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Edited Transcript of CALL earnings conference call or presentation 10-May-17 9:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Magicjack Vocaltec Ltd Earnings Call

NETANYA May 17, 2017 (Thomson StreetEvents) -- Edited Transcript of Magicjack Vocaltec Ltd earnings conference call or presentation Wednesday, May 10, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Don Carlos Bell

magicJack VocalTec Ltd. - CEO, President and Director

* Thomas Fuller

* Timothy Robert McDonald

magicJack VocalTec Ltd. - Former COO

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Conference Call Participants

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* Gregory Burns

Sidoti & Company, LLC - Analyst

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Presentation

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Operator [1]

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Good afternoon, and welcome to the magicJack First Quarter 2017 Earnings Call. Today's conference is being recorded. With us on the call today is Don Bell, Chief Executive Officer; and Tom Fuller, Chief Financial Officer.

During the call, we will make statements related to our business that may be considered forward-looking in nature under federal securities laws. These statements reflect our current views regarding the future only as of today and should not be reflected upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our quarterly report on Form 10-Q, which will be filed today, May 10, 2017, with the SEC and to our 2016 Annual Report on Form 10-K, also filed with the SEC.

Also during the course of today's call, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after the close of the market today, which is located on our website at www.vocaltec.com.

With that, I will turn the call over to Don.

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [2]

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Welcome, everyone. This is Don Bell, Chief Executive of magicJack VocalTec. In the first quarter and including April, which together are a mere 17 weeks in total, we've made swift progress on our dual track strategy. Operationally, the new management team with the full support of the board, took decisive action in this first quarter. I wish to publicly recognize the exceptional efforts over the past 4 months of magicJack employees throughout the company and of our Board of Directors and advisers. Without this exceptional surge of effort, which hasn't yet abated, we could not have accomplished so much change in such a very short period of time.

I'm here with Tom Fuller, and he has really burned the midnight oil along with the rest of his team. I could go across the board with all of our teams and all of our advisers and directors and thank them very strongly for all of this effort. It's been incredible.

In that period, we refocused the business on our core assets, our core value proposition, our core clients and on natural extensions of our existing assets, capabilities and brand into the closest adjacent market to our millions of consumer subscribers, and that is the SOHO business market. We cut spending, we cut headcount and exit partnerships that we deemed unproductive and distracting from our best opportunities to maximize cash flow returns.

Net of new hires, we reduced employee base by approximately 40 positions, and they are largely professional positions. We closed the SMB operations in Atlanta, we exited the Telefonica and HOTELiJack partnerships, that's all over, and we ceased other non-core ventures. At same time, we built a new marketing team, including a new Head of Customer Success to accomplish improved subscriber engagement and retention, including making it easier to renew or upgrade services.

We've organized our engineering talent into teams dedicated to singular priorities, 3 of them, they are: one, delivering the unJacked mobile-centric offer for trial in the next 3 months and launch later this year; two, servicing our existing clients. That takes a large operational effort or a significant operational effort and engineering effort; and three, improving our customer analytics for optimizing acquisition costs, pricing, testing offers, measuring service utilization and retention and renewal. We need great analytics in order to be great marketers.

We've identified many upgrades for our marketing related analytics and have made that a high priority with a dedicated team.

During the quarter, we brought on a seasoned leader in Broadsmart, COO Kerrin Parker, with a track record of success, building primarily SMB business through effective channel sales, offerings and support. Kerrin has added a sales team to support that effort, which we anticipate will yield results later in the year.

We diligenced our Broadsmart enterprise funnel and customer base, and significantly discounted that large opportunities funnel, which have been a focus of prior expectations for growth. The enterprise market is increasingly competitive. And though we have an attractive service offering for enterprise customers with highly distributed locations, we have experienced customer losses and now have a lower expectation of capture from our existing funnel of large opportunities. We concluded that the write-down we announce today reflects the impairment to the expected outlook of our customer base.

At this time, we believe we've captured the full impact and don't anticipate further write-downs, unless there are further significant changes to the business.

On the positive side, we have the right team in place to grow the business at this scale within our niche. And as previously announced, we are underway with the parallel track strategic alternatives process. As is typical in these situations, we will not be commenting further until we have something definitive to announce.

It's been an incredible whirlwind of activity over a mere 4 months, and I'm really excited with the momentum we have with the terrific assets and people we have at magicJack and the direction we're headed.

I'll now turn the call over to Tom to review the financials. Tom?

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Timothy Robert McDonald, magicJack VocalTec Ltd. - Former COO [3]

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Thank you, Don. I'll start with an overview of our first quarter financial performance, and then move on to provide our outlook for the full year 2017.

In the first quarter, we had total revenues of approximately $23.3 million. Of this total, most revenues continue to come from our consumer segment, which had revenues of $20.4 million. This compares to revenues of $21 million last quarter and $23.2 million in the same quarter last year.

In Q1, Broadsmart, our enterprise segment, had revenues of $2.7 million, which is consistent with last quarter's revenue and compares to revenues of $0.5 million in the same quarter last year, the quarter in which we acquired Broadsmart where we only had 15 days of revenue.

In our consumer segment, during the quarter, there were approximately 92,000 device activations, down slightly on last quarter, and we achieved a churn rate of approximately 2.5%, which is consistent with Q4 of 2016.

We ended the quarter with approximately 2.1 million active subscribers.

Turning to SMB. During March, we restructured this segment, reducing virtually all headcount and marketing spend while consolidating functions within our consumer segment. Prior to the restructuring, this segment had been incurring operating expenses of approximately $1 million per month, with revenues of less than $100,000.

In our enterprise segment, as Don previously mentioned, in the course, we recorded a significant charge of $20.4 million being an impairment charge against intangibles of goodwill of $31.5 million, offset by deferred tax benefit of $11.1 million.

We have recorded an impairment in Q1 after new management completed a comprehensive review of Broadsmart's business prospects, and through this process, revised the projections for the operating results downward. In particular, Broadsmart received notification with a major customer who would not be renewing his contract, and management anticipates the loss of another major customer. Despite these losses, we believe we now have the right people and the right sales approach in our enterprise segment to deliver against our revised expectations.

As a reminder, Kerrin Parker joined magicJack in March [or late] February as Chief Operating Officer of Broadsmart, and we're very confident in her ability to improve the operations, given her experience and success in the enterprise market over the last 2 decades.

As Don mentioned, we are only at the beginning stages of implementing our strategy, which we expect to gain traction over the course of this year. We have made progress in the last few months, as evidenced by the successful shutdown of less promising initiatives as we focus on leveraging the company's brand, it's efficient network and strong channel partners.

In terms of profitability, for the quarter, we reported adjusted EBITDA of $4.2 million and non-GAAP net income of $3.4 million or EPS of $0.21 per share based on $16 million weighted average diluted shares outstanding.

On a GAAP basis, we recorded a net loss attributable to common shareholders for the first quarter, totaling $23.1 million or $1.44 per share, based on 16 million shares outstanding. This net loss included a net charge of $20.4 million related to Broadsmart write-down and approximately $1.8 million of net loss attributable to the SMB segment that we restructured during the period.

In addition, GAAP net losses included $2.9 million in severance and senior management transition expenses, further $1 million in legal cost and other cost related to our recent proxy disputes against active shareholders, approximately $450,000 in relation to transitional customer care costs where we migrated offshore services, a $400,000 write-down of inventory components for a discontinued device and a $400,000 asset impairment related to a project we decided not to pursue.

A reconciliation of GAAP to non-GAAP financial measures have been provided in the financial statement tables included in our earnings press release from earlier today and is available on our website.

Turning to our balance sheet. As of March 31, we had cash and cash equivalents of $49.3 million and no debt. Our cash balance reflects the use of $4 million in cash flow used in operations, which was impact by the ongoing decline in our consumer business as well as approximately $3 million spent on our SMB initiative during the quarter and $3 million estimated federal tax payments.

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [4]

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I think this is $48.3 million.

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Thomas Fuller, [5]

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I beg your pardon, $48.3 million of cash. Turning to our financial outlook for the full year 2017. We expect 2017 revenues to be in the range of approximately $85 million to $87 million based on our current subscribers, our customer base and our trend of churn and activations. Based on this revenue projection, we are expecting 2017 adjusted EBITDA to be in the range of $17 million to $21 million before investment in the new strategies and products that Don previously mentioned, more specifically unJacked. The net investment in these new projects and strategies will depend on what we experience in terms of CAC and ARPU, and therefore, may change significantly. However, at this time, we estimate that the net investment in those new product initiatives will be in the range of $3 million to $5 million. With that, let me turn back over the call to Don for some closing remarks.

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [6]

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Thank you, Tom. To recap, in the first quarter, we took swift and decisive action to advance our dual track strategy. We recruited and transitioned to a new executive management team, including CEO, CFO, CMO, which is a new position, a new COO of Broadsmart and broader authority for the CTO. We ended 2 proxy contests and our shareholders elected aboard with 2 new additions, Alan Howe and myself. We narrowed our strategic focus to our core client base and consumer offer and to a natural extension of that core into mass market business communications with a mobile first product strategy and a web first customer acquisition and service delivery strategy.

We exited various ventures that were consuming resources and we deemed unlikely to meet our ROI and strategic fit requirements. This included the Atlanta SMB operations, which were consuming over $1 million per month at the beginning of the quarter. And after thorough assessment of the performance of Broadsmart and customer contracts, we concluded that the write-down we announced today reflects the impairment to the expected outlook of our customer base and large opportunities funnel. These actions, which resulted from extraordinary teamwork in the short time frame, really set us up for the results we want going forward. With that, I'll now turn it over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Greg Burns with Sidoti & Company.

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Gregory Burns, Sidoti & Company, LLC - Analyst [2]

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So in terms of Broadsmart, could you just help us understand between the time of acquisition and now to the write-down kind of why the business has underperformed? Or do you have a sense of why the custom -- the churn has been so high and you haven't been able to retain customers or close new business? Why has the business underperformed expectations?

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [3]

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Yes. I'll start and -- this is Don, and Tom can add in as well. When you say underperformed, it really depends on what one's perspective is on expectation. So if we were to go back to the investment pieces at the time of acquisition and the growth rates and EBITDA margin capture that were telegraphed at that time, those assumed that there was a lot of enthusiasm around the large opportunities funnel. And in particular, there were 2 system integrators that the company has been involved with that had produced one client with each, large enterprise distributed operations clients. The view was that, that funnel would continue to produce many more, and these would be really inflection points for the business. That hasn't happened, and we've looked at the -- looked at that large opportunities funnel and said that we discount that heavily. We don't expect that to produce -- we don't think we have, right now, a viable large enterprise funnel despite the fact that we do a good job for the clients. So we have a good offer there. I would say in addition to that, over the last year, and this may have been a trend before that period, the market is becoming increasingly competitive and that includes not just the enterprise area, but the lower stratus of medium-sized enterprises and smaller businesses. Anyone that is approached through a channel, whether it's a VAR or a large system integrator, and what that means is that there is -- what the competition has resulted in is a reduction in price over time as well as increased incentives that are necessary within the channel to have your offer recommended over someone else's. So the outlook is it's a tougher environment and we haven't captured on the funnel. And then the elements within the first quarter that triggered the write-off specifically had to do with existing customers and expectation of whether they will continue to renew or not.

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Gregory Burns, Sidoti & Company, LLC - Analyst [4]

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Yes. I mean quite specifically, Greg, that -- but not going into commercial details, customers who notice for cancellation, they don't always share completely all their reasons to cancellation. In relation to one of the specific ones, I can speak to it was more to do with they actually want for a competitive offering with a moving back to a model of having a Cisco core management on premise PBX with line support and moving away from a distributed UCaaS model. They viewed that as more cost efficient for their needs at that particular point. In respect to other cancellations, it's been for a variety of reasons, some related to price, some related to service and some related to a change in need that the underlying customer happened. It just so happened unfortunately that there was -- the cancellations we did have and the ones that we expect to cancel relate to some of our largest customers, which is why the impairment had some very significant impact on the value of our intangibles, particularly the customer list.

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Gregory Burns, Sidoti & Company, LLC - Analyst [5]

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Okay. Then I guess -- and looking at the complexion of the business and the competitive landscape, why stick with this business? Why continue to go after this kind of upmarket business segment when your core is really in that SOHO market, that core like the adjacency to your kind of core consumer customer? Why continue to pursue this segment of the market?

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [6]

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Well, there are 3 ways we could pursue it. We could pursue it through -- there are obviously some advantages to scale. And building inward is relatively small scale. So ways that one could increase their scale dramatically, and I'm talking getting over $100 million in revenues would be to acquire other entities and add them -- do bolt-on acquisitions or invest substantially in sales and in operations to build to that level and people have done that. Those aren't things that we want to do. So those aren't on our radar to build into a significantly different scale level just given the headwinds that we see. So I think that goes to your question as to what would we do in this area. That said, we have a business here, and it's -- we have great people, we have a long track record and there's opportunity to grow from the space. And that's why I say that we have -- and Tom said as well, that we have the right people in place to grow within our niche. But what I'm trying to indicate is that we're not expecting to go take over the enterprise space, the SMB space, et cetera. I think we're appreciative of where we are, and I would agree with you that as far as deploying new capital, I think in our core business, there's more opportunity. And whether that opportunity requires our capital and there are other uses that one can make with capital, and there's been a lot of talk from shareholders before that we should review our capital allocation policy and towards various ways of returning cash to shareholders as an alternative. So those are all things that we have to weigh against the alternative of investing in one space. And I would say that with respect to significant investment, it's not going to be here, it's going to be more incremental. And that our focus really will be with respect to new capital investing in right around our core. Our core being our consumer offer, our consumer market and then what is really a very close adjacency and overlap of the consumer style part of the business market.

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Thomas Fuller, [7]

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Yes, I think that's right, Don. Just a further couple of points in that. I think it's, to the macro terms, completely right just at a tactical go-forward level. I think we all feel relatively comfortable that the management have identified some of the barriers that we had to successful sales execution at the smaller end of opportunity side, which is more about being closer to the direct channel partner that you need to in terms of offering the right space. And being able to, frankly, present your offer in the right way as well that meets the market price expectations. We still believe we have cost advantage, which we have during the quarter continued with the integration of the -- onto my MyMax network, (inaudible). Obviously that requires customer's consent to that migration. So we feel at the -- with the size of asset we have, we know where we can improve and we know what we need to do better. But it doesn't change the ongoing thesis that it's clearly a scale business in the long term.

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [8]

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I think when you look back on the original thesis, it was an opportunity to really have a platform and then to build from there, and to build organically and potentially throughout acquisition. And so I'd say that's a change that this management team has from before, with the benefit of a year hindsight.

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Gregory Burns, Sidoti & Company, LLC - Analyst [9]

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Okay. So in terms of the guidance, the potential $3 million to $5 million of incremental investment, would you -- would that hit in like the third quarter? Or could that potentially all hit in the fourth quarter? How should we think about that potential incremental investment?

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Thomas Fuller, [10]

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It definitely would be more backend loaded into Q3 and Q4. There's going to be some, if you like, research and infrastructure cost that we will hit in Q2, but a lot of that will be fading into Q3 and Q4. And it's obviously very much -- a lot of it is success dependent.

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [11]

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Yes, the majority of it is marketing. It's specifically buying media once we have the products ready to go and testing out that media. And the only reason we'll ramp it up and we would spend the full amount is if we're finding that our customer acquisition cost is hitting into our -- the range that we want to see with a certain assumption about cut churn and -- yes, the certain assumption about lifetime value. So if we're -- if you're not spending at the high end of that, then it's because we've been successful.

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Gregory Burns, Sidoti & Company, LLC - Analyst [12]

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Okay. And that's $3 million to $5 million in total, not like a per quarter type of...

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Thomas Fuller, [13]

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Right, $3 million to $5 million over the remainder of 2017.

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [14]

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Normally, we wouldn't really even point out exactly how much yet because we're developing this model. But that is the range that we've set. And the reason it was important for us, for Tom and I, to tell you what that could be is so that you would understand if you compare it to the last year that while this we think is every bit as big a strategic opportunity as anything that company has talked about for years, it's different in that we're not talking about spending tens of millions of dollars on acquisition. We're not talking about a $10 million burn, mostly before we're acquiring very many customers. This is -- and why is that? It's because the nature of what we're doing is an extension of what we have. And so if we had start from scratch, we'd have to go build ourselves a CLEC and we'd have to create brand awareness. And we'd have to have some subscribers that we could try to cross-sell into the business offering, and et cetera, onward and onward. We have to have a network operations group and engineering. We've already spent a lot of that. We already have a lot of that. And so they're very few incremental costs beyond product marketing. We already did some research, but we're talking $100,000 in the last quarter as of this quarter. And most of this is going to go into media.

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Gregory Burns, Sidoti & Company, LLC - Analyst [15]

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Okay. And in terms of cash flow, do you expect the business to be cash flow positive this year?

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Thomas Fuller, [16]

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On a -- if we look to operating cash flows after adjusting for one-time items, yes.

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Operator [17]

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(Operator Instructions) We'll go next to [Dave Keenan] with [Keenan Wealth Management].

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Unidentified Analyst, [18]

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Could you, Tom, can you quantify -- and you've done a good job already on shutting down Atlanta. It appears to be about $12 million a year in expense. Can you also quantify shutting down Movistar and Hoteligent? And then also, how much expense will not recur going forward for legal to even come up with a total number of savings for 2017 and beyond?

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Thomas Fuller, [19]

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Sure. So let me speak to, firstly, the SMB segment. As I said, we're being -- we were approximately $1 million a month in cash costs. So really from April onwards, those costs won't be in our model, and that's already reflected in my range of EBITDA range that I got as the avoidance of those costs. In respect to legal, it's really -- the only saving really is the Q1 proxy cost, which we don't believe to be recurring. We still have a number of legal items that's noted in our K and our Q, which we're moving to over the medium to longer term. I do think that's an opportunity to optimize significantly that cost. But at this point, I'm not -- I can't commit to any specific savings in that regard. You mentioned HOTELiJack and the Telefonica venture. In Q1 we did incur some write-downs, especially I think with that, which was about approximately $400,000 and some slight differences on some low notes. So that's -- going forward, that have already cost that we were otherwise expected to have over the full year of about -- combined those 2, about a $1 million.

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [20]

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Severance expense?

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Thomas Fuller, [21]

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Severance expenses we disclosed in -- at the onset of $2.9 million in the quarter.

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Unidentified Analyst, [22]

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Okay. And then if you can take me through the cash flow for the quarter, there was $3 million in the tax payment. What other anomalous events, if any, were there, such as legal, severance, et cetera? And if you can, the more detail, the better.

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Thomas Fuller, [23]

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So basically, in addition to that $3 million tax payment, the SMB component of it, which, as we talked about, it was approximately $3 million of cash cost which will obviously not be recurring in the future. The other legal proxy dispute costs are in the range of, let's call it, just $500,000, approximately. Not all of the proxy costs have actually been yet gone through cash. And then if you like, between severance and other costs, you got about another $1 million.

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Unidentified Analyst, [24]

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Okay. And then on Broadsmart, is there any kind of clawback? Do we have -- is there any way for us to recoup anything there in light of the debacle? And it just doesn't sit well right out of the gate, it seems to have gone into a tailspin. They've got $40 million, and then many of the board members, incumbent board members, and former CEO, CFO, who made this decision are still involved. Well, CFO, I'll scratch, but former CEO remains on the board. Is there any -- like I said, is there anything that we can do in terms of clawback recouping some of that? Wishful thinking most likely, but I appreciate your comment.

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [25]

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No, for sure. I mean what I would direct you to, [David], is obviously disclosed in our financials. We do have an escrow amount of $3 million against (inaudible) warranties that is disclosed in our financials related to this transaction. Other than that, I really can't comment at this point. It's fair to say that we will pursue whatever we believe to be is in the best interest of shareholders.

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Unidentified Analyst, [26]

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Okay. And then what is with the customer losses at Broadsmart? Can you approximate the quarterly run rate? I think you said $2.7 million this quarter. Going forward, what are we down to?

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Thomas Fuller, [27]

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Some of those will fade in over -- will come in overtime because it's not as simple as saying they disappear. They take a little bit of time to migrate. And this is sort of a loose estimate, I believe it's about $250,000 in total of MRR.

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Unidentified Analyst, [28]

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MRR stands for what?

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Thomas Fuller, [29]

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Monthly recurring revenue.

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Unidentified Analyst, [30]

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Okay. So will be down to about $2.5 million once these customers migrate? I'm sorry, no, no, no. Will be down to $2 million, rather. Is that correct? About $2 billion per quarter once these customers migrate?

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Thomas Fuller, [31]

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I think that's a reasonable assumption. Obviously we do expect to have sales growth still from the active sales people we have. So it's a combination of how quickly we do the ads from our new sales team and new sales strategy from the (inaudible) how quickly people actually -- they can make a decision but it takes them time to migrate away from the coalition. It's not well it's just turning a switch.

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Unidentified Analyst, [32]

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Okay. And then I'm just going to ask another question, I'll go back into queue. In the past, you guys would give a paid app user number. Can you give us that number at the end of the quarter? I believe it was last $200,000.

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Thomas Fuller, [33]

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I believe -- I don't actually have that at hand, [David], I'll be honest, but I believe it is approximately $200,000. It's -- be aware, we are not -- with the change anticipated to unJacked, it's not an area we're hugely marketing to currently. That's a prime opportunity. We view those customers as a conversion. So our focus will be with unJacked is directly targeting those for conversion. But I believe it's about $200,000 still.

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Operator [34]

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There are no additional questioners. [Mr. Keenan], please continues to ask your questions.

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Unidentified Analyst, [35]

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Just a comment. I'm pleased to hear you state that you're reviewing your capital allocation strategy going forward. That seems to be a step in the right direction. And well, I was going to say implicitly, it seems like you possibly would sell Broadsmart if the right price could be attained. Is that correct? And then maybe we can use that stock -- I'm sorry, use that cash for better usage going forward.

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [36]

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I'll sell you my shoes for the right price, [David].

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Unidentified Analyst, [37]

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Okay. Okay. I mean you made -- Don made it clear that it really doesn't make sense going forward. So implicitly, I took it as potentially, it's going to be sold. And I would certainly, as we're fixing the business, once we stabilize it, it seems like it would be good to return some of that cash to shareholders. One last thing, I did...

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [38]

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Excuse me, [David]. Sorry, let me interrupt you. I just want to make sure you paraphrase me. What I meant to say, I think, I said is that we're not putting more money in a significant way into getting to another level of scale. I didn't say that it doesn't make sense or that there's no quality of the business or overlap. We do have a synergies, et cetera. I'm just saying that our strategy would -- this year we said we could spend $3 million to $5 million on unJacked, and that's where we are. We don't have any other acquisition intentions beyond that. Or -- I'm sorry, that's not an acquisition intention but we don't have an M&A plan in front of us or a strategy big or small but for the strategic process that we already described. So I just -- I think you characterized it a little bit differently than I did. So I want to jump in on that. Why don't we take one more question, if you don't mind, and then we'll wrap it up. I thought you had one more question?

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Unidentified Analyst, [39]

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Yes. Okay. Let's see. Let me go to my list here. It seems that with -- our churn is 2.5% is like 30% a year. Can you speak to some of the initiatives underway to reduce churn, which gives us the potential to grow, obviously, from losing fewer subscribers?

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [40]

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Sure. There's a pretty well-worn path on retention in what one does in a subscriber business like this. And it's really starts -- so the starting point of improving our retention is, first, having the best people we can against that challenge. And we've recently hired a -- someone in charge of customer retention or customer success across the board, and that really starts the moment that -- from the moment they receive their first interaction with us and sign up to increase their utilization of the offer. The highest correlation between those, the continuous customers, is those that use it. And so there are ways of engaging with the customer. I'd say heretofore most of our engagement are newsletters, et cetera is about buy more, buy more. Not as much about how to encourage the -- encourage our subscriber base to use what we have. So the retention process starts the moment they become a customer, and there's a whole flow of opportunities and tools that are used in the industry and where our intention is to apply all of them. And they go all the way until the, let's say, the end of a customer's service period. And if that customer isn't on auto renewal, then we engage with them to encourage them to renew. I know you've been a fan of auto renewal, and it's something that we have in our flow, but we have ways to enhance the -- make it easier for people to check that box and to auto renew from the start, for example. So we're going to make it easier for our customers to renew with us, to upgrade their services, to use what we have. And we have somebody in place to do that, who's terrific as well as the assistance of an agency that we're very close to on that plan. I don't know what the result will be, but I can tell you that there are dozens of things that we intend to do in retention and across marketing. And as I said earlier, one of the things we do need that we recognized is better analytics so that we can see how customers are behaving as we change things up, whether that's pricing or messaging. And so we're also working on improving our analytics that we have for all of our customers going forward.

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Unidentified Analyst, [41]

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When did you add the auto renewal feature on the credit card, where you're -- I'm assuming you're billing them now automatically rather than them having to take action to renew. When did that get added to the workflow during the registration process? And then if you could just share with me the data that you have, how many of your new customers are opting for that versus opting out?

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [42]

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Okay. So I don't have that. And also, auto renewal has been an option in the registration process. It's been -- it was that way before the quarter. What's changed is just to how we're going about it, like where it is in the process. So I don't really have any updates. I'd say that more -- the greater change that could occur would be to instead of having auto renewal will be an opportunity that one does once they get the device and then start registering it to have auto renewal in the flow at the point that they purchased the device if they do a direct purchase. So that involves a number of different things to execute on and that's -- and we haven't done that yet. So I don't have the data yet. I wouldn't want to start indicating where all these things will head. And in fact, it's not necessary for us to do so to say, okay, we're 2.x% now. Maybe we can go down to 2 point this amount by doing steps X through -- A through Z. And why is that not necessary? Because they're not -- these are -- they go in the category of no-brainers. They're not big investments. And so we don't have to underwrite a major investment thesis in order to know that we want to do the best practices around retention. So thank you, [David], and appreciate it.

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Operator [43]

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That concludes today's question-and-answer session today. I'd like to turn the conference back to management for any additional or closing remarks.

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Don Carlos Bell, magicJack VocalTec Ltd. - CEO, President and Director [44]

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Thank you very much. Look forward to speaking to you soon.

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Operator [45]

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This concludes today's call. Thank you for your participation. You may now disconnect.