NEWS RELEASE

MAGICJACK REPORTS SECOND QUARTER 2017 FINANCIAL RESULTS

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Total net revenues of $22.4 million, access rights renewal revenues were $13.0 million

·

GAAP operating income of $1.1 million, Adjusted EBITDA of $4.4 million

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GAAP diluted EPS of ($0.10), non-GAAP diluted EPS of $0.21

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Cash and cash equivalents of $47.0 million and no debt as of June 30, 2017

 

West Palm Beach, Fla. and Netanya, Israel, August 9, 2017 – magicJack VocalTec Ltd. (Nasdaq: CALL), a leading VoIP cloud-based communications and UCaaS company, today announced financial results for the second quarter ended June 30, 2017.

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Net revenues: Total net revenues for the second quarter of 2017 were $22.4 million. Net revenues from the sales of magicJack devices were $2.5 million and access rights renewal revenues were $13.0 million, and accounted for 58% of total net revenues. Prepaid minute revenues were $1.2 million and access and wholesale charges were $1.0 million during the quarter. Broadsmart Global, Inc. contributed $3.0 million in revenues to the second quarter of 2017. Other revenue items contributed the remaining $1.7 million of total net revenues during the second quarter of 2017.

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Operating income: GAAP operating income for the second quarter of 2017 was $1.1 million which included $1.7 million in charges primarily related to non-recurring legal costs and settlements and senior management transition expenses.

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Adjusted EBITDA: Adjusted EBITDA for the second quarter of 2017 was $4.4 million.

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Net loss: GAAP net loss attributable to common shareholders for the second quarter of 2017 was ($1.6) million or ($0.10) GAAP diluted net income per share based on 16.1 million weighted-average diluted ordinary shares outstanding. GAAP net loss included the following items:

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$2.6 million tax-related items, which included a $2.4 million tax impact due to expiration of stock options;

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$0.6 million accrual for a state tax settlements;

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$0.5 million in costs related to the strategic process;

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$0.4 million accrual for costs related to an expected class action suit settlement, which represents the remainder of costs we do not expect to recover from insurance; and

·

$0.2 million in severance and executive management transition expenses

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Non-GAAP net income: Non-GAAP net income attributable to common shareholders for the second quarter of 2017 was $3.4 million or $0.21 non-GAAP net income per share based on 16.1 million weighted-average diluted ordinary shares outstanding.

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Cash: As of June 30, 2017, magicJack VocalTec had cash and cash equivalents of $47.0 million and no debt. During the second quarter of 2017, the company used $0.3 million net cash in operating activities, which reflects the impact of $2.4 million spent on severances and senior management transition costs, approximately $1.0 million in payments of expenses associated with the proxy dispute and lower renewal sales.

A reconciliation of GAAP to non-GAAP measures, as well as the calculation of free cash flow 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.”

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As of June 30, 2017, magicJack had an estimated 2.04 million active MJ subscribers, which are defined as device users that are under an active subscription contract.

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magicJack activated approximately 87,000 subscribers during the second quarter of 2017. Activations are defined as devices that become activated on to a subscription contract during a given period.

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During the quarter ended June 30, 2017, magicJack’s average monthly churn was 2.1%.

 

In conjunction with this announcement, magicJack VocalTec will host a conference call on Wednesday, August 9, 2017, at 5:30 p.m. EDT to discuss the company's financial results for the second quarter 2017 and other company business. To access this call, dial 1-888-857-6930 (United States), or 1-719-325-2435 (international), with conference ID #2787062. A live webcast of the conference call will be accessible from the investor relations page of magicJack VocalTec's website at http://www.vocaltec.com and a recording will be archived and accessible at http://www.vocaltec.com/events.cfm. A recording of this conference call will also be available through August 23, 2017, by dialing 1-844-512-2921 (United States), or 1-412-317-6671 (international). The recording access code is #2787062.

 

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. magicJack is the largest-reaching CLEC (Competitive Local Exchange Carrier) in the United States in terms of area codes available and number of states in which it is certified.

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.

Seth Potter

Investor Relations

561-749-2255

Non-GAAP Measures

The Non-GAAP measures shown in this release exclude various items detailed further below.

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magicJack defines adjusted EBITDA as GAAP operating (loss) income excluding: depreciation and amortization, share-based compensation, impairment of intangible assets, asset impairment, transaction related expenses, proxy contest related expenses, severance and senior management transition expenses, write-down of inventory components and other items.

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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, 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.

 

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)		Quarter				Quarter				Six Months				Six Months
		Ended				Ended				Ended				Ended
		30-Jun-17				30-Jun-16				30-Jun-17				30-Jun-16
Net revenues		$	22,381			$	25,301			$	45,578			$	49,000
Cost of revenues			8,166				9,838				17,617				18,047
Gross profit			14,215				15,463				27,961				30,953
Operating expenses:
Marketing			2,120				1,758				4,527				2,979
General and administrative			9,544				8,252				22,369				17,187
Research and development			1,462				1,247				2,961				2,347
Impairment of intangible assets and goodwill			-				-				31,527				-
Total operating expenses			13,126				11,257				61,384				22,513
Operating income (loss)			1,089				4,206				(33,423	)			8,440
Other income (expense):
Interest and dividend income			17				9				23				16
Other (expense) income			(13	)			2				(30	)			(5	)
Total other income (expense)			4				11				(7	)			11
Income (loss) before income taxes			1,093				4,217				(33,430	)			8,451
Income tax expense (benefit)			2,587				1,702				(8,768	)			5,202
Net (loss) income			(1,494	)			2,515				(24,662	)			3,249
Net (gain) loss attributable to noncontrolling interest			(67	)			304				-				304
Net  (loss) income attributable to common shareholders		$	(1,561	)		$	2,819			$	(24,662	)		$	3,553
(Loss) earnings per ordinary share:
Basic		$	(0.10	)		$	0.18			$	(1.54	)		$	0.23
Diluted		$	(0.10	)		$	0.18			$	(1.54	)		$	0.22
Weighted average ordinary shares outstanding:
Basic			16,078				15,853				16,056				15,750
Diluted			16,078				15,872				16,056				15,914

 

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CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION

(In thousands)
(Unaudited)
		As of				As of
		30-Jun-17				31-Dec-16
ASSETS
Current Assets
Cash and cash equivalents		$	47,041			$	52,394
Marketable securities, at fair value			369				447
Accounts receivable, net of allowance for doubtful accounts and billing adjustments			2,095				3,171
Inventories			2,646				4,441
Deferred costs			1,918				2,319
Prepaid income taxes			2,713				527
Recevable from earnout escrow			2,000				2,000
Deposits and other current assets			4,465				1,970
Total current assets			63,247				67,269
Property and equipment, net			3,173				3,805
Intangible assets, net			11,533				28,854
Goodwill			32,304				47,185
Deferred tax assets, non-current			35,659				26,568
Deposits and other non-current assets			793				836
Total Assets		$	146,709			$	174,517
LIABILITIES AND CAPITAL EQUITY
Current Liabilities
Accounts payable		$	1,846			$	2,790
Income tax payable			-				1,527
Accrued expenses and other current liabilities			10,549				8,426
Deferred revenue, current portion			44,886				48,507
Total current liabilities			57,281				61,250
Deferred revenue, net of current portion			41,510				44,201
Other non-current liabilities			12,577				10,866
Total Capital Equity			35,341				58,200
Total Liabilities and Capital Equity		$	146,709			$	174,517

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Unaudited)		Six Months				Six Months
		Ended				Ended
		30-Jun-17				30-Jun-16
Cash flows from operating activities:
Net (loss) income		$	(24,662	)		$	3,249
Provision for doubtful accounts and billing adjustments			126				152
Share-based compensation			1,303				2,250
Depreciation and amortization			2,419				2,182
Impairment of intangible assets			31,527				-
Increase of uncertain tax position			1,809				1,187
Deferred income tax (benefit) provision			(9,091	)			935
Loss on sale of assets			18				-
Changes in operating assets and liabilities			(7,575	)			(1,606	)
Net cash (used in) provided by operating activities			(4,126	)			8,349
Cash flows from investing activities:
Purchases of investments			-				(80	)
Proceeds from sales of investments			245				-
Purchases of property and equipment			(248	)			(159	)
Acquisition of Broadsmart			-				(40,019	)
Acquisition of intangible assets			(1,089	)			-
Net cash used in investing activities			(1,092	)			(40,258	)
Cash flows from financing activities:
Repurchase of treasury stock to settle withholding liability			(135	)			-
Proceeds from exercise of ordinary share options			-				1
Net cash (used in) provided by financing activities			(135	)			1
Net (decrease) increase in cash and cash equivalents			(5,353	)			(31,908	)
Cash and cash equivalents, beginning of period			52,394				78,589
Cash and cash equivalents, end of period		$	47,041			$	46,681

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RECONCILIATION OF OPERATING INCOME TO ADJUSTED EBITDA

(In thousands)
(Unaudited)		Quarter				Quarter				Six Months				Six Months
		Ended				Ended				Ended				Ended
		30-Jun-17				30-Jun-16				30-Jun-17				30-Jun-16
GAAP Operating (loss) income		$	1,089			$	4,206			$	(33,423	)		$	8,440
Depreciation and amortization			894				1,390				2,419				2,182
Share-based compensation			567				1,248				1,303				2,250
Impairment of intangible assets			-				-				31,527				-
Asset impairment			104				-				490				-
Transaction related expenses			-				-				-				799
Proxy contest related expenses			25				-				1,042				-
Severance and senior management transition expenses			242				63				3,154				611
Write-down of inventory components			-				-				386				-
Other Items			1,471				225				1,669				274
Adjusted EBITDA		$	4,392			$	7,132			$	8,567			$	14,556

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RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME

(In thousands)
(Unaudited)		Quarter				Quarter				Six Months				Six Months
		Ended				Ended				Ended				Ended
		30-Jun-17				30-Jun-16				30-Jun-17				30-Jun-16
GAAP Net (loss) income attributable to common shareholders		$	(1,561	)		$	2,819			$	(24,662	)		$	3,553
Share-based compensation			567				1,248				1,303				2,250
Impairment of intangible asset			-				-				31,527				-
Asset impairment			104				-				490				-
Transaction related expenses			-				-				-				799
Proxy contest related expenses			25				-				1,042				-
Severance and senior management transition expenses			242				63				3,154				611
Write-down of inventory component			-				-				386				-
Other items			1,471				225				1,669				274
Tax related items			2,594				(7	)			(8,089	)			2,222
Non-GAAP Net income		$	3,442			$	4,348			$	6,820			$	9,709
GAAP (loss) earnings per ordinary share – Diluted		$	(0.10	)		$	0.18			$	(1.54	)		$	0.22
Share-based compensation			0.04				0.08				0.08				0.14
Impairment of intangible asset			-				-				1.96				-
Asset impairment			0.01				-				0.03				-
Transaction related expenses			-				-				-				0.05
Proxy contest related expenses			0.00				-				0.06				-
Severance and senior management transition expenses			0.02				0.00				0.20				0.04
Write-down of inventory component			-				-				0.02				-
Other items			0.09				0.01				0.10				0.02
Tax related items			0.16				(0.00	)			(0.50	)			0.14
Non-GAAP Net income per share – Diluted		$	0.21			$	0.27			$	0.42			$	0.61
Weighted average ordinary shares outstanding - Diluted:			16,078				15,872				16,056				15,914

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