Elephant Talk Reports 2013 Fourth Quarter and Year End Financial Results Fourth Quarter Revenue increased $800,000 or 16% compared to the Third Quarter of 2013; 2013 Fourth Quarter Margins were over 82%; Achieved Positive Adjusted EBITDA in the Fourth Quarter of 2013

OKLAHOMA CITY, March 26, 2014 /PRNewswire/ -- Elephant Talk Communications Corp. (NYSE MKT: ETAK) ("Elephant Talk" or the "Company"), a global provider of Software Defined Network Architecture (Software DNA™ 2.0) platforms and cyber security solutions, today announced total revenue of $22.8 million and margin* of 68.7% for the year ended December 31, 2013 as compared to $29.2 million and margin* of 28.7% for the year ended December 31, 2012. For the fourth quarter of 2013, Adjusted EBITDA was approximately $143,000, an improvement of $1.9 million year-over-year and $227,000 sequentially.

Recent Company Highlights:

  • Elephant Talk has appointed Mr. Carl Stevens and Mr. Geoffrey Leland, who both have extensive financial and public company experience, to its Board of Directors.
  • Migrated the first 600,000+ SIMS from Grupo lusacell, S.A. ("Iusacell") in Mexico onto its dedicated Software DNA™ 2.0 platform.
  • By the end of 2014, Iusacell management expects to have over 8 million customers migrated to the Elephant Talk platform.
  • Signed a 5-year extension contract with Vodafone Enabler Espana, S.L. with an average 13% increase on hosting fees.
  • Zain Saudi Arabia launched a new brand called Matrix, which is hosted on the Elephant Talk platform and has successfully added SIMs to the Elephant Talk platform. 
  • Completed the initial rollout of its newly enhanced Software Defined Networking (SDN) platform known as Software DNA™ 2.0. The platform is the first comprehensive, hosted SDN solution, which includes core network functions that are dedicated to the unique needs of mobile operators who are faced with expensive and complex network infrastructure challenges.
  • FICO announced the launch of ValidSoft UK Ltd.'s ("ValidSoft") proximity correlation service for credit and debit card issuers, which will be deployed with several UK banks.
  • FICO and Santander Bank continue to increase their use of ValidSoft's solutions and have begun to use ValidSoft's number validation functionality.
  • Executed a memorandum of understanding with Syniverse Technologies, LLC that focuses on establishing a collaboration arrangement for the resale of ValidSoft's solutions.
  • ValidSoft continues to invest in its Intellectual Property portfolio.  ValidSoft has two granted patents with multiple patents pending in multiple jurisdictions including the United States, European Union and other target jurisdictions.

Recent Financial Highlights:

  • 2013 fourth quarter revenue totaled $6.0 million, of which $5.9 million was attributable to the mobile and security solutions, as compared to $3.6 million for the fourth quarter of 2012, or an increase of approximately 64%.
  • Sequentially, mobile and security revenue of $5.9 million for the fourth quarter of 2013 increased approximately 18% as compared to $5.0 million for the third quarter of 2013.
  • The monthly recurring revenue mobile and security business now accounts for approximately 98% of Elephant Talk's revenue, continuing the transition from Elephant Talk's legacy landline business.
  • The 2013 fourth quarter margins grew to approximately 82% compared to 39% for the fourth quarter of 2012.
  • Adjusted EBITDA for the fourth quarter of 2013 was approximately $143,000.

Mobile and Security (Unaudited) Reported Revenue

Quarter

($ 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

2Q13

4.5

89.5

3Q13

5.0

95.9

4Q13

5.9

97.6




Quarter

*Total Margin
($ in millions)

% of Total Quarter

(Unaudited)

Company Revenue

1Q12

1.7

19.7

2Q12

1.9

26.8

3Q12

2.1

31.3

4Q12

2.7

39.4

1Q13

3.0

46.2

2Q13

3.5

70.7

3Q13

4.1

79.2

4Q13

5.0

82.5

Mr. Steven van der Velden, Chairman and CEO of Elephant Talk, stated, "Achieving positive Adjusted EBITDA for the fourth quarter of 2013 was a major accomplishment for the Company. Adjusted EBITDA has improved continuously quarter-over-quarter to approximately $143,000 for the most recent fourth quarter as compared to a loss of $85,000 in the third quarter and a loss of approximately $1 million for the second quarter of 2013. Our monthly recurring revenue mobile and security business is producing margins of over 82% and has increased each quarter.  We expect these trends to continue as we migrate additional SIM cards onto our platform from lusacell, Vodafone and Zain/Axiom in Saudi Arabia combined with further implementing ValidSoft's technology within the financial industry with FICO and Syniverse. With Iusacell alone we expect to migrate 8 million SIMs by the end of 2014.  We believe that this increased user base and monthly recurring revenue will provide us with strong financial growth in the future."

* 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. Margin is derived from the statement of operations and comprehensive loss 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 stockholders with a more complete understanding of the Company's underlying operational results, trends and performance.

Non-GAAP Adjusted EBITDA is defined as earnings before income and expenses from derivative accounting, such as warrant liabilities and conversion feature expensing, interest income and expense, income taxes, depreciation and amortization, amortization of deferred financing cost, impairments, non-operating income and expenses and stock-based compensation to, among other things, show a measure of the Company's operating 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.

The table at the end of this press release includes a reconciliation of net loss to non-GAAP Adjusted EBITDA for the years ended December 31, 2013, 2012 and 2011.  

Conference Call Reminder: Elephant Talk will host its 2013 year-end financial results conference call on Wednesday, March 26, 2014 at 11 a.m. ET.

Conference Call Information:


Date:

Wednesday, March 26, 2014

Time:

11:00 a.m. ET

Domestic Dial-in number:

1-480-629-9712

Live webcast: 

http://public.viavid.com/index.php?id=108289

All interested in participating should dial in approximately 5 to 10 minutes prior to the 11:00 a.m. ET conference call. Participants should ask for the Elephant Talk 2013 year end conference call. 

About Elephant Talk Communications:

Elephant Talk Communications Corp. (NYSE MKT: ETAK), is a global provider of mobile proprietary Software Defined Network Architecture (Software DNA™ 2.0) platforms for the telecommunications industry. The company empowers Mobile Network Operators (MNOs), Mobile Virtual Network Operators (MVNOs), Enablers (MVNEs) and Aggregators (MVNAs) with a full suite of applications, superior Industry Expertise and high quality Customer Service without substantial upfront investment. Elephant Talk counts several of the world's leading Mobile Network Operators amongst its customers, including Vodafone, T-Mobile, Zain and Iusacell. Visit: www.elephanttalk.com.

About ValidSoft UK Limited:

ValidSoft UK Limited ("ValidSoft") provides advanced mobile- and cloud-security solutions. ValidSoft's custom-built sophisticated multi-factor authentication platform (SMART™) takes full advantage of telecommunications and includes a leading proprietary voice biometric engine. The platform combats electronic fraud and safeguards consumer privacy across internet, mobile banking, card, mobile and fixed line telecommunication channels. The company counts some of the largest financial institutions among 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 Elephant Talk's plans and objectives, projections, expectations and intentions. These forward-looking statements are based on current expectations, estimates and projections about Elephant Talk'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, including, without limitation, the ability of the Company to regain compliance with the listing standards of the NYSE MKT. Because such statements involve risks and uncertainties, the actual results and performance of Elephant Talk 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, Elephant Talk 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 those projected or suggested  in Elephant Talk's filings with the Securities and Exchange Commission (the "SEC"), copies of which are available from the SEC or may be obtained upon request from Elephant Talk.

Contacts:

Investor Relations:
Steve Gersten
Elephant Talk Communications Corp.
+ 1 813 926 8920
Steve.Gersten@elephanttalk.com

Thomas Walsh
Alliance Advisors
+ 1 212 398 3486
twalsh@allianceadvisors.net

Public Relations:
US: Michael Glickman
MWG CO
(917) 596.1883
mike@mwgco.net



The below Financial Statements have been prepared as though the Company will remain a going concern for the foreseeable future. As described in Note 2 of the Form 10-K filed on or before April 1, 2014, our auditors have included an explanatory paragraph in their report expressing substantial doubt about the Company's ability to continue as a going concern for the foreseeable future.  


ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011











2013


2012


2011







REVENUES

$

22,827,261


$

29,202,188


$

32,232,981










COST AND OPERATING EXPENSES









Cost of service


7,149,153



20,819,327



28,723,265

Selling, general and administrative expenses


26,533,283



24,186,278



23,408,554

Depreciation and amortization


6,601,246



5,710,396



5,254,708

Intangible assets impairment charge


-



-



522,726

  Total cost and operating expenses


40,283,682



50,716,001



57,909,253










LOSS FROM OPERATIONS


(17,456,421)



(21,513,813)



(25,676,272)










OTHER INCOME (EXPENSE)









Interest income


103,627



248,017



106,721

Interest expense


(1,064,999)



(780,852)



(201,184)

Interest expense related to Debt Discount and conversion feature


(2,069,649)



(1,089,126)



-

Change in fair value of conversion feature


232,267



2,387,326



-

Loss on extinguishment of debt


(2,005,100)



-



-

Change in fair value of warrant liabilities


479,322



-



-

Other Income & (expense)


(302,112)



-



460,000

Impairment of related party loans


-



(1,060,784)



-

Amortization of deferred financing costs


(248,851)



(531,792)



-

     Total other income (expense)


(4,875,495)



(827,211)



365,537










LOSS BEFORE PROVISION FOR INCOME TAXES


(22,331,916)



(22,842,800)



(25,310,735)

Benefit from provision for income taxes


200,301



(289,136)



-

NET LOSS BEFORE NONCONTROLLING INTEREST


(22,131,615)



(23,630,160)



(25,310,735)

Net (loss) income attributable to non-controlling interest


-



-



-

Net loss from joint venture


-



(501,776)



-

NET LOSS ATTRIBUTABLE TO COMPANY


(22,131,615)



(23,131,936)



(25,310,735)










OTHER COMPREHENSIVE (LOSS) INCOME









Foreign currency translation gain (loss)


194,115



411,205



(624,275)



194,115



411,205



(624,275)

COMPREHENSIVE LOSS

$

(21,937,500)


$

(22,720,731)


$

(25,935,010)










Net loss per common share and equivalents - basic and diluted

$

(0.18)


$

(0.21)


$

(0.24)










Weighted average shares outstanding during the period - basic and diluted


126,259,634



111,322,029



104,326,066











ELEPHANT TALK COMMUNICATION CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS AT DECEMBER 31, 2013 AND 2012








2013


2012

ASSETS








CURRENT ASSETS








Cash and cash equivalents

$

1,252,315


$

1,233,268

Restricted cash


191,600



1,230,918

Accounts receivable, net of an allowance for doubtful accounts of $7,693 and $559,120 at December 31, 2013 and December 31, 2012 respectively


5,976,879



5,123,803

Prepaid expenses and other current assets


2,254,213



1,821,218

   Total current assets


9,675,007



9,409,207







NON-CURRENT ASSETS












OTHER ASSETS


1,412,408



1,038,306







PROPERTY AND EQUIPMENT, NET


19,786,122



13,088,271







INTANGIBLE ASSETS, NET


8,670,677



10,503,026







GOODWILL


3,773,226



3,436,731







TOTAL ASSETS

$

43,317,440


$

37,475,541







LIABILITIES AND STOCKHOLDERS' EQUITY












CURRENT LIABILITIES






Overdraft

$

391,436


$

350,114

Accounts payable and customer deposits


2,586,663



5,139,292

Obligations under capital leases (current portion)


1,302,838



-

Deferred Revenue


142,731



252,551

Accrued expenses and other payables


4,961,303



4,120,536

8% Convertible Notes (current portion)


-



3,067,416

Loans payable


962,654



963,051

10% Related Party Loan (net of Debt Discount of $1,719,585)


1,033,719



-

   Total current liabilities


11,381,344



13,892,960







LONG TERM LIABILITIES






8% Convertible Notes, net of current portion


-



2,565,202

10% 3rd Party Loan (net of Debt Discount of $726,695)


4,779,913



-

Warrant liabilities


1,973,534



-

Conversion feature


-



311,986

Non-current portion of obligations under capital leases


845,529



-

Loan from joint venture partner


602,047



555,907

   Total long term liabilities


8,201,023



3,433,095







   Total liabilities


19,582,367



17,326,055







STOCKHOLDERS' EQUITY






Preferred Stock 0.00001 par value, 50,000 shares authorized, 0 issued and outstanding


-



-

Common Stock, .00001 par value, 250,000,000 shares authorized, 140,466,801 issued and outstanding  as of December 31, 2013 and 111,918,386 shares issued and outstanding as of December 31, 2012


248,712,321



223,965,907

Accumulated other comprehensive income (loss)


269,869



(732,090)

Accumulated deficit


(225,391,923)



(203,260,307)

   Elephant Talk Communications Corp. stockholders' equity


23,590,267



19,973,510

NON-CONTROLLING INTEREST


144,806



175,976

   Total stockholders' equity


23,735,073



20,149,486







TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

43,317,440


$

37,475,541








ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011











2013


2012


2011

CASH FLOWS FROM OPERATING ACTIVITIES:






Net loss

$

(22,131,615)


$

(23,131,936)


$

(25,310,735)

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









   Depreciation and amortization


6,601,246



5,710,396



5,254,708

   Provision for doubtful accounts


22,005



117,394



318,443

   Stock based compensation


8,515,391



6,302,141



6,319,314

   Loss on Extinguishment of Debt


2,005,100



-



-

   Net loss from joint venture


-



501,776



-

   Amortization of shares issued for consultancy


-



-



499,591

   Change in fair value of conversion feature


(232,267)



(2,387,326)



-

   Change in fair value of warrant liability


(479,322)






-

   Amortization of deferred financing costs


248,851



531,792



-

   Interest expense relating to debt discount and conversion feature


2,069,649



1,089,126



-

   Loans to related party impairment charge


-



1,060,784



-

   Unrealized foreign currency translation gain (loss)


302,112



-



-

   Intangible assets impairment charge


-



-



522,726

Changes in operating assets and liabilities:









   Decrease (increase) in restricted cash


1,052,257



(1,040,074)



-

   Decrease (increase) in accounts receivable


(82,763)



1,292,883



(1,372,719)

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


(465,026)



(247,443)



782,920

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


(3,415,032)



272,500



(140,229)

   Increase (decrease) in deferred revenue


(118,786)



114,673



142,309

   Increase (decrease) in accrued expenses and other payables


140,514



1,014,042



(1,587,264)

Net cash used in operating activities


(5,967,686)



(8,799,272)



(14,570,936)










CASH FLOWS FROM INVESTING ACTIVITIES:









   Purchases of property and equipment


(5,898,169)



(2,224,923)



(7,721,307)

   Restricted cash


-



-



49

   Cash received from acquisition of subsidiary


-



36,188



-

   Impairment of related party loans


-



(1,060,784)



-

   Payments for acquisition


-






(347,758)

   Loan to joint venture party


-



(146,496)



-

   Loan to third party


(163,542)



(111,023)



(448,195)

 Net cash used in investing activities


(6,061,711)



(3,507,038)



(8,517,211)










CASH FLOWS FROM FINANCING ACTIVITIES:









   Proceeds from 12% Unsecured Loan from Related Party


1,290,790



-



-

   Proceeds from Share Purchase Agreement – unregistered securities


225,000



-



-

   Proceeds from Share Purchase Agreement – Registered Direct


7,500,000



-



-

   Proceeds from Share Purchase Agreement – Related Party


4,500,000



-



-

   Proceeds from 10% Affiliate Loan


2,652,600



-



-

   Proceeds from 10% 3rd Party Loan


5,305,200



-



-

   Deferred financing costs


-



(543,437)



-

   Proceeds from 8% Convertible Note, net of OID


-



8,000,000



-

   Restricted cash


-



(2,273,720)



-

   Payments on proceeds from convertible note installment payments and interest


(8,642,149)



1,531,293



-

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


742,427



-



-

   Trade note payable


(512,732)



(315,000)



271,915

   Proceeds from exercise of warrants & options


581,142



1,081,925



26,808,067

   Payment of placement & solicitation fees


(1,362,124)






(1,185,741)

 Net cash provided by financing activities


12,280,154



7,481,061



25,894,241

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS


(231,711)



48,941



957,785

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


19,047



(4,776,308)



3,763,879

CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD


1,233,268



6,009,576



2,245,697

CASH AND CASH EQUIVALENTS, END OF THE PERIOD

$

1,252,315


$

1,233,268


$

6,009,576










SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:


















Cash paid during the period for interest

$

745,096


$

504,718


$

39,460

Non-cash rent termination settlement

$

468,000


$

342,006


$

-

Share capital issued to acquire Telnicity

$

1,180,000


$

578,357


$

-



















Reconciliation of Net Loss to Non-GAAP Adjusted EBITDA

In order to provide investors additional information regarding our financial results, the Company is disclosing Adjusted EBITDA, a non-GAAP financial measure. The Company employs Adjusted EBITDA, defined as earnings before income and expenses from derivative accounting, such as warrant liabilities and conversion feature expensing, interest income and expense, income taxes, depreciation and amortization, amortization of deferred financing cost, impairments, non-operating income and expenses and stock-based compensation to, among other things, show a measure of the Company's operating performance. The Company uses Adjusted EBITDA because it removes the impact of items not directly resulting from the Company's core operations, thus allowing the Company to better assess whether the elements of the Company's growth strategy are yielding the desired results. Accordingly, the Company believes that Adjusted EBITDA provides useful information for investors and others and allows them to better understand and evaluate the Company's operating results.

A reconciliation of Net Loss – US GAAP to Adjusted EBITDA, the most directly comparable measure under U.S. GAAP, for the fiscal years ended December 31, 2013, 2012 and 2011, is as follows:

Adjusted EBITDA

2013


2012


2011







Net loss – US GAAP

$

(22,131,615)


$

(23,131,936)


$

(25,310,735)

Provision for income taxes


(200,301)



289,136




Depreciation and amortization


6,601,246



5,710,396



5,254,708

Stock-based compensation


8,515,391



6,302,141



6,818,905

Interest income and expenses


961,372



532,835



94,463

Interest expense related to debt discount and conversion feature


2,069,649



1,089,126



-

Change in fair value of conversion feature


(232,267)



(2,387,326)



-

Loss on extinguishment of debt


2,005,100



-



-

Changes in fair value of warrant liabilities


(479,322)



-



-

Other income & (expense)


302,112



-



(460,000)

Impairment of related party loans


-



1,060,784



-

Amortization of deferred financing costs


248,851



531,792



-

Equity in earnings of unconsolidated joint venture


-



501,776



-

Intangible assets impairment charge


-



-



522,726

Adjusted EBITDA

$

(2,339,784)


$

(9,501,276)


$

(13,079,933)

Margin is derived from the statement of operations and comprehensive loss by subtracting cost of service from revenues.


2013


2012


2011

Revenues

$

22,827,261


$

29,202,188


$

32,232,981

Cost of service


7,149,153



20,819,327



28,723,265

Revenues minus Cost of Service ("margin")

$

15,678,108


$

8,382,861


$

3,509,716



Logo - http://photos.prnewswire.com/prnh/20120917/MM75872LOGO
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SOURCE Elephant Talk Communications Corp.



RELATED LINKS
http://www.elephanttalk.com
http://www.validsoft.com

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