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    Request-TNS_William Request-TNS_William Presentation Transcript

    • William Blair Growth Stock Conference June 16, 2010Henry Graham Dennis Randolph Chief Executive Officer Chief Financial Officer
    • Forward Looking StatementsThe statements contained in this presentation that are not historical facts are forward-looking statements within the meaning of The Private SecuritiesLitigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that are subject to risks anduncertainties that could cause actual results to differ materially from those set forth in, or implied by, the forward-looking statements. The Company hasattempted, whenever possible, to identify these forward-looking statements using words such as “may,” “will,” “should,” “projects,” “estimates,” “expects,”“plans,” “intends,” “anticipates,” “believes,” and variations of these words and similar expressions. Similarly, statements herein that describe the Company’sbusiness strategy, prospects, opportunities, outlook, objectives, plans, intentions or goals are also forward-looking statements. Actual results may differmaterially from those indicated by such forward-looking statements as a result of various important factors, including: the Company’s reliance upon a smallnumber of customers for a significant portion of its revenue; competitive factors such as pricing pressures; uncertainties related to the updated internationaltax planning strategy; the Company’s ability to grow its business domestically and internationally by generating greater transaction volumes, acquiring newcustomers or developing new service offerings; fluctuations in the Company’s quarterly results because of the seasonal nature of the business and otherfactors outside of the Company’s control, including fluctuations in foreign exchange rates and the continuing impact of the current economic conditions; theCompany’s ability to identify, execute or effectively integrate acquisitions, including the acquisition of the Communications Services Group from VeriSign,Inc.; increases in the prices charged by telecommunication providers for services used by the Company; the Company’s ability to adapt to changingtechnology; the Company’s ability to refinance its senior secured credit facility and its ability to borrow funds in amounts sufficient to enable it to service itsdebt or meet its working capital and capital expenditure requirements; additional costs related to compliance with any revised New York Stock Exchangelisting standards, Securities and Exchange Commission (SEC) rule changes or other corporate governance issues; and other risk factors described in theCompany’s annual report on Form 10-K dated March 16, 2010 as filed with the SEC. The Company expects that subsequent events or developments willcause its views to change. The Company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of newinformation, future events, changes in expectations or otherwise. These forward-looking statements should not be relied upon as representing theCompany’s views as of any date subsequent to June 16, 2010. 2
    • TNS Investment Thesis • Gold standard of value-added secure connectivity – Secure global network enables businesses, people, markets to connect, transact, trade • Leveraged model serves three distinct addressable growth markets – Advanced solutions customized for global institutions and small businesses – Expanding suite of network-level and intelligent services • Strategic, accretive CSG Acquisition scales telecom division – Integration well underway, expected completion by beginning of Q4:10 • Strong track record of execution – Managing well in current environment by controlling costs and selectively investing in services suite, customers and geographic penetration • 95%+ recurring revenue, strong margins, growing operating cash flow 3
    • TNS’ Divisions – Leveraged Model ofMultiple Protocols on Common Backbone •Multiple data protocols optimized Merchant POS Merchant Processor over common backbone IP, DSL, Wireless, TNS Network (IP/X.25) Dial, Dedicated – IP (POS, FSD, TSD) – SS7 (POS, TSD) FSD Broker/Dealers Institutional Investor Customers – X.25 (ISD, POS) TNS IP Network •Offer customers variety of access TSD methods (IP, DSL, Wireless, Dial, TNS IP Network ILECs CLECs Dedicated) LEC billing platform Customers SS7 Network •Private, secure, reliable and fast IXCs CLECs Wireless carriers Calling card providers SMS offload International providers 4
    • TNS Divisions:Payments Division Value Chain ® 5
    • TNS Divisions: Payments Division(36.8% of Q1:10 Revenues) Markets the Company’s data communication services to payment processors around the world ($ in millions) Payments Historical Revenue• Recurring revenue model - transaction-based $250.0 $213.3 and monthly fee $200.0 $206.5 $196.8 $200.2• Managed connectivity, connection agnostic: $150.0 $125.3 $138.8 $120.8 $125.0 $100.0 – Dial – Secure SSL $50.0 – TNS Connect – TNS Link $81.2 $74.5 $76.1 $75.2 $0.0 2007 2008 2009 TTM Q110• Managed services North America International Foreign currency effect: 2009 = $(13.6) million, Q1:10 = $3.4 million – CNP Gateway – Synapse CHP Gateway – ATM Processing – Multi-channel POS – POS Encryption – Message Conversion Drivers: – Settlement • Accelerating card adoption • Shift to broadband from leased lines • Cross-border acquiring • New geographies and customers (Wireless - fixed/mobile) • Payment gateway services • ATM processing • Value-added POS/ATM services 6
    • TNS Divisions:Financial Services Division Community of Interest 7
    • TNS Divisions: Financial Services Division(12.7% of Q1:10 Revenues) • Addresses data, voice communications requirements of FSD Historical Revenue North America International financial services industry - currently services over 625 ($ in millions) CAGR: 6.5% $75.0 customers $60.0 $54.5 $63.6 $65.2 $65.8 $17.7 $17.5 $18.6 $13.6 • Secure Trading Extranet – managed connectivity links $45.0 $30.0 customers through IP network for electronic trading $15.0 $40.9 $45.9 $47.7 $47.2 (“FIX”) and the exchange of market data $0.0 2007 2008 2009 TTM Q110 • Highly visible, recurring revenue business Foreign currency effect: 2009 = $(1.7) million; Q1:10 = $0.5 million – Fixed monthly fee model based on endpoints – Highly valued “community of interest” Customer Endpoints (Global) • Drivers: Customer Endpoint CA GR: 9.7% – Accelerating demand in Asia/Pacific region 1,800 $50,000 $43,681 $39,641 $38,961 $42,645 – Higher bandwidth for data needs continues 1,600 $40,000 1,670 1,688 – New asset classes – foreign exchange 1,400 $30,000 1,456 – Global exchange connectivity 1,200 1,278 $20,000 – Demand for low latency direct access 1,000 $10,000 – Standardizing electronic communication protocols 800 2007 2008 2009 TTM Q1:10 $0 Customer Endpoints Revenue/Endpoint 8
    • TNS Divisions:Telecommunication Services Division (TSD) 9
    • TNS Divisions: TSD(50.5% of Q1:10 Revenues) Outsourced telecommunications services for call signaling and database access services - Operates one of the ($ in millions) largest unaffiliated SS7 networks in the US TSD Historical Revenue $300 $263.2 • Revenue Model – Fixed monthly and per-query fees $250 $212.7 $200 • Managed services $150 – Registry Services – Roaming & Clearing/Settlement ` $100 $67.1 – Identity & Verification – Messaging $64.5 $50 – Calling Name Delivery – Validation and Fraud Control $0 2007 2008 2009 TTM Q1:10 • Drivers – telecom industry dynamics: – Significant number of consolidating legacy voice •Communications Services Group acquisition providers –Closed May 1, 2009 – Introduction of new competitive voice service offerings –Scaled TSD – strategic, financial, operational, – Influx of VoIP providers and services technological fit – immediately accretive –Strengthened competitive positioning –Integration well underway, on track for Q4:10 completion and achievement of run-rate synergies by 2011 10
    • CSG Acquisition Drivers TNS Strategy TNS Strategy •• Robust SS7 network services Robust SS7 network services • Consolidation •• Partnered to provide outsourced Partnered to provide outsourced – Price competition, industry consolidation, alternative CNAM solution alternative CNAM solution vertical integration of downstream providers •• Leveraged bundled service offerings to Leveraged bundled service offerings to impacted revenues alternative telephony providers alternative telephony providers • 2009-2011 – addressable market expanding •• Invest in TSD -- drive synergies Invest in TSD drive synergies – Growth of cable and VoIP vertical into •• Grow in current markets Grow in current markets -- Alternative telephony – gain competitive Alternative telephony – gain competitive telecom space share share – TNS is now premier alternative to large roaming -- Roaming/clearing – premier alternative to Roaming/clearing – premier alternative to large competitor large competitor and clearing competitor •• Invest in product development Invest in product development • 2011 and beyond – new solutions •• Align/cross-sell POS and TSD services Align/cross-sell POS and TSD services – Opportunity to cross-sell to other divisions •• Expand roaming/clearing globally Expand roaming/clearing globally •• Develop new cost-saving solutions Develop new cost-saving solutions – Global roaming/clearing opportunity -- One-to-many IP-based switching One-to-many IP-based switching – Non-traditional inter-carrier connectivity solutions solutions -- ENUM connectivity ENUM connectivity 11
    • Why We Win Division Primary Competitors TNS’ Competitive Advantages AT&T, Verizon Business, • Global network for cross-border data transport Payments Local country telecom • Dedication to data transport offerings incumbents, HBNet, • Network reliability, speed and value-adds APRIVA, Cybera • Superior support and service AT&T, Syniverse, Verizon • Differentiated service suite, largest authoritative CNAM TSD Business, TargusInfo, • Network reliability and cost-efficiency Qwest, Embarq • Superior support and service AT&T, Bloomberg, • Secure and discrete service offerings FSD Radianz, Reuters, • Broad access and rapid deployment SAVVIS, Thomson • Superior support and service TNS: Unique Position; Superior Value/Service Proposition TNS: Unique Position; Superior Value/Service Proposition 12
    • TNS Growth Strategy Within North America, Europe, and the Asia-Pacific region Focus on Key Geographies Hub and spoke strategy offers organic growth and best use of resources and capital Win greater share of existing customer spend Further penetrate new customer types Sell, Service, Manage Sell to new customers with stronger service levels Focus on profitability Partner with customers to better understand needs Solutions Suite Innovation Develop new IP-based solutions for all divisions Focus on global applicability New acquisition criteria: Strategic Acquisitions • Improve/broaden suite • Leverage core network • Expand geographic reach • Accretive to adjusted EPS 13
    • TNS’ Financials Financial Measures In addition to the results presented in accordance with generally accepted accounting principles, or GAAP, in this presentation, the company presents EBITDA before stock compensation expense, adjusted earnings and adjusted earnings per share, which are non-GAAP measures. EBITDA is determined by taking income from operations and adding back certain non-cash items, including amortization of intangible assets, depreciation and amortization of property and equipment and stock compensation expense. Adjusted earnings is determined by taking pretax income or loss after equity in net loss of unconsolidated affiliates and adding back certain non-cash items, including amortization of intangible assets, stock compensation expense and the write-off of debt issuance costs, and the result is tax effected at a 20% rate (2007:38%). The company believes that these non-GAAP measures, viewed in addition to and not in lieu of the company’s reported GAAP results, provide useful information to investors because these metrics provide a more focused measure of operating results. These metrics are an integral part of the company’s internal reporting to measure operations of the company and the performance of senior management. A reconciliation to comparable GAAP measures is available in the accompanying schedule. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other companies. 14
    • TNS Historical Financial Overview Established Track Record of Revenue Growth: Global Divisional Breakout 2009 foreign currency impact = $15.3 million $529.1 $474.8 $325.6 $344.0 $286.2 2006 2007 2008 2009 TTM Q1:10 Payments TSD FSD CAGR 2006-2009: 3.2% 43.2%* 13.3% * 2006-2008 CAGR for TSD is 4.0% 15
    • TNS Historical Financial Overview Consistent and Growing EBITDA and Earnings generation EBITDA Adjusted Earnings 26.3% 26.8% $139.2 25.0% $127.3 22.9% 4. 8% $62.0 21.8% G R3 $57.1 EBITDA CA Margin $85.9 $74.7 $40.2 $62.5 $25.2 $18.8 2006 2007 2008 2009 TTM 2006 2008 TTM Q110 Q110(1) EBITDA and Adjusted Earnings are non-GAAP measures. EBITDA and Adjusted Earnings exclude certain non-recurring charges and benefits previously disclosed. 16
    • Q1:10 Financial Overview($ in millions except per share amounts) Q1 10 Q1 09 % Chg Payments Division 47.7 44.4 7.5% Financial Services Division 16.4 15.9 3.3% Telecommunication Services Division 65.5 15.0 NM Total Revenue $129.6 $75.3 72.2% Gross Profit $66.4 $38.5 72.7% Gross Margin 51.3% 51.1% 20BP EBITDA Before Stock Comp Expense(1)(2) $31.6 $16.3 93.5% Adjusted Earnings(1)(2) $15.0 $7.3 103.8% Adjusted Earnings per Share—Diluted(1)(2) $0.56 $0.29 92.2% 1) Non-GAAP measure. Please see first quarter 2010 press release for reconciliation to comparable GAAP measures. 2) Included in first quarter 2010 results are $0.5 million in pre-tax severance charges. Excluding severance charges, first quarter 2010 EBITDA before Stock Comp Expense would have been $32.0 million and adjusted earnings would have been $15.3 million or $0.57 per share. 17
    • Balance Sheet HighlightsAmounts in millions Actual 3/31/10 12/31/09Cash and Cash Equivalents $32.4 $32.5Total Current Assets $141.6 $162.9 Current Ratio 1.51x 1.37xNet Property and Equipment $123.2 $125.6 Total Assets $567.8 $603.2Current and Long-Term Debt, net (1) $355.1 $369.7Stockholders’ Equity $118.9 $121.3 Total Debt/Capitalization 75.1% 75.4% Total Liabilities and Equity $567.8 $603.2Common Shares Outstanding 26.7 25.2 1) Current and long-term debt shown is net of the unamortized portion of the Original Issue Discount of $4.3 million and $4.7 million as of March 31, 2010 and December 31, 2009, respectively. Gross debt outstanding at March 31, 2010 and December 31, 2009 is $359.4 million and $374.4 million, respectively. 18
    • Estimated Synergies • Optimize combined SS7 design • Optimize combined SS7 design Network Consolidation Network Consolidation • Reduce interconnections to other networks • Reduce interconnections to other networks • Augment capacity where needed • Augment capacity where needed Major • 8XX database • 8XX database - Consolidate platforms Areas • LNP database • LNP database Database Consolidation Database Consolidation of Synergy • CNAM database -- Replace external provider • CNAM database Replace external provider Operational Efficiencies • Optimize vendor spend • Optimize vendor spend Operational Efficiencies • Evaluate processes • Evaluate processes Total Total FY 2009 FY 2010 Estimated Estimated FY 2009 FY 2010 FY 2011 FY 2011 $1 mm pretax $5-$6 mm pretax Run-Rate Run-Rate $1 mm pretax $5-$6 mm pretax $2-$3 mm pretax $2-$3 mm pretax Synergies of Synergies of $0.03 P/S $0.03 P/S $0.15-$0.18 P/S $0.15-$0.18 P/S $0.06-$0.09 P/S $0.06-$0.09 P/S $0.24-$0.30 $0.24-$0.30 Per Share Per Share Full Run Rate to be Achieved by Q4 2010 Full Run Rate to be Achieved by Q4 2010 19 19
    • 2010 Outlook 2010 2009 % ChgTotal Revenue $545 - $561 $475 15% - 18%Adjusted Earnings(1)(2)(3) $75 - $80 $57.1 32% - 39%Adjusted EPS – Diluted (1)(2)(3) $2.80 - $2.96 $2.21 27% - 34%Diluted Shares Outstanding 26.9 25.9 4% Q2:10 Q2:09 % ChgTotal Revenue $131 - $135 $122 7% - 11%Adjusted Earnings(1)(3) $16.6 - $17.9 $14.4 15% - 24%Adjusted EPS – Diluted (1)(3) $0.62 - $0.67 $0.56 11% - 20%Diluted Shares Outstanding 26.9 25.5 5% 1) Non-GAAP measure. Please see first quarter 2010 press release for reconciliation to comparable GAAP measures. 2) Excluded from expenses in 2010 and 2009 is a $0.5 million, or $0.02 per share, and a $1.7 million pre-tax charge, or $0.06 per share, related to severance, respectively. 3) Excluded from expenses in 2009 is a $1.6 million pre-tax charge, or $0.05 per share, for CSG acquisition costs expensed in accordance with the provisions of FASB ASC 805, Business Combinations 20
    • Reconciliation of Non-GAAP Information TNS, Inc. Reconciliation of Non-GAAP Information (In thousands, except share and per share amounts) (Unaudited) Three Months Ended March 31, 2010 March 31, 2009 EBITDA before stock compensation expense: Income from operations(GAAP) $ 7,778 $ 2,874 Add back the following items: Depreciation and amortization of property and equipment 10,252 5,834 Amortization of intangible assets 11,329 5,605 Stock compensation expense 2,215 2,004 EBITDA before stock compensation Expense (1) $ 31,574 $ 16,317 Adjusted Earnings: Income before income taxes and equity in net loss of unconsolidated affiliates (GAAP) $ 4,575 $ 1,493 Add back the following items: Equity in net loss of unconsolidated affiliates (65) (30) Amortization of intangible assets 11,329 5,605 Other debt related costs 653 106 Stock compensation expense 2,215 2,004 Adjusted earnings before income taxes 18,707 9,178 Income tax provision at 20% (3,741) (1,836) Adjusted earnings (2) $ 14,966 $ 7,342 Weighted average common shares - diluted 26,717,477 25,199,287 Adjusted earnings per common share - diluted(2) $ 0.56 $ 0.29 FOOTNOTES: (1) Excluding the $0.5 million in pre-tax severance charges, EBITDA before stock compensation expense for the first quarter 2010 was $32.0 million. (2) Excluding the $0.5 million in severance charges, adjusted earnings for the first quarter 2010 were $15.3 million, or $0.57 per share. 21
    • Questions and Answers