NEWARK, N.J.— March 14, 2002 —IDT Corporation (NYSE: IDT, IDT.B) today reported record revenues of $374 million for the second quarter of its Fiscal Year 2002, the three months ended January 31, 2002. Revenues for the second quarter were up 10.3% from the first quarter, and increased 30.1% over the revenues recorded during the second quarter of Fiscal Year 2001. As presented in this report, per share figures for all periods have been adjusted to take into account the Company’s Class B common stock dividend, which was distributed in May 2001.
The net loss for the quarter was $17.2 million, or $0.23 per share. This compares with a net loss of $158.3 million, or $2.22 per share, in the first quarter of Fiscal Year 2002, and a net loss of $117.1 million, or $1.77 per share, in last year’s second quarter.
Three items, accounting for a loss of $14.9 million after tax, deserve particular attention:
· a loss of $11.6 million due to the activities at our newly-acquired Winstar business;
· a loss of $11.4 million attributable to IDT’s noncash share of losses at Net2Phone;
· a gain of $8.1 million relating to the formation of an LLC with AT&T Corp. and Liberty Media Corp. to purchase a controlling interest in Net2Phone, Inc.
Excluding these items, our net loss would have been $2.3 million, or $0.03 per share.
“This quarter’s numbers show solid improvement and clearly confirm that our core business has risen above the ruins of the telecom industry,” said Jim Courter, Vice Chairman and CEO of IDT Corporation. “Record revenues, higher gross margins across all telecom business lines and a wholesale carrier business that has ‘turned the corner’ are just a few highlights of IDT’s remarkable story.”
LIBERTY MEDIA INVESTMENT IN IDT TELECOM
As discussed in a separate press release issued earlier today, IDT and Liberty Media announced that Liberty Media has made a strategic investment of $30 million in IDT Telecom, Inc., a subsidiary of IDT Corporation, at a “pre-money” equity valuation of $600 million. As a result of this investment, Liberty Media will own approximately 4.76% of the common equity of IDT Telecom, Inc.; IDT Corporation owns the remaining common equity of IDT Telecom, Inc.
RESULTS OF OPERATIONS
IDT recorded a loss from operations for the second quarter of Fiscal 2002 of $27.8 million, compared to an operating loss of $9.8 million in the first quarter of Fiscal 2002 (excluding impairment charges). Excluding the operations of the company’s Winstar division, acquired during Q2, the operating loss was $8.6 million.
EBITDA (Earnings Before Interest, Taxes and Depreciation and Amortization, and excluding minority interests and impairment charges) in the second quarter of Fiscal 2002 amounted to a loss of $12.9 million, versus a gain of $5.5 million in the first quarter of 2002 and a loss of $33.8 million in Q2 2001. Excluding the company’s Winstar division, acquired during Q2 2002, EBITDA was a $5.9 million gain.
IDT’s core telecommunications business reported revenues of $349.1 million for the second quarter of Fiscal 2002, representing an increase of 4.7% from the revenues recorded in the first quarter of Fiscal 2002, and up 24.3% from the same period last year. Gross margins for the Company’s core telecommunications business amounted to 21.8%, up from 20.2% in Q1 2002 and 12.1% in the prior year period. The cost of sales for the second quarter of Fiscal 2002 includes $4.5 million in expenses related to the early termination of a long-term bandwidth contract, as the company seeks to take advantage of the currently depressed bandwidth market to replace existing, above-market price bandwidth, with significantly lower-cost bandwidth. Excluding this expense, gross margins was 23.1%, representing the highest overall gross margin for the Telecom division since the first quarter of Fiscal 1999.
The continued improvement in Telecom gross margins reflects higher gross margins across all business lines, due to economies of scale and improved operating efficiency.
EBITDA in the quarter for the telecommunications business was $17.0 million, versus $16.2 million in the first quarter of 2002 and a loss of $16.3 million in Q2 2001. The EBITDA margin improved from 4.8% in Q1 to 4.9% in Q2. Excluding the bandwidth contract termination expense, EBITDA was approximately $21.5 million, with an EBITDA margin of 6.2%.
“The second quarter of Fiscal 2002 represented another significant step forward for IDT Telecom,” stated Motti Lichtenstein, CEO of IDT Telecom. “Both revenues and profits increased, and we laid the groundwork for future growth over the rest of Fiscal 2002 and beyond.”
IDT’s retail division posted $274.7 million in revenues for the second quarter, up 3.5% from the previous quarter, and 54.7% more than the retail revenues recorded during the same quarter last year.
Prepaid Calling Cards
Prepaid calling card revenues amounted to $247.8 million for the second quarter, up 2.2% from the previous quarter, and 52.1% more than the prepaid calling card revenues of the second quarter of Fiscal 2001. The strong year-to-year growth in prepaid calling card revenues was fueled by the introduction of several new calling cards in the U.S., as well as the continued strong growth on European calling card operations. IDT Europe’s calling card operations witnessed growth in its core United Kingdom market, as well as in relatively new areas of penetration, such as Spain, Germany and the Netherlands.
Gross margins for prepaid calling cards were 21.6%, up from 20.7% in the first quarter of Fiscal 2002, and 13.7% in Fiscal 2001’s second quarter. Margins continued to benefit from improved control of costs and improved scale.
Looking ahead to the remainder of Fiscal 2002, we expect to introduce several new cards, featuring attractive rates to popular calling destinations, in an attempt to capture market share from weakened competitors. We expect this will drive further revenue increases, as will the continued expansion of European calling card operations and the ramp-up of our nascent Latin American calling card business.
We expect that margins will remain at or near their current levels, with some margin slippage possible as a result of aggressive pricing on both new cards as well as on some existing cards. We expect that this factor will be partially offset by continued efficiency gains and an improved cost structure.
Consumer Long Distance
Consumer long distance revenues for the quarter were up 18.6% from the previous quarter, and up 99% from the same quarter in Fiscal 2001, due to the continued aggressive growth of our $0.05 per minute long distance plan. We currently have over 400,000 active long distance customers. Gross margins for the consumer long distance business were unchanged from those of the previous quarter, and were slightly lower than those of the previous year.
We anticipate that the consumer long distance business will continue its strong growth over the second half of Fiscal 2002, as we continue to add customers, fueled by increased marketing expenditures, which will allow IDT to continue to take market share from its competitors. The number of active customers is expected to increase by approximately 25% by the end of Fiscal 2002. Consumer long distance revenues are expected to grow at a double-digit rate in each of the next two quarters, and we anticipate that the current margin levels will be maintained.
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