IDT Management Discusses Q3 2012 Results - Earnings Call Transcript

IDT (IDT)

Q3 2012 Earnings Call

June 07, 2012 6:00 pm ET

Executives

Samuel Jonas - Chief Operating Officer

Marcelo Fischer - Senior Vice President of Finance

Analysts

Jay Srivatsa - Chardan Capital Markets, LLC, Research Division

Michael Salzhauer

Presentation

Operator

Good day, and welcome to the IDT Corporation's Third Quarter Fiscal 2012 Earnings Conference Call. [Operator Instructions] In today's presentation, IDT's Chief Operating Officer, Samuel Jonas, will discuss IDT's financial and operational results for the 3 months ended April 30, 2012.

Any forward-looking statements made during this conference call either in the prepared remarks or in the Q&A session whether general or specific in nature are subject to risks and uncertainties that may cause actual results to differ materially from those, which the company anticipates. These risks and uncertainties include, but are not limited to, specific risks and uncertainties discussed in the reports that IDT files periodically with the SEC. IDT assumes no obligation either to update any forward-looking statements that they have made or may make, or to update the factors that may cause actual results to differ materially from those that they forecast.

In their presentation or the Q&A, IDT's management may make reference to the non-GAAP measures, adjusted EBITDA, non-GAAP net income and non-GAAP EPS. Schedule provided in the earnings release reconciles adjusted EBITDA, non-GAAP net income and non-GAAP EPS to the nearest corresponding GAAP measures.

Please note that the IDT earnings release is available on the Investor Relations page of the IDT Corporation website, www.idt.net. The earnings release has also been filed on a Form 8-K with the SEC. Finally, please note that this event is being recorded. I'd now like to turn the conference over to IDT's Chief Operating Officer, Samuel Jonas.

Samuel Jonas

Thank you all for joining the call and for your interest in IDT. From a profit and loss perspective, this third quarter was consistent with the positive trend of the past 2 years. We again delivered strong revenue growth, which was balanced against lower margins, leading to consistent levels of gross profit. This quarter, IDT achieved the highest level of gross profit since the fourth quarter of fiscal 2010, while IDT's adjusted EBITDA increased to $7.5 million compared to $5.6 million in the year ago quarter.

Earnings were reduced by accruals taken in connection with 4 legal matters. These charges more than offset the gain we realized from the sales of Spectrum licenses previously announced by IDT Spectrum.

From a cash perspective, we generated net cash from operating activities of $24.4 million in the 3 months ended April 30. We benefited from strong operating results and good working capital management at IDT Telecom, and proceeds from Fabrix's sale of software licenses and maintenance agreements. In addition, we also received cash from our Spectrum license sales. In light of our recent results and business outlook, we will continue to pay a quarterly dividend of $0.15 per share.

Now I want to provide some additional details and color on the results of the Telecom Platform Services segment, or TPS, which generates nearly 98% of our revenue. However, I will try not to replicate the ins and outs of the earnings release, which is available for your review through the IDT website at www.idt.net. We grew TPS's revenue to $372.1 million, an increase of 12.3% year-over-year. Within TPS, Retail Communications revenue increased by 18% year-over-year to $139.5 million. Growth in sales of our pin-less calling service on the Boss Revolution platform more than offset the decline of traditional prepaid calling card revenue.

Our Wholesale Termination Service business grew revenue 10.6% year-over-year to $179.5 million. From the strong revenue growth, TPS increased gross profit to $54.9 million, a 4.9% increase compared to the year ago quarter and the highest level we have achieved since the fourth quarter of fiscal 2009. TPS's gross margin decreased to 14.7%, down 110 basis points year-over-year. The decline primarily reflects the product mix shift within TPS. With our Boss Revolution platform sales and Wholesale Carrier revenues are growing rapidly with relatively lower margins, while revenue from the sale of higher margin and traditional prepaid calling cards continues to decline.

Looking ahead, our goal is to stabilize and then grow TPS's gross margins. TPS generated $9.9 million of adjusted EBITDA during the quarter, the highest in over a year.

TPS's depreciation and amortization expense continued to decline, decreasing to $3.5 million compared to $4.3 million in the year ago quarter. TPS also took a charge of $6.5 million during the third quarter related to 4 legal matters. And the result of these accruals, TPS recorded a loss from operations of approximately $100,000.

The All Other segment generated income from operations of $4.3 million, which includes a gain of $5.3 million resulting from the sale of Spectrum licenses mentioned earlier. Absent that gain, the loss from operations would have been $1 million compared to a loss of $1.7 million in the year ago quarter. Also, corporate overhead continued to decline, falling to $3 million in the third quarter compared to $4.4 million in the year ago quarter.

Company-wide income from operations was $2.2 million and would have been $3.3 million absent non-routine events, being 4 legal matter accruals and the gains from the Spectrum license sale. Net income attributable to IDT for the quarter was $3 million or $0.14 per basic and diluted share. In response to feedback from investors, we have begun to report non-GAAP net income and non-GAAP net income per share. By backing out certain items that we feel do not properly reflect the ongoing performance of our core operating businesses and asset base, we hope to provide you with additional insights into our businesses.

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