MagicJack VocalTec Communications' CEO Discusses Q2 2012 Results - Earnings Call Transcript

magicJack VocalTec Communications Ltd. (CALL)

Q2 2012 Earnings Call

July 30, 2012 10:00 am ET

Executives

Andrew MacInnes – President

Daniel Borislow – Chief Executive Officer

Analysts

Timothy Horan – Oppenheimer & Co.

Ryan MacDonald – Northland Securities, Inc.

Presentation

Operator

Good day ladies and gentlemen and welcome to the magicJack VocalTec Q2 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

With that, I would like to hand the call over to the magicJack President, Andrew MacInnes. You may begin.

Andrew MacInnes

Thank you, Mime. Good morning to you all and thank you for your interest in magicJack. Firstly, let me introduce Dan Borislow, our CEO who is also on the call. For the structure of the call, I will present some prepared remarks about the company’s financial results in the most recent quarter, and then Dan will answer some questions from our analysts.

Firstly, let me read the company’s Safe Harbor statement. This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act given to the company’s expectations or predictions of future financial or business performance or conditions. Forward-looking statements are typically identified by words such as believe, expect, anticipate, intend, target, estimate, continue, positions, prospects or potential by future conditional verbs such as will, would, should, could or may or by variations of such words or by similar expressions.

The forward-looking statements in this presentation are qualified by the factors affecting forward-looking statements identified in our SEC filing, available at sec.gov or on our own website. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that change over time. Forward-looking statements speak only as of the date they are made and we assume no duty to update forward-looking statements.

Okay, now that we have got that out of the way. I will go over some of the major items in the most recent quarter. Firstly, the company reported revenue in Q2 of $38.6 million compared to $28.8 million in the same period a year ago representing growth year-on-year of almost 34%. Sequentially, compared to Q1 2012 revenue growth was almost 10%, if one excludes the approximately $2.5 million in revenue associated with the implementation of international prepaid billing rules from the Q1 numbers.

Secondly, reducing costs is a [man] curve at the company. So let me discuss improvements in several of the cost categories. Advertising expenditures have been reduced over the last few quarters, we continue to use very cost effective remnant TV advertising and the efficiency of these short form TV swaps is clear from our ongoing sales volumes.

With respect to network costs. As we expected, we have been a beneficiary of the recent FCC access charge reforms. Net-net the cost per customer is about $1.50 per year, while our renewal rates might be the best in the industry. On the G&A line item, we did also share improvement here mainly due to reduced legal expenses. As a result operating income for Q2 was $10.3 million up from $3.3 million in Q1 2012 again excluding the IPP one-time items in Q1.

Next, let me turn to our share repurchase program. Our share repurchase program continues to be very successful and we are now down to 19.4 million shares outstanding at the end of the quarter. In terms of our new product pipeline, let me discuss a few of the exciting items we are focused on here. So as many of you know, we are gearing up for the production of the magicJack WiFi for fourth quarter introduction. The company is also completing the rollout of the magicJack APP for the Google Android platforms. We have been very pleased with the success of the magicJack APP on the Apple iOS devices. We will also be adding texting to our apps later this year and at that point, we will really start promoting the apps. We will seek ways to monetize the apps next year in 2013.

Finally, [someone] may want to walk down about the number inventions. Let me wrap up with a couple of general points. Firstly, the company has now built out the infrastructure to handle hyper growth. And secondly, what many of you don’t know if we are the only company to have the largest reaching CLEC, our own chip design company, our own Softswitch and Session Border Controller company and we even write all our own softphone software. All of these subsidiaries continue to contribute to our overall success.

With that summary of recent results, let me turn the call over to Dan to answer questions.

Daniel Borislow

Good morning everybody. Thanks Andrew and thanks for contributing to the success of the company since you started this year. Before I get into the questions, I just want to go over a couple of things very briefly.

Early this morning, we announced a patent field that I have been personally working on for quite a period of time, and the patent world is not a very well-known industry except for quite a few people, and you could buy 5,000 patents, a 5,000 patents might not be better than just one patent I think you could purchase alone.

In this case, this is a very valuable patent that we purchased. It will be revenue and income producing, and it will be very accretive to our numbers in the future. The other thing as far as patents cover, still on the look, this particular patent that we did buy as the foundational patent, as far as our concern. And it happened would be the reason – the largest reason by far of why we merged with VocalTec and besides the people that we got and the technology that the patent was something I was absolutely terrified about research, all the patents that were outstanding and when I found that VocalTec patent I know I have to get used with that patent.

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