10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                

Commission file number: 001-33778

NEUTRAL TANDEM, INC.

(Exact name of registrant as specified in its charter)

Delaware	31-1786871
(State or other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

550 West Adams Street

Suite 900

Chicago, IL 60661

(Address of principal executive offices, including zip code)

(312) 384-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of April 29, 2013, 32,385,912 shares of the registrant’s Common Stock, $0.001 par value, were issued and outstanding.

NEUTRAL TANDEM, INC.

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2013 and December 31, 2012		3
	Condensed Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2013 and March 31, 2012		4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2013 and March 31, 2012		5
	Condensed Consolidated Statements of Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2013 and March 31, 2012		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		16
Item 4.	Controls and Procedures		16
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		17
Item 1A.	Risk Factors		17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 3.	Defaults Upon Senior Securities		18
Item 4.	Mine Safety Disclosure		18
Item 5.	Other Information		18
Item 6.	Exhibits		18

2

PART I. FINANCIAL INFORMATION

NEUTRAL TANDEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)	March 31, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	37,445		$	31,479
Receivables, net of allowance of $1,956 and $2,005, respectively		45,229			42,833
Deferred income taxes-current		657			1,210
Prepaid expenses		8,661			11,203
Total current assets		91,992			86,725
Property and equipment — net		52,341			53,517
Restricted cash		125			962
Deferred income taxes-non-current		4,302			2,710
Other assets		1,867			1,686
Total assets	$	150,627		$	145,600
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,700		$	12,385
Accrued liabilities:
Taxes payable		10,029			8,298
Circuit cost		11,431			13,200
Rent		1,897			1,831
Payroll and related items		4,288			4,507
Other		5,452			4,833
Total current liabilities		42,797			45,054
Other liabilities		770			1,453
Total liabilities		43,567			46,507
Shareholders’ equity:
Preferred stock — par value of $.001; 50,000 authorized shares; no shares issued and outstanding at March 31, 2013 and December 31, 2012		—			—
Common stock — par value of $.001; 150,000 authorized shares; 32,389 shares and 32,345 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively		32			32
Less treasury stock, at cost; 3,083 shares at March 31, 2013 and December 31, 2012		(50,103	)		(50,103	)
Additional paid-in capital		200,596			199,331
Accumulated other comprehensive loss		(5,078	)		(4,904	)
Retained earnings		(38,387	)		(45,263	)
Total shareholders’ equity		107,060			99,093
Total liabilities and shareholders’ equity	$	150,627		$	145,600

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

NEUTRAL TANDEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended March 31,
(In thousands, except per share amounts)	2013			2012
Revenue	$	69,667		$	70,696
Operating expense:
Network and facilities expense (excluding depreciation and amortization)		33,486			30,515
Operations		10,344			11,551
Sales and marketing		4,172			4,034
General and administrative		5,016			6,738
Depreciation and amortization		5,444			7,300
Gain on disposal of fixed assets		—			(105	)
Total operating expense		58,462			60,033
Income from operations		11,205			10,663
Other expense (income):
Interest income		(2	)		(3	)
Other income		(27	)		(13	)
Foreign exchange loss (gain)		501			(227	)
Total other expense (income)		472			(243	)
Income before income taxes		10,733			10,906
Provision for income taxes		3,833			4,251
Net income	$	6,900		$	6,655
Net income per share:
Basic	$	0.21		$	0.21
Diluted	$	0.21		$	0.21
Weighted average number of shares outstanding:
Basic		32,337			31,664
Diluted		32,453			32,058

The accompanying notes are an integral part of these condensed consolidated financial statements

4

NEUTRAL TANDEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended March  31,
(In thousands)	2013			2012
Net income	$	6,900		$	6,655
Other comprehensive income (loss):
Foreign currency translation		(174	)		2,702
Total other comprehensive income (loss)		(174	)		2,702
Comprehensive income		6,726			9,357

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

NEUTRAL TANDEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March  31,
(In thousands)	2013			2012
Operating
Net income	$	6,900		$	6,655
Adjustments to reconcile net cash flows from operating activities:
Depreciation and amortization		5,444			7,300
Deferred income taxes		(1,039	)		(965	)
Gain on disposal of fixed assets		—			(105	)
Non-cash share-based compensation		1,870			3,116
Loss (gain) on intercompany foreign exchange transactions		250			(326	)
Excess tax deficiency associated with share-based payments		488			62
Changes in assets and liabilities:
Receivables		(2,848	)		2,400
Other current assets		2,337			(1,973	)
Other noncurrent assets		(195	)		64
Accounts payable		(1,005	)		(1,305	)
Accrued liabilities		(164	)		1,265
Noncurrent liabilities		(23	)		428
Net cash provided by operating activities		12,015			16,616
Investing
Purchase of equipment		(6,154	)		(9,122	)
Proceeds from sale of equipment		—			100
Decrease in restricted cash		837			—
Net cash used for investing activities		(5,317	)		(9,022	)
Financing
Proceeds from the exercise of stock options		—			8
Restricted shares withheld to cover employee taxes paid		(117	)		(256	)
Excess tax deficiency associated with share-based payments		(488	)		(62	)
Net cash used for financing activities		(605	)		(310	)
Effect of exchange rate changes on cash		(127	)		186
Net increase in cash and cash equivalents		5,966			7,470
Cash and cash equivalents — Beginning		31,479			90,279
Cash and cash equivalents — End	$	37,445		$	97,749
Supplemental disclosure of cash flow information:
Cash paid for taxes	$	979		$	6,160
Supplemental disclosure of noncash flow items:
Investing activity — Accrued purchases of equipment	$	1,848		$	4,635

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

NEUTRAL TANDEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts and as noted)

(Unaudited)

1. DESCRIPTION OF THE BUSINESS

Organization — Neutral Tandem, Inc. d/b/a Inteliquent (the Company) provides U.S. and international voice, IP Transit and Ethernet telecommunications services primarily on a wholesale basis. The Company offers these services using an all-IP network, which enables the Company to deliver global connectivity for a variety of media, including voice, data and video. The Company’s solutions enable carriers and other providers to deliver telecommunications traffic or other services where they do not have their own network or elect not to use their own network. These solutions are sometimes called “off-net” services. The Company also provides its solutions to customers, like content providers, who also typically do not have their own network.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation — The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Interim Condensed Consolidated Financial Statements — The accompanying condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012, the condensed consolidated statements of income for the three months ended March 31, 2013 and 2012, the condensed consolidated statements of comprehensive income for the three months ended March 31, 2013 and 2012, and the condensed consolidated statements of cash flows for the three months ended March 31, 2013 and 2012 are unaudited. The condensed consolidated balance sheet data as of December 31, 2012 was derived from the audited consolidated financial statements which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission applicable to interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the unaudited interim condensed consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 have been prepared on the same basis as the audited consolidated statements and reflect all adjustments, which are normal recurring adjustments, necessary for the fair presentation of its statement of financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the operating results for any subsequent quarter, for the full fiscal year or any future periods.

Cash and Cash Equivalents — The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents. At March 31, 2013, the Company had $30.6 million of cash in banks and $6.8 million in two money market mutual funds. At December 31, 2012, the Company had $30.7 million of cash in banks and $0.8 million in two money market mutual funds.

The carrying amounts of our cash and equivalents, receivables and accounts payable approximate fair value due to their short-term nature.

Property and Equipment — Property and equipment is recorded at cost. These values are depreciated over the estimated useful lives of the individual assets using the straight-line method. Any gains and losses from the disposition of property and equipment are included in operations as incurred. The estimated useful life for network equipment and tools and test equipment is five years. The estimated useful life for computer equipment, computer software and furniture and fixtures is three years. Leasehold improvements are amortized on a straight-line basis over an estimated useful life of five years or the life of the lease, whichever is less. As discussed in further detail below, the impairment of long-lived assets is periodically evaluated when events or changes in circumstances indicate that a potential impairment has occurred.

Revenue Recognition — The Company generates revenue from sales of its voice, IP Transit and Ethernet services. The Company maintains tariffs and executed service agreements with each of its customers in which specific fees and rates are determined. Voice revenue is recorded each month on an accrual basis based upon minutes of traffic switched by the Company’s network by each customer, which is referred to as minutes of use. The rates charged per minute are determined by contracts between the Company and its customers or by filed and effective tariffs.

IP Transit revenue and Ethernet services revenue are recorded each month on an accrual basis based upon bandwidth used by each customer. The rates charged are the total of a monthly fee for bandwidth (the Committed Traffic Rate) plus additional charges for the sustained peak bandwidth used monthly in excess of the Committed Traffic Rate.

7

Earnings Per Share — Basic earnings per share is computed based on the weighted average number of common shares and participating securities outstanding. Diluted earnings per share is computed based on the weighted average number of common shares and participating securities outstanding adjusted by the number of additional shares that would have been outstanding during the period had the potentially dilutive securities been issued. The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share of common stock:

Three Months Ended March 31,	2013		2012
Numerator:
Net income applicable to common shareholders	$	6,900	$	6,655
Denominator:
Weighted average common shares outstanding		32,337		31,664
Effect of dilutive securities:
Stock options		116		394
Denominator for diluted earnings per share		32,453		32,058
Net earnings per share:
Basic — as reported	$	0.21	$	0.21
Diluted — as reported	$	0.21	$	0.21

Outstanding share-based awards of 3.6 million and 2.8 million were outstanding during the three months ended March 31, 2013 and March 31, 2012, respectively, but were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

For the three months ended March 31, 2013 and 2012, the undistributed earnings allocable to participating securities were $0.2 million and $0.3 million, respectively.

Accounting for Share-Based Payments — The fair value of stock options is determined using the Black-Scholes valuation model. This model takes into account the exercise price of the stock option, the fair value of the common stock underlying the stock option as measured on the date of grant and an estimation of the volatility of the common stock underlying the stock option. Such value is recognized as expense over the service period, net of estimated forfeitures, using the straight line method. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. Actual results, and future changes in estimates, may differ from the Company’s current estimates.

The amount of share-based expense recorded in the three months ended March 31, 2013 and 2012, was $1.9 million and $3.1 million, respectively.

Compensation expense for non-vested shares is measured based upon the quoted closing market price for the stock on the date of grant. The compensation cost is recognized on a straight-line basis over the vesting period. See Note 5, “Stock Options and Non-vested Shares”

Foreign Currency Translation — The functional currency of each of the Company’s subsidiaries is the currency of the country in which the subsidiary operates. Assets and liabilities of foreign operations are translated using period end exchange rates, and revenues and expenses are translated using average exchange rates during the period. Translation gains and losses are reported in accumulated other comprehensive earnings as a component of shareholders’ equity.

Recent Accounting Pronouncements — Effective January 1, 2013, the Company adopted Financial Accounting Standards Board Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). ASU 2013-02 requires entities to disclose additional information about reclassification adjustments, including changes in accumulated other comprehensive income balances by component and significant items reclassified out of accumulated other comprehensive income. The amendment did not change the items reported in other comprehensive income or when an item of other comprehensive income is reclassified to net income. As a result, the adoption of this guidance did not have a material impact, if any, on the Company’s financial position, results of operations or cash flows.

3. LEGAL PROCEEDINGS

From time to time, the Company is a party to legal proceedings arising in the normal course of its business. Aside from the matter discussed below, the Company does not believe that it is a party to any pending legal action that could reasonably be expected to have a material effect on its business or operating results, financial position or cash flows.

Customer Dispute

The Company has a dispute with a carrier to which it provides certain voice services. The carrier is one of the Company’s largest customers and claims the Company has been improperly billing a certain tariffed rate element. The customer alleges that the improper billings total approximately $6 million. The Company has not been provided with sufficient information to allow the Company to understand how the customer calculated the disputed amount, believes the entire claim is without merit, and intends to vigorously contest it. However, the final outcome and impact of this dispute cannot be predicted. The Company establishes accruals only for those matters where it determines that a loss is probable and the amount of loss can be reasonably estimated. The Company does not currently believe a loss is probable in connection with this dispute.

8

4. INCOME TAXES

Income taxes were computed using an effective tax rate, which is subject to ongoing review and evaluation by the Company. The Company’s estimated effective income tax rate was 35.7% for the three months ended March 31, 2013, compared to 39.0% for the same period last year.

The difference in the effective tax rate for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 was due primarily to the effect of the increased Illinois EDGE Credit on the decreased forecasted domestic income for the current year as compared to the prior year.

The Company has recorded a valuation allowance against its foreign deferred tax assets and its prior years’ Illinois EDGE Credit. The Company believes it is more likely than not that these assets will not be realized in the foreseeable future. The realization of deferred tax assets is dependent upon whether the Company can generate future taxable income in the appropriate jurisdiction to utilize the assets. The amount of the deferred tax assets considered realizable is subject to adjustment in future periods.

The Company operates in multiple income tax jurisdictions both inside and outside the United States. Accordingly, the Company expects that the net amount of tax liability for unrecognized tax benefits will change in the next twelve months and cannot be estimated. As of March 31, 2013, the Company had estimated $1.6 million as its unrecognized tax benefit. At December 31, 2012, the Company had estimated $1.8 million as its unrecognized tax benefit.

5. STOCK OPTIONS AND NON-VESTED SHARES

In 2003, the Company established the 2003 Stock Option and Stock Incentive Plan (2003 Plan), which provided for the issuance of up to 4.7 million options and non-vested shares to eligible employees, officers, and independent contractors of the Company. In 2007, the Company adopted the Neutral Tandem, Inc. 2007 Equity Incentive Plan (2007 Plan) and ceased awarding equity grants under the 2003 Plan. As of March 31, 2013, the Company had granted a total of 3.8 million options and 0.8 million non-vested shares that remained outstanding under the 2007 Plan. Awards for 0.3 million shares, representing approximately 1.0% of the Company’s outstanding common stock as of March 31, 2013, remained available for additional grants under the 2007 Plan.

The Company records stock-based compensation expense in connection with any grant of options and non-vested shares to its employees. The Company calculates the expense associated with its stock options and non-vested shares by determining the fair value of the options and non-vested shares.

Options

All options granted under the 2003 Plan and the 2007 Plan have an exercise price equal to the market value of the underlying common stock on the date of the grant. During the three months ended March 31, 2013, the Company granted 0.7 million options at a weighted-average exercise price of $3.40. During the three months ended March 31, 2012, the Company did not grant any options.

The fair value of each option granted during the three months ended March 31, 2013 was estimated on the date of grant using the Black-Scholes option-pricing model and was measured using the following assumptions:

	March 31, 2013
Expected life	7.3 years
Risk-free interest rate range	1.32%
Expected dividends	—
Volatility	45.0%

The weighted-average fair value of options granted, as determined by using the Black-Scholes valuation model, for the three months ended March 31, 2013 was $1.64, and the total grant date fair value of options that vested during the period was approximately $0.4 million. The total intrinsic value (market value of stock less option exercise price) of stock options exercised was $0.1 million during the three months ended March 31, 2012. There were no stock options exercised during the three months ended March 31, 2013.

The following summarizes activity under the Company’s stock option plan for the three months ended March 31, 2013:

	Shares (000)			Weighted- Average Exercise Price		Aggregate Intrinsic Value ($000)		Weighted- Average Remaining Term (yrs)
Options outstanding — January 1, 2013		3,092		$	14.68
Granted		716			3.40
Exercised		—			—
Cancelled		(16	)		21.50
Options outstanding — March 31, 2013		3,792		$	12.53	$	594		6.80
Vested or expected to vest — March 31, 2013		3,754		$	12.61	$	588		6.78
Exercisable — March 31, 2013		2,503		$	15.60	$	410		5.57

9

The unrecognized compensation cost associated with options outstanding at March 31, 2013 and December 31, 2012 was $4.4 million and $3.6 million, respectively. The weighted average remaining term that the compensation will be recorded is 2.5 years and 1.8 years as of March 31, 2013 and December 31, 2012, respectively.

Non-vested Shares

During the three months ended March 31, 2013 and March 31, 2012, the Company granted less than 0.1 million and 0.3 million non-vested shares, respectively, to members of the Company’s executive management team as well as various employees within the Company. The non-vested shares were issued as part of the 2007 Plan. The shares typically vest over a four-year period. The fair value of the non-vested shares is determined using the Company’s closing stock price on the grant date. Compensation cost, measured using the grant date fair value, is recognized over the requisite service period on a straight-line basis.

A summary of the Company’s non-vested share activity and related information for the three months ended March 31, 2013 is as follows:

	Shares (000)			Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value ($000)
Non-vested shares outstanding — January 1, 2013		846		$	11.31
Granted		90			3.41
Vested		(116	)		13.57
Cancelled		—			—
Non-vested shares outstanding — March 31, 2013		820		$	10.18	$	2,681
Non-vested shares vested or expected to vest — March 31, 2013		789		$	10.18	$	2,580

The aggregate intrinsic value represents the total pre-tax intrinsic value based on the Company’s closing stock price of $3.27 on March 28, 2013. The amount changes based upon the fair market value of the Company’s common stock.

The unrecognized compensation cost associated with non-vested shares at March 31, 2013 and December 31, 2012 was $7.4 million and $8.4 million, respectively. The weighted average remaining term that the compensation will be recorded is 2.1 years and 2.3 years as of March 31, 2013 and December 31, 2012, respectively.

6. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Reporting establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

The Company’s chief operating decision maker is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis. The Company operates in one industry segment, which is to provide voice, IP Transit and Ethernet interconnection services via the Company’s international telecommunications network to fulfill customer agreements. Therefore, the Company has concluded that it has one operating segment.

7. CREDIT FACILITY

On March 5, 2013, the Company entered into a $15 million revolving credit facility. The credit facility has a term of three years and an interest rate of LIBOR + 3.25%. The Company may use any borrowings under the revolving credit facility for general corporate purposes. No obligations were outstanding under the revolving credit facility as of March 31, 2013. The Company is currently in compliance with all of the covenants of the credit facility agreement.

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in the balance of accumulated other comprehensive income (loss) for the three months ended March 31, 2013 and 2012 are summarized in the following table:

Three Months Ended March 31,	2013			2012
Balance as of January 1	$	(4,904	)	$	(4,346	)
Other comprehensive income (loss) before reclassifications, net of tax		(174	)		2,702
Less: Amounts reclassified from AOCI, net of tax		—			—
Net other comprehensive income (loss)		(174	)		2,702
Balance as of March 31	$	(5,078	)	$	(1,644	)

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9. SUBSEQUENT EVENT

On April 30, 2013, the Company announced that it sold its global data business to Global Telecom & Technology, Inc. (“GTT”) for $54.5 million, subject to certain adjustments. The total consideration consisted of $52.5 million in cash and $2.0 million of non-cash commercial services to be provided by GTT to the Company. As of March 31, 2013, the carrying values of assets and liabilities associated with the global data business were approximately $50.7 million and $31.2 million, respectively. As a result of the sale, the Company no longer provides IP Transit of Ethernet services.

11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. All statements, other than statements of historical fact, included in this quarterly report on Form 10-Q are forward-looking statements. The words “anticipates,” “believes,” “expects,” “efforts,” “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, and downward pricing pressure resulting from such competition; risks associated with the sale of our global data business, including issues regarding separating our network, IT and billing systems from the network and systems sold to the buyer, and that the cost savings and other benefits we hope to receive may not materialize in part or at all; our ability to maintain relationships with business providers following the sale of our global data business; our ability to focus on the growth and performance of our voice business following the sale of our global data business; our regular review of strategic alternatives; the impact of current and future regulation, including intercarrier compensation reform enacted by the Federal Communications Commission; 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 services; 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; the ability to attract, develop and retain executives and other qualified employees; changes in general economic or market conditions, including currency fluctuations; 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, 2012 and included elsewhere in this report. Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We provide U.S. and international voice telecommunications services primarily on a wholesale basis. We offer these services using an all-IP network, which enables us to deliver global connectivity for a variety of media, historically including voice, data and video. Our solutions enable carriers and other providers to deliver telecommunications traffic or other services where they do not have their own network or elect not to use their own network. These solutions are sometimes called “off-net” services. We also provide our solutions to customers, such as content providers, who also typically do not have their own network. We were incorporated in Delaware on April 19, 2001 and commenced operations in 2004. See Note 9 “Subsequent Event” for a description of the sale of our global data business.

Voice Services

We provide voice interconnection services primarily to competitive carriers, including wireless, wireline, cable and broadband telephony companies. Competitive carriers use our tandem switches to interconnect and exchange local and long distance traffic between their networks without the need to establish direct switch-to-switch connections. Competitive carriers are carriers that are not Incumbent Local Exchange Carriers, or ILECs, such as AT&T, Verizon and Centurylink.

Prior to the introduction of our local voice service, competitive carriers generally had two alternatives for exchanging traffic between their networks. The two alternatives were exchanging traffic through the ILEC tandems or directly connecting individual switches, commonly referred to as “direct connects”. Given the cost and complexity of establishing direct connects, competitive carriers often elected to utilize the ILEC tandem as the method of exchanging traffic. The ILECs typically required competitive carriers to interconnect to multiple ILEC tandems with each tandem serving a restricted geographic area. In addition, as the competitive telecommunications market grew, the process of establishing interconnections at multiple ILEC tandems became increasingly difficult to manage and maintain, causing delays and inhibiting competitive carrier growth, and the purchase of ILEC tandem services became an increasingly significant component of a competitive carrier’s costs.

The tandem switching services offered by ILECs consist of local transit services, which are provided in connection with local calls, and switched access services, which are provided in connection with long distance calls. Under certain interpretations of the Telecommunications Act of 1996 and implementing regulations, ILECs are required to provide local transit services to competitive carriers. ILECs generally set per minute rates and other charges for tandem transit services according to rate schedules approved by state public utility commissions, although the methodology used to review these rate schedules varies from state to state. ILECs are also required to offer switched access services to competing telecommunications carriers under the Telecommunications Act of 1996 and implementing regulations. ILECs generally set per minute rates and other charges for switched access services according to mandated rate schedules set by the Federal Communications Commission for interstate calls and by state public utility commissions for intrastate calls. In November 2011, the FCC released an order setting forth a multi-year transition plan that will reduce, and ultimately lead to elimination of, terminating switched access charges.

A loss of ILEC market share to competitive carriers escalated competitive tensions and resulted in an increased demand for tandem switching. Growth in intercarrier traffic switched through ILEC tandems created switch capacity shortages known in the industry as ILEC “tandem exhaust,” where overloaded ILEC tandems became a bottleneck for competitive carriers. This increased call blocking and gave rise to service quality issues for competitive carriers.

We founded our company to solve these interconnection problems and better facilitate the exchange of traffic among competitive carriers and non-carriers. With the introduction of our services, we believe we became the first carrier to provide alternative tandem services capable of alleviating the ILEC tandem exhaust problem. Our solution enables competitive carriers to exchange traffic between their networks without using an ILEC tandem for both local and long distance calls. By utilizing our managed tandem service, our customers benefit from a simplified interconnection network solution that reduces costs, increases network reliability, decreases competitive tension and adds network diversity and redundancy. We have signed agreements with major competitive carriers and non-carriers and we operated in 189 markets as of March 31, 2013.

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Our business originally connected only local traffic among carriers within a single metropolitan market. In 2006, we installed a national IP backbone network connecting our major local markets. In 2008, we began offering terminating switched access services and originating switched access services. Switched access services are provided in connection with long distance calls. Our terminating switched access services allows interexchange carriers to send calls to us, and we then terminate those calls to the appropriate terminating carrier in the local market in which we operate. Our originating switched access service allows the originating carrier in the local market in which we operate to send calls to us that we then deliver to the appropriate interexchange carrier that has been selected to carry that call. In both instances, the interexchange carrier is our customer, which means that it is financially responsible for the call. Finally, we began offering international voice services as we began interconnection with non-US carriers. As a result of the foregoing, our service offerings now include the capability of switching and carrying local, long distance and international voice traffic.

Data and International Services

On April 30, 2013, we announced that we sold all assets and liabilities of our global data business to Global Telecom & Technology, Inc. (“GTT”) for $54.5 million, subject to certain adjustments. The total consideration consisted of $52.5 million in cash and $2.0 million of non-cash commercial services to be provided by GTT to us.

Revenue. We generate revenue from sales of our voice, IP Transit and Ethernet services. Revenue is recorded each month based upon documented minutes of traffic switched or data traffic carried for which service is provided, when collection is probable. Voice revenue is recorded each month on an accrual basis based upon minutes of traffic switched by our network for each customer, which we refer to as minutes of use. The rates charged per minute are determined by contracts between us and our customers or by filed and effective tariffs.

Minutes of use of voice traffic increase as we increase our number of customers, increase the penetration of existing markets, either with new customers or with existing customers, and increase our service offerings. The minutes of use decrease due to direct connection between existing customers, consolidation between customers, a customer using a different interconnection provider or a customer experiencing a decrease in the volume of traffic it carries.

The average fee per minute of voice traffic varies depending on market forces and type of service, such as switched access or local transit. The market rate in each market is based upon competitive conditions along with the switched access or local transit rates offered by the ILECs. Depending on the markets we enter, we may enter into contracts with our customers with either a higher or lower fee per minute than our current average.

Our service solution incorporates other components beyond switching. In addition to switching, we generally provision trunk circuits between our customers’ switches and our network locations at our own expense and at no direct cost to our customers. We also provide quality of service monitoring, call records and traffic reporting and other services to our customers as part of our service solution. Our per-minute fees are intended to incorporate all of these services.

IP Transit revenue and Ethernet services revenue, comprised of both Ethernet Private Line (EtherCloud^® P2P) and EtherCloud Extension (EtherCloud E2E) revenues, are recorded each month on an accrual basis based upon bandwidth used by each customer. The rates charged are the total of a monthly fee for bandwidth (the Committed Traffic Rate) plus additional charges for the sustained peak bandwidth used monthly in excess of the Committed Traffic Rate.

While generally not seasonal in nature, our voice revenues are affected by certain events such as holidays, the unpredictable timing of direct connects between our customers, and installation and implementation delays. These factors can cause our revenue to both increase or decrease unexpectedly.

Operating Expense. Operating expenses include network and facilities expense, operations expenses, sales and marketing expenses, general and administrative expenses, depreciation and amortization and the gain or loss on the disposal of fixed assets.

Network and Facilities Expense. Our network and facilities expense includes transport capacity, or circuits, signaling network costs for voice services, transport capacity for our data services, and facility rents and utilities, together with other costs that directly support our POPs. We do not defer or capitalize any costs associated with the start-up of new POPs. The start-up of an additional POP can take between three months to six months. During this time we typically incur facility rent, utilities, payroll and related benefit costs along with initial non-recurring installation costs. Revenues generally follow sometime after the sixth month.

Network transport costs typically occur on a repeating monthly basis, which we refer to as recurring transport costs, or on a one-time basis, which we refer to as non-recurring transport costs. Recurring transport costs primarily include monthly usage and other charges from telecommunication carriers and are related to the circuits utilized by us to connect to our customers. As our traffic increases, we must utilize additional circuits. Non-recurring transport costs primarily include the initial installation of such circuits. Facility rents include the leases on our POPs, which expire through February 2025. Additionally, we pay the cost of the utilities for all of our POP locations.

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Operations Expense. Operations expenses include payroll and benefits for our POP location personnel as well as individuals located at our offices who are directly responsible for maintaining and expanding our network. Other primary components of operations expenses include repair and maintenance, property taxes, property insurance and supplies.

Sales and Marketing Expense. Sales and marketing expenses represent the smallest component of our operating expenses and primarily include personnel costs, sales bonuses, marketing programs and other costs related to travel and customer meetings.

General and Administrative Expense. General and administrative expenses consist primarily of compensation and related costs for personnel and facilities associated with our executive, finance, human resource and legal departments and fees for professional services. Professional services principally consist of outside legal, audit, tax and transaction costs.

Depreciation and Amortization Expense. Depreciation and amortization expense for fixed assets is applied using the straight-line method over the estimated useful lives of the assets after they are placed in service, which are five years for network equipment and test equipment, and three years for computer equipment, computer software and furniture and fixtures. Leasehold improvements are amortized on a straight-line basis over an estimated useful life of five years or the life of the respective leases, whichever is shorter. Intangible assets, which consist of customer relationships, have a definite life and are amortized on an accelerated basis based on the discounted cash flows recognized over their estimated useful lives of 15 years.

Gain on Disposal of Fixed Assets. We have disposed of network equipment in connection with converting to new technology and computer equipment to replace old or damaged units. When there is a carrying value of these assets, we record the write-off of these amounts to loss on disposal. In some cases, this equipment is sold to a third party. When the proceeds from the sale of equipment identified for disposal exceeds the asset’s carrying value, we record a gain on disposal.

Other Income and Expense. Other income includes interest income and foreign exchange gains and losses resulting from changes in exchange rates between the functional currency and the foreign currency in which the transaction was denominated.

Income Taxes. Income tax provision includes U.S. federal, state and local, and foreign income taxes and is based on pre-tax income or loss. In determining the estimated annual effective income tax rate, we analyze various factors, including projections of our annual earnings and taxing jurisdictions in which earnings will be generated, the impact of state and local income taxes and our ability to use tax credits and net operating loss carryforwards.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the periods presented. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which we filed with the Securities and Exchange Commission on March 18, 2013, includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues or expenses during the first three months of 2013.

Results of Operations

The following table sets forth our results of operations for the three months ended March 31, 2013 and 2012:

	Three Months Ended March 31,
(Dollars in thousands)	2013		2012
Revenue	$	69,667	$	70,696
Operating expense:
Network and facilities expense (excluding depreciation and amortization)		33,486		30,515
Operations		10,344		11,551
Sales and marketing		4,172		4,034
General and administrative		5,016		6,738
Depreciation and amortization		5,444		7,300
Gain on disposal of fixed assets		—		(105	)
Total operating expense		58,462		60,033
Income from operations		11,205		10,663
Total other expense (income)		472		(243	)
Income before income taxes		10,733		10,906
Provision for income taxes		3,833		4,251
Net income	$	6,900	$	6,655

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Revenue. Revenue decreased to $69.7 million in the three months ended March 31, 2013 from $70.7 million in the three months ended March 31, 2012, representing a decrease of 1.5%. The decrease in revenue was due to a decrease of voice revenue of $3.0 million, partially offset

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by an increase of $2.0 million of data revenue. The decrease in voice revenue is primarily due to the decrease in minutes of use from 34.2 billion minutes in the three months ended March 31, 2012 compared to 30.6 billion minutes in the three months ended March 31, 2013, a decrease of 10.5%. Offsetting the decrease in minutes was an increase in the average fee per minute from $0.00156 for the three months ended March 31, 2012 to $0.00165 for the three months ended March 31, 2013.

The increase in data revenue was primarily due to an increase of traffic to 10.7 terabits per second in the three months ended March 31, 2013 from 7.3 terabits per second in the three months ended March 31, 2012. Offsetting the increase in bandwidth traffic was a decrease in the average fee from $2.34 per megabit for the three months ended March 31, 2012 to $1.79 per megabit for the three months ended March 31, 2013.

Operating Expenses. Operating expenses for the three months ended March 31, 2013 of $58.5 million decreased $1.5 million, or 2.6%, from $60.0 million for the three months ended March 31, 2012. The components of operating expenses are discussed further below.

Network and Facilities Expenses. Network and facilities expenses increased to $33.5 million in the three months ended March 31, 2013, or 48.1% of revenue, from $30.5 million in the three months ended March 31, 2012, or 43.2% of revenue. The increase in network and facilities expense was due to changes in the mix of the voice services we provide and an increase in our IP Transit and Ethernet traffic.

Operations Expenses. Operations expenses decreased to $10.3 million in the three months ended March 31, 2013, or 14.8% of revenue, from $11.6 million in the three months ended March 31, 2012, or 16.3% of revenue. The decrease of $1.3 million in our operations expenses primarily resulted from a decrease of $0.7 million in payroll, benefits and non-cash compensation, primarily attributable to a decrease in headcount, a $0.2 million decrease in repairs and maintenance and a $0.1 million decrease in travel and entertainment expenses.

Sales and Marketing Expense. Sales and marketing expense increased to $4.2 million in the three months ended March 31, 2013, or 6.0% of revenue, compared to $4.0 million in the three months ended March 31, 2012, or 5.7% of revenue. The increase of $0.2 million in sales and marketing expenses for the three months ended March 31, 2013 was primarily due to an increase of $0.2 million in sales partnership charges.

General and Administrative Expense. General and administrative expense decreased to $5.0 million in the three months ended March 31, 2013, or 7.2% of revenue, compared with $6.7 million in the three months ended March 31, 2012, or 9.5% of revenue. The decrease of $1.7 million in our general and administrative expense was primarily due to a decrease of $0.8 million and $0.6 million in non-cash compensation and professional fees, respectively.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased to $5.4 million in the three months ended March 31, 2013, or 7.8% of revenue, compared to $7.3 million in the three months ended March 31, 2012, or 10.3% of revenue. The decrease of $1.9 million in our depreciation and amortization expense resulted from lower depreciable base of our assets as a result of impairment charges recorded during the fourth quarter of 2012.

Other Income and Expense. Other expenses were $0.5 million for the three months ended March 31, 2013, compared to other income of $0.2 million for the three months ended March 31, 2012. The change of $0.7 million is a result of net unrealized foreign exchange losses resulting from the remeasurement of our receivable and payable balances between the functional currency and the foreign currency in which the transactions are denominated.

Provision for Income Taxes. Provision for income taxes of $3.8 million for the three months ended March 31, 2013 decreased by $0.5 million compared to $4.3 million for the three months ended March 31, 2012. The effective tax rate for the three months ended March 31, 2013 and 2012 was 35.7% and 39.0%, respectively. The difference in the effective tax rate for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 was due primarily to the effect of the increased Illinois EDGE Credit on the decreased forecasted domestic income for the current year as compared to the prior year.

Liquidity and Capital Resources

At March 31, 2013, we had $37.4 million in cash and cash equivalents and $0.1 million in restricted cash. In comparison, at December 31, 2012, we had $31.5 million in cash and cash equivalents and $1.0 million in restricted cash. Cash and cash equivalents consist of highly liquid money market mutual funds. The restricted cash balance is pledged as collateral for certain commercial letters of credit.

	Three Months Ended
	March 31, 2013			March 31, 2012
Cash flows provided by operating activities	$	12,015		$	16,616
Cash flows used for investing activities		(5,317	)		(9,022	)
Cash flows used for financing activities		(605	)		(310	)

Operating activities

Net cash provided by operating activities was $12.0 million for the first three months of 2013 compared to $16.6 for the same period last year. Operating cash inflows are largely attributable to payments from customers. Operating cash outflows are largely attributable to personnel related expenditures and network maintenance costs. The decrease in operating cash flow reflected an increase in accounts receivable and a decrease in accrued liabilities and accounts payable, partially offset by a decrease in prepaid expenses.

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Investing activities

Net cash used for investing activities was $5.3 million for the first three months of 2013 compared to net cash used in investing activities of $9.0 million for the same period last year. Investing cash flows were primarily related to purchases of network equipment. The decrease in net cash used in investing activities was the result of a decrease in the purchases of equipment used in our business in the first three months of 2013 and a decrease in our restricted cash.

In 2012, capital expenditures are expected to be approximately $14 to $18 million, mainly due to investment in and maintenance of our voice network, as well as investment in our data services business through April 30, 2013. We plan to fund our capital expenditures with cash generated through our ongoing operations.

Financing activities

Net cash used for financing activities was $0.6 million for the first three months of 2013, compared to net cash used for financing activities of $0.3 million for the same period last year. The change in cash used for financing activities primarily related to equity grants activity.

We regularly review acquisitions and strategic opportunities, which may require additional debt or equity financing. We currently do not have any pending agreements with respect to any acquisitions or strategic opportunities which would require additional debt or equity financing.

Investments

As of March 31, 2013, we had $6.8 million in cash and cash equivalents invested in two money market mutual funds. As of December 31, 2012, we had $0.8 million in cash and cash equivalents invested in two money market mutual funds.

Credit Facility

On March 5, 2013, we entered into a $15 million revolving credit facility. The credit facility has a term of three years and an interest rate of LIBOR + 3.25%. We have no plans to draw on the facility at this time and remain debt-free. The facility serves to increase our financial flexibility and further strengthens our liquidity position. We are currently in compliance with all of the covenants of the credit facility agreement.

Sale of Global Data Business

On April 30, 2013, we announced that we sold all assets and liabilities of our global data business to GTT for $54.5 million, subject to certain adjustments. The total consideration consisted of $52.5 million in cash and $2.0 million of non-cash commercial services to be provided by GTT to us.

Effect of Inflation

Inflation generally affects us by increasing our cost of labor and equipment. We do not believe that inflation had any material effect on our results of operations for the three-month periods ended March 31, 2013 and 2012.

Item 3. Qualitative and Quantitative Disclosure about Market Risk

Interest rate exposure

We had cash, cash equivalents and restricted cash totaling over $37.5 million at March 31, 2013. The unrestricted cash and cash equivalents are held for working capital purposes. We do not enter into investments for speculative purposes.

Based upon our overall interest rate exposure at March 31, 2013, we do not believe that a hypothetical 10% change in interest rates over a one year period would have a material impact on our earnings, fair values or cash flows from interest rate risk sensitive instruments discussed above.

Foreign Currency

The Company is exposed to the effect of foreign currency fluctuations in certain countries in which it operates. The functional currency of each of the Company’s subsidiaries is the currency of the country in which the subsidiary operates. The exposure to foreign currency movements is limited in most countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary, the Company is exposed to currency risk. Accordingly, earnings are affected by changes in foreign currency exchange rates, particularly the Euro and British Pound. Collectively, these currencies represent less than 35.7% of the Company’s operating income. As a result, earnings are affected by changes in the exchange rate between the Euro and the dollar. We do not believe that a 10% change in these currencies over a one-year period would have a material impact on our earnings.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to Neutral Tandem, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports, is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) accumulated and communicated to Neutral Tandem’s management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2013, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Refer to Note 3 “Legal Proceedings” in Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for information on legal proceedings.

Item 1A. Risk Factors

There have been no material changes in the risk factors outlined in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, except for the following, which should be read in conjunction with the risk factors and information disclosed in such Annual Report.

If we do not efficiently and effectively integrate any future business acquisitions, we may not fully realize the anticipated benefits from such acquisitions.

Achieving the anticipated benefits of any future acquisitions will depend in part upon whether we can integrate any acquired business with our existing business in an efficient and effective manner. The integration of any future businesses that we may acquire involves a number of risks, including, but not limited to:

• demands on management related to the any increase in size after an acquisition;

• the disruption of ongoing business and the diversion of management’s attention from managing daily operations to managing integration activities, which may require coordinating geographically dispersed organizations, integrating and retaining personnel with disparate business backgrounds, and combining different corporate cultures;

• failure to anticipate the costs related to accounting and tax matters resulting from operating a global business, including with respect to the costs of hiring employees and professional consultants to comply with accounting and tax matters, as well as the payment of taxes imposed by various taxing authorities and disputes and audits related thereto;

• failure to fully achieve expected synergies and costs savings;

• unanticipated impediments in the integration of departments, systems, including accounting systems, technologies, books and records and procedures, as well as in maintaining uniform standards, controls (including internal control over financial reporting required by the Sarbanes-Oxley Act of 2002), procedures and policies;

• loss of customers or the failure of customers to order incremental services that we expect them to order;

• failure to provision services that are ordered by customers during the integration period;

• higher integration costs than anticipated; and

• difficulties in the assimilation and retention of highly qualified and experienced employees.

Successful integration of any future acquired businesses or operations will depend on our ability to manage these operations, realize opportunities for revenue growth presented by strengthened service offerings and expanded geographic market coverage, obtain better terms from our vendors due to increased buying power, and eliminate redundant and excess costs to fully realize the expected synergies. Because of difficulties in combining geographically distant operations and systems which may not be fully compatible, we may not be able to achieve the financial benefits and growth we anticipate from the acquisitions.

In addition, acquisitions of businesses or other material operations may reduce our liquidity and capital resources and may require additional debt or equity financing, resulting in reduced financial resources, additional leverage or dilution of ownership. We may also need to record write-downs from future impairments of intangible assets, which could reduce our future reported earnings. At times, acquisition candidates may have liabilities, neutrality-related risks or adverse operating issues that we fail to discover through due diligence prior to the acquisition.

We cannot be certain that we will realize any anticipated benefits from any future acquired businesses, or that we will be able to efficiently and effectively integrate the acquired operations as planned. If we fail to efficiently and effectively integrate the acquired businesses and operations, experience increased operating costs, or fail to realize the benefits we anticipate, we could experience material adverse effects on our business, prospects, financial condition and operating results.

Our business requires the continued development of effective business support systems to implement customer orders, provide and bill for services, and pay for services we receive from our vendors.

Our business depends on our ability to continue to develop effective business support systems. This can be a complicated undertaking that requires significant resources and expertise and support from third-party vendors. Business support systems are needed for:

• ordering services from our vendors and verifying that we are being charged the correct amount;

• quoting, accepting and inputting customer orders for services;

• provisioning, installing and delivering these services;

• monitoring the types of traffic carried over our network to determine profitability; and

• billing for these services.

Because our business plans provide for continued growth in the number of customers that we serve and the volume of services offered as well as the potential integration of other acquired companies’ business support systems, there is a need to continue to develop our business support systems on a timely basis. The failure to continue to develop effective unified business support systems could affect our ability to implement our business plans and realize anticipated benefits from potential acquisitions and therefore could have a material adverse effect on our business, prospects, financial condition and operating results.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Default Upon Senior Securities

None

Item 4. Mine Safety Disclosure

None

Item 5. Other Information

None

Item 6. Exhibits

(a) Exhibits

Exhibit 10.1	Credit Agreement, dated as of March 5, 2013, by and among the Company, Bank of Montreal and the guarantors and lenders from time to time party thereto, previously filed as Exhibit 10.1 with the Company’s Form 8-K filed on March 7, 2013 and incorporated herein by reference.
Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NEUTRAL TANDEM, INC.
Date: May 8, 2013	By:	/s/    G. EDWARD EVANS
		G. Edward Evans, Chief Executive Officer (Principal Executive Officer)
Date: May 8, 2013	By:	/s/    DAVID ZWICK
		David Zwick, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, G. Edward Evans, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Neutral Tandem, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2013	/S/ G. EDWARD EVANS
	G. Edward Evans
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David Zwick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Neutral Tandem, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2013	/s/    DAVID ZWICK
	David Zwick
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report on Form 10-Q of Neutral Tandem, Inc. (the “Company”) for the quarter ended March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned Chief Executive Officer and Chief Financial Officer of the Company, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/    G. EDWARD EVANS	/S/    DAVID ZWICK
Chief Executive Officer	Executive Vice President and Chief Financial Officer
Date: May 8, 2013	Date: May 8, 2013

The certification set forth above is being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Form 10-Q or as a separate disclosure document of the Company or the certifying officers.

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Estimated Fair Value of Options (Detail)	3 Months Ended
	Mar. 31, 2013
Share based Compensation Arrangement Assumptions Used to Estimate Fair Values of Share Options Granted [Line Items]
Expected life	7 years 3 months 18 days
Risk-free interest rate range	1.32%
Expected dividends
Volatility	45.00%

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LEGAL PROCEEDINGS

3 Months Ended

Mar. 31, 2013

LEGAL PROCEEDINGS

3. LEGAL PROCEEDINGS

From time to time, the Company is a party to legal proceedings arising in the normal course of its business. Aside from the matter discussed below, the Company does not believe that it is a party to any pending legal action that could reasonably be expected to have a material effect on its business or operating results, financial position or cash flows.

Customer Dispute

The Company has a dispute with a carrier to which it provides certain voice services. The carrier is one of the Company’s largest customers and claims the Company has been improperly billing a certain tariffed rate element. The customer alleges that the improper billings total approximately $6 million. The Company has not been provided with sufficient information to allow the Company to understand how the customer calculated the disputed amount, believes the entire claim is without merit, and intends to vigorously contest it. However, the final outcome and impact of this dispute cannot be predicted. The Company establishes accruals only for those matters where it determines that a loss is probable and the amount of loss can be reasonably estimated. The Company does not currently believe a loss is probable in connection with this dispute.

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Credit Facility - Additional Information (Detail) (Issuance of Debt, Revolving Credit Facility, USD $) In Millions, unless otherwise specified	1 Months Ended
	Mar. 05, 2013
Credit Facility [Line Items]
Credit facility, maximum borrowing capacity	$ 15
Credit facility, maturity term	3 years
LIBOR
Credit Facility [Line Items]
Credit facility, interest rate	3.25%

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Segment and Geographic Information - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2013 Segment
Segment Reporting Information [Line Items]
Number of operating segments	1

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Changes in Accumulated Other Comprehensive Income (Loss) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance	$ (4,904)	$ (4,346)
Other comprehensive income (loss) before reclassifications, net of tax	(174)	2,702
Less: Amounts reclassified from AOCI, net of tax
Total other comprehensive income (loss)	(174)	2,702
Ending Balance	$ (5,078)	$ (1,644)

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Subsequent Event - Additional Information (Detail) (Global Telecom And Technology, Inc, USD $) In Millions, unless otherwise specified		1 Months Ended
	Mar. 31, 2013	Apr. 30, 2013 Subsequent Event
Subsequent Event [Line Items]
Proceeds from sales of assets and liabilities of global data business		$ 54.5
Proceeds from sales of assets and liabilities of global data business, cash consideration		52.5
Proceeds from sales of assets and liabilities of global data business, non-cash consideration		2.0
Assets, carrying value	50.7
Liabilities, carrying value	$ 31.2

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2013

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation — The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Interim Condensed Consolidated Financial Statements — The accompanying condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012, the condensed consolidated statements of income for the three months ended March 31, 2013 and 2012, the condensed consolidated statements of comprehensive income for the three months ended March 31, 2013 and 2012, and the condensed consolidated statements of cash flows for the three months ended March 31, 2013 and 2012 are unaudited. The condensed consolidated balance sheet data as of December 31, 2012 was derived from the audited consolidated financial statements which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission applicable to interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the unaudited interim condensed consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 have been prepared on the same basis as the audited consolidated statements and reflect all adjustments, which are normal recurring adjustments, necessary for the fair presentation of its statement of financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the operating results for any subsequent quarter, for the full fiscal year or any future periods.

Cash and Cash Equivalents — The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents. At March 31, 2013, the Company had $30.6 million of cash in banks and $6.8 million in two money market mutual funds. At December 31, 2012, the Company had $30.7 million of cash in banks and $0.8 million in two money market mutual funds.

The carrying amounts of our cash and equivalents, receivables and accounts payable approximate fair value due to their short-term nature.

Property and Equipment — Property and equipment is recorded at cost. These values are depreciated over the estimated useful lives of the individual assets using the straight-line method. Any gains and losses from the disposition of property and equipment are included in operations as incurred. The estimated useful life for network equipment and tools and test equipment is five years. The estimated useful life for computer equipment, computer software and furniture and fixtures is three years. Leasehold improvements are amortized on a straight-line basis over an estimated useful life of five years or the life of the lease, whichever is less. As discussed in further detail below, the impairment of long-lived assets is periodically evaluated when events or changes in circumstances indicate that a potential impairment has occurred.

Revenue Recognition — The Company generates revenue from sales of its voice, IP Transit and Ethernet services. The Company maintains tariffs and executed service agreements with each of its customers in which specific fees and rates are determined. Voice revenue is recorded each month on an accrual basis based upon minutes of traffic switched by the Company’s network by each customer, which is referred to as minutes of use. The rates charged per minute are determined by contracts between the Company and its customers or by filed and effective tariffs.

IP Transit revenue and Ethernet services revenue are recorded each month on an accrual basis based upon bandwidth used by each customer. The rates charged are the total of a monthly fee for bandwidth (the Committed Traffic Rate) plus additional charges for the sustained peak bandwidth used monthly in excess of the Committed Traffic Rate.

Earnings Per Share — Basic earnings per share is computed based on the weighted average number of common shares and participating securities outstanding. Diluted earnings per share is computed based on the weighted average number of common shares and participating securities outstanding adjusted by the number of additional shares that would have been outstanding during the period had the potentially dilutive securities been issued. The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share of common stock:

Three Months Ended March 31,	2013		2012
Numerator:
Net income applicable to common shareholders	$	6,900	$	6,655
Denominator:
Weighted average common shares outstanding		32,337		31,664
Effect of dilutive securities:
Stock options		116		394
Denominator for diluted earnings per share		32,453		32,058
Net earnings per share:
Basic — as reported	$	0.21	$	0.21
Diluted — as reported	$	0.21	$	0.21

Outstanding share-based awards of 3.6 million and 2.8 million were outstanding during the three months ended March 31, 2013 and March 31, 2012, respectively, but were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

For the three months ended March 31, 2013 and 2012, the undistributed earnings allocable to participating securities were $0.2 million and $0.3 million, respectively.

Accounting for Share-Based Payments — The fair value of stock options is determined using the Black-Scholes valuation model. This model takes into account the exercise price of the stock option, the fair value of the common stock underlying the stock option as measured on the date of grant and an estimation of the volatility of the common stock underlying the stock option. Such value is recognized as expense over the service period, net of estimated forfeitures, using the straight line method. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. Actual results, and future changes in estimates, may differ from the Company’s current estimates.

The amount of share-based expense recorded in the three months ended March 31, 2013 and 2012, was $1.9 million and $3.1 million, respectively.

Compensation expense for non-vested shares is measured based upon the quoted closing market price for the stock on the date of grant. The compensation cost is recognized on a straight-line basis over the vesting period. See Note 5, “Stock Options and Non-vested Shares”

Foreign Currency Translation — The functional currency of each of the Company’s subsidiaries is the currency of the country in which the subsidiary operates. Assets and liabilities of foreign operations are translated using period end exchange rates, and revenues and expenses are translated using average exchange rates during the period. Translation gains and losses are reported in accumulated other comprehensive earnings as a component of shareholders’ equity.

Recent Accounting Pronouncements — Effective January 1, 2013, the Company adopted Financial Accounting Standards Board Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). ASU 2013-02 requires entities to disclose additional information about reclassification adjustments, including changes in accumulated other comprehensive income balances by component and significant items reclassified out of accumulated other comprehensive income. The amendment did not change the items reported in other comprehensive income or when an item of other comprehensive income is reclassified to net income. As a result, the adoption of this guidance did not have a material impact, if any, on the Company’s financial position, results of operations or cash flows.

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 37,445	$ 31,479
Receivables, net of allowance of $1,956 and $2,005, respectively	45,229	42,833
Deferred income taxes-current	657	1,210
Prepaid expenses	8,661	11,203
Total current assets	91,992	86,725
Property and equipment - net	52,341	53,517
Restricted cash	125	962
Deferred income taxes-non-current	4,302	2,710
Other assets	1,867	1,686
Total assets	150,627	145,600
Current liabilities:
Accounts payable	9,700	12,385
Accrued liabilities:
Taxes payable	10,029	8,298
Circuit cost	11,431	13,200
Rent	1,897	1,831
Payroll and related items	4,288	4,507
Other	5,452	4,833
Total current liabilities	42,797	45,054
Other liabilities	770	1,453
Total liabilities	43,567	46,507
Shareholders' equity:
Preferred stock - par value of $.001; 50,000 authorized shares; no shares issued and outstanding at March 31, 2013 and December 31, 2012
Common stock - par value of $.001; 150,000 authorized shares; 32,389 shares and 32,345 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively	32	32
Less treasury stock, at cost; 3,083 shares at March 31, 2013 and December 31, 2012	(50,103)	(50,103)
Additional paid-in capital	200,596	199,331
Accumulated other comprehensive loss	(5,078)	(4,904)
Retained earnings	(38,387)	(45,263)
Total shareholders' equity	107,060	99,093
Total liabilities and shareholders' equity	$ 150,627	$ 145,600

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Operating
Net income	$ 6,900	$ 6,655
Adjustments to reconcile net cash flows from operating activities:
Depreciation and amortization	5,444	7,300
Deferred income taxes	(1,039)	(965)
Gain on disposal of fixed assets		(105)
Non-cash share-based compensation	1,870	3,116
Loss (gain) on intercompany foreign exchange transactions	250	(326)
Excess tax deficiency associated with share-based payments	488	62
Changes in assets and liabilities:
Receivables	(2,848)	2,400
Other current assets	2,337	(1,973)
Other noncurrent assets	(195)	64
Accounts payable	(1,005)	(1,305)
Accrued liabilities	(164)	1,265
Noncurrent liabilities	(23)	428
Net cash provided by operating activities	12,015	16,616
Investing
Purchase of equipment	(6,154)	(9,122)
Proceeds from sale of equipment		100
Decrease in restricted cash	837
Net cash used for investing activities	(5,317)	(9,022)
Financing
Proceeds from the exercise of stock options		8
Restricted shares withheld to cover employee taxes paid	(117)	(256)
Excess tax deficiency associated with share-based payments	(488)	(62)
Net cash used for financing activities	(605)	(310)
Effect of exchange rate changes on cash	(127)	186
Net increase in cash and cash equivalents	5,966	7,470
Cash and cash equivalents - Beginning	31,479	90,279
Cash and cash equivalents - End	37,445	97,749
Supplemental disclosure of cash flow information:
Cash paid for taxes	979	6,160
Supplemental disclosure of noncash flow items:
Investing activity - Accrued purchases of equipment	$ 1,848	$ 4,635

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Legal Proceedings - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Related Party Transaction [Line Items]
Value customers seeks in a dispute	$ 6

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Stock Options and Non-Vested Shares - Additional Information (Detail) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended				3 Months Ended	12 Months Ended	3 Months Ended			12 Months Ended		3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 28, 2013	Dec. 31, 2012	Mar. 31, 2013 Stock Options	Dec. 31, 2012 Stock Options	Mar. 31, 2013 Non-Vested Shares Y	Mar. 31, 2012 Non-Vested Shares	Mar. 31, 2013 Non-Vested Shares Equity Other Than Stock Options	Dec. 31, 2012 Non-Vested Shares Equity Other Than Stock Options	Mar. 31, 2013 2003 Plan	Mar. 31, 2013 2007 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Issuance of stock options and non-vested shares											4,700,000
Granted options outstanding	3,792,000			3,092,000								3,800,000
Non-vested granted shares remaining outstanding	820,000			846,000								800,000
Additional outstanding shares available for grant												300,000
Shares available for grant as a percentage of the Company's outstanding common stock												1.00%
Options granted	700,000
Weighted-average exercise price	$ 3.40
Weighted-average fair value of options granted	$ 1.64
Total grant date fair value of options granted	$ 0.4
Total intrinsic value of stock options exercised		0.1
Unrecognized compensation cost					$ 4.4	$ 3.6			$ 7.4	$ 8.4
Weighted average remaining term recorded for options, in years					2 years 6 months	1 year 9 months 18 days			2 years 1 month 6 days	2 years 3 months 18 days
Shares granted, non vested	90,000						100,000	300,000
Non-vested shares, vesting period, years							4
Closing stock price			$ 3.27

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DESCRIPTION OF THE BUSINESS

3 Months Ended

Mar. 31, 2013

DESCRIPTION OF THE BUSINESS

1. DESCRIPTION OF THE BUSINESS

Organization — Neutral Tandem, Inc. d/b/a Inteliquent (the Company) provides U.S. and international voice, IP Transit and Ethernet telecommunications services primarily on a wholesale basis. The Company offers these services using an all-IP network, which enables the Company to deliver global connectivity for a variety of media, including voice, data and video. The Company’s solutions enable carriers and other providers to deliver telecommunications traffic or other services where they do not have their own network or elect not to use their own network. These solutions are sometimes called “off-net” services. The Company also provides its solutions to customers, like content providers, who also typically do not have their own network.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Receivables, allowance	$ 1,956	$ 2,005
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, authorized shares	50,000	50,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized shares	150,000	150,000
Common stock, shares issued	32,389	32,345
Common stock, shares outstanding	32,389	32,345
Treasury stock, shares, at cost	3,083	3,083

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2013

Earnings Per Share

The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share of common stock:

Three Months Ended March 31,	2013		2012
Numerator:
Net income applicable to common shareholders	$	6,900	$	6,655
Denominator:
Weighted average common shares outstanding		32,337		31,664
Effect of dilutive securities:
Stock options		116		394
Denominator for diluted earnings per share		32,453		32,058
Net earnings per share:
Basic — as reported	$	0.21	$	0.21
Diluted — as reported	$	0.21	$	0.21

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	Apr. 29, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Trading Symbol	IQNT
Entity Registrant Name	NEUTRAL TANDEM INC
Entity Central Index Key	0001292653
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		32,385,912

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STOCK OPTIONS AND NON-VESTED SHARES (Tables)

3 Months Ended

Mar. 31, 2013

Estimated Fair Value of Options

The fair value of each option granted during the three months ended March 31, 2013 was estimated on the date of grant using the Black-Scholes option-pricing model and was measured using the following assumptions:

	March 31, 2013
Expected life	7.3 years
Risk-free interest rate range	1.32%
Expected dividends	—
Volatility	45.0%

Stock Option Plan Activity

The following summarizes activity under the Company’s stock option plan for the three months ended March 31, 2013:

	Shares (000)			Weighted- Average Exercise Price		Aggregate Intrinsic Value ($000)		Weighted- Average Remaining Term (yrs)
Options outstanding — January 1, 2013		3,092		$	14.68
Granted		716			3.40
Exercised		—			—
Cancelled		(16	)		21.50
Options outstanding — March 31, 2013		3,792		$	12.53	$	594		6.80
Vested or expected to vest — March 31, 2013		3,754		$	12.61	$	588		6.78
Exercisable — March 31, 2013		2,503		$	15.60	$	410		5.57

Non-Vested Share Activity

A summary of the Company’s non-vested share activity and related information for the three months ended March 31, 2013 is as follows:

	Shares (000)			Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value ($000)
Non-vested shares outstanding — January 1, 2013		846		$	11.31
Granted		90			3.41
Vested		(116	)		13.57
Cancelled		—			—
Non-vested shares outstanding — March 31, 2013		820		$	10.18	$	2,681
Non-vested shares vested or expected to vest — March 31, 2013		789		$	10.18	$	2,580

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Condensed Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Revenue	$ 69,667	$ 70,696
Operating expense:
Network and facilities expense (excluding depreciation and amortization)	33,486	30,515
Operations	10,344	11,551
Sales and marketing	4,172	4,034
General and administrative	5,016	6,738
Depreciation and amortization	5,444	7,300
Gain on disposal of fixed assets		(105)
Total operating expense	58,462	60,033
Income from operations	11,205	10,663
Other expense (income):
Interest income	(2)	(3)
Other income	(27)	(13)
Foreign exchange loss (gain)	501	(227)
Total other expense (income)	472	(243)
Income before income taxes	10,733	10,906
Provision for income taxes	3,833	4,251
Net income	$ 6,900	$ 6,655
Net income per share:
Basic	$ 0.21	$ 0.21
Diluted	$ 0.21	$ 0.21
Weighted average number of shares outstanding:
Basic	32,337	31,664
Diluted	32,453	32,058

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SEGMENT AND GEOGRAPHIC INFORMATION

3 Months Ended

Mar. 31, 2013

SEGMENT AND GEOGRAPHIC INFORMATION

6. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Reporting establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

The Company’s chief operating decision maker is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis. The Company operates in one industry segment, which is to provide voice, IP Transit and Ethernet interconnection services via the Company’s international telecommunications network to fulfill customer agreements. Therefore, the Company has concluded that it has one operating segment.

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STOCK OPTIONS AND NON-VESTED SHARES

3 Months Ended

Mar. 31, 2013

STOCK OPTIONS AND NON-VESTED SHARES

5. STOCK OPTIONS AND NON-VESTED SHARES

In 2003, the Company established the 2003 Stock Option and Stock Incentive Plan (2003 Plan), which provided for the issuance of up to 4.7 million options and non-vested shares to eligible employees, officers, and independent contractors of the Company. In 2007, the Company adopted the Neutral Tandem, Inc. 2007 Equity Incentive Plan (2007 Plan) and ceased awarding equity grants under the 2003 Plan. As of March 31, 2013, the Company had granted a total of 3.8 million options and 0.8 million non-vested shares that remained outstanding under the 2007 Plan. Awards for 0.3 million shares, representing approximately 1.0% of the Company’s outstanding common stock as of March 31, 2013, remained available for additional grants under the 2007 Plan.

The Company records stock-based compensation expense in connection with any grant of options and non-vested shares to its employees. The Company calculates the expense associated with its stock options and non-vested shares by determining the fair value of the options and non-vested shares.

Options

All options granted under the 2003 Plan and the 2007 Plan have an exercise price equal to the market value of the underlying common stock on the date of the grant. During the three months ended March 31, 2013, the Company granted 0.7 million options at a weighted-average exercise price of $3.40. During the three months ended March 31, 2012, the Company did not grant any options.

The fair value of each option granted during the three months ended March 31, 2013 was estimated on the date of grant using the Black-Scholes option-pricing model and was measured using the following assumptions:

	March 31, 2013
Expected life	7.3 years
Risk-free interest rate range	1.32%
Expected dividends	—
Volatility	45.0%

The weighted-average fair value of options granted, as determined by using the Black-Scholes valuation model, for the three months ended March 31, 2013 was $1.64, and the total grant date fair value of options that vested during the period was approximately $0.4 million. The total intrinsic value (market value of stock less option exercise price) of stock options exercised was $0.1 million during the three months ended March 31, 2012. There were no stock options exercised during the three months ended March 31, 2013.

The following summarizes activity under the Company’s stock option plan for the three months ended March 31, 2013:

	Shares (000)			Weighted- Average Exercise Price		Aggregate Intrinsic Value ($000)		Weighted- Average Remaining Term (yrs)
Options outstanding — January 1, 2013		3,092		$	14.68
Granted		716			3.40
Exercised		—			—
Cancelled		(16	)		21.50
Options outstanding — March 31, 2013		3,792		$	12.53	$	594		6.80
Vested or expected to vest — March 31, 2013		3,754		$	12.61	$	588		6.78
Exercisable — March 31, 2013		2,503		$	15.60	$	410		5.57

The unrecognized compensation cost associated with options outstanding at March 31, 2013 and December 31, 2012 was $4.4 million and $3.6 million, respectively. The weighted average remaining term that the compensation will be recorded is 2.5 years and 1.8 years as of March 31, 2013 and December 31, 2012, respectively.

Non-vested Shares

During the three months ended March 31, 2013 and March 31, 2012, the Company granted less than 0.1 million and 0.3 million non-vested shares, respectively, to members of the Company’s executive management team as well as various employees within the Company. The non-vested shares were issued as part of the 2007 Plan. The shares typically vest over a four-year period. The fair value of the non-vested shares is determined using the Company’s closing stock price on the grant date. Compensation cost, measured using the grant date fair value, is recognized over the requisite service period on a straight-line basis.

A summary of the Company’s non-vested share activity and related information for the three months ended March 31, 2013 is as follows:

	Shares (000)			Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value ($000)
Non-vested shares outstanding — January 1, 2013		846		$	11.31
Granted		90			3.41
Vested		(116	)		13.57
Cancelled		—			—
Non-vested shares outstanding — March 31, 2013		820		$	10.18	$	2,681
Non-vested shares vested or expected to vest — March 31, 2013		789		$	10.18	$	2,580

The aggregate intrinsic value represents the total pre-tax intrinsic value based on the Company’s closing stock price of $3.27 on March 28, 2013. The amount changes based upon the fair market value of the Company’s common stock.

The unrecognized compensation cost associated with non-vested shares at March 31, 2013 and December 31, 2012 was $7.4 million and $8.4 million, respectively. The weighted average remaining term that the compensation will be recorded is 2.1 years and 2.3 years as of March 31, 2013 and December 31, 2012, respectively.

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Income Taxes - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Income Tax [Line Items]
Estimated effective income tax rate	35.70%	39.00%
Unrecognized tax benefit	$ 1.6		$ 1.8

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)

3 Months Ended

Mar. 31, 2013

Changes In Accumulated Other Comprehensive Income (Loss)

Changes in the balance of accumulated other comprehensive income (loss) for the three months ended March 31, 2013 and 2012 are summarized in the following table:

Three Months Ended March 31,	2013			2012
Balance as of January 1	$	(4,904	)	$	(4,346	)
Other comprehensive income (loss) before reclassifications, net of tax		(174	)		2,702
Less: Amounts reclassified from AOCI, net of tax		—			—
Net other comprehensive income (loss)		(174	)		2,702
Balance as of March 31	$	(5,078	)	$	(1,644	)

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SUBSEQUENT EVENT

3 Months Ended

Mar. 31, 2013

SUBSEQUENT EVENT

9. SUBSEQUENT EVENT

On April 30, 2013, the Company announced that it sold its global data business to Global Telecom & Technology, Inc. (“GTT”) for $54.5 million, subject to certain adjustments. The total consideration consisted of $52.5 million in cash and $2.0 million of non-cash commercial services to be provided by GTT to the Company. As of March 31, 2013, the carrying values of assets and liabilities associated with the global data business were approximately $50.7 million and $31.2 million, respectively. As a result of the sale, the Company no longer provides IP Transit of Ethernet services.

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CREDIT FACILITY

3 Months Ended

Mar. 31, 2013

CREDIT FACILITY

7. CREDIT FACILITY

On March 5, 2013, the Company entered into a $15 million revolving credit facility. The credit facility has a term of three years and an interest rate of LIBOR + 3.25%. The Company may use any borrowings under the revolving credit facility for general corporate purposes. No obligations were outstanding under the revolving credit facility as of March 31, 2013. The Company is currently in compliance with all of the covenants of the credit facility agreement.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

3 Months Ended

Mar. 31, 2013

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in the balance of accumulated other comprehensive income (loss) for the three months ended March 31, 2013 and 2012 are summarized in the following table:

Three Months Ended March 31,	2013			2012
Balance as of January 1	$	(4,904	)	$	(4,346	)
Other comprehensive income (loss) before reclassifications, net of tax		(174	)		2,702
Less: Amounts reclassified from AOCI, net of tax		—			—
Net other comprehensive income (loss)		(174	)		2,702
Balance as of March 31	$	(5,078	)	$	(1,644	)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2013

Principles of Consolidation

Principles of Consolidation — The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Interim Condensed Consolidated Financial Statements — The accompanying condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012, the condensed consolidated statements of income for the three months ended March 31, 2013 and 2012, the condensed consolidated statements of comprehensive income for the three months ended March 31, 2013 and 2012, and the condensed consolidated statements of cash flows for the three months ended March 31, 2013 and 2012 are unaudited. The condensed consolidated balance sheet data as of December 31, 2012 was derived from the audited consolidated financial statements which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission applicable to interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the unaudited interim condensed consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 have been prepared on the same basis as the audited consolidated statements and reflect all adjustments, which are normal recurring adjustments, necessary for the fair presentation of its statement of financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the operating results for any subsequent quarter, for the full fiscal year or any future periods.

Cash and Cash Equivalents

Cash and Cash Equivalents — The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents. At March 31, 2013, the Company had $30.6 million of cash in banks and $6.8 million in two money market mutual funds. At December 31, 2012, the Company had $30.7 million of cash in banks and $0.8 million in two money market mutual funds.

The carrying amounts of our cash and equivalents, receivables and accounts payable approximate fair value due to their short-term nature.

Property and Equipment

Property and Equipment — Property and equipment is recorded at cost. These values are depreciated over the estimated useful lives of the individual assets using the straight-line method. Any gains and losses from the disposition of property and equipment are included in operations as incurred. The estimated useful life for network equipment and tools and test equipment is five years. The estimated useful life for computer equipment, computer software and furniture and fixtures is three years. Leasehold improvements are amortized on a straight-line basis over an estimated useful life of five years or the life of the lease, whichever is less. As discussed in further detail below, the impairment of long-lived assets is periodically evaluated when events or changes in circumstances indicate that a potential impairment has occurred.

Revenue Recognition

Revenue Recognition — The Company generates revenue from sales of its voice, IP Transit and Ethernet services. The Company maintains tariffs and executed service agreements with each of its customers in which specific fees and rates are determined. Voice revenue is recorded each month on an accrual basis based upon minutes of traffic switched by the Company’s network by each customer, which is referred to as minutes of use. The rates charged per minute are determined by contracts between the Company and its customers or by filed and effective tariffs.

IP Transit revenue and Ethernet services revenue are recorded each month on an accrual basis based upon bandwidth used by each customer. The rates charged are the total of a monthly fee for bandwidth (the Committed Traffic Rate) plus additional charges for the sustained peak bandwidth used monthly in excess of the Committed Traffic Rate.

Earnings Per Share

Earnings Per Share — Basic earnings per share is computed based on the weighted average number of common shares and participating securities outstanding. Diluted earnings per share is computed based on the weighted average number of common shares and participating securities outstanding adjusted by the number of additional shares that would have been outstanding during the period had the potentially dilutive securities been issued. The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share of common stock:

Three Months Ended March 31,	2013		2012
Numerator:
Net income applicable to common shareholders	$	6,900	$	6,655
Denominator:
Weighted average common shares outstanding		32,337		31,664
Effect of dilutive securities:
Stock options		116		394
Denominator for diluted earnings per share		32,453		32,058
Net earnings per share:
Basic — as reported	$	0.21	$	0.21
Diluted — as reported	$	0.21	$	0.21

Outstanding share-based awards of 3.6 million and 2.8 million were outstanding during the three months ended March 31, 2013 and March 31, 2012, respectively, but were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

For the three months ended March 31, 2013 and 2012, the undistributed earnings allocable to participating securities were $0.2 million and $0.3 million, respectively.

Accounting for Share-Based Payments

Accounting for Share-Based Payments — The fair value of stock options is determined using the Black-Scholes valuation model. This model takes into account the exercise price of the stock option, the fair value of the common stock underlying the stock option as measured on the date of grant and an estimation of the volatility of the common stock underlying the stock option. Such value is recognized as expense over the service period, net of estimated forfeitures, using the straight line method. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. Actual results, and future changes in estimates, may differ from the Company’s current estimates.

The amount of share-based expense recorded in the three months ended March 31, 2013 and 2012, was $1.9 million and $3.1 million, respectively.

Compensation expense for non-vested shares is measured based upon the quoted closing market price for the stock on the date of grant. The compensation cost is recognized on a straight-line basis over the vesting period. See Note 5, “Stock Options and Non-vested Shares”

Foreign Currency Translation

Foreign Currency Translation — The functional currency of each of the Company’s subsidiaries is the currency of the country in which the subsidiary operates. Assets and liabilities of foreign operations are translated using period end exchange rates, and revenues and expenses are translated using average exchange rates during the period. Translation gains and losses are reported in accumulated other comprehensive earnings as a component of shareholders’ equity.

Recent Accounting Pronouncements

Recent Accounting Pronouncements — Effective January 1, 2013, the Company adopted Financial Accounting Standards Board Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). ASU 2013-02 requires entities to disclose additional information about reclassification adjustments, including changes in accumulated other comprehensive income balances by component and significant items reclassified out of accumulated other comprehensive income. The amendment did not change the items reported in other comprehensive income or when an item of other comprehensive income is reclassified to net income. As a result, the adoption of this guidance did not have a material impact, if any, on the Company’s financial position, results of operations or cash flows.

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Earnings Per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Summary Of Significant Accounting Policies [Line Items]
Net income applicable to common shareholders	$ 6,900	$ 6,655
Weighted average common shares outstanding	32,337	31,664
Stock options	116	394
Denominator for diluted earnings per share	32,453	32,058
Basic - as reported	$ 0.21	$ 0.21
Diluted - as reported	$ 0.21	$ 0.21

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Stock Option Plan Activity (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares, Options outstanding beginning	3,092
Shares, Granted	716
Shares, Exercised
Shares, Cancelled	(16)
Shares, Options outstanding ending	3,792
Shares, Vested or expected to vest	3,754
Shares, Exercisable	2,503
Weighted Average Exercise Price, Options outstanding beginning	$ 14.68
Weighted Average Exercise Price, Granted	$ 3.40
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Canceled	$ 21.50
Weighted Average Exercise Price, Options outstanding ending	$ 12.53
Weighted Average Exercise Price, Vested or expected to vest	$ 12.61
Weighted Average Exercise Price, Exercisable	$ 15.60
Aggregate Intrinsic Value, Options outstanding ending	$ 594
Aggregate Intrinsic Value, Vested or expected to vest	588
Aggregate Intrinsic Value, Exercisable	$ 410
Weighted Average Remaining Term, Options outstanding ending, years	6 years 9 months 18 days
Weighted Average Remaining Term, Vested or expected to vest, years	6 years 9 months 11 days
Weighted Average Remaining Term, Exercisable, years	5 years 6 months 26 days

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Condensed Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Net income	$ 6,900	$ 6,655
Other comprehensive income (loss):
Foreign currency translation	(174)	2,702
Total other comprehensive income (loss)	(174)	2,702
Comprehensive income	$ 6,726	$ 9,357

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INCOME TAXES

3 Months Ended

Mar. 31, 2013

INCOME TAXES

4. INCOME TAXES

Income taxes were computed using an effective tax rate, which is subject to ongoing review and evaluation by the Company. The Company’s estimated effective income tax rate was 35.7% for the three months ended March 31, 2013, compared to 39.0% for the same period last year.

The difference in the effective tax rate for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 was due primarily to the effect of the increased Illinois EDGE Credit on the decreased forecasted domestic income for the current year as compared to the prior year.

The Company has recorded a valuation allowance against its foreign deferred tax assets and its prior years’ Illinois EDGE Credit. The Company believes it is more likely than not that these assets will not be realized in the foreseeable future. The realization of deferred tax assets is dependent upon whether the Company can generate future taxable income in the appropriate jurisdiction to utilize the assets. The amount of the deferred tax assets considered realizable is subject to adjustment in future periods.

The Company operates in multiple income tax jurisdictions both inside and outside the United States. Accordingly, the Company expects that the net amount of tax liability for unrecognized tax benefits will change in the next twelve months and cannot be estimated. As of March 31, 2013, the Company had estimated $1.6 million as its unrecognized tax benefit. At December 31, 2012, the Company had estimated $1.8 million as its unrecognized tax benefit.

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Non-Vested Share Activity (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares, Non-vested shares outstanding beginning	846
Shares, Granted	90
Shares, Vested	(116)
Shares, Cancelled
Shares, Non-vested shares outstanding ending	820
Shares, Non-vested shares vested or expected to vest	789
Weighted Average Grant Date Fair Value, Non-vested shares outstanding beginning	$ 11.31
Weighted Average Grant Date Fair Value, Granted	$ 3.41
Weighted Average Grant Date Fair Value, Vested	$ 13.57
Weighted Average Grant Date Fair Value, Cancelled
Weighted Average Grant Date Fair Value, Non-vested shares outstanding ending	$ 10.18
Weighted Average Grant Date Fair Value, Non-vested shares vested or expected to vest	$ 10.18
Aggregate Intrinsic Value, Non-vested shares outstanding ending	$ 2,681
Aggregate Intrinsic Value, Non-vested shares vested or expected to vest	$ 2,580

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Summary of Significant Accounting Policies - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 Investment	Mar. 31, 2012	Dec. 31, 2012 Investment
Summary Of Significant Accounting Policies [Line Items]
Maximum term for investments to be considered cash equivalents, days	90
Cash in banks	$ 30.6		$ 30.7
Money market mutual funds	6.8		0.8
Number of money market mutual fund invested	2		2
Undistributed earnings allocable to participating securities	0.2	0.3
Share-based expense	$ 1.9	$ 3.1
Common Stock
Summary Of Significant Accounting Policies [Line Items]
Anti-dilutive securities not included in the computation of diluted earnings per share	3.6	2.8
Network Equipment And Tools And Test Equipment
Summary Of Significant Accounting Policies [Line Items]
Estimated useful lives, years	5 years
Furniture and fixtures
Summary Of Significant Accounting Policies [Line Items]
Estimated useful lives, years	3 years
Leasehold Improvements
Summary Of Significant Accounting Policies [Line Items]
Estimated useful lives, years	Five years or the life of the lease, whichever is less