TNS, Inc. Announces Fourth Quarter and 2004 Financial Results; 2004 Ad

TNS, Inc. Announces Fourth Quarter and 2004 Financial Results; 2004 Adjusted Earnings Increase 60.2%

    Business Editors

    RESTON, Va.--(BUSINESS WIRE)--Feb. 10, 2005--TNS, Inc. (NYSE: TNS), a leading provider of business-critical, cost-effective data communications services for transaction-oriented applications, today reported fourth quarter and full-year 2004 results.
    Total revenue for the fourth quarter of 2004 increased 3.4% to $63.4 million from fourth quarter 2003 revenues of $61.4 million. Gross margin in the fourth quarter of 2004 of 54.0% increased 760 basis points from fourth quarter 2003 gross margin of 46.4%. Included in revenue and cost of sales for the fourth quarter 2003 is $1.5 million associated with certain telecommunication charges incurred by us and billed to customers in our Telecommunication Services Division. Excluding these charges, total revenue for the fourth quarter of 2004 increased 6.1% to $63.4 million from fourth quarter 2003 revenues of $59.8 million, and gross margin in the fourth quarter of 2004 increased 640 basis points from fourth quarter 2003 gross margin of 47.6%.
    Fourth quarter 2004 GAAP net income attributable to common stockholders was $2.4 million, or $0.09 per share, versus a fourth quarter 2003 GAAP net loss attributable to common stockholders of $3.1 million, or $(0.25) per share. Earnings before interest, taxes, depreciation, and amortization (EBITDA) before stock compensation expense for the fourth quarter of 2004 increased 14.6% to $17.9 million from fourth quarter 2003 EBITDA before stock compensation expense of $15.6 million. Adjusted earnings for the fourth quarter of 2004 increased 54.1% to $7.7 million, or $0.27 per share, from fourth quarter 2003 adjusted earnings of $5.0 million, or $0.40 per share. (EBITDA before stock compensation expense, adjusted earnings and adjusted earnings per share are non-GAAP measures. See "Financial Measures" below for a discussion of these metrics.)
    As previously announced during the quarter, the Company won the following customer contracts:

--	An electronic foreign exchange transaction routing agreement with Hotspot FXi.
--	An agreement to exclusively provide internal Signaling System 7 (SS7) signaling for ICG Communications, in addition to TNS' acquisition of all ICG's customer contracts and certain assets relating its SS7 network.
--	A renewal of an agreement with Metavante Corporation, the financial technology subsidiary of Marshall & Ilsley Corporation, to be the primary transaction network provider for dial ATM traffic in the U.S.
--	A 5-year agreement with PayPoint in the United Kingdom to provide dial-up connectivity between its 12,000 retail terminals and its headquarters.

    Jack McDonnell, Chairman and CEO, commented, "TNS' fourth quarter performance was at the high end of our expectations. Performances in our international and financial services divisions continued to be very strong, offsetting the anticipated lower revenues in our domestic POS division, and contributing to sustained, strong margin expansion. In 2005, our objectives remain to leverage our infrastructure capacity, our global networks and our leadership in customer service to capture substantial growth opportunities in our divisions. In our international, financial and telecommunication services divisions, we are working to further extend our reach in growing markets, adding customers and usage within customers. In our POS division, we will focus on penetrating existing customers and new vertical markets with our dedicated, wireless and IP capabilities and selectively add products that complement our offering. We are very proud of our 2004 achievements and look forward to another year of robust growth."

    Financial Review:

    -- Fourth quarter 2004 total revenue increased 3.4% to $63.4
    million from fourth quarter 2003 revenue of $61.4 million.
    Included in revenue are the following components:

    -- Revenue from the International Services Division increased
    45.4% to $22.3 million from fourth quarter 2003 revenue of
    $15.4 million. ISD revenue sharply increased through
    higher volumes from POS customers mainly in the U.K.,
    Australia, France, Spain and Italy.

    -- Revenue from the Financial Services Division increased
    19.5% to $6.8 million from fourth quarter 2003 revenue of
    $5.7 million through growth in the number of customer
    connections.

    -- Revenue from the Telecommunication Services Division
    decreased 8.4% to $8.7 million from fourth quarter 2003
    revenue of $9.5 million. Included in TSD revenues for the
    fourth quarter 2003 is $1.5 million associated with
    certain telecommunication charges incurred by us and
    billed to our TSD customers. Excluding these charges, TSD
    revenue for the fourth quarter of 2004 increased 8.8% to
    $8.7 million from fourth quarter 2003 revenues of $8.0
    million.

    -- Revenue from the POS Division decreased 16.9% to $25.6
    million on 1.68 billion transactions from $30.8 million in
    fourth quarter 2003 on 2.0 billion transactions. The
    decrease in fourth quarter 2004 POS Division revenue is
    primarily due to lower transaction volumes with a major
    customer.

    -- Fourth quarter 2004 gross margin of 54.0% increased 760 basis
    points from fourth quarter 2003. Included in cost of sales for
    the fourth quarter 2003 is $1.5 million associated with
    certain telecommunication charges incurred in our
    Telecommunication Services Division. Excluding these charges,
    gross margin in the fourth quarter of 2004 increased 640 basis
    points from fourth quarter 2003 gross margin of 47.6%. This
    margin improvement reflects increased contribution from ISD
    and FSD as well as continued network cost improvements.

    Separately, during the fourth quarter, the Company completed a follow-on offering of 5,435,800 shares of common stock at $20.00 per share in which the Company sold 1,202,976 shares and selling stockholders sold 4,232,824 shares. The Company used its net proceeds of approximately $22.2 million to repay a portion of its long-term debt.
    Total revenue for the full year 2004 increased 11.5% to $249.1 million from 2003 revenues of $223.4 million. Gross margin for the full year 2004 of 51.7% increased 540 basis points from 2003 gross margin of 46.3%. Full year 2004 GAAP net income attributable to common stockholders was $1.6 million, or $0.06 per share, versus 2003 GAAP net loss of $16.2 million, or $(1.31) per share. EBITDA before stock compensation expense for the full year 2004 increased 20.8% to $66.0 million from 2003 EBITDA before stock compensation expense of $54.6 million. Adjusted earnings for the full year 2004 increased 60.2% to $25.4 million, or $1.04 per share, from 2003 adjusted earnings of $15.9 million, or $1.28 per share.

    Outlook:

    -- Total revenue growth of 7-9% to $266.0-$272.0 million for the
    year ended December 31, 2005 versus $249.1 million for the
    year ended December 31, 2004.

    -- Adjusted earnings growth of 10-14% to $28.0-$29.0 million for
    the year ended December 31, 2005 versus $25.4 million for the
    year ended December 31, 2004.

    -- Total revenue of $61.0-$61.5 million for the first quarter of
    2005 versus $60.2 million for the first quarter of 2004.

    -- Adjusted earnings of $5.1-$5.4 million for the first quarter
    of 2005 versus $4.9 million for the first quarter of 2004.

    Henry Graham, Executive Vice President and CFO, commented, "In 2004, we have achieved our objectives and evolved our business mix toward greater contributions from our international, financial and telecommunication services divisions, lessening the impact of the anticipated decline in our domestic POS business. Revenues in these three growth divisions increased more than 36% in 2004 and now represent over 55% of revenues at year-end versus 45% in 2003. Further, strong contribution margins from these divisions helped us drive our 60.2% adjusted earnings growth. For 2005, our expanding share of growing international markets underpins our confidence in our financial outlook. Over the course of the coming year, we expect to derive 60-65% of our revenue from ISD, FSD and TSD as we pursue our growth opportunities in these divisions, and we will continue our initiatives in emerging domestic POS markets."

    Financial Measures

    In addition to the results presented in accordance with generally accepted accounting principles, or GAAP, in this press release, 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 affiliate 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 38% rate. 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.

    Conference Call

    TNS will hold a conference call to discuss fourth quarter and full-year 2004 financial results on Thursday, February 10, 2005, at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 617-614-3944, passcode # 67205903. The call is also being webcast, and there will be an accompanying slide presentation, which can be accessed at www.tnsi.com. For those who cannot listen to the live broadcast, a replay of the call will be available from February 10, 2005 at 7:00 p.m. Eastern Time through March 10, 2005, and can be accessed by dialing 617-801-6888, passcode 23307435.

    About TNS

    TNS is one of the leading providers of business-critical, cost-effective data communications services for transaction-oriented applications and operates through its wholly owned subsidiary Transaction Network Services, Inc. TNS provides rapid, reliable and secure transaction delivery platforms to enable transaction authorization and processing across several vertical markets and trading communities.
    Since its inception in 1990, TNS has designed and implemented multiple data networks, each designed specifically for the transport of transaction-oriented data. TNS' networks support a variety of widely accepted communications protocols and are designed to be scalable and accessible by multiple methods. TNS' network technologies have been deployed in the United States and internationally, and TNS' networks have become preferred networks servicing the trading community, wireless and wireline carriers, and the card processing and dial-up automated teller machine markets. For further information about TNS, please refer to www.tnsi.com.

    The statements contained in this release that are not historical facts are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in, or implied by, the forward-looking statements. The Company has attempted, 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's business strategy, prospects, opportunities, outlook, objectives, plans, intentions or goals are also forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: the Company's reliance upon a small number of customers for a significant portion of its revenue; competitive factors such as pricing pressures; the Company's ability to grow its business domestically and internationally by generating greater transaction volumes, acquiring new customers or developing new service offerings; fluctuations in the Company's quarterly results because of the seasonal nature of the business and other factors outside of the Company's control; the Company's ability to identify, execute or effectively integrate future acquisitions; the Company's ability to adapt to changing technology; additional costs related to compliance with the Sarbanes-Oxley Act of 2002, any revised New York Stock Exchange listing standards, Securities and Exchange Commission (SEC) rule changes or other corporate governance issues; and other risk factors described in the Company's prospectus filed with the SEC on September 28, 2004. In addition, the statements in this press release are made as of February 10, 2005. The Company expects that subsequent events or developments will cause its views to change. The Company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectations or otherwise. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to February 10, 2005.

TNS, Inc. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)

Three Months Ended Year Ended December December December December 31, 2004 31, 2003 31, 2004 31, 2003

Revenues $63,432 $61,358 $249,112 $223,353 Operating expenses: Cost of network services 29,186 32,863 120,356 119,990 Engineering and development 4,008 3,176 14,688 11,560 Selling, general, and administrative 12,750 9,756 49,264 37,284 Depreciation and amortization of property and equipment 5,459 5,687 20,205 20,220 Amortization of intangible assets 7,717 6,912 28,573 25,769 Total operating expenses 59,120 58,394 233,086 214,823 Income from operations 4,312 2,964 16,026 8,530 Interest expense (869) (2,657) (7,341) (11,272) Interest and other income 1,165 875 1,601 2,544 Income (loss) before income taxes and equity in net loss of unconsolidated affiliates 4,608 1,182 10,286 (198) Income tax provision (1,919) (260) (4,263) (838) Equity in net loss of unconsolidated affiliates (260) (39) (1,039) (64) Net income (loss) 2,429 883 4,984 (1,100) Dividends on preferred stock -- (3,949) (3,428) (15,060) Net income (loss) attributable to common stockholders $2,429 $(3,066) $1,556 $(16,160)

Basic net income (loss) per common share $0.09 $(0.25) $0.06 $(1.31)

Diluted net income (loss)per common share $0.09 $(0.25) $0.06 $(1.31)

Basic weighted average common shares outstanding 27,949,087 12,373,369 24,114,348 12,373,343

Diluted weighted average common shares outstanding 28,361,531 12,373,369 24,449,283 12,373,343

TNS, Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited)

December December 31, 31, 2004 2003 ASSETS Current assets: Cash and cash equivalents $19,788 $11,074 Accounts receivable, net 47,896 41,490 Other current assets 9,349 7,457 Total current assets 77,033 60,021 Property and equipment, net 50,587 45,745 Goodwill and identifiable intangible assets, net 210,594 228,372 Other assets 18,198 8,221 Total assets $356,412 $342,359

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $9,000 $28,731 Accounts payable, accrued expenses and other current liabilities 43,528 42,072 Deferred revenue 14,419 7,320 Total current liabilities 66,947 78,123 Long-term debt, net of current portion 42,000 121,664 Other liabilities 4,967 3,614 Total liabilities 113,914 203,401

Class A redeemable convertible preferred stock -- 176,470

Total stockholders' equity (deficit)(1)(2) 242,498 (37,512) Total liabilities and stockholders' equity $356,412 $342,359

(1) The Company completed its initial public offering of 4,420,000 shares of common stock on March 16, 2004. In connection with the IPO, the Company converted all of its outstanding Class A redeemable convertible preferred stock plus accrued and unpaid dividends into 9,984,711 shares of common stock.

(2) The Company completed its follow-on offering of 1,084,744 shares of common stock on October 1, 2004. On November 1, 2004, the underwriters exercised a portion of their over-allotment option granted in the follow-on offering, and the Company issued an additional 118,232 shares of common stock. As of December 31, 2004, TNS had 27,966,053 common shares outstanding.

TNS, Inc. Condensed Consolidated Statement of Cash Flows (In thousands) (Unaudited)

Three Months Ended Year Ended December December December December 31, 31, 31, 31, 2004 2003 2004 2003

Net income (loss) $2,429 $883 $4,984 $(1,100) Non-cash and working capital items 18,521 17,213 49,945 49,177 Net cash provided by operating activities: 20,950 18,096 54,929 48,077 Purchases of property and equipment (6,986) (5,993) (23,382) (17,114) Purchase of Synapse assets from USWD -- -- (6,077) -- Purchase of vending assets from USWD -- -- (3,748) -- Purchase of assets from ICG (1,730) -- (1,730) -- Investments in affiliated entities -- -- (3,600) (100) Purchase of Openet S.r.l., net of cash acquired -- -- -- (1,985) Purchase of Transpoll Offline -- (2,523) -- (2,523) Net cash used in investing activities: (8,716) (8,516) (38,537) (21,722) Proceeds from issuance of long- term debt, net -- -- 84,531 -- Payment of refinancing costs -- -- -- (588) Repayment of long-term debt (27,260) (5,988) (185,906) (18,952) Payment of dividend on preferred stock -- -- (173) -- Proceeds from stock option exercises 206 -- 307 14 Net proceeds from issuance of common stock 22,190 -- 93,706 -- Net cash used in financing activities: (4,864) (5,988) (7,535) (19,526) Effect of exchange rates on cash and cash equivalents (548) (646) (143) (1,739) Net increase in cash and cash equivalents 6,822 2,946 8,714 5,090 Cash and cash equivalents, beginning of period 12,966 8,128 11,074 5,984 Cash and cash equivalents, end of period $19,788 $11,074 $19,788 $11,074

TNS, Inc. Reconciliation of Non-GAAP Information (In thousands, except share and per share amounts) (Unaudited)

Three Months Ended Year Ended December December December December 31, 2004 31, 2003 31, 2004 31, 2003

EBITDA before stock compensation expense: Income from operations (GAAP) $4,312 $2,964 $16,026 $8,530 Add back the following items: Depreciation and amortization of property and equipment 5,459 5,687 20,205 20,220 Amortization of intangible assets 7,717 6,912 28,573 25,769 Stock compensation expense 376 21 1,174 94 EBITDA before stock compensation expense $17,864 $15,584 $65,978 $54,613

Adjusted Earnings: Income (loss) before income taxes and equity in net loss of unconsolidated affiliates (GAAP) $4,608 $1,182 $10,286 $(198) Add back the following items: Equity in net loss of unconsolidated affiliates (260) (39) (1,039) (64) Amortization of intangible assets 7,717 6,912 28,573 25,769 Other debt related costs(3) -- -- 2,022 -- Stock compensation expense 376 21 1,174 94 Adjusted earnings before income taxes 12,441 8,076 41,016 25,601 Income tax provision at 38% 4,728 3,069 15,586 9,728 Adjusted earnings $7,713 $5,007 $25,430 $15,873

Weighted average common shares - diluted(1)(2) 28,361,531 12,373,369 24,449,283 12,373,343

Adjusted earnings per common share - diluted $0.27 $0.40 $1.04 $1.28

(1) The Company completed its initial public offering of 4,420,000 shares of common stock on March 16, 2004. In connection with the IPO, the Company converted all of its outstanding Class A redeemable convertible preferred stock plus accrued and unpaid dividends into 9,984,711 shares of common stock.

(2) The Company completed its follow-on offering of 1,084,744 shares of common stock on October 1, 2004. On November 1, 2004, the underwriters exercised a portion of their over-allotment option granted in the follow-on offering, and the Company issued an additional 118,232 shares of common stock. As of December 31, 2004, TNS had 27,966,053 common shares outstanding.

(3) Represents the non-cash write-off of debt issuance costs associated with the early payoff of term debt in March 2004.

--30--RG/ny*

CONTACT: TNS, Inc. Investor Relations Pam Bentley, 703-453-8509 investorrelations@tnsi.com or Lippert/Heilshorn & Associates Jody Burfening/Carolyn Capaccio 212-838-3777

KEYWORD: VIRGINIA DISTRICT OF COLUMBIA INDUSTRY KEYWORD: HARDWARE SOFTWARE TELECOMMUNICATIONS NETWORKING EARNINGS CONFERENCE CALLS SOURCE: TNS, Inc.

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