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magicJack Reports Second Quarter 2015 Financial Results

  • Total net revenues of $25.4 million, access rights renewal revenues were $16.5 million
  • GAAP operating income of $6.4 million, Adjusted EBITDA of $10.1 million
  • GAAP diluted EPS of $0.39, non-GAAP diluted EPS of $0.38
  • Generated $6.1 million in operating cash flow
  • Activations at 150,000 and churn reduced to 2.8%
  • Cash and cash equivalents of $82.3 million and no debt as of June 30, 2015
  • Repurchased approximately $10 million of stock to date under share repurchase program

WEST PALM BEACH, Fla. and JERUSALEM, Aug. 10, 2015 (GLOBE NEWSWIRE) -- magicJack VocalTec Ltd. (Nasdaq:CALL), a leading VoIP cloud-based communications company, today announced financial results for the second quarter ended June 30, 2015.

"Our second quarter results were driven by progress with all of our key strategic initiatives, highlighted by the lowest churn rate in several years as well as strong free cash flow generation," said Gerald Vento, President and CEO of magicJack VocalTec. "We remain focused on maximizing cash flow from our core business while pursuing ongoing growth initiatives, including the recent launch of the magicApp and international sales."

Second Quarter 2015 Financial Highlights:

  • Net revenues: Total net revenues for the second quarter of 2015 were $25.4 million. Net revenues from the sales of magicJack devices were $4.2 million and access rights renewal revenues were $16.5 million, and accounted for 65% of total net revenues. Prepaid minute revenues were $2.1 million and access and wholesale charges were $1.3 million during the quarter. Other revenue contributed the remaining $1.1 million of total net revenues during the second quarter of 2015.
  • Operating income: GAAP operating income for the second quarter of 2015 was $6.4 million.
  • Adjusted EBITDA: Adjusted EBITDA for the second quarter of 2015 was $10.1 million.
  • Net income: GAAP net income for the second quarter of 2015 was $7.0 million or $0.39 GAAP diluted net income per share based on 17.7 million weighted-average diluted ordinary shares outstanding.
  • Non-GAAP net income: Non-GAAP net income for the second quarter of 2015 was $6.8 million or $0.38 non-GAAP net income per share based on 17.7 million weighted-average diluted ordinary shares outstanding.
  • Cash and free cash flow: As of June 30, 2015, magicJack VocalTec had cash and cash equivalents of $82.3 million and no debt. During the second quarter of 2015, the company generated $6.1 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 Second Quarter 2015 and Recent Highlights:

  • As of June 30, 2015, magicJack had an estimated 2.62 million active MJ subscribers, which are defined as device users that are under an active subscription contract.
  • magicJack activated 150,000 subscribers during the second quarter of 2015. Activations are defined as devices that become activated on to a subscription contract during a given period.
  • During the quarter ended June 30, 2015, magicJack's average monthly churn was 2.8%.
  • During the quarter ended June 30, 2015, magicJack VocalTec Ltd. repurchased 645,919 shares of common stock at an average price of $7.97 per share as part of its stock repurchase program.
  • Taking into account shares repurchased subsequent to the end of the quarter, the company has repurchased a total of over 1.3 million shares at an average price of $7.52 or approximately $10 million to date.

Quarterly Conference Call:

magicJack VocalTec will host a conference call today at 5:00 p.m. EDT to review the company's financial results for the second quarter of 2015. To access this call, dial 1-888-221-9508 (United States), or 1-913-312-1495 (international), with conference ID #5033637. 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 August 24, 2015, by dialing 1-877-870-5176 (United States), or 1-858-384-5517 (international). The recording access code is #5033637.

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, now in its fifth generation, has millions of downloads of its free calling app, 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.

Non-GAAP Measures

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

  • magicJack defines adjusted EBITDA as GAAP operating income excluding: depreciation and amortization, share-based compensation, transaction related expenses, severance payments, provision for device returns, transition costs related to introduction of a new device, a reversal of unused price protection accrual, the net change to provision for bad debt expense and a legal settlement.
  • magicJack defines non-GAAP net income as GAAP net income excluding: share-based compensation, transaction related expenses, severance payments, provision for device returns, transition costs related to introduction of a new device, a reversal of unused price protection accrual, the net change to provision for bad debt expense, a legal settlement, gain on investments, increase in tax valuation allowance, foreign currency revaluations on tax assets and net uncertain tax positions.
  • 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 our projected cash flows, strategy, future operations, new product introductions and customer acceptance, future financial position, future revenues, projected costs, 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 integrate the magicJack GO device with our mobile app; our ability to successfully monetize our mobile app and market it globally; delays in development we may experience with respect to magicJack devices or our mobile app; our customer turnover rate and our customer acceptance rate; changes in general economic, business, political and regulatory conditions; availability and costs associated with operating our network 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.

Second quarter 2015 financial tables follow:

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited) Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
30-Jun-15 30-Jun-14 30-Jun-15 30-Jun-14
Net revenues $ 25,410 $ 29,480 $ 50,922 $ 64,793
Cost of revenues 8,669 11,392 18,136 24,414
Gross profit 16,741 18,088 32,786 40,379
Operating expenses:
Marketing 1,833 4,690 4,583 8,986
General and administrative 7,311 8,669 15,011 17,319
Research and development 1,168 1,375 2,330 3,119
Total operating expenses 10,312 14,734 21,924 29,424
Operating income 6,429 3,354 10,862 10,955
Other income:
Gains on investments -- 37 -- 37
Interest and dividend income 6 49 17 95
Interest expense (23) (55) (57) (120)
Other (expense) income, net (6) 2 (6) 3
Total other (expense) income (23) 33 (46) 15
Income before income taxes 6,406 3,387 10,816 10,970
Income tax (benefit) expense (546) 1,118 2,556 3,382
Net income $ 6,952 $ 2,269 $ 8,260 $ 7,588
Earnings per ordinary share:
Basic $ 0.39 $ 0.13 $ 0.46 $ 0.43
Diluted $ 0.39 $ 0.13 $ 0.46 $ 0.43
Weighted average ordinary shares outstanding:
Basic 17,694 17,832 17,781 17,830
Diluted 17,721 17,835 17,816 17,833
CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION
(In thousands)
(Unaudited)
As of As of
ASSETS 30-Jun-15 31-Dec-14
Current Assets
Cash and cash equivalents $ 82,327 $ 75,945
Marketable securities, at fair value 367 367
Accounts receivable, net of allowance for doubtful accounts and billing adjustments 2,271 3,903
Inventories 6,771 5,635
Deferred costs 2,166 2,765
Deferred tax assets, current 13,341 13,341
Prepaid income taxes 581 12,513
Deposits and other current assets 1,550 1,170
Total current assets 109,374 115,639
Property and equipment, net 3,704 3,564
Intangible assets, net 7,846 9,473
Goodwill 32,304 32,304
Deferred tax assets, non-current 29,511 32,510
Deposits and other non-current assets 756 743
Total Assets $ 183,495 $ 194,233
LIABILITIES AND CAPITAL EQUITY
Current Liabilities
Accounts payable $ 1,272 $ 2,879
Income tax payable 2,504 9,197
Accrued expenses and other current liabilities 5,007 8,406
Deferred revenue, current portion 56,033 56,445
Total current liabilities 64,816 76,927
Deferred revenue, net of current portion 52,599 54,782
Other non-current liabilities 11,279 13,438
Total Capital Equity 54,801 49,086
Total Liabilities and Capital Equity $ 183,495 $ 194,233
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) Six Months Six Months
Ended Ended
30-Jun-15 30-Jun-14
Cash flows from operating activities:
Net income $ 8,260 $ 7,588
Provision for doubtful accounts and billing adjustments 71 298
Share-based compensation 2,700 4,252
Depreciation and amortization 2,024 2,830
Increase of uncertain tax position (294) --
Deferred income tax provision (benefit) 2,999 (1,342)
Interest expense - non-cash 57 120
Gains on investments -- (37)
Changes in operating assets and liabilities (2,142) 6,369
Net cash provided by operating activities 13,675 20,078
Cash flows from investing activities:
Proceeds from sales of investments -- 9,094
Purchases of property and equipment (548) (1,667)
Net cash (used in) provided by investing activities (548) 7,427
Cash flows from financing activities:
Purchase of treasury stock (5,151) --
Payment of other current liabilities (1,500) (1,500)
Repurchase of shares to settle withholding liability (94) --
Proceeds from exercise of ordinary share options -- 27
Net cash used in financing activities (6,745) (1,473)
Net increase in cash and cash equivalents 6,382 26,032
Cash and cash equivalents, beginning of period 75,945 45,997
Cash and cash equivalents, end of period $ 82,327 $ 72,029
RECONCILIATION OF OPERATING INCOME TO ADJUSTED EBITDA
(In thousands)
(Unaudited) Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
30-Jun-15 30-Jun-14 30-Jun-15 30-Jun-14
GAAP Operating income $ 6,429 $ 3,354 $ 10,862 $ 10,955
Depreciation and amortization 1,008 1,439 2,024 2,830
Share-based compensation 1,417 1,583 2,700 4,252
Impairment of intangible asset -- -- -- --
Transaction related expenses 33 -- 584 --
Severance payments 1,183 -- 1,183 --
Provision for device returns (52) 217 (52) 317
Transition costs related to introduction of new device -- 206 5 206
Reversal of unused price protection accrual -- -- -- (123)
Net change to provision for bad debt expense 44 167 76 262
Favorable settlement with a retail sales broker -- -- -- --
Legal settlement -- -- 675 --
Customer care termination payment -- -- -- --
Certain tax matters -- -- -- --
Adjusted EBITDA $ 10,062 $ 6,966 $ 18,057 $ 18,699
RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME
(In thousands)
(Unaudited) Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
30-Jun-15 30-Jun-14 30-Jun-15 30-Jun-14
GAAP Net income $ 6,952 $ 2,269 $ 8,260 $ 7,588
Share-based compensation 1,417 1,583 2,700 4,252
Impairment of intangible asset -- -- -- --
Transaction related expenses 33 -- 584 --
Severance payments 1,183 -- 1,183 --
Provision for device returns (52) 217 (52) 317
Transition costs related to introduction of new device -- 206 5 206
Reversal of unused price protection accrual -- -- -- (123)
Net change to provision for bad debt expense 44 167 76 262
Favorable settlement with a retail sales broker -- -- -- --
Legal settlement -- -- 675 --
Customer care termination payment -- -- -- --
Certain tax matters -- -- -- --
Gain on investments -- (37) -- (37)
Fair value loss on common equity put options -- -- -- --
Increase in tax valuation allowance 722 -- 527 --
Foreign currency revaluations on tax assets (3,149) -- (1,302) --
Uncertain tax positions, net (400) -- (295) --
Non-GAAP Net income $ 6,750 $ 4,405 $ 12,361 $ 12,465
GAAP earnings per ordinary share – Diluted $ 0.39 $ 0.13 $ 0.47 $ 0.43
Share-based compensation 0.08 0.09 0.15 0.24
Impairment of intangible asset -- -- -- --
Transaction related expenses 0.00 -- 0.03 --
Severance payments 0.07 -- 0.07 --
Provision for device returns (0.00) 0.01 (0.00) 0.02
Transition costs related to introduction of new device -- 0.01 0.00 0.01
Reversal of unused price protection accrual -- -- -- (0.01)
Net change to provision for bad debt expense 0.00 0.01 0.00 0.01
Favorable settlement with a retail sales broker -- -- -- --
Legal settlement -- -- 0.04 --
Customer care termination payment -- -- -- --
Certain tax matters -- -- -- --
Gain on investments -- (0.00) -- (0.00)
Fair value loss on common equity put options -- -- -- --
Release of tax valuation allowance 0.04 -- 0.03 --
Foreign currency revaluations on tax assets (0.18) -- (0.07) --
Uncertain tax positions, net (0.02) -- (0.02) --
Non-GAAP Net income per share – Diluted $ 0.38 $ 0.25 $ 0.70 $ 0.70
Weighted average ordinary shares outstanding - Diluted: 17,721 17,835 17,816 17,833
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(In thousands)
(Unaudited) Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
30-Jun-15 30-Jun-14 30-Jun-15 30-Jun-14
Net cash provided by operating activities $ 6,142 $ 14,190 $ 13,675 $ 20,078
Less: Capital expenditures (5) (1,360) (548) (1,667)
Free cash flow $ 6,137 $ 12,830 $ 13,127 $ 18,411

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

Source:magicJack VocalTec Ltd.