Neutral Tandem, Inc. Earnings Cheat Sheet: Higher Expenses Shrink Margins, Profit Declines

Rising costs hurt Neutral Tandem, Inc. (NASDAQ:TNDM) in the second quarter as profit dropped from a year earlier. Neutral Tandem, Inc. provides tandem interconnection services principally to competitive carriers, including wireless, wireline, cable and broadband telephony companies.

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Neutral Tandem Earnings Cheat Sheet for the Second Quarter

Results: Net income for Neutral Tandem, Inc. fell to $7.1 million (20 cents per share) vs. $8.5 million (25 cents per share) a year earlier. This is a decline of 17% from the year earlier quarter.

Revenue: Rose 45.4% to $65.1 million from the year earlier quarter.

Actual vs. Wall St. Expectations: TNDM fell short of the mean analyst estimate of 24 cents per share. It fell short of the average revenue estimate of $66.7 million.

Quoting Management: “We are pleased with the results of our voice and Ethernet services for the quarter,” said Ed Evans, Chief Executive Officer of Neutral Tandem. “Accordingly, we now estimate that we will be at the high end of the full-year revenue projections we provided on March 14, 2011. As we look forward to the remainder of the year, we remain focused at executing on our business plan with respect to our existing service offerings, as well as building a platform for future growth by developing new services that will appeal to customers worldwide.”

Key Stats:

Gross margin shrank 7.8 percentage points to 59.7%. The contraction appeared to be driven by increased costs, which rose 80.1% from the year earlier quarter while revenue rose 45.4%.

Revenue has risen the past four quarters. Revenue increased 48.2% to $66.4 million in the first quarter. The figure rose 42.6% in the fourth quarter of the last fiscal year from the year earlier and climbed 3.9% in the third quarter of the last fiscal year from the year-ago quarter.

The company fell short of estimates last quarter after being in line with expecations the quarter before with net income of 24 cents.

While the company has been profitable for the last nine quarters, income has fallen year over year by an average of 19.3% over the past five quarters. The quarter hit the hardest was the fourth quarter of the last fiscal year, that saw a 42.2% drop.

Competitors to Watch: AT&T Inc. (NYSE:T), Sprint (NYSE:S), CenturyLink, Inc. (NYSE:CTL), Verizon Communications Inc. (NYSE:VZ), AboveNet, Inc. (NYSE:ABVT), Windstream Corporation (NASDAQ:WIN), Consolidated Communications Hldgs. Inc (NASDAQ:CNSL), Xfone, Inc. (AMEX:XFN).

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(Source: Xignite Financials)