UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 30, 2014
INTELIQUENT, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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001-33778 |
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31-1786871 |
(State or other jurisdiction
of incorporation) |
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(Commission
File Number) |
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(IRS Employer
Identification No.) |
550 West Adams Street
9th Floor
Chicago,
Illinois 60661
(Address of principal executive offices, including Zip Code)
(312) 384-8000
(Registrants telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On October 30, 2014, Inteliquent, Inc. issued a press release announcing its financial results for the third quarter ended
September 30, 2014. The press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The information,
including Exhibit 99.1, furnished in this report is not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Registration statements or
other documents filed with the Securities and Exchange Commission shall not incorporate this information by reference, except as otherwise expressly stated in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
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Exhibit No. |
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Description |
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99.1 |
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Press release issued October 30, 2014. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
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INTELIQUENT, INC. |
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By: |
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/s/ Kurt J. Abkemeier |
Name: |
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Kurt J. Abkemeier |
Title: |
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Chief Financial Officer and Executive Vice President |
Date: October 30, 2014
Exhibit 99.1
Analyst Contact:
Kurt
Abkemeier
investorrelations@inteliquent.com
FOR
IMMEDIATE RELEASE
INTELIQUENT REPORTS THIRD QUARTER RESULTS
Fifth Consecutive Quarter of Growth in Billed Minutes and 2014 Financial Estimates Revised Upward
Financial and operating highlights include:
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Fifth consecutive quarter of growth in billed minutes with record billed minutes of use of 34.6 billion, an increase of 13.8% from 30.4 billion in the third quarter of 2013. |
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Voice revenue of $54.0 million, an increase of 7.8% from $50.1 million in the third quarter of 2013. |
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Adjusted EBITDA (a non-GAAP financial measure) of $20.0 million, an increase of 17.6% from $17.0 million in the third quarter of 2013. |
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Revised financial estimates for 2014 of $217 million to $220 million of revenue, $77 million to $79 million of adjusted EBITDA, and $10 million to $12 million of capital expenditures. |
CHICAGO, October 30, 2014 Inteliquent, Inc. (Nasdaq: IQNT), a leading provider of voice services, today announced its financial results for
the third quarter of 2014.
Results for this past quarter exceeded our expectations and we are very pleased with the sustained strong performance we
have had throughout 2014, said Ed Evans, Chief Executive Officer of Inteliquent. We experienced another quarter of growth in billed minutes, beating our previous record by 388 million. We continue to maintain a flat cost structure as a
result of our recent cost management efforts, while carrying increased minutes across our network. Furthermore, mandated pricing reductions from intercarrier compensation reform and anticipated rate decreases with several customers will have less of
an impact than previously expected for the remainder of 2014. We have therefore revised our full year financial estimates.
Third Quarter Results
Inteliquent generated voice revenue of $54.0 million in the third quarter of 2014, an increase of 7.8%, or $3.9 million, from $50.1 million of voice
revenue in the third quarter of 2013. The increase related primarily to an increase in minute volumes.
Minutes of use increased 13.8% to 34.6 billion
minutes in the third quarter of 2014, compared to 30.4 billion minutes in the third quarter of 2013. Average rate per minute for the third quarter of 2014 was $0.00156, a decrease of 5.5%, compared to $0.00165 for the third quarter of 2013.
Revenue from continuing operations for the third quarter of 2014 was $54.0 million, an increase of 7.1%, or $3.6
million, from $50.4 million for the third quarter of 2013. Included in revenue from continuing operations for the third quarter of 2013 is $0.3 million related to the global data business sold on April 30, 2013. Data operations for the Americas
reporting unit did not meet all criteria required to receive discontinued operations accounting treatment. Excluding revenue from data operations in the Americas reporting unit for the third quarter of 2013, revenue from continuing operations
increased $3.9 million in the third quarter of 2014. The increase in revenue from continuing operations is primarily related to an increase in minute volumes.
Network and facilities expense for the third quarter of 2014 was $23.0 million, an increase of 4.5%, or $1.0 million, from $22.0 million for the third quarter
of 2013. The increase in network and facilities expense of $1.0 million in the third quarter of 2014 was primarily due to an increase in minute volumes.
Combined operating expenses consisting of Operations, Sales and Marketing, and General and Administrative expenses were $12.1 million for the third quarter of
2014, a decrease of 15.4%, or $2.2 million, from $14.3 million for the third quarter of 2013. The decrease in combined operating expenses of $2.2 million in the third quarter of 2014 was primarily due to a decrease in professional fees during the
third quarter of 2014. During the third quarter of 2013, the Company incurred $2.1 million related to an internal investigation conducted by the Audit Committee of our Board of Directors.
Depreciation and amortization expense was $3.0 million for the third quarter of 2014, or 5.6% of revenue, compared to $3.3 million for the third quarter of
2013, or 6.5% of revenue. The decrease of $0.3 million in depreciation and amortization expense resulted from a lower depreciable base of assets due to less capital expenditures during the current year.
Income from continuing operations in the third quarter of 2014 was $15.9 million, compared to income from continuing operations of $10.7 million for the third
quarter of 2013.
Adjusted EBITDA (a non-GAAP financial measure) from continuing operations in the third quarter of 2014 was $20.0 million, an increase of
17.6% or $3.0 million, from $17.0 million for the third quarter of 2013. See Use of Non-GAAP Financial Measures below for a discussion of the presentation of Adjusted EBITDA and reconciliation to net income.
Free Cash Flow (a non-GAAP financial measure) in the third quarter of 2014 was $19.0 million, an increase of 26.7% or $4.0 million, from $15.0 million for the
third quarter of 2013. See Use of Non-GAAP Financial Measures below for a discussion of the presentation of Free Cash Flow and a reconciliation to net income.
2014 Business Outlook
Taking into account actual results
for the first nine months of the year and managements current belief about revenue trends, expenses and the competitive environment, Inteliquent is revising its financial estimates for 2014. The new outlook is as follows:
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Revenue is expected to be between $217 million and $220 million. |
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Adjusted EBITDA (a non-GAAP financial measure) is expected to be between $77 million and $79 million. |
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Capital expenditures are expected to be between $10 million and $12 million. |
2
Conference Call & Web Cast
The third quarter conference call will be held on Thursday, October 30, 2014 at 10:00 a.m. (ET). A live web cast of the conference call as well as a
replay will be available online on the Companys corporate web site at www.inteliquent.com. Participants can also access the call by dialing 1-888-299-7209 (within the United States and Canada), or 1-719-457-2083 (international callers)
and entering the conference ID number: 8586212. A replay of the call will be available approximately two hours after the call has ended and will be available until 11:59 a.m. (ET) on November 29, 2014. To access the replay, dial 1-888-203-1112
(within the United States and Canada), or 1-719-457-0820 (international callers) and enter the conference ID number: 8586212.
Cautionary Statement
Regarding Forward-Looking Statements
This press release contains forward-looking statements that involve substantial risks and
uncertainties. All statements, other than statements of historical fact, included in this press release 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 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 potential 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 period 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 press release. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
3
About Inteliquent
Inteliquent is a leading provider of wholesale voice services for carriers and service providers. Inteliquent is used by nearly all national and regional
wireless carriers, cable companies and CLECs in the markets it serves, and its network carries approximately eleven billion minutes of traffic per month. Please visit Inteliquents website at www.inteliquent.com and follow us on Twitter
@Inteliquent.
The condensed consolidated statements of income, balance sheets and statements of cash flows are unaudited and subject to reclassification.
4
INTELIQUENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended
September 30, |
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Nine Months Ended
September 30, |
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(In thousands, except per share amounts) |
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2014 |
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2013 |
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2014 |
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2013 |
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Revenue |
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$ |
54,045 |
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$ |
50,396 |
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$ |
165,143 |
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$ |
163,133 |
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Operating expense: |
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Network and facilities expense (excluding depreciation and amortization) |
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23,016 |
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22,027 |
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71,035 |
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70,716 |
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Operations |
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7,432 |
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7,182 |
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21,941 |
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22,488 |
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Sales and marketing |
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1,048 |
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1,090 |
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2,542 |
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4,650 |
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General and administrative |
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3,645 |
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6,071 |
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12,699 |
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15,105 |
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Depreciation and amortization |
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2,985 |
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3,293 |
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9,136 |
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11,505 |
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Loss (gain) on disposal of fixed assets |
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2 |
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3 |
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(29 |
) |
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226 |
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Loss (gain) on sale of Americas data assets |
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1,081 |
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(23,171 |
) |
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Total operating expense |
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38,128 |
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|
39,666 |
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118,405 |
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101,519 |
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|
|
|
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|
|
|
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|
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Income from operations |
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|
15,917 |
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|
|
10,730 |
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|
|
46,738 |
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|
61,614 |
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Other expense (income): |
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Interest expense (income) |
|
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18 |
|
|
|
(1 |
) |
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37 |
|
|
|
(53 |
) |
Other expense (income) |
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|
|
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4 |
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(2 |
) |
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5 |
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|
|
|
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|
|
|
|
|
|
|
|
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Total other expense (income) |
|
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18 |
|
|
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3 |
|
|
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35 |
|
|
|
(48 |
) |
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|
|
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|
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|
|
|
|
|
|
|
|
Income from continuing operations before provision for income taxes |
|
|
15,899 |
|
|
|
10,727 |
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|
|
46,703 |
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|
|
61,662 |
|
Provision for income taxes |
|
|
6,123 |
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|
|
4,177 |
|
|
|
18,286 |
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|
|
8,524 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
9,776 |
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|
|
6,550 |
|
|
|
28,417 |
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|
|
53,138 |
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Loss from discontinued operations, net of income tax provision |
|
|
|
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|
|
68 |
|
|
|
|
|
|
|
7,102 |
|
Loss (gain) on disposal of discontinued operations |
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|
|
|
|
|
11 |
|
|
|
|
|
|
|
(783 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income |
|
$ |
9,776 |
|
|
$ |
6,471 |
|
|
$ |
28,417 |
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|
$ |
46,819 |
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Earnings per share continuing operations: |
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|
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|
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Basic |
|
$ |
0.30 |
|
|
$ |
0.20 |
|
|
$ |
0.87 |
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|
$ |
1.64 |
|
Diluted |
|
$ |
0.29 |
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|
$ |
0.20 |
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|
$ |
0.86 |
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|
$ |
1.63 |
|
Loss per share discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.20 |
) |
Diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.19 |
) |
Earnings per share net income: |
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|
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Basic |
|
$ |
0.30 |
|
|
$ |
0.20 |
|
|
$ |
0.87 |
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|
$ |
1.45 |
|
Diluted |
|
$ |
0.29 |
|
|
$ |
0.20 |
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|
$ |
0.86 |
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|
$ |
1.44 |
|
Weighted average number of shares outstanding: |
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|
|
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|
|
|
|
|
|
|
|
|
|
|
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Basic |
|
|
33,115 |
|
|
|
32,262 |
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|
|
32,743 |
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|
|
32,344 |
|
Diluted |
|
|
33,343 |
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|
|
32,557 |
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|
|
33,033 |
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|
|
32,548 |
|
Dividends paid per share: |
|
$ |
0.1500 |
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|
$ |
0.0625 |
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$ |
0.3000 |
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$ |
1.3750 |
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5
INTELIQUENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(In thousands, except per share amounts) |
|
September 30, 2014 |
|
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December 31, 2013 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
|
$ |
99,376 |
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$ |
77,004 |
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Receivables net of allowance of $2,238 and $900, respectively |
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31,300 |
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|
22,200 |
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Deferred income taxes current |
|
|
1,037 |
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|
|
720 |
|
Prepaid expenses |
|
|
3,020 |
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|
|
2,375 |
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Other current assets |
|
|
1,591 |
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|
|
1,977 |
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|
|
|
|
|
|
|
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Total current assets |
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136,324 |
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|
104,276 |
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Property and equipment net |
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22,617 |
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|
25,815 |
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Restricted cash |
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|
345 |
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|
|
125 |
|
Deferred income taxes noncurrent |
|
|
4,833 |
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|
|
5,495 |
|
Other assets |
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|
1,324 |
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|
|
1,534 |
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|
|
|
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|
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Total assets |
|
$ |
165,443 |
|
|
$ |
137,245 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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|
|
|
|
|
|
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Accounts payable |
|
$ |
1,682 |
|
|
$ |
2,176 |
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Taxes payable |
|
|
2,965 |
|
|
|
2,437 |
|
Circuit cost |
|
|
9,058 |
|
|
|
8,987 |
|
Rent |
|
|
2,046 |
|
|
|
2,071 |
|
Payroll and related items |
|
|
4,603 |
|
|
|
3,079 |
|
Other |
|
|
1,041 |
|
|
|
1,674 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
21,395 |
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|
|
20,424 |
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|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
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|
|
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Preferred stock par value of $.001; 50,000 authorized shares; no shares issued and outstanding at September 30, 2014 and
December 31, 2013 |
|
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Common stock par value of $.001; 150,000 authorized shares; 33,118 shares and 32,215 shares issued and outstanding at
September 30, 2014 and December 31, 2013, respectively |
|
|
33 |
|
|
|
32 |
|
Less treasury stock, at cost; 3,351 shares at September 30, 2014 and December 31, 2013 |
|
|
(51,668 |
) |
|
|
(51,668 |
) |
Additional paid-in capital |
|
|
212,698 |
|
|
|
203,989 |
|
Accumulated deficit |
|
|
(17,015 |
) |
|
|
(35,532 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
144,048 |
|
|
|
116,821 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
165,443 |
|
|
$ |
137,245 |
|
|
|
|
|
|
|
|
|
|
6
INTELIQUENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
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|
|
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|
|
|
Nine Months Ended September 30, |
|
(In thousands) |
|
2014 |
|
|
2013 |
|
Operating |
|
|
|
|
|
|
|
|
Net income |
|
$ |
28,417 |
|
|
$ |
46,819 |
|
Adjustments to reconcile net income to net cash flows provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,136 |
|
|
|
12,747 |
|
Deferred income taxes |
|
|
345 |
|
|
|
(1,934 |
) |
(Gain) loss on disposal of fixed assets |
|
|
(29 |
) |
|
|
493 |
|
Loss (gain) on sale of Americas data assets |
|
|
1,081 |
|
|
|
(23,171 |
) |
Gain on disposal of discontinued operations |
|
|
|
|
|
|
(783 |
) |
Non-cash share-based compensation |
|
|
3,268 |
|
|
|
5,169 |
|
Gain on intercompany foreign exchange transactions |
|
|
|
|
|
|
56 |
|
Excess tax (benefit) deficiency associated with share-based payments |
|
|
(896 |
) |
|
|
982 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(9,100 |
) |
|
|
(3,636 |
) |
Other current assets |
|
|
(1,340 |
) |
|
|
1,340 |
|
Other noncurrent assets |
|
|
210 |
|
|
|
(147 |
) |
Accounts payable |
|
|
(162 |
) |
|
|
(739 |
) |
Accrued liabilities |
|
|
(138 |
) |
|
|
3,552 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
30,792 |
|
|
|
40,748 |
|
|
|
|
|
|
|
|
|
|
Investing |
|
|
|
|
|
|
|
|
Purchase of equipment |
|
|
(6,279 |
) |
|
|
(9,906 |
) |
Proceeds from sale of equipment |
|
|
41 |
|
|
|
28 |
|
Proceeds from disposition of discontinued operations, net of transaction costs |
|
|
|
|
|
|
9,698 |
|
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 for investing activities |
|
|
(6,458 |
) |
|
|
37,749 |
|
|
|
|
|
|
|
|
|
|
Financing |
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options |
|
|
7,728 |
|
|
|
279 |
|
Restricted shares withheld to cover employee taxes paid |
|
|
(686 |
) |
|
|
(508 |
) |
Dividends paid |
|
|
(9,900 |
) |
|
|
(44,145 |
) |
Payments made for repurchase of common stock |
|
|
|
|
|
|
(1,565 |
) |
Excess tax benefit (deficiency) associated with share-based payments |
|
|
896 |
|
|
|
(982 |
) |
|
|
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(1,962 |
) |
|
|
(46,921 |
) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
6 |
|
Net increase in cash and cash equivalents |
|
|
22,372 |
|
|
|
31,582 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents Beginning |
|
|
77,004 |
|
|
|
31,479 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents End |
|
$ |
99,376 |
|
|
$ |
63,061 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for taxes |
|
$ |
20,053 |
|
|
$ |
6,070 |
|
Supplemental disclosure of noncash flow items: |
|
|
|
|
|
|
|
|
Investing activity accrued purchases of equipment |
|
$ |
1,410 |
|
|
$ |
1,372 |
|
7
The following table includes selected financial and operational metrics, sequentially, for the last five
quarters.
Selected Financial and Operational Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Sep. 30 |
|
|
Dec. 31 |
|
|
Mar. 31 |
|
|
Jun. 30 |
|
|
Sep. 30 |
|
($ in millions, except per minute figures) |
|
2013 |
|
|
2013 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
Total Revenue |
|
$ |
50.4 |
|
|
$ |
48.5 |
|
|
$ |
56.2 |
|
|
$ |
54.9 |
|
|
$ |
54.0 |
|
Adjusted EBITDA |
|
$ |
17.0 |
|
|
$ |
18.0 |
|
|
$ |
20.2 |
|
|
$ |
19.5 |
|
|
$ |
20.0 |
|
Total Capital Expenditures |
|
$ |
1.9 |
|
|
$ |
2.6 |
|
|
$ |
2.6 |
|
|
$ |
2.7 |
|
|
$ |
1.0 |
|
Free Cash Flow |
|
$ |
15.0 |
|
|
$ |
15.4 |
|
|
$ |
17.6 |
|
|
$ |
16.8 |
|
|
$ |
19.0 |
|
Voice Revenue |
|
$ |
50.1 |
|
|
$ |
50.2 |
|
|
$ |
56.2 |
|
|
$ |
54.9 |
|
|
$ |
54.0 |
|
Average Revenue per Minute |
|
$ |
0.00165 |
|
|
$ |
0.00165 |
|
|
$ |
0.00170 |
|
|
$ |
0.00162 |
|
|
$ |
0.00156 |
|
Minutes of Use (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Transit Services |
|
|
14,211 |
|
|
|
14,330 |
|
|
|
15,178 |
|
|
|
15,513 |
|
|
|
15,706 |
|
Switch Access (Long Distance) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Services |
|
|
11,662 |
|
|
|
11,306 |
|
|
|
12,539 |
|
|
|
13,161 |
|
|
|
13,878 |
|
Origination Services |
|
|
4,545 |
|
|
|
4,790 |
|
|
|
5,418 |
|
|
|
5,222 |
|
|
|
5,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Minutes of Use |
|
|
30,418 |
|
|
|
30,426 |
|
|
|
33,135 |
|
|
|
33,896 |
|
|
|
34,622 |
|
# of Employees |
|
|
140 |
|
|
|
143 |
|
|
|
149 |
|
|
|
154 |
|
|
|
155 |
|
Use of Non-GAAP Financial Measures
In this press release we disclose Adjusted EBITDA and Free Cash Flow, which are non-GAAP financial measures. For purposes of SEC
rules, a non-GAAP financial measure is a numerical measure of a companys performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable
measure, calculated and prepared in accordance with generally accepted accounting principles in the United Sates (GAAP).
EBITDA is defined as net income
before (a) interest expense, net (b) income tax expense and (c) depreciation and amortization. Adjusted EBITDA is defined as EBITDA as further adjusted to eliminate: non-cash share-based compensation; as well as non-recurring amounts
incurred in connection with the discontinuation of our hosted service offering, severance payments, professional and legal fees incurred in connection with the internal investigation conducted by our Audit Committee; a payment received under our
insurance policy related to Hurricane Sandy; and the gain on sale of the global data business. We believe that the presentation of Adjusted EBITDA included in this press release provides useful information to investors regarding our results of
operations because it assists in analyzing and benchmarking the performance and value of our business. We believe that presenting Adjusted EBITDA facilitates company-to-company operating performance comparisons of companies within the same or
similar industries by backing out differences caused by variations in capital structure, taxation and depreciation of facilities and equipment (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to
operating
8
performance. These measures provide an assessment of controllable operating expenses and afford management the ability to make decisions, which are expected to facilitate meeting current
financial goals as well as achieve optimal financial performance. They provide an indicator for management to determine if adjustments to current spending decisions are needed. Furthermore, we believe that the presentation of Adjusted EBITDA has
economic substance because it provides important insight into our profitability trends, as a component of net income, and allows management and investors to analyze operating results with and without the impact of depreciation and amortization,
interest and income tax expense, non-cash share-based compensation, amounts incurred in connection with the discontinuation of our hosted service offering, severance payments, professional and legal fees incurred in connection with the internal
investigation conducted by our Audit Committee, a payment received under our insurance policy related to Hurricane Sandy, and the gain on sale of the global data business. Accordingly, these metrics measure our financial performance based on
operational factors that management can impact in the short-term, namely the operational cost structure and expenses of our business. In addition, we believe Adjusted EBITDA is used by securities analysts, investors and other interested parties in
evaluating companies, many of which present an EBITDA measure when reporting their results. Although we use Adjusted EBITDA as a financial measure to assess the performance of our business, the use of Adjusted EBITDA is limited because it does not
include certain material costs, such as depreciation, amortization and interest and taxes, necessary to operate our business. We disclose the reconciliation between EBITDA and Adjusted EBITDA and net income below to compensate for this limitation.
While we use net income as a significant measure of profitability, we also believe that Adjusted EBITDA, when presented along with net income, provides balanced disclosure which, for the reasons set forth above, is useful to investors in evaluating
our operating performance and profitability. Adjusted EBITDA included in this press release should be considered in addition to, and not as a substitute for, net income as calculated in accordance with generally accepted accounting principles as a
measure of performance.
Free Cash Flow is defined as Adjusted EBITDA less capital expenditures as disclosed in the Consolidated Statement of Cash Flows.
Free Cash Flow represents the cash that a company is able to generate after cash expenses and capital expenditures necessary to maintain or expand its asset base. Management believes that Free Cash Flow is a relevant metric to provide investors, as
it is an indicator of the Companys ability to generate cash that can potentially be used by the Company for capital investments, acquisitions, payment of dividends or share repurchases. There are material limitations to using Free Cash Flow to
measure the Companys performance as it excludes certain material items such as cash used to pay income taxes and dividends. Free Cash Flow should not be used as a substitute for net change in cash and cash equivalents on the Consolidated
Statements of Cash Flows.
9
The following is a reconciliation of net income to EBITDA, Adjusted EBITDA and Free Cash Flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Sep. 30 |
|
|
Dec. 31 |
|
|
Mar. 31 |
|
|
Jun. 30 |
|
|
Sep. 30 |
|
($ in thousands) |
|
2013 |
|
|
2013 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
Net income (loss) |
|
$ |
6,471 |
|
|
$ |
8,834 |
|
|
$ |
9,193 |
|
|
$ |
9,448 |
|
|
$ |
9,776 |
|
Interest expense (income) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
2 |
|
|
|
17 |
|
|
|
18 |
|
Provision (benefit) for income taxes |
|
|
4,177 |
|
|
|
5,000 |
|
|
|
6,127 |
|
|
|
6,036 |
|
|
|
6,123 |
|
Depreciation and amortization |
|
|
3,293 |
|
|
|
3,146 |
|
|
|
3,141 |
|
|
|
3,010 |
|
|
|
2,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
13,940 |
|
|
$ |
16,979 |
|
|
$ |
18,463 |
|
|
$ |
18,511 |
|
|
$ |
18,902 |
|
Non-cash share-based compensation |
|
|
1,239 |
|
|
|
994 |
|
|
|
1,024 |
|
|
|
1,085 |
|
|
|
1,159 |
|
Hosted services |
|
|
(450 |
) |
|
|
(8 |
) |
|
|
(358 |
) |
|
|
(117 |
) |
|
|
(28 |
) |
Severance |
|
|
505 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal investigation |
|
|
2,148 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance recovery |
|
|
(423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sale of global data business |
|
|
11 |
|
|
|
(1 |
) |
|
|
1,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
16,970 |
|
|
$ |
17,982 |
|
|
$ |
20,210 |
|
|
$ |
19,479 |
|
|
$ |
20,033 |
|
Capital Expenditures |
|
$ |
1,924 |
|
|
$ |
2,564 |
|
|
$ |
2,582 |
|
|
$ |
2,685 |
|
|
$ |
1,012 |
|
Free Cash Flow |
|
$ |
15,046 |
|
|
$ |
15,418 |
|
|
$ |
17,628 |
|
|
$ |
16,794 |
|
|
$ |
19,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
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