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Slide 1: William Blair Growth Stock Conference June 16, 2010 Henry Graham Chief Executive Officer Dennis Randolph Chief Financial Officer
Slide 2: Forward Looking Statements The statements contained in this presentation that are not historical facts are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in, or implied by, the forward-looking statements. The Company has attempted, whenever possible, to identify these forward-looking statements using words such as “may,” “will,” “should,” “projects,” “estimates,” “expects,” “plans,” “intends,” “anticipates,” “believes,” and variations of these words and similar expressions. Similarly, statements herein that describe the Company’s business strategy, prospects, opportunities, outlook, objectives, plans, intentions or goals are also forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: the Company’s reliance upon a small number of customers for a significant portion of its revenue; competitive factors such as pricing pressures; uncertainties related to the updated international tax planning strategy; the Company’s ability to grow its business domestically and internationally by generating greater transaction volumes, acquiring new customers or developing new service offerings; fluctuations in the Company’s quarterly results because of the seasonal nature of the business and other factors outside of the Company’s control, including fluctuations in foreign exchange rates and the continuing impact of the current economic conditions; the Company’s ability to identify, execute or effectively integrate acquisitions, including the acquisition of the Communications Services Group from VeriSign, Inc.; increases in the prices charged by telecommunication providers for services used by the Company; the Company’s ability to adapt to changing technology; the Company’s ability to refinance its senior secured credit facility and its ability to borrow funds in amounts sufficient to enable it to service its debt or meet its working capital and capital expenditure requirements; additional costs related to compliance with any revised New York Stock Exchange listing standards, Securities and Exchange Commission (SEC) rule changes or other corporate governance issues; and other risk factors described in the Company’s annual report on Form 10-K dated March 16, 2010 as filed with the SEC. The Company expects that subsequent events or developments will cause its views to change. The Company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectations or otherwise. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to June 16, 2010. 2
Slide 3: TNS Investment Thesis • Gold standard of value-added secure connectivity – Secure global network enables businesses, people, markets to connect, transact, trade • Leveraged model serves three distinct addressable growth markets – Advanced solutions customized for global institutions and small businesses – Expanding suite of network-level and intelligent services • Strategic, accretive CSG Acquisition scales telecom division – Integration well underway, expected completion by beginning of Q4:10 • Strong track record of execution – Managing well in current environment by controlling costs and selectively investing in services suite, customers and geographic penetration • 95%+ recurring revenue, strong margins, growing operating cash flow 3
Slide 4: TNS’ Divisions – Leveraged Model of Multiple Protocols on Common Backbone •Multiple data protocols optimized over common backbone – IP (POS, FSD, TSD) – SS7 (POS, TSD) – X.25 (ISD, POS) POS Merchant Processor TNS Network (IP/X.25) Merchant IP, DSL, Wireless, Dial, Dedicated FSD Broker/Dealers Institutional Investor Customers TNS IP Network •Offer customers variety of access methods (IP, DSL, Wireless, Dial, Dedicated) •Private, secure, reliable and fast TSD TNS IP Network LEC billing platform ILECs CLECs Customers SS7 Network IXCs CLECs Wireless carriers Calling card providers International providers SMS offload 4
Slide 5: TNS Divisions: Payments Division Value Chain ® 5
Slide 6: TNS Divisions: Payments Division (36.8% of Q1:10 Revenues) Markets the Company’s data communication services to payment processors around the world ($ in millions) Payments Historical Revenue • • Recurring revenue model - transaction-based and monthly fee Managed connectivity, connection agnostic: – Dial – TNS Connect – Secure SSL – TNS Link $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 2007 2008 North America 2009 International TTM Q110 $81.2 $74.5 $76.1 $75.2 $206.5 $125.3 $213.3 $196.8 $120.8 $200.2 $125.0 $138.8 • Managed services – CNP Gateway – ATM Processing – POS Encryption – Settlement – Synapse CHP Gateway – Multi-channel POS – Message Conversion Foreign currency effect: 2009 = $(13.6) million, Q1:10 = $3.4 million Drivers: • Accelerating card adoption • Shift to broadband from leased lines • Cross-border acquiring • New geographies and customers (Wireless - fixed/mobile) • Payment gateway services • ATM processing • Value-added POS/ATM services 6
Slide 7: TNS Divisions: Financial Services Division Community of Interest 7
Slide 8: TNS Divisions: Financial Services Division (12.7% of Q1:10 Revenues) • Addresses data, voice communications requirements of financial services industry - currently services over 625 customers • Secure Trading Extranet – managed connectivity links customers through IP network for electronic trading (“FIX”) and the exchange of market data • Highly visible, recurring revenue business – Fixed monthly fee model based on endpoints – Highly valued “community of interest” FSD Historical Revenue North America ($ in millions) $75.0 $60.0 $45.0 $30.0 $40.9 $15.0 $0.0 2007 2008 2009 TTM Q110 $45.9 $47.7 $47.2 International CAGR: 6.5% $65.2 $63.6 $17.7 $17.5 $65.8 $18.6 $54.5 $13.6 Foreign currency effect: 2009 = $(1.7) million; Q1:10 = $0.5 million Customer Endpoints (Global) Customer Endpoint CA $43,681 $42,645 1,670 1,456 1,200 1,000 800 2007 2008 2009 TTM Q1:10 Customer Endpoints Revenue/Endpoint 1,278 $20,000 $10,000 $0 1,688 • Drivers: – – – – – – Accelerating demand in Asia/Pacific region Higher bandwidth for data needs continues New asset classes – foreign exchange Global exchange connectivity Demand for low latency direct access Standardizing electronic communication protocols 1,800 1,600 1,400 GR: 9.7% $38,961 $50,000 $40,000 $30,000 $39,641 8
Slide 9: TNS Divisions: Telecommunication Services Division (TSD) 9
Slide 10: TNS Divisions: TSD (50.5% of Q1:10 Revenues) Outsourced telecommunications services for call signaling and database access services - Operates one of the largest unaffiliated SS7 networks in the US $300 ($ in millions) TSD Historical Revenue $263.2 $212.7 • Revenue Model – Fixed monthly and per-query fees • Managed services – Registry Services – Roaming & Clearing/Settlement – Identity & Verification – Messaging – Calling Name Delivery – Validation and Fraud Control $250 $200 $150 ` $100 $50 $0 $64.5 $67.1 • Drivers – telecom industry dynamics: – Significant number of consolidating legacy voice providers – Introduction of new competitive voice service offerings – Influx of VoIP providers and services 2007 2008 2009 TTM Q1:10 •Communications Services Group acquisition –Closed May 1, 2009 –Scaled TSD – strategic, financial, operational, technological fit – immediately accretive –Strengthened competitive positioning –Integration well underway, on track for Q4:10 completion and achievement of run-rate synergies by 2011 10
Slide 11: CSG Acquisition Drivers TNS Strategy TNS Strategy • Consolidation – Price competition, industry consolidation, vertical integration of downstream providers impacted revenues •• Robust SS7 network services Robust SS7 network services •• Partnered to provide outsourced Partnered to provide outsourced alternative CNAM solution alternative CNAM solution •• Leveraged bundled service offerings to Leveraged bundled service offerings to alternative telephony providers alternative telephony providers •• Invest in TSD -- drive synergies Invest in TSD drive synergies •• Grow in current markets Grow in current markets • 2009-2011 – addressable market expanding – Growth of cable and VoIP vertical into telecom space – TNS is now premier alternative to large roaming and clearing competitor •• Invest in product development Invest in product development -- Alternative telephony – gain competitive Alternative telephony – gain competitive share share -- Roaming/clearing – premier alternative to Roaming/clearing – premier alternative to large competitor large competitor • 2011 and beyond – new solutions – Opportunity to cross-sell to other divisions – Global roaming/clearing opportunity – Non-traditional inter-carrier connectivity •• Align/cross-sell POS and TSD services Align/cross-sell POS and TSD services •• Expand roaming/clearing globally Expand roaming/clearing globally •• Develop new cost-saving solutions Develop new cost-saving solutions -- One-to-many IP-based switching One-to-many IP-based switching solutions solutions -- ENUM connectivity ENUM connectivity 11
Slide 12: Why We Win Division Primary Competitors AT&T, Verizon Business, Local country telecom incumbents, HBNet, APRIVA, Cybera AT&T, Syniverse, Verizon Business, TargusInfo, Qwest, Embarq AT&T, Bloomberg, Radianz, Reuters, SAVVIS, Thomson TNS’ Competitive Advantages Payments TSD FSD • • • • • • • • • • Global network for cross-border data transport Dedication to data transport offerings Network reliability, speed and value-adds Superior support and service Differentiated service suite, largest authoritative CNAM Network reliability and cost-efficiency Superior support and service Secure and discrete service offerings Broad access and rapid deployment Superior support and service TNS: Unique Position; Superior Value/Service Proposition TNS: Unique Position; Superior Value/Service Proposition 12
Slide 13: TNS Growth Strategy Focus on Key Geographies Within North America, Europe, and the Asia-Pacific region Hub and spoke strategy offers organic growth and best use of resources and capital Sell, Service, Manage Win greater share of existing customer spend Further penetrate new customer types Sell to new customers with stronger service levels Focus on profitability Solutions Suite Innovation Partner with customers to better understand needs Develop new IP-based solutions for all divisions Focus on global applicability Strategic Acquisitions New acquisition criteria: • Improve/broaden suite • Expand geographic reach • Leverage core network • Accretive to adjusted EPS 13
Slide 14: TNS’ Financials Financial Measures In addition to the results presented in accordance with generally accepted accounting principles, or GAAP, in this presentation, the company presents EBITDA before stock compensation expense, adjusted earnings and adjusted earnings per share, which are non-GAAP measures. EBITDA is determined by taking income from operations and adding back certain non-cash items, including amortization of intangible assets, depreciation and amortization of property and equipment and stock compensation expense. Adjusted earnings is determined by taking pretax income or loss after equity in net loss of unconsolidated affiliates and adding back certain non-cash items, including amortization of intangible assets, stock compensation expense and the write-off of debt issuance costs, and the result is tax effected at a 20% rate (2007:38%). The company believes that these non-GAAP measures, viewed in addition to and not in lieu of the company’s reported GAAP results, provide useful information to investors because these metrics provide a more focused measure of operating results. These metrics are an integral part of the company’s internal reporting to measure operations of the company and the performance of senior management. A reconciliation to comparable GAAP measures is available in the accompanying schedule. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other companies. 14
Slide 15: TNS Historical Financial Overview Established Track Record of Revenue Growth: Global Divisional Breakout 2009 foreign currency impact = $15.3 million $474.8 $286.2 $325.6 $344.0 $529.1 2006 2007 Payments 2008 TSD 2009 FSD TTM Q1:10 CAGR 2006-2009: 3.2% 43.2%* 13.3% * 2006-2008 CAGR for TSD is 4.0% 15
Slide 16: TNS Historical Financial Overview Consistent and Growing EBITDA and Earnings generation EBITDA 26.8% 25.0% 21.8% 22.9% 26.3% Adjusted Earnings $139.2 $127.3 EBITDA Margin $74.7 $62.5 G CA $85.9 4. R3 8% $57.1 $62.0 $40.2 $25.2 $18.8 2006 2007 2008 2009 TTM Q110 2006 2008 TTM Q110 (1) EBITDA and Adjusted Earnings are non-GAAP measures. EBITDA and Adjusted Earnings exclude certain non-recurring charges and benefits previously disclosed. 16
Slide 17: Q1:10 Financial Overview ($ in millions except per share amounts) Q1 10 Payments Division Financial Services Division Telecommunication Services Division Total Revenue Gross Profit Gross Margin EBITDA Before Stock Comp Expense(1)(2) Adjusted Earnings(1)(2) Adjusted Earnings per Share—Diluted(1)(2) 47.7 16.4 65.5 $129.6 $66.4 51.3% $31.6 $15.0 $0.56 Q1 09 44.4 15.9 15.0 $75.3 $38.5 51.1% $16.3 $7.3 $0.29 % Chg 7.5% 3.3% NM 72.2% 72.7% 20BP 93.5% 103.8% 92.2% 1) 2) Non-GAAP measure. Please see first quarter 2010 press release for reconciliation to comparable GAAP measures. Included in first quarter 2010 results are $0.5 million in pre-tax severance charges. Excluding severance charges, first quarter 2010 EBITDA before Stock Comp Expense would have been $32.0 million and adjusted earnings would have been $15.3 million or $0.57 per share. 17
Slide 18: Balance Sheet Highlights Amounts in millions Actual 3/31/10 12/31/09 Cash and Cash Equivalents Total Current Assets Current Ratio Net Property and Equipment Total Assets Current and Long-Term Debt, net (1) Stockholders’ Equity Total Debt/Capitalization Total Liabilities and Equity Common Shares Outstanding 1) $32.4 $141.6 1.51x $123.2 $567.8 $355.1 $118.9 75.1% $567.8 26.7 $32.5 $162.9 1.37x $125.6 $603.2 $369.7 $121.3 75.4% $603.2 25.2 Current and long-term debt shown is net of the unamortized portion of the Original Issue Discount of $4.3 million and $4.7 million as of March 31, 2010 and December 31, 2009, respectively. Gross debt outstanding at March 31, 2010 and December 31, 2009 is $359.4 million and $374.4 million, respectively. 18
Slide 19: Estimated Synergies Network Consolidation Network Consolidation • Optimize combined SS7 design • Optimize combined SS7 design • Reduce interconnections to other networks • Reduce interconnections to other networks • Augment capacity where needed • Augment capacity where needed • 8XX database • 8XX database • LNP database • LNP database Major Areas of Synergy - Consolidate platforms Database Consolidation Database Consolidation • CNAM database -- Replace external provider • CNAM database Replace external provider Operational Efficiencies Operational Efficiencies • Optimize vendor spend • Optimize vendor spend • Evaluate processes • Evaluate processes FY 2009 FY 2009 $1 mm pretax $1 mm pretax $0.03 P/S $0.03 P/S FY 2010 FY 2010 $5-$6 mm pretax $5-$6 mm pretax $0.15-$0.18 P/S $0.15-$0.18 P/S FY 2011 FY 2011 $2-$3 mm pretax $2-$3 mm pretax $0.06-$0.09 P/S $0.06-$0.09 P/S Full Run Rate to be Achieved by Q4 2010 Full Run Rate to be Achieved by Q4 2010 19 Total Total Estimated Estimated Run-Rate Run-Rate Synergies of Synergies of $0.24-$0.30 $0.24-$0.30 Per Share Per Share 19
Slide 20: 2010 Outlook 2010 Total Revenue Adjusted Earnings(1)(2)(3) Adjusted EPS – Diluted (1)(2)(3) Diluted Shares Outstanding Total Revenue Adjusted Earnings(1)(3) Adjusted EPS – Diluted (1)(3) Diluted Shares Outstanding $545 - $561 $75 - $80 $2.80 - $2.96 26.9 Q2:10 $131 - $135 $16.6 - $17.9 $0.62 - $0.67 26.9 2009 $475 $57.1 $2.21 25.9 Q2:09 $122 $14.4 $0.56 25.5 % Chg 15% - 18% 32% - 39% 27% - 34% 4% % Chg 7% - 11% 15% - 24% 11% - 20% 5% 1) 2) 3) Non-GAAP measure. Please see first quarter 2010 press release for reconciliation to comparable GAAP measures. Excluded from expenses in 2010 and 2009 is a $0.5 million, or $0.02 per share, and a $1.7 million pre-tax charge, or $0.06 per share, related to severance, respectively. Excluded from expenses in 2009 is a $1.6 million pre-tax charge, or $0.05 per share, for CSG acquisition costs expensed in accordance with the provisions of FASB ASC 805, Business Combinations 20
Slide 21: Reconciliation of Non-GAAP Information TNS, Inc. Reconciliation of Non-GAAP Information (In thousands, except share and per share amounts) (Unaudited) Three Months Ended March 31, 2009 March 31, 2010 EBITDA before stock compensation expense: Income from operations(GAAP) Add back the following items: Depreciation and amortization of property and equipment Amortization of intangible assets Stock compensation expense EBITDA before stock compensation Expense (1) Adjusted Earnings: Income before income taxes and equity in net loss of unconsolidated affiliates (GAAP) Add back the following items: Equity in net loss of unconsolidated affiliates Amortization of intangible assets Other debt related costs Stock compensation expense Adjusted earnings before income taxes Income tax provision at 20% Adjusted earnings (2) Weighted average common shares - diluted Adjusted earnings per common share - diluted(2) $ $ 7,778 10,252 11,329 2,215 $ 2,874 5,834 5,605 2,004 $ 31,574 $ 16,317 $ 4,575 (65) 11,329 653 2,215 18,707 (3,741) 14,966 $ $ 1,493 (30) 5,605 106 2,004 9,178 (1,836) 7,342 26,717,477 $ 0.56 $ 25,199,287 0.29 FOOTNOTES: (1) Excluding the $0.5 million in pre-tax severance charges, EBITDA before stock compensation expense for the first quarter 2010 was $32.0 million. (2) Excluding the $0.5 million in severance charges, adjusted earnings for the first quarter 2010 were $15.3 million, or $0.57 per share. 21
Slide 22: Questions and Answers