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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                   to


Commission File Number: 001-32033

TNS, INC.(Exact name of registrant as specified in its charter)

DELAWARE(State or jurisdiction of
incorporation or organization)

36-4430020(I.R.S. Employer
Identification Number)


11480 Commerce Park Drive, Suite 600
Reston, VA 20191(Address of principal executive offices)

(703) 453-8300(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 requirement for the past
90 days. Yes ý    No o

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 o    No o

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 definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a
smaller reporting company)

Smaller reporting company o


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

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

Shares Outstanding as of October 1, 201026,210,297 Shares of Common Stock, $0.001 par value



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TNS, INC.        INDEX



PagePart I: FINANCIAL INFORMATIONItem 1.

Condensed Consolidated Financial Statements (Unaudited)

3Condensed Consolidated Balance Sheets as of December 31, 2009 and September 30, 2010

3Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2010

4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2010

5Notes to Condensed Consolidated Financial Statements

6Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

24Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37Item 4.

Controls and Procedures

38Part II: OTHER INFORMATIONItem 1.

Legal Proceedings

39Item 1A.

Risk Factors

39Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39Item 3.

Default Upon Senior Securities

39Item 4.

Removed and Reserved

39Item 5.

Other Information

39Item 6.

Exhibits

39


2

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Table of Contents

PART IFINANCIAL INFORMATION



Item 1.    Condensed Consolidated Financial Statements



TNS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share and per share data)

December 31,
2009

September 30,
2010(UNAUDITED)ASSETSCurrent assets:Cash and cash equivalents

$
32,480

$
40,471Accounts receivable, net of allowance for doubtful accounts of $6,013 and $3,995 respectively


97,840


98,569Prepaid expenses


8,207


9,600Deferred tax assets


7,355


7,350Other receivables


12,180


Other current assets


4,872


7,153Total current assets


162,934


163,143Property and equipment, net


125,596


128,056Identifiable intangible assets, net


268,925


240,623Goodwill


14,844


15,019Deferred tax assets, net


24,720


28,719Other assets


4,427


4,421Total assets

$
601,446

$
579,981LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable, accrued expenses and other current liabilities

$
88,009

$
75,153Deferred revenue


13,970


13,801Current portion of long-term debt, net of discount


15,119


13,236Total current liabilities


117,098


102,190Long-term debt, net of current portion and discount


354,594


327,367Deferred tax liabilities


3,416


3,332Other liabilities


4,998


11,859Total liabilities


480,106


444,748Stockholders' equity:Common stock, $0.001 par value; 130,000,000 shares authorized; 25,957,444 shares issued and 25,795,767 shares outstanding and 26,310,890 shares issued and
26,210,297 shares outstanding, respectively


26


26Treasury stock, 161,677 shares and 100,593 shares, respectively


(2,439
)

(2,298
)Additional paid-in capital


168,780


172,102Accumulated deficit


(42,859
)

(31,236
)Accumulated other comprehensive loss


(2,168
)

(3,361
)Total stockholders' equity


121,340


135,233Total liabilities and stockholders' equity

$
601,446

$
579,981


See
accompanying notes to condensed consolidated financial statements (unaudited).

3

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TNS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(dollars in thousands, except share and per share data)

Three months ended
September 30,

Nine months ended
September 30,2009

2010

2009

2010Revenues

$
140,105

$
131,246

$
337,322

$
392,020Operating expenses:Cost of network services, exclusive of the items shown separately below


64,940


65,700


160,044


195,031Engineering and development


10,379


9,266


25,855


27,819Selling, general, and administrative


30,942


22,851


74,309


72,395Depreciation and amortization of property and equipment


9,013


11,467


22,841


35,258Amortization of intangible assets


9,102


8,547


22,859


28,429Total operating expenses


124,376


117,831


305,908


358,932Income from operations


15,729


13,415


31,414


33,088Interest expense


(11,952
)

(5,748
)

(24,821
)

(17,694
)Interest income


90


88


329


295Other income (expense), net


493


(2,633
)

41


3,071Income before income tax benefit and equity in net loss of unconsolidated affiliate


4,360


5,122


6,963


18,760Income tax provision


(1,129
)

(877
)

(3,250
)

(6,848
)Equity in net loss of unconsolidated affiliate


(27
)

(224
)

(80
)

(289
)Net income

$
3,204

$
4,021

$
3,633

$
11,623Basic net income per common share

$
0.13

$
0.15

$
0.14

$
0.45Diluted net income per common share

$
0.12

$
0.15

$
0.14

$
0.43Basic weighted average common shares outstanding


25,481,084


26,189,608


25,279,307


26,083,076Diluted weighted average common shares outstanding


26,149,432


26,714,235


25,624,200


26,772,268


See
accompanying notes to condensed consolidated financial statements (unaudited).

4

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TNS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(dollars in thousands)

Nine months ended
September 30,2009

2010Cash flows from operating activities:Net income

$
3,633

$
11,623Adjustments to reconcile net income to net cash provided by operating activities:Non-cash items:Depreciation and amortization of property and equipment


22,841


35,258Amortization of intangibles


22,859


28,429Loss on disposal of property and equipment


15


160Deferred income tax provision (benefit)


2,888


(4,021
)Amortization of deferred financing costs


7,716


1,472Equity in net loss of unconsolidated affiliate


80


289Stock compensation expense


7,516


4,987Changes in operating assets and liabilities:Accounts receivable, net


11,403


(1,845
)Other current assets


(8,714
)

8,490Other noncurrent assets


(835
)

(867
)Accounts payable and accrued expenses


8,316


(11,824
)Deferred revenue


(3,637
)

(435
)Other noncurrent liabilities


183


6,861Net cash provided by operating activities:


74,264


78,577Cash flows from investing activities:Purchases of property and equipment


(23,804
)

(36,814
)Business combinations, net of cash acquired


(230,002
)

(544
)Net cash used in investing activities:


(253,806
)

(37,358
)Cash flows from financing activities:Proceeds from issuance of long-term debt, net of financing costs


201,612


Repayments of long-term debt


(40,000
)

(30,000
)Proceeds from stock option exercises, inclusive of tax benefit


7,401


1,908Payment of long-term debt financing costs


(175
)

Purchase of treasury stock


(1,458
)

(3,432
)Net cash provided by (used in) financing activities:


167,380


(31,524
)Effect of exchange rates on cash and cash equivalents


1,985


(1,704
)Net (decrease) increase in cash and cash equivalents


(10,177
)

7,991Cash and cash equivalents, beginning of period


38,851


32,480Cash and cash equivalents, end of period

$
28,674

$
40,471Supplemental disclosures of cash flow information:Cash paid for interest

$
8,613

$
15,442Cash paid for income taxes

$
1,826

$
4,024


See
accompanying notes to condensed consolidated financial statements (unaudited).

5

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Description of Business and Basis of Presentation

Transaction Network Services (TNS or the Company) is one of the leading global providers of data communications and interoperability solutions. TNS's global secure network and innovative
value added services enable transactions and the exchange of information to many of the world's leading retailers, banks, payment processors, financial institutions and telecommunication firms.

Founded
in 1990 in the United States, TNS has grown steadily and now provides services to customers in over 40 countries across the Americas, Europe and the Asia Pacific region, with our
reach extending to many more. TNS has designed and implemented a global data network that supports a variety of widely accepted communication protocols and is designed to be scalable and accessible by
multiple methods.

TNS
reports its results by revenue generated in three industry verticals.

Payments

TNS' Payments division delivers a broad portfolio of secure and resilient transaction delivery services as well as innovative value
added solutions to many of the world's top banks, retailers, Independent Sales Organizations (ISOs), transaction processors and ATM deployers. TNS' Payment Card Industry Data Security Standard (PCI
DSS) certified global backbone network and range of payment gateways securely deliver billions of card present and card not present transactions each year from the
Point-of-Sale (POS) to their destination. Protocol/message conversion, ATM and POS processing, payment encryption and file settlement form part of the comprehensive payment
solutions that TNS provides around the world.

Telecommunication Services

TNS' telecommunication services division provides innovative communications infrastructure services to fixed, mobile, broadband and
VoIP operators around the world. TNS collaborates with customers, sharing expertise, resources and infrastructure to leverage rapidly evolving technologies. TNS's suite of services includes reliable
SS7 networks (the largest independent provider in North America), intelligent database and registry services, identity and verification services and hosted roaming and clearing solutions that simplify
the Company's customers' operations, expand their reach and provide a foundation that helps them facilitate their profitability.

Financial Services

As one of the industry's leading electronic connectivity solutions, TNS' Secure Trading Extranet brings together an extensive global
financial community of interest and delivers mission-critical low latency connectivity solutions to some of the largest and most prominent financial organizations in the world. The private TNS Secure
Trading Extranet ensures the lowest latencies to support Direct Market Access, algorithmic trading and market data distribution. Organizations utilizing the TNS network can benefit from a range of
value added services, including co-location and hosting services, interoffice WAN solutions and connectivity to the Company's large community of interest.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally
accepted accounting principles (GAAP) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange

6

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. Description of Business and Basis of Presentation (Continued)

Commission
(SEC). Certain information and note disclosures normally included in the annual financial statements, required by GAAP, have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading.

In
the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect adjustments (all of which are of a normal and recurring nature) that are
necessary for the fair presentation of the periods presented. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results to
be expected for any subsequent interim period or for the fiscal year. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the Company's annual
report on Form 10-K filed with the SEC on March 16, 2010, which includes audited consolidated financial statements and the notes thereto for the year ended
December 31, 2009.

Capital Structure

During the nine months ended September 30, 2010, the Company issued 129,421 shares of common stock following the exercise of
stock options and 429,522 shares of common stock following the vesting of restricted stock units, of which 144,413 shares were surrendered by employees to satisfy payroll tax withholding obligations
and held by the Company as treasury shares. The Company retired 205,497 treasury shares during the nine months ended September 30, 2010. During the nine months ended September 30, 2009,
the Company issued 424,588 shares of common stock following the exercise of stock options and 352,900 shares of common stock following the vesting of restricted stock units, of which 118,127 shares
were surrendered by employees to satisfy payroll tax withholding obligations and held by the Company as treasury shares.

On
September 1, 2010, the Company's Board of Directors authorized a share repurchase program of up to $50 million of the Company's common stock over the period ended
March 31, 2012, subject to extension. The Company commenced repurchasing shares on October 1, 2010 and as of November 9,
2010, has repurchased 947,674 shares for a total cost of $17.2 million. The Company's November 2009 Credit Facility has been amended to authorize such repurchases (see Note 2 and
Note 7).

Acquisitions

On March 2, 2009, the Company entered into an Asset Purchase Agreement (the Purchase Agreement), by and between the Company and
VeriSign, Inc. (the Seller) pursuant to which the Company agreed to purchase certain assets and assume certain liabilities of the Seller's Communications Services Group (CSG). On May 1,
2009, the Company completed the acquisition in accordance with the terms and conditions of the Purchase Agreement. The initial purchase price was approximately $226.2 million in cash and
subject to a post-closing working capital adjustment. During the third quarter of 2009 and fourth quarter of 2009, working capital and other adjustments were made resulting in a
$4.5 million increase in the purchase price to $230.7 million. The purchase price was finalized in May 2010 resulting in an additional $0.5 million increase in the purchase price
to $231.2 million. The Company funded the transaction through a new $230 million term loan facility as part of its May 2009 Credit Facility (see Note 2). CSG provides call
signaling services and intelligent database services such as caller ID, toll-free call routing and local number portability to the U.S. telecommunications industry. In addition, CSG
provides wireless roaming and clearing services to

7

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. Description of Business and Basis of Presentation (Continued)

mobile
phone operators. The Company is integrating CSG into its telecommunication services division. In conjunction with the CSG acquisition, the Company incurred total acquisition related costs of
$2.5 million. During the nine months ended September 30, 2009, acquisition related costs of $2.2 million were included in selling, general and administrative expenses in the
accompanying consolidated statement of operations.

The
acquisition of CSG has been accounted for as a business combination under FASB ASC 805, Business Combinations. During the second quarter of 2010, the Company completed the appraisals
necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed and the amount of goodwill to be recognized as of the acquisition date. As a result of the
purchase price finalization, $1.7 million was adjusted retrospectively to certain working capital amounts on the December 31, 2009 balance sheet with a corresponding decrease in
goodwill. Such adjustment had no impact in our statement of operations.

The
fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches. The fair value measurements were primarily based on
significant inputs that are not observable in the market and therefore represent a Level 3 measurement as defined in FASB ASC 820, Fair Value Measurements and Disclosures. Developed technology,
research and development and customer relationships were valued using the excess earnings method, a variation on the income method. The excess earnings method considers the use of other assets in the
generation of the
projected cash flows in order to determine the economic benefit generated by the subject intangible asset. Non competition agreements were valued using the income approach. The income approach
indicates value for a subject asset based on the present value of cash flows projected to be generated by the asset. Projected cash flow is discounted at a rate of return that reflects the relative
risk of achieving the cash flow and the time value of money. Fixed assets and real estate were valued using the market and cost approaches, as appropriate. The market approach indicates value for a
subject asset based on available market pricing for comparable assets. The cost approach indicates value by determining the current cost of replacing an asset with another of equivalent economic
utility. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.

8

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. Description of Business and Basis of Presentation (Continued)

The
purchase price for CSG was allocated as follows (in thousands):

Preliminary
allocation

Additional
consideration
paid

Measurement
period
adjustments

Final
allocationPurchase price allocation:Accounts receivable

$
33,852

$
914

$
6

$
34,772Prepaid expenses


2,963








2,963Property and Equipment


43,633


1,198





44,831Land and buildings


10,034








10,034Goodwill


3,984


649


(1,737
)

2,896Identifiable intangible assetsCustomer relationships


141,500








141,500Developed technology


4,800








4,800Non competition agreements


600








600Research and development


300








300Total assets


241,666


2,761


(1,731
)

242,696Accounts payable, accrued expenses and other current liabilities


(15,469
)

2,242


1,731


(11,496
)Total purchase price

$
226,197

$
5,003

$


$
231,200


The
amounts allocated to property and equipment are being depreciated on a straight line basis over their weighted average estimated useful lives of 4 years. The amount allocated
to buildings is being depreciated on a straight line basis over their estimated useful lives of 39 years. The customer relationships included in intangible assets are being amortized on a
straight line basis over 9 years and other intangible assets are being amortized on a straight line basis over 2 to 4 years. The goodwill of $2.9 million is expected to be
deductible for income tax purposes.

The
weighted average amortization period by each major class of assets and in total is as follows (in years):

Weighted average
amortization
periodCustomer relationships


9Developed technology


4Non competition agreements


2Research and development


4Total weighted average amortization period


8.8


Goodwill, intangible and other long-lived assets

The Company accounts for goodwill and intangible assets in accordance with FASB ASC 350, IntangiblesGoodwill and Other
(ASC 350). Under this standard, goodwill and intangible assets deemed to have indefinite lives are not amortized and are subject to annual impairment tests. The Company has elected to perform the
impairment test annually as of October 1 of each year. An interim

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. Description of Business and Basis of Presentation (Continued)

goodwill
impairment test is performed if an event occurs or circumstances change between annual tests that would more likely than not reduce the fair value of a reporting unit below its carrying
amount. If facts and circumstances indicate goodwill may be impaired, the Company performs a recoverability evaluation based upon a determination of fair value.

In
accordance with FASB ASC 360, Property, Plant and Equipment (ASC 360) and ASC 350, the Company reviews long-lived assets including property and equipment, capitalized
software development costs and definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.
To determine the recoverability of long-lived assets, the Company evaluates the probability that future estimated undiscounted net cash flows will be less than the carrying amount of
the assets. If the Company estimates that assets are impaired, the assets are written down to their fair value. For purposes of measuring and recognizing impairment of long-lived assets,
the Company will assess whether separate cash flows can be attributed to the individual asset. The Company groups long-lived assets where separately identifiable cash flows are available.
In the event that long-lived assets, including intangibles are abandoned or otherwise disposed of, the Company recognizes an impairment charge upon disposition. For the Company's customer
relationship intangible assets, the Company evaluates impairment upon the significant loss of revenue from a customer. The fair value measurement of a customer relationship intangible is primarily
based on an income approach using significant inputs that are not observable in the market, therefore representing a Level 3 measurement as defined in FASB ASC 820, Fair Value Measurements and
Disclosures. The income approach indicates value for a subject asset based on the present value of cash flows projected to be generated by the asset. Projected cash flow is discounted at a rate of
return that reflects the relative risk of achieving the cash flow and the time value of money. During the nine months ended September 30, 2009 and 2010, the Company accelerated amortization on
a portion of customer relationship intangible assets by $0.2 million and $1.9 million, respectively, due to the loss of certain customers or certain declines in expected revenues. As a
result, these customer relationship intangible assets held as of September 30, 2009 and 2010, with carrying amounts of $0.2 million and $2.8 million, respectively, were written
down to their fair values of $0.0 million and $0.9 million.

During
the three months ended June 30, 2010, the Company made a decision to phase out $6.2 million of network equipment and software and office equipment that would no
longer be utilized following the completion of the CSG integration. To date, the Company has recorded additional depreciation and amortization expense related to these assets of $1.1 million
during the three months ended September 30, 2010, and $4.3 million during the nine months ended September 30, 2010. The Company expects to record additional depreciation and
amortization of $1.1 million during the three months ended December 31, 2010 and $0.8 million during the three months ended March 31, 2011.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. Description of Business and Basis of Presentation (Continued)

The calculation of fair value in accordance with ASC 350 and 360 contains uncertainties due to judgment in estimates and assumptions, including projections of future income and cash
flows, the identification of appropriate market multiples and the choice of an appropriate discount rate. The Company's estimates of anticipated future income and cash flows used in determining fair
value contain uncertainties due to uncontrollable events that could positively or negatively impact the anticipated future economic and operating conditions. Therefore, those estimates could be
reduced significantly in the future due to changes in technologies, regulation, available financing, competition or other circumstances. As a result, the carrying amount of the Company's
long-lived assets could be reduced through impairment charges in the future. Additionally, changes in estimated future cash flows could result in a shortening of estimated useful lives for
long-lived assets including intangibles.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of certain assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Significant estimates affecting the consolidated
financial statements include management's judgments regarding the allowance for doubtful accounts, future cash flows from long-lived assets, accrued expenses for probable losses and
estimates of the fair value of assets and liabilities assumed in business acquisitions. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an agreement exists, the terms are fixed and determinable, services are
performed, and collection is probable. Cash received in advance of revenue recognition is recorded as deferred revenue.

Payments
revenue is derived primarily from per transaction fees paid by the Company's customers for the transmission of transaction data, through the Company's network, between payment
processors and Point of Sale (POS) or ATM terminals and monthly recurring fees for broadband and wireless offerings. TSD revenue is derived primarily from fixed monthly fees for call signaling
services and per message fees charged for database access, call validation and roaming and clearing services. FSD revenue is derived primarily from monthly recurring fees based on the number of
customer connections to and through the Company's network as well as dedicated bandwidth usage.

The
Company considers the criteria established primarily by FASB ASC 605-45, "Reporting Revenue Gross as a Principal versus Net as an Agent," in determining whether revenue
should be recognized on a gross versus a net basis. Factors considered in determining if gross or net basis recognition is appropriate include whether the Company is primarily responsible to the
client for the services, has discretion on vendor selection, or bears credit risk. The revenues for which there are gross vs. net considerations include regulatory network charges levied on our
customers. Regulatory network charges include messaging signaling unit charges related to the Company's Signaling System No. 7 (SS7) network and Universal Service Fund charges applicable to interstate
telecommunications services approved or imposed by the Federal Communications Commission. The Company believes that the indicators under ASC 605-45 support gross revenue presentation since
the Company is the primary obligor in the arrangement and carries the underlying traffic over its data communications network and has sole discretion over whether to include such regulatory charges in
the amounts invoiced to customers. Included in revenue for the three months ended September 30, 2009 and 2010, are

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. Description of Business and Basis of Presentation (Continued)

$3.2 million
and $2.8 million, respectively, related to these pass-through charges and cost of network services. Included in revenue for the nine months ended
September 30, 2009 and 2010, are $7.6 million and $8.8 million, respectively, related to these pass-through charges.

In
certain of our international locations, the Company enters into revenue sharing arrangements with third parties related to data communications services it provides to the payment
processing industry. Certain of the Company's international payment processing customers elect to configure POS terminals with a caller-paid number. In this type of POS terminal
configuration, the customer is responsible for paying a regulated charge for each call to its underlying telecommunications carrier with which it contracts directly. The telecommunications carrier
collects the regulated charge from the customer and bears the credit risk in the transaction. The telecommunications carrier then remits the charge to the Company, withholding a fee for the use of its
network in delivering the call to the Company. The Company then will pass these charges through to the payment processor, withholding a portion of the amount as a fee. Based on the Company's
contractual arrangements with its payment processing customers, it has no obligation to remit cash until and unless the cash is remitted to the Company by the telecommunications carrier. The customer
looks to the telecommunications carrier for the provision of data communications access to the POS device and the payment processer for the processing of card-based payments. The Company
believes that the indicators under ASC 605-45 support net revenue presentation since the telecommunications provider and payment processor, not the Company, are the primary obligors in the
arrangement and the Company does not bear the credit risk. For the three months ended September 30, 2009 and 2010, revenue share was $9.8 million and $10.0 million, respectively.
For the nine months ended September 30, 2009 and 2010, revenue share was $26.8 million and $28.6 million, respectively.

Incentives
granted to new customers or upon contract renewals are deferred and recognized ratably as a reduction of revenue over the contract period to the extent that the incentives are
recoverable against the customer's minimum purchase commitments under the contract. In addition, the Company receives installation fees related to the configuration of the customers' systems. Revenue
from installation fees is deferred and recognized ratably over the customer's contractual service period, generally three years. The Company performs periodic evaluations of its customer base and
establishes allowances for estimated credit losses.

Cost of Network Services

Cost of network services is comprised primarily of telecommunications charges, which include data transmission and database access
charges, leased digital capacity charges, circuit installation charges, activation charges and compensation paid to the providers of calling name and line information database records. The cost of
data transmission is based on a contract or tariff rate per minute of usage in addition to a prescribed rate per transaction for certain vendors. The costs of database access, circuits, installation
and activation charges are based on fixed fee contracts with local exchange carriers and interexchange carriers. The compensation charges paid to the providers of calling name and line information
database records are based on a percentage of query revenue generated from the Company's customers accessing those records. The cost of network services also includes salaries, equipment maintenance
and other costs related to the ongoing operation of the Company's data networks. These costs are expensed by the Company as incurred. The Company recognizes a liability for telecommunications charges
based upon network services utilized at historical invoiced rates. Direct costs of installations are deferred and amortized over the customer's contracted service period, generally three years.

12

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Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. Description of Business and Basis of Presentation (Continued)

Fair Value of Financial Instruments

The fair value of the Company's long-term debt is based upon quoted market prices for the same and similar issues giving
consideration to quality, interest rates, maturity and other characteristics. As of September 30, 2010, the Company believes the carrying amount of its long-term debt approximates
its fair value since the variable interest rate of the debt approximates a market rate.

Stock-Based Compensation

The Company accounts for stock-based compensation under FASB ASC 718, Compensation-Stock Compensation. FASB ASC 718 requires all
stock-based compensation to
employees be measured at fair value and expensed over the requisite service period and also requires an estimate of forfeitures when calculating compensation expense.

Stock-based
compensation expense has been included in the following categories in the accompanying condensed consolidated financial statements of operations (in thousands):

Three months
ended
September 30,

Nine months
ended
September 30,2009

2010

2009

2010Cost of network services

$
229

$
135

$
710

$
474Engineering and development


318


235


1,013


752Selling, general and administrative


2,438


1,048


5,793


3,761$
2,985

$
1,418

$
7,516

$
4,987


As
of September 30, 2010, there was a total of $7.8 million of unrecognized compensation cost related to stock-based awards, which is expected to be recognized over a
weighted average period of approximately two years.

Time-Vested Awards

Time-vested awards are subject to a vesting period determined at the date of the grant, generally in equal installments
over three or four years. The Company uses the Black Scholes option pricing model to determine the grant date fair value of any time-vested stock options. The Company uses the market price
of the Company's stock on the date of grant to determine the fair value of any time-vested restricted stock units. The Company recognizes compensation cost on these time-vested
awards in equal installments over the vesting period.

During
the three months ended September 30, 2010 the Company granted 8,250 stock options and 39,250 restricted stock units at a weighted average estimated fair values of $9.08 and
$19.48, respectively. During the nine months ended September 30, 2010, the Company granted 8,919 stock options and 239,761 restricted stock units at weighted average estimated fair values of
$9.25 and $25.47, respectively. During the three months ended September 30, 2009, the Company granted 5,872 stock options and 38,700 restricted stock units at weighted average estimated fair
values of $10.54 and $21.90, respectively. During the nine months ended September 30, 2009 the Company granted 7,872 stock options and 43,750 restricted stock units at weighted average
estimated fair values of $6.94 and $14.45, respectively. As of September 30, 2010, there was a total of $6.3 million of unrecognized compensation

13

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Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. Description of Business and Basis of Presentation (Continued)

expense
related to these awards, which is included in the $7.8 million total unrecognized compensation cost mentioned above.

Performance-Based Awards

Performance-based awards are tied to the Company's annual performance against pre-established internal targets for revenues
and adjusted earnings per share, based upon the Company's actual performance over the performance period. The Company uses the Black Scholes option pricing model to determine the grant date fair value
of any performance-based stock options. The Company uses the market price of the Company's stock on the date of grant to determine the fair value of any performance-based restricted stock units.
Performance-based awards are also subject to vesting requirements, and generally vest in installments over three or four years. Compensation cost is based on the expected payout level that will be
achieved and is adjusted in subsequent periods as changes in the estimates occur until the performance criteria have been satisfied. The Company recognizes compensation cost on these performance based
awards using an accelerated attribution method.

In
April 2009, the Company made certain long-term performance-based stock compensation awards (the 2009 Equity Performance Awards). The 2009 Equity Performance Awards were
granted under the Company's 2004 Long Term Incentive Plan. Based upon the Company's performance in 2009, the results of which were approved by the Company's board of directors in February 2010, the
plan participants earned 100% of the potential payout under the Company's 2009 Equity Performance Awards. The total number of awards issued under the Company's 2009 Equity Performance Awards was
311,500 restricted stock units which represented 100% of an employee's target payout. The weighted average grant date fair value of restricted stock units granted was $16.85. As of
September 30, 2010, there was a total of $1.1 million of unrecognized compensation expense related to these performance based awards which is included in the $7.8 million total
unrecognized compensation cost mentioned above.

In
February 2010, the Company made certain long-term performance-based stock compensation awards (the 2010 Equity Performance Awards). The 2010 Equity Performance Awards were
granted under the Company's 2004 Long Term Incentive Plan. The total number of awards that would be issued under the Company's 2010 Equity Performance Awards, assuming that the target payout level was
achieved, would be 235,086 restricted stock units. Based on forecast achievement levels, the Company expects to award 19,648 restricted stock units. The potential payout under the 2010 Equity
Performance Awards will range from 0% to 150% of an employee's target payout. The weighted average grant date fair value of restricted stock units granted was $23.66. As of September 30, 2010,
there was a total of $0.4 million of unrecognized compensation expense related to these performance based awards which is included in the $7.8 million total unrecognized compensation
cost mentioned above.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes. Under FASB ASC 740, deferred tax assets or
liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. The Company provides a valuation
allowance on its net deferred tax assets when it is more likely than not that such assets will not be realized. Deferred income tax expense or benefits are based upon the changes in the underlying
asset or liability from period to period.

14

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Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. Description of Business and Basis of Presentation (Continued)

Effective
January 1, 2007, the Company adopted an amendment to FASB ASC 740, Income Taxes, which prescribes a method of recognition and measurement of a tax position taken, or
expected to be taken, in a tax return, and provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The adoption of the amendment did not result in a cumulative adjustment to the Company's accumulated deficit.

A
reconciliation of the beginning and ending balance for liabilities associated with unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands) as of
September 30, 2010, respectively.

Balance as of January 1, 2010

$
4,294Additions for tax positions related to the prior period


3,786Additions for tax positions related to the current period


503Balance as of September 30, 2010

$
8,583


The
entire balance of unrecognized tax benefits as of September 30, 2010 would impact the effective tax rate if recognized.

As
of September 30, 2010, the Company's accrual for potential interest and penalties associated with uncertain tax positions was $751,000. To the extent interest and penalties are
not assessed with respect to uncertain tax positions, amounts accrued will be reversed and reflected as a reduction of the overall income tax provision. The Company recognizes interest and penalties
related to uncertain tax positions in income tax expense.

It
is reasonably possible that the Company's liability for unrecognized tax benefits will decrease in the next 12 months by $0.8 million as a result of the expiration of
certain statutes of limitation.

The
Company's effective tax rate for the nine months ended September 30, 2009 and 2010 of 47.2% and 37.1%, respectively, differ from the U.S. Federal statutory rate primarily due
to stock-based compensation expense not deductible for income tax purposes, increases in FASB ASC 740 reserves
due to certain income tax exposures, and profits of our international subsidiaries being taxed at rates different than the U.S. Federal statutory rate.

With
few exceptions, the Company remains subject to examination by U.S. Federal, state, local and foreign tax authorities for tax years 2003 through 2009.

Reclassifications

Expenses of $1.3 million incurred in the three months ended March 31, 2010, which were included in selling, general and
administrative expenses in the statement of operations included within our Form 10-Q for that period, have been reclassified to cost of network services in the accompanying
statement of operations for the nine months ended September 30, 2010.

Recent Accounting Pronouncements

In February 2010, the Company adopted Accounting Standards Update No. 2010-09, which modifies "Statement of
Financial Accounting Standards No, 855Subsequent Events." (ASU 2010-09). ASU 2010-09 was issued on February 24, 2010 and removes the requirement for SEC
filers to disclose the date through which an entity has evaluated subsequent events, due to potential conflicts with

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Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

1. Description of Business and Basis of Presentation (Continued)

current
SEC guidance. ASU 2010-09 is effective upon issuance for interim and annual reporting periods. The adoption of this standard did not significantly impact our financial statements.

Effective
January 1, 2010, the Company adopted Accounting Standards Update No. 2010-06, which modifies "Statement of Financial Accounting Standards No,
820Fair Value Measurement and Disclosures." (ASU 2010-06). ASU 2010-06 requires new disclosures on the amount and reason for transfers in and out of Level 1
and 2 fair value measurements. ASU 2010-06 also requires disclosure of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements
and clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. ASU 2010-06 is effective for interim and annual reporting
periods beginning after December 15, 2009. The adoption of this standard on January 1, 2010 did not significantly impact our financial statements.

2. Long-term Debt

Debt consists of the following (in thousands):

December 31, 2009

September 30, 2010Revolving credit facility

$
49,371

$
34,370Term Loan


325,000


310,000Total credit facility outstanding


374,371


344,370Unamortized discount


(4,658
)

(3,767
)369,713


340,603Less: Current portion, net of discount


(15,119
)

(13,236
)Long-term portion

$
354,594

$
327,367


May 2009 Credit Facility

On May 1, 2009, the Company entered into a $423.5 million amended and restated senior secured credit facility (May 2009
Credit Facility) to finance the acquisition of the CSG assets from Verisign, Inc. and to refinance the 2007 Credit Facility. The May 2009 Credit Facility consisted of a fully funded term loan
facility with an outstanding principal amount equal to $178.5 million, a new fully funded term loan facility with an outstanding principal amount equal to $230.0 million and a senior
secured revolving credit facility in an aggregate principal amount of
$15.0 million. Interest on the May 2009 Credit Facility was payable, at the Company's option, at the Base Rate plus a margin of 5.0%, or at LIBOR plus a margin of 6.0%. In no event was the Base
Rate to be less than 4.5%, or the LIBOR Rate less than 3.5%.

November 2009 Credit Facility

On November 19, 2009 the Company entered into a new secured credit facility (the November 2009 Credit Facility) and refinanced
the May 2009 Credit Facility primarily to take advantage of a more favorable interest rate environment. The November 2009 Credit Facility consists of a senior secured term loan facility in an
aggregate principal amount of $325 million (the "Term Facility") and a senior secured revolving credit facility in an aggregate principal amount of $75 million (the "Revolving Facility")
of which $49.4 million was funded at closing and outstanding as of December 31, 2009 and $34.4 million was outstanding as of September 30, 2010.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2. Long-term Debt (Continued)

On
October 1, 2010 the Company entered into an amendment related to the November 2009 Credit Facility in connection with the closing of the acquisition of Cequint, Inc. (see
Note 7). The amendment provides for a new term loan in an aggregate principal amount of $50 million (the "Incremental Term Loan"), an increase to the existing Revolving Facility by an
aggregate principal amount of $25 million and amends certain debt covenants and restricted payments baskets including those related to share repurchases and acquisitions. The Incremental Term
Loan was incurred to finance the purchase price for the acquisition, to pay fees, costs and expenses relating to the acquisition and for working capital purposes.

Payments
on the Term Facility and Incremental Term Loan are due in quarterly installments over the term, with the remainder payable on November 18, 2015. Voluntary prepayments on
the Term Facility and Incremental Term Loan are applied as directed by the Company. In January 2010, the Company made a voluntary payment of $15 million on the Term Facility. In April and June
2010, the Company made voluntary payments of $9 million and $6 million, respectively, on the Revolving Facility. The outstanding balance on the Revolving Facility is due on
November 18, 2014. During the month of October 2010, the Company drew down an additional $15.0 million on the Revolving Facility.

The
total scheduled remaining payments on the November 2009 Credit Facility, which includes the Incremental Term Loan and additional amounts borrowed from the Revolving Facility to date
are as follows (in thousands):

2010

$
1,8752011


18,7502012


18,7502013


18,7502014


68,120Thereafter


283,125$
409,370


Interest
on the outstanding balances under the Revolving Facility is payable, at the Company's option, at a rate equal to the higher of the prime rate announced by SunTrust Bank, the
federal funds rate plus 50 basis points, or the one-month London Interbank Offered Rate ("LIBOR") rate plus 100 basis points (the "Base Rate"), in each case, plus a margin of 3.0% or at
LIBOR, plus a margin of 4.0%. Interest on the outstanding balances under the Term Facility and Incremental Term Loan is payable, at the Company's option, at the Base Rate plus a margin of 3.0%, or at
LIBOR plus a margin of 4.0%. Additionally, in no event will the LIBOR rate be less than 2.0%. The applicable margins on the Revolving Facility, Term Facility and Incremental Term Loan are subject to
step-downs based on the Company's leverage ratio. The Revolving Facility is subject to an annual commitment fee in an amount equal to between 0.375% and 0.50% (based on the Company's
leverage ratio) per annum multiplied by the amount of funds available for borrowing under the Revolving Facility. Interest payments on the November 2009 Credit Facility are due biweekly, monthly,
bimonthly or quarterly at the Company's option.

The
terms of the November 2009 Credit Facility require the Company to make an annual prepayment in an amount that may range from 0% to 50% of the Company's "excess cash flow" (as such
term is defined in the Credit Agreement) depending on the Company's Leverage Ratio for any fiscal year. Prepayments are also required to be made in other circumstances, including upon asset sales and
sale-leaseback transaction in excess of $2 million. The Company is permitted to repay
borrowings under the November 2009 Credit Facility at any time in whole or in part without premium or penalty.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2. Long-term Debt (Continued)

The obligations under the November 2009 Credit Facility are unconditionally and irrevocably guaranteed, subject to certain exceptions, by the Company and each existing and future direct
and indirect domestic subsidiary of the Company. In addition, the November 2009 Credit Facility is secured, subject to certain exceptions, by a first priority perfected security interest in
substantially all of the present and future property and assets (real and personal) of the Company and a pledge of 100% of the Company's capital stock of its respective domestic subsidiaries and 65%
of the Company's capital stock of its respective first-tier foreign subsidiaries.

The
terms of the November 2009 Credit Facility require the Company to comply with financial and nonfinancial covenants, including maintaining a maximum specified leverage ratio at the
end of each fiscal quarter and a minimum consolidated fixed charge coverage ratio and complying with specified annual limits on capital expenditures. As of September 30, 2010, the Company is
required to maintain a leverage ratio of less than 2.75 to 1.0. The Company's leverage ratio as of September 30, 2010 was 2.4 to 1.0. Effective October 1, 2010, under the amended
agreement, the Company is required to maintain a leverage ratio of less than 3.25 to 1.0. The maximum leverage ratio declines over the term of the
November 2009 Credit Facility. Also beginning December 31, 2009 and as of the end of each subsequent quarter for the twelve month period then ended, the Company is required to maintain a
consolidated fixed charge coverage ratio of not less than 1.2 to 1.0. The Company's consolidated fixed charge coverage ratio as of September 30, 2010 was 1.8 to 1.0. The November 2009 Credit
Facility also contains nonfinancial covenants that restrict some of the Company's corporate activities, including its ability to dispose of assets, incur additional debt, pay dividends, create liens,
make investments, make capital expenditures and engage in specified transactions with affiliates. Effective October 1, 2010, the restricted payments covenant was amended to permit stock
repurchases of up to $50 million until 18 months after this date, with such repurchases exempt from the minimum consolidated fixed charge coverage ratio covenant. Thereafter, stock
repurchases are subject to a minimum required availability of $40 million and if the Company has a pro forma maximum leverage ratio of greater than 2.50 to 1.00, the Company is permitted to
purchase shares at an amount equal to 50% of cumulative reported excess cash flow; if the Company has a pro forma maximum leverage ratio of 2.50 to 1.00 or greater but less than 3.00 to 1.00, the
Company is permitted to purchase shares at an amount equal to the lesser of $30 million and 50% of cumulative reported excess cash flow or if the Company has a pro forma maximum leverage ratio
of 3.00 to 1.00 or greater, the Company is permitted to purchase shares at an amount equal to the lesser of $20 million and 50% of cumulative reported excess cash flow. Non compliance with any
of the financial or nonfinancial covenants without cure or waiver would constitute an event of default under the November 2009 Credit Facility. An event of default resulting from a breach of a
financial or nonfinancial covenant may result, at the option of the lenders, in an acceleration of the principal and interest outstanding, and a termination of the Revolving Facility. The November
2009 Credit Facility also contains other customary events of default (subject to specified grace periods), including defaults based on events of bankruptcy and insolvency, nonpayment of principal,
interest or fees when due, breach of specified covenants, change in control and material inaccuracy of representations and warranties. The Company was in compliance with the financial and
non-financial covenants of the November 2009 Credit Facility as of September 30, 2010.

In
connection with the closing of the November 2009 Credit Facility, the Company incurred approximately $2.9 million in financing costs. In connection with the closing of the
amendment to the November 2009 Credit Facility in October 2010, the Company incurred approximately $1.9 million in

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2. Long-term Debt (Continued)

financing
costs. These financing costs were deferred and are being amortized using the effective interest method over the remaining life of the November 2009 Credit Facility.

3. Comprehensive Income

The components of comprehensive income, net of tax effect are as follows (in thousands):

Three months
ended
September 30,

Nine months
ended
September 30,2009

2010

2009

2010Net income

$
3,204

$
4,021

$
3,633

$
11,623Foreign currency translation adjustments


912


8,668


5,084


(1,193
)Total comprehensive income

$
4,116

$
12,689

$
8,717

$
10,430


4. Net Income Per Common Share

FASB ASC 260, Earnings Per Share, requires the presentation of basic and diluted earnings per share. Basic earnings per common share is computed by dividing income attributable to common
stockholders by the weighted average number of common shares outstanding for the period. The diluted earnings per common share data is computed using the weighted average number of common shares
outstanding plus the dilutive effect of common stock equivalents, unless the common stock equivalents are anti-dilutive.

The
treasury stock effect of options to purchase 603,971 shares of common stock that were outstanding as of September 30, 2010, and options to purchase 193,012 shares of common
stock that were outstanding as of September 30, 2009 were excluded from the computation of diluted net income per common share for the three months ended September 30, 2009 and 2010,
respectively, as their effect would have been anti-dilutive.

The
treasury stock effect of options to purchase 272,967 shares of common stock that were outstanding as of September 30, 2010, and options to purchase 833,068 shares of common
stock that were outstanding as of September 30, 2009 were excluded from the computation of diluted net income per common share for the nine months ended September 30, 2009 and 2010,
respectively, as their effect would have been anti-dilutive.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4. Net Income Per Common Share (Continued)

The
Company's basic and diluted earnings per share are presented below (amounts in thousands except number of shares and per share amounts).

Three months ended
September 30,

Nine months ended
September 30,2009

2010

2009

2010Net income

$
3,204

$
4,021

$
3,633

$
11,623Weighted average common share calculation:Basic weighted average common shares outstanding


25,481,084


26,189,608


25,279,307


26,083,076Treasury stock effect of outstanding options to purchase


379,165


135,137


174,916


263,700Treasury stock effect of unvested restricted stock units


289,183


389,490


169,977


425,492Diluted weighted average common shares outstanding


26,149,432


26,714,235


25,624,200


26,772,268Net income per common share:Basic net income per common share

$
0.13

$
0.15

$
0.14

$
0.45Diluted net income per common share

$
0.12

$
0.15

$
0.14

$
0.43


5. Segment Information

Prior to 2010, the Company evaluated revenue in four divisions. In connection with a reorganization of the Company's divisional management team structure in 2010, the Company no longer
reports or evaluates operating results for the international services division. The Company's management evaluates revenues for three business divisions: payments, telecommunication services and
financial services. Revenues from the former international services division are included in the payments and financial services division in accordance with the types of services the Company provides.
The Company operates as one reportable segment since the chief operating decision maker allocates resources based on the consolidated financial results.

Revenue
for the Company's three business divisions is presented below (in thousands):

Three months ended
September 30,

Nine months ended
September 30,2009

2010

2009

2010Revenues:Payments

$
51,282

$
50,049

$
144,408

$
148,033Telecommunication services


72,418


64,652


144,354


194,375Financial services


16,405


16,545


48,560


49,612Total revenues

$
140,105

$
131,246

$
337,322

$
392,020


Management
evaluates the Company's performance on EBITDA before stock compensation expense. The Company defines EBITDA before stock compensation expense as net income before
depreciation, amortization, stock compensation expense, interest expense, other income (expense),

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5. Segment Information (Continued)

equity
in net loss of unconsolidated affiliate and provision for income taxes. EBITDA before stock compensation expense is not a generally accepted accounting principle measure, but rather a measure
employed by management to view operating results. The Company believes that this measure, viewed in addition to and not in lieu of the Company's reported GAAP results, provides additional useful
information to the investors regarding the Company's performance and overall operating results exclusive of selected significant non-cash items. This metric is frequently requested by
investors and is also an integral part of the Company's internal reporting to measure the performance of senior management. The Company's definition of EBITDA before stock compensation expense may not
be comparable to similarly titled measures used by other entities.

EBITDA
before stock compensation expense was approximately $36.8 million and $34.8 million for the three months ended September 30, 2009 and 2010, respectively.
EBITDA before stock compensation expense was approximately $84.6 million and $101.8 million for the nine months ended September 30, 2009 and 2010, respectively. Management
evaluates performance before consideration of certain intercompany transactions. Accordingly, these transactions are not reflected in EBITDA. In addition, certain corporate expenses are reflected
consistent with information reviewed by our chief operating decision maker.

EBITDA
before stock compensation expense differs from net income reported in the condensed consolidated statements of operations as follows (in thousands):

Three months ended
September 30,

Nine months ended
September 30,2009

2010

2009

2010EBITDA before stock compensation expense

$
36,829

$
34,847

$
84,630

$
101,762Reconciling items:Depreciation and amortization of property and equipment


(9,013
)

(11,467
)

(22,841
)

(35,258
)Amortization of intangible assets


(9,102
)

(8,547
)

(22,859
)

(28,429
)Stock compensation expense


(2,985
)

(1,418
)

(7,516
)

(4,987
)Interest expense


(11,952
)

(5,748
)

(24,821
)

(17,694
)Interest income and other income (expense), net


583


(2,545
)

370


3,366Equity in net loss of unconsolidated affiliate


(27
)

(224
)

(80
)

(289
)Provision for income taxes


(1,129
)

(877
)

(3,250
)

(6,848
)Net income

$
3,204

$
4,021

$
3,633

$
11,623


Geographic Information

The Company sells its services through foreign subsidiaries in Australia, Austria, Bermuda, Canada, France, Germany, Hong Kong, India,
Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands, New Zealand, Poland, Romania, Singapore, South Korea, Spain, Sweden, Thailand, Turkey and the United Kingdom. Information regarding revenues
and long-lived tangible assets attributable to each geographic region is stated below.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5. Segment Information (Continued)

The
Company's revenues were generated in the following geographic regions (in thousands):

Three months ended
September 30,

Nine months ended
September 30,2009

2010

2009

2010Payments DivisionNorth America

$
19,792

$
17,147

$
57,368

$
54,152Europe


25,558


25,783


70,756


73,895Asia-Pacific


5,932


7,119


16,284


19,986$
51,282

$
50,049

$
144,408

$
148,033Financial Services DivisionNorth America

$
12,011

$
11,305

$
36,215

$
34,492Europe


3,240


3,093


8,644


9,238Asia-Pacific


1,154


2,147


3,701


5,882$
16,405

$
16,545

$
48,560

$
49,612Telecommunication Services DivisionNorth America

$
72,418

$
64,652

$
144,354

$
194,375TotalNorth America

$
104,221

$
93,104

$
237,937

$
283,019Europe


28,798


28,876


79,400


83,133Asia-Pacific


7,086


9,266


19,985


25,868$
140,105

$
131,246

$
337,322

$
392,020


The
Company's long-lived assets, including goodwill and intangible assets, were located as follows (in thousands):

December 31,
2009

September 30,
2010North America

$
368,168

$
343,777Europe


22,527


19,234Asia-Pacific


18,670


20,687Total long lived assets

$
409,365

$
383,698


6. Litigation and Claims

We are from time to time a party to legal proceedings, which arise in the normal course of business. We are not currently involved in any material legal proceedings or litigation, and
management is not aware of any legal proceedings or material litigation threatened against us that could have a material adverse effect on the financial condition or the future operating results of
the Company.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7. Subsequent Events

Acquisition of Cequint, Inc.

On October 1, 2010, the Company completed the acquisition of Cequint, Inc. in accordance with the terms and conditions of
the Agreement and Plan of Merger dated September 8, 2010. The purchase price, subject to working capital adjustments, included an initial payment of $49.3 million, consisting of
$46.5 million in cash and $2.8 million in Company common stock issued to certain Cequint executives, and may be adjusted in the future for a potential additional $62.5 million in
cash based upon the achievement of four specified profit milestones not to extend past May 31, 2014, for a potential total of $111.8 million. As part of the $49.3 million purchase
price, Cequint paid off approximately $6.8 million in debt and the Company assumed approximately $0.4 million in cash. The Company funded the transaction through a new $50 million
term loan facility using a portion of the accordion feature as part of its November 2009 Credit Facility (see Note 2). Cequint provides carriergrade caller ID products and enhanced
services to leading US-based mobile operators. The Company will integrate Cequint into its telecommunication services division.

This
acquisition will be accounted for as a business combination under FASB ASC 805, Business Combinations. While the Company has commenced the appraisals necessary to assess the fair
values of the tangible and intangible assets acquired, liabilities assumed and the contingent consideration, the initial purchase price allocation is not yet available. For the three and nine months
ended September 30,
2010, approximately $0.7 million of acquisition costs have been included in the Company's consolidated financial statements.

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

You should read the following discussion of the financial condition and results of operations of TNS, Inc. in conjunction with
the consolidated financial statements and the related notes included in our annual report on Form 10-K filed with the SEC on March 16, 2010 and available directly from the
SEC at www.sec.gov and the condensed consolidated financial statements and the related notes of TNS, Inc., included elsewhere in this quarterly report.

There
are statements made herein which may not address historical facts and, therefore, could be interpreted to be 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; our customer's ability to direct their data communications from the Company's networks to other networks; the Company's ability to grow its business domestically and
internationally by generating greater transaction volumes, longer than expected sales cycles, customer delays in migration, acquiring new customers or developing new service offerings; current
difficulties in the financial services sector may continue to have a negative impact on our future growth rates in our financial services division; fluctuations in the Company's quarterly results
because of the seasonal nature of the business; unfavorable fluctuations in foreign exchange rates; the continuing impact of the current economic conditions; the Company's substantial debt could
adversely affect its financial health because the Company may be unable to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate purposes, the
Company may not generate sufficient cash flow to repay the debt on a timely basis or to pre-pay the debt, and a significant portion of the Company's cash flow from operations will be
dedicated to the repayment or servicing of indebtedness, thereby reducing the amount of cash available for other purposes; the Company's ability to refinance its senior secured credit facility; the
Company's ability to identify, execute or effectively integrate acquisitions including the acquisitions of CSG and Cequint, Inc.; the Company's ability to realize additional overall cost savings from
the acquisition of CSG, including consolidating SS7 call signaling networks, eliminating duplicate intelligent database platforms and eliminating duplicate facilities; increases in the prices charged
by telecommunication providers for services used by the Company; uncertainties related to the updated international tax planning strategy implemented by the Company; the Company's ability to identify,
execute or effectively integrate future acquisitions; the Company's ability to adapt to changing technology; additional costs related to compliance with the SEC rule changes or other corporate
governance issues; and other risk factors described in the Company's annual report on Form 10-K filed with the SEC on March 16, 2010 and in the Company's quarterly reports on
Form 10-Q filed with the SEC on May 10, 2010 and August 9, 2010. In addition, the statements in this quarterly report are made as of the date of this filing. 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 the date of this filing. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A of the Securities Act and 21E of
the Exchange Act.

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Overview

We are an international data communications company which provides networking, data communications and value added services to many of
the world's leading retailers, banks, payment processors, financial institutions and telecommunication firms. Our data communication
services enable secure and reliable transmission of time-sensitive, transaction-related information critical to our customers' operations. Our customers outsource their data communications
requirements to us because of our substantial expertise, comprehensive customer support and cost-effective services. We provide services to customers in the United States and increasingly
to international customers in over 40 countries including Canada, Mexico and countries in Europe, Latin America and the Asia-Pacific region. We currently maintain operations and/or
employees in 28 countries.

We
provide services through our data network, which is designed specifically for transaction-oriented applications. Our network supports a variety of widely accepted communications
protocols and is designed to be scalable, interoperable and accessible by multiple methods, including dial-up, dedicated, wireless, broadband and Internet connections.

We
generate revenues through three business divisions:



Our
most significant expense is cost of network services, which is comprised primarily of telecommunications charges, including data transmission and database access, leased digital
capacity charges, circuit installation charges, activation charges, and compensation paid to providers of calling name and line information database records. The cost of data transmission is based on
a contract or tariff rate per minute of usage in addition to a prescribed rate per transaction for some vendors. The costs of database access, circuits, installation charges and activation charges are
based on fixed fee contracts with local exchange carriers and interexchange carriers. The compensation charges paid to providers of calling name and line information database records are based on a
percentage of query revenue generated from our customers accessing those records. The cost of network services also includes salaries, equipment maintenance and other costs related to the ongoing
operation of our data

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networks.
Depreciation expense on our network equipment and amortization of developed technology are excluded from our cost of network services and included in depreciation and amortization of
property and equipment and amortization of intangible assets in our consolidated statements of operations.

Our
engineering and development expenses include salaries and other costs related to product development, engineering, hardware maintenance and materials. The majority of these costs are
expensed as incurred, including costs related to the development of internal use software in the preliminary project, the post-implementation and operation stages. Development costs we
incur during the software application development stage are capitalized and amortized over the estimated useful life of the developed software.

Our
selling, general and administrative expenses include costs related to sales, marketing, administrative and management personnel, as well as external legal, accounting and consulting
services.

Acquisition of Cequint, Inc.

On October 1, 2010, we completed the acquisition of Cequint, Inc. in accordance with the terms and conditions of the Agreement
and Plan of Merger dated September 8, 2010. The purchase price, subject to working capital adjustments, included an initial payment of $49.3 million, consisting of $46.5 million
in cash and $2.8 million in TNS common stock issued to certain Cequint executives, and may be adjusted in the future for a potential additional $62.5 million in cash based upon the
achievement of four specified profit milestones not to extend past May 31, 2014, for a potential total purchase price of $111.8 million. As part of the $49.3 million purchase
price, Cequint paid off approximately $6.8 million in debt and we assumed approximately $0.4 million in cash. We funded the transaction through a new $50 million term loan
facility using a portion of the accordion feature as part of our November 2009 Credit Facility (see Note 2). Cequint provides carriergrade caller ID products and enhanced services
to top US-based mobile operators. We will integrate Cequint into our telecommunication services division.

This
acquisition will be accounted for as a business combination under FASB ASC 805, Business Combinations. While we have commenced the appraisals necessary to assess the fair
values of the tangible and intangible assets acquired, liabilities assumed and the contingent consideration, the initial purchase price allocation is not yet available. No financial activity from this
acquisition has been included in our consolidated financial statements other than $0.7 million of acquisition costs included in the results for the three and nine months ended
September 30, 2010.

Acquisition of the Communications Services Group (CSG)

On March 2, 2009, we entered into an asset purchase agreement with VeriSign, Inc. pursuant to which we agreed to purchase
from Verisign, Inc. certain assets and assume certain liabilities of CSG. On May 1, 2009, we completed the acquisition in accordance with the terms and conditions of the asset purchase
agreement. The initial purchase price was approximately $226.2 million in cash and was subject to a post-closing working capital adjustment. During the third and fourth quarters of
2009, working capital and other adjustments were negotiated resulting in a $4.5 million increase in the purchase price to $230.7 million. The purchase price was finalized in May 2010
resulting in an additional $0.5 million increase in the purchase price to $231.2 million. As a result of the purchase price finalization, $1.7 million was adjusted retrospectively
to certain working capital amounts on the December 31, 2009 balance sheet with a corresponding decrease in goodwill. Such adjustment had no impact on the statement of operations. We funded the
transaction through a new $230.0 million term loan facility as part of the May 2009 Credit Facility. CSG provides call signaling services, intelligent database services such as caller ID,
toll-free call routing and local number portability to the U.S. telecommunications industry. In addition, CSG provides wireless roaming and clearing services to mobile phone operators. We
are integrating CSG into our telecommunication services division. Our

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statement
of operations for the nine months ended September 30, 2010 includes the results of CSG and is therefore not comparable to the nine months ended September 30, 2009. Please refer
to our amended Current Report on Form 8-K/A filed with the SEC on July 15, 2009 for more detail on the historical and pro-forma results of CSG.

Share Repurchase Plan

On September 1, 2010 our Board of Directors approved a share repurchase plan authorizing the repurchase of a maximum of
$50.0 million of our common stock over the period expiring March 31, 2012. We commenced repurchasing shares on October 1, 2010 and as of November 9, 2010, have repurchased
approximately 947,674 shares for a total of $17.2 million.

Results of Operations

The following table sets forth, for the periods indicated selected statement of operations data (dollars in thousands):

Three months ended
September 30,

Nine months ended
September 30,2009

2010

2009

2010Revenues

$
140,105

$
131,246

$
337,322

$
392,020Operating expenses:Cost of network services, exclusive of the items shown separately below


64,940


65,700


160,044


195,031Engineering and development


10,379


9,266


25,855


27,819Selling, general, and administrative


30,942


22,851


74,309


72,395Depreciation and amortization of property and equipment


9,013


11,467


22,841


35,258Amortization of intangible assets


9,102


8,547


22,859


28,429Total operating expenses


124,376


117,831


305,908


358,932Income from operations


15,729


13,415


31,414


33,088Interest expense


(11,952
)

(5,748
)

(24,821
)

(17,694
)Interest income


90


88


329


295Other income (expense), net


493


(2,633
)

41


3,071Income before income tax benefit and equity in net loss of unconsolidated affiliates


4,360


5,122


6,693


18,760Income tax provision


(1,129
)

(877
)

(3,250
)

(6,848
)Equity in net loss of unconsolidated affiliate


(27
)

(224
)

(80
)

(289
)Net income

$
3,204

$
4,021

$
3,633

$
11,623


Three months ended September 30, 2010 compared to the three months ended September 30, 2009

Revenues.Total revenues decreased $8.9 million, or 6.3%, to $131.2 million for the three months ended
September 30, 2010, from
$140.1 million for the three months ended September 30, 2009. The negative effect of foreign exchange translation on a year-over-year basis was
$1.6 million. Excluding the effect of foreign exchange rates, total revenues decreased $7.3 million, or 5.2%, to $132.8 million for the three months ended September 30,
2010.

We
enter into arrangements with our customers in the currency of the markets we operate in. As a result, our reported results are affected by fluctuations in the value of the U.S. dollar
as compared to foreign currencies, predominantly the British Pound, the Euro and the Australian dollar. The following table shows the currency composition of our revenues for the three months ended
September 30, 2010

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and
2009 and the weighted average exchange rates used to translate our local currency results to the U.S. dollar:

2010

2009% of
Revenue

Weighted Average
Exchange Rates

% of
Revenue

Weighted Average
Exchange RatesBritish Pound


12
%

1.55


11
%

1.64Euro


9
%

1.29


9
%

1.43Australian Dollar


5
%

0.90


4
%

0.83


A
$0.01 change in exchange rates for each of the major foreign currencies we operate in would have the following annual impact on revenue: British Pound, $0.4 million, Euro,
$0.3 million and Australian Dollar $0.3 million.

We
generate revenues through three business divisions; the payments division, the telecommunication services division (TSD), and the financial services division (FSD).

Payments division.Revenues from the payments division decreased $1.3 million, or 2.4%, to $50.0 million for the three
months ended
September 30, 2010, from $51.3 million for the three months ended September 30, 2009. The negative effect of foreign exchange translation on a
year-over-year basis was $1.5 million. Excluding the impact of foreign exchange rates, payments revenue increased $0.2 million, or 0.6%, to $51.5 million
for the three months ended September 30, 2010. This was due to the following increases (decreases):

Network services



Gateway services



ATM processing and software services



Future
revenue growth in the payments division depends on a number of factors including the success of our managed broadband products and payment gateway applications, the success of our
card-not-present service offerings, the success of payments products in countries we have recently entered, the total number of payments dial-up transactions we
transport and global economic conditions. Smaller merchants, which represent a large portion of the customer base for our dial-up

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services
in the US, in our opinion have been more adversely impacted by recent global economic conditions than the larger merchants and may take longer to recover if and when the economy improves. We
have continued to see a reduction in the growth rates of our dial-up transaction volumes in many of the markets in which we operate, which we attribute to the overall weakness of the
global economy.

Telecommunication services division.Revenues from the telecommunication services division decreased $7.7 million, or 10.7%,
 to
$64.7 million for the three months ended September 30, 2010, from $72.4 million for the three months ended September 30, 2009. Included in revenues were
pass-through charges of $1.9 million and $2.3 million for the three months ended September 30, 2010 and 2009, respectively. Excluding the decrease in pass-through
charges, revenues decreased $7.3 million to $62.8 million for the three months ended September 30, 2010. This was due to the following decreases: $7.0 million primarily due
to volume reductions and to a lesser extent pricing concessions to legacy CSG customers which had been previously anticipated; $1.0 million related to the previously disclosed loss of a
wireless customer who decided to consolidate their calling name access and storage services under an alternative provider; $0.8 million due to volume declines from a customer following the
acquisition of CSG based on the expectation that we will compete with the customer; and $0.8 million due to a reduction in volumes in our payphone fraud and validation service. These decreases
were partially offset by an increase of $2.3 million due primarily to the implementation of services for wireless customers and to a lesser extent continued growth from current wireline
customers.

Future
revenue growth in the telecommunication services division depends on a number of factors including the number of database access queries we transport, the number of call signaling
routes our customers purchase, and the success of our new product offerings, which potentially may be offset by customers seeking pricing discounts due to industry consolidation or other reasons, as
well as the successful integration of the businesses acquired through our purchase of CSG and Cequint Inc (see note 7). In addition, we have recently seen an increase in the sales lead times
for certain of our telecommunication services division products which has impacted our ability to grow our revenue base. We attribute these delays primarily to what we believe to be resource
constraints at our potential customers as a result of the overall weakness of the global economy.

Financial services division.Revenues from the financial services division increased $0.1 million, or 0.9%, to
$16.5 million for the
three months ended September 30, 2010, from $16.4 million for the three months ended September 30, 2009. The negative effect of foreign exchange translation on a
year-over-year basis was $0.1 million. Excluding the impact of foreign exchange rates, financial services revenue increased $0.2 million, or 1%, to
$16.6 million for the three months ended September 30, 2010. This was due to increased revenue of $0.4 million in Europe and $0.5 million in Asia Pacific due to continued
expansion of the number of customer endpoints in those regions and $0.2 million in North America due to higher sales of bandwidth based services to the foreign exchange community. These
increases were partially offset by a decrease of $0.9 million due to the continued rationalization of market data access services by our customers in North America.

Future
revenue growth in the financial services division depends on a number of factors including the number of connections to and through our network as well as the success of our new
product offerings. We have continued to see a decline in demand for legacy low latency exchange data connectivity in the U.S. and no longer generate significant revenue from these services in North
America.

Cost of network services.Cost of network services increased $0.7 million, or 1.2%, to $65.7 million for the three
months ended
September 30, 2010, from $65.0 million for the three months ended September 30, 2009. On a constant dollar basis, cost of network services would have increased $1.3 million
to $66.3 million. This was due to the following increases: $2.1 million in payroll related costs and overhead expense primarily to support our IP registry, roaming and clearing and
payment

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gateway
platforms; $0.6 million from higher dial access rates in our North America payments division; and $0.9 million to support our revenue growth in Europe and Asia Pacific. These
increases were partially offset by the following decreases: $1.2 million in costs related to our telecommunication services division due primarily to lower volumes in our legacy services and to
a lesser extent cost reductions from integration synergies; and $1.1 million due to lower variable incentive cash compensation.

Gross
profit represented 50.0% of total revenues for the three months ended September 30, 2010, compared to 53.7% for the three months ended September 30, 2009. On a
constant dollar basis, gross margins for the three months ended September 30, 2010 decreased 360 basis points to 50.1%. This decrease was primarily due to pricing concessions and volume
reductions from our U.S. payments and telecommunications services customers and to a lesser extent from increases in our POS dial access rates in North America. This was partially offset by revenue
growth in our international businesses and to a lesser extent a reduction in our fixed network expense from integraton synergies and to a lesser extent a decrease in variable incentive cash
compensation.

Future
cost of network services depends on a number of factors including total transaction and query volumes, the relative growth and contribution to total transaction volume of each of
our customers, the success of our new service offerings, the timing and extent of our network expansion and the timing and extent of any network cost increases or reductions.

Engineering and development expense.Engineering and development expense decreased $1.1 million, or 10.7%, to
$9.3 million for the
three months ended September 30, 2010, from $10.4 million for the three months ended September 30, 2009. On a constant dollar basis, engineering and development expense decreased
$1.1 million and represented 7.1% and 7.4% of revenues for the three months ended September 30, 2010 and 2009, respectively. This was due to the following decreases: $0.9 million
in variable cash incentive compensation; $0.3 million in higher capitalized software development costs, which are offset against engineering and development costs; and $0.1 million in
stock compensation expense due primarily to a decrease in the number of awards granted. These decreases were partially offset by an increase of $0.2 million primarily related to additional
investment to support the continued development of our roaming and clearing, IP registry and payment gateway platforms.

Selling, general and administrative expense.Selling, general and administrative expenses decreased $8.0 million, or 26.1%,
to
$22.9 million for the three months ended September 30, 2010, from $30.9 million for the three months ended September 30, 2009. On a constant dollar basis, selling, general
and administrative expenses would have decreased $7.8 million, or 25.3%, to $23.1 million and represented 17.4% and 22.1% of revenues for the three months ended September 30,
2010, and 2009, respectively. This was due to the following decreases: $2.6 million in variable cash incentive compensation; $1.5 million in severance charges related to restructuring
activities in Europe and the integration of CSG; and $1.4 million in stock compensation due primarily to a decrease in performance related stock compensation. These decreases were partially
offset by an increase of $0.7 million due to acquisition costs related to the Cequint transaction (see note 7) that were expensed in accordance with the provisions of FASB ASC 805,
Business Combinations. Excluding these items and the effects of foreign exchange, selling, general and administrative expenses decreased $3.0 million primarily due to cost reductions achieved
through integration synergies.

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Depreciation and amortization of property and equipment.Depreciation and amortization of property and equipment increased
$2.5 million, or
27.2%, to $11.5 million for the three months ended September 30 2010, from $9.0 million for the three months ended September 30, 2009 and represented 8.7% and 6.4% of
revenue for the three months ended September 30, 2010 and 2009, respectively. The increase in depreciation expense was primarily due to an accelerated depreciation charge of $1.1 million
following the decision made in the second quarter to phase out surplus network assets and office equipment that will no longer be required following the integration of the legacy CSG and TNS
operations. We estimate the total value of these assets to be $6.2 million and expect to recognize an additional $1.1 million accelerated depreciation charge in the three months ended
December 31, 2010 and $0.8 million in the three months ended March 31, 2011 as these assets are removed from service. Excluding the accelerated charge related to surplus assets,
depreciation and amortization of property and equipment increased $1.4 million due to capital expenditures made to support our revenue growth and integration efforts.

Amortization of intangible assets.Amortization of intangible assets decreased $0.6 million, or 6.1%, to $8.5 million
for the three
months ended September 30, 2010, from $9.1 million for the three months ended September 30, 2009. The decrease was due to certain intangible assets reaching the end of their
economic useful lives.

Interest expense.Interest expense decreased $6.3 million to $5.7 million for the three months ended September 30,
 2010, from
$12.0 million for the three months ended September 30, 2009. Amortization of deferred financing fees and original issue discount for the three months ended September 30, 2010
and 2009, was $0.4 million and $3.0 million, respectively. Excluding these charges, cash interest expense decreased $3.7 million from $9.0 million to
$5.3 million for the three months ended September 30, 2010 and 2009, respectively, primarily due to a $3.0 million benefit from the November 2009 refinancing of our senior credit
facilities, which lowered our effective borrowing rate and to a lesser extent from $0.7 million due to reduced borrowing levels resulting from our early prepayment of debt.

Other income (expense), net.Other income (expense) was a loss of $2.5 million for the three months ended September 30,
 2010 compared
to a gain of $0.6 million for the three months ended September 30, 2009. Included in other income (expense) was a loss of approximately $2.7 million compared to a gain of $0.5
million for the three months ended September 30, 2010 and 2009, respectively, related to foreign currently revaluation. These revaluation amounts were due to fluctuations in the value of the U.S.
dollar, principally against the Euro.

Income tax provision.For the three months ended September 30, 2010, our income tax provision was approximately
$0.9 million compared
to $1.1 million for the three months ended September 30, 2009. Our effective tax rate was 17.1% and 26.0% for the three months ended September 30, 2010 and 2009, respectively. Our
effective tax rate differs from the U.S. Federal statutory rate primarily due to profits of our international subsidiaries being taxed at rates different than the U.S. Federal statutory rate,
partially offset by stock-based compensation expense not deductible for income tax purposes and increases in FASB ASC 740 reserves due to certain income tax exposures.

Nine months ended September 30, 2010 compared to the nine months ended September 30, 2009

Revenues.Total revenues increased $54.7 million, or 16.2%, to $392.0 million for the nine months ended
September 30, 2010, from
$337.3 million for the nine months ended September 30, 2009. The positive effect of foreign exchange translation on a year-over-year basis was
$2.1 million. Excluding the effect of foreign exchange rates, total revenues increased $52.6 million, or 15.6%, to $389.9 million for the nine months ended September 30,
2010.

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We
enter into arrangements with our customers in the currency of the markets we operate in. As a result, our reported results are affected by fluctuations in the value of the U.S. dollar
as compared to foreign currencies, predominantly the British Pound, the Euro and the Australian dollar. The following table shows the currency composition of our revenues for the nine months ended
September 30, 2010 and 2009 and the weighted average exchange rates used to translate our local currency results to the U.S. dollar:

2010

2009% of
Revenue

Weighted Average
Exchange Rates

% of
Revenue

Weighted Average
Exchange RatesBritish Pound


12
%

1.53


12
%

1.54Euro


9
%

1.32


10
%

1.37Australian Dollar


5
%

0.90


5
%

0.75


A
$0.01 change in exchange rates for each of the major foreign currencies we operate in would have the following annual impact on revenue: British Pound, $0.4 million, Euro,
$0.3 million and Australian Dollar $0.3 million.

We
generate revenues through three business divisions; the payments division, the telecommunication services division (TSD), and the financial services division (FSD).

Payments division.Revenues from the payments division increased $3.6 million, or 2.5%, to $148.0 million for the nine
months ended
September 30, 2010, from $144.4 million for the nine months ended September 30, 2009. The positive effect of foreign exchange translation on a
year-over-year basis was $1.7 million. Excluding the impact of foreign exchange rates, payments revenue increased $1.9 million, or 1.3% to $146.3 million
for the nine months ended September 30, 2010. This was due to the following increases (decreases):

Network services



Gateway services



ATM processing and software services



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Telecommunication services division.Revenues from the telecommunication services division increased $50.0 million, or 34.7%
to
$194.4 million for nine months ended September 30, 2010, from $144.4 million for the nine months ended September 30, 2009. Included in revenues were
pass-through charges of $6.0 million and $7.8 million for the nine months ended September 30, 2010 and 2009, respectively. Excluding the increase in pass through
charges, revenues increased $51.8 million for the nine months ended September 30, 2010 primarily due to the inclusion of the acquired CSG operations and to a lesser extent
$3.6 million due to the implementation of services for new and current wireless customers and continued growth from current wireline customers. This increase was partially offset by the
following decreases: $11.7 million in previously anticipated volume reductions and pricing concessions to legacy CSG customers; $3.3 million due to volume declines from a customer
following the acquisition of CSG based on the expectation that we will compete with the customer; $1.9 million due to a reduction in volumes in our payphone fraud and validation service; and
$1.4 million related to the loss of a wireless customer who decided to consolidate their calling name access and storage services under an alternate provider.

Financial services division.Revenues from the financial services division increased $1.0 million, or 2.2%, to
$49.6 million for the
nine months ended September 30, 2010, from $48.6 million for the nine months ended September 30, 2009. The positive effect of foreign exchange translation on a
year-over-year basis was $0.4 million. Excluding the impact of foreign exchange rates, financial services revenue increased $0.6 million, to $49.2 million
as of September 30, 2010. Revenues increased $1.4 million in Europe and $0.9 million in Asia Pacific due to continued expansion of the number of customer endpoints in those
regions and $0.2 million in North America due to higher sales of bandwidth based services to the foreign exchange community. These increases were partially offset by a decrease of
$1.9 million due to the continued rationalization of market data access services by our customers in North America.

Cost of network services.Cost of network services increased $35.0 million, or 21.9%, to $195.0 million for the nine
months ended
September 30, 2010, from $160.0 million for the nine months ended September 30, 2009. On a constant dollar basis, cost of network services would have increased
$34.5 million, or 21.6%, to $194.5 million. This was primarily due to increased costs related to the operation of the assets acquired from CSG and to a lesser extent the following
increases: $2.7 million in our payments division in North America due to higher dial access rates which was partially offset by a 5% decrease in dial transaction volumes; $2.5 million in
payroll related costs and overhead primarily to support our IP registry, roaming and clearing and payment gateway platforms; $1.0 million to support our revenue growth in Europe and Asia
Pacific; and $0.4 million to support our ATM processing business. These increases were partially offset by the following decreases: $4.9 million in our telecommunication services
division primarily due to lower volumes in our legacy services and to a lesser extent reductions in fixed expense from integration synergies; $1.3 million in variable incentive cash
compensation; and $0.2 million in our payments division in Asia Pacific due primarily to lower transaction volumes.

Gross
profit represented 50.2% of total revenues for the nine months ended September 30, 2010, compared to 52.6% for the nine months ended September 30, 2009. On a constant
dollar basis, gross margins for the nine months ended September 30, 2010 decreased 250 basis points to 50.1%. This decrease was primarily due to pricing concessions and volume reductions from
our payments and telecommunication services customers and to a lesser extent from increases in our POS dial access rates in North America. This was partially offset by revenue growth in our
international businesses and to a

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lesser
extent by a reduction in our fixed network expense from integration synergies and to a lesser extent a decrease in variable incentive cash compensation.

Engineering and development expense.Engineering and development expense increased $1.9 million, or 7.6%, to
$27.8 million for the nine
months ended September 30, 2010, from $25.9 million for the nine months ended September 30, 2009. On a constant dollar basis, engineering and development expenses would have
increased $1.4 million, or 5.3%, to $27.3 million and represented 7.1% and 7.7% of revenues for the nine months ended September 30, 2010 and 2009, respectively. This increase was
primarily due to additional headcount and other costs required to support our acquisition of CSG and was partially offset by the following decreases: $2.4 million in variable cash incentive
compensation; $2.4 million in higher capitalized software development costs which are offset against engineering and development costs, primarily due to investment in our roaming and clearing,
IP registry and payment gateway platforms; and $0.3 million in stock compensation expense due to a decrease in the number of awards granted.

Selling, general and administrative expense.Selling, general and administrative expenses decreased $1.9 million, or 2.6%,
to
$72.4 million for the nine months ended September 30, 2010, from $74.3 million for the nine months ended September 30, 2009. On a constant dollar basis, selling, general
and administrative expenses would have decreased $2.4 million, or 3.3%, to $71.9 million and represented 18.5% of revenues for the nine months ended September 30, 2010, compared
to 22.0% of revenues for the nine months ended September 30, 2009. This was due to the following decreases: $4.6 million in variable cash incentive; $2.1 million in stock
compensation primarily due to reduced performance related stock compensation; $0.5 million in severance charges related to restructuring activities in Europe and the integration of CSG; and
$1.5 million in acquisition related costs expensed in accordance with the provisions of FASB ASC 805, Business Combinations ($0.7 million of costs for the nine months ended
September 30, 2010 related to the Cequint transaction compared to $2.2 million of costs for the nine months ended September 30, 2009 related to the CSG transaction).
Excluding these items and the effects of foreign exchange, selling, general and administrative expenses increased $6.3 million primarily due to additional headcount and other costs necessary to
support the acquired CSG operations and to a lesser extent an increase in costs incurred to support our Canadian ATM processing business partially offset by integration related synergies.

Depreciation and amortization of property and equipment.Depreciation and amortization of property and equipment increased
$12.5 million, or
54.4%, to $35.3 million for the nine months ended September 30, 2010, from $22.8 million for the nine months ended September 30, 2009. On a constant dollar basis,
depreciation and amortization of property and equipment would have increased $12.2 million, or 53.5% to $35.0 million and represented 9.0% and 6.8% of revenue for the nine months ended
September 30, 2010 and 2009, respectively. The increase in depreciation expense was primarily due to an accelerated depreciation charge of $4.3 million following a decision made during
the second quarter to phase out surplus network assets and office equipment that will no longer be required following the integration of the legacy CSG and TNS operations. We estimate the total value
of these assets to be $6.2 million and expect to recognize an additional $1.1 million accelerated depreciation charge in the three months ended December 31, 2010 and
$0.8 million in three months ended March 31, 2011 as these assets are removed from service. Excluding the accelerated charge related to surplus assets, depreciation and amortization of
property and equipment increased $3.9 million due to acquired CSG assets and $4.0 million due to capital expenditures primarily to support our revenue growth and to a lesser
extent the integration of back office systems.

Amortization of intangible assets.Amortization of intangible assets increased $5.5 million, or 24.4%, to
$28.4 million for the nine
months ended September 30, 2010, from $22.9 million for the nine months ended September 30, 2009. On a constant dollar basis, amortization of intangible assets would have
increased $5.4 million, or 23.6% to $28.3 million. The increase was due to additional amortization

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expense
of $5.7 million related to the CSG acquisition and a charge of $1.9 million related to the impairment of certain customer relationship intangible assets. This was partially
offset by a decrease of $2.3 million as certain intangible assets reached the end of their economic useful lives.

Interest expense.Interest expense decreased $7.1 million to $17.7 million for the nine months ended September 30,
2010, from
$24.8 million for the nine months ended September 30, 2009. Included in interest expense for the nine months ended September 30, 2009 was a $1.7 million charge related to
the write-off of the deferred financing fees related to the 2007 Credit Facility in connection with the closing of the May 2009 Credit Facility. Amortization of deferred financing fees and
discount for the nine months ended September 30, 2010 and September 30, 2009 was $1.5 million and $6.0 million, respectively. Excluding these charges, cash interest expense
decreased $5.6 million due to a reduction in interest rates which was partially offset by an increase of $4.7 million due to higher borrowing levels.

Other income.Other income was a gain of $3.1 million for the nine months ended September 30, 2010 compared to $40,000
for the nine
months ended September 30, 2009. Included in other income, was a gain of $2.8 million compared to a loss of $71,000 for the nine months ended September 30, 2010 and 2009,
respectively, related to foreign currency revaluation. These revaluation amounts were due to fluctuations in the value of the U.S. dollar, principally against the Euro.

Income tax provision.For the nine months ended September 30, 2010, our income tax provision was approximately
$6.8 million compared to
$3.3 million for the nine months ended September 30, 2009. The increase in our income tax provision is primarily related to higher income from operations, U.S. tax expense on
undistributed foreign earnings due to the lapse of a statute at the beginning of 2010 that exempted certain foreign passive income from U.S. taxes, and increases in FASB ASC 740 reserves due to
certain income tax exposures, partially offset by the effect of adjustments to the provision from prior years. Our effective tax rate was 37.1% and 47.2% for the nine months ended September 30,
2010 and 2009, respectively. Our effective tax rate differs from the U.S. Federal statutory rate primarily due to stock-based compensation expense not deductible for income tax purposes, increases in
FASB ASC 740 reserves due to certain income tax exposures, and profits of our international subsidiaries being taxed at rates different than the U.S. Federal statutory rate.

Liquidity and Capital Resources

Our primary liquidity and capital resource needs are to finance the costs of our operations, to make capital expenditures and to
service our debt. Based upon our current level of operations, we expect that our cash flow from operations, together with the amounts we are able to borrow under our amended November 2009 Credit
Facility, will be adequate to meet our anticipated needs for the foreseeable future.

Our
operations provided us cash of $78.6 million for the nine months ended September 30, 2010, which was attributable to net income of $11.6 million, depreciation,
amortization and other non-cash charges of $66.6 million and a decrease in working capital of $0.4 million. Our operations provided us cash of $74.3 million for the
nine months ended September 30, 2009, which was attributable to net income of $3.6 million, depreciation, amortization and other non-cash charges of $63.9 million and
a decrease in working capital of $6.7 million.

We
used cash of $37.4 million in investing activities for the nine months ended September 30, 2010, which was comprised primarily of $36.8 million of capital
expenditures to support our revenue growth and integration activities. We used cash of $253.8 million in investing activities for the nine months ended September 30, 2009 which consisted
of $23.8 million in capital expenditures to support our revenue growth and $230.0 million for the acquisition of the CSG business.

We
used cash of $31.5 million from financing activities for the nine months ended September 30, 2010. This consisted primarily of a $30.0 million voluntary
pre-payment on the November 2009 Credit

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Facility.
In addition, $3.4 million was used to repurchase stock to satisfy employee tax withholding requirements on the vesting of restricted stock units and we received $1.9 million
from the exercise of employee stock options. Our financing activities provided us cash of $167.4 million for the nine months ended September 30, 2009. This consisted of proceeds from the
new term loan from the May 2009 Credit Facility of $230.0 million less original issue discount of $23.0 million and financing fees of $5.4 million. The net proceeds from the May
2009 Credit Facility were used to partially fund the CSG acquisition. In addition, we made $40.0 million of repayments on our 2009 May Credit Facility.

Commitments

The following table summarizes our contractual obligations as of September 30, 2010 as well as the incremental Term Loan and
additional amounts borrowed from the Revolving Facility in October 2010, that require us to make future cash payments (dollars in thousands) (See Note 2):

Year ending December 31,Contractual Cash Obligations by Period:

Total

2010

2011

2012

2013

2014

ThereafterLong-term debt under the senior secured credit facility

$
409,370

$
1,875

$
18,750

$
18,750

$
18,750

$
68,120

$
283,125Supplier commitments


38,268


7,089


19.683


5,483


2,174


1,772


2,067Operating lease obligations


41,271


4,298


10,250


8,215


5,697


3,777


9,034$
488,909

$
13,262

$
48,683

$
32,448

$
26,621

$
73,669

$
294,226


Due
to uncertainty with respect to the timing of future cash flows associated with unrecognized tax benefits at September 30, 2010, the Company is unable to make reasonably
reliable estimates of the period of cash settlement. Therefore $8.6 million of unrecognized tax benefits have been excluded from the contractual obligations table above. See Note 1 to
the condensed consolidated financial statements for further discussion of income tax.

Not
included in the table above are commitments to make interest payments under the terms of our November 2009 Credit Facility due to the variable nature of the interest rates. See
note 2 to the condensed consolidated financial statements for further details on interest rates and other terms and conditions of this facility.

We
expect that we will be able to fund our remaining obligations and commitments with cash flow from operations. To the extent we are unable to fund these obligations and commitments
with cash flow from operations, we intend to fund these obligations and commitments with proceeds from borrowings under our November 2009 Credit Facility or future debt or equity financings.

Outlook

On October 1, 2010, we completed the acquisition of Cequint Inc. in accordance with the terms and conditions of the Agreement
and Plan of Merger dated September 8, 2010. Cequint provides carrier-grade caller ID products and enhanced services to leading US-based mobile operators. We anticipate that Cequint will
generate $2.0 million in revenue during the three month period ending December 31, 2010.

Seasonality

Credit card and debit card transactions account for a major percentage of the transaction volume processed by our customers. The volume
of these transactions on our networks generally is greater in the third and fourth quarter vacation and holiday seasons than during the rest of the year. Consequently, revenues and earnings from
credit card and debit card transactions in the first and

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second
quarter generally are lower than revenues and earnings from credit card and debit card transactions in the third and fourth quarters of the immediately preceding year. We expect that our
operating results in the foreseeable future will be significantly affected by seasonal trends in the credit card and debit card transaction market.

Effects of Inflation

Our monetary assets, consisting primarily of cash and receivables, and our non-monetary assets, consisting primarily of
intangible assets and goodwill, are not affected significantly by inflation. However, the rate of inflation affects our expenses, such as those for employee compensation and costs of network services,
which may not be recoverable in the price of services offered by us.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Interest rates

Our principal exposure to market risk relates to changes in interest rates. As of September 30, 2010, we had
$344.4 million outstanding under our November 2009 Credit Facility with interest rates tied to changes in the lender's base rate or the LIBOR rate. Interest on outstanding balances under the
November 2009 Credit Facility is payable, at the Company's option, at the base rate plus a margin of 3%, or at LIBOR plus a margin of 4%. Additionally, in no event will the base rate be less than 3.0%
or the LIBOR rate be less than 2.0%. At September 30, 2010 the one-month LIBOR rate was 0.26%. Based upon the outstanding borrowings on September 30, 2010 and assuming
repayment of the Term Loan in accordance with scheduled maturities, each 1.0% increase or decrease in these rates, once the LIBOR rate exceeds the 2.0% minimum, could affect our annual interest
expense by $3.4 million.

As
of September 30, 2010, we did not hold derivative financial or commodity instruments and all of our cash and cash equivalents were held in money market or commercial accounts.

Foreign currency risk

Our earnings are affected by fluctuations in the value of the U.S. dollar as compared with foreign currencies, predominately the Euro,
the British Pound and the Australian dollar due to our operations in Europe and Australia.

We
provide services to customers in the United States and increasingly to international customers in over 40 countries including Canada and Mexico and countries in Europe, Latin America
and the Asia-Pacific region. We currently maintain operations and/or employees in 28 countries. We provide services in these countries using networks deployed in each country. We manage
foreign exchange risk through the structure of our business. In the substantial majority of our transactions, we receive payments denominated in the U.S. dollar, British Pound, Euro or Australian
dollar. Therefore, we do not rely on international currency markets to obtain and pay illiquid currencies. The foreign currency exposure that does exist is limited by the fact that the majority of
transactions are paid according to our standard payment terms, which are generally short-term in nature. Our policy is not to speculate in foreign currencies, and we promptly buy and sell
foreign currencies as necessary to cover our net payables and receivables, denominated in foreign currencies. However, in December 2009 our subsidiary in Ireland entered into a $25.8 million
loan agreement with our subsidiary in Bermuda to provide it with the ability of making loans and working capital funding to our subsidiaries. This loan is denominated in U.S. dollars and therefore
fluctuations in the euro to the U.S. dollar exchange rate are recorded as revaluation gains or losses in our income statement. As it relates to this specific loan agreement, each $0.01 movement in the
euro to U.S. dollar exchange rate could affect our other income (loss) by $0.2 million. For the three months ended September 30, 2010, we recorded a loss on foreign currency revaluation
of approximately $2.7 million. For the nine months ended September 30, 2010, we recorded a gain on foreign currency revaluation of approximately $2.8 million which is

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included
in other income (expense) in the accompanying condensed consolidated financial statement of operations.

Item 4.    Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the
Company's reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.

Evaluation

The Company carried out an evaluation, under the supervision, and with the participation, of the Company's management, including the
Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures as of September 30, 2010. Based on the
foregoing, the Company's Chief Executive Officer and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of September 30, 2010 at the
reasonable assurance level.

Changes in Internal Controls

On May 1, 2009, the Company completed its acquisition of CSG. Management has considered the CSG acquisition material to the
results of operations, cash flows and financial position from the date of acquisition through September 30, 2010 and believes that the internal controls and procedures of CSG have a material
effect on internal controls over financial reporting. CSG is integrated into the Company's internal controls and procedures and will be included in the overall assessment of, and report on, internal
controls over financial reporting as of December 31, 2010. There have been no other changes during the nine months ended September 30, 2010 covered by this report in the Company's
internal control over financial reporting or in other factors that could materially affect or are reasonably likely to materially affect the internal control over financial reporting.

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PART IIOTHER INFORMATION

Item 1.    Legal Proceedings

None.

Item 1A.    Risk Factors

None.

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

None.

Item 3.    Default Upon Senior Securities

None.

Item 4.    Removed and Reserved

Item 5.    Other Information

None.

Item 6.    Exhibits

(10.1
)
Amendment to November 2009 Term Loan Facility Agreement (incorporated by reference to Exhibit 10.1 to Form 8-K filed October 5, 2010).(10.2
)
Agreement and Plan of Merger by and among TNS, Inc., Thunder Acquisition Corp., Cequint, Inc., and Project Thunder Shareholder Liquidity Trust dated September 8, 2010 (incorporated by reference to Exhibit 10.2
to Form 8-K filed September 14, 2010).(31.1
)
CertificationChief Executive Officer(31.2
)
CertificationChief Financial Officer(32.1
)
Written Statement of Chief Executive Officer and Chief Financial Officer


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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.

TNS, Inc.
(Registrant)Date: November 9, 2010

By:

/s/ HENRY H. GRAHAM, JR. Henry H. Graham, Jr. Chief Executive OfficerDate: November 9, 2010

By:

/s/ DENNIS L. RANDOLPH, JR. Dennis L. Randolph, Jr. Executive Vice President, Chief Financial Officer & Treasurer


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