TALK AMERICA HOLDINGS INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

(Mark One)

[X]

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

For the quarterly period ended March 31, 2005

[ ]

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 000 - 26728

Talk America Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State of incorporation)

23-2827736

(I.R.S. Employer Identification No.)

12020 Sunrise Valley Drive, Suite 250, Reston, Virginia

(Address of principal executive offices)

20191

(Zip Code)

(703) 391-7500

(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 is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes X No____

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

27,234,811 shares of Common Stock, par value of $0.01 per share, were issued and outstanding as of May 4, 2005.

TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES

Index

	Page

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Consolidated Statements of Operations - Three Months Ended March 31, 2005 and 2004 (unaudited)	3

Consolidated Balance Sheets - March 31, 2005 and December 31, 2004 (unaudited)	4

Consolidated Statements of Cash Flows - Three Months Ended March 31, 2005 and 2004 (unaudited)	5

Consolidated Statements of Stockholders’ Equity - Three Months Ended March 31,2005 (unaudited)	6

Notes to Consolidated Financial Statements (unaudited)	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 4. Controls and Procedures	21

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K	23

(a) Exhibits

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share data)

(Unaudited)

	Three Months Ended March 31,
		2005			2004

Revenue	$	119,835		$	109,619

Costs and expenses:
Network and line costs (excluding depreciation and amortization shown below)		60,996			52,512
General and administrative expenses		18,120			16,870
Provision for doubtful accounts		5,588			3,421
Sales and marketing expenses		10,268			17,284
Depreciation and amortization		9,501			5,131
Total costs and expenses		104,473			95,218

Operating income		15,362			14,401
Other income (expense):
Interest income		308			101
Interest expense		(25	)		(817	)
Other expense, net		(20	)		--
Income before provision for income taxes		15,625			13,685
Provision for income taxes		6,155			5,397

Net income	$	9,470		$	8,288

Income per share - Basic:
Net income per share	$	0.35		$	0.31

Weighted average common shares outstanding		27,086			26,674

Income per share - Diluted:
Net income per share	$	0.34		$	0.29

Weighted average common and common equivalent shares outstanding		27,813			28,130

See accompanying notes to consolidated financial statements.

TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data)

(Unaudited)

	March 31, 2005			December 31, 2004

Assets
Current assets:
Cash and cash equivalents	$	57,183		$	47,492
Accounts receivable, trade (net of allowance for uncollectible accounts of $16,840 and $17,508 at March 31, 2005 and December 31, 2004, respectively)		43,083			48,873
Deferred income taxes		27,782			34,815
Prepaid expenses and other current assets		6,236			6,888
Total current assets		134,284			138,068

Property and equipment, net		69,877			65,823
Goodwill		13,013			13,013
Intangible assets, net		1,266			1,966
Deferred income taxes		12,896			14,291
Capitalized software and other assets		8,873			8,567
	$	240,209		$	241,728

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	43,693		$	43,439
Sales, use and excise taxes		9,588			11,179
Deferred revenue Legal settlements		14,272			15,321
Current portion of long-term debt and capitalized lease obligations		2,541			2,529
Accrued compensation		1,843			6,690
Other current liabilities		5,575			5,426
Total current liabilities		77,512			84,584

Long-term debt and capitalized lease obligations		1,076			1,717

Deferred income taxes		9,963			13,906

Commitments and contingencies

Stockholders' equity:
Preferred stock - $.01 par value, 5,000,000 shares authorized; no shares outstanding		--			--
Common stock - $.01 par value, 100,000,000 shares authorized; 27,212,160 and 27,037,096 shares issued and outstanding at March 31, 2005 and December 31, 2005, respectively		285			284
Additional paid-in capital		357,075			356,409
Accumulated deficit		(200,702	)		(210,172	)
Treasury stock - at cost, 1,315,789 shares at March 31, 2005 and December 31, 2004		(5,000	)		(5,000	)
Total stockholders' equity		151,658			141,521
	$	240,209		$	241,728

See accompanying notes to consolidated financial statements.

TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)