CALL Magicjack Vocaltec Ltd - Ordinary Shares (delisted)

magicJack VocalTec Ltd. (Nasdaq: CALL), a leading VoIP cloud-based communications and UCaaS company, today announced financial results for the second quarter ending June 30, 2018.

Second Quarter 2018 Financial Highlights:

• Net revenues: Total net revenues for the second quarter of 2018 were $20.0 million. Net revenues from the sales of magicJack devices were $1.8 million and access rights renewal revenues were $12.4 million, and accounted for 62% of total net revenues. Prepaid minute revenues were $1.0 million and access and wholesale charges were $0.7 million during the quarter. Broadsmart Global, Inc. contributed $2.8 million in revenues to the second quarter of 2018. Other revenue items contributed the remaining $1.3 million of total net revenues during the second quarter of 2018.  
• Operating Income: GAAP operating income for the second quarter of 2018 was $4.8 million, which included $0.6 million in charges primarily related to non-recurring professional and legal costs and severances expenses.  
• Adjusted EBITDA: Adjusted EBITDA for the second quarter of 2018 was $7.1 million.  
• Net Income: GAAP net income attributable to common shareholders for the second quarter of 2018 was $4.1 million or $0.25 GAAP diluted net income per share based on 16.2 million weighted-average diluted ordinary shares outstanding. GAAP net income included the aforementioned items under the Operating Income section above, as well as a $0.2 million impact from certain tax items, which included an increase to uncertain tax positions and an increase to deferred tax assets related foreign currency revaluation. 
• Non-GAAP net income: Non-GAAP net income attributable to common shareholders for the second quarter of 2018 was $5.4 million or $0.33 non-GAAP net income per diluted share based on 16.2 million weighted-average diluted ordinary shares outstanding. 
• Cash: As of June 30, 2018, magicJack VocalTec had cash and cash equivalents of $58.9 million and no debt. During the second quarter of 2018, the company generated $5.1 million in net cash provided by operating activities.

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 Second Quarter 2018 Highlights:

• As of June 30, 2018, magicJack had an estimated 1.85 million active MJ subscribers, which are defined as device users that are under an active subscription contract.  
• magicJack activated 72,000 subscribers during the Second quarter of 2018. Activations are defined as devices that become activated on to a subscription contract during a given period.  
• During the quarter ended June 30, 2018, magicJack’s average monthly churn was 2.0%.

Update on B. Riley Merger:

• The closing of the acquisition of the Company by B.Riley remains pending final regulatory approval. The Company will communicate additional updates once closing conditions have been satisfied.

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:

Investor Relations561-749-2255ir@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, proxy contest related expenses, severance and senior management transition expenses, write-down of inventory components and other items, which include a provision for legal settlements, transaction related expenses, costs related to Broadsmart acquisition matters and employment of its founders, provision for restructuring and a provision for certain tax matters. 
• magicJack defines non-GAAP net income as GAAP net income (loss) attributable to common shareholders excluding: share-based compensation, impairment of intangible assets, asset impairment, proxy contest related expenses, severance and senior management transition expenses, write-down of inventory components and other items, which include a provision for legal settlements, transaction related expenses, costs related to Broadsmart acquisition matters and employment of its founders, provision for restructuring, a provision for certain tax matters, 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				Six Months			Six Months
					Ended			Ended				Ended			Ended
					30-Jun-18			30-Jun-17				30-Jun-18			30-Jun-17
	Net revenues				$	20,022		$	22,381			$	40,037		$	45,578
	Cost of revenues					7,100			8,166				14,263			17,617
	Gross profit					12,922			14,215				25,774			27,961
	Operating expenses:
	Marketing					893			2,120				2,085			4,527
	General and administrative					5,799			9,544				13,301			22,369
	Research and development					1,404			1,462				2,861			2,961
	Impairment of intangible assets and goodwill					-			-				131			31,527
	Total operating expenses					8,096			13,126				18,378			61,384
	Operating income (loss)					4,826			1,089				7,396			(33,423	)
	Other income (expense):
	Interest and dividend income					187			17				280			23
	Other income (expense)					5			(13	)			3			(30	)
	Total other income (expense)					192			4				283			(7	)
	Income (loss) before income taxes					5,018			1,093				7,679			(33,430	)
	Income tax expense (benefit)					922			2,587				1,617			(8,768	)
	Net income (loss)					4,096			(1,494	)			6,062			(24,662	)
	Net loss attributable to noncontrolling interest					-			(67	)			-			-
	Net income (loss) attributable to common shareholders				$	4,096		$	(1,561	)		$	6,062		$	(24,662	)
	Earnings (loss) per ordinary share:
			Basic		$	0.25		$	(0.10	)		$	0.37		$	(1.54	)
			Diluted		$	0.25		$	(0.10	)		$	0.37		$	(1.54	)
	Weighted average ordinary shares outstanding:
			Basic			16,205			16,078				16,199			16,056
			Diluted			16,205			16,078				16,199			16,056

 

	CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION
	(In thousands)
	(Unaudited)
			As of			As of
	ASSETS		30-Jun-18			31-Dec-17
	Current Assets
	Cash and cash equivalents		$	58,896		$	52,638
	Investments, at fair value			369			369
	Accounts receivable, net			2,153			2,428
	Inventories			1,825			1,880
	Contractual Cost - Current			301			1,936
	Prepaid income taxes			844			2,016
	Deposits and other current assets			1,753			1,874
	Total current assets			66,141			63,141
	Property and equipment, net			2,264			2,772
	Intangible assets, net			8,820			10,190
	Goodwill			32,304			32,304
	Deferred tax assets			31,467			31,726
	Deposits and other non-current assets			814			909
	Contractual Cost - Non Current			541			-
	Total Assets		$	142,351		$	141,042
	LIABILITIES AND CAPITAL EQUITY
	Current Liabilities
	Accounts payable		$	2,289		$	3,199
	Accrued expenses and other current liabilities			5,111			6,454
	Contract liabilities - Current			39,129			42,243
	Total current liabilities			46,529			51,896
	Contract liabilities - Non Current			36,602			38,797
	Other non-current liabilities			13,994			13,787
	Total Capital Equity			45,226			36,562
	Total Liabilities and Capital Equity		$	142,351		$	141,042

 

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	(In thousands)
	(Unaudited)		Six Months				Six Months
			Ended				Ended
			30-Jun-18				30-Jun-17
	Cash flows from operating activities:
	Net (loss) income		$	6,062			$	(24,662	)
	Provision for doubtful accounts and billing adjustments			21				126
	Share-based compensation			1,985				1,303
	Depreciation and amortization			1,777				2,419
	Impairment of intangible assets			131				31,527
	Increase of uncertain tax position			(56	)			1,809
	Deferred income tax (benefit) provision			119				(9,091	)
	Loss on sale of assets			-				18
	Changes in operating assets and liabilities			(3,698	)			(7,575	)
	Net cash provided by (used in) operating activities			6,341				(4,126	)
	Cash flows from investing activities:
	Proceeds from sales of investments			-				245
	Purchases of property and equipment			30				(248	)
	Acquisition of intangible assets			-				(1,089	)
	Net cash (used in) investing activities			(30	)			(1,092	)
	Cash flows from financing activities:
	Repurchase of ordinary shares to settle withholding liability			(53	)			(135	)
	Net cash (used in) financing activities			(53	)			(135	)
	Net increase (decrease) in cash and cash equivalents			6,258				(5,353	)
	Cash and cash equivalents, beginning of period			52,638				52,394
	Cash and cash equivalents, end of period		$	58,896			$	47,041

 

	RECONCILIATION OF OPERATING INCOME (LOSS) TO NON-GAAP ADJUSTED EBITDA
	(In thousands)
	(Unaudited)		Quarter				Quarter				Six Months				Six Months
			Ended				Ended				Ended				Ended
			30-Jun-18				30-Jun-17				30-Jun-18				30-Jun-17
	GAAP Operating income (loss)		$	4,826			$	1,089			$	7,396			$	(33,423	)
	Depreciation and amortization			818				894				1,777				2,419
	Share-based compensation			892				567				1,985				1,303
	Impairment of intangible assets			-				-				131				31,527
	Asset impairment			-				104				-				490
	Proxy contest related expenses			-				25				-				1,042
	Severance and senior management transition expenses			30				16				143				2,928
	Write-down of inventory components			-				-				-				386
	Other Items			541				1,697				1,192				1,895
	Non- GAAP Adjusted EBITDA		$	7,107			$	4,392			$	12,624			$	8,567
	RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP NET INCOME
	(In thousands)
	(Unaudited)		Quarter				Quarter				Six Months				Six Months
			Ended				Ended				Ended				Ended
			30-Jun-18				30-Jun-17				30-Jun-18				30-Jun-17
	GAAP Net income (loss) attributable to common shareholders		$	4,096			$	(1,561	)		$	6,062			$	(24,662	)
	Share-based compensation			892				567				1,985				1,303
	Impairment of intangible assets			-				-				131				31,527
	Asset impairment			-				104				-				490
	Proxy contest related expenses			-				25				-				1,042
	Severance and senior management transition expenses			30				16				143				2,928
	Write-down of inventory components			-				-				-				386
	Other Items			541				1,697				1,192				1,895
	Tax related items			(168	)			2,594				(53	)			(8,089	)
	Non-GAAP Net income		$	5,391			$	3,442			$	9,460			$	6,820
	GAAP earnings (loss) per ordinary share – Diluted		$	0.25			$	(0.10	)		$	0.37			$	(1.54	)
	Share-based compensation			0.06				0.04				0.12				0.08
	Impairment of intangible assets			-				-				0.01				1.96
	Asset impairment			-				0.01				-				0.03
	Consideration adjustment / Gain on mark-to-market			-				-				-				-
	Transaction related expenses			-				-				-				-
	Proxy contest related expenses			-				0.00				-				0.06
	Severance and senior management transition expenses			0.00				0.00				0.01				0.18
	Write-down of inventory components			-				-				-				0.02
	Other Items			0.03				0.11				0.07				0.12
	Tax related items			(0.01	)			0.16				(0.00	)			(0.50	)
	Non-GAAP Net income per share – Diluted		$	0.33			$	0.21			$	0.58			$	0.42
	Weighted average ordinary shares outstanding - Diluted:			16,205				16,078				16,199				16,056