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VocalTec (VOCL) Announces Fourth Quarter and Full Year 2009 Results

Feb. 24, 2010 (Business Wire) — VocalTec Communications Ltd. (NasdaqCM: VOCL) (the “Company” or “VocalTec”), a global provider of VoIP and convergence solutions for communication service providers, today reported results for the fourth quarter and full year ended December 31, 2009.

Revenues for the fourth quarter of 2009 were $2.0 million, an increase of 4% over the $1.9 million reported in the third quarter of 2009, resulting from continued growth in product sales.

Gross margin for the fourth quarter of 2009 was 60% compared with 64% for the prior quarter, in line with the Company’s normal expected level of around 60%.

On a non-GAAP basis, excluding the amortization of intangible assets and share based compensation expenses, the operating expenses in the fourth quarter were $1.1 million compared with $1.6 in the prior quarter. Operating expenses were lower in the quarter primarily due to the recording of a R&D grant for 2009 from the Office of the Chief Scientist of the Israeli Ministry of Trade, Industry and Labor amounting to $0.4 million.

The Company reported a non-GAAP operating income in the fourth quarter of 2009 of $0.1 million compared to an operating loss of $0.4 million in the prior quarter.

On a non-GAAP basis, net income for the fourth quarter was $0.7 million or $0.12 per share, compared with a net loss of $0.4 million, or $0.07 per share, in the third quarter of 2009. Net income on a GAAP basis for the fourth quarter of 2009 was also $0.7 million or $0.12 per share, compared with a net loss of $0.7 million, or $0.12 per share, in the third quarter of 2009. Both GAAP and non-GAAP net income for the fourth quarter of 2009 included a tax benefit of $0.6 million.

For the full year, 2009 revenues were $6.4 million compared with $6.1 million in 2008. Non-GAAP gross margin was 64% for 2009 compared with 58% in 2008. Non-GAAP operating loss for 2009 was $2.2 million, compared with an operating loss of $5.5 million in 2008 which excludes a one-time income from the sale of patents and an impairment of intangible assets. The improvement in 2009 was due to a higher gross profit and a significant reduction in operating expenses.

As of December 31, 2009, the Company had net cash and cash equivalents, short-term bank deposits and restricted cash, in the amount of $10.6 million, or $1.82 per share.

Commenting on the results, Ido Gur, VocalTec’s President and CEO, said, “We are pleased with our results, especially since despite a tough year in the Telecom industry, we showed continued growth in revenue and a reduction in costs. This demonstrates that we are very much on the right track to achieving sustained profitability. We also saw a high level of bookings in 2009 and our year-end backlog going into 2010 is strong, providing us with an increased level of visibility.”

Mr. Gur continued, “Our fourth quarter was also eventful from an M&A standpoint. We purchased substantially all of the assets of Outsmart, and we are happy to already report a first order. The acquired technology enables us to capitalize on the convergence between mobile and VoIP – a trend that is becoming increasingly prevalent, with global mobile VoIP users expected to exceed 280 million by 2013.”

Mr. Gur concluded, “For 2010, we expect to continue growing our revenues organically compared to 2009, and also capitalize on sales into the convergence and mobile VoIP markets. While we expect the first quarter to show the normal seasonal decline in revenues, we believe that our 2010 revenues will show accelerated annual growth. At the same time, we continue exploring M&A opportunities that will provide us with additional growth engines for the long-term.”

Conference Call

Mr. Ido Gur, President and CEO of VocalTec, invites investors to participate in a conference call scheduled for later today, Wednesday, February 24, 2010. The conference call will be held at 9:00am ET. On the call, VocalTec’s management will review and discuss the fourth quarter and full year results of operations and will be available to answer questions.

To participate, please call one of the following teleconferencing numbers, 5 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

US Dial-in Number: 1 888 281 1167

ISRAEL Dial-in Number: 03 918 0644

INTERNATIONAL Dial-in Number: +972 3 918 0664

For those unable to listen to the live call, a replay of the call will be available from a link in the investor relations section of VocalTec’s website, at:

About VocalTec

VocalTec Communications (NasdaqCM: VOCL) is a global provider of carrier-class Voice-over-IP and Convergence solutions for fixed and wireless service providers. A pioneer in VoIP technology since 1994, VocalTec develops and markets an extensive VoIP offering enabling the flexible deployment of next-generation networks (NGNs). Partnering with prominent system integrators and equipment manufacturers, VocalTec serves an installed base of dozens of leading carriers worldwide. VocalTec is led by a management team comprised of respected industry veterans.

Forward Looking Statements

This press release contains historical information and forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 with respect to the business, financial condition and results of operations of VocalTec. The words “believe,” “expect,” “intend,” “plan,” “should” and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views, assumptions and expectations of the Company with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in the telecommunications and VoIP markets and in general economic and business conditions, loss of key customers and unpredictable sales cycles, competitive pressures, market acceptance of new products, inability to meet efficiency and cost reduction objectives, changes in business strategy and various other factors, both referenced and not referenced in this press release. Various risks and uncertainties may affect the Company and its results of operations, as described in reports filed by the Company with the Securities and Exchange Commission from time to time. Should one or more of these or other risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, intended, planned or projected. The Company does not intend or assume any obligation to update these forward-looking statements.

Reconciliation of GAAP to non GAAP results *
All data in thousands of U.S. dollars
Three months ended Twelve months ended
December 31, September 30, December 31,
2009 2009 2009 2008
GAAP results(as reported) GAAP results(as reported) GAAP results(as reported) GAAP results(as reported)
Products 1,573 1,270 4,218 3,980
Services 415 644 2,189 2,134
1,988 1,914 6,407 6,114
Cost of sales
Products 655 552 1,768 2,027
Services 137 142 569 580
792 694 2,337 2,607
Amortization of intangible assets 328
792 694 2,337 2,935
Gross profit 1,196 1,220 4,070 3,179
Operating Expenses
Research and development, net. (22 ) 624 2,056 4,154
Selling and marketing 610 778 3,020 3,374
General and administrative 498 535 2,147 2,704
Income from sale of Patents, net (14,913 )
Impairment of goodwill and intangible assets 3,993
Amortization of intangible assets 6 6 24 180
Total Operating Expenses 1,092 1,943 7,247 (508 )
Operating income (loss) 104 (723 ) (3,177 ) 3,687
Financial Income, net 2 27 132 90
Net income (loss) before income taxes 106 (696 ) (3,045 ) 3,777
Income taxes (tax benefit) (590 ) (590 ) 69
Net income (loss) 696 (696 ) (2,455 ) 3,708
GAAP net income (loss) 696 (696 ) (2,455 ) 3,708
Impairment of goodwill 3,993
Amortization of intangible assets
included in cost of sales 328
included in operating expenses 6 6 24 180
Equity based compensation expense (income)
included in cost of sales (6 ) 5 9 17
included in research and development (160 ) 94 120 357
included in sales and marketing (58 ) 62 127 263
included in general and administrative 189 158 680 532
Non-GAAP net income (loss) 667 (371 ) (1,495 ) 9,378

*To supplement our consolidated financial statement presented in accordance with generally accepted accounting principles (GAAP), we use NON-GAAP measures of operating results, net income, which are adjusted from results based on GAAP to exclude the expense we  recorded for share-based compensation and amortization of intangible assets. These NON-GAAP financial measures are provided to enhance overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the NON-GAAP  results provide useful information to both management and investors as these NON- GAAP results exclude matters that we believe are not indicative of our core operating results. Further, these NON-GAAP results are one of the primary indicators management uses for assessing our performance, allocating resources and planning and forecasting future periods. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. These NON-GAAP measures may be different than the NON-GAAP measures used by other companies.

(In thousands of U.S. dollars)
December 31 December 31
2009 2008
Current Assets
Cash and Cash equivalents 7,510 5,090
Short term deposits 3,049 9,900
Restricted cash 23 554
Trade receivables, net 199 214
Other receivables 459 483
Severance pay funds 3 489
Inventories 63 38
Work in progress 762
Total Current Assets 12,068 16,768
Severance pay funds 823 618
Equipment, net 487 614
Intangible assets, net 480 160
Total Assets 13,858 18,160
Current Liabilities
Trade payable 851 1,707
Accrued expenses 2,053 3,300
Accrued severance pay 3 756
Deferred revenues 1,313 885
Total Current Liabilities 4,220 6,648
Long Term Liabilities
Accrued severance pay 1,027 870
Other long term liabilities 107
Total Long Term 1,134 870
Total Liabilities 5,354 7,518
Shareholders Equity
Share capital 216 213
Other comprehensive income 76
Additional paid-in capital 95,820 94,761
Treasury stock (669)
Accumulated deficit (86,863) (84,408)
Total Shareholders Equity 8,504 10,642
Total Liabilities and Shareholders Equity 13,858 18,160
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