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Elephant Talk Communications Corp. (NYSEMKT:ETAK)

Q4 2013 Earnings Conference Call

March 26, 2014 11:00 ET

Executives

Alan Sheinwald - Investor Relations, Alliance Advisors

Steven van der Velden - Chief Executive Officer

Mark Nije - Chief Financial Officer

Pat Carroll - Executive Chairman, ValidSoft

Paul Burmester - Chief Executive Officer, ValidSoft

Analysts

Ed Woo - Ascendiant Capital Markets

Harry Venezia - HealthCare Capital Advisors

Steve Chizzik - The Verrazano Group

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Elephant Talk Communications Corporation Fourth Quarter 2013 Conference Call. During today’s presentation, all participants will be in a 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 Sheinwald with Alliance Advisors. Please go ahead.

Alan Sheinwald

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 Mr. Steven van der Velden, CEO of Elephant Talk; Mr. Mark Nije, CFO of Elephant Talk; Pat Carroll, Executive Chairman of ValidSoft and Paul Burmester, CEO of ValidSoft. Following management’s discussion, there will be a Q&A session open to all participants on the call the operator has already mentioned.

Now, before we get started, I am going to review the company’s Safe Harbor statement. Remarks made on this call may contain forward-looking statements within the meaning of Section 27A of the 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 cause the company’s actual results to differ materially from those indicated in the forward-looking statements.

With that out of the way, I’d now like to turn the call over to Elephant Talk 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. First of all, I would like to sincerely apologize to all of you for delaying last week’s earnings call. We needed more time than scheduled to conclude our final 2013 and Q4 numbers.

2013 was exciting as we finalized the conversion from our low margin landline business to our monthly recurring revenue, mobile and security business. For 2013, our mobile and security revenues increased approximately 65% to $19.2 million. Our revenue increased 15% in our fourth quarter to $6 million when compared to $5.2 million we recorded in the third quarter.

Based on the increased revenue in our high margin mobile and security business, we had positive adjusted EBITDA of $134,000 for the quarter compared to a loss of $85,000 in the third quarter and a $1 million loss in Q2 2013. This is a major milestone and we expect this trend to continue as we made additional SIMs, subscriber cards on to our Elephant Talk platform with our partners, Iusacell in Mexico, Vodafone in Spain, and Zain and Axiom in Saudi Arabia. We expect to show growth throughout 2014 to both our top as well as our bottom line based on the fact we have successfully migrated first 600,000 subscribers with Iusacell, our mobile network operator partner in Mexico. While we did experience a delay in the initial migration, we are now on track to migrate substantial amounts of subscribers in various phases over the next couple of months.

Based on the positive feedback received from their already migrated client base, Iusacell had increased the number of subscribers that they expect to migrate to the Elephant Talk platform to 8 million by the end of this year as recently communicated by the CEO of Iusacell. These newly managed subscribers will continue to provide growth of revenue, margins and positive adjusted EBITDA. We expect the success of this initial business to generate substantial additional activations and migrations in Mexico and using this success as a reference in other Latin American countries as well. As a reminder, our platform is currently able to host 10 million subscribers with the ability to scale up to over 20 million relatively quicker.

During the fourth quarter, we successfully negotiated the new five year contract with Vodafone in Spain. Under this new contract Elephant Talk’s hosting fees have increased approximately 13% on average per subscriber per month. We were able to negotiate these increased rates based on our superior platform services over the last couple of years and the improved quality of service we are willing and able to provide through our service level agreements with Vodafone. At this time we have over 1.3 million active subscribers from Vodafone on our platform. We expect to continue to grow the amount of SIMs we manage as a function of Vodafone’s continued success in growing relevant business base in Spain.

Although our contract with Vodafone provides for a mechanism to ensure continuous prepayments of approximately $10 million for the duration of the contract, we are still discussing with Vodafone how to effectuate that part of the new contract. We currently have some differences of opinion with Vodafone regarding interpretation and execution of this part of the contract. And based on this fact the advancing by Vodafone is highly unlikely to happen anytime soon. Therefore we are currently working with several financial institutions to assist us in gaining the prepayments utilizing the new Vodafone contract. The good news is we began to work under the new agreement as of November 1, last year and our average revenues per SIM have indeed increased around 13%.

Last year, Zain Saudi Arabia launched a new brand called Matrix hosted on the Elephant Talk platform which has now a limited number of subscribers on the platform active. The Elephant Talk platform is fully operational and we are currently looking forward to start to provide Axiom Telecom with our mobile managed services that will begin in the Kingdom of Saudi Arabia through Zain as the mobile network operator partner as soon as Axiom receives the official MVNO virtual operator license from the regulator. The license was bestowed on Axiom in July last year. It is expected that they will get their license over the next few weeks and we will begin hosting subscribers on our platform shortly after the license will be complete. Through our platform, Axiom will possess high end distribution systems and back office and sales systems, including superior data capabilities to make them one of the most capable virtual operators in the market today.

To conclude this update on the mobile business, I would like to provide some additional background on the new Elephant Talk Software DNA 2.0 platform. Based upon actual deployment experience, we believe mobile operators can realize savings of up to 80% of their current cost base within their core network and IT back office systems by fully outsourcing all of these needs to our platform. That enables mobile operators to eliminate legacy software and hardware as well as the outdated network management systems.

Unlike incomplete and needlessly complex systems incorporating many different components from a multitude of hardware and software vendors, the Software DNA 2.0 solution of Elephant Talk provides our customers with a single interface for multiple and distributed modules, sites and even countries. With our Software DNA 2.0 platform, mobile operators are able to reduce their CapEx as well as OpEx expenses substantially and provide much faster time to market for new and more differentiated applications, applications that are now more and more [ideal] [ph] to be and to stay commercially successful.

Now, over to our security business. During 2013, ValidSoft hit several milestones to further monetize their anti-fraud solutions. In the fourth quarter of 2013, ValidSoft’s technology was deployed by FICO, a leading analytics software company. FICO publicly announced that several UK banks are now working on deployment plans to begin using our solutions. We are continuing to work with the FICO team on implementing this technology with a number of their clients. FICO and Santander continued to grow their use of the ValidSoft services and have expanded the functionality to include new customer number validation. ValidSoft also signed an MOU with Syniverse as they are key to explore opportunities around reselling ValidSoft’s products and services.

I will now turn the call over to Paul Burmester and Pat Carroll to discuss ValidSoft in further depth. Paul?

Paul Burmester

Thank you, Steven. The fourth quarter of 2013 has been a progressive quarter for ValidSoft rounding out the year of continued investment in our product and intellectual property and a slow, but steady progress in the adoption of our products and services.

As Steven mentioned, FICO publicly announced in late 2013 that several UK banks are now working on deployment plans for Proximity Correlation and we continue to work with the FICO team on implementing this new technology. Alongside this, FICO and Santander continue to grow the use of their existing ValidSoft services and have just recently expanded the functionality to include a new customer number validation service. And as has been previously mentioned, Santander remains keen to be one of the first UK banks to deploy our Proximity Correlation solution, which will be delivered through the FICO platform.

Also on the commercial front, as previously reported on these calls or in press releases, our technology has been selected by a number of companies, including (indiscernible) VEN, Spindle, and more recently Alternet Systems. In each respect, our commercial negotiations are ongoing and in line with their respective launch plans. During the last quarter of 2013, ValidSoft signed an MOU with Syniverse who are a world leading provider of services to the telecommunications industry and related enterprise and financial services sectors. Syniverse are very keen to explore the opportunities that maybe presented by reselling ValidSoft’s products and services to their existing customer base.

Since joining myself in November 2013, I have been focused on strengthening our management team and refining our commercial strategy. A key part of that was the recruitment earlier this year of Adrian Kelly as our Chief Product Officer. We are now reviewing our product portfolio with a view to simplifying it and our results in messaging the market. The strength, functionality, performance and of course quality of our product will remain paramount, but we believe that the time is right now to simplify the market messaging in order to aid understanding and to drive uptake of the product.

Biometrics are considered to be one of the fastest growing and most important new technology areas within mobile device security. ValidSoft has developed a voice biometric engine as part of multifactor authentication solution for the financial services industry. However, it’s becoming increasingly clear that voice biometrics also has many market opportunities beyond the financial services sector and thus we are starting to explore some of these new opportunities and already have some substantial proof of concepts underway.

I would now like to hand over to Pat Carroll who will brief you further on our market recognition and intellectual property, Pat, over to you?

Pat Carroll

Thank you, Paul. On the intellectual property front, we have continued to invest in and grow our unique intellectual property portfolio. ValidSoft now has a patent portfolio of 23 in total, of which two patents have been granted and third patent is pending in multiple jurisdictions and certainly the USA, EU and other key target jurisdictions. Granted patents are for ValidSoft core multifactor Out-of-Band authentication platform valid. And recently at the end of last year, ValidSoft was granted the patent for its dual wireless authentication invention, Dual SSID. ValidSoft is actively considering licensing opportunities in respect of these inventions.

Debate patent pending inventions are all in the field of strong authentication with direct applications for the growing mobile and security markets. These inventions protect Out-of-Band channels having call forward and SIM swap protection and prevent major fraud vectors such as Man-in-the-Middle and Man-in-the-Browser. Our technologies also enabled proximity-based correlation to enhance mobile and transaction security. The remaining 13 applications are in various stages of the patent filing preparation process, including the patent application for a new multifactor authentication method, which we anticipate filing before the end of Q1 and several new technologies, including in the voice biometric space in respect of which additional patents will be filed in Q2 and beyond.

On the marketing front, ValidSoft continues to grow with leading industry analyst firms. Our goal continues in terms of reinforcing ValidSoft position as an authentication technology leader in top tier media targets and ValidSoft has featured heavily across top tier publications and the business tax and payments. The firm has recognized ValidSoft as an emerging player in biometric authentication, while Javelin Research featured ValidSoft as a key voice biometric provider as part of a multifactor approach to security in its recent report, biometrics in banking and payments. Finally, on the marketing front, ValidSoft has been short listed with VEN for the Anti-Fraud Security Strategy of the Year award at the upcoming FSTech Awards 2014.

I would like to turn the call over to Mark Nije so that he may discuss our financials. Mark?

Mark Nije

Thanks, Pat. I will start with the financial highlights for the fourth quarter of 2013 followed by providing additional detail on the year end financials. Fourth quarter 2013 revenue totaled $6 million, of which $5.9 million was attributable to our higher margin mobile and security solutions. This was an increase of $2.3 million or 64% for mobile and security compared to the same quarter of the year before.

Compared with the third quarter of 2013, the increase in Q4 2013 was around $900,000 or 18%. The largely recurring revenue from mobile and security now accounts for approximately 98% of Elephant Talk’s revenue, continuing the transition from Elephant Talk’s legacy landline business. Our margins defined as revenues minus cost of service grew from 39% in Q4 previous year to 82% fourth quarter 2013. Adjusted EBITDA for the fourth quarter of 2013 was approximately $143,000 thereby continuing our trends of improving our adjusted EBITDA.

Now, turning to the full year results, revenue for the full year was $22.8 million compared to $29.2 million in 2012, a decrease cost and expected retraction of our landline customers. Our mobile and security solutions on the other hand increased 64% from $11.7 million in 2012 to $19.2 million in 2013. This increase in mobile and security caused our overall margins to improve strongly from an average of 28.7% in 2012 to 68.7% in 2013. In absolute terms, margin increased by $7.3 million or 87% from $8.4 million in 2012 to $15.7 million in 2013.

SG&A expense increased by $2.3 million or 10% from $24.2 million in 2012 to $26.5 million in 2013. The overall increase in SG&A was mainly due to additional staff. Note that, following reporting requirements, as of 2013, non-cash stock-based compensation is not presented as a separate line item anymore in the income statement, but is included in the SG&A. Therefore, for comparison purposes, we have reclassified the figures of 2012.

Depreciation and amortization for the year 2013 and 2012 was $6.6 million and $5.7 million respectively. Depreciation and amortization expenses thereby increased with around $900,000, 22% of which was caused by exchange rate translation effects between the euro and our U.S. dollars. The increase in real time staff was approximately $700,000 and the result of our increase in capital expenditures from $2.2 million in 2012 to $5.9 million in 2013.

Turning now to other income and expense, excluding the large impacts of derivative accounting on other income and expenses, the interest received on bank balances was reduced from approximately $250,000 in 2012 to $100,000 in 2013. Following the convertible note agreements of 2013, interest expense for 2013 was around $1 million compared to around $800,000 in 2012.

Overall, adjusted EBITDA for 2013 improved by $7.7 million from a negative $9.5 million in 2012 to a negative $2.3 million in 2013. Despite the strongly improved adjusted EBITDA, net loss for 2013 was negatively impacted by substantial non-cash items, such as expenses related to derivative accounting, non-cash compensation and increased depreciation and amortization expense. Therefore, net loss ended up at $22.1 million, an improvement of $1 million compared with the $23.1 million in 2012.

This concludes our financial summary. Steven, over to you.

Steven van der Velden

Thank you, Mark. As discussed both Elephant Talk and ValidSoft made significant progress in 2013 that has positioned us for near-term growth and long-term financial success. Management has been working with the New York Stock Exchange and we are confident that we will regain full compliance listing standards in the very near future. Last week, we closed on $3.7 million in additional capital raised by a warrant exchange by one of our key long-term shareholders, QA Investments.

Today, we announced that we have added two independent Board members. We are pleased to welcome Geoffrey Leland and Carl Stevens. Their collective wealth of knowledge and relevant industry expertise will be tremendous assets to our management team as well as our Board in creating additional value for our shareholders. Geoffrey Leland is the Founder and Principal of LTR Advisory Limited, the technology, media and telecommunications advisory firm. He has held a number of roles on the technology and telecom teams of Apax Partners. His capital market experience includes serving as a senior associate at Cowen’s London-based technology corporate finance division and in the mergers and acquisition division at bank, BNP Paribas.

Carl Stevens brings to Elephant Talk significant senior level management experience including 26 years at IBM, where he held various sales and management positions including funding and managing IBM’s national distribution divisions contract compliance department. Previously, as Mr. Stevens served as CEO and President of Cogient Corporation, Division President of Infocast Corporation and as President and CEO of ITC Corp and NASDAQ listed publisher and distributor of multimedia trading materials. We expect that the new Board members, the additional cash raised and our further improving financial results will lead to be fully listed again in the course of 2014.

Management is pleased with the direction in which the company is headed and believes 2014 will see tremendous growth for the amount of SIMs managed on our platform. Our strategic relationships and industry knowledge coupled with the numerous opportunities that lay before us provide strong growth outlook. We look forward announcing new subscriber migrations as we continue to build out our platform and increase our financial results.

We expect to continue to further to commercialization of ValidSoft with FICO, Santander and several other global leading financial institutions. We are pleased with our relationships with FICO and Santander will continue to further utilize our solutions to combat fraud. ValidSoft expects to move our MOU to a contract with Syniverse in the next couple of quarters. This will be a key contract on moving ValidSoft into full commercialization.

This concludes management’s 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) Our first question is from the line of Robert [Scarth] [ph], a Private Investor. Please go ahead.

Unidentified Participant

Hi, guys. Thanks for the update. Steven, this question is about the Iusacell conversion, I understand the first block happened, it’s hard for us to know how long that took and I know there were some issues that have been resolved. Is there any guidance as far as when the next tranche will be loaded and at what rate they will be loaded?

Steven van der Velden

Robert thanks. Yes, very good question of course, as this is a key element in the expansion of our business this year. Let’s maybe look for a moment at the Iusacell contract. Originally, the contract was rather limited although we have the expectation to ultimately serve as all of Iusacell customers it could have taken a couple of years. And as a positive note, actually the whole nature of the contract changed dramatically, where now Iusacell’s management has expressed its expectation that much sooner all of their subscribers will migrate to the Elephant Talk platform. And in order to do so we have to change the scope of the whole project into a much broader and deeper platform as required by the increased specifications of Iusacell. And yes, this lead - has led to certain delays and additional works that needed to be performed both on the Iusacell side as well as on the Elephant Talk platform side. But we believe that the fact that the first 600,000 did migrate is approved that it now works, it has the scope, which Iusacell is looking for in order to enable them ultimately to migrate all of their customers towards our platform. So on one hand, yes, there has been some delays, but actually for very good reasons as we will see much larger business to be serviced much quicker with Iusacell in the very near future.

As far as guidance for additional migrations as I said before, we expect in the next couple of months in various phases, substantial numbers. And I think that originally the Iusacell CEO mentioned an amount of 1.5 million SIMs by the end of last year, I would expect that in the course of Q2, we will be way ahead of that number. And ultimately as indicated before by the CEO of Iusacell, we expect to run all of their 8 million subscribers before the end of the year. So even though, there is some delay, I think altogether this is a very positive story for Elephant Talk and a very good development for our financials.

Unidentified Participant

So we may not see anything till the end – near the end of Q2?

Steven van der Velden

No, I didn’t say that, I said that over the next couple of months in various phases, we would see substantial migrations. And I think that before the end of Q2, we will see at least an amount of subscribers on the platform as originally indicated for the end of last year, whereby the good thing is that by the end of this year, we will see a multitude of those amounts of customers.

Unidentified Participant

Okay, thank you.

Steven van der Velden

Welcome.

Operator

Thank you. (Operator Instructions) Our next question is from the line of Ed Woo with Ascendiant Capital Markets. Please go ahead.

Ed Woo - Ascendiant Capital Markets

Yes, congratulations on becoming EBITDA positive. I had a question on the fourth quarter revenue, how much Iusacell revenue is in there, was most of the conversion done early in the quarter or late in the quarter, just trying to get some gauge of what to expect for revenue ramp for 2014?

Steven van der Velden

Yes, thank you very much. A good question, even though we do not detail exact revenues per customer also based upon the confidentiality arrangements we do have with these customers Iusacell revenues was a few million over the last quarter of 2013. And I think the number was impressive enough and we believe that we would see reasonable growth of this number over the next couple of quarters. And I think ultimately once all of the customers of Iusacell will be migrated, we will see a substantial uptake on top of that.

Ed Woo - Ascendiant Capital Markets

Great. And you mentioned that Zain will be possibly getting their (indiscernible) license [inaudible] it should be getting for subscribers shortly. Have you ever quantified how many subscribers that Zain currently has and what’s the potential for that?

Steven van der Velden

No. With Zain, as I’ve said little earlier, there has been some delay in having our customer Axiom, the virtual operator customer, get their virtual operator license in Saudi Arabia that license is now expected in the next few weeks and we expect Axiom to start on the Zain network in the course of Q2. The amount of customers we have never given any guidance on how many customers we could expect. And however Zain – sorry, Axiom itself is pretty optimistic that they can acquire a substantial market share in Saudi Arabia over the next couple of years. And as you may know Saudi Arabia is one of the larger markets in the Middle East for mobile operators, so we foresee that it’s going to be a substantial market that will ultimately most probably reflect the hosting of millions of customers, but it could take quite a few years.

Ed Woo - Ascendiant Capital Markets

Will all customers, subscribers on Axiom be on the Elephant Talk system?

Steven van der Velden

I am sorry I didn’t hear your call quite well. Could you repeat your question?

Ed Woo - Ascendiant Capital Markets

Yes, will all subscribers to Axiom be on the Elephant Talk system?

Steven van der Velden

Yes, all subscribers of the Axiom virtual operator business will be on our platform. However, Axiom is already for years one of the largest resellers of airtime in the Middle East especially also in Saudi Arabia and of course they will keep on reselling airtime of other operators as well. But as far as it will concern their own virtual operator business, all customers will be hosted on the Elephant Talk platform indeed.

Ed Woo - Ascendiant Capital Markets

Great. And my last question I have is what’s your outlook for new contracts for 2014, I know you can’t give specific guidance, but I would just qualitatively what does the market look, has there been any changes recently to the sales pipeline?

Steven van der Velden

No, as you know, we will not give any guidance in that respect. On the other hand, building up our references with Iusacell, with Zain and further building it up with Vodafone, we believe that we will indeed be able to use these references as perfect sales tools towards many, many other mobile operators and large virtual operators that are basically confronted with the similar technical challenges as these operators. And we believe that especially once we will see millions of customers on two or three of our platforms, we think that ultimately this will create kind of the snowball effect whereby a lot of the operators have now wait-and-see approach and say well, let’s first see how it will work with Vodafone, with Iusacell, with Zain, etcetera. And then ultimately if it’s fully proven, we may take the same step as well. So altogether we are very optimistic that we can meet demand of the market and the demand of the market is clearly going into more simple – more one stop solutions as Elephant Talk is offering. So altogether I believe the outlook is very positive, but as I said before I would like to reframe from any specific guidance in this respect.

Ed Woo - Ascendiant Capital Markets

Great. Well, thank you and good luck.

Steven van der Velden

Thanks Ed.

Operator

(Operator Instructions) Our next question is from the line of Harry Venezia with HealthCare Capital Advisors. Please go ahead.

Harry Venezia - HealthCare Capital Advisors

Hello, good morning. I just have a quick question could you give us some color on the objectives or the topics and goals for the company for the MOU with Syniverse?

Steven van der Velden

Thank you. I probably best turn this question to either Paul or Pat.

Paul Burmester

Yes, this is Paul Burmester. Basically I am not sure how familiar you are with Syniverse, but they are one of the world’s leading interconnect companies so a core of their business is connecting mobile operators the things like roaming data and tax etcetera. And as a result they have access to and also a lot of very valuable signaling data which can be utilized within the ValidSoft authentication platform. At the same time, they also at the other end of the spectrum have enterprise customers and things like the banking sector where they are literally a marketing partner for the brokerage of text messaging and things of that nature. So they see that they have access to a certain amount of data. And customers and in working in partnership with ValidSoft, we can start to present multi-authentication platform with all the relevant data into those enterprise customers. And what we are seeking to do now is find basically work on that first core customer, refine how we will engage and work together, prove the whole concept and that being successful, then roll it out into a full commercial contract.

Harry Venezia - HealthCare Capital Advisors

Okay. Is there any relationship with, I don’t know if you call it a contract that they won, but I thought I saw the press release about Visa or MasterCard using a broad technology using the mobile system, which I thought Syniverse was the order of that?

Paul Burmester

Yes, that was a contract between Syniverse and MasterCard, not involving ourselves at this point in time.

Harry Venezia - HealthCare Capital Advisors

Okay. So you are not involved in that particular test?

Paul Burmester

No.

Harry Venezia - HealthCare Capital Advisors

No, thank you very much.

Operator

Our next question is from the line of [Lee Alter with Hammock Investors] [ph]. Please go ahead.

Unidentified Analyst

Good afternoon. Couple of questions. Congratulations on turning the quarter, but one of the questions I have is (Technical Difficulty) and how we can believe what you tell us? And I would like some clarification on that. One, on the $10 million prepaid from Vodafone, I will call you, it sounded pretty much or if that was a done deal, now it sounds like you are telling us it isn’t? In the Iusacell announcement back in February, you said you had 600,000 signed up and you were expecting new birth, many more in the next months, now you are telling us that none have converted this month? Also a follow-up on the question that the gentlemen just asked on the Syniverse deal, its worth sounded like the announcement they made when using the ValidSoft technology, if they are not, does that mean there is another technology out there that’s similar to it?

Steven van der Velden

Thank you, Lee. Maybe you start Paul with the last question and then I will address the first two questions.

Paul Burmester

Certainly. Obviously, we are not party to the MasterCard Syniverse announcement or contract, but it’s something quite independent, but at this stage, as I understand it, it is simply a press release. What you have to ask yourself with any such announcements and solutions is how do they actually get the customer, the end user, their contact details, their mobile phone details and get them to opt in for that kind of solution to have any effect. And typically that information resides with the issuing bank as opposed to the actual card provider. So we are certainly both in real-time in the market with some of those issuing banks and talking with a number of others in partnership with people like FICO, with Syniverse and with some of the card providers. So I think there is a lot of positioning going on in the industry and some of the big brand names certainly speaking to put themselves out there and you seem to be addressing some of the continued fraud vectors that occur. I think one of the challenges for us is to really simplify that message and get ourselves heard and that’s something that we are really focusing on doing. That has certainly been I think in general in the market a lot of press and not enough supporting action and one of the things we absolutely are keen on is making the technology and the solution appear very simple to our customers and readily available.

Steven van der Velden

Okay, thanks Paul. Then with respect to your question about the $10 million in the Vodafone contract, as we communicated, indeed the contract has a mechanism to make that prepayment available. However as we stated, we have certain difference of opinion about how we exactly execute it in practice. However, that being said, the mechanism is certainly to be used and we are currently discussing with a couple of financial institutions with the help of this mechanism to make a comparable amount of money available to the company. So from that perspective, we felt that instead of maybe forcing the issue with Vodafone and trying to get our right in that discussion, it might just be better to leave it in the middle with Vodafone keep our good working relationship and make sure we use the same mechanism at the end of the day to put the company in exactly the same position as it would be put elsewhere.

Then with respect to the Iusacell migrations as I explained a little earlier, the scope of the whole contract got much granular. And we ultimately as management felt that going after the full subscribership of currently some 8 million customers at Iusacell is of much higher importance than having a quick win and do certain migrations with the system that ultimately might be more complicating roadmaps to fully migrate old customers. That’s why we decided together with management at Iusacell to do more in-depth work to prepare for the full migration of old customers. And indeed, even though we had hoped for that the total amount of Iusacell migrations would have been higher by today. I think ultimately for the company it’s extremely important to look forward to many, many more users by the end of this year as this will ultimately have a positive effect long-term on our financials. And that’s the choice management made and I think ultimately all of you will be very happy with the choice once those revenues pop up on our P&Ls in the next quarters to come.

Operator

Our next question is from the line of Robert Scarth. It’s a follow-up from the line of Robert, a Private Investor. Please go ahead.

Unidentified Participant

Hi, Steven. I have two questions one for you and one for Pat. The one for you Steven is the new business we are getting in the Middle East that supplier is going to basically have a platform that’s running 100% all the time unlike other customers that are using an old than a new. That customer should have substantial benefit over other customers because their cost structure should be that the true 80% lower or they are going to be marketing aggressively to reflect that?

Steven van der Velden

Very good question, Robert, indeed of course our platform is fully aimed at a much lower cost base, whereas at the same time we provide higher service levels. And I would certainly assume that our customer Axiom will use that in the marketplace to gain their own territory. However, at the end of the day it’s the choice of our customers how they want to blend their pricing, their product offering, their branding and so forth in the marketplace, but we certainly provide them the tools to have much more room for decision making in that respect than others may have. At the end of the day of course we have to realize that the airtime part of the total offering of any mobile package is still extremely substantial.

And in that respect a thing that the fact that we could lower the platform cost component is an important step but ultimately it may only be 20%-30% of the overall cost of providing a certain bundle, a certain proposition in the marketplace. So at the end of the day it’s not only the cost structure of the platform and the higher flexibility that our platform provides, it’s also the underlying cost structure of airtime that determines how exactly the virtual operator can position himself in the marketplace. But I believe that Axiom as well as Zain chooses on very good grounds. And the fact that they chose this on these good grounds clearly shows that they probably – most probably are going to look to use those unique elements that the platform provides in order to gain more territory in their markets.

Unidentified Participant

Thank you. Pat the – what’s going on with the technology in some of our new patents, it sounds like we have got a lot of protection whether it’s using the mobile phones or the internet, at some point is the company going to start looking towards who is and is not infringing in giving people notice?

Pat Carroll

Yes, hi Robert. Well, I guess the aspect of filing patents to begin with is twofold. One is to try and clarify what’s already out in the marketplace in that particular space. Secondly when you come up with these ideas to begin with you believe that they might be unique, so that’s the entire objective of course one would say to get out there more from a defense perspective than ideas of our clients, for example, start deploying our technology. It’s likely that if we were infringing, they go after our clients as opposed to coming directly after us. So it’s as much to protect our clients and our technology as this try to ring-fence a certain aspect of technology for the future. So right now, we are in that phase where we are trying to grab land as much as you can, land mass and build up a portfolio. Several of our patents now have been underway for quite sometime. We are starting to hope and that we will see some fruits coming out of those applications over the coming months. And then there is always that potential that in the future we do feel that our technology has been infringed, yes, of course we will make whatever steps are necessary to protect that in the future.

Unidentified Participant

And I understand Syniverse is a partner now, but it also sounds like it’s a very similar way of doing things whether or not the company is going after them is one thing, is there any infringement there or do they need our technology to do with their advertising? What can you say about that?

Steven van der Velden

Well, I think Paul answered the question very well with respect to Syniverse. I mean, there is a lot of positioning happening in the marketplace right now. There is lots of partners or players in the space and there are people who have core capabilities to bring to that. So for example, Paul mentioned that Syniverse as a tremendous interconnect business. Through that business, it has access to signals. We need single signal, particularly in the corporate within the solutions that we have. So, we provide solutions that sit on top of signals. And therefore, there are synergies between ourselves and Syniverse. So we see them as a potential partner for us going forward. That’s the reason why we are interested and they can supply signals to us and they have got that global footprint, the adequate ability to what we are doing. Likewise, they look at us as a solutions provider. So we have got unique technology solutions that we can bring to bear that fit into what they are trying to do and achieve in the marketplace and open up new opportunities for us within the call centers or voice biometrics, for example, in terms of SIM swaps and other types of anti-fraud vectors using signals, they can potentially supply those to us as well. And that’s based on where we are at this point in time.

Unidentified Participant

Okay. So they are not necessarily using Proximity Correlation logic for what they are doing and our hope is maybe that they see the way we do things and that’s what they want to do?

Steven van der Velden

We certainly like to see them deploying our technology. I think that’s the area of interest for them, so you see that was both solution set.

Unidentified Participant

Okay, thank you.

Steven van der Velden

Thanks, Robert.

Operator

Our next question is from the line of Steve Chizzik with The Verrazano Group. Please go ahead.

Steve Chizzik - The Verrazano Group

Hi, Steven and Pat. How are you?

Steven van der Velden

Good. How are you, Steve?

Steve Chizzik - The Verrazano Group

I am very good. I actually have a question for Mark and it relates to a balance sheet. So property and equipment were showing an addition of near $7 million and we also depreciated or amortized almost $7 million, does that mean that all this was new mobile assets that were put on, that were purchased?

Mark Nije

Yes, correct.

Steve Chizzik - The Verrazano Group

Okay, so at some place in the neighborhood of about $13 million or $14 million for the year?

Mark Nije

Yes. And it’s – a part of it is still some landline, but it’s wagered as basically negligible, but the large part is indeed related to the mobile services.

Steve Chizzik - The Verrazano Group

Okay, appreciate a lot. Thanks for the answer.

Mark Nije

Okay.

Operator

At this time, I would like to turn the call back over to Mr. van der Velden for closing remarks.

Steven van der Velden

Thank you again on behalf of everyone at the Elephant Talk Communications and ValidSoft. I would like to thank everyone for joining us on today’s call and thank you to all of our long-term shareholders for their patience and commitments to the company. As earlier stated, we look forward to providing additional updates on future achievements in very near future. Thank you and have all a great day.

Operator

Ladies and gentlemen, this does conclude our conference for today. We would like to thank you for your participation and you may now disconnect.

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