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Elephant Talk Communications Corp. (NYSEMKT:ETAK)

Q1 2014 Earnings Conference Call

May 12, 2014 11:00 AM ET

Executives

Alan Sheinwald – Investor Relations-Alliance Advisors

Steven van der Velden – Chairman and Chief Executive Officer

Pat Carroll – Founder and Executive Chairman-ValidSoft

Mark Nije – Chief Financial Officer

Analysts

Stan Berenshteyn – Sidoti & Co. LLC

Edward M. Woo – Ascendiant Capital Markets LLC

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to the Elephant Talk Communications’ First Quarter 2014 Conference Call. During today’s presentation, all parties 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 our host Mr. 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 Steven van der Velden, CEO of Elephant Talk; Mark Nije, CFO of Elephant Talk; and Pat Carroll, our Executive Chairman of ValidSoft. Following management’s discussion, there will be a Q&A session open to all participants on the call as 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 and Section 21E of the Securities and 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’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. The first quarter of 2014, once again so strong, sequential growth in our mobile and security services revenue. Additionally, this drove our margins to increase to 84.8% contributing to a further improved adjusted EBITDA of $292,000 for the quarter.

We expect these numbers to continue to accelerate throughout the remainder of the year, as we work to migrate the $8 million expected SIMs from Iusacell. To start, of the licensed MVNO Partner after the summer on the Zain mobile network and as you know managed on the Elephant Talk mobile platform and further growth from Vodafone throughout the rest of the year.

Sequentially, our mobile and security revenue increased close to 10% compared to the fourth quarter of 2013. As we continue to add more SIMs to our platform, including those from Iusacell, Vodafone in Spain and Zain Saudi Arabia, we’ll see continued growth in all area numbers. We now expect to accelerate the migrations under our Iusacell contract following a slight delay due to additional testing that has taken place.

As previously announced Iusacell has plan to migrate all of its 8 million subscribers which far exceeded our original plans. The additional testing, verification and planning that’s going to be completed throughout April and the beginning of May due to the fact that we’re transitioning all of the SIMs from a legacy system and sold the Iusacell, the system problem at global information technology products and services company.

Thus far, we have received positive feedback from Iusacell regarding the performance of our systems based upon utilization reports on a previously migrated client base. These newly managed subscribers will continue to drive growth of revenue (audio gap) over 10 million subscribers we do have the ability to skill to over 20 million subscribers relatively, quickly.

As we previously announced Zain Saudi Arabia launched a new brand called Matrix, hosted on the Elephant Talk platform. Currently, we have a limited number of subscribers on the platform from this brand. Matrix will begin to further market its brand in the coming months which should lead to increase amounts of subscribers being hosted on our platform. Additionally, we remained confident that our business in Saudi Arabia will be developed during the second half of 2014.

It is important for shareholders to note that our current contract with Zain Saudi Arabia, for the use of the Elephant Talk platform and combined us any licensed Mobile Virtual Network Operator operating through the Zain mobile network in Saudi Arabia, and now just previously discussed Axiom. It is however our opinion that Axiom will get the go ahead in the next few months, thus we will have significant subscriber addition in the latter part of 2014.

Our platform is free operational and we are ready to begin work once the licensing process has been completed and the MVNO starts the provisioning of new customers on our platform. Through our continuing work with Vodafone as well as Iusacell, we are fully confident as our platform posses the key features from high end distribution systems and back-end office for sales systems, superior data connections, which will make the new providers in Saudi Arabia among the most capable MVNO’s in the market today.

Moving on to our security business, unfortunately Paul could not be with us today as he is currently traveling to finalize our commercialization plans with one of our partners. As you all know, we are currently working with FICO, a leading analytics software company to deploy our technology with several U.K. banks. Santander continues to grow, they have used the ValidSoft’s services and have extended the functionality to include new customer number validation. The response has been pretty positive and that we think other financial firms will adopt the technology based on this success.

I’ll now turn the call over to Pat Carroll to discuss ValidSoft in further depth. Pat?

Pat Carroll

Thank you, Steven, and good day, everyone. The first quarter of 2014 have shown continued and considerable investment in our product portfolio on services. In partnership with FICO and following on from the recent press announcement that several UK banks are now working on deployment plans for proximity correlation. We’re now ramping up our joint efforts to drive the adoption of this new technology.

Alongside this FICO and Santander continue to grow the use of their existing ValidSoft services. Including the recently launched new customer number validation service delivered to the FICO platform.

Regarding our announced MOU that ValidSoft signed with Syniverse, we are world leading provider of services to telecommunications industry and related enterprise of financial services sectors, we’re now working together to explore a number of opportunities presented by Syniverse, reselling ValidSoft process and services to their existing customer base.

Since joining earlier this year, our new Chief Product Officer, Adrian Kelly has been reviewing our product portfolio and key messaging to our potential clients. As a result, we are currently in the process of launching a simplified product offering with new supporting product, production quality demonstration with carriers. As we believe that the time is right to simplify the market messaging in order to aid understand and drive the monetization of our product. The ValidSoft team will be rolling out some of these new materials later this week at the CARTES 2014 Payment, Mobility and Identity conference in Las Vegas.

Biometrics are considered to be one of the fastest growing, a most important new technology areas within mobile device security. ValidSoft has developed the voice biometric engine as part of this multi-factor authentication solution to the financial services industry. It’s becoming increasingly clear that voice biometric has many market opportunity beyond the financial services sector and thus we are starting to explore some of these new opportunity and already have some substantial proof of concepts underway. Outside the financial services industry, we are currently completing these proof of concepts with governmental agencies and enterprises companies.

In support of this Paul Burmester, ValidSoft CEO will be presenting our voice biometric technology and multi-authentication platform, at the Opus Research Voice Biometric Conference in San Francisco later this week.

I would now hand over to Mark Nije, who will discuss the Group’s financials. Mark over to you.

Mark Nije

Thanks, Pat. I will provide the financial highlights for the first quarter of 2014. As the revenues, we have basically included the process of changing our revenues from landline customers to mobile and security customers. Last year’s first quarter still contained around $2.7 million in landline revenues, which was now reduced to less than $100,000. At the same time, mobile security revenues increased from $3.9 million last year to $6.4 million this quarter, an increase of approximately 60%.

Following the substantially better margins of these activities compared to landline the margin improved from $3 million last year to $5.5 million this quarter and improved into 83%. Despite the still substantial part of landline last year’s quarter, this quarters total revenue was off only by around $100,000 compared to last year’s quarter.

Margins as a percentage of revenue grew from 46% in the first quarter of 2013 to almost 85% in the first quarter of 2014. Following the improved margins and despite the continued expansion of the organization adjusted EBITDA improved by around $1.7 million from a negative $1.5 million in 2013 to a positive $290,000 this quarter. As Steven mentioned, we continue this trend to accelerate, as we complete the additional migrations from Iusacell.

Following the continued expansion of our organization SG&A expense for the first quarter 2014 increased by around 40%, compared to the same period prior year. This was however largely offset by the lower non-cash compensation expenses this quarter, compared to last year’s quarter. As a result overall SG&A expenses remained relatively stable and increased by around $100,000 compared to last year’s quarter to the amount of $6 million.

Depreciation and amortization expenses for the first quarter of 2014 was $2 million, an increase of around $700,000 or 52%, compared to the $1.3 million for the first quarter of 2013. The largest portion of the increase relates to depreciation expenses, primarily caused by the launch of Mexican activities. On March 26, 2014, our previous order to BDO USA informed us that they declined to spend for re-appointment as the company’s independent registered public accounting firm, in connection with the companies ordered for the fiscal year ending December 31, 2014.

We wish to emphasize that that reports of BDO on the company’s consolidated financial statements from the years ended December 31, 2012 and December 31, 2013 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In the meantime, we are pleased to have engaged Squar, Milner, Peterson, Miranda & Williamson as the company’s independent accounting firm for the fiscal year ending December 31, 2014. We feel that I will be better able to meet our needs and deadlines moving forward.

This concludes our financial summary. I would like now to turn the call back to Steven for his closing remarks. Steven?

Steven van der Velden

Thank you, Mark. Looking ahead to the remainder of calendar 2014, we are positioned for significant growth and our current financial success based on the contracts we have now in place with Iusacell, Vodafone and Zain and the relationships with for example FICO and Syniverse. A lot of has taken so much longer than expected (indiscernible) accelerate migrations under the growth rate of our revenue and adjusted EBITDA numbers. As 40 years time standing compliance matters, management has been working with the New York Stock Exchange market and we are confident that we will regain full compliance listing standards in the near future.

Based on the appointment of Geoff Leland and Carl Stevens to our Board of Directors in March, we have already partly regained compliance with the exchange. As we finalize, the debt based on or Vodafone contract, expected hopefully over the next 60 days, we expect to regain total compliance shortly thereafter.

Management (indiscernible) total revenue for our shareholders and customers and it’s excited by the growth we foresee in our pipeline for this year. Our strategic relationships and industry note is providing us with excellent global contract opportunities. For example, we are working closely with Iusacell management under transition and migration of the subscribers. As you can imagine, we are taking the healthcare to ensure that everything goes seamless (indiscernible) within this migration, as a large part of the Latin American mobiles is following our programs.

Additionally, this conference single-handedly changes our quarterly numbers and allows us to achieve overall profitability. We expect to continue to follow the commercialization of ValidSoft (indiscernible) and several order global leading financial institutions. We are now here moving our MOU to a contract with Syniverse.

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

Question-and-Answer Session

Operator

Thank you. ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) And our first question is from the line of Stan Berenshteyn with Sidoti & Company. Please go ahead.

Stan Berenshteyn – Sidoti & Co. LLC

Good morning and thank you for taking my call. First question looking at the SG&A, the non-cash compensation was considerably lower, compared to prior year. Is this the reflection of our 2014 will pay or would the non-cash comp be similar to a 2013?

Mark Nije

Sorry, this is Mark Nije. can you repeat the last portion of your question please? We got a pretty bad line here.

Stan Berenshteyn – Sidoti & Co. LLC

Sir, regarding on cash comp, will 2014’s run rate be similar to 2013, because Q1 was considerably lower?

Mark Nije

Yes. although it’s sometime bit difficult to predict since the group incentives scheme for the employees of the company, it’s often dependent on the actual development of the share price to calculate the actual impact on the financials.

Stan Berenshteyn – Sidoti & Co. LLC

Okay. and for CapEx can you give us some color in terms of the CapEx going forward in 2014?

Mark Nije

Well, there again, it very much depends on the new run out of new customers in new platforms in new countries. if a new customer is signed, then obviously, that will have a substantial impact on the capital expenditures.

Stan Berenshteyn – Sidoti & Co. LLC

Okay.

Mark Nije

And that’s pretty difficult to predict.

Stan Berenshteyn – Sidoti & Co. LLC

Okay. and for the client mix is the CapEx expense going to be similar for the current quarter?

Mark Nije

Yes, it’s going to be in similar. correct, yes.

Stan Berenshteyn – Sidoti & Co. LLC

Okay. Can you give us some color on the Matrix brand on Zain, specifically what is the service target market and the magnitude of importance to the last year’s compared to action?

Mark Nije

Okay. maybe, I can turn this question to Steven.

Steven van der Velden

Yes, this is Steven. I understand the question as what is the impact of excellent (indiscernible) on the Saudi market…

Stan Berenshteyn – Sidoti & Co. LLC

Specifically, what’s the impact of the Zain and how it relates to Axiom? and other words, is it more important or less important, what’s the expectations on the Zain?

Steven van der Velden

Well, the primary reason we have been contracted by Zain is to host Axiom as the official license MVNO. As we have communicated before, Axiom was forced to resell Matrix license application as this changed the partner. And as we have to given us guidance, we expect the Axiom to retain the license by the end this summer, and be able to start in the second part of the year. Ultimately, this can be a pretty important customer, because as we have communicated Axiom is the largest reseller of airtime of all the mobile operators throughout the region, and they are now poised to creating their own brand with virtual operator experience. We believe it will be very professional setup and very professional rollout of this services so far, they could have pretty part of the input in our customers base and they are on our revenues.

However, we should realize that most of those gains will probably be made during the quarter next year as it probably well already be September or October before they can rollout the services platform this year.

Stan Berenshteyn – Sidoti & Co. LLC

Okay, well, you mentioned Matrix brand has limited rollout currently and do you expecting an increase to what capacity is this increase going to affecting revenue going forward?

Steven van der Velden

That will have a limited impact as we are talking about relatively limited numbers and especially in comparison to Axiom it should have a limited impact.

Stan Berenshteyn – Sidoti & Co. LLC

Okay, and has the pipeline improved since the Mobile World Congress?

Steven van der Velden

Well, it’s not just that the amount of prospects in the pipeline has improved, it’s of course also the quality of the context, and we strongly believe that we are very well positioned to expand our customer base. However most of these customers are waiting to see how the things will workout with for example, Iusacell in Mexico, and that’s why the reason why we have to be very careful to make sure everything goes right.

And hopefully in the next few weeks we’ll be able to address this and communicate the sort of progress in migrations in Mexico and definitely it’s going to be an interesting test for the market to see how we can then also attract other customers and turn prospects into contracts.

Stan Berenshteyn – Sidoti & Co. LLC

Okay, great thanks, I’ll jump back in the queue.

Operator

Thank you. And our next question is from [Rob Scoff] (ph), a Private Investor, please go ahead.

Unidentified Analyst

Hi guys. Thanks for the update. Steven, last call one of the interim goals was getting to 3 million SIMs by Q2 and 8 million by the end of the year. Is the 3 million by the end of Q2 still likely?

Alan Sheinwald

Mark, maybe you could answer that I think, Steven is having some phone problems.

Steven van der Velden

Yes, sorry, this is Steven, I’m just hearing you now, can you repeat the question otherwise?

Unidentified Analyst

Sure, the two goals, where Iusacell was $3 million by the end of Q2 and 8 million by the end of the year. How is the 3 million by end of Q2 looking now?

Steven van der Velden

I think that, I just said we are expecting the very near future to be able to give you more feedback on the speed of migrations. But with the migration that we have in mind, we should ready be – it should pretty close to the 3 million market maybe somewhat around 2 million, 2.2 million.

And then we are certainly position to reach that number by the end of Q2 and of course once we reach that number by the end of Q2 we’ll move forward to do the additional migrations in the course of this year to indeed the 6 million to 8 million by the end of the year.

Unidentified Analyst

Okay and with landline business going to zero, are we going to start to breakdown the mobile and security separately?

Steven van der Velden

It will depends, that’s a matter of policy and so far we have told that having only very few – we may reveal information that we would consider as customer sensitivity and therefore we’ve chosen so far to reported as a single business, we just don’t know that’s down, but possibly down the road is the each of the business is substantial enough and will have sufficient customers, let’s say the individual tracking of numbers will be much more difficult and there will be less reason to report it as a single business.

Unidentified Analyst

Okay, thank you.

Operator

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

Edward M. Woo – Ascendiant Capital Markets LLC

Yes, thanks for taking my question. I had a little bit more questions about the Iusacell contract in terms of the migration. Do you think that the typical problems that you guys encountered would cause you to prevent you from transitioning all 8 million stuffs at a very quick pace or is it something that you have to do more on that even number of bases overtime?

Paul Burmester

Well, we simply don’t know that today, but as we have communicated we feel extremely comfortable that we will reach the 8 million before the end of the year, and especially if the next two migrations will go successfully as we of course expect. There is no reason to believe that the ramp up will not take place reasonably quickly.

Edward M. Woo – Ascendiant Capital Markets LLC

Okay, and then you mentioned a little bit about the pipeline, how do you feel in terms of reaches in terms of order, where you think you guys are targeting right now in terms of how depending the most opportunity for you guys?

Paul Burmester

Well, as we communicate also in our investor presentation, we have a geographical focus on Europe, Middle East, and Africa and the Americas. And we believe that especially in the Americas and in some of the Middle East and African countries there are very good opportunities with relatively smaller M&Os, let’s say in the range of 5 million to 10 million subscribers for which we could completely pass the service on to an outsourcing basis, in line with the example that we are now setting with the Iusacell.

And especially in that space we feel comfortable that we should be able to also use the Iusacell success as a reference for our future rollout with the new customers and we believe that based upon what’s going to happen in Mexico over the next couple of months, we will be able to indeed bring some of these prospects into a contracting set.

Edward M. Woo – Ascendiant Capital Markets LLC

Great, Paul thank you and good luck.

Paul Burmester

Thank you. Hello, hello, yes. Operator, are you on line?

Operator

I’m here.

Paul Burmester

Mr. Woo was trying to ask a question.

Operator

And Mr. Woo your line is open. And it seems like Mr. Woo has removed himself from the queue. And our next question is from the line of Stan Berenshteyn with Sidoti & Company. Please go ahead.

Stan Berenshteyn – Sidoti & Co. LLC

Hi, just a quick follow-up. You mentioned the Syniverse is going to go from, is going to upgrade to a contract? Is there any dollar value, or any other details you can provide, as well as the timeline?

Steven van der Velden

This is Steven. No, I think we cannot give any dollar amount to what’s that this is too early to really focus on those type of details. And in general, as you know we cannot give guidance in this respect. And the first step is now to turn this MOU into a full flex contract to make sure that the products offering is complete, and then we’ll still to characterized with them what the addressable market is now, how we’re strictly going to take it, but I think at this stage its way too early to give any numbers towards that expectation.

Stan Berenshteyn – Sidoti & Co. LLC

Okay. Can you maybe give us some colors to in what capacity this contract will be in, what kind of services will be actually provided?

Unidentified Company Representative

For detail I’d probably better down here is the question to Pat. Pat are you on line.

Pat Carroll

Yes, I am. Yeah, I think there is a primary focus right now in type of the interest from in the fist time been in our security products and services, so everything from authentication to proximity correlation and that’s exactly where the initial interest came from, a lots being going on in the world that signal a lots been happening in terms of privacy as that marketplace have been closely down in terms of clearly available access because the privacy issues and other implications from the operators' perspective.

So for us having strategic partnerships, whereby we can provide our security solutions together with the privacy fields are independent, our new service enable the aspects to be able to go back to the market, I think put us in a very strong position, and I think that’s be the priority real from the quality of relationship with Syniverse.

Alongside that as you probably know from Syniverse perspective there, they’re massive player on the telecommunication side and there are significant interest in our voice biometrics capability, both from a mobile perspective, put also from the point of view to call centers that they operate. So those are the areas that would be exploring with them and going forward.

Stan Berenshteyn – Sidoti & Co. LLC

Great. Thank you.

Pat Carroll

Thank you.

Operator

Thank you. And our next question is from the line of [Rob Kas] (ph) a Private Investor. Please go ahead.

Unidentified Analyst

Hi, Pat, just to ask a couple of questions a little over a year ago there was lot of talk about some new IT mostly related to using the internet for validation if any new products really come out of that are any new, any new deals in the works. And then my second question is that we have FICO and Syniverse, as we get these partners on Board, does it ever come to a point where they both competing with each other for some of those same as customers.

Pat Carroll

Okay. Good question, as well, so I guess if we start with the intellectual property side, we’ve got a continuous program with investment intellectual property. And recently we were doing a review of the intellectual property portfolio which colors all surprise and it takes about three to fiver years and strictly speaking for patents declined from the point of view when the application is filed. So the application that we filed a year ago in terms of either based around the solutions that we want to bring to marketplace or I am talking about presence or for and those part of the services would depend on the granted application on the patent side which we would expect probably over the next kind of two years to there about.

We really for ahead of curve in terms of that respect what we do as we always say as we do the investigations that we file the applications for the patents then we start with that in March into bring us every just prototype and we get the products out, and that’s exactly the size of that we’re in right now, coming on board at the start of the year, and somebody’s primary focus has been really concentrate in these efforts around these specific product to make sure that we do bring that the marketplace over the course of the remainder of this year and next and that’s the timeline that we have associated with it, we still believe that some of those solutions particularly because our present space are (indiscernible) and certainly have very large target market for us be able to go after in due course.

Your second question then respect to FICO and Syniverse. I guess from our point of view we look at them as both having significant footprints and the large the organization whether it’s FICO or Syniverse they have a entry point and within the entry point into the sort of target plan that we’re going after. Even from a financial service perspective, you’ll find that their contract points are very different, with Syniverse with expect to be more in the technical side, with FICO for example, would expect to be more in the processing side, and to get works very well because we can collaborate to get our plan B these large clients, and that’s exactly what the focus will be going forward.

We would look to collaborate over sitting in the middle of say, FICO to right extending out in decline in that perspective in terms of processing to our left, we would have Syniverse with their extensions into the mobile network operators, but also their current relationship as well, and then we can bring that together by virtual pack on both sides of those relationship, that’s exactly how we are positioning our self.

Unidentified Analyst

So with balance of the being in spite of FICO’s risk engine we’ve talked about reach in customers just checking the box to make that work, are we getting close to that’s finally happening?

Pat Carroll

So I mean a couple things have happened. One is I mentioned that there has been a concentration of that’s around closing down on signals and that’s to prevent unauthorized to refuse the privacy and access the signals for an affiliate purposes. That’s aided us quite significantly because we’ve been headed across in terms of having further details, but it has caused the demand to place – take stop and then move ahead particularly on the mobile network operator side.

We are in a very strong position in leveraging out that, we are the only security company in the world with three privacy seals, we have got another one expected to be announced in the course of the next several weeks or a couple of months. And we got two more seals then sitting behind that again, which renews of our previous seals also come into bear, and that’s put us – we are at the strongest positions to be able offer these type of services to marketplace that has not been lost on the likes of FICO. It’s not been loss into our clients and it certainly hasn’t been lost in Syniverse as well.

Unidentified Analyst

Okay. Thank you.

Steven van der Velden

Thank you, Rob.

Operator

Thank you. And our next question is from the line of [George S. Carcall] a private investor. Please go ahead.

Unidentified Analyst

Hi, guys.

Steven van der Velden

Hi, George.

Unidentified Analyst

Just a quick question Steven, can you talk some more details about the pipeline that you have to the mobile platform, and secondly, what the typical sales cycle is in duration.

Steven van der Velden

All right, George good question, as well, let met start with the second part lives sales cycles are very long. It could take one to several years before entry point of the first discussion and to finalize the contract plus then another six to nine months to effectively implement the platform and migrate business on to it. And of course due to these lives long very long material cycles, we need to have a pretty broad pipeline, because you never know how quickly a specific contract might, let’s say exchange into a contract.

All the pipeline is pretty wide I think we’re close to about two dozen prospects that we’re currently looking at that we’re having discussions with, and mostly in the areas that I mentioned before Europe, Middle East, Africa and the Americas. But of course having to compete with long established players around the world, a lot of these potential customers are looking for references that are looking to see how their peer dealing with us, what kind of achievements we’re able to realign them, as far as the best concerned, I think that we have been focusing over the last year, mostly on getting the current customers up and running to make sure that the company will get profitable just from these three larger contracts. and once we have those in place and once we can build from those references, we feel comfortable that of the prospects one of these move forward and current strong interest so far into the new generating contracts.

And this could happen over the next six to 12 months. It’s still always difficult to stay when people will finally make a decision, because there are many aspects of play role, including regulatory aspects in quite a few markets, because not everywhere. It is possible to establish a platform like we have and you need to be very careful to make sure that you fulfill the local, legal and regulatory requirements. But ultimately, we feel that the advantages that we could bring to those customers will clearly the large last content to enter into these contracts in the near future.

Unidentified Analyst

Very good, and may I ask just two more detailed questions to that? So, of the two dozen prospects, how many are waiting on the reference and secondly… Go ahead.

Steven van der Velden

No, no, go ahead. Please go ahead.

Unidentified Analyst

And secondly of those two dozen prospects, how many would you say at a sales cycle completion level of 70% or more?

Steven van der Velden

That’s a good question. It’s very difficult to individual to address that. I believe that references where these are go/no-go matter or more of a refining matter later in the process. I think any one of these potential customers, if you’re looking for references, because it also needs a lot of external attention to get people convinced within the target organizations. These type of references are certainly supporting that. That’s also the reason why we are currently working with all from (indiscernible) a large telco consultancy who write up these specific use cases in Mexico, in Spain and later on also in Saudi Arabia to make sure that it’s basically being told to the strategic potential clients, how the platform can help them to achieve their long-term growth. How they can avoid churn, how they can improve our RFUs between their customers, how they can improve their compatible position by having a flexible platform with a whole range of services that they get easily just great and quickly adapt market needs.

So, it’s difficult to say, which our prospects are really for reference, but normally in this business, it’s extremely important that what their peers are doing to why we said that towards doing all those customers. And some of them worth fully have them to the next phase, they already convinced and I would say that we probably have handful of opportunities where the references are such as less important at this moment. It’s more to get it all in a process that to get all the paper work done get all the pricing done, get all the agreements in place. And most importantly, it contains also the rest of those organizations that you referenced the platform is offering them. It is one that is very seriously concerned.

And finally, we compete with larger companies; we probably need more references than anyone else in order to win new markets. And that’s of course, it is a number since beginning, but once you see that those references are working and that new companies are taking distance to contract cost, we will set ultimately once maybe a handful of companies are contracted that the reference becomes less and less important as we become an established player in this market.

Unidentified Analyst

Yes. I mean, certainly the fact that Iusacell has announced that they are assuming IBM, that’s probably the best reference the company could ever wish for.

So I imagine just that fact would help reduce sales cycles and would provide great comfort to your prospects in making a decision for the Elephant Talk mobile platform, I imagine.

Steven van der Velden

George as you may understand I would rather not give any comments on this.

Unidentified Analyst

Of course.

Steven van der Velden

I don’t want to say anything positively or negative about any other competitor. So I would suggest we move to the next question.

Unidentified Analyst

Yes. So the final one, I don’t think I heard the answer to Steven was how many of those 2,000 prospects are at greater than 70% or greater of the life cycle? Is there half of them, is...

Steven van der Velden

No, no, no it’s probably the few that I mentioned earlier that are kind of beyond the reference stage and are now really looking into how did deployment could work, so it would be less than a handful.

Unidentified Analyst

Very good, I appreciate the opportunity to ask questions. Thank you.

Steven van der Velden

All right, thank you very much.

Operator

Thank you. And our next question is from the line of [Ted Wolf] a private investor. Please go ahead.

Unidentified Analyst

Yes, some of my question has already been answered, but very briefly, had to follow ValidSoft. You did a tremendous job putting around the same situation with mobile in Elephant Talk over the last couple of years and by the way I’m a stockholder four or five years now. ValidSoft in my opinion has been the opposite. What are you going to do, to turn that around to monetize any opportunity, you’ve got a very good [breadth] (ph) far of certifications, but no monetization coming along with that. Is that going to change in the near future, what are the prospects and some specific trends, and help me understand the value, or are you even open to selling that IT and that technology to another organization?

Steven van der Velden

This is Steven, Woo thanks for the question. Well of course, ValidSoft has been focused a lot in the last couple of years on developing its portfolio of making sure its products are in place. Really defining the regional customers in terms relating that into actual services. And the fact that Paul Burmester joined us at the end of last year and he also brought in Adrian Kelly as his Chief Product Officer. It is clear sign that we are now getting across kind of development phase into the more of the monetization phase.

And yes, this has taken longer than we had hoped for. We are dealing here with the market where also we have to try to build up references, which we are now consistent doing in the United Kingdom for professionally some of the larger banks as you know in corporation with some of the larger partners in the industry. And we certainly hope that the references we are currently building up and the new angle to be more focused on the products and services may be less on the development, is a clear sign that we are moving ahead.

And for the moment there is absolutely no spot of possibly selling intellectual property. We certainly would like to monetize that by licensing it out to other parties and so forth, but we feel that we have a whole area of opportunities in some of those how we can monetize and develop those properties that we have developed over the last couple of years. And we feel comfortable that Paul and his team together with Pat will be able to turn what we have build up into a margin creating revenue over the next couple of years.

Operator

Thank you. And I am showing no further questions. I would like to turn the call back over to Mr. Steven van der Velden for closing remarks.

Steven van der Velden

Thank you. 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 thanks to all of you especially our long-term shareholders for their patience and commitment to the company. As I stated earlier, we look forward to proving additional updates and future achievements in the very near future. Thank you all and have a great day.

Operator

Thank you. Ladies and gentlemen, this concludes our conference call for today. If you’d like to listen to the replay of today’s teleconference please dial 1877-870-5176 and 1858-384-5517. We’d like to thank you for your participation. And you may now disconnect.

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Source: Elephant Talk Communications' (ETAK) CEO Steven van der Velden on Q1 2014 Results - Earnings Call Transcript

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