MagicJack Vocaltec (NASDAQ:CALL) reported strong earnings last night in line with expectations:
- Total net revenues of $36.9 million
- GAAP Operating income of $15.2 million, Adjusted EBITDA of $15.6 million
- GAAP Diluted EPS of $0.51, non-GAAP Diluted EPS of $0.78
- FY 2013 net revenues projected to be in the range of $155 and $160 million
- FY 2013 Adjusted EBITDA projected to be in the range of $52 and $55 million
- Currently has an estimated 3.27 million active subscribers
The short interest was reported by NASDAQ after the close and dropped as of April 30 as follows:
With CALL's outstanding shares dropping to 18.7 million as a result of a share buyback program which is still in effect, the adjusted short ratio after deducting the insiders' and large holder's shares of 10.7 million shares is in dangerous short squeeze territory of over 57.5% of available trading float of 8 million shares.
After listening to the conference call, which we encourage investors to do here, we think the veteran telecom executive Jerry Vento at the home of magicJack is a major asset. Why? Because he has built and successfully sold companies in the past. We found an old web piece on him which gives a great summary of his accomplishments. Of particular interest is his FCC regulatory expertise and wireless industry knowledge from his days establishing Sprint PCS. We think Jerry may be focusing magicJack's future in the mobile apps arena. From the call transcript:
"Let's turn to the app. It works on any IOS or Android device as well as the PC. It allows users to make and receive calls on any of these devices for free when connected to Wi-Fi.
New apps excellent features including superior voice quality and the videos a free phone number for incoming and outgoing calls, live online customer care and free text messaging. The app has experienced about the 8 million activation since its launch and for the period from March 25th to April 25th2013 we had approximately 2.23 million app users."
We downloaded the app to an iPhone and without an account made a free phone call. This service is easy to use and we think there is room for rapid expansion to that can aid CALL's existing VOIP customer base. We therefore think the projections for revenue were purposely conservative and can be easily exceeded, especially with their new magicJack plus rollout later this month on top of the millions of app downloads which require no device at all.
Moreover, we think the regulatory issues the other SA writers pointed to are a red herring. The revenue affect of an AT&T legal dispute never amounted to any material loss for CALL. We think the then CEO Borislow response to a 2011 Eric Savitz Forbes article explaining the dispute was correct and why there has been no impact on earnings :
This ruling from the FCC was without prejudice. In this case, we have an edge on a lot of our competitors because we get to see what the FCC had issue with instead of finding out years later. Now we get to refile our tariff and fix up a few definitions to the FCCs liking to get paid. The ruling will have many Carriers scrambling to change their tariffs.AT&T for instance has Uverse which they collect access charges on and their tariffs have similar issues. We believe that our tariffs were fine and that we had functional equivalents, but it is just as easy to change the definitions. As far as what this meant financially for us, we haven't collected the proper amount of charges from AT&T in a long time. Verizon is not paying anybody associated with VOIP for ages. From a cash standpoint,we will save money. Our legal fees were much higher than what we could collect. They will subside-a lot. We have actions in Federal court, and regardless of if our Tariff was correct or not, based on technicalities, we are still entitled to collect. This action in the FCC was for 35% of what AT&T owed us. We were fighting not getting paid, when most of our competition would not. We are owed the money, we supplied a valuable service and when AT&T tried to strong arm us, we told them where to go. I believe they have successfully strong armed most of the carriers in the country. They have engaged in a lot of activity that they should not be very proud of,particularly now. The bottom line is, Access charges are a small part of carriers business including ours now and most Carriers are starting to direct connect to one another and not charging each other. It's the only thing that makes sense. Our legal fees were much higher trying to collect than what we could collect.So the magic is really in the what we provide, ease of use and price. Get me your address and let me send you the new magicJack Plus, same as the original one, but now you can also use it without a computer. It's the same size as the original, but even easier to install within seconds, with consistent super voice quality all the time. We will continue to innovate and lead the pack. When the FCC wants VOIP for the country, they can count on us. We have saved our customers Billions and are dam proud of it.
We think that CALL, with close to $50 million on its debt free balance sheet, positive cash-flow and new product offerings as explained above make it a compelling long story and a crazy short story. Moreover, the recall process on the outstanding borrowed shares is going full speed ahead as evidenced by the astronomical negative rebate cost of 65+%. That high cost of carry can make any short seller crazy.
Disclosure: I am long CALL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.