August 8, 2013

magicJack Reports Second Quarter 2013 Financial Results

  • Total Non-GAAP net revenues of $34.9 million
  • Access rights renewal revenues were $14.1 million, up 33% year-over-year
  • GAAP operating income of $9.6 million, Adjusted EBITDA of $13.8 million
  • GAAP diluted EPS of $0.35, Non-GAAP diluted EPS of $0.67
  • Estimated 3.36 million active subscribers as of quarter-end

WEST PALM BEACH, Fla. and NETANYA, ISRAEL, Aug. 8, 2013 (GLOBE NEWSWIRE) -- magicJack VocalTec Ltd. (Nasdaq:CALL), a leading cloud communications company, today announced financial results for the second quarter ended June 30, 2013.

"The second quarter marks the beginning of a new phase of the Company's growth. The market has responded enthusiastically to the release of the New magicJack Plus and early product sales have been strong," said magicJack VocalTec President and CEO Gerald Vento. "We have a strong balance sheet and a highly efficient business model that generates consistent cash flows. We are in the early stages of expanding our reach both internationally and in mobile. We are confident that the future for the Company looks bright."

Second Quarter 2013 Financial Highlights:

  • Net revenues: Total net GAAP revenues were $32.9 million. After adding back one-time revenue items of $2.0 million during the second quarter of 2013, total non-GAAP net revenues were $34.9 million. Net revenues from the sales of magicJack and magicJack PLUS were $11.2 million and access rights renewal revenues were $14.1 million, an increase of 33% on a year-over-year basis, and accounted for 43% of total net revenues. Prepaid minute revenues were $3.2 million and access and wholesale charges were $1.5 million during the quarter. Other revenue contributed the remaining $2.9 million of total net revenues during the second quarter of 2013.
  • Operating income: GAAP operating income for the second quarter of 2013 was $9.6 million, compared to $10.3 million for the second quarter of 2012.
  • Adjusted EBITDA: Adjusted EBITDA was $13.8 million for the second quarter of 2013, an increase of 24% compared to $11.1 million for the second quarter of 2012.
  • Net income: GAAP net income for the second quarter of 2013 was $6.5 million, compared to $10.3 million for the same period last year. GAAP diluted income per share for the second quarter was $0.35, based on 18.6 million weighted-average diluted shares outstanding, compared to $0.50, based on 20.6 million weighted-average diluted shares outstanding, for the same period last year. GAAP net income during the second quarter of 2013 includes one-time items of $2.7 million. In addition, the second quarter of 2013 includes $3.3 million in tax expense compared to $19,000 during the second quarter of 2012, which reflects the company's current projected effective 2013 tax rate of approximately 34.6%.
  • Non-GAAP net income: Non-GAAP net income for the second quarter of 2013 was $12.4 million, compared to $10.6 million for the second quarter of 2012. Non-GAAP net income per diluted share for the second quarter was $0.67, based on 18.6 million weighted-average diluted shares outstanding, compared to $0.51 per diluted share, based on 20.6 million weighted-average diluted shares outstanding, for the same period last year.
  • Cash and free cash flow: As of June 30, 2013, magicJack VocalTec had cash, cash equivalents and marketable securities of $48.6 million. For the first six months the Company generated $18.4 million in free cash flow, after giving effect to estimated tax payments of $10.2 million, executive severance payments of approximately $0.8 million, and $0.9 million for the legal settlement of a patent issue.

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."

FY 2013 Financial Guidance:

There is no change to the Company's revenue and Adjusted EBITDA guidance included in its May 9, 2013 earnings release.

Additional Second Quarter 2013 and Recent Highlights:

  • magicJack announced that it launched sales of New MagicJack PLUS on June 24, 2013.
  • As of June 30, 2013, magicJack had an estimated 3.36 million active MJ subscribers, which we define as users of MJ or MJP that are under an active subscription contract.
  • magicJack's magicJack APP had approximately 4.37 million APP users.

Quarterly Conference Call:

magicJack VocalTec will host a conference call today at 5:00 p.m. EST to review the company's financial results for the second quarter 2013. To access this call, dial 1-800-753-9057 (United States), or 1-913-312-0940 (international), with conference ID #1919789. 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 22, 2013, by dialing 1-877-870-5176 (United States), or 1-858-384-5517 (international). The recording access code is #1919789.

About magicJack VocalTec Ltd.

magicJack VocalTec Ltd. (Nasdaq:CALL), the inventor of the magicJack, is a leading cloud communications company. The Company has sold more than 11 million of the easy-to-use, award-winning magicJack since the device's launch in 2008, and has the use of more than 30 patents, some dating to when the Company invented VoIP. It is the largest-reaching CLEC (Competitive Local Exchange Carrier) in the United States in terms of area codes available and certification in number of states, and the network has historically had uptime of over 99.99 percent.

Non-GAAP Measures

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

magicJack defines Non-GAAP net revenues as GAAP net revenues excluding: a gain in operational change related to prepaid minutes, a gain in adjustment for a favorable settlement with a retail sales broker, transition costs related to introduction of New magicJack Plus, and certain tax matters. magicJack defines adjusted EBITDA as GAAP operating income excluding: depreciation and amortization, share-based compensation, a gain in adjustment for operational change related to prepaid minutes, a gain in adjustment for a favorable settlement with a retail sales broker, transition costs related to introduction of New magicJack Plus, former executive severance payments, and certain tax matters. magicJack defines non-GAAP net income as GAAP net income excluding: share-based compensation, a gain in adjustment for operational change related to prepaid minutes, a gain in adjustment for a favorable settlement with a retail sales broker, transition costs related to introduction of New magicJack Plus, 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; any operational or cultural difficulties associated with the continuing integration of the businesses of VocalTec and YMax; potential adverse reactions or changes to business relationships resulting from the completion of the merger; unexpected costs, charges or expenses resulting from the merger; the ability of the combined Company to achieve the estimated potential synergies or the longer time it may take, and increased costs required, to achieve those synergies; our ability to develop, introduce and market innovative products, services and applications; 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 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 2013 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-13 30-Jun-12 30-Jun-13 30-Jun-12
Net revenues    $ 32,902  $ 38,559  69,779  $ 76,146
Cost of revenues   12,056 15,059  23,199 30,619
Gross profit   20,846 23,500 46,580 45,527
Operating expenses:          
Advertising   2,757 5,740  5,571 14,444
General and administrative   6,676 6,872  13,494 13,706
Research and development   1,774 570  2,636 1,228
Total operating expenses   11,207 13,182 21,701 29,378
Operating income    9,639  10,318  24,879  16,149
Other income (expense):          
Gain on investments    195  235  722  832
Interest expense    (84)  (105)  (177)  (224)
Fair value (loss) gain on common equity put options    --   (371)  (1,047)  1,285
Other income, net    74  212  231  473
Total other (expense) income    185  (29)  (271)  2,366
Income before income taxes    9,824  10,289  24,608  18,515
Income tax expense    3,316  19  8,514  49
Net income    $ 6,508  $ 10,270  $ 16,094  $ 18,466
           
Income per ordinary share:          
  Basic  $ 0.35  $ 0.51  $ 0.86  $ 0.89
  Diluted  $ 0.35  $ 0.50  $ 0.86  $ 0.87
Weighted average ordinary shares outstanding:          
  Basic  18,552  20,211  18,618  20,652
  Diluted  18,560  20,586  18,627  21,317
           
     
CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION
     
(In thousands)    
(Unaudited)    
  As of As of
ASSETS 30-Jun-13 31-Dec-12
Current Assets    
Cash and cash equivalents  $ 42,625  $ 18,959
Marketable securities, at fair value 5,948 19,390
Accounts receivable, net of allowance for doubtful accounts and billing adjustments 4,054 6,004
Inventories 6,485 5,340
Deferred costs 6,277 7,066
Deferred tax assets, current 1,843 1,114
Deposits and other current assets 3,582 1,411
Total current assets 70,814 59,284
     
Property and equipment, net 2,189 2,348
Intangible assets, net 13,965 16,136
Goodwill 32,304 32,304
Deferred tax assets, non-current 9,831 9,831
Deposits and other non-current assets 644 864
Total Assets  $ 129,747  $ 120,767
     
LIABILITIES AND CAPITAL DEFICIT    
Current Liabilities    
Accounts payable  $ 2,389  $ 3,651
Accrued expenses and other current liabilities 12,853 13,569
Deferred revenue, current portion 69,193 67,038
Total current liabilities 84,435 84,258
     
Deferred revenue, net of current portion 55,082 58,165
Other non-current liabilities 2,574 3,114
Total Capital Deficit (12,344) (24,770)
Total Liabilities and Capital Deficit  $ 129,747  $ 120,767
     
     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
     
(In thousands)    
(Unaudited) Six Months Six Months
  Ended Ended
  30-Jun-13 30-Jun-12
Cash flows from operating activities:    
Net income  $ 16,094  $ 18,466
Provision for doubtful accounts and billing adjustments  2,000  4,550
Share-based compensation  400  372
Depreciation and amortization  2,531  1,250
Deferred income tax provision  47  46
Interest expense - non-cash  177  224
Gain on investments  (722)  (832)
Fair value gain on common equity put options  1,047  (1,285)
Contributed services  --  40
Changes in operating asset and liabilities  (3,125)  13,289
Net cash provided by operating activities  18,449  36,120
Cash flows from investing activities:    
Purchases of investments  --  (42,938)
Proceeds from sales of investments  12,622  60,711
Purchases of property and equipment  (84)  (217)
Acquisition of intangible assets  (117)  (1,228)
Net cash provided by investing activities  12,421  16,328
Cash flows from financing activities:    
Purchase of treasury stock  (5,704)  (45,740)
Proceeds from sale of common equity put options  --  14,690
Proceeds from exercise of ordinary share options  --  1,171
Payment of other non-current liabilities  (1,500)  (1,500)
Net cash used in financing activities  (7,204)  (31,379)
     
Net increase in cash and cash equivalents  23,666  21,069
Cash and cash equivalents, beginning of period  18,959  12,961
Cash and cash equivalents, end of period  $ 42,625  $ 34,030
     
     
           
RECONCILIATION OF NET REVENUES TO ADJUSTED NET REVENUES
           
(In thousands)          
(Unaudited)   Quarter Quarter Six Months Six Months
    Ended Ended Ended Ended
    30-Jun-13 30-Jun-12 30-Jun-13 30-Jun-12
Net revenues    $ 32,902  $ 38,559  $ 69,779  $ 76,146
Operational change related to prepaid minutes    --  --  --  (2,998)
Favorable settlement with a retail sales broker    --  --  (1,192)  --
Transition costs related to introduction of New magicJack Plus    1,200  --  1,200  --
Certain tax matters    750  --  750  --
Non-GAAP net revenues    $ 34,852  $ 38,559  $ 70,537  $ 73,148
           
           
RECONCILIATION OF OPERATING INCOME TO ADJUSTED EBITDA
           
(In thousands)          
(Unaudited)   Quarter Quarter Six Months Six Months
    Ended Ended Ended Ended
    30-Jun-13 30-Jun-12 30-Jun-13 30-Jun-12
GAAP Operating income    $ 9,639  $ 10,318  $ 24,879  $ 16,149
Depreciation and amortization    1,368  621  2,531  1,250
Share-based compensation    --  147  400  372
Operational change related to prepaid minutes    --  --  --  (2,998)
Favorable settlement with a retail sales broker    --  --  (1,192)  --
Transition costs related to introduction of New magicJack Plus    1,200  --  1,200  --
Former executive severance payments    798  --  798  --
Certain tax matters    750  --  750  --
Adjusted EBITDA    $ 13,755  $ 11,086  $ 29,366  $ 14,773
           
           
RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME
           
(In thousands)          
(Unaudited)   Quarter Quarter Six Months Six Months
    Ended Ended Ended Ended
    30-Jun-13 30-Jun-12 30-Jun-13 30-Jun-12
GAAP Net income    $ 6,508  $ 10,270  $ 16,094  $ 18,466
Share-based compensation    --  147  400  372
Operational change related to prepaid minutes    --  --  --  (2,998)
Favorable settlement with a retail sales broker    --  --  (1,192)  --
Transition costs related to introduction of New magicJack Plus    1,200  --  1,200  --
Former executive severance payments    798  --  798  --
Certain tax matters    750  --  750  --
Gain on investments    (195)  (235)  (722)  (832)
Fair value loss (gain) on common equity put options    --  371  1,047  (1,285)
Income tax expense    3,316  19  8,514  49
Non-GAAP Net income    $ 12,377  $ 10,572  $ 26,889  $ 13,772
           
           
GAAP Net income per share — Diluted    $ 0.35  $ 0.50  $ 0.86  $ 0.87
Share-based compensation    --  0.01  0.02  0.02
Operational change related to prepaid minutes    --  --  --  (0.14)
Favorable settlement with a retail sales broker    --  --  (0.06)  --
Transition costs related to introduction of New magicJack Plus    0.06  --  0.06  --
Former executive severance payments    0.04  --  0.04  --
Certain tax matters    0.04  --  0.04  --
Gain on investments    (0.01)  (0.01)  (0.04)  (0.04)
Fair value loss (gain) on common equity put options    --  0.02  0.06  (0.06)
Income tax expense    0.18  0.00  0.46  0.00
Non-GAAP Net income per share — Diluted    $ 0.67  $ 0.51  $ 1.44  $ 0.65
           
Weighted average ordinary shares outstanding: Diluted 18,560 20,586 18,627 21,317
           
           
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-13 30-Jun-12 30-Jun-13 30-Jun-12
Net cash provided by operating activities    $ 1,823  $ 11,957  $ 18,449  $ 36,120
Less: Capital expenditures    --  (217)  (84)  (217)
Free cash flow    $ 1,823  $ 11,740  $ 18,365  $ 35,903
           
           
CONTACT: Seth Potter

         Investor Relations

         561-749-2255

         ir@vocaltec.com

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Source: magicJack VocalTec Ltd.

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