IDT Posts Consecutive Quarters of Positive Income from Operations, Cash Flow from Operations and Net Income
NEWARK, NJ — June 10, 2010: IDT Corporation (NYSE: IDT; IDT.C) reported net income of $12.6 million ($0.58 per diluted share) for its third quarter of fiscal 2010 – the three months ended April 30, 2010.
THIRD QUARTER SUMMARY
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$ in millions, except EPS
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Q3 2010
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Q3 2009
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Change (%/$)
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Revenues
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355.4
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356.9
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(0.4)%
|
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Gross profit
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74.2
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84.7
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(12.4)%
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Gross margin percentage
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20.9%
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23.7%
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(280 basis points)
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SG&A expense
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52.6
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67.4
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(21.9)%
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Adjusted EBITDA
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18.1
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13.4
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+ 35.3%
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Income (loss) from operations
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16.6
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(24.8)
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+$41.4
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Net Income (loss) attributable to IDT
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12.6
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(63.4)
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+$76.0
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Diluted EPS attributable to IDT
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$0.58
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($2.88)
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+$3.46
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Net cash from operating activities
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32.2
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(5.4)
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+$37.6
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At April 30, 2010
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At July 31, 2009
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Change
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Cash, cash equivalents and marketable securities
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$229.8
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$188.6
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+$41.2
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NOTE: Adjusted EBITDA for all periods presented is a non-GAAP measure representing income (loss) from operations exclusive of depreciation and amortization, impairments, restructuring charges, net gains on settlements, and gain on the sale of interest in AMSO, LLC. It is one of several key metrics used by management to evaluate the operating performance of the Company and its individual business units.
MANAGEMENT COMMENTS
Howard Jonas, IDT’s Chairman and CEO, said, “IDT’s telecommunications and energy businesses have been generating positive operational results through the first three quarters of our fiscal year despite challenging competitive conditions. We continue to invest in the growth of these core businesses while developing several promising opportunities.”
IDT’s Chief Financial Officer, Bill Pereira, added, “Our operational results were very good once again this quarter. In addition, we benefited from some non-routine events which positively impacted our bottom line. As a result, we significantly increased our cash position and continued to strengthen our balance sheet.”
OVERALL OPERATIONAL RESULTS
Supplementary information and explanation of the operational results is contained in the discussion of results for our operating segments. Unless otherwise indicated, all operational results in this release refer to the third quarter of IDT’s 2010 fiscal year (the three months ended April 30, 2010), and all comparisons are for the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009.
IDT revenues for the third quarter of fiscal 2010 were $355.4 million, a slight decline of 0.4% compared to Q3 2009 and a 2.0% decline sequentially.
IDT generated $74.2 million in gross profit, a 12.4% decline year over year but virtually unchanged compared to the prior quarter.
The Company-wide gross margin percentage of 20.9% decreased 280 basis points year over year but increased 40 basis points from the prior quarter.
SG&A expense totaled $52.6 million, a 21.9% reduction compared to the year ago quarter and a 3.7% reduction sequentially. Corporate SG&A was reduced to $1.4 million, a 76.2% reduction from the year ago quarter and a 50.7% decline sequentially. The reduction in corporate SG&A compared to both the year ago quarter and last quarter is primarily attributable to non-routine reductions in certain employee-related expenses, including a tax credit from the New Jersey State Business Employment Incentive Program as well as an adjustment to payroll taxes.
Adjusted EBITDA totaled $18.1 million, a 35.3% increase compared to the same period a year ago, and a 2.3% increase sequentially.
Income from operations was $16.6 million, and includes the impact of $7.6 million in depreciation and amortization costs, $2.9 million in restructuring charges resulting from personnel reductions incurred during the recently concluded turn-around effort, and a net of $9.0 million in other gains stemming mainly from legal settlements.
By comparison, in Q3 2009 IDT reported a loss from operations of $24.8 million, including the impact of $10.9 million in depreciation and amortization costs and $29.3 million in impairment charges, partially offset by a $2.6 million gain on the sale of an interest in AMSO, LLC. In the prior quarter, income from operations was $7.6 million including the impact of $8.4 million in depreciation and amortization costs and $1.6 million in restructuring charges.
Income from continuing operations was $12.5 million including the impact of $1.6 million in net interest charges, $1.0 million in other income, and a $3.5 million provision for income taxes. In Q3 2009 and Q2 2010, IDT reported a $26.2 million loss from continuing operations and $4.1 million in income from continuing operations, respectively.
Net income attributable to IDT (formerly referred to as net income after minority interest) was $12.6 million, or $0.61 per basic share and $0.58 per diluted share, compared to net loss attributable to IDT in Q3 2009 of $63.4 million, or $2.88 per basic and diluted share, and to net income of $3.7 million or $0.18 per basic share and $0.17 per diluted share in Q2 2010.
The weighted-average numbers of shares outstanding used to calculate basic earnings per share were 20.5 million, 20.6 million and 22.1 million for Q3 2010, Q2 2010 and Q3 2009, respectively. For diluted earnings per share, the comparable numbers of shares were 21.9 million, 21.5 million and 22.1 million.
BALANCE SHEET AND CASH FLOW HIGHLIGHTS
As of April 30, 2010, IDT reported $215.5 million of cash and cash equivalents, $13.8 million in restricted cash and cash equivalents, and $0.6 million in marketable securities.
Net cash provided by operating activities during the nine months ended April 30, 2010 totaled $47.5 million.
Capital expenditures during the nine months ended April 30, 2010 totaled $6.6 million.
OPERATING RESULTS BY SEGMENT
§ IDT TELECOM
Revenues at IDT Telecom were $300.0 million in Q3 2010, a 3.8% increase compared to the year ago quarter, and a decline of $0.4 million compared to the prior quarter.
Gross margin percentage was 19.1%, a 310 basis point decline from the year ago quarter and a 20 basis point increase sequentially, on gross profit of $57.2 million.
SG&A expense declined to $43.6 million, a 14.7% reduction year over year, and a 1.2% decline compared to the prior quarter.
Adjusted EBITDA was $11.8 million, a 23.1% increase year over year, and a 4.1% increase sequentially.
Depreciation and amortization expense declined to $6.6 million, a 33.4% decline year over year and a 10.9% decline sequentially.
Income from operations was $14.3 million, including a $10.0 million gain from settlement of litigation, compared to a $29.7 million loss from operations for the same period a year ago and $3.3 million in income from operations in Q2 2010.
Telecom Platform Services – TPS (Wholesale Carrier and Retail Communications Services)
Telecom Platform Services (TPS) minutes of use totaled 5.4 billion for Q3 2010, an 18% increase year over year and a 2% increase over the prior quarter. The increase in minutes of use, both year over year and sequentially, was led by TPS’ wholesale carrier and European retail calling card businesses. Sequentially, minutes of use increased despite the fact that the third quarter of IDT’s fiscal year has three fewer calendar days than the second quarter.
TPS’ revenues increased 5.5% year over year to $291.3 million, and rose slightly – 0.3% – sequentially. Compared to the year ago quarter, increased U.S. and European retail sales more than offset a slight decline in wholesale carrier revenues. Within U.S. retail, revenue growth was generated primarily by sales of international mobile top-up (IMTU) products and prepaid calling cards.
Sequentially, U.S. retail revenues increased in Q3 despite the shorter quarter. European retail revenues, as well as wholesale carrier sales denominated in Euros, declined sequentially, as the increase in minutes of use was more than offset by deterioration in the Euro versus the U.S. dollar.
TPS’ gross margin was 18.1%, a 260 basis point decrease from the year ago period but a 40 basis point increase sequentially, on gross profit of $52.6 million. The year over year decline in gross margin reflects continued margin pressures on the sales of international long distance products and services, including both TPS’ wholesale carrier and retail business lines globally. In addition, within global retail business offerings, margin was also impacted by the growth in sales of relatively lower margin products, such as new prepaid calling cards in both the U.S. and in Europe, and IMTU in the U.S. On a sequential basis, improving margins for U.S. prepaid calling cards and for TPS’ cable telephony offerings more than offset a modest decline in the margin generated by the wholesale carrier business.
TPS’ SG&A expense was reduced to $41.6 million in Q3 2010, representing a 14.0% and 1.4% decline, respectively, when compared to Q3 2009 and Q2 2010. Reductions in employee compensation and professional fees, as well as in facilities and equipment/software maintenance costs accounted for most of the year-over-year improvement. With its restructuring and reductions in force largely completed, compensation cost in TPS stabilized during the second and third quarters of fiscal 2010, while remaining below comparable year ago periods.
TPS generated $9.3 million in Adjusted EBITDA, a 57.1% increase compared to the year-ago period, and a 14.5% increase compared to the prior quarter.
TPS’ depreciation and amortization expense was $6.6 million, a 33.3% decline from the year ago period, and a 10.9% reduction sequentially, as IDT Telecom’s long-lived asset base declined both as a result of previous impairments and more assets becoming fully depreciated, and due to lower levels of current capital expenditures compared to the previous year.
TPS’ income from operations was $11.9 million including a $10.0 million gain from a legal settlement, compared to a loss from operations of $33.3 million in the year ago period and $0.1 million in income from operations in the prior quarter. In the year ago quarter, TPS’ loss from operations included impairment charges of $29.0 million, most of which stemmed from the write-off of goodwill pertaining to our rechargeable U.S. calling card unit.
Consumer Phone Services – CPS
Consumer Phone Services, which includes sales to both bundled (unlimited local and long distance) services customers as well as long distance-only customers, has been in “harvest mode” since fiscal 2006 – maximizing revenues from current customers while maintaining SG&A and other expenses at the minimum levels essential to operate the business.
CPS’ revenues were $8.6 million, a 31.4% decline year over year – in-line with expectations. Revenue declined 13.1% compared to the prior quarter.
Gross margin for CPS was 53.0%, compared to 53.2% in the year ago quarter, and 53.8% sequentially.
CPS’ SG&A expense was $2.0 million, a 27.2% decline year over year, but a 3.5% increase sequentially.
CPS’ Adjusted EBITDA was $2.5 million, a 32.2% decline year over year, and a 22.4% decline sequentially.
CPS’ income from operations was $2.4 million, a 32.0% decline year over year, and a 22.6% decline compared to the prior quarter.
§ GENIE ENERGY
Genie Energy includes the IDT Energy and Alternative Energy segments. The Alternative Energy segment consists of IDT’s interest in AMSO, LLC – a joint venture to develop oil shale on federal lands in Colorado, and Israel Energy Initiatives, Ltd. (IEI), an alternative energy venture in Israel.
IDT Energy
IDT Energy’s revenues were $53.8 million during Q3 2010, a 19.3% decline compared to Q3 2009 and an 11.4% decrease sequentially. Electric revenue of $29.4 million was 3.0% lower than the prior year but rose 0.9% sequentially. Gas revenue of $24.4 million declined 32.8% compared to Q3 2009, and declined 22.7% sequentially. Year over year, revenues declined primarily because of lower natural gas prices, a net decrease in IDT Energy’s customer base and lower electric and gas consumption per meter. The sequential decline in revenues primarily reflects seasonal factors including the end of the winter heating season and three fewer calendar days in IDT’s third fiscal quarter compared to Q2.
The year over year decline in electric revenue was primarily the result of an 8.9% decline in kilowatt hours (kWh) sold year over year, partially offset by a 6.4% increase in the rate per kWh sold over the same period. Sequentially, the slight increase in electric revenue resulted from an 11.7% increase in revenue per kWh, almost entirely offset by a 9.6% decline in kWh sold primarily as a result of the shorter quarter, seasonal factors, and a decline in meters served.
The year over year and sequential declines in gas revenue reflect 26.7% and 18.5% reductions, respectively, in therms consumed. The year over year decline reflects, in part, the decline in gas meters served, warmer weather, and a reduction in consumption per meter reflecting changes in the territory mix of our customer base. Revenue per therm declined 8.3% and 5.3% compared to the year ago quarter and the sequential quarter, respectively.
During the third quarter of fiscal 2010, IDT Energy began testing customer acquisition programs in a limited number of utility territories within New Jersey and Pennsylvania. Customer acquisitions in these territories, though modest, also contributed to the stabilization in net meters sequentially. Revenues from customers enrolled in these two states will not be realized until Q4 2010.
As of April 30, 2010, IDT Energy’s customer base consisted of approximately 364,000 meters (205,000 electric and 159,000 natural gas) a decline compared to the 414,000 meters (236,000 electric and 178,000 natural gas) at April 30, 2009, and a slight decline compared to the 366,000 meters (208,000 electric, 158,000 natural gas) at January 31, 2010. The year over year and sequential declines reflect reductions in the pace of gross acquisitions resulting from the reorganization of IDT Energy’s sales and marketing programs undertaken in the fourth quarter of fiscal 2009, partially offset by reductions in the churn rate. Looking ahead, management anticipates that customer acquisitions in all territories will substantially keep pace with customer churn resulting in a relatively stable customer meter count as it continues testing the market for expansion in New Jersey and Pennsylvania.
Customer churn during Q3 2010 averaged 3.5%, a significant decline compared to the 4.5% in the year ago period. The decline in churn year over year reflects, in part, the positive impact of the restructured IDT Energy sales program.
Gross margin at IDT Energy was 29.1%, a 50 basis point decline compared to the year ago period, but a 220 basis point increase compared to the prior quarter. The levels of gross margin achieved during fiscal 2009 and in the first three quarters of fiscal 2010 may not be sustainable on a consistent basis going forward.
SG&A expense was $5.7 million, a 16.9% decline compared to the year ago period, but a 28.5% increase compared to the prior quarter, The year over year decline was primarily due to decreases in customer acquisition costs and Purchase of Receivables (POR) fees, while the sequential increase reflects increased compensation related expenses, higher customer acquisition costs including costs incurred in connection with customer acquisitions in New Jersey and Pennsylvania, and higher POR fees.
Adjusted EBITDA for Q3 2010 was $9.9 million, a decline of 22.6% and 16.2% compared to the year ago and sequential quarters respectively.
Income from operations was also $9.9 million, a decline of 22.6% and 15.8% compared to the year ago and sequential quarters respectively.
Alternative Energy
Alternative Energy reported total costs and a loss from operations of $2.0 million including research and development expenses of $1.6 million in Q3 2010 compared to income from operations of $1.8 million in Q3 2009, and a loss from operations of $1.1 million in Q2 2010. In the year ago quarter, IDT reported a $2.6 million gain on the sale of a 50% stake in AMSO, LLC to an affiliate of Total S.A.
Presently, Alternative Energy’s operating expenses consist primarily of costs incurred by IEI. IEI continued resource appraisal and characterization work on its exclusive Shale Oil Exploration and Production License area during Q3 2010. IEI has begun permitting and other preparatory work required prior to construction and operation of a pilot plant. The pilot test will provide a basis for determining the technical, environmental and economic viability of IEI’s proposed process for extracting oil from shale. Pilot test operations could begin as early as calendar 2011, and results would serve as the basis for permitting and designing any future commercial project.
During Q3 2010, AMSO, LLC, a joint venture oil shale exploration and production initiative with Total, SA, continued construction and ongoing research and development work to prepare an oil shale pilot heating test to be conducted late in calendar 2010 or early in 2011. The pilot test is intended to confirm the accuracy of several of the key underlying assumptions of AMSO, LLC’s proposed in-situ heating and retorting process.
IDT accounts for its 50% stake in AMSO, LLC using the equity method. IDT’s equity in the net loss of AMSO, LLC in Q3 2010 of $0.4 million is included in “Other income (expense), net” in its consolidated statement of operations.
OTHER RECENT DEVELOPMENTS
On January 29, 2010, IDT received Notices of Intent to Award issued by the Division of Property Management & Construction, Department of Treasury, State of New Jersey. The State proposed to lease 385,296 square feet in IDT’s building at 520 Broad Street in Newark, NJ. On May 21, 2010, IDT received notification that the Notices of Intent to Award had been rescinded and bids rejected as the result of the State’s re-evaluation of its office space requirements. In addition to closely monitoring further actions by the State, IDT will continue to pursue other options to realize value from this property.
On April 1, 2010, IDT received notification from the New York Stock Exchange (NYSE) that it had regained compliance with the NYSE’s $100 million average market capitalization requirement as a result of its “consistent positive performance with respect to the original business plan submission and the achievement of compliance with the NYSE’s $100 million market capitalization requirement at the end of its business plan period on March 30, 2010.” As of March 30, 2010, IDT’s market capitalization was $140.9 million and its 30-trading day trailing average market capitalization through and including March 30th was $120.8 million.
In June 2010, IDT agreed to adjustments that the Internal Revenue Service proposed based upon audits of its federal tax returns for fiscal years 2006, 2007 and 2008. These adjustments reduced IDT’s pending refund claim by $0.4 million to $1.8 million, and reduced its domestic net operating loss carryforward by $41 million to approximately $215 million at April 30, 2010. The Company expects the IRS to finalize these audits in July 2010.
IDT EARNINGS ANNOUNCEMENT & SUPPLEMENTAL INFORMATION
§ Management’s discussion of the Company’s financial and operational results is posted in an audio file on the Company’s website at https://www.idt.net/about/ir/overview.asp. The audio file (in a MP3 format) may be played directly from the website or downloaded for later playback.
§ An archived copy of this audio file will be available on the Investor Relations page of the IDT website, under the “Presentations” heading, for at least one year after the webcast.
§ Copies of this release – which includes a reconciliation of the Non-GAAP financial measures that are both used herein and referenced during management’s discussion of results – are available in the Investor Relations portion of IDT’s website, at https://www.idt.net/about/ir/overview.asp.
§ As in recent quarters, Q&A will be in a written format. Investors and others interested in the Company are invited to e-mail questions for management to invest@idt.net. The Company will accept questions received through the close of business on Friday, June 11, 2010. Questioners must identify themselves by name and (if applicable) firm. When management can constructively answer the question, the initial question, the questioner’s name and firm’s name, and management’s response will be posted in a document available on IDT Corporation’s website and in a Form 8-K filing as early as Wednesday, June 16, 2010 following the market close.
ABOUT IDT CORPORATION
IDT Corporation (www.idt.net) is a consumer services company with operations primarily in the telecommunications and energy industries. IDT Corporation’s Class B Common Stock and Common Stock trade on the New York Stock Exchange under the ticker symbols IDT and IDT.C, respectively.
In this press release, all statements that are not purely about historical facts, including, but not limited to, those in which we use the words “believe,” “anticipate,” “expect,” “plan,” “intend,” “estimate, “target” and similar expressions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. While these forward-looking statements represent our current judgment of what may happen in the future, actual results may differ materially from the results expressed or implied by these statements due to numerous important factors, including, but not limited to, those described in our most recent report on SEC Form 10-K (under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), which may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K. These factors include, but are not limited to, the following: potential declines in prices for our products and services; our ability to maintain and grow our calling card business, our wholesale telecommunication businesses and our retail energy business; availability of termination capacity to particular destinations; our ability to maintain carrier agreements with foreign carriers; our ability to obtain telecommunications products or services required for our products and services; the business and regulatory evolution of and competition and unfair business practices in, the energy services business in New York State; financial stability of our major customers; our ability to maintain our income and improve our cash flow; impact of government regulation; effectiveness of our marketing and distribution efforts; and general economic conditions. We are under no obligation, and expressly disclaim any obligation, to update the forward-looking statements in this press release, whether as a result of new information, future events or otherwise.
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Contact:
IDT Corporation Investor Relations
Bill Ulrey
william.ulrey@idt.net
973-438-3838
