Elephant Talk Communications Reports First Quarter 2013 Financial Results First Quarter 2013 Mobile and Security Revenue Grew 59% Y/Y

7th Consecutive Quarter of Q/Q Revenue Growth for Mobile and Security

SCHIPHOL, The Netherlands, May 10, 2013 /PRNewswire/ -- Elephant Talk Communications, Corp. (NYSE MKT: ETAK) (www.elephanttalk.com), a leading international provider of proprietary Software Defined Network Architecture (Software DNA™) platforms for the telecommunications industry that empower Mobile (Virtual) Network Operators (MNOs and MVNOs) and a market leader in providing solutions to counter electronic fraud in the cloud, today announced total revenue of $6.6 million for the first  quarter ended March 31, 2013.  

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The higher margin[1] mobile and security solutions business generated revenue of approximately $3.9 million in 1Q13, a year-over-year increase of 59.0% compared to mobile and security revenue of $2.4 million reported in 1Q12. Mobile and security revenue accounted for 58.5% of total company revenue in 1Q13, versus only 28.3% of total company revenue in 1Q12, marking the second consecutive quarter in which mobile and security revenue represented more than 50% of total  company revenue. The higher-margin mobile and security revenue is expected to continue to account for the majority of Company revenue.


Mobile and Security (Unaudited)

Quarter

Reported Revenue

($ in millions)

% of Total Company Revenue

1Q12

2.4

28.3

2Q12

2.8

39.3

3Q12

2.9

43.9

4Q12

3.6

52.1

1Q13

3.9

58.5

Total Margin for 1Q13 was $3.0 million, up 80.2% from the $1.7 million reported in 1Q12. Total margin has increased for seven consecutive quarters in dollars and as a percentage of total revenue.

Quarter

Total Margin

($ in millions)

Unaudited

% of Total Company Revenue

1Q12

1.7

19.8

2Q12

1.9

26.8

3Q12

2.1

31.3

4Q12

2.7

39.5

1Q13

3.0

46.2

[1] Margin is defined as revenue less cost of service

"Revenue generated from our core mobile and security solutions continued to grow in the first quarter of 2013. Mobile and security revenue increased $0.3 million from the fourth quarter of 2012, bringing first quarter of 2013 mobile and security revenue to $3.9 million. The increase in mobile and security revenue was the main driver of the increase in total company margin from $2.7 million in the fourth quarter of 2012 to $3.0 million for the first quarter of 2013" stated Steven van der Velden, CEO of Elephant Talk Communications. "The deployment of Elephant Talk's Software-DNA™ Platform with a Mobile Network Operator (MNO) in a major Latin American market continues as-scheduled. We have secured the necessary equipment and expect to initiate the first test call in Latin America by the end of June 2013. We anticipate seeing revenue from the Latin America deployment materialize in the second half of 2013. Meanwhile we are in the process of seeking funding and remain optimistic regarding our prospects."

Key Company Highlights

  • Elephant Talk Completes Necessary $5 Million CapEx Investment to Facilitate Installation and Deployment of its Software-DNA™ Platform with Mobile Operator in Major Latin American Market. Approximately 85% of the CapEx investment came from vendor financing. The first test call is on-schedule and anticipated for the end of 2Q13. The Company expects to migrate at least 1.5 million mobile subscribers to its proprietary Software-DNA™ platform by the end of the year.
  • Elephant Talk was on the Verge of Positive Cash Flow Position in March 2013. We estimate this measure using Adjusted EBITDA, defined as earnings before derivative accounting, such as warrant liabilities and conversion feature expensing, income taxes, depreciation and amortization, impairments, non-operating income and expenses and stock-based compensation.

Financial results for the three months ended March 31, 2013

Revenue for the three months ended March 31, 2013 and March 31, 2012

($ in millions)

Quarter Ended

Unaudited



March 31, 2013

March 31, 2012

Y/Y % Change

Mobile & Security Revenues

$3.9

$2.4

59.0%

Total Revenues

$6.6

$8.6

(23.1%)

  • The higher margin mobile and security revenue increased 59.0% year-over-year.
  • In accordance with the strategy to reduce emphasis on this product line, the lower margin legacy landline revenue declined 55.5% year-over-year in 1Q13 when compared to the same period a year earlier. 

Selected financial results for the quarter ended March 31, 2013 and March 31, 2012.

($ in millions)

Quarter Ended (Unaudited)


March  31, 2013

March 31, 2012

Y/Y % Chg.

Cost of Services

$3.5

$6.9

(48.5%)

Margin

$3.0

$1.7

80.2%

Margin as a Percentage of Revenue

46.2%

19.7%


Selling, general & administrative

$4.5

$4.6

(1.6%)

Adjusted EBITDA (a non-GAAP measure)

($1.4)

($2.9)

(49.7%)

Net Income (loss)

($5.1)

($6.0)

(14.4%)

  • The increase in margin for the three months ended March 31, 2013 was primarily attributable to the increased revenue contribution from the higher-margin mobile and security solution product lines.

The table at the end of this press release includes a reconciliation of net loss to non-GAAP Adjusted EBITDA for the three months ended March 31, 2013 and 2012. An explanation of Adjusted EBITDA along with margin are included below under the heading "Non-GAAP Financial Measures."

Conference call reminder

As a reminder, Elephant Talk Communications will host a Shareholder Update Conference Call on May 10, 2013 at 11:00 a.m. EDT. Anyone interested in participating should dial 1-480-629-9712 approximately 5 to 10 minutes prior to the start of the call. Participants should ask for the Elephant Talk Shareholder Update conference call. To listen to the playback please utilize the webcast by visiting the company's website at www.elephanttalk.com.

This call is being webcast by ViaVid Broadcasting and can be accessed at either Elephant Talk's website at www.elephanttalk.com or ViaVid's website at http://www.viavid.net. To access the webcast, you will need to have the Windows Media Player on your desktop. For the free download of the Media Player, please visit: http://windows.microsoft.com/en-us/windows/download-windows-media-player

Non-GAAP financial measures

To supplement the consolidated financial statements presented in accordance with generally accepted accounting principles, or GAAP, Elephant Talk uses measures of non-GAAP Adjusted EBITDA and margin. A reconciliation of the non-GAAP Adjusted EBITDA to the closest GAAP financial measure, is presented in the financial table below under the heading "Reconciliation of Non-GAAP Measures to GAAP." Margin is derived from the income statements by subtracting cost of service from revenues. These adjustments to the Company's GAAP results are made with the intent of providing both management and investors a more complete understanding of the Company's underlying operational results and trends and performance.

Management uses these non-GAAP measures to evaluate the Company's financial results, develop budgets, manage expenditures, and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for or superior to net income (loss) or net income (loss) per share determined in accordance with GAAP.

For the three months ended March 31, 2013 and 2012, non-GAAP Adjusted EBITDA is defined as earnings before derivative accounting, such as warrant liabilities and conversion feature expensing, income taxes, depreciation and amortization and stock-based compensation. It is determined by taking net loss and adding back provision for income taxes, interest income and expense, net loss attributable to non-controlling interest, depreciation and amortization, stock-based compensation expense, other income and expenses, and equity in earnings of unconsolidated joint venture.

About Elephant Talk:

Elephant Talk Communications Corp. (NYSE MKT: ETAK), is a leading international provider of mobile proprietary Software Defined Network Architecture (Software DNATM) platforms for the telecommunications industry that empower Mobile Network Operators (MNOs) and Mobile Virtual Network Operators (MVNOs), Enablers (MVNEs) and Aggregators (MVNAs) with a full suite of applications, Full OSS/BSS Systems, Delivery Platforms, Support and Managed Services, on-site, cloud, hybrid and S/PaaS solutions, including Network, Mobile Internet ID Solutions, Secure Remote Access Management, Loyalty Management and Transaction Processing Services, superior Industry Expertise and high quality Customer Service without substantial upfront investment. Elephant Talk counts several of the world's leading Mobile Operators amongst its customers including Vodafone, T-Mobile and Zain, and virtually all business is focused on tier 1 and tier 2 operators worldwide. Visit:  www.elephanttalk.com.

About ValidSoft:

ValidSoft Limited has been a wholly owned subsidiary of Elephant Talk Communications since early 2010 and underpins its mobile/cloud security offering. The company is a market leader in providing solutions to counter electronic fraud and safeguarding consumer privacy relating to a variety of bank, card, internet and telephone channels. ValidSoft's solutions are used to verify the authenticity of both parties to a transaction (Mutual Authentication), the security of the relevant telecommunication channel used (Secure Communications), and the integrity of transactions itself (Transaction Verification) for the mass market, in a highly cost effective and secure manner while being very easy to use. The company counts several leading worldwide service providers and institutions amongst its customers.  ValidSoft is the only security software company in the world that has been granted three European Privacy Seals. Visit: www.validsoft.com.

Forward-Looking Statements

Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements with respect to the Company's plans and objectives, projections, expectations and intentions. These forward-looking statements are based on current expectations, estimates and projections about the Company's industry, management's beliefs and certain assumptions made by management. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Because such statements involve risks and uncertainties, the actual results and performance of the Company may differ materially from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here. Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested is contained in the Company's filings with the Securities and Exchange Commission (SEC), copies of which are available from the SEC or may be obtained upon request from the Company.

 

 

ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS









March 31, 2013



March 31, 2012







REVENUES

$

6,596,500


$

8,580,968







COST AND OPERATING EXPENSES






Cost of service


3,548,277



6,889,217

Selling, general and administrative expenses


4,497,064



4,569,958

Non-cash compensation to officers, directors and employees


1,410,910



1,691,746

Depreciation and amortization of intangibles assets


1,319,988



1,278,469

  Total cost and operating expenses


10,776,239



14,429,390







LOSS FROM OPERATIONS


(4,179,739)



(5,848,422)







OTHER INCOME (EXPENSE)






Interest income


33,720



105,162

Interest expense


(223,752)



(90,607)

Other income & (expense)


-



(163,331)

Interest expense  related to debt discount and conversion feature


(558,028)



(7,683)

Change in fair value of conversion feature


(139,792)



3,669

Amortization of deferred financing costs


(70,332)



(3,977)

     Total other income (expense)


(958,184)



(156,767)







LOSS BEFORE PROVISION FOR INCOME TAXES


(5,137,923)



(6,005,189)

Provision for income taxes


-



-

NET LOSS


(5,137,923)



(6,005,189)







OTHER COMPREHENSIVE (LOSS) INCOME






Foreign currency translation gain (loss)


(761,762)



869,783



(761,762)



869,783







COMPREHENSIVE LOSS

$

(5,899,685)


$

(5,135,406)







Net loss per common share and equivalents - basic and diluted

$

(0.05)


$

(0.05)







Weighted average shares outstanding during the period - basic and diluted


112,748,951



110,656,531

 

ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS









March 31,



December 31,



2013



2012







ASSETS










CURRENT ASSETS












Cash and cash equivalents

$

570,579


$

1,233,268

Restricted cash


664,679



1,230,918

Accounts receivable, net of an allowance for doubtful accounts of $558,438 and $559,120 at March 31, 2013 and December 31, 2012 respectively


4,502,499



5,123,803

Prepaid expenses and other current assets


2,342,762



1,821,218

   Total current assets


8,080,519



9,409,207







OTHER ASSETS


898,001



1,038,306







PROPERTY AND EQUIPMENT, NET


12,674,383



13,088,271







INTANGIBLE ASSETS, NET


9,495,999



10,503,026







GOODWILL


3,330,438



3,436,731







TOTAL ASSETS

$

34,479,340


$

37,475,541







LIABILITIES AND STOCKHOLDERS' EQUITY










CURRENT LIABILITIES






Overdraft

$

359,017


$

350,114

Accounts payable and customer deposits


5,738,518



5,139,292

Deferred Revenue


281,536



252,551

Accrued expenses and other payables


4,149,966



4,120,536

8% Convertible Note


4,701,714



3,067,416

Loans payable


961,525



963,051

   Total current liabilities


16,192,276



13,892,960







LONG TERM LIABILITIES






8% Convertible Note


1,083,932



2,565,202

Conversion feature


451,779



311,986

Loan from joint venture partner


567,100



555,907

   Total long term liabilities


2,102,811



3,433,095







   Total liabilities


18,295,087



17,326,055

























STOCKHOLDERS' EQUITY






Common stock, no par value, 250,000,000 shares authorized, 113,369,656 issued and outstanding  as of March 31, 2013 compared to 111,918,386 shares issued and outstanding as of December 31, 2012


225,902,751



223,965,907

Accumulated other comprehensive income (loss)


(1,493,852)



(732,090)

Accumulated deficit


(208,398,230)



(203,260,307)

   Elephant Talk Communications, Corp. stockholders' equity


16,010,669



19,973,510







NON-CONTROLLING INTEREST


173,584



175,976

   Total stockholders' equity


16,184,253



20,149,486







TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

34,479,340


$

37,475,541

 

ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS









March 31, 2013



March 31, 2012







CASH FLOWS FROM OPERATING ACTIVITIES:






Net loss

$

(5,137,923)


$

(6,005,189)

Adjustments to reconcile net loss to net cash used in operating activities:






   Depreciation and amortization


1,319,988



1,278,469

   Provision for doubtful accounts


5,620



143,849

   Stock based compensation


1,410,910



1,691,746

   Provision for holiday leave


-



25,059

   Fair value of conversion feature, interest expense  related to debt discount and amortization of deferred financing costs


768,152



-

   Financial Investments in Joint Venture


-



163,331

Changes in operating assets and liabilities:






   Decrease (increase) in accounts receivable


479,823



(1,632,045)

   Decrease (increase)  in prepaid expenses, deposits and other assets


(548,584)



(678,765)

   Increase (decrease) in accounts payable, proceeds from related parties and customer deposits


758,072



2,558,360

   Increase (decrease) in deferred revenue


38,735



200,202

   Increase (decrease) in accrued expenses and other payables


602,395



368,189

Net cash used in operating activities


(302,812)



(1,886,794)







CASH FLOWS FROM INVESTING ACTIVITIES:






   Purchases of property and equipment


(604,029)



(889,775)

   Restricted cash


-



(256,102)

   Loans to related party


-



(449,476)

   Loan to third party


-



(121,870)

  Net cash used in investing activities


(604,029)



(1,717,223)







CASH FLOWS FROM FINANCING ACTIVITIES:






   Deferred financing costs


-



(50,000)

   Exercise of warrants & options


13,797



694,090

   Cash from Escrow account for principal and interest payments on 8% Convertible notes


556,757



-

   Cash used for principal repayments on 8% Convertible notes payment


(405,000)



-

  Net cash provided by financing activities


165,554



644,090







EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS


78,598



69,241

NET DECREASE IN CASH AND CASH EQUIVALENTS


(662,689)



(2,890,686)

CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD


1,233,268



6,009,576

CASH AND CASH EQUIVALENTS, END OF THE PERIOD

$

570,579


$

3,118,890







SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:






Cash paid during the period for interest

$

166,369


$

-







SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:






Shares issued for third party settlement

$

468,000


$

-

Reconciliation of Non-GAAP Measures to GAAP

Reconciliation of Net loss to Adjusted EBITDA




Three months ended March 31,

EBITDA Adjusted

2013


2012

Net loss

$

(5,137,923)



(6,005,189)

Depreciation and amortization


1,319,988



1,278,469

Stock-based compensation


1,410,910



1,691,746

Interest income and expenses


190,032



(14,555)

Other income & expenses


768,152



171,322

Adjusted EBITDA

$

(1,448,841)



(2,878,207)

 

Investor Relations Contacts:

Steve Gersten
Elephant Talk Communications
+1 813 926 8920
steve.gersten@elephanttalk.com

Peter Salkowski
The Blueshirt Group
+1 415 489 2184
peter@blueshirtgroup.com

Public Relations Contacts:

UK: Fishburn Hedges
+44 (0)20 7839 4321
validsoft@fishburn-hedges.co.uk

US: Fishburn Hedges
Jessica Morris
+ 1 212 459 6232
Jessica.Morris@fishburn-hedges.com  

 

SOURCE Elephant Talk Communications, Corp.



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