magicJack VocalTec Ltd. :CALL-US: Earnings Analysis: Q2, 2016 By the Numbers : August 11, 2016

magicJack VocalTec Ltd. reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of magicJack VocalTec Ltd. – AudioCodes Ltd., Internet Gold-Golden Lines Ltd., CenturyLink, Inc., Verizon Communications Inc., AT&T Inc., Vonage Holdings Corp., E. W. Scripps Company Class A, Barracuda Networks, Inc. and TEGNA, Inc. (AUDC-US, IGLD-US, CTL-US, VZ-US, T-US, VG-US, SSP-US, CUDA-US and TGNA-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 25.30 million, Net Earnings of USD 2.82 million.
  • Gross margins narrowed from 65.88% to 61.12% compared to the same period last year, operating (EBITDA) margins now 22.12% from 29.27%.
  • Year-on-year change in operating cash flow of -76.96% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 25.41 25.41 24.63 23.7 25.3
Revenue Growth (%YOY) -13.81 -1.57 -4.22 -7.11 -0.43
Earnings (mil) 6.95 3.31 1.94 0.73 2.82
Earnings Growth (%YOY) 206.39 331200 151 -43.88 -59.45
Net Margin (%) 27.36 13.03 7.87 3.1 11.14
EPS 0.39 0.2 0.12 0.05 0.18
Return on Equity (%) 52.23 25.06 15.74 5.95 21.29
Return on Assets (%) 14.5 7.36 4.47 1.71 6.5

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Market Share Versus Profits

Revenues History
Earnings History

CALL-US‘s change in revenue this period compared to the same period last year of -0.43% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that CALL-US is holding onto its market share. Also, for comparison purposes, revenues changed by 6.76% and earnings by 284.06% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 65.88% to 61.12%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 29.27% to 22.12% in this time frame. For comparison, gross margins were 65.36% and EBITDA margins were 21.21% in the previous period.

Gross Margin Versus EBITDA Margin

Cash Versus Earnings – Sustainable Performance?

CALL-US‘s change in operating cash flow of -76.96% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 25.30% to 16.62% and (2) one-time items that contributed to a decrease in pretax margins from 25.21% to 16.67%

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

magicJack VocalTec Ltd. engages in the provision of cloud communications and manufacture of communication devices. Its products and services include telephone home service and voice applications. The company operates and distributes under the following the magicJack PLUS, magicJack EXPRESS and magicJack GO brands. magicJack VocalTec was founded in 1989 and is headquartered in Jerusalem, Israel.

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