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Press Release -- March 16th, 2018
Source: magicJack VocalTec
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magicJack Reports Fourth Quarter and Full Year 2017 Financial Results

magicJack Reports Fourth Quarter and Full Year 2017 Financial Results
March 16, 2018
Total net revenues of $88.0 million during FY17
FY17 GAAP operating loss of $28.2 million, Adjusted EBITDA of $20.1 million
FY17 GAAP diluted EPS of $(1.55), non-GAAP diluted EPS of $1.12
Cash and cash equivalents of $52.6 million and no debt as of December 31, 2017
WEST PALM BEACH, Fla. and NETANYA, Israel, March 16, 2018 (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, 2017.

Fourth Quarter 2017 Financial Highlights:

Net revenues: Total net revenues for the fourth quarter of 2017 were $20.8 million. Net revenues from the sales of magicJack devices were $2.4 million and access rights renewal revenues were $12.6 million, and accounted for 61% of total net revenues. Prepaid minute revenues were $1.0 million and access and wholesale charges were $0.8 million during the quarter. Broadsmart Global, Inc. contributed $2.5 million in revenues to the fourth quarter of 2017. Other revenue items contributed the remaining $1.5 million of total net revenues during the fourth of 2017.

Operating Income: GAAP operating income for the fourth quarter of 2017 was $1.3 million, which included $2.7 million in net charges primarily related to non-recurring professional and legal costs, provision for closure of our distribution warehouse, and executive management transition expenses and severance expenses.

Adjusted EBITDA: Adjusted EBITDA for the fourth quarter of 2017 was $5.6 million.

Net Loss: GAAP net loss attributable to common shareholders for the fourth quarter of 2017 was $2.8 million or $0.17 GAAP diluted net loss per share based on 16.1 million weighted-average diluted ordinary shares outstanding. GAAP net loss included the aforementioned items under the Operating Income section above, as well as a $6.4 million impact from the following tax-related items:

$6.1 million initial estimated impact from change in the U.S. federal income tax rate, which resulted in the Company revaluing its deferred tax assets and lowering their value;
$1.0 million increase to uncertain tax positions;
$0.4 million increase in our tax valuation allowance;
$(1.0) million revaluation of the Israel net operating loss carryforwards; and
$(0.1) million increase to deferred tax assets related to expiration and forfeiture of stock options and restricted stock awards.

Non-GAAP net income: Non-GAAP net income attributable to common shareholders for the fourth quarter of 2017 was $7.0 million or $0.43 non-GAAP net income per diluted share based on 16.1 million weighted-average diluted ordinary shares outstanding.

Cash: As of December 31, 2017, magicJack VocalTec had cash and cash equivalents of $52.6 million and no debt. During the fourth quarter of 2017, the company generated $1.7 million in net cash provided by operating activities, which reflects the impact of $1.5 million in costs related to the strategic process, approximately $0.7 million paid for renewal of certain annual insurance policies, and $0.3 million in payments related to executive management transition payments.
Full Year 2017 Financial Highlights:

Net revenues: Total net revenues for the full year 2017 were $88.0 million. Net revenues from the sales of magicJack devices were $10.4 million and access rights renewal revenues were $51.9 million, and accounted for 59% of total net revenues. Prepaid minute revenues were $4.4 million and access and wholesale charges were $3.8 million during the full year 2017. Broadsmart Global, Inc. contributed $10.9 million in revenues to the full year 2017. Other revenue items contributed the remaining $6.6 million of total net revenues during the full year 2017.
Operating loss: GAAP operating loss for the full year 2017 was $28.2 million, which included the following:

$31.5 million one-time charge related to Broadsmart consisting of a $19.8 million write-down in asset carrying valued grossed up for the associated tax benefit;
$4.8 million in non-recurring legal costs, professional fees, legal settlements and consideration adjustment related to the ongoing sale process, shareholder proxy dispute costs and legal dispute with Broadsmart founders;
$3.1 million severance and senior management transition expenses; and
$1.5 million in non-recurring items including impairment of certain assets, write-down of inventory components, provision for restructuring related to closures of two locations, and certain tax matters.

Adjusted EBITDA: Adjusted EBITDA for the full year 2017 was $20.1 million.

Net loss: GAAP net loss attributable to common shareholders for the full year 2017 was $25.0 million or $1.55 GAAP net loss per diluted share based on 16.1 million weighted-average diluted ordinary shares outstanding. GAAP net loss included items described under the Operating loss section above, as well as a $(0.9) million impact from certain tax-related items.

Non-GAAP net income: Non-GAAP net income attributable to common shareholders for the full year of 2017 was $18.0 million or $1.12 non-GAAP net income per diluted share based on 16.1 million weighted-average diluted ordinary shares outstanding.

Cash: During the full year 2017, the company generated $2.0 million in net cash provided by operating activities, which reflects the impact of the following items:

$3.7 million in payments related to severances, executive transition payments, and executive sign-on bonuses
$3.0 million estimated U.S. federal tax payment;
$1.8 million in non-recurring legal and professional fees related to the sale process;
$1.0 million in payments of expenses associated with the proxy dispute;
$2.0 million received from escrow related to the acquisition of Broadsmart Global, Inc.; and
$1.0 million received from a dispute settlement.
A reconciliation of GAAP to non-GAAP measures 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 2017 and Recent Highlights:

As of December 31, 2017, magicJack had an estimated 1.95 million active MJ subscribers, which are defined as device users that are under an active subscription contract.

magicJack activated 78,000 subscribers during the fourth quarter of 2017. Activations are defined as devices that become activated on to a subscription contract during a given period.

During the quarter ended December 31, 2017, magicJack’s average monthly churn was 2.3%.
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.

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.

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

Contact:

Seth Potter
Investor Relations
561-749-2255
ir@vocaltec.com

Non-GAAP Measures

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

magicJack defines non-GAAP adjusted EBITDA as GAAP operating income (loss) excluding: depreciation and amortization, share-based compensation, impairment of intangible assets, asset impairment, consideration adjustment / gain on mark-to-market, transaction related expenses, proxy contest related expenses, severance and senior management transition expenses, write-down of inventory components and other items.

magicJack defines non-GAAP net income as GAAP net (loss) income attributable to common shareholders excluding: share-based compensation, impairment of intangible assets, asset impairment, consideration adjustment / gain on mark-to-market, transaction related expenses, proxy contest related expenses, severance and senior management transition expenses, write-down of inventory components, other items and tax related items.
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.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)
(Unaudited) Quarter Quarter Twelve Months Twelve Months
Ended Ended Ended Ended
31-Dec-17 31-Dec-16 31-Dec-17 31-Dec-16
Net revenues $ 20,758 $ 23,826 $ 87,993 $ 97,398
Cost of revenues 7,491 9,178 32,938 36,734
Gross profit 13,267 14,648 55,055 60,664
Operating expenses:
Marketing 1,822 3,426 8,282 9,085
General and administrative 8,726 8,997 38,425 33,327
Research and development 1,458 1,538 5,896 5,199
Impairment of intangible assets and goodwill - 500 31,527 998
Consideration adjustment / gain on mark-to-market - 300 (894 ) (1,700 )
Total operating expenses 12,006 14,761 83,236 46,909
Operating income (loss) 1,261 (113 ) (28,181 ) 13,755
Other income (expense):
Interest and dividend income 58 5 123 26
Other (expense) income (6 ) 5 (34 ) (6 )
Total other income 52 10 89 20
Income (loss) before income taxes 1,313 (103 ) (28,092 ) 13,775
Income tax expense (benefit) 4,065 1,312 (3,129 ) 8,719
Net (loss) income (2,752 ) (1,415 ) (24,963 ) 5,056
Net loss attributable to noncontrolling interest - 154 - 635
Net (loss) income attributable to common shareholders $ (2,752 ) $ (1,261 ) $ (24,963 ) $ 5,691

(Loss) earnings per ordinary share:
Basic $ (0.17 ) $ (0.08 ) $ (1.55 ) $ 0.36
Diluted $ (0.17 ) $ (0.08 ) $ (1.55 ) $ 0.35
Weighted average ordinary shares outstanding:
Basic 16,125 15,902 16,088 15,815
Diluted 16,125 16,113 16,088 16,064

CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION

(In thousands)
(Unaudited)
As of As of
ASSETS 31-Dec-17 31-Dec-16
Current Assets
Cash and cash equivalents $ 52,638 $ 52,394
Investments, at fair value 369 447
Accounts receivable, net 2,428 3,171
Inventories 1,880 4,441
Deferred costs 1,936 2,319
Prepaid income taxes 2,016 527
Receivable from earnout escrow - 2,000
Deposits and other current assets 1,874 1,970
Total current assets 63,141 67,269

Property and equipment, net 2,772 3,805
Intangible assets, net 10,190 28,854
Goodwill 32,304 47,185
Deferred tax assets 31,726 26,568
Deposits and other non-current assets 909 836
Total Assets $ 141,042 $ 174,517

LIABILITIES AND CAPITAL EQUITY
Current Liabilities
Accounts payable $ 3,199 $ 2,790
Income tax payable - 1,527
Accrued expenses and other current liabilities 6,454 8,426
Deferred revenue, current portion 42,243 48,507
Total current liabilities 51,896 61,250

Deferred revenue, net of current portion 38,797 44,201
Other non-current liabilities 13,787 10,866
Total Capital Equity 36,562 58,200
Total Liabilities and Capital Equity $ 141,042 $ 174,517

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Unaudited) Twelve Months Twelve Months
Ended Ended
31-Dec-17 31-Dec-16
Cash flows from operating activities:
Net (loss) income $ (24,963 ) $ 5,056
Provision for doubtful accounts and billing adjustments - 203
Share-based compensation 3,042 4,220
Depreciation and amortization 4,374 4,733
Impairment of intangible assets 31,527 998
Increase (decrease) of uncertain tax position 2,628 (315 )
Deferred income tax (benefit) provision (4,605 ) 4,418
Consideration adjustment / gain on mark-to-market - (1,700 )
Loss on sale of assets 243 -
Changes in operating assets and liabilities, net of business acquisitions (10,219 ) (2,363 )
Net cash provided by operating activities 2,027 15,250
Cash flows from investing activities:
Purchases of investments - (80 )
Proceeds from sales of investments 245 -
Purchases of property and equipment (611 ) (605 )
Proceeds from sale of property and equipment 25 -
Acquisition of Broadsmart, net of cash acquired - (40,019 )
Acquisition of intangible assets (1,090 ) (321 )
Net cash used in investing activities (1,431 ) (41,025 )
Cash flows from financing activities:
Repurchase of ordinary shares to settle withholding liability (455 ) (430 )
Proceeds from exercise of ordinary share options 103 10
Net cash (used in) financing activities (352 ) (420 )

Net increase (decrease) in cash and cash equivalents 244 (26,195 )
Cash and cash equivalents, beginning of period 52,394 78,589
Cash and cash equivalents, end of period $ 52,638 $ 52,394

RECONCILIATION OF OPERATING INCOME (LOSS) TO NON-GAAP ADJUSTED EBITDA

(In thousands)
(Unaudited) Quarter Quarter Twelve Months Twelve Months
Ended Ended Ended Ended
31-Dec-17 31-Dec-16 31-Dec-17 31-Dec-16
GAAP Operating income (loss) $ 1,261 $ (113 ) $ (28,181 ) $ 13,755
Depreciation and amortization 977 1,223 4,374 4,733
Share-based compensation 989 1,051 3,042 4,220
Impairment of intangible assets - 500 31,527 998
Asset impairment - - 490 -
Consideration adjustment / Gain on mark-to-market - 300 (894 ) (1,700 )
Transaction related expenses - - - 799
Proxy contest related expenses - 519 1,042 1,015
Severance and senior management transition expenses 99 217 3,067 852
Write-down of inventory components - - 386 112
Other Items 2,281 40 5,235 535
Non- GAAP Adjusted EBITDA $ 5,607 $ 3,737 $ 20,088 $ 25,319

RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP NET INCOME

(In thousands)
(Unaudited) Quarter Quarter Twelve Months Twelve Months
Ended Ended Ended Ended
31-Dec-17 31-Dec-16 31-Dec-17 31-Dec-16
GAAP Net (loss) income attributable to common shareholders $ (2,752 ) $ (1,261 ) $ (24,963 ) $ 5,691
Share-based compensation 989 1,051 3,042 4,220
Impairment of intangible assets - 500 31,527 998
Asset impairment - - 490 -
Consideration adjustment / Gain on mark-to-market - 300 (894 ) (1,700 )
Transaction related expenses - - - 799
Proxy contest related expenses - 519 1,042 1,015
Severance and senior management transition expenses 99 217 3,067 852
Write-down of inventory components - - 386 112
Other Items 2,281 40 5,235 535
Tax related items 6,391 820 (887 ) 3,982
Non-GAAP Net income $ 7,008 $ 2,186 $ 18,045 $ 16,504

GAAP (loss) earnings per ordinary share – Diluted $ (0.17 ) $ (0.08 ) $ (1.55 ) $ 0.35
Share-based compensation 0.06 0.07 0.19 0.26
Impairment of intangible assets - 0.03 1.96 0.06
Asset impairment - - 0.03 -
Consideration adjustment / Gain on mark-to-market - 0.02 (0.06 ) (0.11 )
Transaction related expenses - - - 0.05
Proxy contest related expenses - 0.03 0.06 0.06
Severance and senior management transition expenses 0.01 0.01 0.19 0.05
Write-down of inventory components - - 0.02 0.01
Other Items 0.14 0.00 0.33 0.03
Tax related items 0.40 0.05 (0.06 ) 0.25
Non-GAAP Net income per share – Diluted $ 0.43 $ 0.14 $ 1.12 $ 1.03

Weighted average ordinary shares outstanding - Diluted: 16,125 16,113 16,088 16,064

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Source: magicJack VocalTec Ltd

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