Neutral Tandem Announces 2009 Third Quarter Financial Results

Third Quarter 2009 Highlights

* Revenue of $44.7 million, up 43.5% from $31.2 million in Q3'08
* Pretax income of $17.5 million, up 84.1% from $9.5 million for
Q3'08
* Net income of $11.1 million, up 79.9% from $6.2 million for Q3'08
* Adjusted EBITDA (as defined below) of $22.3 million, up 66.9% from
$13.4 million in Q3'08
* Billed minutes of 23.0 billion, an increase of 44.7% over Q3'08
CHICAGO, Nov. 4, 2009 (GLOBE NEWSWIRE) -- Neutral Tandem, Inc. (Nasdaq:TNDM), a
leading provider of tandem interconnection services, today announced its third
quarter 2009 financial results.

"Our results for the third quarter of 2009 reflect a continuation of the strong
growth and profitability we generated in the first half of the year," said Rian
Wren, President and Chief Executive Officer of Neutral Tandem. "We remain
focused on our three strategic priorities of broadening our geographic presence,
expanding our interconnections with new and existing customers, and increasing
the types of traffic we carry across our network."

Third Quarter Results

Revenue increased 43.5% to $44.7 million for the three months ended September
30, 2009, compared to $31.2 million during the three months ended September 30,
2008. The increase in third quarter revenue was primarily related to an increase
in the number of minutes carried over our network and continued penetration into
existing markets.

Billed minutes increased 44.7% to 23.0 billion minutes for the three months
ended September 30, 2009, compared to 15.9 billion minutes for the three months
ended September 30, 2008.

Network and facilities expenses for the three months ended September 30, 2009
were $13.1 million, compared to $11.2 million for the three months ended
September 30, 2008. This increase was largely due to greater traffic volumes
carried over our network and an increase in the number of markets in which we
operate. Combined operating expenses consisting of Operations, Sales and
Marketing, and General and Administrative expenses were $10.8 million for the
three months ended September 30, 2009, compared to $7.6 million for the three
months ended September 30, 2008. The increase primarily resulted from higher
employee expenses, including additional non-cash share based compensation, as
well as increased professional expenses.

Income from operations for the three months ended September 30, 2009 was $17.3
million, or 38.7% of revenue, compared to $8.8 million for the three months
ended September 30, 2008, or 28.3% of revenue.

Pretax income for the three months ended September 30, 2009 was $17.5 million,
up 84.1% from $9.5 million for the three months ended September 30, 2008.

Income tax expense for the three months ended September 30, 2009 was $6.4
million, compared to $3.3 million for the three months ended September 30, 2008.
The effective tax rate for the three months ended September 30, 2009 was
approximately 36.5% compared to an effective tax rate of approximately 35.0% for
the three months ended September 30, 2008.

Net income for the three months ended September 30, 2009 was $11.1 million, or
$0.32 per diluted share, compared to $6.2 million, or $0.19 per diluted share,
for the three months ended September 30, 2008.

Adjusted EBITDA, a non-GAAP measure, for the three months ended September 30,
2009 was $22.3 million, up 66.9% compared to $13.4 million for the three months
ended September 30, 2008. The Adjusted EBITDA margin, a non-GAAP financial
measure, for the three months ended September 30, 2009 was 49.9%, up from 42.9%
for the three months ended September 30, 2008. This increase in Adjusted EBITDA
margin was driven by the continued scaling of our operating expenses, as well as
network efficiency and optimization efforts. See "Use of Non-GAAP Financial
Measures" below for a discussion of the presentation of Adjusted EBITDA and a
reconciliation to net income.

We expanded our footprint by commencing operations in 10 new markets for the
three months ended September 30, 2009. We operated in 128 markets as of
September 30, 2009, as compared to 91 markets as of September 30, 2008.

Business Outlook

Based on actual results for the first three quarters of 2009 and management's
current belief about minute-based revenue trends, expenses and the competitive
environment, Neutral Tandem is raising its forecast for certain metrics.

Neutral Tandem now estimates:

* Revenue for the full year of 2009 is expected to be between
$168 million and $170 million, an increase from the previous
forecast range of $162 million to $168 million.

* Adjusted EBITDA, a non-GAAP financial measure, for the full year
of 2009 is expected to be between $82 million and $84 million, an
increase from the previous forecast range of $77 million to
$81 million.

* Billed minutes for the full year of 2009 are estimated to be
between 86.5 billion minutes and 87.5 billion minutes, as compared
to the previous forecast range of 85 billion minutes to 88 billion
minutes.

* Capital expenditures for the full year of 2009 are expected to be
between $18 million and $19 million, as compared to the previous
forecast range of $18 million to $20 million.

* Operations to commence in 36 new markets during the full year of
2009, consistent with the previous forecast.
Wren concluded, "We remain optimistic about our strategic growth initiatives and
continue to manage resources to ensure progress against all of our strategic
priorities, while carefully monitoring the overall economy and industry trends.
Additionally, we remain encouraged as our new service offerings begin to gain
traction with current customers. Going forward, we believe our industry leading
service offerings, investment in advanced technologies and strong balance sheet
will enable us to continue to drive shareholder value."

Webcast and Conference Call

A webcast and conference call will be held today, November 4, 2009 at 8:00 a.m.
(ET). A live web cast of the conference call as well as a replay will be
available online on the company's corporate web site at www.neutraltandem.com.
Participants can also access the call by dialing 877-941-7133 (within the United
States and Canada), or 480-629-9818 (international callers). A replay of the
call will be available approximately two hours after the call has ended and will
be available until 11:59 p.m. (CST) on Friday, December 4, 2009. To access the
replay, dial 800-406-7325 (within the United States and Canada), or 303-590-3030
(international callers) and enter the conference ID number: 4175896.

Cautions Concerning 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 regarding Neutral Tandem's strategy, future
operations, future financial position, future revenues, projected costs,
prospects, plans and objectives of management are forward-looking statements.
The words "anticipates," "believes," "expects," "estimates," "projects,"
"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. Neutral Tandem may not actually
achieve the plans, intentions or expectations disclosed in its forward-looking
statements. Actual results or events could differ materially from the plans,
intentions and expectations disclosed in the forward-looking statements Neutral
Tandem makes. Factors that might cause such differences include, but are not
limited to: the impact of current and future regulation affecting the
telecommunications industry; technological developments; the effects of
competition; natural or man-made disasters; the impact of current or future
litigation; the ability to attract, develop and retain executives and other
qualified employees; the ability to obtain and protect intellectual property
rights; changes in general economic or market conditions; and other important
factors included in Neutral Tandem's reports filed with the Securities and
Exchange Commission, particularly in the "Risk Factors" section of Neutral
Tandem's Annual Report on Form 10-K for the period ended December 31, 2008 and
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009 and June
30, 2009, as such Risk Factors may be updated from time to time in subsequent
reports. Neutral Tandem does not assume any obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.

About Neutral Tandem, Inc.

Headquartered in Chicago, Neutral Tandem, Inc. is a leading provider of tandem
interconnection services to wireless, wireline, cable and broadband telephony
companies. Founded in 2003, Neutral Tandem facilitates inter-carrier
communications with a cost-effective alternative to the Incumbent Local Exchange
Carrier (ILEC) network. Neutral Tandem's solutions build redundancy, security
and operational efficiencies into the nation's telecommunications
infrastructure. As of September 30, 2009, Neutral Tandem was capable of
connecting approximately 465 million telephone numbers assigned to carriers.
Telephone numbers assigned to a carrier may not necessarily be assigned to, and
in use by, an end user. Please visit Neutral Tandem's website at:
www.neutraltandem.com.

The Neutral Tandem Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=3797

The condensed consolidated statements of income, balance sheets and statements
of cash flows are unaudited and subject to reclassification.

NEUTRAL TANDEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2009 2008 2009 2008
------------------ ------------------

Revenue $ 44,692 $ 31,154 $124,176 $ 85,958

Operating Expense:
Network and facilities
expense (excluding
depreciation and
amortization) 13,093 11,215 36,987 29,711
Operations 4,991 4,288 14,795 12,485
Sales and marketing 467 466 1,465 1,461
General and administrative 5,375 2,801 12,468 9,013
Depreciation and
amortization 3,506 3,561 10,746 9,647
Impairment of fixed assets -- -- -- 195
Gain on disposal of fixed
assets (28) -- (53) --
-------- -------- -------- --------
Total operating expense 27,404 22,331 76,408 62,512
Income from operations 17,288 8,823 47,768 23,446

Other (income) expense:
Interest expense, including
debt discount of $8, $30,
$52 and $107, respectively 49 208 276 757
Interest income (159) (870) (707) (2,567)
Other (income) expense (65) -- (306) 550

-------- -------- -------- --------

Total other (income)
expense (175) (662) (737) (1,260)
-------- -------- -------- --------
Income before income taxes 17,463 9,485 48,505 24,706

Provision for income taxes 6,377 3,321 17,701 8,875
-------- -------- -------- --------

Net income $ 11,086 $ 6,164 $ 30,804 $ 15,831
======== ======== ======== ========

Net income per share:
Basic $ 0.33 $ 0.19 $ 0.93 $ 0.50
======== ======== ======== ========
Diluted $ 0.32 $ 0.19 $ 0.91 $ 0.48
======== ======== ======== ========

Weighted average number of
shares outstanding:
Basic 33,494 32,009 33,017 31,626
======== ======== ======== ========
Diluted 34,181 33,312 33,849 33,190
======== ======== ======== ========

NEUTRAL TANDEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)

Sept. 30, Dec. 31,
2009 2008
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $158,231 $110,414
Receivables 22,029 16,785
Deferred tax asset-current 3,395 2,341
Other current assets 17,636 1,795
-------- --------
Total current assets 201,291 131,335
Property and equipment--net 45,660 45,266
Restricted cash 440 440
Other assets 510 18,802
-------- --------
Total assets $247,901 $195,843
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,298 $ 258
Accrued liabilities:
Taxes payable 2,076 657
Circuit cost 2,651 3,358
Rent 1,104 1,183
Payroll and related items 3,231 952
Other 3,437 1,535
Current installments of long-term debt 698 2,961
-------- --------
Total current liabilities 15,495 10,904
Other liabilities -- 191
Deferred tax liability-noncurrent 5,065 4,647
Long-term debt--excluding current installments -- 235
-------- --------
Total liabilities 20,560 15,977
Commitments and contingencies
Shareholders' equity:
Preferred stock--par value of $.001; 50,000,000
authorized shares; no shares issued and
outstanding at September 30, 2009 and
December 31, 2008 -- --
Common stock--par value of $.001;
150,000,000 authorized shares; 33,531,681
shares and 32,357,383 shares issued and
outstanding at September 30, 2009 and
December 31, 2008, respectively 34 32
Additional paid-in capital 168,402 151,733
Retained earnings 58,905 28,101
-------- --------
Total shareholders' equity 227,341 179,866
-------- --------
Total liabilities and shareholders' equity $247,901 $195,843
======== ========

NEUTRAL TANDEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Nine Months Ended
September 30,
------------------
2009 2008
-------- --------

Cash Flows From Operating Activities:
Net income $ 30,804 $ 15,831
Adjustments to reconcile net cash flows from
operating activities:
Depreciation and amortization 10,746 9,647
Deferred income taxes (636) 1,408
Gain on disposal of fixed assets (53) --
Impairment of fixed assets -- 195
Non-cash share-based compensation 3,404 2,027
Amortization of debt discount 52 73
Changes in fair value of ARS (887) --
Changes in fair value of ARS Rights 581 --
Excess tax benefit associated with stock
option exercise (9,013) (6,492)
Changes in assets and liabilities:
Receivables--net (5,244) 1,887
Other current assets 1,159 (374)
Other noncurrent assets 48 229
Accounts payable 757 1,175
Accrued liabilities 13,636 (1,347)
Noncurrent liabilities -- 43
-------- --------
Net cash flows from operating activities 45,354 24,302
-------- --------

Cash Flows From Investing Activities:
Purchase of equipment (9,859) (14,480)
Proceeds from sale of equipment 55 --
Purchase of investments -- (25,150)
Sale of auction rate securities 1,550 5,550
-------- --------

Net cash flows from investing activities (8,254) (34,080)
-------- --------

Cash Flows From Financing Activities:
Proceeds from the issuance of common shares
associated with stock option exercise 4,254 996
Excess tax benefit associated with stock option
exercise 9,013 6,492
Principal payments on long-term debt (2,550) (3,450)
-------- --------
Net cash flows from financing activities 10,717 4,038
-------- --------

Net Increase In Cash And Cash Equivalents 47,817 (5,740)
Cash And Cash Equivalents--Beginning 110,414 112,020
-------- --------
Cash And Cash Equivalents--End $158,231 $106,280
======== ========

Supplemental Disclosure Of Cash Flow Information:
Cash paid for interest $ 624 $ 675
======== ========
Cash paid for taxes $ 7,656 $ 3,201
======== ========

Supplemental Disclosure Of Noncash Flow Items:
Investing Activity--Accrued purchases of
equipment $ 1,454 $ 985
======== ========
Use of Non-GAAP Financial Measures

In this press release we disclose "Adjusted EBITDA", which is a non-GAAP
financial measure. For purposes of SEC rules, a non-GAAP financial measure is a
numerical measure of a company's 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. 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 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 and non-cash
share-based compensation. 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, 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.

The following is a reconciliation of net income to EBITDA and Adjusted EBITDA:

NEUTRAL TANDEM, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
to GAAP Financial Measures
(Unaudited)
(Dollars in thousands)

----------------- ----------------- -------
Twelve
Three Nine Months
Months Ended Months Ended Ended
Sept. 30, Sept. 30, Dec. 31,
----------------- ----------------- -------
2009 2008 2009 2008 2009(1)
----------------- ----------------- -------

Net income $11,086 $ 6,164 $30,804 $15,831 $38,550
Interest expense
(income), net (110) (662) (431) (1,810) (550)
Provision for income
taxes 6,377 3,321 17,701 8,875 23,300
Depreciation and
amortization 3,506 3,561 10,746 9,647 16,000
----------------- ----------------- -------
EBITDA $20,859 $12,384 $58,820 $32,543 $77,300
Non-cash share-based
compensation 1,464 988 3,404 2,027 5,700
----------------- ----------------- -------
Adjusted EBITDA $22,323 $13,372 $62,224 $34,570 $83,000
================= ================= =======

(1) The amounts expressed in this column are based on current
estimates as of the date of this press release.
This reconciliation is based on the midpoint of the guidance
range announced in this press release.
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CONTACT: Neutral Tandem, Inc.
Media Contact:
Gerard Laurain
(312) 384-8041
Investor Contact:
Jim Polson
1-866-268-4744