NEWARK, NJ — June 6, 2013: IDT Corporation (NYSE: IDT) reported diluted EPS of $0.39 and non-GAAP diluted EPS of $0.31 on revenue of $397.2 million and Adjusted EBITDA of $9.1 million for its third quarter of fiscal 2013 (3Q13), the three months ended April 30, 2013.
Howard Jonas, IDT’s Chairman and CEO, said, “Growth in the third quarter was fueled by IDT Telecom’s Retail Communications and Payment Services offerings. We are pleased by the continued success of our retail offerings, and are executing on our plans to further expand our portfolio of payment services. We have just soft-launched domestic bill payment services and a prepaid virtual Visa offering, and we expect to begin rolling out international money remittance services on a limited basis in the fourth quarter.
“Given the consistently strong performance of IDT during the first three quarters of fiscal 2013 and the solid execution on our growth initiatives, IDT is in a strong position to resume paying a regular quarterly dividend to its stock holders in fiscal 2014, since we prepaid the fiscal year 2013 dividend earlier this fiscal year. We are also moving forward on the spin-off of Straight Path Communications as part of our continuing efforts to create shareholder value,” Jonas concluded.
(All comparisons are for 3Q13 to 3Q12)
· Revenue increased 4.6% to $397.2 million, the 13th consecutive quarter of year over year revenue growth
· Minutes of use decreased 0.4% to 7.8 billion
· SG&A expense increased 7.8% to $55.2 million
· Adjusted EBITDA increased 21.9% to $9.1 million
· Income from operations increased to $14.7 million compared to $2.2 million
· Operating margin increased 310 basis points to 3.7%
· Net income attributable to IDT increased to $8.7 million compared to $3.0 million
· Non-GAAP net income of $6.9 million compared to $9.8 million
· Diluted non-GAAP EPS of $0.31 compared to $0.44
· Net cash provided by operating activities of $22.4 million compared to $24.4 million
· On May 1, 2013, IDT paid in full the $21.1 million mortgage note balance on its property at 520 Broad Street in Newark
· On May 6, 2013, IDT filed for a spin-off of Straight Path Communications, Inc. (SPCI) to its stockholders
Adjusted EBITDA, non-GAAP net income and non-GAAP EPS for all periods presented are non-GAAP measures intended to provide useful information that may be more indicative of IDT’s or the relevant segment’s core operating results than the nearest GAAP measures. Please refer to the Reconciliation of Non-GAAP Financial Measures at the end of this release for an explanation of these terms and their respective reconciliation to the most directly comparable GAAP measure.
IDT’s operating results for all prior periods presented have been adjusted to reflect the spin-off of Genie Energy which was effected in October 2011. Genie Energy is accounted for as discontinued operations for all periods presented.
OPERATING RESULTS BY SEGMENT
Telecom Platform Services (TPS), which accounted for 97.9% of IDT’s revenue in 3Q13, markets and distributes multiple communications and payment services across four business verticals: Retail Communications, Wholesale Termination Services, Payment Services and Hosted Platform Solutions.
TPS’ revenue in 3Q13 increased 4.5% year over year and decreased 3.4% sequentially, to $388.9 million. The overall sequential decrease reflects, for the most part, the fact that that the third quarter of IDT’s fiscal year contains three fewer days than the second quarter. The second quarter also includes the holiday season, which is a significant seasonal driver of international long distance traffic.
· Retail Communications’ revenue increased 19.1% year over year and 2.7% sequentially to $165.4 million. Both year over year and sequentially, increased sales of Boss Revolution Pinless calling services in the U.S. more than offset declines in sales of other retail offerings, including traditional calling cards sold in the US and Europe. Retail Communications’ revenue constituted 42.5% of total TPS revenue in 3Q13.
nbsp; Wholesale Termination Services’ revenue decreased 11.4% year over year and 12.6% sequentially to $159.3 million. Wholesale minutes of use also declined year over year and sequentially. The declines in both revenue and minutes were the result of an industry-wide increase in termination rates to certain key destinations which, while improving revenue per minute, resulted in a decline in minutes of use. We expect the net impact of such market pricing movements for the next few months to continue to be neutral to positive to our operating profit, despite potentially impacting negatively our top line revenue and minutes. The sequential declines in revenue and minutes of use also reflect, in part, the fact that the third quarter has three fewer days than the second quarter. Wholesale Termination Services’ revenue constituted 41.0% of total TPS revenue in 3Q13.
· Payment Services’ revenue increased 30.2% year over year and 10.1% sequentially to $51.3 million, primarily reflecting continued growth of international mobile top-up (IMTU) sales, including IMTU sales over the Boss Revolution payment platform. Payment Services’ revenue constituted 13.2% of total TPS revenue in 3Q13.
· Hosted Platform Solutions’ revenue declined 7.4% year over year and increased 0.1% sequentially to $12.9 million. Year over year, the decline is due to our cable telephony service offering, which has been in harvest mode. Hosted Platform Solutions’ revenue constituted 3.3% of total TPS revenue in 3Q13.
TPS’ direct cost of revenues was $329.1 million, a 3.7% increase year over year and a 3.8% decrease sequentially. Direct cost as a percentage of revenues decreased to 84.6% in 3Q13, compared to 85.3% in 3Q12 and 84.9% in 2Q13. The year over year and sequential decreases were driven primarily by the growth of Retail Communications revenue compared to the decrease in Wholesale Termination Services revenue, resulting in a positive revenue mix shift.
TPS’ SG&A expense was $46.8 million, a 4.2% increase year over year and a 1.0% decrease sequentially. The year over year increase was due primarily to an increase in credit card processing fees associated with distributors, retailers and customers who re-charge or top-up their accounts with a credit card, while the sequential decrease was due primarily to a decline in legal expenses. IDT continues to expect that TPS’ SG&A expense will increase at a more rapid pace in upcoming quarters as it continues to roll out new payment products and services, and increases the scope of sales and marketing activities. As a percentage of TPS’ revenue, TPS’ SG&A expense was 12.0% compared to 12.1% in 3Q12 and 11.8% in 2Q13.
TPS’ Adjusted EBITDA was $13.0 million, a 31.5% increase year over year and a 2.2% decrease sequentially. Adjusted EBITDA as a percentage of revenue was 3.3%, compared to 2.7% in 3Q12, and 3.3% in 2Q13. The year over year improvement primarily reflects the continued growth in top line revenue and margin expansion, while the sequential decrease primarily reflects the impact of having three fewer days in 3Q13 compared to 2Q13.
TPS’ depreciation and amortization expense was $3.3 million, a 7.3% decrease year over year and a 1.6% increase sequentially. The year over year decrease reflects the deployment of technologies that require less CAPEX in recent years, and the full depreciation of more equipment. The sequential increase reflects a change in the estimated useful lives of certain equipment which increased the depreciation on these assets.
TPS’ income from operations was $19.3 million, compared to a loss from operations of $0.1 million in 3Q12, and income from operations of $10.1 million in 2Q13. Income from operations in 3Q13 included a gain of $9.6 million reflecting reversals of previous accruals made for potential legal settlements. In 3Q12, income from operations included a $6.5 million charge related to four legal matters.
Consumer Phone Services (CPS) sells local and long distance services. CPS has been in harvest mode since fiscal 2006 – maximizing revenue from current customers while maintaining SG&A and other expenses at the minimum levels essential to operate the business.
CPS’ 3Q13 revenue was $3.4 million, compared to $4.6 million in the year ago quarter and $3.7 million in the prior quarter. Income from operations was $0.3 million, $1.0 million and $0.4 million for the same periods, respectively. The year over year declines in revenue and income from operations were in line with management’s expectations.
All Other includes: Fabrix, a software development company specializing in highly efficient cloud-based video processing, storage and delivery; Zedge, a service providing mobile games and personalization content such as ringtones and wallpapers through Android and iOS apps and IDT’s real estate holdings. All Other also includes Straight Path Communications, Inc. (SPCI), which holds IDT’s interests in Straight Path Spectrum, which holds, leases and markets fixed wireless spectrum licenses, and Straight Path IP Group, which holds intellectual property primarily related to communications over the Internet and the licensing and other businesses related to this intellectual property. IDT has announced its intention to spin off SPCI to its shareholders and, in connection with the spin-off, filed an initial Registration Statement with the Securities and Exchange Commission.
All Other’s 3Q13 revenue was $4.9 million, a 60.1% increase compared to the year ago quarter and a 6.9% decrease sequentially. The year over year increases were attributable primarily to Fabrix and Zedge. The sequential decrease reflects declines in revenue generated by Fabrix and Zedge. All Other’s 3Q13 loss from operations was $1.6 million, compared to income from operations of $4.3 million in 3Q12 and a loss from operations of $0.8 million in 2Q13. Income from operations in 3Q12 included a $5.3 million gain recorded by Straight Path Spectrum on the sale of rights in wireless spectrum licenses.
FABRIX: Fabrix’s revenue was $2.6 million in 3Q13 compared to $1.3 million in 3Q12 and $2.8 million in 2Q13. Fabrix’s revenue is generally recognized from the date on which delivered orders are accepted by the customer over the term of the related software support agreements.
ZEDGE: As of May 31st, Zedge has surpassed 62 million downloads on Android, and remains among the top fifteen most popular free apps available in Google Play. The Zedge iOS app, launched in December, has been installed more than 3 million times. In 4Q13, Zedge expects to offer ringtones in the iOS app which will help drive additional customer growth. On Android, game publishers continue turning to Zedge for user acquisition due to Zedge’s expertise in non-incentivized games discovery.
Zedge generated revenue of $1.4 million in 3Q13 compared to $0.9 million in 3Q12 and $1.6 million in 2Q13.
CONSOLIDATED RESULTS AND BALANCE SHEET
Corporate G&A expense in 3Q13 was $3.4 million, including $0.9 million in non-cash compensation. G&A expense increased 13.4% year over year and decreased 23.9% sequentially. The year over year increase reflects primarily an increase in stock based compensation due to a July 2012 grant. The sequential decrease is due primarily to a $0.9 million donation to the IDT Charitable Foundation in 2Q13.
Provision for income taxes in 3Q13 was $7.6 million compared to a benefit from income taxes of $2.3 million in the year ago quarter and provision for income taxes of $3.1 million in 2Q13. In 4Q12, IDT reversed a portion of the valuation allowance that had been applied against its U.S. deferred income tax assets due to the current and expected future profitability of its operations in the United States. Because of this reversal, IDT records a provision for federal income tax in periods when it has pretax income. Actual U.S. federal cash taxes paid are expected to be minimal for the foreseeable future, as IDT continues to utilize its NOLs. As of April 30, 2013, IDT had $25.1 million in net deferred income tax assets. NOLs for U.S. taxes totaled $168 million as of April 30, 2013. Following the spin-off of SPCI, this amount will not change significantly.
Net income attributable to IDT in 3Q13 was $8.7 million, compared to $3.0 million in both the year ago and sequential quarters.
Non-GAAP net income and diluted non-GAAP EPS exclude certain components of GAAP net income (loss) that are not necessarily indicative of ongoing core operations. The excluded components are detailed in the reconciliation provided at the end of this release. Non-GAAP net income was $6.9 million in 3Q13, compared to $9.8 million in the year ago quarter and $6.4 million in the prior quarter. Diluted non-GAAP EPS was $0.31 in 3Q13 compared to $0.44 in the year ago quarter and $0.29 in the prior quarter.
As of April 30, 2013, IDT had $162.9 million of cash, cash equivalents and marketable securities. In addition, IDT had an aggregate of $38.5 million of current and long-term restricted cash and cash equivalents, which included $32.0 million in customer deposits and other restricted balances held by IDT’s Gibraltar based bank.
On May 1, 2013, the mortgage note on IDT’s 520 Broad Street building of $21.1 million was paid in full. As of April 30, 2013, the note payable balance was included in current liabilities in IDT’s consolidated balance sheet.
IDT EARNINGS ANNOUNCEMENT & SUPPLEMENTAL INFORMATION
· IDT will host a conference call at 6:00 PM ET this evening, June 6th, beginning with management’s discussion of financial and operational results, business outlook and strategy followed by Q&A.
· To listen to the conference call and/or participate in the Q&A, dial toll-free 1-877-317-6789 (from U.S.) or 1-412-317-6789 (international) and request the IDT Corporation call.
· An audio replay of the conference call will be available one hour after the call concludes through June 13, 2013 by dialing 1-877-344-7529 (conference code #10029332), and by streaming from the investor relations page of the IDT website: www.idt.net/about/ir.
· Copies of this release – including the 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 www.idt.net/about/ir.
ABOUT IDT CORPORATION
IDT Corporation (NYSE: IDT), through its IDT Telecom division, provides telecommunications and payment services. IDT Telecom’s retail products allow people to communicate and share financial resources around the world. IDT’s carrier services business is a global leader in wholesale voice termination. Other IDT technology based holdings include Fabrix Systems (www.fabrixsystems.com), Zedge (www.zedge.net), and Straight Path Communications, Inc., which holds spectrum licenses as well as intellectual property related to communications over the Internet and other computer networks. For more information, visit www.idt.net
In this press release, all statements that are not purely about historical facts, including, but not limited to, payment of dividends and 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 telecommunication businesses; 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 services; the financial stability of our major customers; our ability to remain profitable 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.
IDT Corporation Investor Relations