PRESS RELEASE
deltathree Reports Second Quarter 2007 Financial Results
New York, NY - August 2, 2007 - deltathree, Inc. (NASDAQ: DDDC), a leading provider of Voice over Internet Protocol (VoIP) hosted communications solutions for service providers, resellers and end-users worldwide, today announced financial results for the second quarter 2007 ended June 30, 2007.
Second Quarter 2007 Highlights
| · | joip powered Panasonic GLOBARANGE hybrid VoIP phones begin pre-launch sales on Amazon.com worldwide and through John Lewis, a leading United Kingdom based department store and online retailer. |
| · | GLOBARANGE global sales launch on track for 3Q 2007 in 12 countries worldwide: United States, Canada, Brazil, Mexico, Australia, Hong Kong, the United Kingdom, Ireland, Spain, Germany, Austria and Russia. |
| · | Alaska Communications Systems Group Inc. (ACS), Alaska’s leading integrated communications provider, launched deltathree’s award winning Hosted Consumer VoIP Solution. |
| · | Substantially completed the integration of the Go2Call service provider and consumer VoIP business assets. |
Revenues for the second quarter of 2007 totaled $7.6 million, a decrease of $2.4 million from the $10.0 million reported for the second quarter of 2006. Service provider and reseller revenues accounted for approximately 79.2% of total revenues during the second quarter with 13.1% driven by consumer VoIP revenues and 7.7% related to other business activities.
deltathree reported a GAAP net loss for the second quarter of 2007 of $1.6 million or $(0.05) per share as compared to GAAP net income of $496,000 or $0.02 per share in the second quarter of 2006. Approximately $359,000 of the loss recorded for the second quarter of 2007 was attributable to amortization associated with the purchase of Go2Call in February 2007.
Gross margin for the second quarter of 2007 was 27% compared with a gross margin of 38% for the second quarter of 2006. Gross margins declined primarily as a result of the integration of lower margin revenues related to the acquisition of Go2Call in February of 2007, as Go2call historically carried gross margins that were lower than that of deltathree’s. deltathree has typically maintained a more favorable termination cost structure, combined with more favorable pricing plans. Although the Company has been honoring certain of the original Go2Call pricing plans, the Company is currently focused on driving the newly acquired Go2Call gross margin closer to that of deltathree’s historical levels of the low to mid thirty percent range.
deltathree reported an adjusted EBITDA loss, or earnings before non-cash stock-based compensation, interest, taxes, depreciation and amortization, for the second quarter of 2007 of $930,000 or a loss of $(0.03) per share, compared to adjusted EBITDA positive results of $853,000 or $0.03 per share in the second quarter of 2006.
deltathree defines adjusted EBITDA as earnings before non-cash stock-based compensation, interest, taxes, depreciation and amortization. The Company uses adjusted EBITDA as a measure of the Company’s operating trends. Investors are cautioned that adjusted EBITDA is not a measure of liquidity or of financial performance under Generally Accepted Accounting Principles (GAAP). The adjusted EBITDA numbers presented may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. Consistent with the SEC Regulation G, the non-GAAP measures in this press release have been reconciled to the nearest GAAP measure, and this reconciliation is located under the heading "Reconciliation of Non-GAAP Financial Information to GAAP" following the Condensed Consolidated Statements of Operations included in this press release.
As of June 30, 2007, deltathree held approximately $12.4 million in cash, cash equivalents, short and long-term investments as well as restricted cash with no outstanding debt.
During the second quarter of 2007, deltathree carried approximately 181 million retail minutes of VoIP traffic flow across its network from consumers and service providers, up from the 166 million carried during the first quarter of 2007.
deltathree Operational Review
Shimmy Zimels, President and Chief Executive Officer of deltathree, stated, “From a financial perspective, the second quarter of 2007 was a particularly challenging period primarily due to increased costs associated with the ramp of new growth initiatives, such as our new joip solution, combined with the negative impact of increased competition in the direct to consumer VoIP segment of the market and a slower than anticipated ramp in the conversion of Go2Call customers onto the deltathree platform. On the product side we continued to make excellent progress towards our formal worldwide launch of the joip powered line of Panasonic GLOBARANGE hybrid VoIP phones as well as the continued penetration of the service provider market with our Hosted Consumer VoIP Solution, including a new launch with Alaska Communications Systems Group Inc. (ACS), Alaska’s leading integrated communications provider. Building upon these new customer wins, we believe that the up front costs absorbed during the quarter in support of the launch of our new joip consumer platform will provide an additional growth engine as we approach the hard launch of the joip powered Panasonic GLOBARANGE phones.
“Overall, I believe our strategy of focusing on reaching consumers through leading service providers customers with our comprehensive Hosted Consumer VoIP Solution, as well as partners, allows us to dedicate our efforts on the most innovative and high value revenue streams. In the direct to consumer VoIP segment, we continued to see a competitive environment for basic consumer VoIP telephony service and a higher percentage of VoIP minutes across the network to lower priced geographies. Accordingly, we are continuing to increase our presence in lower penetrated and higher margin geographic markets through cost efficient customer acquisition channels. With the integration of the Go2Call assets largely complete and the launch of our new joip consumer brand with Panasonic, we believe we are taking the correct actions to return deltathree to sequential growth and long-term profitability,” concluded Mr. Zimels.
Financial Guidance
Based on lower than anticipated revenues in the first half of 2007, the Company is removing its previously issued full year 2007 revenue guidance of approximately $44.0 million to $47.0 million. The Company is currently reviewing its analysis of the full year expectations based on the upcoming hard launch of its joip consumer offering and other events.
Conference Call Details
The deltathree second quarter 2007 earnings conference call will be webcast live at 10:00 a.m. ET / 7:00 a.m. PT today, August 2, 2007. Investors are invited to listen to the live call by dialing 1-888-428-4472 in the United States or by dialing 1-612-288-0337 when calling internationally. Investors worldwide can also listen to the call live via deltathree’s Website, http://www.deltathree.com. Please go to the Website at least 15 minutes early to register, download, and install any necessary audio software. A replay of the call will also be available through the deltathree corporate Website.
Adjusted EBITDA Financial Disclosure
Investors are cautioned that the adjusted EBITDA, or earnings before non-cash stock-based compensation, interest, taxes, depreciation and amortization, information contained in this press release and the attached financial information is not a financial measure under generally accepted accounting principles. In addition, it should not be construed as an alternative to any other measures of performance determined in accordance with generally accepted accounting principles, or as an indicator of the Company’s operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that it fails to address. Adjusted EBITDA financial information is presented because deltathree believes that it is helpful to some investors as one measure of the Company’s operations. deltathree cautions investors that non-GAAP financial information such as adjusted EBITDA, by its nature, departs from traditional accounting conventions; accordingly, its use can make it difficult to compare deltathree’s results with the results from other reporting periods and with the results of other companies.
About deltathree
Founded in 1996, deltathree, Inc. is a leading provider of integrated Voice over Internet Protocol (VoIP) telephony services, products, hosted solutions and infrastructure. deltathree offers high quality Internet telephony solutions that are viable and cost-effective alternatives to traditional telephone services. Supporting hundreds of thousands of active users around the world, deltathree serves customers through its two primary distribution channels: the Service Provider / Reseller channel and the direct- to-consumer channel. deltathree's advanced solutions offer service providers and resellers a full spectrum of private label VoIP products and services, as well as a back-office suite of services. Utilizing advanced Session Initiation Protocol (SIP) technology, deltathree provides all the components to support a complete VoIP service deployment. deltathree's Consumer Group consists of the award-winning iConnectHere direct-to-consumer offering and joip, the newly formed consumer brand that powers the VoIP service of Panasonic's GLOBARANGE hybrid phone
For more information about deltathree please visit our website: www.deltathree.com
For more information about joip, visit our web site at www.joip.com
Except for historical matters contained herein, the matters discussed in this press release are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that these forward-looking statements reflect numerous assumptions and involve risks and uncertainties that may affect deltathree's business and prospects and cause actual results to differ materially from these forward-looking statements, including expectations relating to our acquisition of the assets from Go2Call and expected synergies. Among the factors that could cause actual results to differ are: our failure to successfully integrate Go2Call assets and certain personnel into our business and achieve expected synergies; our failure to retain key customers and to retain certain personnel; uncertainty of our future profitability; our ability to expand our revenues from multiple sources and customer bases; our ability to obtain additional capital to finance operations and grow our business; decreasing rates of all related telecommunications services, which could prevent our future profitability; our limited operating history; our acquisition activity could disrupt our ongoing business; the public’s acceptance of VoIP telephony, and the level and rate of customer acceptance of our new products and services; the competitive environment of Internet telephony and our ability to compete effectively; fluctuations in our quarterly financial results; our ability to handle a large number of simultaneous calls; our ability to maintain and operate our computer and communications systems, without interruptions or security breaches; our ability to operate in international markets; our ability to retain key personnel to support our products and ongoing operations; our ability to provide quality and reliable service, which is in part dependent upon the proper functioning of equipment owned and operated by third parties; the uncertainty of future governmental regulation; the need for ongoing product and service development in an environment of rapid technological change; and other risk factors contained in deltathree's periodic reports on file with the SEC and available on the Internet at http://www.sec.gov. Except as required under the federal securities laws and the rules and regulations of the SEC, deltathree does not have any intention or obligation to update publicly any forward-looking statements after the distribution of this news release, whether as a result of new information, future events, changes in assumptions, or otherwise.
Investor Relations Contact: | Media Relations Contact: |
| Erik Knettel | Susan Park |
| The Global Consulting Group | deltathree, Inc. |
| (646) 284-9415 | (212) 500-4836 |
| ir@deltathree.com | pr@deltathree.com |
(Tables follow)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in thousands)
| | | June 30, | | December 31, | |
| | | 2007 | | 2006 | |
ASSETS | | | | | |
Current assets: | | | | | |
| Cash and cash equivalents | | $ | 1,899 | | $ | 3,790 | |
| Restricted cash and short-term investments | | | 9,385 | | | 12,067 | |
| Accounts receivable, net | | | 1,203 | | | 1,286 | |
| Prepaid expenses and other current assets | | | 436 | | | 444 | |
| Inventory | | | 171 | | | 155 | |
| Total current assets | | | 13,094 | | | 17,742 | |
| Long-term investments | | | 1,085 | | | 1,085 | |
| | | | | | | | |
Property and equipment: | | | | | | | |
| Telecommunications equipment | | | 18,206 | | | 18,147 | |
| Furniture, fixtures and other | | | 647 | | | 639 | |
| Leasehold improvements | | | 4,848 | | | 4,677 | |
| Computers hardware & software | | | 8,805 | | | 8,474 | |
| | | | 32,506 | | | 31,937 | |
| Less - accumulated depreciation | | | (29,257 | ) | | (28,479 | ) |
| Property and equipment, net | | | 3,249 | | | 3,458 | |
| | | | | | | | |
| Intangible assets, net | | | 7,102 | | | - | |
| | | | | | | | |
Deposits | | | 110 | | | 110 | |
| Total assets | | $ | 24,640 | | $ | 22,395 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
| Accounts payable and accrued expenses | | $ | 2,665 | | $ | 2,916 | |
| Deferred revenues | | | 864 | | | 1,099 | |
| Other current liabilities | | | 1,812 | | | 1,545 | |
| Total current liabilities | | | 5,341 | | | 5,560 | |
| | | | | | | | |
Long-term liabilities: | | | | | | | |
| Severance pay obligations | | | 297 | | | 217 | |
| Total liabilities | | | 5,638 | | | 5,777 | |
| | | | | | | | |
Stockholders' equity: | | | | | | | |
| Class A common stock, $0.001 par value | | | 33 | | | 30 | |
| Additional paid-in capital | | | 172,447 | | | 168,030 | |
| Accumulated deficit | | | (153,478 | ) | | (151,442 | ) |
| Total stockholders' equity | | | 19,002 | | | 16,618 | |
| | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 24,640 | | $ | 22,395 | |
DELTATHREE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ in thousands, except share and per share data)
| | | Three Months Ended June 30, | | Six Months ended June 30, | |
| | | 2007 | | 2006 | | 2007 | | 2006 | |
| Revenues | | $ | 7,602 | | $ | 9,966 | | $ | 15,914 | | $ | 20,715 | |
| | | | | | | | | | | | | | |
| Costs and operating expenses: | | | | | | | | | | | | | |
| Cost of revenues | | | 5,551 | | | 6,166 | | | 10,827 | | | 13,360 | |
| Research and development expenses | | | 1,107 | | | 1,044 | | | 2,243 | | | 2,124 | |
| Selling and marketing expenses | | | 1,318 | | | 1,271 | | | 2,545 | | | 2,473 | |
| General and administrative expenses | | | 649 | | | 732 | | | 1,261 | | | 1,664 | |
| Depreciation and amortization | | | 774 | | | 379 | | | 1,342 | | | 750 | |
| | | | | | | | | | | | | | |
| Total costs and operating expenses | | | 9,399 | | | 9,592 | | | 18,218 | | | 20,371 | |
| | | | | | | | | | | | | | |
| Loss from operations | | | (1,797 | ) | | 374 | | | (2,304 | ) | | 344 | |
| Interest income, net | | | 175 | | | 148 | | | 295 | | | 277 | |
| Net (loss) income before taxes | | | (1,622 | ) | | 522 | | | (2,009 | ) | | 621 | |
| Income taxes | | | 17 | | | 26 | | | 27 | | | 37 | |
| Net (loss) income | | $ | (1,639 | ) | $ | 496 | | $ | (2,036 | ) | $ | 584 | |
| | | | | | | | | | | | | | |
| Basic net (loss) income per share | | $ | (0.05 | ) | $ | 0.02 | | $ | (0.06 | ) | $ | 0.02 | |
| | | | | | | | | | | | | | |
| Diluted net (loss) income per share | | $ | (0.05 | ) | $ | 0.02 | | $ | (0.06 | ) | $ | 0.02 | |
| | | | | | | | | | | | | | |
| Basic weighted average number of shares outstanding | | | 32,781,545 | | | 29,745,897 | | | 32,034,837 | | | 29,744,860 | |
| | | | | | | | | | | | | | |
| Diluted weighted average number of shares outstanding | | | 32,781,545 | | | 30,604,982 | | | 32,034,837 | | | 30,640,319 | |
DELTATHREE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
| | | Six months ended June 30, | |
| | | 2007 | | 2006 | |
Cash flows from operating activities (loss) income for the period | | $ | (2,036 | ) | $ | 584 | |
| | | | | | | | |
Adjustments to reconcile (loss) income for the period to net cash used in operating activities | | | | | | | |
| Depreciation and amortization | | | 1,342 | | | 750 | |
| Stock based compensation | | | 190 | | | 244 | |
| Provision for losses on accounts receivable | | | 24 | | | - | |
| Increase in liability for severance pay | | | 80 | | | 47 | |
| | | | | | | | |
Changes in assets and liabilities: | | | | | | | |
| Decrease (increase) in accounts receivable | | | 58 | | | (488 | ) |
| Decrease (increase) in prepaid expenses and other current assets | | | 8 | | | 75 | |
| (Increase) decrease in inventory | | | (16 | ) | | 6 | |
| Decrease in accounts payable | | | (618 | ) | | (323 | ) |
| (Decrease) increase in deferred revenues | | | (859 | ) | | 1,540 | |
| Increase in other current liabilities | | | 267 | | | 300 | |
| | | | 476 | | | 2,151 | |
Net cash (used in) provided by operating activities | | | (1,560 | ) | | 2,735 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | |
| Purchase of property and equipment | | | (531 | ) | | (420 | ) |
| Increase in deposits | | | - | | | (2 | ) |
| Purchase of Go2Call operations, net | | | (2,509 | ) | | - | |
| Net change in short-term investments | | | 2,682 | | | (2,948 | ) |
Net cash used in investing activities | | | (358 | ) | | (3,370 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | |
| Proceeds from exercise of employee options | | | 27 | | | 21 | |
Net cash provided by financing activities | | | - | | | 21 | |
| | | | | | | | |
Decrease in cash and cash equivalents | | | (1,891 | ) | | (614 | ) |
Cash and cash equivalents at beginning of period | | | 3,790 | | | 3,847 | |
Cash and cash equivalents at end of the period | | $ | 1,899 | | $ | 3,233 | |
| | | | | | | | |
Supplemental schedule of cash flow information: | | | | | | | |
| Cash paid for: | | | | | | | |
| Taxes | | $ | 17 | | $ | 24 | |
| | | | | | | | |
Supplemental schedule of non cash investing and financing activities: | | | | | | | |
| Acquisition of fixed assets on credit | | | - | | $ | 27 | |
| Cancellation of treasury stock | | | - | | $ | 210 | |
| | | | | | | | |
Supplemental schedule of acquisition of Go2Call | | | | | | | |
| Fixed assets | | $ | 51 | | | | |
| Intangible asset | | | 7,652 | | | | |
| Accounts payable | | | (367 | ) | | | |
| Deferred revenues | | | (624 | ) | | | |
| Stock issuance | | | (4,203 | ) | | | |
| Total | | $ | 2,509 | | | | |
DELTATHREE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
($ in thousands, except share and per share data)
| | | Three months ended June 30, | | Six months ended June 30, | |
| | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | | | | | | | |
| Net (loss) income | | $ | (1,639 | ) | $ | 496 | | $ | (2,036 | ) | $ | 584 | |
| | | | | | | | | | | | | | |
| Depreciation | | | 774 | | | 379 | | | 1,342 | | | 750 | |
| Stock Based Compensation | | | 93 | | | 100 | | | 190 | | | 244 | |
| Interest Income | | | 175 | | | 148 | | | 295 | | | 277 | |
| Taxes | | | 17 | | | 26 | | | 27 | | | 37 | |
| | | | | | | | | | | | | | |
| Adjusted EBITDA | | | (930 | ) | | 853 | | | (772 | ) | | 1,338 | |
| | | | | | | | | | | | | | |
| Basic adjusted EBITDA per share (in US$) | | $ | (0.03 | ) | $ | 0.03 | | $ | (0.02 | ) | $ | 0.04 | |
| | | | | | | | | | | | | | |
| Diluted adjusted EBITDA per share (in US$) | | $ | (0.03 | ) | $ | 0.03 | | $ | (0.02 | ) | $ | 0.04 | |
| | | | | | | | | | | | | | |
| Basic weighted average number of shares outstanding | | | 32,781,545 | | | 29,745,897 | | | 32,034,837 | | | 29,744,860 | |
| | | | | | | | | | | | | | |
| Diluted weighted average number of shares outstanding | | | 32,781,545 | | | 30,604,982 | | | 32,034,837 | | | 30,640,319 | |
| | | | | | | | | | | | | | |
Adjusted EBITDA (earnings before non-cash stock-based compensation, interest, taxes, depreciation and amortization)
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