.25%. The Company may use any borrowings under the revolving credit facility for general corporate purposes. No obligations were outstanding under the revolving credit facility at any time during the year
ended December 31, 2013 or during the six months ended June 30, 2014. As of June 30, 2014, the Company is currently in compliance with all of the covenants of the credit facility agreement.
8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
There were no balances of accumulated other comprehensive income (loss) for the three and six months ended June 30,
2014. Changes in the balance of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2013 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
(In thousands)
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
Beginning balance
|
|
$
|
(5,078
|
)
|
|
$
|
(4,904
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
145
|
|
|
|
(29
|
)
|
Less: Amounts reclassified from AOCI
|
|
|
|
|
|
|
|
|
Foreign currency adjustments
|
|
|
(4,933
|
)
|
|
|
(4,933
|
)
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income
|
|
|
5,078
|
|
|
|
4,904
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
9. BUSINESS DISPOSITION
On April 30, 2013, the Company sold its global data business to GTT and, as a result, no longer provides data services.
The transaction consisted of the Americas, EMEA and APAC reporting units data assets and liabilities. The Americas reporting unit of the global data business did not qualify for discontinued operations because it did not constitute a separate
component of the Company. The data activity associated with the Americas reporting unit is reported in continuing operations in the consolidated statements of income and consolidated balance sheets. The data activity associated with the EMEA and
APAC reporting units is reflected in the consolidated statements of income and in the consolidated balance sheets as discontinued operations. Historical information related to these reporting units has been reclassified accordingly.
The Company sold its global data business for $54.5 million which consisted of $52.5 million in cash, subject to net working capital
adjustments, and $2.0 million of non-cash commercial services to be provided by GTT to the Company over a three-year period. After an initial net working capital reduction of $3.3 million based on the balance sheet information as of March 31,
2013, the Company received $51.2 million of cash and non-cash services from GTT. Transaction costs and the additional net working capital adjustment, resulting from balance sheet changes during the month of April following the initial calculation,
amounted to approximately $2.4 million and $1.0 million, respectively, reducing net cash and non-cash consideration to approximately $47.8 million. Of this amount, $43.5 million was allocated to the sale of the Americas reporting unit of the global
data business and the remaining amount of $4.3 million was allocated to the EMEA and APAC reporting units of the global data business. The Company based its allocation of the $47.8 million amount based upon the relative percentage of the fair value
of the Americas reporting unit and the EMEA and APAC reporting units, to the total fair value of these three reporting units combined.
The
Company and GTT disagreed over the amount of certain post-closing purchase price adjustment provisions in the agreement governing the sale of the Companys global data business to GTT. GTT claimed that the Company owed GTT $3.8
million. The Company, however, believed that GTT owed the Company $1.1 million. During the first quarter of 2014, the parties tentatively agreed to resolve their differences with respect to the post-closing adjustments to the purchase price in
a manner that would require neither party to make a payment to the other and would waive all other claims. As a result of the tentative agreement, the Company reduced other assets by $1.1 million and charged $1.1 million to continuing operations
within loss on sale of Americas data assets. Subsequent to the second quarter of 2014, the agreement was finalized. There were no accounting impacts as a result of the final agreement.
Disposition Not Qualifying for Discontinued Operations
The Americas reporting unit assets, which were sold as part of the sales of the global data business, had an
approximate net book value of $14.7 million at the time of the sale. The purchase price allocation of $37.9 million for this portion of the global data business, reflected as of the second quarter ended June 30, 2013, less its net book basis of
assets and liabilities yielded a gain from sale of $23.2 million. As a result of a final true up to the purchase price allocation recorded in the fourth quarter ended December 31, 2013, the gain from sale of $23.2 million increased by $5.6
million bringing the cumulative gain to $28.8 million. As a result, the gain on sale of discontinued operations at the second quarter ended June 30, 2013 of $0.8 million decreased $5.6 million to a loss on sale of discontinued operations of
$4.8 million at December 31, 2013.
13
Discontinued Operations
The net book basis of the assets and liabilities for the EMEA and APAC reporting units of the global data business at the date of sale was
approximately $10.1 million. In addition, the Company is entitled to approximately $1.0 million of cash that remained with the EMEA and APAC reporting units of the global data business at the time of the transaction. The purchase price allocation of
$4.3 million for this portion of the global data business plus the additional $1.0 million of cash yielded a loss on the sale from discontinued operations of $4.8 million.
The following table displays summarized activity in the Companys condensed consolidated statements of income for discontinued operations
during the three and six months ended June 30, 2013.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
(In thousands)
|
|
Three
Months
Ended
|
|
|
Six Months
Ended
|
|
Revenue
|
|
$
|
3,115
|
|
|
$
|
13,493
|
|
Operating loss
|
|
|
1,705
|
|
|
|
6,308
|
|
Loss before income taxes
|
|
|
1,698
|
|
|
|
6,807
|
|
Provision for income tax
|
|
|
|
|
|
|
227
|
|
Loss from discontinued operations
|
|
|
1,698
|
|
|
|
7,034
|
|
Gain on disposal of discontinued operations
|
|
$
|
(794
|
)
|
|
$
|
(794
|
)
|
10. SEGMENT AND GEOGRAPHIC INFORMATION
Segment reporting establishes standards for reporting information about operating segments. Operating segments are defined
as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.
The Companys chief operating decision maker is the Chief Executive Officer. The Chief Executive Officer reviews financial
information presented on a consolidated basis. The Company operates in one industry segment which is to provide voice interconnection services via the Companys international telecommunications network to fulfill customer agreements. Therefore,
the Company has concluded that it has one operating segment.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All
statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q are forward-looking statements. The words anticipates, believes, efforts, expects,
estimates, projects, proposed, 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. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Factors that might cause such
differences include, but are not limited to: the effects of competition, including direct connects, and downward pricing pressure resulting from such competition; our regular review of strategic alternatives; the impact of current and future
regulation, including intercarrier compensation reform enacted by the Federal Communications Commission; the risks associated with our ability to successfully develop and market new voice services, many of which are beyond our control and all of
which could delay or negatively affect our ability to offer or market new voice services; the ability to develop and provide other new services; technological developments; the ability to obtain and protect intellectual property rights; the impact
of current or future litigation; the impact of any future acquisitions, mergers or divestitures; natural or
man-made
disasters; the ability to attract, develop and retain executives and other qualified
employees; changes in general economic or market conditions; matters arising out of or related to the impairment charge and financial forecasting practices that were the subject of an investigation by the Companys Audit Committee; the
possibility that the Securities and Exchange Commission may disagree with the Audit Committees findings and may require a restatement of financial statements or additional or different remediation; the possibility of litigation or other
actions related to the impairment charge and financial forecasting practices that were subject to investigation by the Audit Committee and related matters; 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 fiscal year ended December 31, 2013, 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 report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
14
Overview
We provide voice telecommunications services primarily on a wholesale basis. We offer these services using an all-IP network, which enables us
to deliver global connectivity for a variety of media, including voice, and historically data and video. Our solutions enable carriers and other providers to deliver voice telecommunications traffic or other services where they do not have their own
network or elect not to use their own network. These solutions are sometimes called off-net services. We also provide our solutions to customers, such as over-the-top providers, who also typically do not have their own
network. We were incorporated in Delaware on April 19, 2001 and commenced operations in 2004. Refer to Note 9, Business Disposition, for more information regarding the sale of the global data business.
Voice Services
We
provide voice interconnection services primarily to competitive carriers, including wireless, wireline, cable and broadband telephony companies. Competitive carriers use our tandem switches to interconnect and exchange local and long distance
traffic between their networks without the need to establish direct switch-to-switch connections. Competitive carriers are carriers that are not Incumbent Local Exchange Carriers, or ILECs, such as AT&T, Verizon and CenturyLink.
Prior to the introduction of our local voice service, competitive carriers generally had two alternatives for exchanging traffic with other
carriers networks. The two alternatives were exchanging traffic through the ILEC tandems or directly connecting individual switches, commonly referred to as direct connects. Given the cost and complexity of establishing direct
connects, competitive carriers often elected to utilize the ILEC tandem as the method of exchanging traffic. The ILECs typically required competitive carriers to interconnect to multiple ILEC tandems with each tandem serving a restricted geographic
area. In addition, as the competitive telecommunications market grew, the process of establishing interconnections at multiple ILEC tandems became increasingly difficult to manage and maintain, causing delays and inhibiting the growth of competitive
carriers while the purchase of ILEC tandem services became an increasingly significant component of a competitive carriers costs.
The tandem switching services offered by ILECs consist of local transit services, which are provided in connection with local calls, and
switched access services, which are provided in connection with long distance calls. Under certain interpretations of the Telecommunications Act of 1996 and implementing regulations, ILECs are required to provide local transit services to
competitive carriers. ILECs generally set per minute rates and other charges for tandem transit services according to rate schedules approved by state public utility commissions, although the methodology used to review these rate schedules varies
from state to state. ILECs are also required to offer switched access services to competing telecommunications carriers under the Telecommunications Act of 1996 and implementing regulations. ILECs generally set per minute rates and other charges for
switched access services according to mandated rate schedules set by the Federal Communications Commission for interstate calls and by state public utility commissions for intrastate calls. In November 2011, the FCC released an order setting forth a
multi-year transition plan that will reduce, and ultimately lead to elimination of, terminating switched access charges.
A loss of ILEC
market share to competitive carriers escalated competitive tensions and resulted in an increased demand for tandem switching. Growth in intercarrier traffic switched through ILEC tandems created switch capacity shortages known in the industry as
ILEC tandem exhaust, where overloaded ILEC tandems became a bottleneck for competitive carriers. This increased call blocking and gave rise to service quality issues for competitive carriers.
We founded our company to solve these interconnection problems and better facilitate the exchange of traffic among competitive carriers and
non-carriers. With the introduction of our services, we believe we became the first carrier to provide alternative tandem services capable of alleviating the ILEC tandem exhaust problem. Our solution enabled competitive carriers to exchange traffic
between their networks without using an ILEC tandem for both local and long distance calls. By utilizing our managed tandem service, our customers benefit from a simplified interconnection network solution that reduces costs, increases network
reliability, decreases competitive tension and adds network diversity and redundancy. We operated in 190 markets as of June 30, 2014 and have signed voice services agreements with major competitive carriers and non-carriers. Generally, these
agreements do not provide for minimum revenue requirements and do not require our customers to continue to use our services.
15
Our business originally connected only local traffic among carriers within a single metropolitan
market. In 2006, we installed a national IP backbone network connecting our major local markets. In 2008, we began offering terminating switched access services and originating switched access services. Switched access services are provided in
connection with long distance calls. Our terminating switched access services allows interexchange carriers to send calls to us, and we then terminate those calls to the appropriate terminating carrier in the local market in which we operate. Our
originating switched access service allows the originating carrier in the local market in which we operate to send calls to us that we then deliver to the appropriate interexchange carrier that has been selected to carry that call. In both
instances, the interexchange carrier is our customer, which means that it is financially responsible for the call. Finally, we began offering international voice services as we began interconnection with non-United States carriers. As a result of
the foregoing, our service offerings now include the capability of switching and carrying local, long distance and international voice traffic.
On April 30, 2013, we announced that we sold all assets and liabilities of our global data business to GTT for $54.5 million, subject to
certain adjustments. The total consideration consisted of $52.5 million in cash and $2.0 million of non-cash commercial services to be provided by GTT to us.
Revenue.
We generate revenue from sales of our voice services and historically generated revenue from sales of our IP Transit and
Ethernet services. Revenue is recorded each month based upon documented minutes of traffic switched and, historically, data traffic carried for which service is provided, when collection is probable. Voice revenue is recorded each month on an
accrual basis based upon minutes of traffic switched by our network for each customer, which we refer to as minutes of use. The rates charged per minute are determined by contracts between us and our customers or by filed and effective tariffs.
Minutes of use of voice traffic increase as we increase our number of customers, increase the penetration of existing markets, either with new
customers or with existing customers, and increase our service offerings. The minutes of use decrease due to direct connection between existing customers, consolidation between customers, a customer using a different interconnection provider or a
customer experiencing a decrease in the volume of traffic it carries.
The average rate per minute of voice traffic varies depending on
market forces and type of service, such as switched access or local transit. The market rate in each market is based upon competitive conditions along with the switched access or local transit rates offered by the ILECs. Depending on the markets we
enter, we may enter into contracts with our customers with either a higher or lower rate per minute than our current average.
Our service
solution incorporates other components beyond switching. In addition to switching, we generally provision trunk circuits between our customers switches and our network locations at our own expense and at no direct cost to our customers. We
also provide quality of service monitoring, call records and traffic reporting and other services to our customers as part of our service solution. Our per-minute rates are intended to incorporate all of these services.
While generally not seasonal in nature, our voice revenues are affected by certain events such as holidays, the unpredictable timing of direct
connects between our customers, and installation and implementation delays. These factors can cause our revenue to both increase or decrease unexpectedly.
Operating Expense.
Operating expense includes network and facilities expense, operations expenses, sales and marketing expenses,
general and administrative expenses, depreciation and amortization, loss (gain) on disposal of fixed assets, and loss (gain) on sale of Americas data assets.
Network and Facilities Expense.
Our network and facilities expense includes transport capacity, or circuits, signaling network
costs, facility rents and utilities, and costs to terminate our traffic, together with other costs that directly support our voice services. Prior to the sale of the global data business, our network and facilities expense included transport
capacity, or circuits, facility rents and utilities, together with other costs that directly supported our data services. We do not defer or capitalize any costs associated with the start-up of a new point of presence (POP). The start-up of an
additional POP can take between three months to six months. During this time, we typically incur facility rent, utilities, payroll and related benefit costs along with initial non-recurring installation costs. Revenues generally follow sometime
after the sixth month.
Network transport costs typically occur on a repeating monthly basis, which we refer to as recurring transport
costs, or on a one-time basis, which we refer to as non-recurring transport costs. Recurring transport costs primarily include monthly usage and other charges from telecommunication carriers and are related to the circuits utilized by us to connect
to our customers. As our voice traffic increases, we must utilize additional circuits. Non-recurring transport costs primarily include the initial installation of such circuits. Facility rents include the leases on our POPs, which expire through
January 2026. Additionally, we pay the cost of the utilities for all of our POP locations.
16
Operations Expense.
Operations expense includes
payroll and benefits for our POP location personnel as well as individuals located at our offices who are directly responsible for maintaining and expanding our network. Other primary components of operations expenses include repair and maintenance,
property taxes, property insurance and supplies.
Sales and Marketing Expense
. Sales and marketing expense represents the
smallest component of our operating expenses and primarily include personnel costs, sales bonuses, marketing programs and other costs related to travel and customer meetings.
General and Administrative Expense.
General and administrative expense consists primarily of compensation and related costs for
personnel and facilities associated with our executive, finance, human resource and legal departments and fees for professional services. Professional services principally consist of outside legal, audit, and tax service fees and may occasionally
include consulting and transaction costs.
Depreciation and Amortization Expense.
Depreciation and amortization expense for
voice-related fixed assets is applied using the straight-line method over the estimated useful lives of the assets after they are placed in service, which are five years for network equipment and test equipment, and three years for computer
equipment, computer software and furniture and fixtures. Leasehold improvements are amortized on a straight-line basis over an estimated useful life of five years or the life of the respective leases, whichever is shorter.
(Gain) loss on Disposal of Assets
. We dispose of network equipment in connection with converting to new technology and computer
equipment to replace old or damaged units. When there is a carrying value of these assets, we record the write-off of these amounts to loss on disposal. In some cases, this equipment is sold to a third party. When the proceeds from the sale of
equipment identified for disposal exceeds the assets carrying value, we record a gain on disposal.
Loss (gain) on sale of
Americas Data Assets.
The global data business was sold in 2013 and as a result, a gain of $23.2 million was recorded that related to the disposal of the Americas data assets. During the first quarter of 2014, we recorded a $1.1 million
loss on sale of Americas data assets as a result of the settlement with GTT. Refer to Note 9 Business Disposition for more information regarding the sale of the global data business.
Other Expense (Income
). Other expense (income) includes interest expense and income.
Provision for Income Taxes
. Income tax provision includes United States federal, state and local income taxes and is based on
pre-tax income or loss. In determining the estimated annual effective income tax rate, we analyze various factors, including projections of our annual earnings and taxing jurisdictions in which earnings will be generated, the impact of state and
local income taxes and our ability to use tax credits and net operating loss carryforwards.
Patent Protection
Our ability to maintain profitability or positive cash flow depends, in part, on our ability to protect proprietary methods and technologies
that we develop under the patent and other intellectual property laws of the United States, so that we can prevent others from using our inventions and proprietary information. If our patents are invalidated or otherwise limited, other companies
will be better able to develop products that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition.
Any resulting increased competition may cause price decreases. If we are unable to offset the effects of any price reductions by carrying
higher volumes of traffic, we could experience reduced revenues and gross margins.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires us to make estimates, judgments and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses during the periods presented. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which we filed with the Securities and Exchange Commission on March 11, 2014,
includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported
amounts of assets, liabilities, revenues or expenses during the first six months of 2014.
17
Results of Operations
The following table sets forth our results of continuing operations for the three and six months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(Dollars in thousands)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Revenue
|
|
$
|
54,881
|
|
|
$
|
53,449
|
|
|
$
|
111,098
|
|
|
$
|
112,737
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network and facilities expense (excluding depreciation and amortization)
|
|
|
23,129
|
|
|
|
24,053
|
|
|
|
48,019
|
|
|
|
48,689
|
|
Operations
|
|
|
7,202
|
|
|
|
7,508
|
|
|
|
14,509
|
|
|
|
15,306
|
|
Sales and marketing
|
|
|
818
|
|
|
|
1,526
|
|
|
|
1,494
|
|
|
|
3,560
|
|
General and administrative
|
|
|
5,254
|
|
|
|
4,535
|
|
|
|
9,054
|
|
|
|
9,034
|
|
Depreciation and amortization
|
|
|
3,010
|
|
|
|
3,699
|
|
|
|
6,151
|
|
|
|
8,212
|
|
(Gain) loss on disposal of fixed assets
|
|
|
(31
|
)
|
|
|
223
|
|
|
|
(31
|
)
|
|
|
223
|
|
Loss (gain) on disposal of Americas data assets
|
|
|
|
|
|
|
(23,171
|
)
|
|
|
1,081
|
|
|
|
(23,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
39,382
|
|
|
|
18,373
|
|
|
|
80,277
|
|
|
|
61,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
15,499
|
|
|
|
35,076
|
|
|
|
30,821
|
|
|
|
50,884
|
|
Total other expense (income)
|
|
|
15
|
|
|
|
(17
|
)
|
|
|
17
|
|
|
|
(51
|
)
|
Income from continuing operations before income taxes
|
|
|
15,484
|
|
|
|
35,093
|
|
|
|
30,804
|
|
|
|
50,935
|
|
Provision for income taxes
|
|
|
6,036
|
|
|
|
741
|
|
|
|
12,163
|
|
|
|
4,347
|
|
Income from continuing operations
|
|
|
9,448
|
|
|
|
34,352
|
|
|
|
18,641
|
|
|
|
46,588
|
|
Loss from discontinued operations, net of income tax provision
|
|
|
|
|
|
|
1,698
|
|
|
|
|
|
|
|
7,034
|
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
(794
|
)
|
|
|
|
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,448
|
|
|
$
|
33,448
|
|
|
$
|
18,641
|
|
|
$
|
40,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
On April 30, 2013, we sold our global data business. As a result, we recorded activity with respect to our global data business for only
the one month ended April 30, 2013 within the results for the three months ended June 30, 2013. The results of operations for the three months ended June 30, 2014 do not include any such data activity. The sale of the Americas
reporting unit of the global data business did not qualify for discontinued operations treatment and therefore was reflected in continuing operations in the condensed consolidated statement of income.
Revenue.
Revenue increased to $54.9 million in the three months ended June 30, 2014 from $53.4 million in the three months
ended June 30, 2013, representing an increase of 2.8%. The data revenue generated by our Americas reporting unit for the month ended April 30, 2013 was $3.6 million. Excluding data revenue, revenue from continuing operations increased $5.1
million, representing an increase of 10.2%.
The increase in voice revenue is primarily due to an increase in minutes of use to 33.9
billion minutes in the three months ended June 30, 2014, compared to 29.4 billion minutes in the three months ended June 30, 2013, an increase of 15.3%. Offsetting the increase in minutes, the average rate per minute decreased to $0.00162
for the three months ended June 30, 2014 from $0.00169 for the three months ended June 30, 2013, a decrease of 4.1%.
Operating Expenses
. Operating expenses for the three months ended June 30, 2014 of $39.4 million increased $21.0 million, or
114.1%, from $18.4 million for the three months ended June 30, 2013. The components of operating expenses are discussed further below.
Network and Facilities Expenses.
Network and facilities expenses decreased to $23.1 million in the three months ended
June 30, 2014, or 42.1% of revenue, from $24.1 million in the three months ended June 30, 2013, or 45.1% of revenue. The data network and facilities expenses generated by our Americas reporting unit for the month ended April 30, 2013
were $1.6 million. Excluding these data costs, the network expenses increased $0.6 million which was primarily due to an increase in minute volumes.
Operations Expenses.
Operations expenses decreased to $7.2 million in the three months ended June 30, 2014, or 13.1% of
revenue, from $7.5 million in the three months ended June 30, 2013, or 14.0% of revenue. The decrease of $0.3 million in our operations expenses for the three months ended June 30, 2014 primarily resulted from a decrease in payroll and
other benefits expenses.
Sales and Marketing Expense
. Sales and marketing expense decreased to $0.8 million in the three
months ended June 30, 2014, or 1.5% of revenue, compared to $1.5 million in the three months ended June 30, 2013, or 2.8% of revenue. The sales and marketing expenses generated by our Americas reporting unit for the month ended
April 30, 2013 were $0.6 million. Excluding these data costs, the sales and marketing expenses decreased $0.1 million.
18
General and Administrative Expense.
General and administrative expense increased to
$5.3 million in the three months ended June 30, 2014, or 9.7% of revenue, compared with $4.5 million in the three months ended June 30, 2013, or 8.4% of revenue. The increase of $0.8 million in general and administrative expense for the
three months ended June 30, 2014 primarily resulted from a $1.1 million increase in bad debt reserve offset by a $0.3 million decrease in payroll and other benefits expenses. The increase in bad debt expense related to reserves established for
various customers doubtful accounts receivable.
Depreciation and Amortization Expense.
Depreciation and amortization
expense decreased to $3.0 million in the three months ended June 30, 2014, or 5.5% of revenue, compared to $3.7 million in the three months ended June 30, 2013, or 6.9% of revenue. The decrease of $0.7 million in our depreciation and
amortization expense resulted from a lower depreciable base of our assets as a result of the sale of the Americas data assets.
(Gain)
loss on Disposal of Fixed Assets
. Gain on disposal of fixed assets was less than $0.1 million for the three months ended June 30, 2014, compared to a loss on disposal of fixed assets of $0.2 million for the three months ended
June 30, 2013. Certain network switching equipment was disposed of during the second quarter of 2013 which resulted in a loss, whereas we received proceeds on the sale of fixed assets during the second quarter of 2014 which resulted in a gain.
Loss (gain) on Disposal of Americas Data Assets.
Gain on disposition of Americas data assets was $23.2 million for the three
months ended June 30, 2013.
Other Expense (Income).
Other expense (income) was less than $0.1 million for each of the
three months ended June 30, 2014 and 2013.
Provision for Income Taxes.
Provision for income taxes of $6.0 million for
the three months ended June 30, 2014 reflected an increase of $5.3 million, compared to $0.7 million for the three months ended June 30, 2013. The effective tax rate for the three months ended June 30, 2014 and 2013 was 39.0% and
2.1%, respectively. The difference in the effective tax rate for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 is due primarily to the tax impact of the sale of the data business in the prior
year.
Income from Continuing Operations.
We had income from continuing operations before income taxes of $15.5 million for the
three months ended June 30, 2014, compared with income from continuing operations before income taxes of $35.1 million for the three months ended June 30, 2013. After taxes, we had income from continuing operations of $9.4 million, or $
0.28 per diluted share, for the three months ended June 30, 2014, compared to income from continuing operations of $34.4 million, or $1.05 per diluted share, for the three months ended June 30, 2013.
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
On April 30, 2013, we sold our global data business. As a result, we recorded activity with respect to our global data business for only
the four months ended April 30, 2013 within the results for the six months ended June 30, 2013. The results of operations for the six months ended June 30, 2014 do not include any such data activity. The sale of the Americas reporting
unit of the global data business did not qualify for discontinued operations treatment and therefore was reflected in continuing operations in the condensed consolidated statement of income.
Revenue.
Revenue decreased to $111.1 million in the six months ended June 30, 2014 from $112.7 million in the six months
ended June 30, 2013, representing a decrease of 1.4%. The data revenue generated by our Americas reporting unit for the four months ended April 30, 2013 was $12.3 million. Excluding data revenue, revenue from continuing operations
increased $10.7 million, representing an increase of 10.7%.
The increase in voice revenue is primarily due to an increase in minutes of
use to 67.0 billion minutes in the six months ended June 30, 2014, compared to 60.1 billion minutes in the six months ended June 30, 2013, an increase of 11.5%. Slightly offsetting the increase in minutes, the average rate per minute
decreased to $0.00166 for the six months ended June 30, 2014 from $0.00167 for the six months ended June 30, 2013, a decrease of 0.6%.
Operating Expenses
. Operating expenses for the six months ended June 30, 2014 of $80.3 million increased $18.4 million, or
29.7%, from $61.9 million for the six months ended June 30, 2013. The components of operating expenses are discussed further below.
19
Network and Facilities Expenses.
Network and
facilities expenses decreased to $48.0 million in the six months ended June 30, 2014, or 43.2% of revenue, from $48.7 million in the six months ended June 30, 2013, or 43.2% of revenue. The data network and facilities expenses generated by
our Americas reporting unit for the four months ended April 30, 2013 were $3.4 million. Excluding these data costs, the network expenses increased $2.7 million which was primarily due to an increase in minute volumes, along with changes in the
mix of voice services that we provide.
Operations Expenses.
Operations expenses decreased to $14.5 million in the six months
ended June 30, 2014, or 13.1% of revenue, from $15.3 million in the six months ended June 30, 2013, or 13.6% of revenue. The decrease of $0.8 million in our operations expenses for the six months ended June 30, 2014 primarily resulted
from a decrease in payroll and other benefits expenses.
Sales and Marketing Expense
. Sales and marketing expense decreased to
$1.5 million in the six months ended June 30, 2014, or 1.4% of revenue, compared to $3.6 million in the six months ended June 30, 2013, or 3.2% of revenue. The sales and marketing expenses generated by our Americas reporting unit for the
four months ended April 30, 2013 were $1.4 million. Excluding these data costs, the sales and marketing expenses decreased by $0.7 million which was primarily due to lower payroll and other benefits expenses.
General and Administrative Expense.
General and administrative expense increased to $9.1 million in the six months ended
June 30, 2014, or 8.2% of revenue, compared with $9.0 million in the six months ended June 30, 2013, or 8.0% of revenue. The increase of $0.1 million in our general and administrative expenses for the six months ended June 30, 2014
primarily resulted from a $1.1 million increase in bad debt reserve offset by a $0.5 million decrease in payroll- related expenses and a $0.5 million decrease in professional fees. The increase in bad debt expense related to reserves established for
various customers doubtful accounts receivable.
Depreciation and Amortization Expense.
Depreciation and amortization
expense decreased to $6.2 million in the six months ended June 30, 2014, or 5.6% of revenue, compared to $8.2 million in the six months ended June 30, 2013, or 7.3% of revenue. The decrease of $2.0 million in our depreciation and
amortization expense resulted from a lower depreciable base of our assets as a result of the sale of the Americas data assets.
(Gain)
loss on Disposal of Fixed Assets
. Gain on disposal of fixed assets was less than $0.1 million for the six months ended June 30, 2014, compared to a loss on disposal of fixed assets of $0.2 million for the six months ended June 30,
2013. Certain network switching equipment was disposed of during the first six months of 2013 which resulted in a loss, whereas we received proceeds on the sale of fixed assets during the first six months of 2014 which resulted in a gain.
Loss (gain) on sale of Americas Data Assets.
During the six months ended June 30, 2014, we recorded a $1.1 million loss on
sale of Americas data assets as a result of the settlement with GTT, compared to a gain of $23.2 million for the six months ended June 30, 2013. Refer to Note 9 Business Disposition for more information regarding the sale of
the global data business.
Other Expense (Income).
Other expense (income) was less than $0.1 million for each of the six
months ended June 30, 2014 and 2013.
Provision for Income Taxes.
Provision for income taxes of $12.2 million for the six
months ended June 30, 2014 reflected an increase of $7.9 million, compared to $4.3 million for the six months ended June 30, 2013. The effective tax rate for the six months ended June 30, 2014 and 2013 was 39.5% and 8.5%,
respectively. The difference in the effective tax rate for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 is due primarily to the tax impact of the sale of the data business in the prior year.
Income from Continuing Operations.
We had income from continuing operations before income taxes of $30.8 million for the six months
ended June 30, 2014, compared with income from continuing operations before income taxes of $50.9 million for the six months ended June 30, 2013. After taxes, we had income from continuing operations of $18.6 million, or $0.57 per diluted
share, for the six months ended June 30, 2014, compared to income from continuing operations of $46.6 million, or $1.44 per diluted share, for the six months ended June 30, 2013.
20
Liquidity and Capital Resources
At June 30, 2014, we had $89.5 million in cash and cash equivalents and $0.3 million in restricted cash. In comparison, at
December 31, 2013, we had $77.0 million in cash and cash equivalents and $0.1 million in restricted cash. Cash and cash equivalents include highly liquid money market mutual funds. The restricted cash balance is pledged as collateral for
certain commercial letters of credit.
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Six Months Ended
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June 30, 2014
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June 30, 2013
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Cash flows provided by operating activities
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$
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14,914
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$
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30,413
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Cash flows (used for) provided by investing activities
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(5,454
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)
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39,684
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Cash flows provided by (used for) financing activities
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3,071
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(44,864
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)
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Cash flows from operating activities
Net cash provided by operating activities was $14.9 million for the first six months of 2014, compared to $30.4 million for the same period
last year. Operating cash inflows are largely attributable to payments from customers. Operating cash outflows are largely attributable to personnel-related expenditures and network maintenance costs. The decrease in operating cash flow reflected an
increase in accounts receivable offset by a decline in net income resulting from the sale of the business in 2013 as well as a decrease in accrued liabilities.
Cash flows from investing activities
Net
cash used for investing activities was $5.5 million for the first six months of 2014, compared to net cash provided by investing activities of $39.7 million for the same period last year. The change in cash flows from investing activities was
primarily a result of the sale of our global data business in 2013. Additionally, we reduced the amount of equipment purchased to support the voice business.
In 2014, capital expenditures are expected to be approximately $10.0 million to $12.0 million, mainly due to investment in and maintenance of
our voice network. We plan to fund our capital expenditures with cash generated through our ongoing operations.
Cash flows from financing activities
Net cash provided by financing activities was $3.1 million for the first six months of 2014, compared to net cash used for financing
activities of $44.9 million for the same period last year. The changes in cash flows used for financing activities primarily relate to changes in dividend payments as well as exercises of stock options and repurchases of common stock. During the
second quarter of 2013, we paid regular dividends and special dividends of $1.25 and $0.06 per outstanding share of common stock, or $42.7 million in aggregate, compared to 2014 in which we paid only regular quarterly dividends totaling $4.9
million. During the first six months of 2013, we also repurchased approximately 0.3 million common shares at an average price of $5.80 per share, for a total cost of $1.6 million. We purchased the common shares using cash on hand. Lastly, we
received $7.7 million of cash in the first six months of 2014 due to the exercise of stock options, compared to $0.2 million in the same period last year.
We regularly review acquisitions and strategic opportunities, which may require additional debt or equity financing. We currently do not have
any pending agreements with respect to any acquisitions or strategic opportunities which would require additional debt or equity financing.
Dividends
On February 27, 2014, we announced an increase in our regular quarterly dividend to $0.08 per outstanding share of our common
stock. With respect to the regular quarterly dividend, the expected future use of cash on an annualized basis would be approximately $9.9 million based upon a full-year dividend rate of $0.30 per share and the June 30, 2014 outstanding common
stock share balance of approximately 33.1 million.
Investments
As of June 30, 2014, we had $51.8 million in cash and cash equivalents invested in three money market mutual funds. As of
December 31, 2013, we had $41.8 million in cash and cash equivalents invested in three money market mutual funds.
21
Credit Facility
On March 5, 2013, we entered into a $15.0 million revolving credit facility. The credit facility has a term of three years and an
interest rate of LIBOR + 3.25%. We have no plans to draw on the facility at this time and remain debt-free. The facility serves to increase our financial flexibility and further strengthens our liquidity position. We are currently in compliance with
all of the covenants of the credit facility agreement.
Effect of Inflation
Inflation generally affects us by increasing our cost of labor and equipment. We do not believe that inflation had any material effect on our
results of operations for the three and six months ended June 30, 2014 and 2013.