Arbinet Announces Third Quarter 2006 Financial Results

NEW BRUNSWICK, N.J., Nov. 9 /PRNewswire-FirstCall/ -- Arbinet-thexchange, Inc. today reported financial results for the third quarter ended September 30, 2006.

Third quarter 2006 fee revenues were $11.8 million, an increase of 3% compared to $11.5 million in the second quarter 2006. A total of 3.03 billion minutes were bought and sold on Arbinet's exchange in the third quarter 2006, up from 2.99 billion in the second quarter 2006. Arbinet completed 369.8 million calls during the third quarter 2006, compared to 359.7 million for the comparable period of 2005 and 333.5 million in the second quarter 2006.

Third quarter 2006 net income was $0.7 million or $0.03 per diluted share, compared to a net loss of ($0.6) million or ($0.02) per diluted share in the second quarter 2006. The third quarter results reflect approximately $0.5 million of expenses related to the Company's previously announced review concerning the misinterpretation of stock option expiration terms. Second quarter results included approximately $1.3 million of expenses related to Arbinet's proxy contest in connection with its 2006 Annual Meeting of stockholders. Arbinet had a balance of cash and cash equivalents, including marketable securities, of $ 61.5 million as of September 30, 2006.

Curt Hockemeier, President and Chief Executive Officer of Arbinet, commented, "We are encouraged by our recent progress as the initiatives introduced during the quarter begin to gain traction. The introduction of our associate membership program drove member growth from 446 to 522 members, representing a 17% increase during the period. Management believes that Arbinet is one of the most interconnected companies in the world and, we expect continued member growth to increase liquidity in thexchange, which is vital for the growth of the core business. As evidence of this, Arbinet recently completed 5.4 million calls in a single day, a new record for Arbinet."

"We have also made significant progress in our PeeringSolutions(SM) service, introduced in May. To date, the service has been adopted by 32 service providers with more than 71 million active telephone numbers. These Members are now able to directly receive calls from Arbinet that are specifically intended for their end-users, resulting in higher quality for our buyers and higher margins for the service providers. Additionally, response to our new product launches in August -- PrivateExchange(SM) and AssuredAxcess(SM) -- has been positive and a driver of new member growth and increased liquidity in the exchange."

On October 2, 2006, Arbinet announced that it had identified errors related to certain stock option agreements arising out of a misinterpretation of the expiration terms of those agreements. Specifically, certain stock option agreements that had a five-year term were treated as having a nine-year term. The Company has concluded that the Company's consolidated financial statements for the years ended December 31, 2004 and 2005, and the quarterly periods ended June 30, 2004, September 30, 2004, March 31, 2005 and June 30, 2005, should be restated to adjust previously recognized amounts of non-cash stock based compensation. The Company filed an amended Form 10-K for the year ended December 31, 2005 reflecting the necessary adjustments for 2004 and 2005 with the Securities and Exchange Commission earlier today.

For a more detailed description of these financial results, please see the Company's Form 10-Q on file at http://investor.arbinet.com/ .

About Arbinet

Arbinet solutions simplify the exchange of digital communications in a converging world. These include exchanges, a transaction management platform and managed services, which streamline performance and improve profitability for Members.

Arbinet's 700+ voice and data Members, including the world's 10 largest international carriers, use Arbinet's Internet based electronic platforms to buy, sell, deliver and settle transactions valued at about $500 million in 2005. These Members include fixed, mobile and VoIP carriers, ISPs and content providers from more than 60 countries who exchange voice, data, content and value added services.

Forward-Looking Statements

This press release contains forward-looking statements, including but not limited to statements about the Company's strategic and business plans. Various important risks and uncertainties may cause the Company's actual results to differ materially from the results indicated by these forward-looking statements, including, without limitation: the effects and outcomes of the Company's exploration of strategic alternatives; whether any of the strategic alternatives will result in enhanced shareholder value; members (in particular, significant trading members) not trading on our exchange or utilizing our new and additional services (including data on thexchange, DirectAxcess(SM), PrivateExchange(SM), AssuredAxcess(SM), and PeeringSolutions(SM)); continued volatility in the volume and mix of trading activity (including the average call duration and the mix of geographic markets traded); our uncertain and long member enrollment cycle; the failure to manage our credit risk; failure to manage our growth; pricing pressure; investment in our management team and investments in our personnel; system failures, human error and security breaches which could cause the Company to lose members and expose it to liability; and the Company's ability to obtain and enforce patent protection for our methods and technologies. For a further list and description of the risks and uncertainties the Company faces, please refer to the Company's Amendment No. 1 to its Annual Report on Form 10-K/A and other filings, which have been filed with the Securities and Exchange Commission. The Company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise and such statements are current only as of the date they are made.

Contacts: Jack Wynne David Pasquale or Denise Roche Arbinet The Ruth Group 1.732.509.9230 1.646.536.7006 / [e-mail] / [e-mail] - THEXCHANGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended September 30, September 30, 2005 2006 2005 2006 (As Restated) Trading revenues $122,059,465 $126,044,325 $367,366,759 $359,452,591 Fee revenues 12,881,803 11,797,308 36,832,639 34,983,307 Total revenues 134,941,268 137,841,633 404,199,398 394,435,898 Cost of trading revenues 121,902,926 126,110,336 366,864,766 359,453,735 13,038,342 11,731,297 37,334,632 34,982,163 Costs and expenses: Operations and development 3,409,036 3,772,061 10,974,046 11,589,730 Sales and marketing 1,807,522 2,107,233 5,552,915 5,850,204 General and administrative 3,248,990 4,292,644 9,384,751 13,476,845 Depreciation and amortization 2,070,086 1,640,118 6,936,377 5,158,355 Reimbursement for /gain from litigation settlements - - (1,450,000) (93,000) Total costs and expenses 10,535,634 11,812,056 31,398,089 35,982,134 Income (loss) from operations 2,502,708 (80,759) 5,936,543 (999,971) Interest income (expense), net 401,984 812,649 836,403 2,190,987 Other income (expense), net (216,789) 143,506 (1,033,353) 207,103 Income before income taxes 2,687,903 875,396 5,739,593 1,398,119 Provision for income taxes 319,861 216,900 811,161 215,018 Income from continuing operations 2,368,042 658,496 4,928,432 1,183,101 Income from discontinued operations, net of income tax of $4,477 - - - 121,388 Net income $2,368,042 $ 658,496 $4,928,432 $1,304,489 Basic earnings per share: Continuing operations $0.10 $0.03 $0.20 $0.05 Discontinued operations $ - $ - $ - $ - Net income $0.10 $0.03 $0.20 $0.05 Diluted earnings per share: Continuing operations $0.09 $0.03 $0.19 $0.05 Discontinued operations $ - $ - $ - $ - Net income $0.09 $0.03 $0.19 $0.05 Weighted average number of common shares Basic 24,677,289 25,314,733 24,546,009 25,159,233 Diluted 25,391,693 25,335,329 25,663,944 25,631,613 ARBINET - THEXCHANGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of As of December 31, September 30, 2005 2006 Assets (As Restated) Current Assets: Cash and cash equivalents $40,364,777 $30,871,227 Marketable securities 23,230,913 30,581,955 Trade accounts receivable, net 24,831,554 25,488,202 Other current assets 1,461,118 2,839,009 Total current assets 89,888,362 89,780,393 Property and equipment, net 21,775,895 22,639,766 Other long-term assets 8,015,078 7,965,428 Total Assets $119,679,335 $120,385,587 Liabilities & Stockholders' Equity Current Liabilities: Short-term debt obligations $914,778 $321,931 Accounts payable 13,785,594 12,816,502 Deferred revenue 3,967,970 3,068,505 Accrued expenses and other current liabilities 11,160,418 12,559,930 Total current liabilities 29,828,760 28,766,868 Other long-term liabilities 4,080,489 3,407,256 Total Liabilities 33,909,249 32,174,124 Stockholders' Equity 85,770,086 88,211,463 Total Liabilities & Stockholders' Equity $119,679,335 $120,385,587 ARBINET - THEXCHANGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2005 2006 (As Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $4,928,432 $1,304,489 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,936,377 5,158,355 Amortization of deferred compensation 218,556 - Stock-based compensation expense 1,076,883 901,668 Gain on discontinued operations - (121,388) Foreign currency exchange (gain) loss 331,737 (778,152) Changes in operating assets and liabilities: Trade accounts receivable, net 3,898,528 (784,391) Other assets 1,097,612 (947,169) Accounts payable (2,805,347) (989,369) Deferred revenue, accrued expenses and other current liabilities (769,880) 312,465 Other long-term liabilities (756,462) (442,803) Net cash provided by operating activities 14,156,436 3,613,705 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of certain intangible assets of Summit (1,100,000) - Purchases of property and equipment (5,187,846) (5,411,463) Purchases of marketable securities (44,072,000) (43,051,215) Proceeds from sales and maturities of marketable securities 23,323,000 35,734,000 Net cash used in investing activities (27,036,846) (12,728,678) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of indebtedness, net (569,205) (610,074) Issuance of common stock, net of costs 176,109 131,423 Purchase of treasury shares - (238,610) Net payments on obligations under capital leases (1,781,619) (87,337) Net cash used in financing activities (2,174,715) (804,598) Effect of foreign exchange rate changes on cash (725,676) 426,021 Net decrease in cash and cash equivalents (15,780,801) (9,493,550) Cash and cash equivalents, beginning of period 53,532,660 40,364,777 Cash and cash equivalents, end of period $37,751,859 $ 30,871,227