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Inteliquent Reports Third Quarter 2016 Results

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Financial and operating highlights include:

  • Company agrees to be acquired by GTCR
  • Company invests in Zipwhip, a Seattle-based business texting SaaS company
  • Third quarter 2016 minutes of use increased 55.0% compared to third quarter of 2015
  • Third quarter 2016 revenue increased 56.0% to $99.4 million compared to $63.7 million in the third quarter of 2015
  • Third quarter 2016 net income of $9.4 million compared to $8.3 million in third quarter of 2015
  • Adjusted EBITDA (a non-GAAP financial measure) of $19.1 million in third quarter 2016 compared to $16.9 million in third quarter 2015
  • Company withdraws financial estimates for full year 2016

CHICAGO, Nov. 07, 2016 (GLOBE NEWSWIRE) -- Inteliquent, Inc. (NASDAQ: IQNT), the nation's premier voice and messaging interconnection partner for communications service providers of all types, today announced its financial results for the third quarter of 2016.

"Our third quarter results were a direct reflection of the continued strategic progress and positive momentum we generated over the course of 2016," said Matt Carter, Inteliquent's President and Chief Executive Officer.  "Along with the favorable comparisons to the same period from 2015, we experienced sequential quarterly growth in revenue, billed minutes, and net income.   Additionally, during the quarter we made a strategic investment in Zipwhip, a Seattle-based startup that makes it possible for consumers to text businesses on their existing phone numbers. The investment aligns with our focus on extending the power and reliability of our network into the next gen space, and transforming how businesses use communication networks to reach their customers. The recently announced and pending acquisition of Inteliquent by GTCR and Onvoy validates our long term Growth Forward strategy."

Third Quarter 2016 Results 

Inteliquent generated revenue of $99.4 million in the third quarter of 2016, an increase of 56.0%, or $35.7 million, from $63.7 million of revenue in the third quarter of 2015.  The growth was primarily driven by an increase in minutes of use. Minutes of use increased 55.0% to 62.3 billion minutes in the third quarter of 2016, compared to 40.2 billion minutes in the third quarter of 2015.  The average rate per minute for the both the third quarter of 2016 and 2015 was flat at $0.00159.  During the quarter, Inteliquent recognized $2.3 million of revenue related to a settlement of outstanding, but unrecorded, billed revenue.  Excluding this settlement, revenue was $97.1 million in the third quarter of 2016.

Network and facilities expense for the third quarter of 2016 was $65.8 million, or 66.2% of revenue, compared to $34.9 million, or 54.8% of revenue, for the third quarter of 2015.  The $30.9 million, or 88.5% increase in network and facilities expense was primarily due to an increase in traffic and the costs associated with provisioning transport capacity due to traffic volume growth. The cost as a percent of revenue increased during the three months ended September 30, 2016, as a result of an increase in the costs we pay to third parties to terminate certain traffic.

Combined operating expenses consisting of Operations, Sales and Marketing, and General and Administrative expenses were $15.3 million, or 15.4% of revenue for the third quarter of 2016, compared to $13.3 million, or 20.9% of revenue for the third quarter of 2015.  The $2.0 million, or 15.0% increase in operating expenses was primarily due to higher professional fees, including litigation fees, as well as higher employee related costs resulting from additional headcount necessary to grow our business. 

Depreciation and amortization expense was $3.8 million for the third quarter of 2016, or 3.8% of revenue, compared to $2.9 million for the third quarter of 2015, or 4.6% of revenue.  The increase in depreciation and amortization expense for the third quarter 2016 was due to the significant increase in the property and equipment asset base necessary to accommodate the growth in traffic.

Net Income in the third quarter of 2016 was $9.4 million, compared to $8.3 million for the third quarter of 2015. 

Adjusted EBITDA (a non-GAAP financial measure) in the third quarter of 2016 was $19.1 million, an increase of 13.0% or $2.2 million, from $16.9 million for the third quarter of 2015.  See "Use of Non-GAAP Financial Measures" below for a discussion of the presentation of Adjusted EBITDA and reconciliation to net income.

Business Outlook
As previously announced, on November 2, 2016, Inteliquent, Onvoy, LLC, a Minnesota limited liability company and a portfolio company of GTCR LLC  ("Onvoy"), and Onvoy Igloo Merger Sub, Inc., a Delaware corporation ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Merger Sub will merge with and into Inteliquent on the terms and subject to the conditions set forth in the Merger Agreement (the "Merger"), with the Company surviving the Merger as a wholly-owned subsidiary of Onvoy. In light of the pending acquisition by GTCR, Inteliquent will not be holding an earnings conference call to discuss its financial results. Additionally, Inteliquent is withdrawing previously provided financial guidance for the full year 2016.

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 (also referred to as IP direct connects or peering), 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; our ability to perform under the agreement we announced with T-Mobile USA. Inc. on August 17, 2015 (as amended, the "T-Mobile Agreement"), including the risk that the traffic we carry under the T-Mobile Agreement will not meet our targets for profitability, including EBITDA and Adjusted EBITDA, that we incur damages or similar costs if we fail to meet certain terms in the T-Mobile Agreement, or that T-Mobile terminates the T-Mobile Agreement; the risk that our costs to perform under the T-Mobile Agreement will be higher than we expect; our ability to market Inteliquent's Omni IQ voice and messaging service, including the risk that the service will not meet our targets for revenue or profitability, including EBITDA and Adjusted EBITDA; the risk that our costs to provide Inteliquent's Omni IQ voice and messaging service will be higher than we expect; the risk that a receiving carrier will refuse to accept terminating text messages or other problems preventing us from providing our Omni IQ services; 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 successfully; 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; changes in general economic or market conditions; our ability to identify and successfully attract a highly qualified successor to our former Chief Financial Officer and his or her future performance; the length of time required to complete an executive search; cooperation by key parties during the Chief Financial Officer transition process; 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, 2015, 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.

About Inteliquent

Inteliquent is a premier interconnection partner for communication service providers of all types.  As the nation's highest quality provider of voice and messaging interconnection services, 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 21 billion minutes of traffic per month. With the recent launch of its Omni IQ solution, Inteliquent is now also fully dedicated to supporting the growing market of next generation service providers.

The Condensed Consolidated Statements of Income, Balance Sheets and Statements of Cash Flows are unaudited and subject to reclassification.


INTELIQUENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(In thousands, except per share amounts) 2016  2015  2016  2015 
Revenue $99,404  $63,716  $272,485  $171,656 
Operating expense:                
Network and facilities expense (excluding depreciation and amortization)  65,794   34,858   174,606   78,918 
Operations  9,660   7,955   27,473   22,966 
Sales and marketing  1,370   690   3,288   2,098 
General and administrative  4,285   4,648   12,874   14,145 
Depreciation and amortization  3,826   2,894   10,656   8,137 
Gain on sale of property and equipment     (4)  (5)  (120)
Total operating expense  84,935   51,041   228,892   126,144 
Income from operations  14,469   12,675   43,593   45,512 
Other (income) expense:                
Interest (income) expense  (69)  9   (210)  36 
Other income           (1,290)
Total other (income) expense  (69)  9   (210)  (1,254)
Income before provision for income taxes  14,538   12,666   43,803   46,766 
Provision for income taxes  5,165   4,399   16,319   17,317 
Net income $9,373  $8,267  $27,484  $29,449 
Earnings per share:  
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