Elephant Talk Communications Reports Q412 and Full Year 2012 Financial Results Q412 Mobile and Security Revenue Grew 87% Y/Y - Sixth Consecutive Quarter of Q/Q Revenue Growth Full Year 2012 Mobile and Security Business Grew 103% Y/Y PR Newswire SCHIPHOL, The Netherlands, April 2, 2013 SCHIPHOL, The Netherlands, April 2, 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 Network Operators (MNOs) and Mobile Virtual Network Operators (MVNOs), Enablers (MVNEs) and Aggregators (MVNAs) and a market leader in providing solutions to counter electronic fraud for the financial services industry, today announced total revenue of $6.8 million for the fourth quarter ended December 31, 2012. (Logo: http://photos.prnewswire.com/prnh/20120917/MM75872LOGO) (Logo: http://photos.prnewswire.com/prnh/20120917/MM75492LOGO) The higher margin^1 mobile and security solutions business generated revenue of approximately $3.6 million in Q412, a year-over-year increase of 86.6% compared to revenue of $1.9 million reported in Q411. Mobile and security revenue accounted for 52.1% of total company revenue in Q412 versus only 23.5% of total company revenue in Q411. This marked the first time that mobile and security solutions revenue made up the majority of total company revenue. Mobile and Security (Unaudited) Reported Revenue % of Total Quarter Company Revenue ($ in millions) Q112 2.4 28.3 Q212 2.8 39.3 Q312 2.9 43.8 Q412 3.6 52.1 Mobile and security business revenue increased 102.7% year-over-year to $11.7 million for 2012 from $5.8 million for 2011. For 2012, approximately 40% of total company revenue was generated by mobile and security with only about 18% of total company revenue generated by mobile and security solutions in 2011. Total Margin for Q412 was $2.7 million, a year-over-year increase of 84.3% when compared to the total margin of $1.5 million reported in Q411. Total margin has increased for six consecutive quarters in dollars and as a percentage of total revenue. Total Margin % of Total Quarter ($ in millions) Company Revenue Unaudited Q112 1.7 19.7 Q212 1.9 26.8 Q312 2.1 31.3 Q412 2.7 39.4 ^1 Margin is defined as revenue less cost of service "The sequential increase of mobile and security revenue to $3.6 million in Q412 from $2.9 million in Q312 was a significant contributor to the sequential increase of total company margin to $2.7 million in Q412 from $2.1 million in Q312, thereby illustrating the strong operating leverage associated with these operations," stated Steven van der Velden, CEO of Elephant Talk Communication. "Continued year-over-year growth of the high margin mobile and security revenue is expected to contribute to our first month of positive operational cash flow, which we estimate using Adjusted EBITDA. While timing is dependent on the accounting treatment on revenue from existing contracts, we expect to achieve this company milestone in April of 2013. In addition, we are currently in the process of finalizing additional funding, and the company intends to close such financing in April/May, though there can be no assurance that financing will close in such period. This financing, combined with existing cash on hand and cashflow from operationswill be sufficient to fund our operations and carry out our business plans." Key Company Highlights oElephant Talk's Software DNA™ Platform Expected to go Live with Mobile Operator in a Major Latin American Market in the Second Quarter of 2013. The rollout of the Company's proprietary Software DNA™ platform is continuing on schedule. With an initial platform capacity of 10 million mobile subscribers, the Company expects to have at least 1.5 million mobile subscribers on its proprietary Software DNA™ platform by the end of the year. This is a 50% increase in subscriber expectations the Company had when the contract was first announced in January, consisting of a mix of the Operators existing mobile subscribers and subscribers from Mobile Virtual Network Operators ("MVNOs") that work with the Operator. oElephant Talk Expected to Achieve its First Month of Positive Operational Cash Flow in April of this Year. We estimate this measure 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. oElephant Talk's Acquisition of 100% of the Assets of Telnicity Closed April 1, 2013. The acquisition provides access to the U.S. mobile telecommunications market through Telnicity's relationships with several major U.S.-based mobile telecommunication companies. The all equity transaction supports Elephant Talk's strategic focus of expanding outside of Europe while preserving cash. oFICO/Adeptra Signed Agreements with a Leading UK Bank for the Provision of the ValidSoft SIM Swap technology and VALid-POS technology. Implementation is likely to commence in Q213. Discussions are ongoing with two UK banks for VALid-POS and VALid-SIM, through ValidSoft's partner, FICO/Adeptra. oValidSoft SIM Swap solution continues to run very smoothly in production at Santander, having now processed in excess of 7.5 million transactions, a 50% increase in transaction since last quarter oValidSoft Awarded a Contract with a Leading US Financial Institution in November 2012 for VALid®, its core OOB (Out of Band) Authentication and Transaction Verification solution which includes its market leading Voice Biometrics capability. oValidSoft client in Australia, Newcastle Permanent Building Society, has grown its active use base to almost 90,000 customers, and is expected to expand the deployment to 150,000 users in the coming months. oValidSoft and Partner FICO/Adeptra Receive Prestigious Banking Security Technology Award For SIM Swapping Fraud Solution Implemented at Santander UK. Award for Best Security Initiative recognizes breakthrough solution that prevents online banking fraud achieved through mobile phone number theft. oValidSoft Awarded Winner Jury Vote from the Florin Transaction Service Innovation Awards. ValidSoft recognized for its SMART™ telecommunications-based technology by a jury of five experienced industry professionals. oValidSoft Voice Biometrics. ValidSoft successfully participated in the prestigious National Institute of Standards and Technology (NIST) Speaker Recognition Evaluation. ValidSoft is now recognized as a world leading provider of Voice Biometric solutions by independent research institutions. oValidSoft SMART^™ Platform Shortlisted for 2013 FSTech 'Technology Provider of the Year' Award. Winners will be announced on April 17, 2013. Financial results for the three and twelve months ended December 31, 2012 Revenue for the three months ended December 31, 2012 and December 31, 2011 Quarter Ended ($ in millions) Unaudited Dec. 31, 2012 Dec. 31, 2011 Y/Y % Change Mobile & Security Revenues $3.6 $1.9 86.6% Total Revenues $6.8 $8.1 (16.0%) oThe higher margin mobile and security revenue increased 86.6% year-over-year. oIn accordance with our strategy to reduce the emphasis on this business, the lower margin legacy landline revenue declined 47.5% year-over-year in Q412 when compared to the same period a year earlier. Revenue for the twelve months ended December 31, 2012 and December 31, 2011 ($ in millions) Twelve Months Ended (Unaudited) Dec. 31, 2012 Dec. 31, 2011 Y/Y % Change Mobile & Security Revenues $11.7 $5.8 102.7% Total Revenues $29.2 $32.2 (9.4%) oGrowth in mobile and security revenue was driven by an increased subscriber base hosted on the Company's platforms. oThe increase in mobile and security revenue was offset by the expected continued decline in the Company's legacy landline business. Selected financial results for the quarter and full-year ended December 31, 2012 and December 31, 2011. ($ in millions) Quarter Ended (Unaudited) Year Ended (Unaudited) Dec. 31, Dec. 31, Y/Y % Dec. 31, Dec. 31, Y/Y % 2012 2011 Chg. 2012 2011 Chg. Cost of Services $4.1 $6.7 (38.0%) $20.8 $28.7 (27.5%) Margin $2.7 $1.5 84.3% $8.4 $3.5 138.8% Margin as a Percentage of 39% 18% 29% 11% Revenue Selling, general & $4.5 $5.0 (9.9%) $17.9 $16.6 7.8% administrative Adjusted EBITDA (a ($1.8) ($3.6) (48.6%) ($9.5) ($13.1) (27.4%) non-GAAP measure) Net Income (loss) ($6.7) ($6.6) 0.9% ($23.1) ($25.3) (8.6%) oThe decline in cost of service for the full year ended December 31, 2012 is related to the decline in landline revenue. oThe increase in margin for the three and twelve months ended December 31, 2012 was primarily attributable to the increased revenue contribution from the higher-margin mobile and security solution business. oThe 7.8% year-over-year increase in SG&A to $17.9 million for the twelve months ended December 31, 2012 was mainly due to the 13.1% year-over-year increase in compensation cost following an increased number of full time employees, primarily European MNO operational support and technical staff as well as higher investor relations and sales and marketing related staffing and expense. oNet loss for the twelve months ended December 31, 2012 was reduced because of increased revenues from our higher margin mobile and security business combined with lower non-cash compensation expenses. The table at the end of this press release includes a reconciliation of net loss to non-GAAP Adjusted EBITDA for the three and twelve months ended December 31, 2012 and 2011. 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 April 2, 2013 at 11:00 a.m. (EST). Anyone interested in participating should dial 1-480-629-9664 approximately 5 to 10 minutes prior to the start of the call. Participants should ask for the Elephant Talk Shareholder Update conference call. To listen to the playback please utilize the webcast by visiting the company's website at www.elephanttalk.com. This call is being webcast by ViaVid Broadcasting and can be accessed at either Elephant Talk's website at www.elephanttalk.com or ViaVid's website at http://www.viavid.net. To access the webcast, you will need to have the Windows Media Player on your desktop. For the free download of the Media Player, please visit: http://www.microsoft.com/windows/windowsmedia/en/download/default.asp 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 and twelve months ended December 31, 2012 and 2011, 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, interest income and expense, net loss attributable to non-controlling interest, 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 proprietary Software DNA™ 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 since early 2010 and underpins our mobile/cloud security offering. ValidSoft is a market leader in providing solutions to counter electronic fraud 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. ValidSoft 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. ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS The below financial statements have been prepared as though the Company will remain a going concern for the foreseeable future. As described in Note 2 of the Form 10-K filed on or before April 2, 2013, our auditor's have included an explanatory paragraph in their report expressing substantial doubt about the Company's ability to continue as a going concern for the foreseeable future. 2012 2011 2010 REVENUES $ 29,202,188 $ 32,232,981 $ 37,168,351 COST AND OPERATING EXPENSES Cost of service 20,819,327 28,723,265 35,120,916 Selling, general and 17,884,137 16,589,649 9,620,322 administrative expenses Non-cash compensation to officers, directors and 6,302,141 6,818,905 5,588,392 employees Depreciation and amortization 5,710,396 5,254,708 5,312,469 Intangible assets impairment - 522,726 - charge Total cost and operating 50,716,001 57,909,253 55,642,099 expenses LOSS FROM OPERATIONS (21,513,813) (25,676,272) (18,473,748) OTHER INCOME (EXPENSE) Interest income 248,017 106,721 239,713 Interest expense (780,852) (201,184) (1,802,804) Other income & (expense) - 460,000 - Interest expense related to (1,089,126) - (21,094,104) debt discount Change in fair value of warrant - - (48,107,969) liabilities Change in fair value of 2,387,326 - - conversion feature Impairment of related party (1,060,784) - - loans Amortization of deferred (531,792) - (3,238,602) financing costs Total other income (827,211) 365,537 (74,003,766) (expense) LOSS BEFORE PROVISION FOR (22,341,024) (25,310,735) (92,477,514) INCOME TAXES Provision for income taxes (289,136) - (800) NET LOSS BEFORE NONCONTROLLING (22,630,160) (25,310,735) (92,478,314) INTEREST Net (loss) income attributable - - (5,046) to non-controlling interest Equity in earnings of (501,776) - - unconsolidated joint venture NET LOSS ATTRIBUTABLE TO (23,131,936) (25,310,735) (92,483,360) COMPANY OTHER COMPREHENSIVE (LOSS) INCOME Foreign currency translation 411,205 (624,275) (1,655,917) gain (loss) 411,205 (624,275) (1,655,917) COMPREHENSIVE LOSS $ (22,720,731) $ (25,935,010) $ (94,139,277) Net loss per common share and $ (0.21) $ (0.24) $ (1.31) equivalents - basic and diluted Weighted average shares outstanding during the period - 111,322,029 104,326,066 70,670,776 basic and diluted ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS December 31, December 31, 2012 2011 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,233,268 $ 6,009,576 Restricted cash 1,230,918 190,844 Accounts receivable, net of an allowance for doubtful accounts of $559,120 and $436,546 at 5,123,803 6,441,528 December 31, 2012 and December 31, 2011 respectively Prepaid expenses and other current assets 1,821,218 1,522,461 Total current assets 9,409,207 14,164,409 OTHER ASSETS 1,038,306 1,392,837 PROPERTY AND EQUIPMENT, NET 13,088,271 13,315,687 INTANGIBLE ASSETS, NET 10,503,026 12,784,199 GOODWILL 3,436,731 3,154,971 TOTAL ASSETS $ 37,475,541 $ 44,812,103 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Overdraft $ 350,114 $ 312,236 Accounts payable and customer deposits 5,139,292 4,490,455 Deferred Revenue 252,551 132,467 Accrued expenses and other payables 4,120,536 3,035,758 8% Convertible Notes 3,067,416 - Loans payable 963,051 960,869 Total current liabilities 13,892,960 8,931,785 LONG TERM LIABILITIES 8% Convertible Notes 2,565,202 - Conversion feature 311,986 - Trade note payable - 271,915 Loan from joint venture partner 555,907 513,303 Total long term liabilities 3,433,095 785,218 Total liabilities 17,326,055 9,717,003 STOCKHOLDERS' EQUITY Common stock, no par value, 250,000,000 shares authorized, 111,918,386 issued and outstanding as of December 31, 2012 compared 223,965,907 216,188,899 to 110,525,229 shares issued and outstanding as of December 31, 2011 Accumulated other comprehensive income (loss) (732,090) (1,143,295) Accumulated deficit (203,260,307) (180,128,371) Elephant Talk Communications Corp. 19,973,510 34,917,233 stockholders' equity NON-CONTROLLING INTEREST 175,976 177,867 Total stockholders' equity 20,149,486 35,095,100 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,475,541 $ 44,812,103 ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 2012 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (23,131,936) $ (25,310,735) $ (92,483,360) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and 5,710,396 5,254,708 5,312,469 amortization Provision for doubtful 117,394 318,443 (584,722) accounts Stock based compensation 6,302,141 6,319,314 5,080,783 Non-controlling interest - - 5,046 Equity in earnings of joint 501,776 - - venture Amortization of shares - 499,591 507,609 issued for consultancy Change in fair value of (2,387,326) - 48,167,991 derivative instruments Amortization of deferred 531,792 - 3,238,602 financing costs Interest expense relating to debt discount and conversion 1,089,126 - 21,094,104 feature Loans to related party 1,060,784 - - impairment charge Intangible assets impairment - 522,726 - charge Changes in operating assets and liabilities: Decrease (increase) in (1,040,074) - - restricted cash Decrease (increase) in 1,292,883 (1,372,719) (238,523) accounts receivable Decrease (increase) in prepaid expenses, deposits and (247,443) 782,920 229,343 other assets Increase (decrease) in accounts payable, proceeds from 272,500 (140,229) (1,574,761) related parties and customer deposits Increase (decrease) in 114,673 142,309 (131,886) deferred revenue Increase (decrease) in accrued expenses and other 1,014,042 (1,587,264) (2,730,533) payables Net cash used in operating (8,799,272) (14,570,936) (14,107,838) activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and (2,224,923) (7,721,307) (3,246,057) equipment Restricted cash - 49 42 Cash received from 36,188 - 58,253 acquisition of subsidiary Impairment of related party (1,060,784) - - loans Payments for acquisition - (347,758) - Loan to joint venture party (146,496) - - Loan to third party (111,023) (448,195) - Net cash used in investing (3,507,038) (8,517,211) (3,187,762) activities CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft - - 13,769 Deferred financing costs (543,437) - (205,326) Proceeds from 8% Convertible 8,000,000 - - Note, net of OID Restricted cash (2,273,720) - - Payments on convertible note installment payments and 1,531,293 - - interest Loan from related party QAT - - 2,518,220 Bridge Loan Loan from related party - - 2,885,000 Bridge SPA Proceeds from Private - - 14,000,000 Placement Offering Trade note payable (315,000) 271,915 - Proceeds from exercise of 1,081,925 26,808,067 502,621 warrants & options Placement & solicitation - (1,185,741) (1,814,766) fees Net cash provided by 7,481,061 25,894,241 17,899,518 financing activities EFFECT OF EXCHANGE RATES ON 48,941 957,785 183,879 CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH (4,776,308) 3,763,879 787,797 AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, 6,009,576 2,245,697 1,457,900 BEGINNING OF THE PERIOD CASH AND CASH EQUIVALENTS, END $ 1,233,268 $ 6,009,576 $ 2,245,697 OF THE PERIOD SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for $ 504,718 $ 39,460 $ 1,295,298 interest Reconciliation of Non-GAAP Measures to GAAP Reconciliation of Net loss to Adjusted EBITDA EBITDA (adjusted) 2012 2011 Net loss $ (23,131,936) $ (25,310,735) Provision for income taxes 289,136 - Depreciation and amortization 5,710,396 5,254,708 Stock-based compensation 6,302,141 6,818,905 Net loss attributable to non-controlling - - interest Equity in earnings of unconsolidated joint 501,776 - venture Intangible assets impairment charge - 522,726 Other income & expenses 827,211 (365,537) Adjusted EBITDA $ (9,501,276) $ (13,079,933) Three months ended December 31, EBITDA (adjusted) 2012 2011 Net loss $ (6,661,173) $ (6,604,981) Provision for income taxes 96,961 (800) Depreciation and amortization 1,943,902 1,260,808 Stock-based compensation 1,362,010 1,218,622 Equity in earnings of unconsolidated joint 145,109 - venture Intangible assets impairment charge - 522,726 Other income & expenses 1,281,356 42,840 Adjusted EBITDA $ (1,831,835) $ (3,560,785) Investor Relations Contacts: Steve Gersten Elephant Talk Communications +1 813 926 8920 firstname.lastname@example.org Peter Salkowski The Blueshirt Group +1 415 489 2184 email@example.com Media Contacts: Public Relations UK: Fishburn & Hedges +44 (0)20 7839 4321 firstname.lastname@example.org US: Fishburn & Hedges Jessica Morris + 1 212 459 6232 Jessica.Morris@fishburn-hedges.com SOURCE Elephant Talk Communications, Corp. Website: http://www.elephanttalk.com
Elephant Talk Communications Reports Q412 and Full Year 2012 Financial Results
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