Press Releases

magicJack Reports Second Quarter 2014 Financial Results

August 11, 2014

  • Total net revenues of $29.5 million
  • Access rights renewal revenues were $16.1 million, up from $15.4 million in Q114
  • GAAP operating income of $3.4 million, adjusted EBITDA of $7.0 million
  • GAAP diluted EPS of $0.13; non-GAAP diluted EPS of $0.31
  • Generated $5.6 million in free cash flow
  • Cash and cash equivalents of $72.0 million and no debt

WEST PALM BEACH, Fla. and JERUSALEM, Aug. 11, 2014 (GLOBE NEWSWIRE) -- magicJack VocalTec Ltd. (Nasdaq:CALL), a leading cloud-based communications company, today announced financial results for the second quarter ended June 30, 2014.

"The second quarter marked a transition point for the Company, as we began to execute our turn-around plan to return the company to growth," said Gerald Vento, President and CEO of magicJack VocalTec "While we have made progress in several areas, much work remains ahead. In the second half of the year, we will begin generating new revenues through the release of international calling features through our App."

Second Quarter 2014 Financial Highlights:

  • Net revenues: Total net revenues for the second quarter of 2014 were $29.5 million. Net revenues from the sales of magicJack devices were $6.5 million and access rights renewal revenues were $16.1 million, an increase of 5% on a quarter-over-quarter basis, and accounted for 55% of total net revenues. Prepaid minute revenues were $2.6 million and access and wholesale charges were $1.6 million during the quarter. Other revenue contributed the remaining $2.6 million of total net revenues during the second quarter of 2014.
     
  • Operating income: GAAP operating income for the second quarter of 2014 was $3.4 million, compared to $9.6 million for the second quarter of 2013.   
     
  • Adjusted EBITDA: Adjusted EBITDA was $7.0 million for the second quarter of 2014 compared to $13.8 million for the second quarter of 2013.
     
  • Net income: GAAP net income for the second quarter of 2014 was $2.3 million, compared to $6.5 million for the same period last year. GAAP diluted income per share for the second quarter was $0.13, based on 17.8 million weighted-average diluted shares outstanding, compared to $0.35, based on 18.6 million weighted-average diluted shares outstanding, for the same period last year.  
     
  • Non-GAAP income before tax: Non-GAAP income before tax for the second quarter of 2014 was $5.5 million, compared to $12.4 million for the second quarter of 2013. Non-GAAP pre-tax earning per diluted-ordinary share for the second quarter was $0.31, based on 17.8 million weighted-average diluted shares outstanding, compared to $0.67 per diluted share, based on 18.6 million weighted-average diluted shares outstanding, for the same period last year.
     
  • Cash and free cash flow: As of June 30, 2014, magicJack VocalTec had cash and cash equivalents of $72.0 million.  During the second quarter of 2014, the Company generated $5.6 million in free cash flow, an increase of 206% compared to $1.8 million generated in the second quarter of 2013. 

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

Additional Second Quarter 2014 and Recent Highlights:

  • magicJack APP had 3.4 million monthly active unique APP users as of June 30, 2014.
     
  • As of June 30, 2014, magicJack had an estimated 2.9 million active MJ subscribers, which we define as users of MJ or MJP that are under an active subscription contract.
     
  • magicJack activated 165,000 subscribers during the second quarter of 2014. Activations are defined as devices that become activated on to a subscription contract during a given period.
     
  • During the second quarter ended June 30, 2014, magicJack's average monthly churn was 3.1%.  
     
  • magicJack launched magicJackGO, an ultra low cost voice service that provides customers with a single number that can be used on both traditional phones and smartphones.

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 2014. To access this call, dial 1-888-218-8176 (United States), or 1-913-312-1375 (international), with conference ID #5069935. 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 25, 2014, by dialing 1-877-870-5176 (United States), or 1-858-384-5517 (international). The recording access code is #5069935.

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 10 million award-winning magicJack devices, now in its fourth 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 issuances and compensation, a gain in adjustment for a favorable settlement with a retail sales broker, transition costs related to introduction of the new magicJack device, a reversal of unused price protection accrual and reserves for device returns and bad debt expense, former executive severance payments, and certain tax matters. magicJack defines non-GAAP income before tax as GAAP net income excluding: share-based issuances and compensation, a gain in adjustment for a favorable settlement with a retail sales broker, transition costs related to introduction of the new magicJack device, a reversal of unused price protection accrual and reserves for device returns and bad debt expense, former executive severance payments, and certain tax matters, a change in gain on investments, a change in fair value loss (gain) on common equity put options, and income tax expense. 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 revenues, income, 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 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; 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; 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 2014 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-14 30-Jun-13 30-Jun-14 30-Jun-13
Net revenues  $ 29,480  $ 32,902  $ 64,793  $ 69,779
Cost of revenues 11,392 12,056 24,414 23,199
Gross profit 18,088 20,846 40,379 46,580
Operating expenses:        
Marketing 4,690 2,757 8,986 5,571
General and administrative 8,669 6,676 17,319 13,494
Research and development 1,375 1,774 3,119 2,636
Total operating expenses 14,734 11,207 29,424 21,701
Operating income  3,354  9,639  10,955  24,879
Other income (expense):        
Gains on investments  37  195  37  722
Interest and dividend income  49  74  95  230
Interest expense  (55)  (84)  (120)  (177)
Fair value loss on common equity put options  --   --   --   (1,047)
Other income, net  2  --   3  1
Total income (expense)   33  185  15  (271)
Income before income taxes  3,387  9,824  10,970  24,608
Income tax expense  1,118  3,316  3,382  8,514
Net income  $ 2,269  $ 6,508  $ 7,588  $ 16,094
         
Earnings per ordinary share:        
Basic  $ 0.13  $ 0.35  $ 0.43  $ 0.86
Diluted  $ 0.13  $ 0.35  $ 0.43  $ 0.86
Weighted average ordinary shares outstanding:        
Basic 17,832 18,552 17,830 18,618
Diluted 17,835 18,560 17,833 18,627
         
     
CONDENSED CONSOLIDATED BALANCE SHEETS
     
(In thousands)    
(Unaudited)    
  As of As of
ASSETS 30-Jun-14 31-Dec-13
Current Assets    
Cash and cash equivalents  $ 72,029  $ 45,997
Marketable securities, at fair value 367 8,782
Accounts receivable, net of allowance for doubtful accounts and billing adjustments 4,264  3,626
Inventories  3,534 4,490
Deferred costs  1,765 4,662
Deferred tax assets, current  10,540 11,267
Prepaid income taxes  9,746 11,956
Deposits and other current assets 2,715 818
Total current assets 104,960 91,598
     
Property and equipment, net 3,405 1,959
Intangible assets, net 13,106 15,656
Goodwill 32,304 32,304
Deferred tax assets, non-current 31,753 29,684
Deposits and other non-current assets 757 693
Total Assets  $186,285  $171,894
     
LIABILITIES AND CAPITAL EQUITY    
Current Liabilities    
Accounts payable  $ 6,860  $ 4,237
Accrued expenses and other current liabilities 8,879 9,236
Deferred revenue, current portion 55,023 54,541
Total current liabilities 70,762 68,014
     
Deferred revenue, net of current portion 59,547 59,951
Other non-current liabilities 6,025 6,487
Total Capital Equity 49,951 37,442
Total Liabilities and Capital Equity  $186,285  $171,894
     
     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
     
(In thousands)    
(Unaudited) Six Months Six Months
  Ended Ended
  30-Jun-14 30-Jun-13
Cash flows from operating activities:  
Net income  $ 7,588  $ 16,094
Provision for doubtful accounts and billing adjustments  298  2,000
Share-based issuances and compensation  4,252  400
Depreciation and amortization  2,830  2,531
Deferred income tax (provision) benefit  (1,342)  47
Interest expense - non-cash  120  177
Gains on investments  (37)  (722)
Fair value loss on common equity put options  --  1,047
Changes in operating assets and liabilities  6,369  (3,125)
Net cash provided by operating activities  20,078  18,449
Cash flows from investing activities:  
Proceeds from sales of investments  9,094  12,622
Purchases of property and equipment  (1,667)  (84)
Acquisition of intangible assets  --  (117)
Net cash provided by investing activities  7,427  12,421
Cash flows from financing activities:  
Purchase of treasury stock  --  (5,704)
Proceeds from exercise of ordinary share options  27  --
Payment of other non-current liabilities  (1,500)  (1,500)
Net cash used in financing activities  (1,473)  (7,204)
     
Net increase in cash and cash equivalents  26,032  23,666
Cash and cash equivalents, beginning of period  45,997  18,959
Cash and cash equivalents, end of period  $ 72,029  $ 42,625
     
         
RECONCILIATION OF OPERATING INCOME TO ADJUSTED EBITDA
         
(In thousands)        
(Unaudited) Quarter Quarter Six Months Six Months
  Ended Ended Ended Ended
  30-Jun-14 30-Jun-13 30-Jun-14 30-Jun-13
GAAP Operating income  $ 3,354  $ 9,639  $ 10,955  $ 24,879
Depreciation and amortization  1,439  1,368  2,830  2,531
Share-based issuances and compensation  1,583  --  4,252  400
Favorable settlement with a retail sales broker  --  --  --  (1,192)
Transition costs related to introduction of new magicJack device  206  1,200  206  1,200
Former executive severance payments  --  798  --  798
Certain tax matters  --  750  --  750
Reversal of unused price protection accrual  --  --  (123)  --
Reserve for device returns  217  --  317  --
Reserve for bad debt expense  167  --  262  --
Adjusted EBITDA  $ 6,966  $ 13,755  $ 18,699  $ 29,366
         
         
RECONCILIATION OF NET INCOME TO NON-GAAP INCOME BEFORE TAX
         
(In thousands)        
(Unaudited) Quarter Quarter Six Months Six Months
  Ended Ended Ended Ended
  30-Jun-14 30-Jun-13 30-Jun-14 30-Jun-13
GAAP Net income  $ 2,269  $ 6,508  $ 7,588  $ 16,094
Share-based issuances and compensation  1,583  --  4,252  400
Favorable settlement with a retail sales broker  --  --  --  (1,192)
Transition costs related to introduction of new magicJack device  206  1,200  206  1,200
Former executive severance payments  --  798  --  798
Certain tax matters  --  750  --  750
Reversal of unused price protection accrual  --  --  (123)  --
Reserve for device returns  217  --  317  --
Reserve for bad debt expense  167  --  262  --
Gains on investments  (37)  (195)  (37)  (722)
Fair value loss (gain) on common equity put options  --  --  --  1,047
Income tax expense  1,118  3,316  3,382  8,514
Non-GAAP Income before tax  $ 5,523  $ 12,377  $ 15,847  $ 26,889
         
         
GAAP Earnings per ordinary share - Diluted  $ 0.13  $ 0.35  $ 0.43  $ 0.86
Share-based issuances and compensation  0.09  --  0.24  0.02
Favorable settlement with a retail sales broker  --  --  --  (0.06)
Transition costs related to introduction of new magicJack device  0.01  0.06  0.01  0.06
Former executive severance payments  --  0.04  --  0.04
Certain tax matters  --  0.04  --  0.04
Reversal of unused price protection accrual  --  --  (0.01)  --
Reserve for device returns  0.01  --  0.02  --
Reserve for bad debt expense  0.01  --  0.01  --
Gains on investments  (0.00)  (0.01)  (0.00)  (0.04)
Fair value loss (gain) on common equity put options  --  --  --  0.06
Income tax expense  0.06  0.18  0.19  0.46
Non-GAAP Pre-tax earnings per share - Diluted  $ 0.31  $ 0.67  $ 0.89  $ 1.44
         
Weighted average ordinary shares outstanding: Diluted 17,835 18,560 17,833 18,627
         
         
         
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-14 30-Jun-13 30-Jun-14 30-Jun-13
Net cash provided by operating activities  $ 5,888  $ 1,823  $ 20,078  $ 18,449
Less: Capital expenditures  (307)  --  (1,667)  (84)
Free cash flow  $ 5,581  $ 1,823  $ 18,411  $ 18,365
         
CONTACT: Seth Potter

         Investor Relations

         561-749-2255

         ir@vocaltec.com

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Source: magicJack VocalTec Ltd.

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