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Elephant Talk Communications (NYSEMKT:ETAK)

Q4 2012 Results Earnings Call

April 2, 2013 11:00 a.m. ET

Executives

[Monica Gould] - IR

Steven van der Velden - Chairman and CEO

Mark Nije - CFO

Pat Carroll - CEO, ValidSoft

Analysts

Thomas Raymond - [Laurent Capital]

Edward Woo - Ascendiant Capital

Luis Marquez - Laidlaw

Brian McCarren - Ameriprise

Brett Cohen - JGB Capital

Matthew Alimena - Metlife Securities

Operator

Good day ladies and gentlemen, and welcome to the Elephant Talk Communications fourth quarter and year-end 2012 conference call. [Operator instructions.] I would now like to turn the conference over to Ms. [Monica Gould], Investor Relations for Elephant Talk. Please go ahead, ma’am.

[Monica Gould]

Thank you. Good morning everyone in the United States and good afternoon to our European listeners and thank you for joining us at Elephant Talk Communications’ fourth quarter and full year 2012 shareholder update conference call.

Joining me on the call today is Steven van der Velden, Chairman and CEO of Elephant Talk; Mark Nije, CFO of Elephant Talk; and Pat Carroll, CEO of ValidSoft. Following management’s discussions, we will open the call up to your questions.

Before turning the call over to Steven, I’m going to review the company’s Safe Harbor statement. We will make certain statements today that are forward-looking and involved a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we will undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results.

During our call today, we will discuss adjusted EBITDA in our press release issued today and in our filings with the SEC, each of which are posted on our website. You will find additional disclosures regarding this non-GAAP financial measure and reconciliations of net loss to adjusted EBITDA.

With that, I’ll turn the call over to Elephant Talk's Chairman and CEO, Mr. Steven van der Velden.

Steven van der Velden

Thank you, Monica, and thanks to everyone who joined us today for our shareholder update call. I will begin today by providing an update on several positive developments that have occurred at Elephant Talk Communications over the past couple of months before turning the call over to Pat for an overview of the exciting things that are happening at Elephant Talk and then to Mark for a recap of the company’s strong fourth quarter and full year results. We will conclude by opening the call for questions.

To begin, here are the topics I would like to discuss with you. First, I would like to share with you the continuing success of our high-margin mobile and security businesses. Second, I will share information regarding our first months of positive operational cash flow, and discuss our funding prospects. Third, I will give you a brief update on Telnicity. Fourth, I will share an update on the situation in Saudi Arabia and the telecommunications opportunities we are pursuing there. Fifth, I will also provide an update on the exciting progress we have made implementing our software [deployed] network architecture known as our mobile software DNA platform and also known as our [unintelligible] platform, with a mobile operator in a major Latin American market. Sixth, I’ll share how the deployment contributes to our MVNO and MNO strategy moving forward. Lastly, I would like to respond to some key questions that have been asked of the company.

First, turning your attention to our high mobile and security revenue, in the fourth quarter, mobile and security solutions revenue made up the majority of total company revenue for the very first time, accounting for 52% of total company revenue. This revenue was a significant contributor to the fourth quarter margin of $2.7 million.

Our mobile and security businesses recorded a sixth consecutive quarter of sequential growth, with revenues of nearly $3.6 million in the fourth quarter. For the 12 months ending December 31, 2012, mobile and security revenue grew 103% to $11.7 million, or approximately 40% of the company’s total revenues last year. Going forward, we expect the majority of the company’s revenues and, more importantly, the vast majority of the contribution to profits, to come from our mobile and security operations.

Fourth quarter mobile and security results were driven by the over 1.2 million active mobile subscribers that we fully manage on behalf of Vodafone in Spain. By the end of 2013, we expect to add several hundred thousand additional subscribers to this platform in Spain, getting us close to, if not over, 1.5 million subscribers. Our strong results were also driven by ValidSoft’s strategic partnership with FICO/Adeptra to provide SIM Swap fraud solutions for Santander, one of the world’s largest banks.

Secondly, we are excited to report that Elephant Talk expects its first month of positive operational cash flow in April. While we are still in the progress of closing the books, it looks like we are very close to reaching this milestone for March as well. This is consistent with the guidance provided on our third quarter 2012 earnings call, in last November.

We estimate positive operating cash flow by using adjusted EBITDA, defined as earnings before derivative accounting such as warrant liabilities and conversion feature expensing, income taxes, depreciation and amortization, impairments, nonoperating income, and expenses and stock based compensation.

Our positive operational cash flow position will be achieved through the growth of our existing mobile and security operations and our cost control efforts. The exact timing is dependent on the timing of some revenues from existing contracts and the associated accounting treatments.

Whether it’s March or April, we view this to be a significant milestone because we believe that operational cash flow best represents our ability to generate cash from our main revenue generating activities.

Given the lengthy sales cycle associated with our mobile and security operations, and with the Latin America deployments only beginning to ramp up during the second half of this calendar year, we do not necessarily expect to be operational cash flow positive for each of the remaining months of 2013.

[To this end] the company will likely close additional financing in April or May in order to ensure operational flexibility. We are currently evaluating nonbinding term sheets. We hope to update you in the very near future. In the meantime, we as management have accepted the qualified going concern opinion of our auditor, BDO.

This brings us to the Telnicity acquisition we announced in January. Our acquisition of 100% of the Telnicity assets closed yesterday, April 1, 2013. Telnicity’s relationships with several North America-based telecommunications companies are expected to provide us with an immediate market presence in the United States, the world’s largest telecommunications market by revenues.

This is a springboard for Elephant Talk to launch its services into the U.S. mobile telecommunications market. Meanwhile, Telnicity’s existing customer base will be able to leverage Elephant Talk’s technology and telecommunications relationships to offer more complete international calling and roaming packages.

This will all be driven by strong US-based management with essential local sales presence, marketing, and technology development experience. That said, we do expect the financial impact to be limited for at least the first several quarters, as we work to bring the two companies together.

We as management are very excited to establish a foothold in the United States telecommunications market, and as we proceed with our go-to-market strategy in the United States, we continue to pursue the most promising opportunities all over the globe. One of these activities is in Saudi Arabia.

As most of you know, we currently have an operation with Zain in Saudi Arabia. So far, this platform has been generating between $500,000 and $1 million in revenues on an annualized basis. In January, the MVNO regulations changed, opening up a larger opportunity for the company.

Whereas previously MVNO activity was not [permittable] and mobile operators were limited to so-called co-branded services only, in the second part of the current quarter, the Saudi government plans to issue two full MVNO licenses, one for each of the existing mobile operators.

While the outcome for Elephant Talk will be better understood at that time, we have been in discussions with several of the mobile telecom companies that are involved in this process, and we are very optimistic about our prospects in this market.

Given the immediacy of the opportunity in the Middle East, and our MNO outsourcing client in Latin America, we have decided to shift some of our resources away from Europe until the economy improves. We believe this rebalance allows us to be opportunistic without sacrificing the inroads we’ve already made in Europe.

This brings us to an update regarding the work we are doing with a prominent Latin American mobile operator. As we recently announced, I’m pleased to report that the implementation phase, which started in January, is going very very well. We are on track to make the first test phone calls on our mobile software DNA platform that we are currently installing during the current quarter. We expect to begin migrating these existing mobile customers and adding MVNO subscribers to our platform during the third quarter of this year.

While we know many of you would like to know the name of our customer, we have decided, upon the request of our customer, to not provide that information at this time. Once the binding MOU moves to a final executed contract, which is expected over the next four to eight weeks, we will be pleased to disclose such details and file an 8-K.

That said, rest assured we are working with this established mobile operator in a major Latin American country. In fact, by the end of this calendar year, we expect to be generating monthly recurring revenues from over 1.5 million mobile users on Elephant Talk’s mobile platform, a 50% increase from the guidance we provided in January when this deal was first announced.

While the platform will initially have capacity for up to 10 million mobile subscribers, it has the ability to grow for future capacity as required. When a telecommunications company in a major market is willing to migrate a substantial part of its existing mobile subscribers to Elephant Talk’s mobile software DNA platform, we take this as an extremely strong validation of our value proposition.

Over the years, we have worked with our partner customer Vodafone to enhance our mobile platform, which has created our state-of-the-art solution as we have it today. Elephant Talk owns a vast majority of the source code for the platform at this time. This is extremely important not only in order to be able to [unintelligible] a truly [unintelligible] service levels, but also to be able to follow any pricing pressure this market may show over the next 10 to 20 years.

Ultimately, we expect to have such direct control, of between 90% and 95%, of all the required back and front office mobile operations in the very near future, with virtually no assistance required from any other venture. This will continue to give Elephant Talk and their customers the flexibility needed to be successful in the long run.

At this point, it’s also relevant to discuss how our deployment with the Latin American customer represents our strategy within mobile network operators. On a global scale, there are currently more than 800 mobile operators, and over the next couple of years, an equal number of new entrants are expected to start offering mobile broadband data services.

With Elephant Talk’s mobile platform soon able to serve at least 20 million customers, we are very well-positioned to service almost all existing mobile operators, except the 20-30 largest mobile operations. Therefore, our addressable market is currently close to 95% of the total mobile operator market, and 100% of the new entrants market. Over time, with the capacity of our platform further being expanded, we should be able to handle close to 100% of those markets.

The good news for Elephant Talk is all of these mobile operators have exactly the same problem with their legacy systems. Ultimately, they will all need to find an alternative integrated solution such as the one Elephant Talk offers. And thereby we believe that many will specifically look at the truly unique one-stop shop, single platform, outsourcing solution that we provide.

Next, to platforms servicing the Netherlands, Belgium, and Germany. The company is focused on building out its existing MVNO outsourcing platforms in Spain and Saudi Arabia. We believe the acquisition of Telnicity enhances our ability in due course to deliver our mobile software DNA platform also to U.S. telecom service providers.

Meanwhile, we are also heavily focused on the recently contracted MNO outsourcing platform with a mobile operator in Latin America and quite a few automobile operators that have shown serious interest in Elephant Talk’s platform as a service offering, either through the cloud or on premise at a mobile operator’s operation.

Further, management is pleased to have enhanced our policies and procedures and control systems in the past year. We now have adequate controls and procedures and have expunged any material weakness with respect to our internal controls over financial reporting.

This concludes my discussion of the topics that I had set out to discuss. However, before I turn the call over to Pat, I would like to address some confusion that appears to be out in the marketplace regarding my ownership position in Elephant Talk. I can assure you that I am very, very much committed personally and finally to the company.

While I can express my personal enthusiasm for the opportunities that I see ahead, those interested in knowing my financial commitment are directed to the form 5 published with the SEC on March 5, 2013, which reports that I directly and indirectly own approximately 12 million shares of Elephant Talk.

I have been asked if I sold any ETAK shares that were previously reported on form 5. I have not. However, some 2.3 million shares that were pledged as security for a loan and that were to be held in escrow were illegally sold by the lender about two years ago. The responsible individuals were arrested by the FBI and their trial is scheduled to start this May in San Diego.

We recently learned that a shareholder made a complaint to the SEC, which we believe concerns our disclosure policies. We have not been contacted by the SEC, and we are not aware of any status this may have within the SEC. Our policy is to disclose material customer agreements consistent with our understanding of applicable rules.

With respect to other agreements, the decision as to whether to make disclosures depends on several circumstances, such as the customer relationship, whether customer permission is needed for disclosure, and whether contract terms permit such disclosure.

The same shareholder who made the complaint has also threatened to file a lawsuit against the company. The board has been briefed, and based upon preliminary reviews, we believe there is no merit to his allegations. The board’s review, however, is not complete at this time.

With that, I will now turn the call over to Pat.

Pat Carroll

Thank you, Steven, and good day, everyone. Since my last update, ValidSoft has been very active. I’m delighted to report that we continue to make progress on all fronts. As is the case with most B2B2B relationships, the speed of this activity is under the control of the participants. The time necessary for large organizations to move through their approvals, and if needed, regulatory processes, can be painstakingly long.

That said, we take great care to honor their needs, and are prepared to act when the time is right. I’m very pleased to report that ValidSoft’s security products have been nominated, and in several cases won, key technology awards over the past few months. The nominations and awards represent a very strong independent validation and industry recognition of the strength of our authentication and verification software solutions.

ValidSoft recently [emerged] from the prestigious National Institute of Standards and Technology, NIST, speaker recognition evaluation trials in the U.S. for voice biometrics. This test year was arguably the most difficult test in the history of the trials. In fact, the tests were extended by two weeks to enable participants to complete the trials.

This evaluation is the most important and main driver for innovation in the field of voice biometrics, particularly security. It is no coincidence that ValidSoft’s achievement in the NIST speaker recognition evaluation came shortly after Opus Research, a top independent analyst firm in the voice biometrics industry, recognized the company as an industry leader in its voice biometrics vendor survey.

We are very proud to have our SIM Swap technology awarded the 2012 banking technology award for best security initiative. The award acknowledges the technology we developed, along with our partner FICO/Adeptra and rolled out in Santander’s U.K. operations.

This implementation was the world’s first real time detection and prevention application aimed at addressing the growing problem of SIM swapping. This industry leading solution has also been recognized by Gartner and was recognized in several recent research reports on transaction security in the mobile environment.

In addition, ValidSoft was recently awarded the highly coveted honors of winner, jury polls, at this year’s Florin 2013 awards. The five-person jury that chose ValidSoft for this prestigious award was appointed based on their exceptional experience, respected positions within the transactional services industry, and their proven inclination towards innovation. Jury members included ING’s global head of payments and cash management, Mark Buitenhek, and Santander’s Javier Santamaria Navarrete.

ValidSoft was recognized for its SMART - secure mobile architecture for real time transactions - telecommunications-based technology, which offers a multifactor, multilayer authentication solution designed to verify and authenticate transactions on mobile devices. SMART can protect transactions for [M-banking], mobile wallets, and P2P payments, and because of its flexibility, it’s custom designed for both future and smartphone technology.

Finally, ValidSoft’s SMART platform is in the running for the technology provider of the year award at the 2013 FStech Awards against such prominent industry players as BT and Monitise. The winners will be announced on April 17.

The annual FStech Awards recognize excellence and innovation in the field of information technology within the U.K. and EMEA financial services sector. These awards are highly coveted among the U.K. and EMEA financial services technology industry.

While we believe we have some of the best transaction security technology in the industry, independent recognition is extremely important to not only validate our product but in the creation of value for ETAK and its shareholders. ValidSoft operates in markets that pay a premium for specialist industry leading technology. One need only look no further than the acquisition of Authentec, a fingerprint biometric technology company, by Apple for $356 million in mid 2012 to realize the premium attached to such specialist technology.

In addition to being nominated and winning some of the industry’s most respected awards, ValidSoft is increasingly considered as a thought leader when it comes to transaction security and fraud detection or prevention. In fact, ValidSoft recently participated in the European Parliament meeting on e-privacy and trust in the online world.

The meeting brought the political, policy, academic, industry, and consumer worlds together and focused on the growing lack of consumer trust in IT products and services caused by abuse of personal data and privacy infringement. ValidSoft solutions received recognition for its privacy by design methodology and for being certified through the European privacy seal process, EuroPriSe. ValidSoft remains the only security software company in the world with three European privacy seals.

With regard to revenue generation, and consistent with previous quarter updates, I’m delighted to report that FICO/Adeptra has been pressing ahead with the integration of ValidSoft solutions into its client base. FICO/Adeptra has signed agreements with a leading U.K. bank that we mentioned on the November earnings call for the provision of ValidSoft’s SIM Swap technology and VALid-POS technology, and has other key U.K. bank contracts in the pipeline close to reaching a similar decision for both POS and SIM.

In addition, there is interest in our call forward/inbound forensic analysis capabilities, voice biometrics, and browser manipulation detection. With regard to our ongoing relationship with Santander, our SIM Swap continues to run very smoothly in production, achieving its objectives, and to date we have processed in excess of 7.5 million transactions, a 50% increase in transactions since last quarter when we reported 5 million transactions.

Regarding our direct relationship with FICO/Adeptra, we are in the process of implementing a broader agreement and relationship to reflect the market interest in our wider product portfolio. While we hope to have a new master agreement in place by mid-2013, we continue to work with FICO/Adeptra and Santander. In parallel, we will continue to focus our efforts on real time context-aware solutions focused on the elimination of fraud and [false positives].

In addition to our commercial relationships through our FICO/Adeptra channel, our direct client relationships continue to move forward. We continue to work with a leading U.S. financial institution to provide out of band authentication and transaction verification services, including our voice biometrics capability.

The implementation phase will take approximately six to nine months, and will be followed by live production with a transaction-based revenue model. The implementation phase is expected to begin immediately after the client receives the necessary regulatory approvals and is subject to the usual protocols of a large institution.

Regarding [Utiba] and Spindle, both companies continue to progress through these individual B2B client opportunities, thereby bringing the stages of the respective engagements closer to the use cases requiring the ValidSoft security solution.

As previously announced, ValidSoft confirmed that its secure mobile architecture for real time transactions, SMART, has been selected to be an integral element in the recently announced comprehensive payment acceptance service solution to be provided by Spindle in the U.S.

You will no doubt also recall that on October 19 last year, Spindle announced that it had signed an agreement with Utiba to provide low-cost mobile acceptance technology and services to complement Utiba’s converging payment solutions and to enrich the consumer commercial experience by integrating its comprehensive mobile marketing capabilities within Utiba’s mobile finance and services offering.

The arrangement between Utiba and Spindle gives Utiba’s customers the ability to conduct open loop transactions in numerous countries. Open loop transactions are a typical use case where enhanced security is required and where ValidSoft’s SMART technology provides a competitive advantage.

I am also delighted to announce that one of our original key clients in Australia, Newcastle Permanent Building Society, has grown its active user base of almost 90,000 customers and is expected to expand the deployment to 150,000 users in the coming months. Newcastle Permanent Building Society is a leading mutual in Australia, which is similar to a credit union in the U.S.

ValidSoft and NPBS were awarded the Money Magazine Best of Best Award in Australia in 2008 for the NPBS implementation of our core VALid authentication and transaction verification solution. That is for the authentication of customers accepting the NPBS online [unintelligible]. This contract is worth in excess of $1 million over three years to ValidSoft, and is based on the traditional license fee/maintenance model.

On the intellectual property front, we continue to make solid progress and confirm that we did indeed file a new patent on August 1 entitled Browser Manipulation Detection, a new, innovative method for detecting [unintelligible] browser Trojan attacks.

In addition to BMD, we’ve also filed patents for 1) an innovative method for detecting Trojan call forwarding from land line to mobile, 2) an iterative method for detection of caller [unintelligible] to protect banks’ call centers and computer telephony integration systems from customer impersonator-based fraud, and 3) an iterative method for detecting browser manipulation based on transaction image analysis, which is independent from our browser manipulation technology.

I’m very confident ValidSoft is in a very strong position for commercial exploitation, which is expected to contribute to shareholder value. My confidence comes from independent market research that supports our technology, industry recognition our solutions have received, and an increasing market acceptance of our technology.

I firmly believe ValidSoft is at the forefront of a rapidly expanding market with high growth potential where ValidSoft will play an increasing role in helping to shape this market. I believe that ValidSoft is unique in terms of the capabilities we bring into the marketplace, that the company is at the intersection of security and telecommunications, and finally, that ValidSoft is at an inflection point in the market in terms of the appreciation and need for the solutions we offer.

I look forward to an exciting 2013 and beyond. I’d now like to turn the call over to Mark Nije so that he may discuss our financials. Mark, over to you.

Mark Nije

Thanks, Pat. I will now discuss the company’s financial results for the fourth quarter and full year of 2012. I will begin with revenue results for the fourth quarter of 2012. Revenue for the higher-margin mobile security solutions business increased with 87% year over year to a new record level of nearly $3.6 million and now accounts for 52% of fourth quarter revenue. This compares to only 23% of revenue from the prior year period.

Total revenue for the period was $6.8 million, down 16% year over year when compared to total revenue of $8.1 million for the fourth quarter of 2011. The majority of the decrease was the result of the 47.5% drop in the lower-margin land line revenue to $3.2 million.

I’ll now turn to the revenue for the full year. Mobile security revenue was $11.7 million, up 103% when compared to 2011, and accounted for approximately 40% of the company’s 2012 revenue. Total revenue was $29.2 million, representing a year over year decrease of 9% when compared to 2011.

Turning your attention now to fourth quarter reported cost of service and associated margin, defined as revenue minus cost of service. Margin for the fourth quarter increased 84% year over year to $2.7 million, and represented approximately 39% of revenue. This compares to only $1.5 million, or 18% of revenue, for the fourth quarter of 2011.

The margin improvement was driven by an increased percentage of revenue coming from the higher-margin mobile securities activities which contributed to a $2.6 million, or 38%, year over year drop in cost of services.

Management expects cost of service to decline further as a percent of revenue as a greater portion of future revenue is comprised of our mobile services and security solutions, which have substantially lower cost of service than our traditional land line business.

For full year 2012, margin increased to $8.4 million from $3.5 million for 2011, a year over year increase of 139%.

Turning to SG&A, reported SG&A for the full year increased $1.3 million, or approximately 8%, to $17.9 million. The increase was mainly due to the 13% year over year increase in compensation cost following increased numbers of full time employees, primarily in European based worldwide support M&O and technical staff, as well as higher investor relations and sales and marketing related staffing and expense.

Adjusted EBITDA for 2012 was a loss of $9.5 million, which compares to an adjusted EBITDA loss of $13.1 million for the prior year. Net loss for the year was $23.1 million, versus $25.3 million for 2011. The year over year improvement in net loss was driven by increased revenue from the higher-margin mobile and security business combined with lower noncash compensation expenses.

With that, I would like to turn the call back to Steven. Steven?

Steven van der Velden

Thank you, Mark. Management has made a strategic effort to improve the company’s financial standing by growing the higher-margin mobile and securities solutions business to a record level in the fourth quarter. It is due to our diligent efforts that the strategic part of the company has grown to more than 50% of fourth quarter revenues.

We are excited by the record fourth quarter mobile and security revenue we reported today, and even more excited by the expected positive impact of the new opportunities that we were discussing today, including our multiyear mobile services deployment with an operator in a major Latin American market. Through this deployment, we expect to add at least 500,000 subscribers to our proprietary mobile software DNA platform by the end of this year.

Our increased focus is on leveraging our proprietary platform to work directly with mobile network operators to run their complete back and front office operations. Our foothold in the United States telecommunications market was the Telnicity acquisition.

ValidSoft’s repeated recognition of its product offerings, which include the prestigious banking security technology award or the SIM swapping fraud solution ValidSoft implemented at Santander U.K, with our jury vote of the foreign transaction service innovation awards for their smart telecommunications based technology, and a very successful showing at the prestigious National Institute of Standards and Technology for their voice biometric applications.

These awards are independent validation of ValidSoft’s leadership in this fast-growing mobile transaction services industry. We are confident that the recognition ValidSoft’s technology has received, as much as we appreciate it, will translate into increased market acceptance, resulting in greater business momentum.

Management is extremely confident in the direction the company is heading. We believe that being on the brink of achieving our first month of positive operational cash flow is a strong indication that our growth strategy is yielding the desired results. We believe the outlook is strong, and Elephant Talk is well-positioned for future profitable growth.

This concludes management’s update portion of the call. I would now like to open up the floor for any questions that you may have. Thank you.

Question-and-Answer Session

Operator

[Operator instructions.] And our first question comes from the line of John [Blum]. Please go ahead.

John Blum

I am curious about retail transactions and I’m sure you’re somewhat limited about what you can say, but there was a lot of talk at least for a while about the volume of retail. You know, clearing retail transactions. How close are we to any of that kind of volume with the ValidSoft proposition?

Pat Carroll

I guess if you’re talking about what breaks down into card [presence] transactions, more in the merchant acquirer side of the business, and that’s what we’re starting to see through, for example, our relationship with the likes of Spindle and more recently our partnership with Utiba. So we will start to see, as they bring their solution to market, and particularly as we look at some of the areas in which the similar technology gets deployed, and there are specific use cases, that’s the application that we would expect to participate with [unintelligible] in that regard.

Alongside that, there’s the other side of the coin on the major participants in the marketplace. So if we step away from what’s happening on the new technology, on the merchant desk, and look more with the bank relationship in the industry today, we see that there is the issuance side, which is the VALid-POS technology solution that we bring to bear, which is [unintelligible] to prevent fraud and false positives at the ATM and point of sale.

The point of sale piece is where the merchant acquirer comes in. And again, that’s a new focus for us, particularly because the ability to confirm or deny that transaction will always come back to the issuing bank today. So our focus is on working through the issuing side to ensure that those false positives can be eliminated with respect to either a point of sale transaction or an ATM transaction.

As we move further into the future, we’re likely to see quite an opportunity in that specific regard, because the mobile presence transactions will provide us with much greater flexibility on where the solutions for VALid-POS, which can help reduce things like chargebacks and fraud at the point of sale, can be eliminated. But that’s more for the future looking forward. Today’s more the issuance side that we look to [unintelligible].

Operator

And our next question comes from the line of Thomas Raymond from [Laurent Capital]. Please go ahead.

Thomas Raymond - [Laurent Capital]

Just a follow up question, I guess for Pat, on the Utiba/Spindle. Can you provide any more insight into their relationship and more importantly the role ValidSoft will be playing in helping with this partnership?

Pat Carroll

With Spindle and Utiba, a couple of things have happened. One is you’ll have read the press release back on the 19th of October which announced the partnership between Spindle and Utiba. And they’re collaborating to bring specialist applications and services into the whole micromerchant or merchant space, but also through the Utiba link, it offers and opens up a whole new area of that marketplace by what they call open loop transactions.

Open loop means that you move from within a closed loop environment, as we know today, within a particular mobile network operator, or particular service, to be able to take cash or other goods that have been received electronically and then be able to transact those out to the marketplace through the [unintelligible] relationship, for example Mastercard or Visa. Once that happens, there is an increased need for security, because you’re moving cash from within a system to open up that opportunity for that cash to be used outside of the system.

And those are the use cases that we focus in on, particularly with respect to both Spindle and Utiba. Both companies are already along the line with their own respective clients. We’re in a B2B relationship with them. As they move forward into that space, and bring those services into their test environment and subsequently [unintelligible], and it as the risk profile of [such] use cases emerge, that clearly we would expect to be part and parcel of that security service offering for those [unintelligible] in the marketplace.

Operator

And our next question comes from the line of George [Tafkarku], private investor. Please go ahead.

George [Tafkarku]

Much has been discussed with the relationship with FICO/Adeptra. To what extent does the relationship with FICO/Adeptra have any relationship whatsoever, good, bad, or indifferent, or if at all, with Visa Europe? That’s the first question. The second question is we’re in April, so I’m hoping you guys will give us some kind of guidance for Q1?

And the third question, given the significant gains in visibility that the company has achieved with its IP in both the ValidSoft and Elephant Talk side, you know, winning a major U.K. bank. As you can tell, I have an English accent, although I live in New York now, if you’ve secured one of the three biggest banks, that means it’s one of Lloyds, Barclays, or Royal Bank of Scotland. The way U.K. banks work, if you’re winning situations like that, I can’t believe the company’s not been approached [unintelligible] valuations to be acquired by some bigger fish out there.

So, three questions. How is the FICO/Adeptra relationship with Visa, Q1 guidance, if at all, and given the valuable IP, have you guys been approached about being acquired?

Pat Carroll

In terms of the FICO/Adeptra and impact negative/positive on Visa Europe, I would say that there is definitely an impact, but overall we view it as positive. If we look backwards, you’ll recall that our relationship with Visa Europe envisaged Visa Europe as a reseller of our VALid-POS services to their client base, and you’d be aware that Visa Europe has relationships with over 4,000 institutions in Europe alone.

So in fact we have embarked on detailed discussions with a leading U.K. High Street bank who had expressed a keen interest in near real time and real time POS for the prevention of fraud and false positives. As it transpires, that bank is also a key client of both FICO and Adeptra, and in fact recently signed agreements with FICO/Adeptra in December for the provision of our VALid-POS and VALid-SIM solutions.

Now, that’s extremely important, because it doesn’t in any way negatively affect our capability or ability to provide our solutions to Visa Europe, and Visa Europe is a very conservative organization that would likely ensure that any of our white label services brought to market would have already achieved commercial acceptance in the marketplace.

So it was a bit of a chicken and egg with Visa Europe, and we’ve broken that by virtue of our relationship with Adeptra/FICO. And in fact, the relationship there ensures commercial acceptance, and in no way jeopardizes our future potential with Visa Europe. In fact, if anything, it helps kick start that whole relationship.

George [Tafkarku]

Q1 guidance? Is it too early to give that?

Steven van der Velden

Maybe it’s proper for me to address that. Yes, it’s kind of early, because as you can imagine, we have not yet closed our books, and it’s also the reason why we are not sure whether possibly March has already exceeded the point of operational cash flow positive. As we see the pipeline of recurring revenues, we feel comfortable that April will indeed be such.

In the long run, it’s clear that, and we have given that guidance every time over and over, that the mobile and security revenues will enjoy further growth and ultimately will be by far the largest part of the revenue base of the company, with the associated higher margins. And altogether, we believe that the growth has continued in Q1 and will strongly continue in the rest of the quarters this year, especially of course also when the Latin American contract will be deployed with recurring revenues as of Q3.

And with respect to IP visibility, it’s not only IP, it’s of course also the growing presence in the market, both toward the financial services industry as well as mobile operators. I don’t think we have ever been officially approached, and there are always many discussions. But I don’t think that we can really say that any serious approach has been made.

And I’m also not sure if the timing for that is right. I think it would make a lot of sense for the company to further deploy its [unintelligible] in the IP, those of the ValidSoft as well as the Elephant Talk platform side, and see that we can indeed grow our revenue base over the next quarters, over the next years, before we ever will come to that point.

George [Tafkarku]

I would agree with that sentiment completely. I mean, I’m not suggesting for one moment that the company should consider any such things, but I can’t help but observe, given the lead you guys have in the authentication side and on the back office side for the telco MVNO space, it’s difficult to imagine you’re not on someone’s radar. I mean, my hope and desire as a long term shareholder is that we monetize our IP over, as you say, the coming quarters and years, to realize a good return on the investment.

Steven van der Velden

What I can add is that at least within the industries, we are approached more and more for corporation. We are more and more taken as a very serious partner, and we also hope in the near future to be able to announce some of those partnerships that can help the company to leverage usually the much larger presence of these incumbent companies and combine it with the agile technical that Elephant Talk has.

Operator

And our next question comes from the line of Edward Woo from Ascendiant Capital. Please go ahead.

Edward Woo - Ascendiant Capital

I had a question in terms of the ramp up in the Latin America contract that you just won. Is the revenue profile going to be very similar to the one in Spain, in terms of the potential and revenue ramp?

Steven van der Velden

Yes, I think it is a very good question indeed. As indicated, we are currently installing the platform. We expect the first calls to be made this quarter, and we expect migrations to get started as of Q3 this year. And altogether, we believe this will culminate in managing at least 1.5 million subscribers by the end of this year on our proprietary platform.

Whether it will show exactly the same metrics as the Spanish model is not quite sure yet. The RPUs and the margins and the revenue base in this Latin American market are definitely different than the ones in Spain, so ultimately we believe that it may not have exactly the same metrics on a per-customer base, but it should definitely have the same metrics from an absolute dollar revenue point of view, and ultimately I believe that the platform in Latin America will be our biggest revenue generator for quarters to come, after Q4 this year.

Edward Woo - Ascendiant Capital

And you mentioned that you’re allocating some of the resources away from Europe into other areas [unintelligible] in the U.S., and other regions. Should we expect that more deals will be outside of Europe? And particularly, what regions are you most excited about?

Steven van der Velden

Well, we certainly, as management, work very hard to achieve that, and indeed, we have been focusing much more on areas outside Europe, because we believe that some of the economic problems are just making decision making in Europe a bit more difficult at this very moment. Currently, we are really focused on the Latin America contract, and the platform in Saudi Arabia.

We believe that if we do those platforms right, over the next three, five quarters, as we have built a perfect additional reference - next to the reference, of course, we have been building up with Vodafone in Spain. And we believe that if the three use cases of the Latin American case, the Spanish case, as well as the Saudi Arabia case, is really showing what we as management think we can achieve there, I think the company is extremely well-positioned to take on any other challenge in the mobile services industry as we will then have three perfect references of such different but very much aligned business models where we can work together with mobile operators to help them to better achieve their results.

And ultimately, that’s a key element in our B2B outsourcing model. We have to make sure that our customers are better positioned to serve as their customers so that they ultimately can grow together with us and through our platform.

Operator

And our next question comes from the line of Luis Marquez from Laidlaw. Please go ahead.

Luis Marquez - Laidlaw

Can you speak about what the benefits are for the shareholders in ValidSoft in regard to a broader agreement with FICO/Adeptra ?

Pat Carroll

I guess it probably falls into two pieces. The first really is that if we look at Adeptra alone, we see that they had relationships with over 50 key companies around the world, but when you now look at the entire FICO/Adeptra portfolio of companies we’re talking about an addressable marketplace of over 5,000 companies including financial institutions.

And I guess how we see it is that the need for our solutions is generic right across the world, and we’re very uniquely positioned to be able to address that need. On one side, we’ve got FICO/Adeptra with their global reach, and on the other side, we’ve got our relationships through Elephant Talk communications and their reach into the global mobile data network.

And the whole objective here is to try to offer services that have extremely high barriers to entry, so we’re trying to ring fence our business opportunities by underpinning it with unique solutions, intellectual property, so for example our patents, our trademarks and copyright, and of course our privacy seals. So that’s at one end of the scale. It’s really about the extent to which these two entities, having come together, provide us with an addressable market.

On the other side, if we look at the opportunity within, say, FICO itself, one of the big issues in the marketplace today is that we have a very high false positive rate. In fact, we put the false positive rate around the world at about 90%. That’s the industry, that’s the best it can do and achieve, meaning that if a bank thinks it’s got a fraudulent transaction, it gets it wrong 9 times out of 10.

The whole objective with our technology is to integrate our VALid-POS capability directly into, for example, the [unintelligible] risk engine. When you do that, you’re able to address this whole issue, these weaknesses, at source, so that there’s no impact whatsoever on the customer. That’s a massive step forward from where the industry is today. It takes a huge amount of cost out, it takes fraud out, it takes all the administration expenses out, and it gives a very significant competitive advantage to those institutions that deploy that capability.

What we can provide to FICO is that layer of context awareness, real time, that brings into it the use of the phone as a proxy for the customer alongside the capabilities that they have from the risk engine, combine those together in real time to be able to offer solutions that eliminate fraud, or at least move very close to eliminating fraud and false positives at the point of sale and at the ATM.

And that’s our objective, to really look at how we can maximize that capability through our relationship with FICO and give ourselves and FICO a massive competitive advantage over other means of trying to achieve something similar in the marketplace.

Operator

And our next question comes from the line of Carl Stevens, a private investor. Please go ahead.

Carl Stevens

Steven, this is for you. ETAK has roughly 115 million shares outstanding plus X number of [Ks] plus warrants that are out there that could drive that number significantly higher. A little earlier, you mentioned that your into a capital raise that will also add to that dilution. How is the company going to generate the $150 million to $200 million of higher-margin business to support that float?

Steven van der Velden

That’s a very good question. We believe that once we will have the operations in Europe, Latin America, and in Saudi Arabia on full [unintelligible], that we will indeed not reach levels of $200 million in revenues a year, but we will have the perfect reference to get it there. And as also stated earlier, we believe that all mobile operators have kind of the same problems with their legacy systems.

And as Pat pointed out, most of the financial services industry has problems with false positives, with fraud, with better service at customer levels. We believe that our technologies, once they are really shown to have contributed to the results of our customers, that we will become de facto standards within the industries and that should ultimately propel the company indeed in the league of having revenues like the ones you just mentioned.

That will not happen overnight. That will take quite some time, quite some effort. However, once the company is cash flow positive, we will have the time to grow into that, and we will also have the funds that we can invest in further growing our platform as well as our security transaction business.

Operator

And our next question comes from the line of Rob [Scaife], a private investor. Please go ahead.

Rob [Scaife]

I’d like to clarify something that has been said, both on the conference calls and then maybe in some other areas. The new contract in the U.S., we learned it would yield somewhere around a million dollars in revenues this year, but then we also heard, in another call, that there might be several half millions or one and a half million dollar opportunities for revenues there. Can you help clarify that for us?

Pat Carroll

Rob, I’m not sure, was that a question more for me in terms of the ValidSoft revenue earnings potential?

Rob [Scaife]

Yes, it was. That’s in the U.S.-based contract that was awarded, but is still pending regulatory approval for the awarded company, and that was the conference call, the investor conference calls that were not the quarterly updates where we kind of heard a different version of it.

Pat Carroll

Okay, so just to clarify, if we look at the general positioning of our products in the marketplace, and we will have clients that come to us through our channel partners, so not one of our direct client relationships at the moment. But if we look at those different types of profiles that those institutions have, at the smaller end of that, and for each product that we would sell in there would generate roughly around about half a million U.S. dollars of revenue per year, per product. And that’s per location.

So a single product deployed in the U.K., for example, would generate, in a smallish type bank, $500,000 per year. A medium sized bank would be $1 million per year per product per location, and a big bank would be $1.5 million per product per location. That’s roughly how we broke it down. That’s where the $500,000 to $1.5 million comes in. Does that clear up that piece of it?

Rob [Scaife]

Well, no, I understand that piece, but when the U.S. institution was mentioned, we talked about, say, a million in revenues, but then in the investor calls, it sounded like there might be a dozen or so opportunities to generate a million dollars or so in revenue.

Pat Carroll

Yeah, so in the U.S., the contract that we’ve been awarded with the financial institution has two pieces to it. The first is an implementation component, and we estimate that that will generate revenues of between $250,000 to $500,000 depending on how much resources are required from our side. Beyond that, then we move into a transaction-based model and that model is for our authentication platform. So very similar to the, for example, the announcement I made on this particular call regarding the Newcastle Permanent Building Society in Australia, where we said that was $1 million over three years. They would be a smaller institution by far compared to what we have there in the U.S., and we estimate that [unintelligible], in the U.S. So roughly about a million dollars per year once up and running.

Rob [Scaife]

And then Utiba is still on track to be about a third of their transactions based on their business model, which I guess is 3 billion to 4 billion transactions per year?

Pat Carroll

Yes, so off their portfolio of transactions that they currently run through their system, some of those are for bill pay, some of those are for [top ups]. And we estimated that of the 12-15 billion transactions that they did, roughly about 30% of those were [unintelligible] what we would call transactions at risk. Either there’s the capability for taking cash out of the system or putting cash into the system and therefore increased security and authentication is required.

Utiba are well along the line with their first major client, which would open up several opportunity use cases for the deployment of our technology. And that’s certainly the area that we’re focused on at present. And as they move forward into enhancing the relationship with the likes of, for example, Mastercard, we’ll have more transactions that go from closed loop to be open loop [unintelligible]. And again, that’s where the use case [unintelligible] the ValidSoft technology.

I will say that our SMART technology and our architecture, and the reason that we won the recent award for this, is that it’s a very unique blend of technologies that’s been custom designed for the use cases that exist in the whole mobile payments industry. And I’m unaware of anything else in the marketplace that has [unintelligible] capability or [unintelligible].

Rob [Scaife]

And I couldn’t quite get from the call when we’d start to see revenues from Utiba.

Pat Carroll

Well, the problem that we have is that we’re on a B2B, so they have their relationship with their customer, which they [unintelligible], and they’re working on that, and we’re sitting behind that. So we’re ready to go. We’re not in the critical path for anything that’s required on the Utiba side or that’s required on the Spindle side. We’re simply waiting for the capability to start using our technology within their framework. And of course our plans are at the mercy of how quickly their [unintelligible]. But we’re good to go as soon as they are.

Operator

[Operator instructions.] And our next question comes from the line of Ted [Wolf], a private investor. Please go ahead, sir.

Ted [Wolf]

Steven, I believe you mentioned in four to six weeks, if I heard you correctly, you believe you will be able to announce some contract, I’m not sure which one it is. But you’ll be able to make public disclosure of who the client is and some details about that. Am I correct on that? And can you elaborate on that a little bit more?

Steven van der Velden

Yes, as I indicated, we believe that the final contract for the Latin American platform will be executed within the next four to eight weeks, of course also with a view on the fact that we expect to make a first call on the platform before the end of this quarter. And at that stage, we will definitely file an 8-K. There might be some provisions made in the filing with respect to confidentiality as requested by our customer, but at that stage, if we do indeed enter into a material contract, we will definitely disclose that.

Ted [Wolf]

And you think that will be four to six weeks from today?

Steven van der Velden

Well, within the four to eight weeks we expect to execute the final agreement and then within days the filing will be made.

Operator

And our next question comes from the line of Brian McCarren from Ameriprise. Please go ahead.

Brian McCarren - Ameriprise

Pat, the unemployment verification system that was talked about in the U.K. a number of quarters back, I think you might have been partnering with HP on that, any kind of update?

Pat Carroll

Yes, thanks for that. We successfully completed that, as we announced previously, and we’re currently waited for a decision for the specific government to proceed. They were working on a strategic platform that needed to be implemented and deployed before our solution could be brought to marketplace. Suffice it to say, we’ve been actually collaborating with more than one European government who have all very similar problems at present, and which we can offer solutions for. So that’s all ongoing at present, and as I said, we’re just waiting for a decision by the specific government that was involved in the original [unintelligible] to decide to move ahead.

Brian McCarren - Ameriprise

Great, and then the other two questions, Steven, you had mentioned a while back Turkey as a market, I think it’s the largest cell phone market in the world. Any progress or updates on getting a foothold in Turkey?

Steven van der Velden

Yes, with respect to Turkey, there is basically good and bad news. The bad news is still, as I also indicated earlier, that due to [double] taxation, the market in Turkey is not necessarily very attractive for reseller third party channels or virtual operators, as the taxation takes place both at the operator level as well as at the reseller level. So basically this tax challenge, which is kind of similar, like for example in Brazil, is still making it much more difficult for virtual operators to economically viably address the market.

On the other hand, we are in discussions, with an operator in Turkey itself. At this stage, there is no reason to assume that we will succeed in getting any contract, but there is clearly traction in the Turkish market. And of course there is still the hope that at some stage this double taxation problem and we believe that once that is the case, that Turkey is really very attractive market given its size, given its population, and of course given its accelerating economic development.

Brian McCarren - Ameriprise

And then the last piece, I know Vodafone Spain, maybe they helped with the Latin American contract. I believe it was a year ago they were going to give a joint presentation with you. And sort of the buzz was that you guys had helped reduce operating expenses I think it was north of 70%, which is a huge number. Is there any point where that’s going to be published or we could get some kind of case study, or have I missed it?

Steven van der Velden

Well, indeed the CEO of Vodafone, [unintelligible], who is our partner for the Spanish market, has indeed made that speech in Sao Paolo last year. Very powerful, very positive. And of course it has helped us to get to a better profile with all the mobile operators that we’re around at the conference. So far, Vodafone has preferred to do this between carriers, and at these type of conferences, and I think as we have indicated before, Vodafone has been very helpful in getting us the Latin American contract.

So from that perspective, Vodafone is really a very good partner for us, and I think we are currently discussing whether we can create a white paper that reflects the way we have supported Vodafone in Spain. And we believe that once that white paper would also be endorsed by Vodafone, that it could be a very strong proposition if we can bring it out to the marketplace and of course a perfect reference on how a large operator like Vodafone is enjoying operational advantages through our platform.

Operator

And our next question comes from the line of Brett Cohen with JGB Capital. Please go ahead.

Brett Cohen - JGB Capital

I had a question on the subscribers. My understanding from the call is that you’re hopeful to be at 1.5 million subs in Spain by the end of the year and maybe now you’re at sort of 1.2 million. Then you had mentioned, with the Latin American customer, you’re hopeful to get 1.5 million subs by the end of this year, and what I just wasn’t clear on, is that the same 1.5 million? In other words, are we talking about 3 million altogether, or 1.5 million altogether, if things work out?

Steven van der Velden

A very good question. No, these are definitely two different sorts of customers. One is the customer base in Spain, and the other one is the customer base in Latin America. So altogether, from that perspective, it adds up to indeed 3 million.

Operator

[Operator instructions.] And our next question comes from the line of John [Weatherford], private investor. Please go ahead.

John [Weatherford]

What is the history of the relationship with the deal in Australia, and what ValidSoft products do they use?

Pat Carroll

We’ve got a longstanding, very positive relationship with Newcastle Permanent Building Society. In fact, our relationship goes back now about six years. They’re a leading mutual society, which is similar to a credit union in the U.S. And in fact, back in 2008, NPBS were awarded what was called the Money Magazine Best of the Best award in Australia for their implementation of our core VALid authentication and transaction verification solution.

What they use that for is for securing authentication and transaction verification for their customers as they come onto their online banking services. We reported on this call that they were close now to 90,000 users, and are looking to increase to 150,000 users in the coming months.

But a very strong implementation from ValidSoft, and in fact one which has had a remarkable record of performance. In fact, over the six years, I believe that we have only had three support calls, two of which were not our problem. One was a memory leak, which was caused by another application, and the second was caused by an incorrectly entered telephone number for a contact in the customers. So all in all, a tremendous record of achievement over there at NPBS.

Operator

And our next question comes from the line of Matthew Alimena with Metlife Securities. Please go ahead.

Matthew Alimena - Metlife Securities

A question regarding the revenue from mobile and security. It looks to me like you’re at a run rate of about $23-25 million, if you had the forecasted growth, the sequential growth of the revenue for 2013, using 2012. Am I correct on that? Sequential growth was 24% in the latest quarter, 103% over the last year.

Steven van der Velden

Yes, if we would have the same growth rate this year, we would indeed get to those kind of levels.

Matthew Alimena - Metlife Securities

Right, so the question is do you anticipate the same growth rate, or a greater growth rate?

Steven van der Velden

Well, we have not given that guidance, and I’m not sure we are prepared to do so at this moment. It’s clear that we think that the mobile and security revenues will grow, and will keep on growing for the next couple of quarters, and actually maybe even accelerate some growth, especially if the Latin American contract gets online. But I don’t think we could give any guidance that our revenues would again double for 2013. Of course, management hopes that it will happen, and maybe [unintelligible], but that will still depend on quite a few uncertainties that need to be addressed over the next couple of months.

Matthew Alimena - Metlife Securities

And just from the standpoint of annual revenue, based upon your current capacity, if you were to be running at maximum capacity, do you have an idea of what the revenue would be at maximum capacity, given what your capex is at this point?

Steven van der Velden

Very good question. That would require some more analysis, because of course a lot of our contracts have sliding scales. So let’s imagine if we would grow to 5 million customers, it would be a sizable difference. Whether this would be realized on the same platform, and for the same customer, or to be spread out over a couple of customers. The same for the Elephant side of the business, where also sliding scales are part of contractual arrangements.

So basically it’s difficult to give you a direct answer, but on the other hand, if our operations in Spain and Latin America, in the Middle East, in Western Europe and also the [unintelligible] services, would work at full capacity, the revenue capacity of the company would clearly be hundreds and hundreds of millions of dollars. But I don’t think that today we are any near close to that number and it will require severe work to get to that level. But if we were just to focus on those markets, we could reach ultimately those levels of revenues.

On the other hand, it’s probably more realistic to assume that in the meantime we will install a few additional platforms, usually costing between $1 million and $3 million each, so you won’t require more capex to reach those levels of sales.

And I’d also think that it’s probably not realistic to assume that you would ever run at 100% capacity, because ultimately we wouldn’t be able to keep up the service level agreements that we have agreed with our customers, because there is always a lot of room in our capacity to accommodate any growth, even unforeseen growth, on the side of our customers.

Matthew Alimena - Metlife Securities

And you haven’t given forward guidance, but you are obviously going to be doing a capital raise. Do you have an idea of what your capex, or your capital needs, would be for this upcoming year?

Steven van der Velden

We have estimated that also in line with capex requirements over the last couple of years, that usually it will be in the range of $5 million to $10 million a year.

Operator

And our next question comes from the line of Rob [Scaife], a private investor. Please go ahead.

Rob [Scaife]

Just a follow up question on the Turkey question. There’s been a couple of MVNE, MVNO opportunities announced in prior years, like [unintelligible] Belgian and ClearTech Brazil. Do those fall in similar categories where it’s taxation or other issues that have closed those doors? Or is it still a work in progress?

Steven van der Velden

No, I think we are encountering a different set of market circumstances, for example, in Belgium or in Brazil. In Brazil, it’s, as I said before, there is still a double taxation. And we believe that the government is now realizing that without an abolishment of that double taxation, it will be very difficult to entice virtual operators to invest in marketing and sales and distribution in the Brazilian market.

Even though we don’t see any very short term solution, I can only say that there is strong interest still from quite a few parties for the Brazilian market, as we believe that parties want to be prepared once that double taxation will be gone.

In Belgium, it’s different. In Belgium, as well as in Germany, this is Europe, there is huge competition amongst mobile operators. In quite a few of the markets, prices have halved over the last 12 months. A lot of operators are laying off staff, are confronted with losses, and I believe that the whole market in Europe will need to find a new equilibrium.

And of course, these circumstances create a lot of uncertainty for virtual operators as we were focused on servicing bundled services by combining our platform with airtime from mobile operators to accommodate virtual operators. This market has shown to be much more tougher than we expected, mostly also due to economic circumstances, and as explained before, the harsh economic circumstances that are currently being faced by virtually all of the mobile operators in [Western and Southern] Europe.

Rob [Scaife]

Okay, but the ClearTech Brazil one, wasn’t that a roll out in 10 countries? The [Nico] partnership?

Steven van der Velden

No, the ClearTech Brazil was a partnership to help us getting to market in the Brazilian market. There are very good channels. They’re well positioned among Brazilian operators. [Nico] was a completely different setup. [Nico] is a virtual operator. They entered into an LOI with us to look for [unintelligible] platforms. Unfortunately, it has shown that [Nico] had a different reading of our arrangement than we had, so we could not finish the MOU into a formal contract. And thereby, basically, we have given up efforts to try to finalize that contract.

So from that perspective, the [Nico], the potential [Nico] partnership, is dead. However, the [other] possibilities, with for example ClearTech in Brazil, are absolutely not dead, on the contrary, and we believe that once the double taxation will be solved, that the Brazilian market will be very well suited to accommodate a very essential part of virtual operators, gaining the normal market shares of 10-20% you see in many other markets.

Rob [Scaife]

Is the reseller market in the U.S. plagued with any major problems, or do you see that as a good opportunity here?

Steven van der Velden

No, I think actually the U.S. market has shown quite a revival over the last couple of years. We have seen that even though the market is differently organized than in most other countries, as it’s still mostly a reseller market in the United States, whereby virtual operators are acting as resellers with bundles that are prebundled by mobile operators.

But we see development moving into the space of unbundled services, to offer unbundled services. So basically, airtime, data, and texting, separately, packaged and priced by a virtual operator. You won’t need a platform like ours and can ultimately manage that for a virtual operator.

Today’s developments in the U.S. market are less development that remains, but still more a reseller market, and we believe that by addressing those market needs with better solutions, we can gain some market share and ultimately offer the roadmap to, at some stage, have our own platform in the U.S. market, so that virtual operators that really have the ambition to grow more from the current reseller market into really the unbundled model, that can be accommodated.

And we are really focusing to accommodate that niche of the marketplace. Those virtual operators that feel that ultimately they will have to move up to these unbundled services. And that would then be a unique selling point for us today to contract these partners, even though it’s still mostly a reselling model.

Operator

Mr. van der Velden, there are no further questions at this time.

Steven van der Velden

All right. Well, then, on behalf at everyone at Elephant Talk Communications and ValidSoft, I would like to thank you all for joining us on today’s call and thanks again to all of you for your long term patience and commitment to the company. As stated earlier, we look forward to proving additional updates on future milestones as they are realized. Thank you all, and have a great day.

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