Alteva's (ALTV) CEO Brian Kelley on Q1 2014 Results - Earnings Call Transcript

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 |  About: Alteva (ALTV)
by: SA Transcripts

Alteva, Inc. (NYSEMKT:ALTV)

Q1 2014 Results Earnings Conference Call

May 13, 2014 10:00 AM ET

Executives

Brian Kelley - Chief Executive Officer

Brian Callahan - Executive Vice President and CFO

Mark Marquez - Executive Vice President and CTO

William Birnie - Executive Vice President and CMO

Analysts

Eric Martinuzzi - Lake Street Capital Markets

Colin Lee - Luzich Partners

Operator

Good morning. And welcome to the Alteva First Quarter 2014 Financial Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions)

Please note this event is being recorded. At this time, I would like to introduce the members of management on the conference call. We are joined by Brian Kelley, Chief Executive Officer; and Brian Callahan, Executive Vice President and Chief Financial Officer; Mark Marquez, Executive Vice President and Chief Technology Officer; and William Birnie, Executive Vice President and Chief Marketing Officer. We will begin with an overview and discussion of recent highlights, followed by a review of the financial results.

Before we begin, we remind you that statements made during this call may contain forward-looking information within the meaning of the Securities Act of 1933 and Securities Exchange Act of 1934.

Forward-looking statements are all statements other than statements of historical facts, which reflect management’s expectations regarding future events and operating performance and speak only as of today, May 13, 2014.

Forward-looking statements are not guarantees of future performance and the actual results or developments may differ materially. A comprehensive discussion of the risks and uncertainties impacting the forward-looking statements can be found in the company’s annual report on Form 10-K and other periodic reports filed with the U.S. Securities and Exchange Commission.

I would now like to turn the call over to Brian Kelley.

Brian Kelley

Thank you. I’d like to welcome the investment community to our first quarter 2014 financial results conference call. I will walk you through the results of the first quarter and then we will open the call for a Q&A session.

First, I’d like to say, I am very excited that the Board asked to assume the role of CEO. I believe my past experience will help me guide the company through this transitional period.

Although, there have been many changes over the past few months, I want to assure the shareholders that the strategic direction of Alteva has not changed. We are still focused on growing the unified communications business. I can also assure you that we plan on effectively managing expenses as we dwell to ensure that we continue to improve profitability.

I’d like to start off by addressing the impact of the recent management change. On March 31, 2014, David Cuthbert was terminated as President and CEO of Alteva. The company notified Mr. Cuthbert that his termination was for cause and as such, Mr. Cuthbert was not entitled to any of the benefits provided for under his employment agreement dated March 5, 2013, including cash severance and the acceleration of investing on any unvested equity instruments.

Mr. Cuthbert has disputed company’s basis for termination and claimed that he has duly full severance benefits. The company strongly believes the termination for cause was appropriate and intent to vigorously defend its position. The maximum cash severance payment call for under Mr. Cuthbert’s employment agreement and the case of the termination not for cause totaled $800,000.

At the time of his termination, Mr. Cuthbert held outstanding unvested restricted stock awards and unvested stock options of 101,235 and 6,175, respectively, previously granted under the LTIP. These awards which had unrecognized compensation cost of approximately $1.2 million were canceled as of this termination.

The company accrued $100,000 during the first three months ended March 31, 2014 in connection with the potential exposure for this matter based on the current facts and circumstances. The company will continually monitor the status of this matter to determine the potential impact in any required adjustment to the accrual.

A final word on this subject. I have been advised by counsel to not discuss this matter beyond these prepared remarks. I would now like to walk through the operations of UC segment. During the first quarter, we continue to see increased revenue and improved profitability. UC revenue increased 23% excluding the former Syracuse operations and UC gross profit improved to 52%.

At the end of the first quarter 2014, there were over 40,000 uses on Alteva's hosted platform, which represents an increase of 38% excluding the seats associated with the divested Syracuse operations. These results are driven in part by our sales and marketing effort which are successfully positioning Alteva at the premium service provider for middle-market business customers.

We have continued to focus on growing sales to the expansion of our channel especially to the use of national channel partners. Alteva recently announced a new strategic partnership with master agency, WTG. We're very excited about the potential for this partnership. And we continue to seek out other valuable partnerships.

We have been very pleased with the result of these initiatives as can be seen by seat growth we’ve experienced. This trend continued into April 2014 when we implemented the highest amount of retail seats in one month from the history of the company.

Contributing to this success was the successful implementation for the new multi-site client with approximately 800 seats. Bill Birnie, our Chief Marketing Officer is now going to say a few words about our sales and marketing initiatives.

William Birnie

Thank you, Brian and good morning everyone. I'm pleased to report Alteva’s key sales and marketing highlights and accomplishments for the first quarter of 2014. Let me start by stating that in the first quarter, Alteva continued to build upon the positive momentum generated in 2013 in terms of sales, channel development, customer service and branding.

For the first quarter of 2014, we continue to focus on delivering value-added solutions for key vertical markets, invest in strategic sales channels and deliver compelling new products and services. In the first quarter of 2014, Alteva realized a 24% growth in the number of channel partners as a result of our focus on strengthening our national channel presents with the specific emphasis on growing the company's national footprint particularly on the West Coast and Midwest region.

Also in the first quarter of 2014, Alteva continued to enhance our mobility solutions for business, by optimizing the user experience for Alteva’s mobility, that’s the application for smartphones, laptops and tablets.

In addition, Alteva’s product innovation team launched Google applications for business and a CRM connector to support the integration of key applications for vertical markets such as legal and professional services. These new product innovation can be experienced that our Philadelphia-based state-of-the-art innovation center or to a personnel on-site demonstration via our newly created Alteva’s mobile innovation centers.

Alteva’s mobile innovation centers allow us the opportunity to bring our advanced unified communications experienced directly to end users anywhere in the country. And finally Alteva received several industry awards such as the 2014 INTERNET TELEPHONY Product of the Year Award for unified communication and the 2014 and the 2014 Bronze Stevie Award for Customer Service Department of the Year in the telecommunications category. As you can see, it's been a very active and productive quarter for Alteva’s.

Now I would like to turn the conversation over to Mark Marquez, Alteva’s Chief Technology Officer and by the way a gentlemen who recently took top honors at the 2014 top IT Pro awards presented by Philadelphia Business Journal.

Mark Marquez

Thank you, Bill. Good morning everybody. I’m happy to be here with you today to report that Alteva continues to harden our infrastructure and ensure that we provide the most reliable services possible, including substantial operates to our Core and EDGE routing infrastructure. We’ve added Verizon business to the Alteva multihomed BGP network backbone and completed our hardware refresh on the core call processing platforms, including servers and session board of controllers.

On our products front, we continue to innovate and deliver solutions to the most advanced platforms and business applications. We strengthen an upgraded Alteva mobility which brings softphone-based voice, video, instant messaging, presence and feature of call control to Windows, Apple Mac and IOS and Android operating systems. These extends the business unified communication experience to the most popular and widely used mobile devices.

In addition to our existing integration with Microsoft Lync, Exchange and SharePoint, we extended integration with other popular application such as Google Apps, Salesforce.com, Clio, ACT, GoldMine and dozens of other CRM applications offering benefits such as real-time presence, account and contact lookups, call history and quick-to dial.

Thank you. And I will now turn the call back to Brian Kelley.

Brian Kelley

Thank you, Mark. I would now like to spend a few minutes on our telephone segment. Despite the fact that we continue to experience a decline in wireline customers, we continue to see steady revenue performance during the first quarter and broadband service revenue and increase rates for access line service.

Our expense management initiatives have also enabled us to secure acceptable margins in this segment. I'd now like to update everyone on the Orange County Poughkeepsie partnership or the O-P. The O-P is our partnership with Verizon Wireless.

As we previously announced, we sold our interest in the O-P partnership on April 30th for gross proceeds of $50 million. The gross proceeds will be used to pay taxes on the related gain, repay outstanding senior debt, fund working capital needs and support growth initiatives, including supporting Alteva's current customers and deploying solutions for new customers. After April 30th, we will no longer have any interest in the O-P and will no longer receive any income from the O-P.

And now for a more thorough review of the first quarter 2014 financial results, I would like to turn the call over to Brian Callahan.

Brian Callahan

Thanks Brian. Before we begin, I would like to remind everyone that the supplement discussion relating to the consolidated financial statements and results as prepared in accordance with Generally Accepted Accounting Principles or GAAP, Alteva uses a non-GAAP measure of adjusted EBITDA.

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization adjusted to exclude non-cash stock-based compensation, severance related expense, and nonrecurring charges associated with the disposal of our Syracuse operations. A reconciliation of adjusted EBITDA to net income or loss can be found on the table at the end of our company’s earning release issued yesterday, which is also available on Alteva’s website.

The company believes that non-GAAP financial information provided in the release and as maybe discussed during this conference call can assist investors in understanding and assessing Alteva’s ongoing core operations and prospects for the future and provides an additional tool for investors to use in comparing Alteva’s financial results with other companies in Alteva’s industry and the broader technology sector, many of which presents similar non-GAAP financial measures to investors.

For the first quarter of 2014, we achieved adjusted EBITDA of $1.2 million, an improvement from $1 million from the same period in 2013. Adjusted EBITDA included $2.0 million and $3.25 million of income from the company's O-P investment for the first quarter of 2014 and 2013 respectively.

The company intends to continue its focus on profitable growth and we expect adjusted EBITDA to improve with rationalization of the business model, focused channel growth and business development. Revenues were $7.5 million in the first quarter of 2014, a decrease of 3% from $7.7 million from the same period in 2013.

Revenue increased 5% year-over-year excluding the revenue from the Syracuse operations that were sold in September 2013. UC revenues were $4.2 million in the first quarter 2014, an increase of 5% from $4 million for the same period in 2013. UC revenues in the first quarter of 2014 increased 23% on a year-over-year basis, excluding the revenue from Syracuse operation and improved by 8% from the fourth quarter of 2013 on a similar comparison.

As a percentage of consolidated revenue, the UC segment contributed approximately 56% of revenues in the first quarter of 2014 as compared with 51% for the same period in ‘13. The increase in UC revenues was attributable to addition of new client and increase in services to existing clients. Approximately 80% of the first quarter UC revenues were from licenses and services which are expected to be recurring in nature, with the balance of revenues derived from equipment sales for UC customer implementations.

Telephone revenues were $3.3 million in the first quarter of 2014 as compared with $3.8 million for the same period in ‘13. The Telephone segment contributed approximately 44% of revenues in the first quarter of ‘14 as compared with 49% for the same period of ‘13.

Telephone revenues were lower year-over-year as a result of continued access line losses and decreases in revenue from pooling arrangements. These decreases were partially offset by an increase in access line rate and modest growth in broadband Internet services revenue.

Gross profit increased by 13% to $4.5 million in the first quarter of 2014 from $4 million for the same period in 2013. Gross profit as a percentage of revenues was 59% in the first quarter of ‘14, as compared with 51% for the same period in the prior year.

The improvement in gross profit primarily reflects the increase in revenues contributed by the UC segment and the company's ability to leverage its existing infrastructure, and impact of the cost reduction initiatives, which included the sales of the Syracuse operations and the previously disclosed workforce reduction in the Telephone segment.

Selling, general and administrative expenses or SG&A in the first quarter of 2014 were $5.8 million, as compared with $7.2 million for the same period in 2013. The $1.4 million, or 19%, decrease in SG&A was primarily associated with a reduction in wages, including the impact from the restructuring of the Telephone segment in the second quarter of 2013, the sale of the Syracuse operations, severance charges in the first quarter of 2013, and other expense management initiatives implemented throughout the year in 2013.

Alteva narrowed its operating loss for the first quarter of 2014 to $2.2 million as compared to $4.3 million for the same period in 2013. Total other income for the first quarter of 2014 and 2013 was $1.9 million and $3.1 million respectively.

Other income included the income from the company's equity investment in the O-P partnership in the first quarter of ‘14 and ‘13 of $2.0 million and $3.25 million respectively. In 2013, the company received guaranteed annual distributions totaling $13 million. In 2014, in accordance with the O-P agreement, the guaranteed distribution stopped and the company received income from the equity investment only for its ownership share of 8.108% of the O-P's net income.

For the first quarter of 2014, the company had an income tax benefit of $58,000, or 19% of loss before income taxes, as compared to an income tax benefit of $0.5 million or 43% of loss before income taxes for the first quarter of 2013. The estimated effective tax rate for each period includes projections of tax expense on the expected change in our valuation allowance for deferred tax assets. The decrease in the effective rate is due to the expected increase in valuation allowance for deferred tax assets reducing the overall tax benefit recorded for the period ended March 31, 2014.

The company narrowed its net loss for the first quarter of 2014 to $0.2 million as compared to $0.7 million for the same period in 2013. Basic and diluted net loss per share was $0.04 for the first quarter of 2014, as compared to a basic and diluted net loss per share of $0.12 in the same period of the prior year. There are basic and diluted shares of 6.2 million for the first quarter of 2014 and 5.8 million in the same period of the prior year.

Alteva had $259,000 of cash and cash equivalents at March 2014. At the end of the third quarter, we had a working capital deficit of $10.9 million. The working capital deficit primarily relates to the company’s credit facility that was recorded as current debt since the maturity date is June 30, 2014. We had borrowings under our TriState credit facility of $10.5 million at March 31, 2014. Our total borrowing capacity is $17 million. The company also has the ability to incur upto $5 million of debt for capital leases under the terms of our present credit facility.

The capital lease bucket can be used to fund future growth, including purchases of seat licenses, which are required to add new seats to our platform. At the end of first quarter, we had approximately $800,000 outstanding under capital leases and other financing arrangements. The debt outstanding under the TriState credit facility was repaid in May after we received the proceeds from the sale of our interest in O-P.

Capital expenditures, including equipment finance of capital leases, totaled $290,000 during the first quarter of 2014, as compared to $176,000 for the same period in the prior year.

That concludes my remarks. We’d now like to open up the call for Q&A. Operator, would you please proceed.

Question-and-Answer Session

(Operator Instructions) The first question comes from Eric Martinuzzi of Lake Street Capital Markets. Please go ahead.

Eric Martinuzzi - Lake Street Capital Markets

I had a question regarding the -- taking apart the revenues segments here. For Q1, your revenue in the UC was $4.2 million and that compares to the $3.9 million in Q4, so we actually have an apples-to-apples comparison there with the 8% quarter-on-quarter. And as you’re projecting out for the coming, I know you are not giving guidance, but then incremental lift to $300,000. Is there anything wrong with using that same assumption as we go out quarter-by-quarter in 2014 on the UC side?

Brian Callahan

As we said, Eric, we haven’t given detailed guidance, but obviously what we expect to continue to try to produce for the year is continued growth in the UC platform. Like you said, the noise of the Syracuse disposal was not in fourth quarter. We do tend to have some timing issues that just equipment purchases can fluctuate from quarter to quarter depending on the implementation. But we obviously are striving to put additional seats on the platform every quarter. We just can’t give you specific guidance of what the timing of seats were. But, as Brian mentioned in his comments, we had some very good implementations in April. So we like the start to the quarter.

Eric Martinuzzi - Lake Street Capital Markets

Okay. And on the telephone side, you had the decline here. You mentioned the reason for -- you got your access line losses, you got decreases from the pooling arrangements. But here also I am kind of looking for that decline. Is that something that we can kind of look at this as a baseline for the year with obviously access line declines and the pooling share losses continue to erode that base?

Brian Callahan

As we talked about in the past, we do expect access line declining industry wide. We are seeing that. We did have some year-over-year decreases in the pooling arrangements. I don’t think we expect to continue at these levels, so that’s something that’s a little hard for us to predict. We are obviously full of other participants and a lot of their impact drives that.

So, I mean, we would obviously expect to see some levels of decline in access lines as we’ve talked about. Year-over-year though a bigger piece of that decrease was also from the pooling arrangements, and that is something is not always on a quarter-to-quarter basis expected to continue like that. It’s just a little hard to predict whether it would be more or less, but we’re -- the bigger piece of probably decline year-over-year was a little bit more on the pooling arrangements than it was on the access line declines.

Eric Martinuzzi - Lake Street Capital Markets

Okay. And then as we look out further down you’ve got -- still the situation here at the operating loss, while it did decline year-on-year, I guess I am not sure the right terminology there, there is lots of loss than it was a year ago and less than the prior quarter. Is there -- in the eyes of the board, in the eyes of management is there a path here for which we see a trajectory to getting that to breakeven and what is that timeline?

Brian Kelley

Hi, this is Brian Kelley. I mean, there is, I mean, one of the key developments here is rationalizing the costs and it’s a combination of effects. We’re looking at every line item. We’re going to consider every line item. We also are experiencing generally increases on the number of seats outstanding. So as the seats go up, so we generate additional margin. So I wouldn’t give guidance as to when those lines cross at this point, but we are moving in that direction.

Eric Martinuzzi - Lake Street Capital Markets

All right. And then for the first quarter, you had a income from the equity method there was $2.04 million that has three months of your percentage -- allotment from the ownership percentage there. As we think about Q2, obviously you only had one month contribution from the O-P, is it safe to just take that Q1 divide by 3 and make that the allocation for April?

Brian Kelley

We obviously haven’t April results yet. But obviously based on, you can see the trending over that business each quarter has been last year and this year and first quarter is probably a reasonable expectation. But we haven’t seen the numbers yet either. But I don't think that’s an unreasonable way to look at it. We just have to see what the results are going to come in.

Eric Martinuzzi - Lake Street Capital Markets

Okay. And last question for me. Thank you for indulging me. Can you give us an update on the CEO search?

Brian Kelley

Yeah. I’m Brian Kelley, again. The Board is assessing the requirements most suitable for the position. I have been here five days and a large part of that assistance falls on me to determine what we need to do, the kind of leadership we need going forward. So we are moving ahead.

Eric Martinuzzi - Lake Street Capital Markets

So is there a chance the Interim CEO of Alteva becomes permanent CEO, or is that, it’s all in the discussion still?

Brian Kelley

Well, that’s just -- it’s all under discussion at this point.

Eric Martinuzzi - Lake Street Capital Markets

Okay. Thank you.

Brian Kelley

Thank you, Art.

Operator

(Operator Instructions) The next question comes from Colin Lee of Luzich Partners. Please go ahead.

Colin Lee - Luzich Partners

Hi. Good morning.

Brian Kelley

Good morning.

Colin Birnie Lee - Luzich Partners

Thanks for taking the question. I just wanted to get a feel of, has there been any, have you guys seen any new competitive entrants in the UC market?

Brian Kelley

Hey, Bill. Why don’t you take a shot?

William Birnie

Yeah. Hi. Hey, Colin, this is Bill Birnie, the Chief Marketing officer. There are new competitors entrants almost everyday. As I think everyone realizes, there is probably more than 100 competitors in this telephony space’s hosted VoIP space. So, while I don't have any specific names on top of my mind, we see new competitors every day.

Colin Birnie Lee - Luzich Partners

Got you.

William Birnie

Having said that from a competitive point of view, we are extremely well positioned. I mean, we earn more than our fair share of the business. Our reputation is stellar. The platform is spectacular and we are only going to get better. And it's not so much a matter of the competitors as the quality of the competitors and there is a lot of it.

Brian Kelley

It takes a lot more to stand up because the VoIP platform, when you look at the redundancy in the infrastructure and the carrier relationships and all that stuff. So although you see entries into the space, whether they are really in the form of competitors is yet to be seen.

William Birnie

On a positive side, the acceptability of hosted voice is just -- it's got nowhere to go but up. It continues to grow. It’s becoming more and more acceptable everyday. And companies that won’t look at this, won’t have looked at this three years ago are now looking to endorse it.

Colin Birnie Lee - Luzich Partners

Got you. So it’s essentially indirect marketing for you guys.

Brian Kelley

Correct.

Colin Birnie Lee - Luzich Partners

Has the United -- UC segment for our cable gone through our renewal cycle yet and I think the contracts were around two to three years so. Should it be around this time we should expect renewals?

Brian Kelley

Well, I mean, their average terms of contracts are about three years. But it’s all based on whether they would be clients that are signed up. There wasn’t like an auto renewal or anything when the acquisition happened, if that’s what you are referring to. The original terms of contract is transferred over. So every month, we have clients coming off a renewal.

William Birnie

Right. I will add. This is Bill again. We are pioneers in this space. We’ve been doing this for over 11 years, 12 years and so as a result, we are always going to have customers that are coming up for renewal. And as Brian Callahan has stated, our typical contract is three-year term and customers seem to be comfortable with that and we are happily returned as they come up.

Colin Birnie Lee - Luzich Partners

Got it. Have you stated, kind of, what your historical renewal rate has been?

Brian Kelley

I don’t think we’ve given percentages in the past on where we obviously very comfortable with our renewal rate. We have a low churn, I think probably industry wide. So, I don’t think we have an exact percentage to give you. But from a renewal rate, it’s pretty high. We are very happy with it.

Colin Birnie Lee - Luzich Partners

Got you. And that what do you guys see as the trend for the ARPU?

Brian Kelley

That’s a good question. I mean, there is no question, this is a competitive field. So to believe otherwise to be saying, I don’t -- and again, I’ve only been here a week, so a lot of words so to speak. The key to this business -- certainly, the trends in ARPU is an issue, a normal issue. But the key to it is the growth of seats. And is simply -- there is actually a very simplistic simple model to understand, whether it’s a wholesale customer or retail customer, every new seat brings incremental and profitable revenue.

So the total focus is seats. And however, we can accomplish those seats, whether it’s direct sales, indirect channel sales, acquisition of seats that are lonely out here on another network. Goal here is to add seats at this rapid rate, as we can realistically, competitively and financially and forth. That’s what we are doing. Yeah, so there is always had to be pressure. As companies come in, most of the new players are small. You have to swap them to a degree because they will give things away.

But the big companies, the big competitors are not into giving these things away. It’s an expensive business to properly, technically support. I’m looking at Mark Marquez. That he’s got a room full of engineers writing applications and making sure the redundancies of network is sound. I’m looking at Bill, who is marketing and developing new channels into agents. So the ultimate question for this company is how fast can we add seats by any nature? And that’s the emphasis today is -- is focusing on that growth.

Colin Birnie Lee - Luzich Partners

Thank you. I guess one final question on the channel. I guess, I previously spoken with couple of the members on the team and it seems that channel partnership is increasing focus in terms of sales and marketing. Just wanted to hear an update on that?

William Birnie

Sure. This is Bill. So it’s absolutely a strategic focus for us as I mentioned in my earlier remarks. And I also mentioned that we’ve significantly grown the number of channel partners over the past quarter. Let me just tell you that you need solid channel partners to achieve your growth, that’s just the nature of this industry. We’re focusing on bringing on bars, specifically IT bars that have a deep understanding of the cloud delivery model. We think that that is the competitive advantage for us. So we’re out recruiting those type of channel partners.

Now, I will also mention that new channel partners don’t start delivering day one, right. They need to get trained and what we do, that’s a little bit different then others in our marketplace is we actually provide UC certification for our channel partners. So when a customer and end user is working with an Alteva channel partner to design and implement a solution, they can trust that that channel partner has been UC certified by the Alteva business. So that takes a little bit of time. And then of course, you work with those channel partners to develop a pipeline of opportunities, so that’s pretty much what we’re doing in our strategy.

Unidentified Analyst

That makes sense. And from -- it seems like after that from an IT bar perspective, would you guys then be their preferred UC provider because of the training you provided?

Brian Callahan

That would be our goal. Actually that is the goal.

Unidentified Analyst

Okay. Those are my questions. Thank you for taking them.

Brian Callahan

Thank you.

Operator

The next question comes from Bob Evans of (indiscernible). Please go ahead.

Unidentified Analyst

Hi. Good morning.

Brian Callahan

Good morning.

Unidentified Analyst

Sorry if I missed this, but can you talk about the cash, once comes in, even a pay down debt but what other useful you have in terms of the O-P partnership?

Brian Callahan

The front fee O-P Partnership like you said, we repay the debt as well as we’re going to paying taxes associated with that gain. Then the remainder of the cash is going to be use to support working capital and growth initiatives for the UC business.

Unidentified Analyst

And what should the balance sheet look like pro forma, if we were to take a snapshot today?

Brian Callahan

Obviously, we have $50 million gross proceeds. Like we said, we paid about $12 million, little under $12 million down in debt and I don’t have an exact tax rate to give you out as we work through the next quarter too in the provisions and the estimates. But I think you can -- just using a standard effective rate, you’re going to be showing pro forma cash somewhere in the road of 20. But again, as subject towards the ending effective tax rates for the year will be and what our estimates, the payments or estimates are near for the taxes. So just pro forma now, that’s what we think the $50 million that’s out to but -- and also see how the tax rate for the year falls out.

Unidentified Analyst

Is all of it taxable or is there any?

Brian Callahan

Yeah. We don’t have significant NOLs sitting out there in federal NOLs. So there is not an expectation, that there’s a significant amount of ability to differ that gain.

Unidentified Analyst

Okay. So you’re going to be sitting out there with the low 20s, roughly ballpark, call it four bucks a share, little less than four bucks a share of cash post transaction. Any thoughts as it relates to using that cash given what’s happened here for shareholder bank. Would you consider buyback or other uses of dividend?

Brian Callahan

No, we haven’t quite guy use to the cash yet, but the primary need for this cash, it’s emphasized, it’s going seat. There is a cost of organic growth. Every UC we put on, we make an investment in people with license fees and so it takes time to recover the investment. We believe there is opportunities add -- we are hopeful there is opportunities to add seats to other forms, not just acquisitions of another company which might include full networking, cut competency, we don’t necessarily need but to acquire seats through partnership. So we’re really focused on the methodology of growing seats and that cash gives us the toolbox to do that. From a board level, we haven’t sat down and said. The game plan today is to build the business and use the cash organic growth to support the initiatives. And it’s part of my job is continue help to find the initiatives.

Unidentified Analyst

And I certainly understand that. I think you’re cash flow positive if I’m not mistaken this quarter or close. I guess I would just hope encourage you and the board to look at once you do have the cash on the balance sheet to balance not only your growth needs but also shareholders needs to because post deal you’re going to be well less than maybe 0.6, 0.7 times sales and which to me seems like a very attractive valuation. So hopefully you would consider a combination of the two.

Brian Callahan

Sure. Keep in mind, the cash flow, the adjusted EBITDA $1.2 million did include the two million of O-P, which is effective April 30 is not going to be continuing. So that it helped the cash flow support.

Brian Kelley

Our definition of cash flow is going to be net of second quarter because we’ve got $50 million O-P contribution. So what we want to do is run this company on neutral cash flow was step number one. And number two, deposits cash flow going-forward. So we will require some of that funding, Bob, in the circle.

Unidentified Analyst

Okay. All right. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Kelley for any closing remarks.

Brian Kelley

Well, I’d like to conclude today’s event by thanking all of you for joining our first quarter 2014 earnings results conference call. We hope that we provided you with the necessary transparency to better understand our business and our growth potential. The first quarter results once again demonstrated the progress we have been making in growing our top line, managing our expenses and improving our profitability. Thanks again for participating on our conference and have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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