Pareteum Corporation
Q3 2015 Earnings Call Transcript

Published: 18 Nov 2015

[Operator:]

Good day and welcome to the Elephant Talk Communications Corporation Third Quarter 2015 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Alan Sheinwald, Capital Markets Group. Please go ahead sir.

[Alan Sheinwald:]

Thank you, operator and good afternoon. Thank you for joining us for the Elephant Talk Communications 2015 third quarter financial results conference call. On our call today will be Mr. Hal Turner, our newly appointed Executive Chairman of Elephant Talk; Mr. Mark Nije, Chief Financial Officer; as is customary following management’s discussion, there will be a brief Q&A session open to all participants on the call, the operator has already mentioned. Before we get started, I’m going to review the Company’s Safe Harbor statement. Remarks made on this call may contain forward-looking statements within the meaning of Section 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 inherent uncertain, and 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. Evaluating such statements, prospective investors should review carefully various risks and uncertainties identified in this conference call and the matters 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 want to welcome Mr. Hal Turner to Elephant Talk’s team, as our new Executive Chairman. I’ll turn the call over to him for opening comments. Hal the floor is yours.

[Hal Turner:]

Thank you, Alan. I really appreciate that and I thank all of you for joining us today for this 2015 third quarter financial results conference call. As you all are aware by now, I’m very honored to have been chosen as the newly appointed Executive Chairman by the Board of Directors of Elephant Talk. Just by way of brief background my career has spanned many countries, where I’ve had the great opportunity to work with global carriers, service providers, software developers and exciting new cutting edge technologies. Most of my work has centered on building world class quality teams, leading sales growth with profitable financial performance and reigniting promising technologies to realize their full market potential. I’ve joined Elephant Talk because of what I consider to be the opportunity to do this one more time. And I’m reminded of what was said by one of the James Bond movie guys, when he said never say never. So I’m never saying never. This is going to be a lot of fun I believe for all of us as we turn this company. We intend to build within the company a very professional sales culture that yields demonstrable, predictable and sustainable growth, while driving very clear accountability and responsibility for results throughout every aspect of the company. In building our team, there will be key executives that have worked with me in starting up and turning around other successful ventures, who I will call upon to supplement and join the many excellent employees that form the current Elephant Talk and ValidSoft teams. From this work we intend to shape an agile company that continues to evolve with customer needs, while driving deep sales and operating results in corresponding fundamental financial performance. I think Elephant Talk is the company in transition in terms of its leadership, its business operations and its financial results. I joined this company as your Executive Chairman because I believe in our technology and most importantly the long-term opportunity for growth in the marketplace. When I look at the products and services and I look at the market, the fit is very, very strong. I’m also excited about our intellectual property and our global opportunities to provide our enablement service to new service provider customers and their end-user subscribers, as well as adding additional penetration for SIM cards for our carrier customers through our software-as-a-service platform. In just a moment I’ll be turning the call over to Mark Nije, who is our Chief Financial Officer, to discuss our 2015 third quarter results. But before I do that I want to speak very openly about the communications and expectations of the company and how we will be setting forth our expectations going forward and how I hope to improve with our whole team this critical aspect as we march forward. As we interact with you, our shareholders and our prospective investors, down the road, I’m going to focus on resetting how we communicate those expectations that we talk about and how we implement this through our style of communicating material events at Elephant Talk, when it’s done and when there is a result to talk about. In days gone by potential customer contracts, new partners, and even the timing of revenue generation were often key focus areas for discussion. Going forward, I’m going to prefer not to talk about these specific clients publicly, unless it’s required by our SEC reporting regulation. This is for two very important reasons, number one it’s competition. And two, the commercially sensitivity aspects of exposing your customers not only for others to come and cherry-pick them, but more importantly for exposure of what we’re doing unnecessarily. However, in terms of key metrics and how we will report on the business, I think, it’s very important that we define and identify key metrics that will allow us to predict the future and how we grow. And those two things for me are subscribers and the SIM cards that drive through the carriers that operate on our platform, because it’s these two elements that are the basic monetization elements in our business. And as we track those it just transcends everything into our ultimate EBITDA and revenue performance. So the growth of subscribers or the SIM cards and the corresponding revenues that are generated will be the focus that we take. These two metrics have the simplest and the utmost absolute direct impact on our financial performance and reportable result. In early 2016, after I’ve had the opportunity to be on Board for a bit and working towards refocusing the company strategic initiatives and building for growth, I intend to reevaluate instituting financial guidance. However at the movement we simply are not in a position to do that with creditability and to really observe an abundance of care and caution in setting expectations with you. So I ask that you, the shareholders, give us this opportunity to earn your trust as a new team, and the confidence that goes with that as we make this transition over the remainder of the year and into 2016, but I want to be very, very clear about this, it is my intent to be completely transparent with all of you, provide guidance and expectations that are achievable and importantly provide material disclosures within the framework of the SEC regulation. It is a real pleasure to speak to everyone today on this is my first call. I’m looking forward to keeping a very open line of communication with you as we go forward. I’d now like to yield over to Mark who will provide further detail regarding 2015 third quarter and 2015 first nine months financial performance, and I’ll come back after that. Mark over to you please?

[Mark Nije:]

Thanks, Hal. I will now discuss the company’s financial results for the three and nine months ended September 30, 2015 and 2014 in further detail. As mentioned in previous calls, as a result of the application of U.S. GAAP accounting rules going forward, we will provide investors with both GAAP and non-GAAP revenue information. Secondly, you will hear throughout my presentation that this quarter and basically also the past few quarters the exchange rate effects and effects from a numbers have been substantial following the devaluation of the euro against the U.S. dollar, so when discussing the numbers you’ll repeatedly hear me refer to the exchange rates changes and impacts. Turning to revenue now, revenue for the three months ended 30 September, 2015 was approximately $3.5 million, a decrease of around US$950,000 or 22% compared to $4.5 million for the same period in the prior year. A negative euro versus U.S. dollar currency impact of US$550,000 accounted for 67% of the variance. The remaining $409,000 decrease in revenue was attributable to the termination of the Iusacell contract, which accounted for approximately $1.4 million in the decrease offset however by increases in the company's other mobile and security business revenue approximately of $900,000. For the nine months ended September 2015, the revenues totaled approximately $27.7 million, a $12.8 million or 86% increase compared to the $14.9 million for the same period last year. This increase was a result of the full recognition of deferred revenue related to the termination of the Iusacell contract in June of this year of approximately $11.6 million. In addition, increases in the company’s other mobile and security business revenue of approximately $3.2 million, however offset by a negative exchange rate impact of around $1.9 million. Now, turning to non-GAAP revenue. The non-GAAP revenue for the three months of this year was approximately $3.4 million a decrease of $4.3 million compared to the $7.7 million for the three months same period last year. This decrease in non-GAAP revenue was the result of a negative exchange rate impact of approximately $550,000, the loss of the Iusacell contract and lower setup and implementation fees compared to the period of last year. Non-GAAP revenue for the nine months ended September 30, 2015 was $18.7 million, a decrease of $1.9 million or 9%, compared to $20.7 million for the nine months last year. The variance in non-GAAP revenue was primarily the result of current and deferred revenue associated with termination of the Iusacell contract in 2015 combined with earlier mentioned negative exchange rate impact of around $1.9 million. Cost of service for the three months period ended September 30, 2015 was $1.4 million, a decrease of US$200,000 or 13%, compared to $1.6 million for the same period last year. The decrease in cost of service was primarily result of a favorable exchange rate impact of $184,000, reductions in combination of cash and non-cash stock-based employee compensation of $206,000. These reductions were partially offset by increases in the cost of mobile bundled services of $186,000. For the nine month period, the cost of service was $4.7 million a decrease of $380,000 or 7% compared to $5 million for the same period in 2014. And adjusted for positive exchange rate effects, the cost of service actually increased by $236,000 compared to the same period last year. General and administrative expenses for the three month period ended September this year roughly $2.5 million and $3.2 million for the prior year a decrease of $746,000 or 23%. For the nine month period, the general and administrative expenses were $8.1 million compared to $9.8 million last year, a decrease of $1.7 million or 17%. General and administrative expenses adjusted for exchange rates decreased for the three months and nine months periods by $465,000 and $629,000 respectively. The decrease in G&A expenses is primarily result of the cost reduction measures that started during the second quarter of 2015, including reductions in staff levels and corporate expenses. Product development expenses were reduced this quarter, and sales and marketing expenses just slightly increased. Net loss for the three month period this year was $4.2 million a decrease of $1.1 million compared to less of $5.2 million for the same period in 2014. Net income for the nine month periods, just $3.2 million an increase of $20.2 million compared to less $16.9 million for the same period in 2014. This increase in net income was mainly caused by the full release of deferred revenue of $11.6 million related to termination of the contract with Iusacell, as well as compensation paid by Iusacell for the termination of the contract. Lastly, adjusted EBITDA was approximately a less of $1.2 million for the third quarter of 2015 as compared to $1.5 million profit for the same period a year prior. For the nine months the adjusted EBITDA was $3.3 million compared to $1.9 million for the same period the year prior. I would now like to turn the call back to Hal for closing remarks. Hal?

[Hal Turner:]

Thank you, Mark. I would like to now turn my attention to briefly updating everyone on two key areas. First, I’d like to provide an update on ValidSoft and then I’d like to share with you my vision for our company going forward. Both the Board and I understand the importance for creating sustainable value for our business and for our shareholders. That is why the Board of Director, our senior management, and the ValidSoft team all agreed that we are not realizing the proper value for the ValidSoft assets and its intellectual property in the public market. As earlier announced, we retained Dawson James to advise the company-owned strategic options regarding ValidSoft. We’re vigorously pursuing all our options including the sale of all our portion of the company, and we’ll update this matter in the coming weeks. However, as of today, we continue to operate ValidSoft as an integral part of our value proposition for Elephant Talk and its shareholders. If and when an opportunity arises to accelerate that value proposition, we’re prepared to act in the best interest of the company and its shareholders in a transaction. We certainly look forward to providing you all with any material update and to be as transparent as we possibly can given the competitive landscape and that our customers will allow. Please refer if you will to the earnings release for the brief update on the ValidSoft operations. In terms of our telecom services, the overall business and how we intend to reset its expectation let me reiterate and elaborate on what I said earlier. I really understand that shareholders have come to expect management to talk and provide a lot of detailed future guidance about the results that we can expect in coming quarters and including in some cases even having named customers being discussed. However, given the situation that we find ourselves than currently, I’m asking for your patience and understanding that we need some time. What I can say to you is that without doubt, we expect new customers and new geographies including Latin America and in Europe in the coming months and we will work very, very hard. We are renewing all of our efforts and focusing to get those results brought in as quickly as humanly feasible. So I’d like to turn now briefly to division and where we’re going from here. The opportunity ahead for ValidSoft and for Elephant Talk as a company is global and the technology in my view is based upon experiences in the industry over approximately 40 years and that is I think we’ve got a leading edge and I think we’ve got technology that’s an absolute – excellence fit for the markets that we address. There are many reasons that we should all be excited about the opportunities we see and this is why I came to Elephant Talk. However, to date our job, and next week our job and over the remainder of 2015 and into 2016 is to ensure that we can deliver to all of you, our stakeholders, our customers, our partners, our investors and absolutely certainly and not least our employees the value that is locked up inside this company. With my team, I’m immediately implementing a detailed evaluation of all aspects of our business including sales, including operations, including all the processes and management from the ground up. You could think of this as zero-based budgeting if you will. Together with the team, we will identify the key areas that are requiring strengthening and we’re planning to address those with immediacy. We’ll find the areas where we’re strong and then we assure that we are well positioned to capitalize on that strength. We also intend to communicate with you and our shareholders as we work through this process and provide as much light as is possible. As I look at these markets that I referred to that we operate in, I’m very, very impressed. They are divided and available to us in the marketplace as many as 200 Tier 1 global carries and postal, telephone, and telegraph operators, PTTs, those are the state-owned and operated entities. There are over 360 Tier 2 carriers and service providers and completive local exchange carriers, or CLECs. There is over 540 identifiable next generation so called over the top, or OTT new entrance, who are having just dramatic subscriber growth. These are companies like Uber, Twilio and in some cases direct enterprises. These are vibrant in growing markets. And to address this opportunity, we tend to establish on the ground in the market sales presence in each of the key market areas to include at least Asia, Europe, the Middle East and Africa, EMEA; Central and Latin America, CALA [ph] and of course North America. These will be led by regional sales executives and supported by the collective resources within Elephant Talk. Our goal is to be one finally tuned real sales team. We will be more sales assertive and support responsive to our customers that’s what drives us. We expect that the operators and providers in each of the categories that I’ve mentioned will continue to grow and in many cases grow dramatically. However, it’s my observation that all of these operators are faced with common issue that includes things like how to cost effectively and fully utilize their services and the capacity that they have built and in some cases how to leverage their branding. This is where Elephant Talk’s Mobile Services Platform which enables full subscriber management in billing services in connection with Radio Access Network, bridges the gap. I believe Elephant Talk is absolutely ideally suited to become the core enabler of the complexed interoperability and interconnectivity web of need that exist among wired operators, wireless operators, over the top operators and content providers. That’s my vision of where we go from here. At the heart of this is our strategy to capitalize on the opportunity of helping the global telecommunications industry adapt to a common set of issues and challenges and I hope that Elephant Talk through our team and our leadership will be sitting right in the middle of that will be the solution of choice. I expect that we will show people how to cost effectively fully utilize their services in the phase of intense competition, evolving technology and a very complex and flexible and efficient infrastructures, which exists and which Elephant Talk has a unique solution in place to allow them to grow. Our opportunity ahead of the company is very much a global one. It’s one that I am confident that we have the technology platform to accomplish our goal. In doing so I believe that we will achieve the financial success and create shareholder value than I know we all want. This actually will conclude the management update portion of the call. And I’d like to now open the floor up for any questions that you may have and address those for few minutes. So thank you for that and operator over to you.

[Operator:]

Thank you. [Operator Instruction] And we’ll go to Lisa Thompson with Zacks Investment Research.

[Lisa Thompson:]

Good afternoon. Welcome and I’m very glad to hear all your thoughts. Coming into…

[Hal Turner:]

Thank you, Lisa. Good afternoon to you.

[Lisa Thompson:]

Okay. It sounds very encouraging and very exciting. And I think you really have your work cut out for you, given the quarter just reported and the large negative cash flow and negative free cash flow. In the Q, it mentioned that the company would need to rise between $5 million and $7 million either through selling ValidSoft or doing something else. Is that a number that you’ve had a chance to look at and think about? What are your thoughts on that and how long does this process take?

[Hal Turner:]

Good question and thank you, Lisa. First of all, it’s a notional number at this point, because we absolutely have not worked through a real capital game plan that looks at the changes we’re making in the operation, the rate that we recover those changes, the impact on cash, and the investments that we need to make in not only growing the sales organization, but continuing to grow our infrastructure as we have customers in new geographies. Having said all of that I believe that we will source a good bit of our capital needs through the operational efficiencies and improvements that we’re in the process of accelerating as we speak. Tim Payne who has been named as the Interim CEO, is working very closely with me and we – with others that are advising us have a pretty well defined set of actions that we expect can be implemented over the coming two to six weeks and we believe that as you look at Q1 and Q2, it will take us anywhere from two to three weeks after making changes to realize the cash flow. At the same time, we’re vigorously pursuing all of our options with ValidSoft and given that there are pieces that are moving here and not yet fixed I believe that we will probably consider a need for cash and make a decision on how we address that probably during the month of December – excuse me November, but certainly no later than December. I hope that addresses your question.

[Lisa Thompson:]

It certainly helps and it makes perfect sense. Is there any updates you can give us as to the progress of new customers that are on boarding or that have been recently signed or is that all not going to be topic of conversation anymore?

[Hal Turner:]

Well. I know that there certainly is an understanding and an expectation that new customers are pending. And I can tell you that we do expect to close some sales. But what I think is important is to focus back for just a moment on the metrics that I mentioned. When you look at a company like salesforce.com as an example, Salesforce.com doesn’t often announce the enterprise customers that they have signed up. What they do announce is their number of seats, the compounded annual growth of those seats, the cost to acquire those seats net revenue, and investors are able to see by the growth of the seat count that KPI how the business is doing and the investors are also able to look on the balance sheet and see the growth of the backlog of sales to understand the value of those long-term contracts that hasn’t yet been recognized in GAAP revenue. Well, if we focus on subscribers and subscribers generally will become the phrase that we use both for SIM cards and for actual subscribers that are running through the platform that will be very best proxy of our growth. Now, it is my expectation that in the course – by the way, I have only been in - employed 23 hours in the company, so I haven’t quite gotten fully in depth yet. But this is my expectation with this fine team that is looking at this with us to be able to say, okay, here is our subscribers as of the end of Q3. Therefore, in Q4 we’ve done this amount of growth and then we will take a look at our pipeline and applying a more stringent view point to that pipeline in terms of its qualification, are we addressing the problem, do we have a real solution, do we understand the budget, do we understand the decision making process, because in my mind unless you understand those things very, very crisply it’s impossible to put an accurate forecast in place. But the question is how does that carrier or MVNO roll out their service and penetrate. So in many cases it’s a marketing forecast that looks at their own marketing plans. And that is to determine how their subscribers will grow. So this is my reason for not wanting to name a customer, because if I name a customer and tell you that we’ve signed a contract, what I’m not telling you is that it may take nine months a year or two years to fully penetrate that customer’s plans for sales and marketing and for those subscribers to grow. I rather let’s just in aggregate look at subscribers and talk about it that way. Does that help?

[Lisa Thompson:]

Yes, I’m having flashbacks to AOL though, does that mean you’re going to be doing like beginning subscriber, ending subscriber, churn, average revenues per subscriber, and will you give us that retroactively?

[Hal Turner:]

Well, the good news is that there is very little churn in this, because typically once the MVNO is in place it is their churn that is in front of our net subscriber growth. So we won’t be talking about it that way.

[Lisa Thompson:]

Okay.

[Hal Turner:]

But it is very important to understand that the unit economic measure for this company is either a SIM card or a subscriber and just as a proxy we’re going to talk about subscribers.

[Lisa Thompson:]

And you’re going to give us that going forward or will you also go back and…

[Hal Turner:]

I’m going to give it to you going forward, but I’m going to work with a team to establish a baseline from which to report to you going forward.

[Lisa Thompson:]

Okay, great. Thank you.

[Hal Turner:]

I don’t know…

[Lisa Thompson:]

Thank you. I will give you few more hours.

[Hal Turner:]

Thank you.

[Lisa Thompson:]

Okay.

[Hal Turner:]

I think we are going to have a 24 hours celebration.

[Lisa Thompson:]

Yes, you should, each anniversary. Well, that sounds great. I’m very looking forward to see what happens and the plans for the future looks great.

[Hal Turner:]

Thank you very much.

[Lisa Thompson:]

Thank you so much.

[Hal Turner:]

You’re welcome.

[Operator:]

And we’ll now go to John Nobile with Taglich Brothers.

[John Nobile:]

Hello, good afternoon, and congratulations on your new appointment.

[Hal Turner:]

Hello, John. Good afternoon to you and thank you very much.

[John Nobile:]

Hi. I was going to, hopefully not get into [indiscernible] but maybe [indiscernible] subscribers but anyway, I was hoping you could – I’m just curious actually if you’ve begun to support any new customers from your new relationship with the Tier 1 U.S. Mobile Operator?

[Hal Turner:]

At this point, no. That is a very, very high priority for Tim Payne and his team and it’s top of mind. I’ll tell you that while no new subscribers have been added as a result of the relationship there is a very, very attractive and growing pipeline of opportunity that comes to us from that Tier 1 provider and their support in opening those doors is immeasurable. So I do believe that we have some good things to look forward to in the coming six, nine months and a year and I assure you that Tim and his team and I and all of us, are working diligently to make that happen, but no reportable results yet.

[John Nobile:]

Okay. Anything we should know about, maybe were you expecting something at in this quarter or by this point or you said, six months to nine months pretty optimistic, but looking maybe one quarter into first quarter of next year does it look like there might be something to report at that point?

[Hal Turner:]

Yes, yes. As we have looked at the current run rate of the business. And we’ve looked at opportunities that have been identified that can begin to produce subscribers in growth for the company, particularly in Q1 and Q2, we think there at least two really solid opportunities and potentially as many as four, but we’re working hard to reaffirm that. But I do not want to leave you with the impression that nothing is going to happen at all for six to nine months. I’m expecting some activity in Q1 and Q2, but reality is that we just since now 23 hours and 30 minutes we haven’t sat down and gone through a real review of each of these opportunities and recast our sales strategy to make it happen. But that will occur very, very quickly.

[John Nobile:]

Well [indiscernible]. I’m just curious without naming the name, that we have an idea of how big their subscriber base may be.

[Hal Turner:]

Well, I think the important thing is to understand that in the case of this particular Tier 1, this has been used as part of their own expansion of their services and not within their core network. So this is part of their sales and channel partnering relationship. So this is how they are looking to bring on new subscribers to take advantage of capacity within their own radio access network using an – MVNO strategy with Elephant Talk as the driver. So it’s not like a global carrier that’s got 20 million subscribers that’s doing a flash cut to change out to Elephant Talk, this is part of a global carrier’s plan to add new resellers through their own mobile virtual network operators and use the Elephant Talk platform to bring in those new subscribers.

[John Nobile:]

And actually I don’t know if it asked or not don’t tell me because in the past you talked about the relationship with Verizon. And I was just wondering if could update us if there’s anything new to report in that relationship or there was a chance that could actually provide revenue in the fourth quarter?

[Mark Nije:]

I really am not able to comment on the company’s relationship with Verizon, because I’m just not able to get into it at this point.

[John Nobile:]

All right.

[Mark Nije:]

However, I want you to know that our team, my own personal relationships and those of people that I intend to supplement into our organization, give us access a decision making levels in most of the players in the world. So we look forward to that. But I also want to point out something. It’s never just about the personal relationship to make a decision. It’s always about do you solve the business problem, do you have a cost effective solution? Can you help me as an operator to solve a problem that I have in terms of competition and technology? And that’s how we are positioning Elephant Talk going forward. So while we do have relationships, the important thing is to convert those into demonstrable decision, it bring value to that operator and translate services for us.

[John Nobile:]

Actually you want to talk about [ph] another specific customer, but more of a general question, last call it was mentioned that the company was in the final stages of reentering Mexico. So I just wanted to get an update on that, how does that currently look, is there anything new to report as far as that area is concerned?

[Hal Turner:]

There is not. We were working diligently with perspective partners there. Nothing has been finalized. But in my mentioning of sales operations, Central America, Latin America is certainly big than our focus in North America. So obviously Mexico sits right there and it is a huge, huge prospect and potential in my opinion. I also think that looking at the potential perspective partners that we have there, there is a good lift, but I think there are others that we will explore also. So this falls into one of those categories, where hopefully in the coming, particularly Q1 and Q2, will have something to talk about that will allow me to give some sort of guidance relative to subscribers that will grow on our platform because of that.

[John Nobile:]

Okay, I appreciate the comment. And I’m looking forward to getting back actually to talk about subscribers in future call. I just wanted to thank you and I wish you the best for [indiscernible] growing this company going forward. Thank you.

[Hal Turner:]

John, thank you so much and I look forward to meeting you and others and I appreciate your help and support and we will certainly report to you – look forward to this call every quarter and report back everybody. So thank you.

[Operator:]

And we’ll now go to Dennis Dillon, Private Investor.

[Dennis Dillon:]

Hi, thanks for taking the call. I appreciate the fact that you are new, unfortunately, there has been some things that we’ve been told in the past that I would love to double check with you, the restructuring that was underway during the year we were told with eliminate $5 million in expenses and approaching positive EBITDA towards 2016. I’m assuming the business hasn’t start while always supposed to going on. Can you tell us those numbers I mean based on what you said positive EBITDA is going to be a while, but where do you understand on the actual restructuring that was implemented by your predecessor?

[Hal Turner:]

That restructuring certainly achieved some cost savings. However, given the things that Mark Nije spoke about particularly including the loss of Iusacell, those savings are no longer sufficient. And we are looking at everything from the ground and I do expect that the additional acceleration of changes, reorganization and capturing of cost savings will make improvements in late November and December. It will be into Q1 before we see a complete flow through of that. But my fervent objective is to bring the business to break-even cash neutral on it’s current sales run rate so that as we do add subscribers, as we do add new relationships then we have a profitable growth basis and then we add back an investing cost that’s earned through sales success. So I would summarize it by saying that the reorganization was useful, it had some cost savings, but given the current circumstances as is evidenced by the numbers and the number speak for themselves as it relates to the EBITDA loss, we must dig deeper and we are and we will and again this is something that we’re doing with Tim Payne and the team that I put together to assist in that.

[Dennis Dillon:]

We appreciate that.

[Hal Turner:]

They are well taken.

[Dennis Dillon:]

Okay, just one last question about that, EBITDA I think the most stringent covenants that you have as the EBITDA coverage, based upon what I’m looking at now and extrapolating forward, it would appear to me that you’re going to need violation of that EBITDA coverage, test have you in the 23 hours plus had any contact with the lender and where you stand in current compliance with all loan covenants?

[Hal Turner:]

So the answer to the question of in my 23 hours, if I done that the answer is absolutely yes, because that was my top priority, contact has been established. I do have a call tomorrow to discuss it in depth. And if you look at the black letter of the agreement certainly the covenants are not being met. The very good news is our lender understands the steps we’re taking through the phone call that I had, in depth we’ll go into it tomorrow, he understands the steps that we’re taking, plans that we have in place and the pieces that are moving relative to our consideration with ValidSoft and also the potential for new capital to be raised as we determined what our needs truly are. Having said all of that, I’m very confident that the lender will continue to work with us and that we’re not in jeopardy. I want to emphasize that I didn’t join the company to take it into bankruptcy. I joined the company to grow it to work with a team to fix the problems and that’s exactly what we’re going to do rational mind with the lender and rational thought as it relates to our circumstances and how we fix it. We will carry today. I’m very confident with a Board support, with a management team support that’s we’ll make this work.

[Dennis Dillon:]

How much trust you have on him?

[Hal Turner:]

Mark, I’m going to have to put you on that, because I simply do not know.

[Mark Nije:]

Like, I mentioned before in earlier calls the cash balance with us fluctuates eventually, because of the large customers that we has and large suppliers that we had, so it’s – but it’s clear that the cash situation is tight.

[Dennis Dillon:]

Okay. Thank you very much.

[Hal Turner:]

You’re welcome. Thank you so much for your questions. Operator, I think that we’re pretty much out of time for questions at this point.

[Operator:]

I’ll turn it back to you for closing remarks Mr. Turner.

[Hal Turner:]

All right. Well, thank you very much. So I just like to summarize. First of all, I want to thank everyone. You know that we have challenges, but I know that we have opportunity. You know about that some, you’ll know about it more as we get to know each other and talk about subscribers and how we’re doing. Our mission to all to the course development talk is a worthy mission, it’s a worthy aim and that’s why I joined. We’re absolutely ready to get the job done. And on behalf of everybody at Elephant Talk Communications and ValidSoft, I think each of you could join us. I thank you for your support to-date and a very special thank you to all of these long-term shareholders, for your patience and commitment to the company. I appreciate your questions today. I understand your impatience I ask for forbearance. So I thank you very much and I wish each of you an excellent day. Operator, thank you again to everybody. Operator, back to you.

[Operator:]

Ladies and gentlemen, this does conclude today’s conference. We thank you for your participation.