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Elephant Talk Communications Corporation (NYSEMKT:ETAK)

Q3 2013 Earnings Call

November 12, 2013 11:00 AM ET

Executives

Alan Seinweld

Steven van der Velden – Chairman and CEO

Paul Burmester – CEO, ValidSoft

Pat Carroll – Executive Chairman, ValidSoft

Mark Nije – CFO

Analysts

Robert Scott – Private Investor

Robert Scott [ph] – Private Investor

Ed Woo – Ascendiant Capital

Theodore Cohn – PRC Group

Neil Christie – Bankers Investment

George Carcall – Private Investor

John Bloom – Private Investor

Scott Douglas – Private Investor

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to Elephant Talk Communications Corporation Third Quarter 2013 Shareholder Update Conference Call.

During today’s presentation, all participants will be in listen-only mode. Following the presentation, the conference will be opened for questions.

(Operator instructions)

I would now like to turn the conference over to Alan Seinweld [ph], please go ahead, sir.

Alan Seinweld

Thank you, operator. Good morning to everyone in the United States, and good afternoon to our European listeners. Thank you for joining us for Elephant Talk Communications shareholder update conference call.

On our call today will be Steven van der Velden, CEO of Elephant Talk, Mark Nije, CFO of Elephant Talk, Pat Carroll, Executive Chairman of ValidSoft and Paul Burmester, newly appointed CEO of ValidSoft.

Following management discussion, there will be a Q&A session open to all participants on the call as the operator already mentioned.

Now before we get started, I’m going to review the company’s Safe Harbor Statement. Remarks made on this call may contain forward-looking statements within the meaning of Section 27 A of Securities Act of 1933 as amended in Section 21E of the Securities Exchange Act of 1934 as amended.

All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the company.

Listeners are cautioned not to place undue reliance on these forward-looking statements which are only predictions and speak only of the date hereof.

In evaluating such statements, perspective investors should review carefully various risks and uncertainties identified in this conference call in the manner stated in the company’s SEC filings.

These risks and uncertainties could call the company’s actual results to differ materially from those indicated in the forward-looking statements.

With that out of the way, I’d like to congratulate management on another solid quarter. I’ll turn the call over to Elephant Talk’s Chairman and CEO, Mr. Steven van der Velden. Steven, the floor is yours.

Steven van der Velden

Thank you, Alan. And thanks to everyone for joining us today for our shareholder update call.

2013 has been a period of significant transition at Elephant Talk. First and foremost, we have nearly completed the conversion from our low margin lint line business to our monthly recurring revenue mobile to security business.

Elephant Talk’s higher margin mobile and security solutions business sequentially increased 12% to $5 million in revenues when compared to 4.5 million we reported just last quarter.

This high margin business now comprised approximately 96% of our total revenue. As a result, this transition has dramatically increased profit margins and improved the company’s bottom line, most notably improving our adjusted EBITDA from an approximate $1 million loss in Q2 2013 to a loss of just $85,000 for the third quarter.

We have successfully achieved total company margins of approximately 80% which we expect to maintain going forward. These positive financial gains are expected to continue due to the fact that we recently began to recognize the revenues from our five-year contract with Iusacell, our mobile network operator partner in Mexico.

We expect the first of Iusacells MVNOs and the first of their own brands to be active on our platform by the end of this year. And we are on track to become a major outsourcing partner for Iusacell.

These initial activations and migrations were not only doubled the number of SIMs on our platform, but will also greatly increase our monthly return revenue base. These newly managed SIMs will lead to continued growth of revenue, margins and positive adjusted EBITDA in early 2014.

We expect the success of these initial businesses to generate additional activations and migrations in Mexico. Iusacell had 7.4 million customers at the end of last year and is the fastest growing mobile operator in Mexico. As communicated earlier, our platform is currently able to host up to 10 million subscribers with the ability to steal to over 20 million relatively fast.

In the third quarter, Zain Saudi Arabia launched a new brand called matrix, hosted on the Elephant Talk platform and we had just gone commercially live selling new subscriber cards – the SIMs cards to visitors from India.

The Elephant Talk platform is fully operational and we plan to launch with Axiom by the end of this year. Several mandatory requirements such as full integration of all possible systems including Axiom’s existing back office systems had to be completed as they are already one of the largest retailers in the Middle East.

To our platform, they will now possess high-end distribution systems and back office [ph] systems with superior data capabilities to make them one of the most capable MVNOs in the market today.

We successfully did our first 4G integration with Zain and it took only four months to fully integrate. The first successful data sessions on the 4G network had already taken place. This test case shows that it’s possible for us to implement a full 4G LTE core network including access to existing GSM and 3G networks in what will be a seamless hand over for our end customers in a very short period of time. We expect that after initial start of activation on a smaller number of subscribers, Axiom will ramp up quickly and they will become the most successfully deployed MVNO in the Saudi market.

In Spain, we continue to strengthen our relationship with Vodafone. We expect to continue to activate and migrate additional SIMs in this marker as well as further enhance our offerings to the six virtual operators of Vodafone that we currently service in the Spanish market.

In 2014, we expect to not only gain additional subscribers but also obtain increased rates for our services from Vodafone.

The company recently made significant progress in further monetizing our ValidSoft subsidiary. ValidSoft successfully developed an antifraud solution that was recently deployed by FICO, the leading analytic software company.

FICO publicly announced that several UK banks are now working on deployment plans to begin using our solutions. The technology is known as proximity location service and it compares to physical location of product holders or registered mobile phone against the location of the ATM or the point of sale terminal where the card is being used to combat fraudulent international transactions.

The newly unveiled solution has extreme – and has already proven itself extremely effective in reducing false positives by at least 70%. Thus, significantly reducing operating costs of the financial institutions that use the product.

ValidSoft also expanded its service offerings during the third quarter of 2013 when the company announced the release of its latest addition to VALid – to the VALid suite of telecommunications based security products zero latency correlation.

It’s that LC patent pending technology provides a real-time zero latency false detection and false positive reduction solution from both cross border as well as domestic card presence transactions. It is specifically designed for integration into smartphone-based wallets [ph] and applications.

It is my pleasure to welcome Mr. Paul Burmester as the new CEO of ValidSoft. With his appointed, we have appointed Pat Carroll to Executive Chairman.

In Pat’s new role, we will continue to develop and invent cutting edge technology to further combat fraud. He will continue to drive the vision of ValidSoft, focus on product development and look for new strategic partnerships while serving as an industry expert in the security and fraud arena where his vision or expertise is slowly recognized.

Pat will also be looking at new areas for providing our technology for example, in the area for medical industry among others. Paul Burmester brings with him a wealth of experience in successfully developing companies for mainstream commercial success and today has been a driving force in taking six previous early stage technology companies through to global adoption.

Prior to joining ETAK, Paul was employed at SpinVox who supplies unique voice screen technology that was primarily sold to telecoms. As the Chief Commercial Officer, he was instrumental in signing a landmine deals for several major telco groups around the globe.

As Executive Vice President of Sales and Marketing at ViAir, Paul drove sales to several telecoms in the enterprising consumer sectors. Prior to ViAir, Paul was Executive Vice President of Sales and marketing at Paragon Software. The firm provide a software for synchronizing personal information across multiple devices and platforms. In his position, he drove the strategy and assisted in signing deals with device manufacturers, telcos and software vendors, ultimately leading to direct acquisition of $515 million by Phone Doctor.

We are very pleased to have an executive of Paul’s ability to lead ValidSoft forward to this next exciting stage of the company’s monetization. His diverse background in running sales and marketing at several leading firms that provide software and platforms to telecoms will lead to his success in signing additional contract for ValidSoft.

His main focus will be on sales and revenue generating partnerships and opportunities such as our FICO agreement.

I will now turn the call over to Paul for brief remarks before Pat Carroll will discuss additional insights on the ValidSoft. Paul, please go ahead.

Paul Burmester

Thank you, Steven and hello to everybody. I’m certainly extremely excited to be joining ValidSoft to this time. And I believe there’s significant opportunities both present and future for the company and its products and technology.

My goal is to work towards generating several major context from these opportunities as we build the company and the market potential especially now that our technology is being validated by industry leaders and partners such as FICO, and banks such as Banco Central [ph] as examples. I very much look forward to communicating with all of you in the future and to provide more insight with the commercialization and monetization of ValidSoft and our innovative technology. But obviously is the – I’m just a few days into a new role now. I’d like to turn over to Pat Carroll, now executive chairman who will take you through with the full update on ValidSoft to date. Pat, the floor is yours.

Pat Carroll

Thank you, Steven and Paul. Our Q3 2013 has been an exciting quarter for ValidSoft. You’ll have read in the press the FICO a world-leading predictive analytics and decision management software company announced the availability of a new proximity correlation service for credit and debit card issuers, which is aimed at the improvement and safety of payment card transitions.

The U.K. market is the initial focus for FICO and several U.K. banks are now in deployment planning stage for the new FICO service, which is being developed in conjunction with ValidSoft.

This now means that ValidSoft is providing FICO with both our SIM Swap, proximity correlation solution. The adoption by FICO for proximity correlation takes our solution’s mainstream and we are excited of the potential given the size of global addressable market.

Regarding Santander, our SIM Swap continues to run smoothly in production and as of today, we have processed in excess of 11 million transactions. As I mentioned in my previous update, Santander is claimed [ph] to be one of the first U.K. banks to deploy our proximity correlation solution which will be delivered through the FICO platform.

The adoption by FICO of our core solution, confirms that ValidSoft is at cutting edge of fraud detection and prevention, solving massive issues at the core of electronic payment processing industry, and we look forward to the broad rollout of our solutions in the coming months.

On the product front, we’ve announced three new products, VALid-ZLC, VALid-IMA and SMARTvc. VALid-ZLC which stands for Zero Latency Correlation is a game changing addition for our product set. For the first time ValidSoft has the capability to perform a proximity correlation in real-time with no dependence on the mobile operators. ZLC does not require a network look up.

This revolutionary solution leverages the increasing penetration of smartphones throughout the world and means that ValidSoft now has the capability to fit within the authorized [indiscernible] step of a payment transaction. Since ZLC itself is a total real-time solution.

Having ZLC in our portfolio solutions means that we can now press ahead with the deployment of our solutions globally with no external network restriction on our ability to penetrate global markets for our proximity correlation solution.

In addition, ZLC is fully compliant with our previously by design methodology and we are anticipating that it will soon be awarded a European Privacy Seal.

Our second new product is VALid-IMA, which stands for Inbound Mobile Authentication. This is a leading edge voice biometrics engine that’s based in our core voice biometrics engine that is [ph] SVP. VALid-IMA has many unique features, including that is custom built to operate in the mobile environment and programmed to accept short [indiscernible] but does not depend on a phone call.

VALid-IMA is a game changer as it brings high quality voice biometric with very low friction at the world [ph] mobile payments. It fundamentally changes the model in terms of the equal error rate which is the tradeoff between false positive and false negative, and is de facto standard in how traditional biometric solutions are assessed. We recently announced that VALid-IMA was selected by Spindle and is integrated into the Spindle MeNetwork360 mobile commerce ecosystem.

Our third new product is SMARTvc, a revolutionary new product that aims specifically at addressing inherent security needs in virtual currencies, a market segment that is set to explode.

ValidSoft recently announced this partnership event, the premier global virtual currency and the established leader in financial markets for edging, carbon trading and environment law sets [ph]. There has been significant press coverage concerning virtual currency with daily headlines on Bitcoin, Ripple, [indiscernible] and others. And it is inevitable that the fraud [ph] community will increasingly focus their attention on such currencies.

Recent headlines regarding Bitcoin confirm this fact. And ValidSoft is uniquely position with SMARTvc to offer these virtual currencies, the most advance custom built security protection available in the world today.

On the intellectual property front, we’ve continue to invest in and grow our unique intellectual property portfolio. We are a key player and IT owner in the area of sophisticated fraud prevention. And I’m delighted to report that ValidSoft is being granted a patent for our dual-wireless network authentication system, Dual-SSID. The Dual-SSID authentication system enables to secure [ph] wireless access is broad in scope and is ideally suited for the growing usage of mobile devices such as smartphones and tablets in wireless environments where mobility and security is essential.

We anticipate that the invention will be highly beneficial in helping to provide secure wireless network connectivity for many [indiscernible] markets. And it will be increasingly necessary as the fraud world turns its sight on the mobile world.

On the organizational front, you’ll have read in the press or announcement starting the [ph] appointment of Paul Burmester as our new CEO to lead ValidSoft through the next exciting phase of the broad commercialization of our solution. With over 30 years’ experience [ph] technology industry; Paul has driven six successful exit during his career, including four in the mobile industry.

The most recent of these were SpinVox, a leading developer of speech-to-text technology that was acquired by Nuance. As we plan the future of ValidSoft, it’s crucial that we have the correct skill set for each stage of growth. I have no doubt that Paul is the ideal candidate for the next exciting phase of our company.

As the executive chairman, I look forward to working with Paul to enable our growth success [ph]. I’m immensely proud of the team at ValidSoft who have worked tirelessly with me to create best-in-class [indiscernible] solution for the past several years. We have a brand name that resonate globally as a leader in our field, and we’ve earned a trust and respect of our clients and partners in understanding and addressing sophisticated fraud.

I’m delighted to work with Paul in a time when our solutions are achieving adoption in the market by key players. On this positive and exciting note, I’d like to conclude my update for the quarter. Turning the call over to Mark Nije, that he may discuss our financials. Mark, over to you.

Mark Nije

Thanks Pat. Let me turn to the financials now. Revenue for the third quarter 2013 was $5.2 million a decrease of $1.5 million compared to the $6.7 million last year. The decrease in revenue was the result of the continued revenue decrease in our low margin legacy [ph] landline business, which is partly offset by the increase in revenue of a higher margin mobile and security solutions business.

Compared to previous quarter this year however, revenues increased overall, marking the turning point whereby mobile and security revenue growth was larger than the decline in landline revenue. Also, service for the third quarter ended September 30 was $1.1 million, a decrease of $3.5 million or 76% compared to $4.6 million for the quarter ended last year.

The decrease in cost of service was fully caused by the decrease in our low margin legacy landline business. SG&A expense for the third quarter remains unchanged at $4.2 million when compared to the same period last year. The company managed to keep SG&A stable in its efforts to preserve cash.

Following the improved margins and stable SG&A, our third quarter adjusted EBITDA improve from a loss of $2.1 million last year to a loss of $85,000 this quarter. Compared to the previous quarter this year, adjusted EBITDA improved by around $900,000.

So the margin almost doubled from $2.1 million in last years’ quarter to $4.1 million this quarter. So the margin over total revenues grew to 79% this quarter. Looking further back margins have improved from 8% in 2011 to 25% in 2012 and now to 64% year-to-date.

Net loss was $3.2 million and $5.5 million for the third quarter ended September 30, 2013 and 2012 respectively. The improvement of $2.2 million was primarily the result of the growth experienced in the mobile and security division a consequent improvement in most from operations.

As you may know we plan to file an amendment to restate and amend our second quarter financials. The restatement relates to warrant liabilities that were incorrectly valued which impacted our balance sheet and income statement of the previous quarter. The restatement however has no impact on the company’s previously reported revenues, margins, adjusted EBITDA, operating expenses or the net cash used or provided.

Lastly, we’re pleased to announce that 5.1 million warrants from our June financing has not being extinguished. Steven, the floor is yours.

Steven van der Velden

Thank you, Mark. As discussed both Elephant Talk and the ValidSoft has made significant progress in 2013. It has positioned us for near-term growth and long-term financial success.

It should also be noted that management has been working with the NYSE market. And we are confident that we will regain full compliance listing standards in the near future. Our previously submitted proposal coupled with our recent operational achievement has assisted us in our quest to complete any necessary requirements asked from us by the Exchange.

In closing, management is pleased with the direction in which the company is headed and believes that the future has never been brighter. Our strategic relationships and industry knowledge coupled with the numerous opportunities that lay before us provide strong growth outlook. We look forward announcing new profitable contracts as we continue to migrate new subscribers to our best-in-class platform and further commercialize our renowned anti-fraud solutions.

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

Question-and-Answer Session

Operator

Thank you, Sir. We will now begin the question and answer session. (Operator instructions) And our first question comes from the line of Robert Scott [ph], Private Investor. Please go ahead.

Robert Scott – Private Investor

Hi, guys. Thanks for the update, great quarter. My questions for Pat, some of the patents that you filled for and been awarded in the last 6 to 12 months, seem to go away beyond fraud prevention and simply securing devices which goes all the way into security for everything from financial transactions to any type of communication. It seems well beyond the scope of any partners that the company has talked about in the past. Are you going to be looking at new partners for this type of technology to license it out or what’s the plan there?

Pat Carroll

Yes, very good question Robert. Thanks for that. No, I think that that’s the core of our vision, is looking at how the framework that we created can be leveraged. And we made no secret that fact that the top one that we have in place with the expansion of different modules that all club [ph] together by the way they may sound like separate product from time to time and they are in terms of how we can market and sell them. But they all link back into our core platform and that platform is valid. It’s marked in the mobile world, valid in the enterprise world.

So we’ve deliberately created this capability. And by the way, we feel that it’s fundamentally important that we have that capability for the future. So whether it’s health care or whether it’s gaming, whether it’s social, whether it’s financial service transaction, the core of what we’re doing is essentially the same, so it’s like [indiscernible]. And what we do is we can blend these various components together and to create a specific solution that’s mapped to the perceived risk of finding one particular segment area.

So when we announced for example SMARTvc, SMARTvc is probably 80% the same as everything else will be done [ph], but the new one that’s associated with virtual currencies, needs to take into account, by that I mean, the things like how you manage the administration, the tracking, the audit trails that maybe required alongside currencies are very different than perhaps that are into effect with all those core components are there at the heart of what we do.

So you’re absolutely right, we are – we have an open mind of where we’re going to. We are absolutely tunnel-visioned on ensuring that our technology become the broad part of solutions that already exist in the market today as part of our direction strategy.

And together with Paul and myself, those are the areas we’re going to focus in for the future it’s looking at how we can actually create environment whereby that solution, those solutions that core capability can be leveraged out to those industry segment by virtue of partnerships who believe in those segments. And that’s exactly what we’re going to do.

Robert Scott [ph] – Private Investor

Okay. Thank you.

Steven van der Velden

Thanks, Robert.

Operator

Thank you. Your next question comes from the line of Ed Woo with Ascendiant Capital. Please go ahead.

Ed Woo – Ascendiant Capital

Yes, thank you. I will just – had a clarifying question on Iusacell in Mexico, do you say that the subscriber transition had been fully done or should be done by the end of this year?

Steven van der Velden

No, what I described is that we are in process of activating and migrating the first MVNOs of Iusacell as well as their first brands. And this is a process we are in the midst and we expect those customers, the first customers be active on the platform before the end of the year.

And also we believe that these first activations will kind of propel us in further growth because we are feeling confident that the platform will deliver superior qualities towards those Iusacells’ own customers as well as their virtual customers. And that will ultimately be the trigger to add more capabilities to the platform as well as more customers. And we feel that that combination will drive our further growth in Mexico.

Ed Woo – Ascendiant Capital

So do you still expect 1.5 million subscribers by the end of the year and possibly the remaining 7.4 sometime –

Steven van der Velden

Yes. Well we could actually have many more. It may just be a matter of a week earlier or later. Ultimately we believe that many more customers will migrate over the next couple of months, whether exactly the number of 1.5 will be reached in the December, in January or February or a much higher number, that needs to be seen at the end of the day, we are a B2B supplier that is kind of dependent on the speed of migrations and the speed of deployments by Iusacell and their customers.

We are ready for it. Iusacell is ready for it. And we believe that we will be seeing all these customers coming on board over the next couple of months.

Ed Woo – Ascendiant Capital

Great. And the last question I have is more of a general question on the overall product cost – software environment right now. Do you know of any changes in terms of the MVNOs willing to buy software if they’re – pulling back to the economic situation or what are you seeing out there?

Steven van der Velden

Well in general as you probably will follow also, there are a lot of developments that’s going on, and you have the whole software defined networking, the function virtualization, the integration of solutions, the leveling of applications towards core networks and the combination between the two. So it’s a very dynamic area.

And we see that it’s becoming more and more specialized, developments are speeding up and we believe that at the end of the day only specialized suppliers of platforms will have the major market to themselves. And we see that yes, the economic times on one hand make it sometimes more difficult for companies to absorb technology, to have the teams available and the resources available to go through the changes to adopt to our platforms, on the other hand, on the long run, we believe that exactly these economic conditions will convince more and more companies that they would rather focus on their core activities of branding, selling, marketing distribution, their networks, and basically leave the whole technical core network, IT, OSS, BSS systems which tend to become more and more complicated to specialist players like Elephant Talk.

So on the long run, we definitely believe that this is a very positive development, on the short run, it may make certain organizations slightly more hesitant to adapt to the new technology quickly, but all together, we look forward to a very bright future in development [ph].

Ed Woo – Ascendiant Capital

Great. Well, thank you and good luck.

Steven van der Velden

Thank you, Ed.

Operator

(Operator instructions) And our next question comes from the line of Theodore Cohn [ph] with PRC Group. Please go head.

Theodore Cohn – PRC Group

Thank you. Good afternoon, gentlemen or morning, still. Three questions, I have. Number one, are you able to give us any guidance in terms of what say, anticipate in what’s coming two, three, four quarters as far as both revenue and earnings?

And secondly, are you anticipating the need for any further capital or further dilution and the third would be whether or not as a shareholder, whether we should look forward to ValidSoft as being the main driving force for the company? And to what extend that is really going to be the prime mover?

So those are my three questions. I appreciate your response.

Steven van der Velden

All right, well, thank you very much. Well of course, all three very interesting questions. As in the past, we cannot provide any specific guidance to any upcoming quarters.

Of course, you will have seen the trends of the last eight, nine, 10 quarters, which is definitely a trend upward with respect to our mobile and security solutions. They are now reaching some $5 million in the last quarter. Getting to a point where we are operational, or becoming cash flow positive and I believe in general that given the fact that we still have a couple of contracts mostly coming into provision over the next couple of months, like the Iusacell contract, like the Axiom contract, and the Zain contract, like some of the banking contracts on the ValidSoft side, that there is no reason to believe that the trend will not continue.

That’s kind of the most guidance that I can give to you, and we feel that with all the additional customers coming on board, that as we also said in the update, that we anticipate some doubling of customers hosted on the platforms, and as well of course, also lead to at least almost doubling or slightly more than doubling of our revenue base in that domain.

So once again, this luxury part of this, and we look forward to a very exciting year next year also financially. With respect to financing and the possible anticipation of dilution, we believe that currently, the company is reasonably well financed, we believe that the combination of vendor financing, partner financing, our current cash balance, together with possible warrants that might be exercised in the near future, specially our share price tend to go up further, we believe that all these together, should provide us a proper basis.

We can never exclude from the efforts, but I don’t foresee anything on the short run, and we believe that we are reasonably well foreseeing with respect to our funding as we have it today in combination with our partners and our vendors.

Coming back to your last question, yes, ValidSoft will certainly be one of our main drivers, next of course to the platform business, and it’s going to be an interesting thing to see where the balance will be at certain moments. At the end of the day, the platform business is probably a little bit less scalable than the ValidSoft business.

The platform business requires the installation of major platforms which require organizations to adapt to the capabilities of those platforms and therefore, these can only be done in a limited amount every year.

On the other hand, most of the ValidSoft applications are pure software solutions provided through APIs where the scalability will be much more intense, and can be done much better.

So once we see the market picking up for the security solutions, and we strongly believe that once a couple of banks will pick up these solutions that a lot of their peers will follow, then ultimately, the ValidSoft solutions can bring quicker growth to the company, but on the long run, I think that those businesses could be very well balanced in driving gross – in driving additional revenues, and in driving the bottom line for the company.

I hope this adequate answer to your questions.

Theodore Cohn – PRC Group

It is. I have one brief follow up with respect to ValidSoft. How much competition is there in the market place internationally for the type of security services that you are offering now and you anticipate going in the future?

Pat Carroll

So Theodore, thanks for that. Right. So very interesting point. And what we’ve done at ValidSoft, is we’ve created a Security platform, multifactor, that can apply to anyone of these particular segments in the industry.

But the crucial difference is, that we own all those factors, and we own all the intellectual property. So if you compare those with a factor in the market place, you may find someone that does an out-of-band authentication, you may find a [indiscernible] for example do voice biometrics, you may find others that do device printing, you may find others that do geo location or whatever.

The point is, we own all of that ourselves, every individual component. We’re the only company in the world that can say that, and the only company in the world that – feels to back up these type of technologies. That means that we can slice, dice and price this anyway we want going forward.

So if I got a copy [ph] machine in the corner, I need to price it one-twentieth of a cent, whatever it is, and there’s a trillion transactions, I can do it. If it comes to multifactor, non-repudiation, $100,000 USD payment over a mobile, we can do it out of a single place and as business that [indiscernible].

Operator

Thank you. Our next question comes from the line of Neil Christie [ph] with Bankers Investment. Please go ahead.

Neil Christie – Bankers Investment

How much cash do you guys have on hand? I have two questions. How much cash do you have on hand and how do you stand with Visa Europe?

Steven van der Velden

Let me address the first question or at least pass it on to Mark Nije our CFO. I believe we had around $6 million at the end of Q3. And I’m not even sure if we accept, you know, what our cash on hand is today, Mark? But I’m not sure if you can shed a light on that?

Mark Nije

Yes. The cash at hand was $6 million at the end of September, and it’s now probably in the area of $4 million to $5 million.

Steven van der Velden

And possibly, you can address the question with respect to Visa?

Mark Nije

Yes, exactly, I mean Visa has long standing relationship with our staff, they have a kind of a watch and see – they always want to see the technology been adopted also in the market place because they’re not an organization that traditionally would take risk.

So if you look at the area of their interest, it’s all about proximity correlation, it was all about providing service in that market place. And their interest has broaden as well as our capabilities over the past period of time since they started initially engaging with Visa. So today, not just about cards, also about their debit card portfolio, it’s also about contract payments, it’s also about mobile payment.

And if you look at the transition of our technology over that period of time, technically, we are precisely in the sweet spot for engaging with these types of companies on a global scale.

Their issue is not been the fact that our technology was never was capable [ph], it’s all about in the adaption. Would the market place adopt this, how would the market place go on where and when. And with the cycle presently, since the adaption of our positively [ph] correlation service which is the service of Visa Europe was originally interested in.

That’s what opens up this whole scope for us in terms of those intentions going forward.

Neil Christie – Bankers Investment

Okay. Thank you.

Steven van der Velden

Thanks, Neil.

Operator

Thank you. Our next question comes from the line of George – pardon me, George Carcall [ph], private investor. Please go ahead.

George Carcall – Private Investor

Thank you very much. Good quarter, guys. I have four questions, very succinct. Steven, you mentioned something about Vodafone additional SIMs – and what intrigued me, increased rates. I’d like you to talk to that. What does that mean increased rates? Could you answer that please?

Steven van der Velden

Yes, if you want me to address that first, yes. Well, we expect to further grow with Vodafone. I believe we have a very successful deployment together with them in Spain, servicing their customers at a very high service level. And as we are entering into a new agreement, we feel comfortable that the revenues per unit can slightly increase based upon the fact that we have been able to deliver various services to Vodafone while the origin of the contract we had priced it as kind of a [indiscernible] to make sure that we would not miss that contract.

And we believe that there’s an excellent chance that that won’t be reflected in the new contract. That should become in operation pretty quickly.

So it’s a combination of more subscribers down the road, and slightly higher revenue base for subscriber.

George Carcall – Private Investor

Okay, so what I’m hearing is that there’s an increase per capita in terms of revenue likely that you’ll be able to get for Vodafone going forward.

Steven van der Velden

Correct.

George Carcall – Private Investor

Okay. Thank you. So let me give you the next three questions very quickly. There was one question about use of Iusacell. Can you just tell me, by the end of this year, what’s the increase in SIMs you will expect if you’re managing 100 today, for example, what percentage increase will you expect in total as a result of Iusacell, this calendar – fiscal year?

Steven van der Velden

Okay, yes. Go ahead please.

George Carcall – Private Investor

The other question is, it seems that we’re now having excellent breakeven trends. I’d like you to talk to that, your expectation of the next three of four quarters in terms of breakeven, or even making money. And the final question is, when was the patent issued for the ValidSoft that – wireless patent. I seem to have missed that. I apologize.

Steven van der Velden

Okay. Pat, before I answer the other two questions, maybe you can address this quickly, the last question of George?

Pat Carroll

Well thank you, Steve. You put me on the spot. I’m practically chasing down my diary to see exactly what the date was. If you carry on, I’ll come back and I’ll be expanding that –

Steven van der Velden

All right, no problem. Okay, no problem. Okay with respect to Iusacell, as I said earlier, we don’t know the exact number of subscribers that we may expect by December 31st this year.

As I said, it could be weeks, a few weeks early or later. But we expect a major impact that will more than double our subscriber base in the very near future. And whether it’s going to be exactly 1.5 million by December 31st or maybe even slightly before or slightly later, we don’t know.

But the general trust is clearly that it will have a major impact on our finances by more than doubling the amount of hosted SIMs on our platforms.

With respect to breakeven, as I said before, we cannot provide individual guidance per quarter or per item, but in general as I stated, the trends we have seen in the last seven, eight, nine quarters, is expected to continue.

It may not continue as nicely as it did over the last seven, eight, nine quarters, but it’s definitely expected to continue. And as you can imagine, getting from almost $1 million in negative operation cash flow in Q2, to close to operational breakeven in Q3. That is a very nice trend.

I cannot tell you that the same trend will continue to the next quarter, but we will certainly see improvements over the next couple of quarters, as I said because that trend will definitely continue with getting more customers online from use of cellphones, from Vodafone, and of course of some of the bank customers of ValidSoft.

George Carcall – Private Investor

Okay. Very good.

Steven van der Velden

I hope this is sufficient?

George Carcall – Private Investor

Yes. Very good. Very good quarter, guys. Very good quarter. I mean you know, if I could just, one more question. I’m intrigued by the virtual currency potential partnerships. I mean you know, we all know that it’s certainly – the virtual currency world is booming. Are there any relationships you guys can talk to or not?

Steven van der Velden

Yes, definitely. Pat, I think this is ideal for you.

Pat Carroll

Absolutely. The first thing, just to answer your first question, I’ve got my good [ph] filing system and we did receive the official notification from the patent office on the 8th of October.

Now, what happened then, is you got a whole period of discussion, we’re also looking back how we spend it, at the base line partners for the UK to now talking about extending that [indiscernible] into the market places around the world that we have that capability by virtue of the com [ph] line associated with that particular patent award.

So we hopefully expect to make this a patented technology in all of the major market worldwide over the coming month.

Regards to virtual currencies, very interesting whole segment [indiscernible] one is when things go online, base fee [ph] becomes virtual, it becomes – something have to be tracked, managed, administered, authentication starts to come into play, transaction verification, validation session – all of those key things.

There’s a whole bunch of use cases that actually when we look at them, we’re not that much different from the use cases associated with the mobile payments analysis that we’ve done for Utiba, that we’ve done for Spindle, that we’ve done [indiscernible], that we’ve done for other areas and segments.

So we’re able to leverage about 90% of the work that we’ve done and create this whole new focus and the companies that we’ve been working with so far, is VEN, and VEN is the leading virtual currency in the world for things like hedging, carbon trading and for support. It’s by far the most utilized from the point of view, been a stable currency that fits on top of the basket. And actually there was a – going – in the last four or five weeks, buy and hold [ph] culture who are the owners of that which is the VEN Bitcoin font [ph] and what you do is, the best of it was, you get the stability of VEN which you got exposure to the – markets and the growth in terms of the expectation around Bitcoin.

We can underpin VEN with Bitcoin, all those currencies, with the technology that we put together SMART – that underpins that today. It’s a tremendously exciting time for us, and we seriously look forward to – that is the one of the key segments that we focus in over the coming 12 months.

George Carcall – Private Investor

Very good. Fantastic. Thank you all. And Paul, welcome aboard. Thank you very much, guys.

Operator

Thank you. Our next question comes from the line of John Bloom [ph], private investor. Please go ahead.

John Bloom – Private Investor

Hey, guys. Once again, congratulations on a great quarter. Glad to see the news with FICO being announced. Pat, you just mentioned Spindle and that was my question. I’ve seen a bunch of activity there ramping up in some areas, and haven’t heard much from you guys about any activity with Spindle or Utiba for that matter. I’m just wondering if there’s anything that you guys can elaborate on, or if it’s just pretty much status quo?

Pat Carroll

No. A lot of work that we’ve been doing with Spindle and the background and as well as things happening behind the scenes as well regarding the position of product in that space which is really exciting. It’s all about the whole [indiscernible] based on these new technologies that were coming out, it’s all about – get that market share. And to do that, you’ve got to have the right technology space.

We were down at 20-20 [ph] in Las Vegas, but we’re already part of the [indiscernible] and we made some announcements there in conjunction with Spindle. So we’re now fully integrated into the Spindle wallet, into their services, that the offer the merchants, and we use several different technologies, SMART is the platform, on top of that, we use the IMAP [ph] voice biometrics specifically customized in that environment, and of course, we use our zero [ph] – correlation which is the ability to be able to determine the location of an individual without having to do a network call, we do not have to rely on the network operators reporting that service and that’s crucial for our [indiscernible] moving forward.

It also means that because we own those technologies, we can make sure that we’re very price sensitive to the environment that we’re operating in, [indiscernible] to the perceive risk of that transaction at the right price point. And that’s the difference that we bring, being able to up those type of services.

So you’re going to see a lot more even hear a lot more. What’s base as with regards to the other segments that we spoke about, but it’s all about these new whole market evolving.

John Bloom – Private Investor

When do you expect to actually clear transactions through Spindle and generate some revenue from that space? Do you have any idea?

Pat Carroll

We’re working with the guys I got more question for Spindle because this really were a component, a significant component in terms of our architecture, but really, they are the guys that’s running with this. They’ve got a whole bunch of opportunity in their plate, they’ve got very, very interesting things that they’re working on right now. They’ve got some launch partner, you’ve read about them, launching for example with the whole space around the coffee cup [ph] which is more in the – it’s kind of the micro payment by the area, but really, really important place because it’s huge in terms of volume transaction.

And if you get the price point right there, you’ve got the right technology solutions that integrates it. And I’m very happy to sit back and get a very small slice on you know, hundreds of – billions of transactions.

Going forward, that’s the whole model that we created. And Spindle are very well led by people like Bill Clarke [ph], experts, people like [indiscernible] just came out of the whole marketing space associated with couple market with support, bringing those altogether, to micropayment, together with micro merchants, together with the coupling side is really where this whole position for growth for the next 12, 18, 24 months. And we’re at the heart of that with Spindle.

John Bloom – Private Investor

Okay. Any activity on Utiba, or is that largely with Spindle? Or what’s going on there?

Pat Carroll

Well, there’s a whole bunch of things but not for me to make statements about what’s happening that’s safest. It would be not right for me to do that. Others would say it’s a really exciting phase for us. There’s that huge opportunity for collaboration going forward.

John Bloom – Private Investor

Well, thank you, guys. I appreciate it. Great job.

Steven van der Velden

Thank you.

Operator

Thank you. Your next question comes from the line of Scott Douglas [ph], private investor. Please go ahead.

Scott Douglas – Private Investor

Good afternoon, gentlemen. Pat, is VALid-ZLC available to secure Bitcoin transactions today and does VEN currency compare – how does VEN currency compare with Bitcoin? And Steven, can you perhaps help us understand what differentiates our mobile platform against legacy back office systems specifically with respect to the flexibility of an MNO user would have using the ETAK mobile platform in its sales and marketing endeavor? In other words, how do we help – what is our – what do we – when we’re trying to sell, our back office software MNO, how do we sell it with respect to how it can help them in their sales and marketing endeavors?

Steven van der Velden

Great question. I will first give the floor to Pat and then I would love to address your second question.

Pat Carroll

Okay. So you have two questions about [indiscernible] bitcoin yes, we are. What we’ve done in terms of positioning for VEN will apply to bitcoin to ripple to other currencies out there and certainly Bitcoin is the one that’s in everybody’s mind because it’s on the headlines every day – headlines every day of the week. But, yes. The answer is yes, we are.

Secondly differences between Bitcoin, VEN another currencies, you know, some currencies have emerged out of space that were in today, so for example – for example, the space [indiscernible] have virtual currencies to enable commerce within their specific ecosystem.

Bit coin is a distributed currency unlike VEN which is a very centralized currency and that brings massive differences between how the currencies operate. VEN on one hand because it’s centralized currency because it can be administered centrally, it’s based on a whole basket. It means then the [indiscernible] it can be used as a really good hedging tool for other type of currencies around the world.

So to give you an example, today every telecommunications network around world is connected billions of dollars settled every minute, second, hour of the day all around foreign exchange. You could have a VEN as a central currency in that type of model because it gives you that stability whereby you don’t have to worry about the physical transactions or translations of one currency to another, you simply do it to VEN, have VEN as the core, it’s type of technology.

Bitcoins has grabbed the headlines because it’s a distributor party. People can take it on board do things [ph] with it. They can – it’s taken into different markets around the world and generate their own [indiscernible] so for example, you read the headlines about keeping – being able to buy property in china with Bitcoin. That’s one element of how it brings about and of course that raises the evaluation associated with it and the [indiscernible] associated with it. What you want really is a virtual currency that has the best of both worlds courses per courses and to fund that [indiscernible] which brings together VEN and Bitcoin, is it’s mainly insightful bond for enabling that type of exposure to the [indiscernible] but also the ability to have the centralized aspect and the stability of the currency behind your back.

Steven van der Velden

All right. Thanks, Pat. Well, then coming to you a question about the let’s say the flexibility of the platform and how our platform solution relates to the more of legacy systems that are currently seen in mobile operators. The big driver is that we have integrated 30, 40 different platforms into a single platform that you can access to a single web interface. And you can make changes through that single web interface instead of having to keep 30, 40 other platforms up in the air with having different interfaces where you have continuously to add stuff and not once but maybe 12 or 24 or even 36 times, thereby, you get inaccuracies, you get all kind of side effects, it changes on one platform may have effect on another platform, it requires one testing, it requires getting into consultants, of defenders or defender itself to do slight changes and all together that brings us very inflexible, very expensive platform which basically does not have the performing standards that mobile operators are looking for today.

Our platform is the single platform approach where all the capabilities are put down into a single platform accessible through the single web interface and once you make one change, it is being distributed over all functionalities within the platform. But as a result, changes are a way of life. Instead of having only a few windows a year where certain key changes can be applied into the core systems. We make changes daily and I think for example, in Spain, we make between 500 and 1,000 changes a year.

So if an operator is a virtual operator or a brand requests slight changes in pricing, in bundling, in packaging, in presenting, in provisioning, whatsoever. These functions can be driven and changed in a matter of hours, test it, uplift it and they work. And I think that’s the way to go. That’s the speed of today’s always on real-time connectivity world. That’s what operators are looking for and that’s also what operators in the position to make money down the road and fight off the [indiscernible] from the various other players and also fight off competition and regulatory pressure.

And all together we believe that these capabilities are the way to go for the future, a much lower cost, a much higher flexibility and ultimately much higher standards of service, the higher SLAs.

So I hope in the few minutes to have been able to give you a highlight of that respect.

Operator

Thank you. I’m showing no further questions at this time. I’d like to turn the call back over to Mr. van der Velden for any closing remarks. Please go ahead, sir.

Steven van der Velden

Again, on behalf of everyone at Elephant Talk Communications and ValidSoft, I would like to thank everyone for joining us on today’s call. And thanks to all of you and our long-term shareholders for their patience and commitment to the company.

As stated earlier, we look forward to providing additional updates on future achievements in the near future. Thank you all and have a great day.

Operator

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.

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