Elephant Talk Reports 2015 Second Quarter Financial Results

- Company Reports Net Income of Approximately $9.5 Million due to Iusacell Settlement; Expects Return to Normalized Revenue Growth and Positive Adjusted EBITDA Starting in 2015 Fourth Quarter -

Aug 11, 2015, 08:47 ET from Elephant Talk Communications Corp.

NEW YORK, Aug. 11, 2015 /PRNewswire/ -- Elephant Talk Communications Corp. (NYSE MKT: ETAK) ("Elephant Talk" or the "Company"), a global provider of Software Defined Network Architecture (ET Software DNA® 2.0) platforms and cyber security solutions, today announced total revenue of approximately $19.2 million for the quarter ended June 30, 2015 as compared to a restated revenue of $5.1 million recorded in the second quarter of 2014. Non-GAAP revenue* increased to $7.4 million in the second quarter of 2015 as compared to $6.8 million for the same period of the prior year. Net income for the second quarter of 2015 was approximately $9.5 million as compared to a restated loss of approximately $6.5 million reported in the second quarter of 2014. Adjusted EBITDA* was approximately $2.2 million for the second quarter of 2015 as compared to approximately a restated $441,000 in the same quarter of the prior year.

The Company's second quarter results reflect the accounting impact of receipt of a $13.5 million settlement payment from Iusacell in June 2015, consisting of $12.6 million in cash and the remaining balance in exchange for certain debt obligations of Elephant Talk to Iusacell. As a result of this settlement, the Company was required to recognize previously deferred revenue related to Iusacell of approximately $11.6 million in the second quarter. The Company anticipates a return to normalized revenue growth and positive non-GAAP Adjusted EBITDA starting in the fourth quarter of 2015.

"Second quarter results reported today reflect a number of significant developments including our settlement agreement with Iusacell, an amended Credit Agreement with a reduction in outstanding debt, and our recently completed corporate restructuring which is expected to reduce our staff cost and other G&A by approximately $5 million over 2015 compared to last year," stated Mr. Steven van der Velden, Chairman and CEO of Elephant Talk. "With the required new client contracts, credit agreement and granting of regulatory licenses in Brazil expected in the next few months, supported by a streamlined organization, we expect to launch Elephant Talk Communications' telecommunications products into important new geographies in North and South America. With these new deployments, combined with continued momentum at ValidSoft, we expect to see top-line growth starting in the fourth quarter."

Operational Update:

  • In June, Elephant Talk ended its relationship with Iusacell following the carrier's acquisition by a large US-based carrier resulting in a global settlement worth approximately $13.5 million in favor of Elephant Talk for outstanding receivables and additional compensation, consisting of $12.6 million in cash and the remaining balance in exchange for certain debt obligations of Elephant Talk to Iusacell. Subsequent to this settlement, the Company repaid approximately $5.7 in outstanding debt obligations and certain expenses and entered into new amended Credit Agreement with its existing lender for a Term Loan Facility of $6.5 million which will allow the Company to execute its plans to service both existing and new customers around the world.
  • During the second quarter, Elephant Talk's management team executed on its Board-approved restructuring efforts as part of its strategic plan to improve operational efficiencies, increase sales efforts and reduce expenditures. The plan included dividing its operations into two organizations - Delivery & Operations led by Co-President Dr. Armin Hessler and Sales & Innovation led by Co-President Martin Zuurbier - and estimates it can reduce the Company's product development, selling, general and administrative cash expenses this year by approximately $ 5 million compared to the prior year. Management expects that this new operating structure and increased commercial focus will allow the Company to quickly and cost efficiently scale the business as it adds expected new clients later this year.
  • The Company is finalizing its Master Services Agreement with a Tier 1 US operator and is currently completing necessary compliance and credit documentation required to commence service deployment and customer acquisition expected early this fall.
  • The Company has completed initial pre-deployment activities in support of a new Brazilian mobile virtual network operator contract. Subject to the granting of the operating license, which the customer expects to receive in the next 30 days, Elephant Talk will complete system deployment and commence operations.
  • Momentum at ValidSoft continues to build with the launch of its 'International Proximity Correlation' capability at both of the major UK banks currently using its Device Trust solution in partnership with FICO and the addition of two new Device Trust proof of concept trials at two additional UK banks. In the United States, the User Authentication platform contract featuring its voice biometrics technology is on schedule for launch later this month and it is expected that the customer will roll out the voice biometric network access authentication technology to its 5,000 remote based US staff in September. ValidSoft's channel program continues to grow with the completion of its integration with ImageWare Systems and the enrollment of some of ImageWare's existing clients and the addition of a new channel partner agreement with Virtusa Inc., a global information technology services company providing IT consulting, technology and outsourcing to a wide range of industries including financial services, telecoms, retail and healthcare. During the quarter, ValidSoft welcomed Dr. Federico Alegre, an expert in speech and anti-spoofing technology to its voice biometric team, which aims to ensure that the Company's voice biometrics engine remains best in class.

Conference Call Information:

Date: 

Tuesday, August 11, 2015

Time: 

11:00 a.m. EDT

Domestic Dial-in number: 

719-325-2361

Live webcast: 

http://public.viavid.com/index.php?id=115797

All interested in participating should dial in approximately 5 to 10 minutes prior to the 11:00 a.m. EDT conference call. Participants should ask for the Elephant Talk second quarter conference call.

* Non-GAAP financial measures
In order to provide investors with additional information regarding the company's results of operations, Elephant Talk uses non-GAAP measures including Non-GAAP Revenue and Adjusted EBITDA in this earnings release. 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, revenue, net income (loss) or net income (loss) per share determined in accordance with GAAP. In addition, investors are cautioned, that non-GAAP measures are subject to inherent limitations because they involve the exercise of judgment about which items are excluded in the determination of the non-GAAP financial measures.

Non-GAAP revenue is defined as GAAP revenue adjusted for changes in deferred revenue.

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

A reconciliation of GAAP Revenue to Non-GAAP Revenue, for each of the periods indicated, is as follows:



Three Months Ended June 30,







2015



2014 restated



Variance


Revenue


$

19,244,383



$

5,072,440



$

14,171,943


Deferred Revenue adjustments



(11,871,208)




1,727,530




(13,598,738)


Non-GAAP Revenue


$

7,373,175



$

6,799,970



$

573,205


A reconciliation of GAAP Net Loss to Non-GAAP Adjusted EBITDA, for each of the periods indicated, is as follows:



Three Months Ended June 30,


EBITDA (adjusted)


2015



2014 (restated)


Net income (loss)


$

9,521,918




(6,450,202)


(Benefit) / provision for income taxes



111,450




(2,209)


Depreciation and amortization



1,745,034




1,928,392


Stock-based compensation



752,510




1,902,537


Interest income and expenses



533,239




303,669


Interest expense related to debt discount and conversion feature



403,679




1,025,292


Changes in fair value of warrant liabilities



(149,203)




(38,948)


(Gain)/Loss on extinguishment of debt



-




-


Other income & (expense)



(155,252)




(68,008)


Amortization of deferred financing costs



362,845




113,090


Changes in deferred revenue



(11,871,208)




1,727,530


Impairment for assets held and used



937,835




-


Adjusted EBITDA


$

2,192,847




441,143


About Elephant Talk Communications Corp.:
Elephant Talk Communications Corp. (NYSE MKT: ETAK) is a global provider of mobile proprietary Software Defined Network Architecture (ET 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, reliable industry expertise and high quality customer service without the need for substantial upfront investment. Elephant Talk counts several of the world's leading MNOs and technology companies amongst its customers and partners, including Vodafone, T-Mobile, Zain, HP and Affirmed Networks. Visit: www.elephanttalk.com.

About ValidSoft UK Ltd.:
ValidSoft, a subsidiary of Elephant Talk Communications Corp., secures transactions using personal authentication and device assurance. We enable our customers to enhance their security while improving their user experience, utilising our multi-factor authentication platform, Voice Biometric engine and Device Trust technology, all of which may be used as 'stand-alone' or integrated into multi-vendor solutions. ValidSoft serves multiple clients across the financial services, government and enterprise sectors and is the only company to have been granted four European Privacy Seals, reflecting its commitment to strong data privacy. Visit: www.validsoft.com.

Investor Contact:
Alan Sheinwald or Valter Pinto
Capital Markets Group, LLC
(914) 669-0222
valter@capmarketsgroup.com 
www.CapMarketsGroup.com

Public Relations:
Michael Glickman
MWGCO, Inc.
917-397-2272
mike@mwgco.net

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SOURCE Elephant Talk Communications Corp.



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