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Press Release -- November 9th, 2016
Source: magicJack VocalTec
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magicJack Reports Third Quarter 2016 Financial Results

  • Total net revenues of $24.6 million, access rights renewal revenues were $14.5 million
  • GAAP operating income of $5.4 million, Adjusted EBITDA of $7.0 million
  • GAAP diluted EPS of $0.21, non-GAAP diluted EPS of $0.29
  • Generated $4.9 million in cash from operating activities, $4.8 million in free cash flow
  • Cash and cash equivalents of $51.5 million and no debt as of September 30, 2016

WEST PALM BEACH, Fla. and NETANYA, Israel, Nov. 09, 2016 (GLOBE NEWSWIRE) --  magicJack VocalTec Ltd. (NASDAQ:CALL, news, filings), a leading VoIP cloud-based communications and UCaaS company, today announced financial results for the third quarter ended September 30, 2016.

"We were pleased with our execution in the third quarter," said Gerald Vento, President and CEO of magicJack VocalTec. "The results were driven by our consumer business highlighted by low churn, stabilization in activations and ongoing traction with our organic growth initiatives."

Third Quarter 2016 Financial Highlights:

  • Net revenues: Total net revenues for the third quarter of 2016 were $24.6 million. Net revenues from the sales of magicJack devices were $2.8 million and access rights renewal revenues were
    $14.5 million, and accounted for 59% of total net revenues. Prepaid minute revenues were $1.4 million and access and wholesale charges were $1.2 million during the quarter. Broadsmart Global, Inc. contributed $2.8 million in revenues to the third quarter of 2016. Other revenue items contributed the remaining $1.9 million of total net revenues during the third quarter of 2016.
  • Operating income: GAAP operating income for the third quarter of 2016 was $5.4 million.
  • Adjusted EBITDA: Adjusted EBITDA for the third quarter of 2016 was $7.0 million.
  • Net income: GAAP net income attributable to common shareholders for the third quarter of 2016 was $3.4 million or $0.21GAAP diluted net income per share based on 15.9 million weighted-average diluted ordinary shares outstanding.
  • Non-GAAP net income: Non-GAAP net income attributable to common shareholders for the third quarter of 2016 was $4.6 million or $0.29 non-GAAP net income per share based on 15.9 million weighted-average diluted ordinary shares outstanding.
  • Cash and free cash flow: As of September 30, 2016, magicJack VocalTec had cash and cash equivalents of $51.5 million and no debt. During the third quarter of 2016, the company generated $4.9 million in net cash provided by operating activities and $4.8 million in free cash flow.

A reconciliation of GAAP to non-GAAP measures, as well as the calculation of free cash flow has been provided in the tables included below in this press release. An explanation of these measures is also included below under the heading "Non-GAAP Measures."

Additional Third Quarter 2016 and Recent Highlights:

  • As of September 30, 2016, magicJack had an estimated 2.21 million active MJ subscribers, which are defined as device users that are under an active subscription contract.
  • magicJack activated 102,000 subscribers during the third quarter of 2016. Activations are defined as devices that become activated on to a subscription contract during a given period.
  • During the quarter ended September 30, 2016, magicJack's average monthly churn was 2.4%.

Quarterly Conference Call:

In conjunction with this announcement, magicJack VocalTec will host a conference call on Wednesday, November 9, 2016, at 5:00 p.m. EST to review the company's financial results for the third quarter 2016. To access this call, dial 1-888-204-4426 (United States), or 1-913-312-6690 (international), with conference ID #1894388. A live webcast of the conference call will be accessible from the investor relations page of magicJack VocalTec's website at http://www.vocaltec.com and a recording will be archived and accessible athttp://www.vocaltec.com/events.cfm. A recording of this conference call will also be available through November 23, 2016, by dialing 1-877-870-5176 (United States), or 1-858-384-5517 (international). The recording access code is #1894388.

About magicJack VocalTec Ltd.

magicJack VocalTec Ltd. (NASDAQ:CALL), the inventor of magicJack and a pioneer in Voice over IP (VoIP) technology and services, is a leading cloud communications company. With its easy-to-use, low cost solution for telecommunications, the Company has sold more than 11 million award-winning magicJack devices, which is now in its fifth generation, has millions of downloads of its free calling apps, and holds more than 30 technology patents. magicJack is the largest-reaching CLEC (Competitive Local Exchange Carrier) in the United States in terms of area codes available and number of states in which it is certified.

In March 2016, magicJack VocalTec Ltd. acquired Broadsmart, a leading hosted UCaaS (Unified Communication as a Service) provider for medium-to-large multi-location enterprise customers. Broadsmart has a track record of designing, provisioning and delivering complex UCaaS solutions to blue chip corporate customers on a nationwide basis. Broadsmart has expertise in servicing enterprises with hundreds-to-thousands of locations.

Non-GAAP Measures

The GAAP measures shown in this release exclude various items detailed further below.

  • magicJack defines non-GAAP net revenues as net revenues minus the impact of certain tax matters.
  • magicJack defines adjusted EBITDA as GAAP operating income excluding: depreciation and amortization, share-based compensation, impairment of intangible assets, gain on mark-to-market, non-recurring and transaction related expenses, severance payments, provision for device returns, transition costs related to introduction of a new device, the net change to provision for bad debt expense, write-down of inventory component, a legal settlement and certain tax matters.
  • magicJack defines non-GAAP net income as GAAP net income attributable to common shareholders excluding: share-based compensation, impairment of intangible assets, gain on mark-to-market, non-recurring and transaction related expenses, severance payments, provision for device returns, transition costs related to introduction of a new device, the net change to provision for bad debt expense, write-down of inventory component, a legal settlement, tax impact from gain on mark-to-market, decrease in tax valuation allowance, foreign currency revaluations on tax assets, net uncertain tax positions, tax impact due to expiration of stock options and impact of income tax rate reduction in Israel.
  • magicJack defines free cash flow as net cash provided by operating activities minus capital expenditures.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included with the financial information included in this press release. These measures are not in accordance with, or an alternative for, GAAP and may be different from non-GAAP measures used by other companies. Management believes that the presentation of non-GAAP results, when shown in conjunction with corresponding GAAP measures, provides useful information to management and investors regarding financial and business trends related to the company's results of operations. Further, management believes that these non-GAAP measures improve management's and investors' ability to compare the company's financial performance with other companies in the technology industry. Because these items vary significantly between companies, it is useful to compare results excluding these amounts as identified below.

Forward Looking Statements

This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this press release, including statements about strategy, future operations, new product introductions and customer acceptance, future financial position, prospects, plans and objectives of management, are forward-looking statements. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors include, among other things: changes to our business resulting from increased competition; our ability to develop, introduce and market innovative products, services and applications; our ability to expand our network of retail partners and to increase sales of magicJack devices; our ability to successfully monetize our products, services and applications and market them globally; delays in development we may experience with respect to magicJack devices, our mobile apps, our first SMB product and Broadsmart's products; our customer turnover rate and our customer acceptance rate; the risk that Broadsmart's assets will not be integrated successfully or that such integration may be more difficult, time consuming or costly than expected; the risk that expected increased revenues and EBITDA and expected synergies from the Broadsmart acquisition may not be fully realized or may take longer to realize than expected; the risk that magicJack will experience any difficulty maintaining relationships with Broadsmart's customers, employees or suppliers; our ability to expand our network of small, medium-sized and large businesses; changes in general economic, business, political and regulatory conditions; availability and costs associated with operating our network and business and our ability to control costs; potential liability resulting from pending or future litigation, or from changes in the laws, regulations or policies; the degree of legal protection afforded to our products; changes in the composition or restructuring of us or our subsidiaries and the successful completion of acquisitions, divestitures and joint venture activities; and the various other factors discussed in the "Risk Factors" section of our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission. Such factors, among others, could have a material adverse effect upon our business, results of operations and financial condition. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

magicJack® is a registered trademark of magicJack VocalTec Ltd. All other product or company names mentioned are the property of their respective owners.

Third quarter and nine months 2016 financial tables follow:

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited) Quarter Quarter Nine Months Nine Months
Ended Ended Ended Ended
30-Sep-16 30-Sep-15 30-Sep-16 30-Sep-15
Net revenues $   24,572 $   25,409 $   73,572   $   76,331
Cost of revenues   9,509   8,225   27,556   26,361
Gross profit 15,063 17,184 46,016 49,970
Operating expenses:
Marketing   2,680   2,357   5,659   6,940
General and administrative   7,641   6,286   24,828   21,297
Research and development   1,314   1,088   3,661   3,418
Gain on mark-to-market   (2,000 )   -   (2,000 )   -
Total operating expenses 9,635 9,731 32,148 31,655
Operating income   5,428   7,453   13,868     18,315
Other income (expense):
Interest and dividend income   5   6   21   23
Interest expense   -   -   -   (57 )
Other (expense) income   (6 )   4   (11 )   (2 )
Total other (expense) income   (1 )   10   10   (36 )
Income before income taxes   5,427   7,463   13,878     18,279
Income tax expense   2,205   4,152   7,407   6,708
Net income   3,222   3,311   6,471     11,571
Net loss attributable to noncontrolling interest   177   -   481     -
Net income attributable to common shareholders $   3,399 $   3,311 $   6,952   $   11,571
 
Earnings per ordinary share:
Basic $   0.21 $   0.20 $   0.44 $   0.66
Diluted $   0.21 $   0.20 $   0.44 $   0.66
Weighted average ordinary shares outstanding:
Basic   15,857   16,651   15,786   17,400
Diluted   15,865   16,658   15,935   17,426
CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION
(In thousands)
(Unaudited)
As of As of
ASSETS 30-Sep-16 31-Dec-15
Current Assets
Cash and cash equivalents $   51,526 $   78,589
Marketable securities, at fair value   447   367
Accounts receivable, net of allowance for doubtful accounts and billing adjustments   2,626   2,925
Inventories   4,463   5,723
Deferred costs   2,316   2,097
Prepaid income taxes   602   2,747
Receivable from earnout escrow   2,000   -
Deposits and other current assets   2,508   2,655
Total current assets   66,488   95,103
Property and equipment, net   3,805   3,302
Intangible assets, net   29,924   6,687
Goodwill   47,485   32,304
Deferred tax assets, non-current   30,824   30,689
Deposits and other non-current assets   819   751
Total Assets $   179,345 $   168,836
LIABILITIES AND CAPITAL EQUITY
Current Liabilities
Accounts payable $   2,780 $   1,086
Income tax payable   1,764   -
Accrued expenses and other current liabilities   7,223   6,284
Deferred revenue, current portion   49,324   52,554
Total current liabilities   61,091   59,924
Deferred revenue, net of current portion   45,811   50,146
Other non-current liabilities   13,451   11,098
Total Capital Equity   58,992   47,668
Total Liabilities and Capital Equity $   179,345 $   168,836
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands)
(Unaudited) Nine Months Nine Months  
Ended Ended  
30-Sep-16 30-Sep-15  
Cash flows from operating activities:      
Net income $   6,471 $   11,571  
Provision for doubtful accounts and billing adjustments   210   70  
Share-based compensation   3,169   3,906  
Depreciation and amortization   3,510   2,877  
Impairment of intangible assets   498   -  
Increase (decrease) of uncertain tax position   1,548   (1,124 )  
Deferred income tax provision   626   6,105  
Interest expense - non-cash   -   57  
Gain on mark-to-market   (2,000 )   -  
Changes in operating assets and liabilities   (748 )   (4,131 )  
Net cash provided by operating activities     13,284     19,331  
Cash flows from investing activities:  
Purchases of investments   (80 )   -  
Purchases of property and equipment   (256 )   (548 )  
Acquisition of Broadsmart   (40,019 )   -  
Net cash used in investing activities     (40,355 )     (548 )  
Cash flows from financing activities:  
Purchase of treasury stock   -   (13,565 )  
Payment of other current liabilities   -   (1,500 )  
Repurchase of shares to settle withholding liability   -   (94 )  
Proceeds from exercise of ordinary share options   8   -  
Net cash provided by (used in) financing activities     8     (15,159 )  
       
Net (decrease) increase in cash and cash equivalents   (27,063 )   3,624  
Cash and cash equivalents, beginning of period   78,589   75,945  
Cash and cash equivalents, end of period   $   51,526   $   79,569  
RECONCILIATION OF NET REVENUES TO ADJUSTED NET REVENUES
       
(In thousands)      
(Unaudited) Quarter Quarter Nine Months   Nine Months
Ended Ended Ended   Ended
30-Sep-16 30-Sep-15 30-Sep-16   30-Sep-15
Net revenues   $   24,572 $   25,409 $   73,572 $   76,331
Certain tax matters   -   -   57   -
Non-GAAP net revenues $   24,572 $   25,409 $   73,629 $   76,331
       
RECONCILIATION OF OPERATING INCOME TO ADJUSTED EBITDA
       
(In thousands)      
(Unaudited) Quarter   Quarter Nine Months   Nine Months
Ended   Ended Ended   Ended
30-Sep-16   30-Sep-15 30-Sep-16   30-Sep-15
GAAP Operating income   $   5,428   $   7,453   $   13,868 $   18,315
Depreciation and amortization   1,328   853   3,510   2,877
Share-based compensation   919   1,206   3,169   3,906
Impairment of intangible assets   498   -   498   -
Gain on mark-to-market   (2,000 )   -   (2,000 )   -
Non-recurring and transaction related expenses   653   75   1,514   659
Severance payments   24   148   635   1,331
Provision for device returns   -   -   -   (52 )
Transition costs related to introduction of new device   -   -   -   5
Net change to provision for bad debt expense   64   (2 )   219   74
Write-down of inventory component   112   -   112   -
Legal settlement   -   -   -   675
Certain tax matters   -   -   57   -
Adjusted EBITDA $   7,026   $   9,733   $   21,582   $   27,790
       
 
RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME
       
(In thousands)      
(Unaudited) Quarter Quarter Nine Months Nine Months
Ended Ended Ended Ended
30-Sep-16 30-Sep-15 30-Sep-16 30-Sep-15
GAAP Net income attributable to common shareholders   $   3,399   $   3,311   $   6,952 $   11,571
Share-based compensation   919   1,206   3,169   3,906
Impairment of intangible assets   498   -   498   -
Gain on mark-to-market   (2,000 )   -   (2,000 )   -
Non-recurring and transaction related expenses   653   75   1,514   659
Severance payments   24   148   635   1,331
Provision for device returns   -   -   -   (52 )
Transition costs related to introduction of new device   -   -   -   5
Net change to provision for bad debt expense   64   (2 )   219   74
Write-down of inventory component   112   -   112   -
Legal settlement   -   -   -   675
Tax impact from gain on mark-to-market   761   -   761   -
Decrease in tax valuation allowance   -   (676 )   -   (149 )
Foreign currency revaluations on tax assets   (135 )   2,002   (228 )   700
Uncertain tax positions, net   361   48   1,066   (247 )
Tax impact due to expiration of stock options   (47 )   -   152   -
Impact of income tax rate reduction in Israel   -   -   1,411   -
Non-GAAP Net income $   4,609 $   6,112 $   14,261 $   18,473
       
GAAP earnings (loss) per ordinary share - Diluted   $   0.21   $   0.20   $   0.44   $   0.66    
Share-based compensation   0.06   0.07   0.20   0.22
Impairment of intangible assets   0.03   -   0.03   -
Gain on mark-to-market   (0.13 )   -   (0.13 )   -
Non-recurring and transaction related expenses   0.04   0.00   0.10   0.04
Severance payments   0.00   0.01   0.04   0.08
Provision for device returns   -   -   -   (0.00 )
Transition costs related to introduction of new device   -   -   -   0.00
Net change to provision for bad debt expense   0.00   (0.00 )   0.01   0.00
Write-down of inventory component   0.01   -   0.01   -
Legal settlement   -   -   -   0.04
Tax impact from gain on mark-to-market   0.05   -   0.05   -
Decrease in tax valuation allowance   -   (0.04 )   -   (0.01 )
Foreign currency revaluations on tax assets   (0.01 )   0.12   (0.01 )   0.04
Uncertain tax positions, net   0.02   0.00   0.07   (0.01 )
Tax impact due to expiration of stock options   (0.00 )   -   0.01   -
Impact of income tax rate reduction in Israel   -   -   0.09   -
Non-GAAP Net income per share - Diluted $   0.29 $   0.37 $   0.89 $   1.06
 
Weighted average ordinary shares outstanding - Diluted: 15,865 16,658 15,935 17,426
             
       
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
       
(In thousands)      
(Unaudited) Quarter Quarter Nine Months Nine Months
Ended Ended Ended Ended
30-Sep-16 30-Sep-15 30-Sep-16 30-Sep-15
Net cash provided by operating activities   $   4,935   $   5,656   $   13,284 $   19,331
Less: Capital expenditures   (97 )   -   (256 )   (548 )
Free cash flow $   4,838   $   5,656   $   13,028   $   18,783
Contact:



Seth Potter

Investor Relations

561-749-2255

ir@vocaltec.com

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Source: magicJack VocalTec Ltd.

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