magicJack Reports Fourth Quarter and Full Year 2017 Financial Results


  • 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), 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