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Press Release -- March 15th, 2017
Source: Cogent Communications
Tags:

magicJack Reports Fourth Quarter and Full Year 2016 Financial Results

  • Total net revenues of $97.4 million during FY16
  • Access rights renewal revenues were $58.5 million in FY16
  • FY16 GAAP operating income of $13.8 million, Adjusted EBITDA of $25.3 million
  • FY16 GAAP diluted EPS of $0.35, non-GAAP diluted EPS of $1.02
  • Generated $14.7 million in free cash flow during FY16
  • Cash and cash equivalents of $52.4 million and no debt as of December 31, 2016
  • Don C. Bell named CEO

WEST PALM BEACH, Fla. and NETANYA, Israel, March 15, 2017 (GLOBE NEWSWIRE) -- magicJack VocalTec Ltd. (NASDAQ:CALL, news, filings), a leading VoIP cloud-based communications and UCaaS company, today announced financial results for the fourth quarter and full year ended December 31, 2016.

"The company executed well in the fourth quarter highlighted by continued progress in our consumer business and free cash flow generation," said Gerald Vento, Former President and CEO of magicJack VocalTec. "Looking forward, I am committed to ensure a smooth handover to newly named Chief Executive Officer, Don Bell and am confident in his ability to lead magicJack in the future."

"I'm very bullish about our future. We're shooting out of the gate with a new executive team and mobile-first and web-first strategy, which targets the needs of SOHO—the underserved mass-market segment of business communications.  Combined with Broadsmart, we'll have a complete UCaaS portfolio addressing the demands of today's market, from individual consumers to large distributed enterprises, and from the simple to the complex, all leveraging a unified, geo-diverse CLEC network.  As CEO, my immediate focus is maximizing shareholder value via our dual track approach through a proactive strategic alternatives process, and immediate execution of our business strategy," stated Don Bell.

Fourth Quarter 2016 Financial Highlights:

  • Net revenues: Total net revenues for the fourth quarter of 2016 were $23.8 million. Net revenues from the sales of magicJack devices were $3.1 million and access rights renewal revenues were $14.0 million, and accounted for 59% of total net revenues. Prepaid minute revenues were $1.1 million and access and wholesale charges were $1.1 million during the quarter. Broadsmart Global, Inc. contributed $2.7 million in revenues to the fourth quarter of 2016. Other revenue items contributed the remaining $1.7 million of total net revenues during the fourth quarter of 2016.
  • Operating Loss: GAAP operating loss the fourth quarter of 2016 was $0.1 million.
  • Adjusted EBITDA: Adjusted EBITDA for the fourth quarter of 2016 was $3.7 million.
  • Net Loss: GAAP net loss attributable to common shareholders for the fourth quarter of 2016 was $1.3 million or $0.08GAAP diluted net loss per share based on 16.1 million weighted-average diluted ordinary shares outstanding.
  • Non-GAAP net income: Non-GAAP net income attributable to common shareholders for the fourth quarter of 2016 was$2.2 million or $0.14 non-GAAP net income per diluted share based on 16.1 million weighted-average diluted ordinary shares outstanding.
  • Cash and free cash flow: As of December 31, 2016, magicJack VocalTec had cash and cash equivalents of $52.4 million and no debt. During the fourth quarter of 2016, the company generated $2.0 million in net cash provided by operating activities and $1.7 million in free cash flow.

Full Year 2016 Financial Highlights:

  • Net revenues: Total net revenues for the full year 2016 were $97.4 million. Net revenues from the sales of magicJack devices were $12.8 million and access rights renewal revenues were $58.5 million, and accounted for 60% of total net revenues. Prepaid minute revenues were $5.7 million and access and wholesale charges were $5.0 million during the full year 2016. Broadsmart Global, Inc. contributed $9.0 million in revenues to the full year 2016. Other revenue items contributed the remaining $6.4 million of total net revenues during the full year 2016.
  • Operating income: GAAP operating income for the full year 2016 was $13.8 million, compared to $25.3 million for 2015.
  • Adjusted EBITDA: Adjusted EBITDA for the full year 2016 was $25.3 million compared to $37.0 million for 2015.
  • Net income: GAAP net income attributable to common shareholders for the full year 2016 was $5.7 million, compared to$13.5 million for 2015. GAAP net income per diluted share was $0.35 based on 16.1 million weighted-average diluted ordinary shares outstanding for the full year 2016, compared to $0.79 per diluted share, based on 17.0 million weighted-average diluted shares outstanding for 2015.
  • Non-GAAP net income: Non-GAAP net income attributable to common shareholders for the full year of 2016 was $16.4 million or $1.02 non-GAAP net income per diluted share based on 16.1 million weighted-average diluted ordinary shares outstanding, compared to $25.1 million, or $1.48 non-GAAP net income per share based on 17.0 million weighted-average diluted ordinary shares outstanding for 2015.
  • Free cash flow: During the full year 2016, the company generated $14.7 million in free cash flow, compared to $24.3 million for 2015.

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 Fourth Quarter 2016 and Recent Highlights:

  • As of December 31, 2016, magicJack had an estimated 2.15 million active MJ subscribers, which are defined as device users that are under an active subscription contract.
  • magicJack activated 95,000 subscribers during the fourth quarter of 2016. Activations are defined as devices that become activated on to a subscription contract during a given period.
  • During the quarter ended December 31, 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, March 15, 2017, at 5:00 p.m. EDT to review the company's financial results for the fourth quarter and full year 2016. To access this call, dial 1-888-428-9490 (United States), or 1-719-457-2697 (international), with conference ID #5698813. 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 at http://www.vocaltec.com/events.cfm. A recording of this conference call will also be available through March 29, 2017, by dialing 1-844-512-2921 (United States), or 1-412-317-6671 (international). The recording access code is #5698813.

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.

Broadsmart, a leading hosted UCaaS (Unified Communication as a Service) provider for medium-to-large multi-location enterprise customers, is a division of magicJack VocalTec Ltd. 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 Non-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, transaction related expenses, proxy contest 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 (loss) income attributable to common shareholders excluding: share-based compensation, impairment of intangible assets, gain on mark-to-market, transaction related expenses, proxy contest 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 and tax related items.
  • 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 SMB products 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.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited) Quarter Quarter Twelve Months Twelve Months
Ended Ended Ended Ended
31-Dec-16 31-Dec-15 31-Dec-16 31-Dec-15
Net revenues $   23,826 $   24,631 $   97,398   $   100,962
Cost of revenues   9,178   7,781   36,734   34,142
Gross profit 14,648 16,850 60,664 66,820
Operating expenses:
Marketing   3,426   2,469   9,085   9,409
General and administrative   9,497   6,250   34,325   27,547
Research and development   1,538   1,103   5,199   4,521
Gain on mark-to-market   300 -   (1,700 ) -
Total operating expenses 14,761 9,822 46,909 41,477
Operating (loss) income   (113 )   7,028   13,755     25,343
Other income (expense):
Interest and dividend income   5   3   26   26
Interest expense - - -   (57 )
Other income (expense)   5   2   (6 ) -
Total other income (expense)   10   5   20   (31 )
(Loss) income before income taxes   (103 )   7,033   13,775     25,312
Income tax expense   1,312   5,094   8,719   11,802
Net (loss) income   (1,415 )   1,939   5,056     13,510
Net loss attributable to noncontrolling interest   154 -   635   -
Net  (loss) income attributable to common shareholders $   (1,261 ) $   1,939 $   5,691   $   13,510
 
(Loss) earnings per ordinary share:
Basic $   (0.08 ) $   0.12 $   0.36 $   0.80
Diluted $   (0.08 ) $   0.12 $   0.35 $   0.79
Weighted average ordinary shares outstanding:
Basic   15,902   15,715   15,815   16,975
Diluted   16,113   15,771   16,064   17,045
CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION
(In thousands)
(Unaudited)
As of As of
ASSETS 31-Dec-16 31-Dec-15
Current Assets
Cash and cash equivalents $   52,394 $   78,589
Investments, at fair value   447   367
Accounts receivable, net   3,171   2,925
Inventories, net   4,441   5,723
Deferred costs   2,319   2,097
Prepaid income taxes   527   2,747
Receivable from earnout escrow   2,000 -
Deposits and other current assets   1,970   2,655
Total current assets   67,269   95,103
Property and equipment, net   3,805   3,302
Intangible assets, net   28,854   6,687
Goodwill   47,185   32,304
Deferred tax assets   26,568   30,689
Deposits and other non-current assets   836   751
Total Assets $   174,517 $   168,836
LIABILITIES AND CAPITAL EQUITY
Current Liabilities
Accounts payable $   2,790 $   1,086
Income tax payable   1,527 -
Accrued expenses and other current liabilities   8,426   6,284
Deferred revenue, current portion   48,507   52,554
Total current liabilities   61,250   59,924
Deferred revenue, net of current portion   44,201   50,146
Other non-current liabilities   10,866   11,098
Total Capital Equity   58,200   47,668
Total Liabilities and Capital Equity $   174,517 $   168,836

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands)
(Unaudited) Twelve Months Twelve Months  
Ended Ended  
31-Dec-16 31-Dec-15  
Cash flows from operating activities:      
Net income $   5,056 $   13,510  
Provision for doubtful accounts and billing adjustments   203   81  
Share-based compensation   4,220   5,268  
Depreciation and amortization   4,733   3,585  
Impairment of intangible assets   998   -  
Decrease of uncertain tax position   (315 )   (1,789 )  
Deferred income tax provisions   4,418   12,863  
Interest expense - non-cash   -   57  
Gain on mark-to-market   (1,700 )   -  
Changes in operating assets and liabilities, net of business acquisitions   (2,363 )   (8,211 )  
Net cash provided by operating activities     15,250     25,364  
Cash flows from investing activities:  
Purchases of investments   (80 )   -  
Purchases of property and equipment   (605 )   (1,024 )  
Acquisition of Broadsmart, net of cash acquired   (40,019 )   -  
Acquisition of intangible assets   (321 )   -  
Net cash used in investing activities     (41,025 )     (1,024 )  
Cash flows from financing activities:  
Purchase of treasury stock   -   (20,000 )  
Payment of other current liabilities   -   (1,500 )  
Repurchase of ordinary shares to settle withholding liability   (430 )   (198 )  
Proceeds from exercise of ordinary share options   10   2  
Net cash used in financing activities     (420 )     (21,696 )  
       
Net (decrease) increase in cash and cash equivalents   (26,195 )   2,644  
Cash and cash equivalents, beginning of period   78,589   75,945  
Cash and cash equivalents, end of period   $   52,394   $   78,589  
RECONCILIATION OF NET REVENUES TO ADJUSTED NET REVENUES
       
(In thousands)      
(Unaudited) Quarter Quarter Twelve Months   Twelve Months
Ended Ended Ended   Ended
31-Dec-16 31-Dec-15 31-Dec-16 31-Dec-15
Net revenues   $   23,826 $   24,631 $   97,398 $   100,962
Certain tax matters   -   (309 )   57   (309 )
Non-GAAP net revenues $   23,826 $   24,322 $   97,455 $   100,653
       
RECONCILIATION OF OPERATING INCOME TO ADJUSTED EBITDA
       
(In thousands)      
(Unaudited) Quarter   Quarter Twelve Months   Twelve Months
Ended   Ended Ended   Ended
31-Dec-16   31-Dec-15 31-Dec-16   31-Dec-15
GAAP Operating (loss) income   $   (113 )   $   7,028   $   13,755 $   25,343
Depreciation and amortization   1,223   708   4,733   3,585
Share-based compensation   1,051   1,362   4,220   5,268
Impairment of intangible assets   500   -   998   -
Gain on mark-to-market   300   -   (1,700 )   -
Transaction related expenses   359   79   1,377   738
Proxy contest related expenses   519   -   1,015   -
Severance payments   217   -   852   1,331
Provision for device returns   (100 )   -   (100 )   (52 )
Transition costs related to introduction of new device   -   -   -   5
Net change to provision for bad debt expense   (219 )   1   -   75
Write-down of inventory component   -   375   112   375
Legal settlement   -   -   -   675
Certain tax matters   -   (309 )   57   (309 )
Adjusted EBITDA $   3,737   $   9,244   $   25,319   $   37,034
       
       
 
RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME
       
(In thousands)      
(Unaudited) Quarter Quarter Twelve Months Twelve Months
Ended Ended Ended Ended
31-Dec-16 31-Dec-15 31-Dec-16 31-Dec-15
GAAP Net (loss) income attributable to common shareholders   $   (1,261 )   $   1,939   $   5,691 $   13,510
Share-based compensation   1,051   1,362   4,220   5,268
Impairment of intangible assets   500   -   998   -
Gain on mark-to-market   300   -   (1,700 )   -
Transaction related expenses   359   79   1,377   738
Proxy contest related expenses   519   -   1,015   -
Severance payments   217   -   852   1,331
Provision for device returns   (100 )   -   (100 )   (52 )
Transition costs related to introduction of new device   -   -   -   5
Net change to provision for bad debt expense   (219 )   1   -   75
Write-down of inventory component   -   375   112   375
Legal settlement   -   -   -   675
Tax related items   820   2,919   3,982   3,223
Non-GAAP Net income $   2,186 $   6,675 $   16,447 $   25,148
       
GAAP (loss) earnings per ordinary share - Diluted   $   (0.08 )   $   0.12   $   0.35   $   0.79
Share-based compensation   0.07   0.09   0.26   0.31
Impairment of intangible assets   0.03   -   0.06   -
Gain on mark-to-market   0.02   -   (0.11 )   -
Transaction related expenses   0.02   0.01   0.09   0.04
Proxy contest related expenses   0.03   -   0.06   -
Severance payments   0.01   -   0.05   0.08
Provision for device returns   (0.01 )   -   (0.01 )   (0.00 )
Transition costs related to introduction of new device   -   -   -   0.00
Net change to provision for bad debt expense   (0.01 )   0.00   -   0.00
Write-down of inventory component   -   0.02   0.01   0.02
Legal settlement   -   -   -   0.04
Tax related items   0.05   0.19   0.25   0.19
Non-GAAP Net income per share - Diluted $   0.14 $   0.42 $   1.02 $   1.48
 
Weighted average ordinary shares outstanding - Diluted: 16,113 15,771 16,064 17,045
         
       
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
       
(In thousands)      
(Unaudited) Quarter Quarter Twelve Months Twelve Months
Ended Ended Ended Ended
31-Dec-16 31-Dec-15 31-Dec-16 31-Dec-15
Net cash provided by operating activities   $   2,007   $   6,033   $   15,291 $   25,364
Less: Capital expenditures   (349 )   (476 )   (605 )   (1,024 )
Free cash flow $   1,658   $   5,557   $   14,686   $   24,340
Contact:



Seth Potter

Investor Relations

561-749-2255

ir@vocaltec.com

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Source: magicJack VocalTec Ltd.

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