Elephant Talk Communications Reports Second Quarter 2013 Financial Results

OKLAHOMA CITY, Aug. 8, 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 $5.0 million for the second quarter ended June 30, 2013.  

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The higher margin¹ mobile and security solutions business generated revenue of approximately $4.5 million in the second quarter of 2013, a year-over-year increase of 60.5% compared to mobile and security revenue of $2.8 million reported in the second quarter of 2012. Mobile and security revenue accounted for 89.5% of total company revenue in the second quarter of 2013 compared to only 39.3% of total company revenue in the second quarter of 2012.

Total Margin for the second quarter of 2013 was a record $3.5 million, up 85.7% from the $1.9 million reported for the second quarter of 2012. Total margin has increased for eight consecutive quarters in dollars and as a percentage of total revenue.

"Our core mobile systems and cyber security solutions business continued to grow in the second quarter of 2013 representing the vast majority of company revenue and margin," stated Steven van der Velden, CEO of Elephant Talk Communications. "Our transition is near completion from our low margin landline business to our higher margin mobile and security solutions business that produced over 70% margins in the second quarter. The agreement with Iusacell in Mexico for the deployment of Elephant Talk's Software-DNA™ Platform provides for a minimum of 1.5 million SIMS by year-end, which will more than double the amount of SIMs on our platforms."

Key Company Highlights

• Strong Contribution from High Margin Mobile Solutions and Security Systems Operations.  In the second quarter of 2013, Company margin was 70.7%. For the six months ending June 30, margins have improved from 8% in 2011 to 23% in 2012 to 57% in 2013. This trend is expected to continue.
• Elephant Talk's Agreement with Iusacell Provides for the Addition of a Minimum of 1.5 Million Mobile Subscribers to Elephant Talk's Proprietary Software-DNA™ Platform.  The first call on the platform with Iusacell's CEO took place in June 2013. Under the terms of the Iusacell agreement, the Company expects to add at least 1.5 million mobile subscribers to its platform by the end of the year. 
• ValidSoft's Partnership with FICO/Adeptra Continues to Make Progress with Global Financial Institutions to Provide Cyber Security Solutions. The most recently awarded contract is with a major UK bank and includes ValidSoft's world-class SIM Swap and Proximity Correlation solutions. The award-winning business now serves key clients, such as FICO/Adeptra, Banco Santander along with financial institutions in the USA, UK, Australia and governmental agencies in Europe. ValidSoft has successfully processed over 9 million transactions for Santander in the UK.
• Elephant Talk Reaches Positive Cash Flow Position in June 2013. The Company is approaching quarterly adjusted EBITDA breakeven. This cash flow measure is estimated 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.  
• Debt Free Balance Sheet. Elephant Talk CEO Steven van der Velden personally invested $4.5 million into a registered direct public offering in which the Company raised gross proceeds of $12 million. A portion of the proceeds were used to repay existing debt. In July, a $1.3 million loan made by a member of the Board to the Company in May was converted to equity, leaving the Company essentially debt free.

Financial results for the three months ended June 30, 2013

Revenue for the three months ended June 30, 2013 and June 30, 2012

• The higher margin mobile and security revenue increased 60.5% year-over-year.
• In line with the Company's strategy to essentially eliminate this product line, the lower margin legacy landline revenue declined 87.8% year-over-year in the second quarter of 2013 when compared to the same period a year earlier. 

Selected financial results for the quarter ended June 30, 2013 and June 30, 2012.

• The increase in margin for the three months ended June 30, 2013 was primarily attributable to the increased revenue contribution from our mobile and security solution product lines.
• Net income for the three months ended June 30, 2013, includes a loss on extinguishment of debt of $1.9 million related to the repayment of March 2012 debt.

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 June 30, 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 August 8, 2013 at 11:00 a.m. EDT. Anyone interested in participating should dial 1-480-629-9761 approximately 5 to 10 minutes prior to the start of the call. Participants should ask for the Elephant Talk Shareholder Update conference call. This call is being webcast and can be accessed at Elephant Talk's website at www.elephanttalk.com. To listen to the playback, please utilize the webcast by visiting the Company's website.

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 June 30, 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, 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 DNA^TM) 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.

¹ Margin is defined as revenue less cost of service. Cost of service includes charges from telecommunications operators, payments to content and information providers, network costs, data center costs, facility costs of hosting network and equipment, and costs of providing resale arrangements with long distance service providers, costs of leasing transmission facilities and international gateway switches for voice and data transmission services.

Reconciliation of Net loss to Adjusted EBITDA

In order to provide investors additional information regarding our financial results, we are disclosing Adjusted EBITDA, a non-GAAP financial measure. We employ Adjusted EBITDA, defined as earnings before derivative accounting, such as warrant liabilities and conversion feature expensing, depreciation and amortization, non-operating income and expenses and stock-based compensation, for several purposes, including as a measure of our operating performance. We use Adjusted EBITDA because it removes the impact of items not directly resulting from our core operations, thus allowing us to better assess whether the elements of our growth strategy are yielding the desired results. Accordingly, we believe that Adjusted EBITDA provides useful information for investors and others which allows them to better understand and evaluate our operating results.  

A reconciliation of Adjusted EBITDA to net loss, the most directly comparable measure under U.S. GAAP, for each of the fiscal periods indicated, is as follows:

Investor Relations:

Steve Gersten
Elephant Talk Communications
+1 813 926 8920
[email protected]

Thomas Walsh
Alliance Advisors
+ 1 212 398 3486
[email protected]

Public Relations:

UK: Fishburn Hedges
+44 (0)20 7839 4321
[email protected]

SOURCE Elephant Talk Communications, Corp.

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