[deltathree logo]
PRESS RELEASE
deltathree Reports Record First Quarter 2006 Revenue and Net Income
Revenues Increased 63% Year-Over-Year and 18% Sequentially to $10.7 Million
Net Income Increased to $88,000 or $0.00 Per Diluted Share
Quarterly Cash Flow From Operations Increased to $700,000
New York, NY - April 27, 2006 - deltathree, Inc. (NASDAQ: DDDC), a leading
provider of SIP-based Voice Over Internet Protocol (VoIP) solutions for service
providers, resellers and end users worldwide, today announced financial results
for the first quarter 2006 ended March 31, 2006.
First Quarter 2006 Highlights
o Revenues increased 63% year-over-year and 18% sequentially to a
record $10.7 million.
o Net income increased to a record $88,000 or $0.00 per diluted share.
o Adjusted EBITDA increased to a record $485,000 or $0.02 per diluted
share.
o Quarterly cash flow from operations increased to $700,000.
o Agreement extended with Verizon Communications to provide management
services for Verizon's VoiceWing consumer VoIP service.
Revenues for the first quarter of 2006 were a record $10.7 million, an increase
of $4.1 million, or 63%, from the $6.6 million reported for the first quarter of
2005. In the sequential comparison, first quarter 2006 revenues increased $1.6
million or 18%, compared to revenues of $9.1 million reported for the fourth
quarter ended December 31, 2005.
deltathree reported record net income for the first quarter of 2006 of $88,000
or $0.00 per share. First quarter 2006 net income reflects an improvement over
the first quarter 2005 net loss of $427,000 or ($0.01) per share, and compared
to net income of $22,000 or $0.00 per share in the fourth quarter of 2005. First
quarter 2006 net income includes approximately $144,000 of stock-based
compensation expense related to the Company's adoption of Financial Accounting
Standards Board (SFAS) No. 123R. The Company applied the modified prospective
method as the transition method to adopting SFAS No. 123R. The year ago and
sequential quarterly periods did not include comparable stock-based compensation
expenses.
Gross margin for the first quarter of 2006 was 33%, compared with a gross margin
of 36% for the year-over-year and sequential quarter comparisons. The decline in
gross margin was primarily attributable to promotions in support of increased
sales and marketing activities conducted during the first quarter of 2006.
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deltathree reported record adjusted EBITDA, or earnings before non-cash
stock-based compensation, interest, taxes, depreciation and amortization, for
the first quarter of 2006 of $485,000 or $0.02 per share, compared to EBITDA of
$106,000 or $0.00 per share in the first quarter of 2005 and EBITDA of $291,000
or $0.01 per share in the fourth quarter of 2005. The year ago and sequential
quarterly periods did not include the comparable non-cash stock-based
compensation expense reflected in adjusted EBITDA.
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.
Quarterly cash flow from operations increased to $700,000 during the first
quarter of 2006. As of March 31, 2006, deltathree held approximately $16.2
million in cash, cash equivalents, short-term and long-term investments, and had
no outstanding debt, representing an increase $501,000 compared to the $15.7
million held as of December 31, 2005.
deltathree Operational Review
Shimmy Zimels, President and Chief Executive Officer of deltathree, stated, "Our
first quarter results establish an excellent foundation for 2006 as reflected by
our record quarterly revenue and net income. This exceptional performance
reflects the strength of our VoIP offerings in the market and our expanding
customer base among service providers and resellers worldwide. As the demand for
comprehensive VoIP communications platforms continues to rise, the reseller and
service provider segment of our business remains deltathree's primary growth
driver. We are seeing excellent traction among our global base of resellers as
they increasingly look for more sophisticated VoIP offerings to deliver to their
end customers, as well as solid interest from wireline and cable service
providers seeking to offer broadband VoIP services.
"We are pleased to announce that we have successfully extended our working
agreement with Verizon Communications to provide management services for
Verizon's VoiceWing consumer VoIP service. deltathree has worked with Verizon
since the launch of their VoiceWing service in July of 2004 and we look forward
to continuing our relationship with Verizon to deliver their customers the best
possible VoIP experience. deltathree also experienced a solid ramp-up of private
label VoIP platforms with service provider customers, such as Velocity Services,
Inc. (VSI), which is helping build momentum for us in 2006 and beyond.
"The success of our increased sales and marketing activities and the seasonal
strength we historically see in the first quarter were also key factors in first
quarter sales exceeding the high end of our expectations. Our ongoing focus on
profitability and cash flow contributed to our second consecutive profitable
quarter and increased quarterly cash flow from operations. Gross margin was
modestly lower during the quarter reflecting our increased sales and marketing
activities aimed at driving deltathree's market presence closer to our end
customers in key geographic regions. With our improving cash flow, strong
balance sheet and the ability to scale our VoIP infrastructure to accommodate
rising call volumes, deltathree is well positioned to leverage the rising demand
for customized broadband VoIP services around the world," continued Mr. Zimels.
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deltathree Financial Guidance
For the second quarter of 2006, deltathree expects sequential revenue growth to
be within the range of 5% to 10%. deltathree forecasts quarterly net income
within the range of $0.01 per share to $0.02 per share, excluding the impact of
stock-based compensation expense. The Company expects to record stock-based
compensation expense of between $0.00 to 0.01 per share related to Financial
Accounting Standard Board (SFAS) No. 123R.
Conference Call Details
The deltathree first quarter 2006 earnings conference call will be webcast live
at 10:00 a.m. ET [7:00 a.m. PT] today, April 27, 2006. Investors are invited to
listen to the live call by dialing 1-888-423-3275 in the United States or by
dialing 1-612-332-0923 when calling internationally. Investors worldwide can
also listen to the call live via deltathree's Website, 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.
About deltathree
Founded in 1996, deltathree is a leading provider of integrated Voice over
Internet Protocol (VoIP) telephony services, products, hosted solutions, and
infrastructure. deltathree offers customers 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 and Reseller channel and the iConnectHere
direct-to-consumer channel. deltathree offers a broad suite of private label
VoIP products and services as well as a back-office platform for service
providers, resellers, and corporate customers. Based on deltathree's
customizable VoIP solutions, these customers can offer private label
telecommunications to their own customer bases, under either their own brand
name, a white-label brand, and/or the iConnectHere or deltathree brand name. At
the same time, iConnectHere, deltathree's direct-to-consumer offering, provides
award-winning VoIP products directly to consumers and small businesses online
using the same primary platform.
For more information about deltathree please visit our website at
www.deltathree.com.
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.
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Forward Looking Statements
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. Among the factors that could cause actual results to
differ are: 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; 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 Alysha Crouse
The Global Consulting Group 5W Public Relations
(646) 284-9415 (212) 999-5585
eknettel@hfgcg.com acrouse@5wpr.com
(Tables follow)
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DELTATHREE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
($ in thousands)
As of As of
March 31, December 31,
2006 2005
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,122 $ 3,847
Short-term investments 10,874 10,648
Accounts receivable, net 1,376 703
Prepaid expenses and other current assets 572 612
Inventory
211 242
------------ ------------
Total current assets 17,155 16,052
------------ ------------
Long-term investments 1,216 $ 1,216
------------ ------------
Property and equipment, net 4,005 4,131
------------ ------------
Deposits 105 105
------------ ------------
Total assets $ 22,481 $ 21,504
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,264 $ 3,904
Deferred revenues 549 344
Other current liabilities 1,708 1,540
------------ ------------
Total current liabilities 6,521 5,788
------------ ------------
Long-term liabilities:
Severance pay obligations 163 155
------------ ------------
Total liabilities 6,684 5,943
------------ ------------
Stockholders' equity:
Class A common stock, $0.001 par value 30 30
Additional paid-in capital 167,838 167,690
Accumulated deficit (151,861) (151,949)
------------ ------------
16,007 15,771
Treasury stock at cost: 257,600 shares
as of March 31, 2006 and December 31, 2005 (210) (210)
------------ ------------
Total stockholders' equity 15,797 15,561
------------ ------------
Total liabilities and stockholders' equity $ 22,481 $ 21,504
============ ============
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DELTATHREE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
($ in thousands, except share and per share data)
Three months ended March 31,
2006 2005
------------ ------------
Revenues $ 10,749 $ 6,604
Costs and operating expenses:
Cost of revenues 7,194 4,210
Research and development expenses 1,080 814
Selling and marketing expenses 1,202 864
General and administrative expenses 932 610
Depreciation and amortization 371 610
------------ ------------
Total costs and operating expenses 10,779 7,108
------------ ------------
Loss from operations (30) (504)
Interest income, net 129 94
------------ ------------
Net income (loss) before income taxes 99 (410)
Income taxes 11 17
------------ ------------
Net income (loss) $ 88 $ (427)
============ ============
Basic net income (loss) per share (in US$) $ 0.00 $ (0.01)
============ ============
Diluted net income (loss) per share (in US$) $ 0.00 $ (0.01)
============ ============
Basic weighted average number of shares
outstanding 29,741,307 29,547,177
============ ============
Diluted weighted average number of shares
outstanding 30,673,141 29,547,177
============ ============
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DELTATHREE, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
($ in thousands)
Three months ended
March 31,
2006 2005
---------- ----------
Cash flows from operating activities
Income (loss) for the period $ 88 (427)
Adjustments to reconcile income (loss) for the
period to net cash used in operating activities:
Depreciation and amortization 371 610
Capital gain, net (1) 0
Stock based compensation 144 0
Increase in liability for severance pay 8 79
Changes in assets and liabilities:
Increase in accounts receivable (673) (193)
Decrease (increase) in other current assets 40 (222)
Decrease (increase) in inventory 31 42
Increase (decrease) in accounts payable 319 (939)
Increase (decrease) in other current liabilities 168 451
Increase (decrease) in deferred revenues 205 931
---------- ----------
612 759
---------- ----------
Net cash provided by operating activities 700 332
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (204) (532)
Proceeds from disposal of property and equipment 1 0
Decrease in deposits 0 0
Change in long-term investments, net 0 (200)
Decrease (increase) in short-term investments (226) 2,125
---------- ----------
Net cash provided by (used in) investing activities (429) 1,393
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of employee options 4 363
---------- ----------
Net cash provided by financing activities 4 363
---------- ----------
Increase (decrease) in cash and cash equivalents 275 2,088
Cash and cash equivalents at beginning of period 3,847 3,905
---------- ----------
Cash and cash equivalents at end of the period $ 4,122 $ 5,993
========== ==========
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DELTATHREE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
($ in thousands, except share and per share data)
Three months ended March 31,
----------------------------
2006 2005
------------ ------------
Net income (loss) in accordance with
generally accepted accounting principles $ 88 $ (427)
============ ============
Stock based compensation 144 0
Depreciation and amortization 371 610
Income taxes 11 17
Interest income, net (129) (94)
------------ ------------
Adjusted EBITDA 485 106
============ ============
Basic adjusted EBITDA per share (in US$) $ 0.02 $ 0.00
============ ============
Diluted adjusted EBITDA per share (in US$) $ 0.02 $ 0.00
============ ============
Basic weighted average number of shares
outstanding 29,741,307 29,547,177
============ ============
Diluted weighted average number of shares
outstanding 30,673,141 29,547,177
============ ============
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