IDT Corp (IDT) 2002 Q4 法說會逐字稿

Good evening. My name is Felicia, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the IDT Fourth Quarter Conference Call with Mr. Jim Courter, Vice Chairman and CEO of IDT Corporation. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number 1, on your telephone keypad. If you would like to withdraw your question, press star, then the number 2 on your telephone keypad. Thank you. Mr. Courter, you may begin your conference.

I’d like to welcome all of you to IDT’s earnings call. The fiscal year ended July 31st, 2002, was a time of growth and profitability for IDT. During the next 45 minutes or so, we would like to share our financial results, and highlight a few of our significant achievements. After my remarks, you’ll hear from four IDT Executives. First will be Motti Lichtenstein, the CEO of IDT Telecom. Next will be Mitch Burg, who joined us in March as CEO of our media subsidiary. Following Mitch will be Brian Finkelstein, CEO of our Winstar subsidiary, and finally, Steve Brown, our Chief Financial Officer, who will discuss our finances in greater detail. After Steve’s presentation, we’ll take questions from the participants in this call.

Before we begin, I would like to caution all of those listening about any forward-looking statement that you may hear during the course of the conference call today. During the presentations by executives and in the question and answer session that follows, we may make forward-looking statements. The forward-looking statements may be either general or specific in nature, and are subject to risks and uncertainties that could cause actual results to differ materially from results that we anticipate. These risks and uncertainties include, but are not limited to, general economic conditions in the global telecommunications market; the general condition of the economy in the United States and internationally; disruption of our facilities and operations from a variety of causes, including terrorism, war and acts of God.

The specific risks and uncertainties that will be discussed in our annual report on Form 10K covering the year July 31, 2002, and finally, other factors that generally affect the business of telecommunications and other communications companies. We assume no obligation to update any forward-looking statements, or to update you about the factors that may cause actual results to differ from the results forecast in our forward-looking statements.

IDT’s success during fiscal 2002 involved three distinct, but interdependent components. These components were growth, profitability, and balance sheet strength. I’d like to look at each one of these components separately, and then consider how the components work together to set IDT apart.

First, growth: in fiscal 1999, we generated $700 million in revenue. That figure increased to $1 billion for 2000, and 1.2 billion for 2001. For fiscal 2002, we recorded gross revenues of over $1.5 billion. This figure represents a 24 percent increase over last year, and more than doubles our revenues three years ago. In each of the past four quarters, we have broken our previous record. In this climate, that’s impressive. Our results suggest that the gloomy generalizations about the telecommunications industry are just that. They’re generalizations. We’re obviously doing something right at IDT, something that is different. We continue to be very bullish on the long-term outlook of our industry. The fundamentals are there. Demand is exploding.

The twin forces of deregulation in many of the world’s telecommunications markets -- and you’ve heard me talk about deregulation many times before -- and new technology, such as voice-over IP, are driving prices lower each day. This dynamic, and the speed with which it’s happening, is causing pain to some, in particular those that are overburdened with debt, but for a nimble company such as IDT, and a smart player such as IDT, change, in fact, is opportunity.

Dollars are not the only measure of growth. In March, 2002, for the first time, we sold more than 1 billion minutes of service during a single month, and we have continued to sell over 1 billion minutes each and every month since that time. In total, we sold over 11 billion minutes during fiscal 2002, a 47 percent increase over the prior year. IDT now sells more than five calling cards every second. We expect our calling card volume to continue to grow as we expand in the private label market. I am pleased to say that just a few weeks ago, we entered into an agreement with a major retailer to sell their branded cards in all their U.S. outlets. I believe that this transaction will increase our visibility in the private label sector and thereby accelerate our growth.

Our fastest growing business this past year was our U.S. long distance offering, in which we doubled our customer base to over half a million satisfied customers. To support this growth, we have hired new people. We are adding, while others are laying off. Our staff increased to about 2,300 at the end of 2002 from about 1,700 a year earlier. We are particularly proud of our customer support center in Puerto Rico, where we have doubled our workforce during the past year. Our Spanish speaking customers appreciate having access to a highly skilled, largely college educated group of support specialists who really speak their language.

We have added 11 people to various IDT Boards of Directors during the past year alone. All of these people bring valuable experience and insights, and several of our new Directors bring additional independence that supports our corporate governance activities.

Profitability. In addition to revenue growth, profitability was a key element in our success in 2002. Steve will talk more about the numbers, but I’d just like to say, for the year, IDT Telecom will record EBITDA of $88.7 million, and operating income of over $30 million. It is this trend that Liberty Media anticipated, I believe, when they purchased a 5 percent interest of IDT Telecom for $30 million in our third quarter.

Balance sheet strength. Balance sheet strength is the final component of this year’s success story. We have all read in the newspapers about companies that chased revenue growth at all costs. Yet our growth and our profitability have not deteriorated the strength of our balance sheet. At a time in which many of our competitors are suffering under severe capital restraints, IDT has over $1 billion in cash and marketable securities, and zero -- that is no long-term debt.

Growth, profitability, balance sheet strength: separately, these are all excellent measures of success, but together, they enable IDT to be nimble, to act quickly in pursuing opportunities, to make strategic investments and acquisitions at attractive prices.

Let me offer a few examples of how we seize opportunities. First, our acquisition of the court-approved bankruptcy sale of the domestic assets of Winstar Communications. Winstar, as you know, is a broadband fixed wireless local telephone service provider with many commercial and governmental customers. Since December, our team, our Winstar team, has successfully integrated the Winstar assets into our operations and into our vision. Second, Star Telecommunications, another bankrupt company. The IRUs equipment that we acquired from Star Telecommunications have more than doubled the size of our domestic backbone. Three, acquisitions in our media group, including Talk America radio, WMET. Four, we acquired control of NET2Phone, which has developed technology that will make the dream of cable telephony reality in the years ahead. Each of these important acquisitions was made possible by our strong balance sheet; yet -- and this is very important to keep in mind -- yet our cash and marketable securities remain over $1 billion, and have remained there for eight quarters running. This means that IDT continues to have the financial strength to take advantage of future opportunities.

IDT has grown to become a truly global company. In just 11 years from its birth in the Bronx, we now have operations in Latin America, Western and Eastern Europe, Africa, the Middle East, China. In Russia alone, we have over 200 employees. In April, IDT was named to the Fortune 1000 list of companies. Recently, the Wall Street Journal reported that in a survey of its long distance carriers, including MCI and Sprint and AT&T and others, IDT received the best overall rating. The Journal said, and I quote, “In an age of impossible to decipher bills, IDT stands out as an exception.” Frankly, I couldn’t agree more. IDT is an exception.

When I spoke to you about our first quarter results some nine months ago, I asked you to think again about what IDT has become. We are no longer a company struggling to survive. Many of our competitors have faltered; we have not. This has been achieved not by good fortune, but by careful design, innovation, and lots of hard work. Today, we are known for quality, as well as our rates. The world’s largest telephone companies seek us out to handle their international traffic. Our relationships with the industry giants are becoming long-term. The revenue we derive from them is steady and reliable. As I have said many times before, our success is a real tribute to Howard Jonas and his entrepreneurial spirit, but it’s all for the effort of a lot of good working people.

Now you will hear Motti Lichtenstein, CEO of our Profit Center, IDT Telecom.

Thank you, Jim. Good afternoon everyone. I’d like to spend the next few minutes talking about the fiscal year that passed for IDT Telecom, and the year we have already embarked upon. In addition, as I generally do, I’ll make some brief comments about the state of the telecom industry and IDT Telecom’s plans for dealing with this environment.

Before I get into that, as I prepare to look back on a very gratifying fiscal ‘02 and look ahead to an exciting fiscal ‘03, I’d like to once again thank Howard Jonas, our founder and Chairman, for the opportunity he has given me at IDT Telecom. Howard and I shared a vision that IDT Telecom could be turned around and become profitable again. Throughout the year, Howard’s confidence in me and in my team, as well as his thoughtful and timely advice, have allowed us to achieve great results.

Let’s now talk about those results. Fiscal ‘02 was a great year for us. Our revenues increased nearly 20 percent, to over $1.4 billion. Our growth margins widened by over 1,000 basis points, 10 full percentage points. And most importantly, we’ve grown to a positive EBITDA and operating income from losses in fiscal ‘01. Overall, our EBITDA amounted to almost $89 million. However, I believe that free cash flow is the truest measure of a company’s performance. We generated over $15 million in free cash flow in fiscal ‘02. Fiscal ‘02 was also a year that saw sequential improvement in each quarter, with higher revenues, EBITDA, and operating income in each successive quarter.

We hit the billion minute per month milestone in March of this year, and have remained above that level every since. We accomplished all of this despite the continued drop in our average per minute price realization.

Toward the latter part of fiscal ‘01, as we put our game plan for fiscal ‘02 in place, we knew that we’d have to cope with a lower price environment, and therefore, we’d have to be more efficient at everything we do, with a sharp focus on lowering our costs. We definitely were successful at that in fiscal ‘02. In fact, our permanent costs fell at an even faster rate than did our permanent prices, allowing for the gross margin expansion I just mentioned.

While fiscal ‘02 was about improving our practices and our cost structure, fiscal ‘03 will be about growth. That’s not to say that fiscal ‘02 wasn’t also about growth, or that we won’t focus on being efficient and cutting costs in fiscal ’03. Rather, this is part of our plan. We knew that we had to first focus on getting better at the things that we do to get our cost model to where it had to be to thrive in this environment. We’ve done that, and now we’re poised for growth. With that in mind, let’s briefly discuss our major lines of business, both in terms of the year that was, as well as our expectations for fiscal ‘03.

Our calling card operations continued to have strong growth in the fourth quarter and full year in fiscal ‘02, both in the U.S. and in Europe. In the U.S., despite offering several aggressively priced new cards during the quarter, which tends to feature lower margins at first, we managed to maintain our gross margin performance of the third quarter, which, in itself, was the best we had ever seen in over three years.

We are now a truly nationwide business with operations outside our traditional Northeast U.S. stronghold. We continue to grow operations in major markets like California, Florida, and Texas. Looking ahead to fiscal ‘03, we plan to establish a strong presence in these markets as we’ve done on the East Coast, by offering products that are in demand by our target customer base. Our expansion will continue until we have a leading position in every major market in the U.S. We plan to continue to offer aggressively priced cards as we make our move to take market share from our remaining competitors. As we roll out more of these cards, we anticipate somewhat lower gross margins from our debit card business. However, gross profits will be higher as we expand our revenue base.

Our European debit card business continues to grow as well. We reached a significant milestone in May, with monthly minutes of use exceeding 100 million minutes. Our core U.K. market continues to grow at a healthy rate, as we further establish our status as a leading prepaid calling card provider in that market. In Spain, we are experienced at terminating enormous volumes of minutes for Latin America has proved to be a valuable advantage.

Debit card revenues increased significantly throughout the year with revenues in Q4 more than 40 percent higher than those in Q3. Our European expansion strategy will gather further momentum in fiscal ‘03. Debit revenues in the potentially lucrative German market increased by over 30 percent in Q4 when compared to Q3 levels, setting the stage for more gains in fiscal ‘03. Already in fiscal ‘03, we have launched calling card sales in Italy, with revenues from France expected within the next few months. By the end of fiscal ‘03, we expect that our debit card operations will be a truly paying European operation.

In South America, where we have only recently begun our calling card operations, we continue to put in place the infrastructure required to meet our ambitious goals in that region. During fiscal ‘02, we began to sell our calling cards in Argentina, and providing wholesale carriage services in Peru. During fiscal ‘03, we will be launching calling card operations in Peru, Brazil, and Chile. Towards the latter part of the fiscal year, we plan to establish our presence in other South American countries. Obviously, we expect that this region will be a real engine for growth in fiscal ‘03 and beyond.

In many respects, our wholesale carrier business was a pleasant surprise for me in fiscal ‘02. At this time last year, we talked about how we anticipated that wholesale carrier revenues would bottom out in the first half of the year, and then increase slightly thereafter. In fact, we hit our low point in Q1, and increased steadily in each of the remaining three quarters of fiscal ‘02. After recording wholesale carrier revenues of $68 million in Q1, we increased by 9 percent in Q2, another 6 percent in Q3, and then by 11 percent in Q4 to almost $88 million. Most importantly, Q4 marked the first year-over-year increase in quarterly carrier revenues since the fourth quarter of fiscal 2000, with revenues 9 percent higher than a year ago.

All of this was accomplished in one of the most difficult environments imaginable. We faced credit issues with several of our largest customers, so we continued to restrict our revenues through our strict credit policies. We consciously left millions of dollars in revenues on the table, because we were not comfortable with having financial exposure to certain carriers. Perhaps most impressively, our gross margin on wholesale carrier revenues improved to 11 percent in fiscal ‘02, from 4 percent in fiscal ‘01. This was a primary area focus for us in fiscal ’02, and the improved numbers bear witness to the incredible amount of hard work tat took place during the year. In fiscal ‘02, our team proved beyond a doubt that the carrier’s current business is viable and profitable. Over the longer term, a key element of growth in our wholesale business will be providing international long distance to the RBOCs, as we enter the long distance markets throughout the U.S. Although this entry has been delayed, we continue to believe that it represents a huge opportunity for us, and we expect our revenues from RBOC customers to rise significantly in fiscal ‘03.

Our consumer long distance business was once again our fastest growing business in fiscal ‘02, nearly doubling its revenues. Consumer LD is now on an annual basis, a $125 million-plus business in terms of revenue, and we believe that we have only scratched the surface here. As we have grown increasingly comfortable with TLD’s ability to generate solid, consistent profits, we have increased our advertising budgets, which will allow us to grow our customer base further. We ended the year with more than a half a million active customers, and I think we have achieved a certain critical mass in this business. Therefore, looking to fiscal ‘03, our focus will not only be simply growing the customer base, but also increasing the value per customer. This is the key metric we use to drive this business. It takes into account not only the revenue per customer, but also our churn rate, and our ability to collect.

During fiscal ‘02, we took great strides in improving our collections, and we’ve begun to perform the detailed analysis that will be necessary to retain our valued customers. In fiscal ‘03, we plan to increase the average revenue per customer, and the overall value per customer by introducing attractively priced local calling plans.

As we look towards fiscal ‘03, we are enthusiastic about the possibilities for some of our earlier-stage businesses as well. Our private label business, which offers calling cards to the major retail chains and other large business customers nationwide, has continued to earn significant business for us.

We have also begun to enjoy success in our attempts to win large corporate accounts, where our cards will allow companies to better manage their employees’ telecommunications expenses. The private label business, which takes advantage of IDT Telecom’s existing debit card platform, infrastructure and expertise provide us with incremental distribution points for our calling cards at higher margins.

We also continue to develop our enterprise business. We are offering a full suite of voice and data services to business customers. We have recently added to our personnel in this area, and expect to make great strides in this business in fiscal ‘03.

During fiscal ‘02, we invested in additional infrastructure in Corbina [phonetic], our Russian telecom subsidiary. Corbina is already profitable and we expect to see some strong growth in that area in fiscal ‘03.

The fourth quarter, in particular, was a very strong one for us, and frankly, it was beyond our expectations. Our revenues increased another 5 percent to $383 million, and EBITDA came in at $30 million, up 16 percent from the third quarter of fiscal ‘02. This compares to the guidance we gave back in June, which called for revenues in the $375 million to $385 million range, and EBITDA of between $26 million and $28 million. Steven Brown, the CFO of IDT Corporation will go over in greater detail in our numbers during the discussion to follow.

In light of our strong growth, we are increasingly faced with challenges to maintain our cost structure. We have always adhered strictly to our smart bill policy, not expanding our network until we were reasonably certain that the minutes were there to justify the cost of expansion. While this policy has certainly insulated us from some of the industry’s problems, and has allowed us to grow without taking on a lot of debt, it does present us with some challenges. Specifically, during the period such as this one, where our minutes are growing at such a rapid pace, we are increasingly under pressure to deploy additional network assets in order to carry those minutes. Any delay in such a deployment can have an adverse affect on our margins. However, I am confident that our engineering and operations team will rise to the challenge, as they have on so many occasions in the past.

Another challenge arises in routing all of those minutes over our network. While many other companies take this practice for granted, we view routing as an opportunity to squeeze additional profit out of our operations. We can do this by being more efficient in our routing, and sometimes by thinking out of the box in finding solutions to the various additional challenges that arise. The ability of our MIS team to develop the tools we need for these solutions has been a major part of success so far, and will become even more important in fiscal ‘03.

In terms of more specific guidance, I think that fiscal ‘03 will witness exciting growth at IDT Telecom. I anticipate that total Telecom revenues will increase to between $1.65 billion and $1.8 billion, from the 1.43 billion in revenues we generated in fiscal ‘02. That represents a 15 percent increase in revenues at the low end of the range, and a 25 percent increase at the high end.

In terms of EBITDA, we generated approximately $89 million in EBITDA in fiscal ‘02. For fiscal ‘03, we anticipate EBITDA in the area of $125 million to $140 million. That would represent an increase between 40 to 55 percent in EBITDA year-over-year. With capital expenditures expected to be in the $50 million to $75 million range, I believe that IDT Telecom can generate free cash flow of $50 million to $75 million in fiscal ’03, while laying a solid foundation for growth into the future.

In the first quarter of fiscal ‘03, which is mostly complete, we anticipate some small gains in revenues when compared to the fourth quarter of fiscal ‘02. However, based on some of the challenges I just described, I think that our gross margins can narrow a bit for both calling cards and wholesale carrier services. Overall, our EBITDA and operating income should be similar to the levels we saw in Q4, or will be somewhat lower. As I mentioned before, the recently completed fourth quarter of fiscal ‘02 was an extremely strong one, ahead of even our expectations, making for a difficult comparison on a sequential basis for Q1. However, we fully expect that our EBITDA and operating income in Q1 will be well above the results of the prior year period. And much like we did in fiscal ‘02, we think that our revenues, EBITDA, and operating income will increase in each successive quarter in fiscal ‘03.

I would be remiss if I didn’t make at least a comment or two about the industry environment, and how that continues to shape our outlook. As I mentioned on last quarter’s call, I believe that a meaningful rebound in the telecom industry cannot occur until the industry’s assets all spoken for. In other words, there must be both a consolidation, with assets moving from weaker hands into stronger ones, and a rationalization with other assets going dark forever. I think that this process will take a while to accomplish, perhaps another two years or more. The primary problem is that the very companies who are most often mentioned as industry consolidators, industry giants like the RBOCs and the multinational long distance companies, are presently dealing with their own capital constraints.

However, I still feel that these companies will be the industry’s primary consolidators. What has to happen first is for these companies to clean up their own balance sheets and to streamline their business portfolios. I refer to this as a deconglomeration of telecom. The industry’s largest players will become larger, put more focus on their real areas of expertise. They will increase in scale, but not necessarily in scope. This will be accomplished for the most part, through the sale of their non-core businesses and assets, while they increasingly outsource those services that do not fit within their core competencies.

This presents a great opportunity to IDT on two fronts. First of all, with our financial strength, we have the ability to be a consolidator in the industry as well. Secondly, and perhaps more importantly, as the industry’s largest companies unload their assets and businesses, we will have the opportunity to purchase some viable, profitable businesses. These businesses might not be a primary focus for these companies, but to IDT Telecom, they could have a meaningful, positive impact on our bottom line.

However, I must say that in no way is our business plan contingent upon IDT Telecom making an acquisition. I feel very strongly that we can generate enough profit both on our own by growing businesses we already have in place, and by developing some of the new products and service lines we currently have on the drawing board. We also do not feel that we have to make an acquisition just for the sake of getting bigger. I know that this is a point that I’ve made before on these conference calls, but it bears repeating, as it is so central a theme for our strategy at IDT Telecom. Rather, our strategy is to use acquisitions as a means to an end. By acquiring certain assets or businesses that provide a good fit with our existing businesses or plans, we can accelerate our timetable for success, provided that this is done at a good price.

In order to evaluate these opportunities, our mergers and acquisitions team meets on a regular basis with a goal of identifying the assets or businesses that are currently for sale in the industry, as well as those, which may eventually be available for sale. These assets or businesses are matched up against IDT Telecom, based on an understanding of our corporate strategy. During the past couple of quarters, we have looked at several potential acquisitions. In most cases, while we were intrigued by the possibilities, we were only willing to offer a price, which made sense for us. We’re not going to be chasing these assets because we believe that there is, and will continue to be, plenty of assets available to us.

In my mind, in the acquisition game, winning and losing is not based on whether you get the deal, but on whether you make a good deal. Missing out on a good deal because you were unwilling to pay too much is winning in my book. On the other hand, acquiring something at a price that doesn’t meet your return on investment criteria is losing. By maintaining a rigid adherence to our financial discipline, and by following our strategic direction, we can ensure that all of our experiences in the acquisition field are winning ones.

Summing up, all of us at IDT Telecom are pleased with the results of fiscal ‘02 and are fixing our collective gaze forward, not backward. We have entered fiscal ‘03 with a great deal of enthusiasm, ready to accept its challenges and continue to grow. From a personal standpoint, I have made a commitment to get out there and help drum up business for IDT. We already serve most of the world’s largest carriers, but we want to serve all of them. In addition, we won’t be satisfied until we’re generating a lot more business from those companies we already serve.

To that end, I have been pounding the pavement in recent months. Without mentioning specific names, I can tell you that in recent months, I have met with high ranking executives at nearly every one of the major U.S. based carriers, multinational carrier and RBOC alike. In addition, I have talked to people at some of the largest internationally based global carriers as well, and I can assure you that the people I’ve met with are truly the decision makers at their companies. Although we like to talk about the opportunities that have been coming our way, both in the retail and wholesale markets, due to the exit of many of our competitors from the global telecom marketplace, we are not taking the market share gains for granted. We are working as hard as ever to get that business.

At this point, before I turn the call over, let me take a moment to thank my entire talented, hard working, and dedicated team for their role in helping us deliver a great fiscal ‘02. I know that it will not be easy for us to accomplish all the ambitious goals I have outlined here. I also realize that in the near to intermediate term, the industry environment will be as turbulent as ever, but I can assure you that our entire team will be working as hard as ever throughout fiscal ‘03 to turn these goals into a reality. I look forward to sharing the details of our success with all of you in the future. Thanks for listening, and now I will turn the call over to Mitch Burg.

Thank you, Motti. While the summer may be a slower period for many media companies, it’s been a busy time for IDT Media, and I would like to share some of the progress that we’ve made. At our Talk America syndicated radio network, we are continuing to make strong progress in remaking this property into the leader in intelligent, informative and entertaining content. We have made significant changes at the network including introducing exciting new programming and putting a new management team in place, who are already making a significant impact on this business.

While Talk America has made progress since we acquired it in the fall of 2001, we needed to put a leadership team in place that will grow the network to profitability. Trang Wen [sp] was named the COO of Talk America this summer, and she and her team have put a plan in place that will focus on finding better programming, cutting nonproductive areas, providing focus to our affiliate relations group, and building a better sales organization. From a programming perspective, it is a time of in with the new, while culling nonproductive programming areas. We introduced several new programs since our last call, and they are successfully being received.

Heloise is the preeminent lifestyle management expert, and Talk America has her exclusively. Heloise allows us to distribute both a short form, 90 second feature, as well as having an hour-long call-in program. As background for those who are not familiar with her, Heloise has a monthly column in “Good Housekeeping Magazine,” as well as a daily column that is distributed in more than 300 daily newspapers. Together, Heloise has a combined readership of more than 50 million women throughout the United States. Our strategy of leveraging her strong persona to find new affiliates, along with distributing her show through the current Talk America lineup, allowed us to achieve a strong rating that will be sellable from an advertising sales perspective.

Talk America added Mort Crim’s short form broadcasts to our lineup this spring. Mort has been providing us with three daily features that are heard on more than 800 stations across the country. Beginning this fall, Mort added an additional feature, entitled American Spirit, a celebration of the heroes who are among us. This feature is perfectly positioned to take advantage of the patriotic fervor that is sweeping the country, and we have employed a similar affiliation strategy to build significant ratings that can generate advertising revenues.

Beyond the features, Schmoolie Boteach [sp] is giving a daily three-hour program. This program is an important element in our long-term strategy of providing intellectually challenging, informative programming. Schmoolie is a dynamic personality who has the breadth to take on the events of the day, as well as the stories behind them from a human perspective. As an example, in dealing with the Washington, D.C., sniper, Schmoolie interviewed local police, a crisis counselor, as well as people on both sides of the gun control issue. To add to this program, renowned guests ranging from Ellie Weisel to Scott Ritter, the chief U.N. Weapons Inspector, to Christopher Reeves’ doctor, Dr. John MacDonald. This is a very exciting program, and Talk America has it exclusively.

We continue to upgrade our programming lineup, and we are proud to announce that we have signed a contract with Charles Krauthammer [sp] to do a one-hour program that will start in the first quarter of 2003. Charles is a Pulitzer Prize winning commentator, whose columns are syndicated by the Washington Post, as well as appearing in “Time Magazine.” Charles’ weekly show will feature a one-on-one interview with a leading voice of our nation, and this program will lend insight and clarity to the major issues of the day.

As we move forward, Talk America will continue to bring important new voices to the radio that will provide important, intelligent content. We have reached an agreement in principle with another leading personality, and we are in negotiations with additional notable voices. We will announce these agreements as contracts are signed. In order to provide focus to our core elements, we made the strategic decision to exit weekend programming at this point in time. This departure allowed us to reduce costs in an area that had produced significantly limited revenue. Importantly, our affiliate relations staff is now focused on clearing weekday programming on the rated stations that will drive advertising revenue. This approach has already generated significant results.

And we are proud to announce that we are clearing programming on over 200 new stations since our last call. The net result is that Talk America programming is now heard by over 5 million listeners each week. With this significant increase in audience, we believe that there was an opportunity to move to a more effective advertising sales partner. We recently signed an agreement with Dial Global, who will represent us to the major advertising agencies. This new relationship began at the beginning of the month, and Dial Global is an experienced national talk radio sales resource, and they are already providing improved results. Much progress has been made at Talk America, and we will continue to strive to provide rated stations across the country with better programs that will build their audience and be more attractive to our advertisers.

IDT Media reached agreement to purchase WMET 1150 AM in Washington, D.C., our first owned and operated radio station this spring. The FCC transferred the license for the station to us this summer, and we are in the midst of building out this station to a 50,000-watt daytime facility. Additionally, we are also building an office and studio complex in downtown Washington. Programming for this station will use original content such as Krauthammer and Boteach, new talent that we are in negotiation with, as well as selected voices from Talk America and other outlets such as Bill O’Reilly and “Fox News.” The net result is that WMET will be the must-listen voice of authority in the nation’s most powerful market.

At our digital production solutions unit, we have great news from GAS, our Global Animation Studio. This studio produces Pixar quality 3D animation at prices comparable to 2D animation. From a product quality perspective, we have now done enough work to demonstrate that we can deliver on this promise, and our reel has been universally well received by companies in New York, Hollywood, and Europe. We are aggressively marketing the Global Animation Studio to film studios, T.V. producers, advertising agencies, and as a promotion vehicle.

To date, we have signed four contracts that range from a commercial application to a T.V. series pilot to direct consumer videos. Additionally, we have developed our first animated product, and we are negotiating licenses with a prominent content distributor. Our financial model is to receive fees for the animation, as well as retaining backend participation in video distribution, as well as licensing. In the short term, we are in significant discussions with a T.V. network for a combined live action, animation project; a film studio that is looking to us for the same type of work for a theatrical release, as well as sports teams who are talking to us about in-stadium as well as promotional animation.

Development at our Winstar T.V. Network continues. This T.V. offering will provide broadcast quality T.V. news content to desktops across the Winstar platform footprint. Operationally, we have completed a broadcast center in Newark, and will shortly begin a test at two sites in New York. After completing these tests, we will begin operations and usage tests with two current Winstar clients. Our goal is to roll out and market this product to Winstar clients by the end of the first quarter of 2003. With a proven successful product, we will then invite other private internet providers to license the product for their clients. Our financial model will focus on subscription revenue initially, with advertising revenue as a secondary stream once critical mass is achieved.

Our IDT Services Group is developing programs that allow outside clients to build marketing relationships with customers who call IDT’s call center. This group currently has five clients ranging from financial services, to publishing, to educational offers. The clients are pleased with the initial results of their marketing efforts, and we are using our experiences to improve their performance, develop cross selling opportunities for other IDT products, as well as build margin through automation. This is an area that will provide a profitable incremental revenue stream for IDT, and our Marketing Group is second-to-none in their passion to develop this area.

Business is improving at our CTM Brochure Distribution Network. This travel related business was depressed as the industry was impacted by the events of September 11th. The summer is our strong sales period at this profitable unit, and we were able to grow top line sales. Moving forward, we will continue to push internal top line sales growth by seeking out additional distribution outlets, exploring attractive acquisitions, while identifying ways to improve EBITDA at this unit. It is important to note that with the exceptional CTM, IDT Media properties are startups that are nine months old. Our staff is exceptional, energetic, innovative and passionate about building their businesses, and progress towards profitability is definitely being achieved.

I will now turn over the call to Brian Finkelstein.

Thank you, Mitch. Good afternoon, everyone. During our last call, we talked about all of the initiatives we had put in place in order to reduce costs, expand our revenue growth, and create an infrastructure to build upon. I am pleased to report that we continue to make significant progress on all of these fronts, as our key metrics, which I’ll discuss later, indicate. But as anyone at Winstar can attest to, it hasn’t been easy. The effort to clean up the inefficiencies associated with the operating procedures and policies of Winstar before it was acquired by IDT, has been time consuming and arduous, but we’ve succeeded. Let me cite just a few examples.

It took 52 days -- that’s almost two months -- to provision a customer at the time of our purchase of Winstar. Now the provisioning process is down to 38 days, compared to an average of 45 days that it takes an RBOC to install service to a customer. Our goal is to reduce our provisioning cycle even further, to 24 days by early 2003.

When we acquired Winstar, we discovered that there was a billing backlog of more than 3,000 orders. Now we’re down to a backlog of approximately 600 orders, and we plan to clean that up by the end of this month. After closely examining Winstar’s records, we found that the average termination time for customers, that is the time between when they requested a disconnect, and when they were actually disconnected, took six months, a totally unacceptable length of time. After revamping the disconnect process, we have cut that down to a maximum of two weeks.

At the time of IDT’s purchase, Winstar maintained that its customer base consisted of approximately 25,000 accounts, but we found that many of them were not active. Since then, we have spent a significant amount of time determining the actual number of active accounts, which are closer to 15,000. Despite all these unforeseen obstacles, we still delivered on our promise to cut Winstar’s monthly burn rate excluding intercompany charges and one-time payments, to $5 million by the end of the last quarter. That is a remarkable achievement, and we appreciate all of the hard work from our dedicated and extremely motivated employees. Now that most of the fires have been put out, and we have a much clearer picture of the tremendous potential of Winstar’s business, we can focus on building a truly efficient and profitable business that makes sense both for us and for our customers.

To that end, we have implemented several initiatives over the past quarter to help us grow our revenue base. A good example of this would be the New York City Landlord program. We have a team that meets with the landlords and property managers of all our Manhattan buildings, with a goal of reestablishing relationships, and encouraging the landlords to agree to joint marketing efforts. This is meeting with great success. Many landlords are providing us with the most up-to-date tenant lists. Many others, approximately half, have agreed to send a letter on their own letterhead touting Winstar as an excellent and reliable telecom provider now available in their buildings. We have gained access to over 500 new tenants as an early result of some of these efforts. Given the success of the program in New York City, we will be rolling it out across all our markets over the coming months.

Most importantly, we have reorganized our sales force into five distinct sales channels, which is helping us become more efficient in acquiring new customers, and has enabled us to create a rational business model for our ongoing operations. I’d like to provide you with a brief overview of each of these channels and how we’ve segmented our market.

First and foremost is our general business sales channel, which focuses on offering primary telecommunication services for small and midsize companies in our 3,000-plus OnNet [sp] buildings across our 22 major metropolitan markets across the United States. The sales force in the major accounts channel will target firms located in our OnNet buildings, as well as certain OffNet [sp] buildings, that spend anywhere from $5,000 to $50,000 per month for their voice and data services.

Providing redundancy to large, high profile corporations is Winstar’s value added proposition for the named accounts channel. Winstar is the only company that can provide truly diverse routing options for these firms’ telecom needs, an important consideration in the post-9/11 environment, and a key competitive advantage and differentiator for us. Every potential customer we’ve approached in this segment has recognized and acknowledged the need for our offering.

Our government business continues to expand, thanks to new task orders in several markets, including St. Louis, Boston, and Los Angeles. We believe that the potential for this business is huge, especially now that we have received approval from the GSA to novate 12 metropolitan area acquisition contracts with an evaluated contract value in excess of $560 million. We hope to capture a significant percentage of this business.

Since being acquired by IDT Corporation, IDT Winstar’s Government Group has been working diligently to novate these contracts with the GSA. Undoubtedly, the GSA’s willingness to novate these critically important contracts is an endorsement of IDT Winstar, and its ability to provide facilities based broadband services to Federal agencies within the civilian and defense communities. IDT Winstar’s fixed wireless technology has been deployed across the United States, providing telecom services to over 50,000 government telephone numbers. IDT Winstar’s installed base of MAA services ranges from basic local dial tone to high-speed data services.

Finally, our WAN business, which consists of providing frame relay and dedicated services to the business community and capacity to ILECs is poised for growth. We believe that this channel can help us significantly increase revenues during the next year. Our revamped sales organization, and the targets we have set for each specific sales channel, will require the best and the brightest sales force in the industry. So as Qwest, Global Crossing, and WorldCom downsize, letting go of their experienced sales people, we are going to build up smartly and selectively. By the first calendar quarter of 2003, we will have increased our sales force from 120 to 175 people, and we expect to see the benefits of this expansion in both new customers and revenue growth in the very near future.

Before I provide any guidance for the upcoming quarter, I’d like to talk for a moment about how the synergistic benefits of the Winstar-IDT relationships continue to positively impact both companies. For example, we at Winstar are using IDT long distance network to sell our customers additional product and services, including calling cards as well as domestic and international long distance. While IDT is using Winstar’s local access and capacity to connect in a cost effective manner IDT’s calling card customers as they call across the country. Both companies are working together to create a coordinated sales approach that will benefit its customers and each other.

In terms of offering specific guidance, I first want to reiterate what I mentioned earlier. We delivered on our promise to bring our monthly burn rate from occurring operations down to $5 million by the end of July. We are still on target to reach profitability, our most important goal, by mid-to-late 2003. Finally, EBITDA losses have dropped from $41 million in the fiscal third quarter to 30 million this last quarter, and we expect there to be a 21 to $23 million loss in first quarter 2003, which ends this month.

To conclude, we are making great progress, and turning Winstar into a profitable, well managed company, but there’s still a lot of work to do. We need to continue to execute our strategy, meet the challenges, and overcome the obstacles that will undoubtedly come our way. Based on the commitment levels of our employees, and their willingness to work day and night to achieve our goals, there’s no reason to believe that we won’t succeed. I would now like to turn the call over to Steve Brown, the CFO of IDT Corp. Thank you.

Thank you, Brian. It is once again my privilege to provide an analysis on the financial results of IDT for the fourth quarter ended July 31st, 2002. This quarter once again reflects a fourth consecutive quarter of quarter-to-quarter improvement in our core business, our telecom business. That’s four consecutive quarters of improved revenues and improved operating margins, and this is at a time when many of our competitors continue to disappoint shareholders with their performance. And the good news is that we expect our telecom business to continue to improve; whereas, it will be difficult to match continued growth on revenues, gross margins and debt margins on a quarter-to-quarter basis, we are confident that by this time next year, on a year-to-year basis, we will show improvement across the board on all three sectors. And whereas we may not be able to sustain these three trends next quarter, as the new initiatives that Motti discussed earlier become activated, we will continue to grow our core telecom business impressively.

As far as our other businesses are concerned, Winstar continued to show continued advances, and its slow march toward profitability with an improved loss of 33 million this quarter, an improvement of $10 million from $43 million loss last quarter. As Brian discussed earlier, we have revised our expectations and the goal is to have Winstar at breakeven during Q4 of our next fiscal year.

Media continued to show improvement, with a loss before impairment charges of $3.6 million, which is down from $5 million loss last quarter. And we expect to show improved financial results quarter-to-quarter, and especially late in the third quarter of next year and the fourth quarter of fiscal 2003, when our Washington radio station is completed, and some of the back-end portions of our animation studio deals become realized, there will be even more significant improved financial results.

At the consolidated levels, removing the effects of an impairment charge incurred due to the devaluation of our Tyco assets -- again, our Tyco asset was received for free in our settlement with Tyco -- we incurred a loss of $30 million from operations, and we had an EBITDA loss of $10 million. This represents a significant improvement from a $43 million loss from operations last quarter, and a 26 million EBITDA loss last quarter. Not counting the effects of Net2Phone, which will be included in our operating results starting Q1, we should be approaching EBITDA breakeven in Q1, and be net income from operation positive no later than Q3.

In our press release, we have included a pro forma profit and loss statement, which eliminates the impairment charges, non-cash investment gains and loss charges, and the results of Winstar. Specifically, we omit Winstar in this pro forma, as long term shareholders know, to properly evaluate the performance of RET’s [phonetic] corporations. From when we made the decision to buy Winstar, we knew it would take 12 to 18 months to bring it to profitability, and internally, we’ve used such additional fundings as part of the acquisition gamble. Pro forma earnings revealed improved net income of $11 million, as compared to 5.7 million last quarter, improved income from operations of 4 million compared to $1 million last quarter, and improved EBITDA of 21.8 million as compared to $14.8 million last quarter.

EPS improved to 13 cents per diluted share as compared to last quarter. Basic shares outstanding for the quarter were 79 million, and diluted shares were 85 million. And most importantly, our cash and marketable security position remain largely unchanged at slightly above $1 billion. And we continue to search for bargains and profitable assets on the cheap, such as our recent acquisition of Star Telecom’s OC3-OC12 Network that we purchased for about $600,000, which gives us the deserved reputation as an industry consolidator.

Now I will give you a more detailed analysis of our core telecom businesses. Retail telecom revenues grew 3.8 percent quarter-to-quarter from 285.4 million last quarter to 296.2 million this quarter. And our retail telecom revenues, domestic long distance revenues, grew 8.9 percent to $32.3 million this quarter, and prepaid calling card revenues grew 3.2 percent quarter-to-quarter.

Going forward, we anticipate marginal organic growth in our retail revenues, specifically in our prepaid calling card revenues, which will be coupled by about a 5 percent growth on our domestic long distance revenues quarter-to-quarter after the network transition is fully completed. And we hope to add additional revenue growth during the next fiscal year, as our private labeling branding business grows, as well as from the other initiatives discussed by Motti earlier in this call. Wholesale revenues grew 10.8 percent quarter-to-quarter from 79 million to $87.5 million. There may be a hiccup in the growth of wholesale revenues in early fiscal 2003, but overall, we do expect growth year-to-year.

Regarding gross margins, retail gross margins improved 80 basis points to 23.9 percent. Wholesale gross margins decreased by 100 basis points to 10.1 percent. Overall gross margins remained basically stable, decreasing by 20 basis points to 24 percent. Gross margins for the time being have stabilized, and we do not expect any continued improvement line-by-line in the short term, but may improve as the shift of revenue mix in the future.

SG&A expenses in the telecom unit improved by 100 basis points from 17.2 percent of revenues to 16.2 percent. The decrease is reflecting reduced marketing costs, as well as our ability to add revenues without the need to increase our infrastructure cost through organic growth. As a percentage of revenue, SG&A costs will most likely decrease marginally over the next couple of quarters.

Depreciation and amortization remained around 4 percent of telecom revenues. Overall net income from operations improved 30 basis points from 3.4 percent to 3.7 percent. EBITDA per division is as follows: telecom recorded EBITDA of 29.4 million, up from 25.6 million last quarter. Winstar had an EBITDA loss of 30.2 million, improved from $40.9 last quarter. Media recorded EBITDA loss of $3.6 million, an improvement from last quarter’s loss of 4.9 million. Corporate expenses increased marginally from 5.9 million to $6.5 million.

Overall, financially our fourth consecutive quarter of improvements throughout all segments of IDT, a trend we hope to continue in our march towards profitability.

Thank you very much, Steve. Just before we go into our questions and answers, let me just say we’ve added a team member to Investor Relations, Sam Abraham, who’s Vice President of Investor Relations, to beef up that. He’ll be working, obviously, with Mary Jennings, and all of you know Mary. So we’ll entertain the questions now.

++ q-and-a

(CALL INSTRUCTIONS). Your first question comes from Andrew Sadati with William Smith & Co.

A few questions on Winstar. I believe, Brian, in the last call, you mentioned that the net -- your OnNet business consists of about 8,000 customers and the average billing was around 600 a month. I was kind of wondering what those figures are, what they’re currently at.

Good question, Andrew. Right now, we’re billing over $5 million in our OnNet buildings. The amount of customers has gone up steadily. I think it’s currently approximately 86, 8,700. You know, understand that right now, you know, for a period of time, we were certainly playing catch-up. It was very much an uphill battle, as we had competitors going through our buildings, telling customers that Winstar had been out of business. So it really required a lot of tenant events, a tremendous amount of effort on behalf of the sales force, happy customers telling those tenants that, in fact, not only are we viable, but in fact, we have a fantastic offering. So again, we’ve increased the amount of tenants that are using our service, and on average, those tenants are actually paying more for those services.

Okay. Any idea, any ballpark figures on that, Brian?

Ballpark figure in terms of what the average usage is?

I’m sorry, on the average billings per customer, monthly, average monthly billing.

I think the average monthly is probably between 650 and $700 per customer.

And are you in the gross margins?

Yes. The average gross margins within our buildings are -- depending on the size of the order, it could be anywhere from 30 percent as a gross margin, all the way up to about 70 or 80 percent. It really depends on the building, and how difficult it is for provisioning, you know, to be accomplished within that building, and also the size of the order in the building. Naturally, the margins within our footprint, the margins are a lot wider for the larger orders within those buildings.

And then your -- I’m just trying to get a feel for this -- your target penetration rates in existing buildings, kind of what they currently are, I suppose as far as either looking at it from a tenant perspective or a revenue perspective, what your goals may be there?

Right now, in terms of -- from a tenant perspective, the penetration rate is -- it seems to be in the neighborhood of 8 percent. From a revenue perspective, it’s in the neighborhood of about 2.5 percent. You know, and as you can see from there, I view that as a tremendous opportunity because, typically speaking, it takes longer to get to the large accounts. First of all, they’ll typically have contracts. It’s more difficult for them to get out of those contracts. So sometimes we just have to sit back and wait somewhat patiently until the contracts are up for renewal. Also again, as a bit of an upstart, and to a certain extent we are an upstart, the sales cycle, in order to sell those larger enterprise customers within those OnNet buildings, is a bit longer. So, you know, what I see developing is number one, clearly the percentage of the actual users within the buildings are going to be expanding, but I think you’re going to be seeing a much more dramatic increase in the expansion in terms of revenue penetration.

And just I wondered if you could just quickly take a moment to kind of review the elements of your sale incentive plan for the Winstar sales people?

Well, the key elements are that, you know, as I believe I mentioned the last call, is that it’s a combination of compensating for billed revenue that comes in and also for the retention of the revenue that’s contained within the buildings that a specific salesperson is assigned. And it’s a combination of payout from the time that a new customer hits our billing, and the there’s also a review that happens throughout the year to see how a particular salesperson is doing vis-à-vis the retention and the growth within the buildings that they’re covering.

And just a last question, Brian. Have you had any success in signing any large enterprise for backup service?

We’ve had a number of successes over the last few months, and I will say that in general, it’s incredible to me the fact that there’s virtually not a large enterprise customer there that hasn’t opened their door for us to discuss redundancy. The challenge is, when you go in pushing redundancy, to be able to get out -- come out with a substantial order, as opposed to a smaller order with the idea that, you know, give us a few months to kind of test the network and see how we perform. But the doors have opened for us and we’ve made a very -- a number of very, very nice sales to large enterprise customers.

And just a couple of questions for Motti, and I’ll jump back in the queue and give someone else a chance. Motti, on your -- I was wondering if you could update us on the progress you’re making on leveraging the Hispanic customer base to sell other products such as long distance?

Sure. Presently we sell approximately 18 million cards per month to the ethnic community. Approximately 15 million of those cards are to the Hispanic customer base. We’ve launched, or in the process of launching right now, a stored value product that’ll give the ability for our customer to -- who bank in the U.S. to have the ability to have a debit card, to go to his local supermarket and use that as a vehicle for cash, as well as give him the ability to load that card in the U.S. and transfer money abroad at much more competitive prices than is charged by Western Union and Moneygram. We anticipate, based upon information that’s been disclosed by the government, that’s over a $20 billion a year business being transferred abroad, and we being one of the largest senders of minutes to Mexico and South America, we believe we can capture a large part of that business, due to our brand and customer loyalty. That is one product that is in motion and should be launched first quarter of calendar year ’03.

Additionally, we’re in the process of offering a targeted Hispanic LD offering, offering them a postpaid service that they can dial up from their home, similar to AT&T and WorldCom service, at competitive prices to the territory that they need. I’m sure you recently saw in the Wall Street Journal, we are rated with the other big three, AT&T, WorldCom and Sprint, and on all fronts, we are rated No. 1, both from the perspective of service and from the perspective of price. And we anticipate that we will grow the business dramatically in the coming year.

And you mentioned the increased ad budgets, and I was just curious what your current subscriber acquisition cost is in the long distance business, and where you might see that moving?

Presently, it’s under $30, and we anticipate that it would stay in that vicinity, in the neighborhood of 28, hovering to 32. We presently have locked-in commitments with major news channels, and we anticipate to enter into other large agreements. And as you can realize that today, you know, WorldCom and other major companies are not spending the dollars in that -- in their budgets, and it’s opportune for us to capture a customer at a lot lower customer acquisition cost than we had in the past.

And the last on long distance will be, maybe you could give like what the average revenue per customer is, and what you goal is?

Sure. Presently, the average revenue is in the neighborhood of 30 to $35 per month per customer. We recently got a license in New Jersey to start offering local service, and we’ve applied across the country, in major states throughout the country, to start off in local as well. So we anticipate in ’03, calendar ’03, that that should go from $30 per month, I’ll say to the neighborhood of 45 to 50. Additionally in the past, we are focusing on just a domestic plan, a nickel a minute, seven days, 24 hours, anywhere in the U.S. Presently, we’re going to start penetrating the international capabilities, and offering attractive international rates to increase the international revenues from such customer base.

Your next question comes from Peter Eiffel [sp] with Schneider Capital Management.

A couple of questions, firstly on the Winstar segment. Can you provide, I guess, some evidence or -- I’m trying to look at when will we see the top line in that segment stabilize and preferably grow?

That’s currently happening. Just to give you some guidance on that, the net revenue in the fourth quarter was $27 million. The projected revenue for the first quarter is going to be about $25 million, and that’s not because of a decrease in the natural revenue in terms of the ongoing business. As you probably know, this was discussed about six months ago, when we actually started in earnest looking at the business, and looking at it, and trying to rationalize the business. We exited a number of business lines primarily due to regulatory constraints. You can’t just flip on a switch and get out of that business. For the most part, we did -- there were about 3,000 customers that, unfortunately, we had to discontinue service for because they were either in locations that we didn’t see as a long term fit for us, or it was the type of resale business that, just again, was not a fit. But again, it just doesn’t happen overnight.

So number one, there was the ongoing effect of a lot of these terminations. Number two, as I mentioned in the -- in my remarks earlier, the entire accounting system within the old Winstar was one which was very problematic to deal with, because a lot of customers would terminate their service, but yet they would remain in their systems for months on end. We put an end to that, and from an accounting perspective, as soon as a customer terminates service, we immediately would take it out of revenue. It’s an immediate process. On the other hand, when a new customer signs up, we don’t actually add that customer’s business into revenue until we’re fully provisioned. And as I mentioned, that was a process that could take up to two months.

So as a result, there were certain timing issues that would result in some of the lower revenues, but there’s no question about the fact that -- it’s not only a question -- it’s not only a situation where the bleeding has stopped and things are under control. In fact, we’ve actually turned the corner, and I think, beyond a question of a doubt, you’re going to be seeing quarter-after-quarter continued growth in gross revenues. There’s no question about it.

The terminations, that would be cleaned up. I think Brian talked -- there were 600 or so left. Is that right? And that -- there’s about a month or so left to go on that?

There I was discussing the back orders, where there was a billing backlog in the past of over 3,000 orders, which we’ve gotten down to 600, which will be totally eliminated within about a month or so.

On the termination side, when will that be? When will we get sort of a clean order with respect to that effect?

A customer will have their service turned off within two weeks, but as I mentioned, from an accounting perspective, as soon as customer service is notified of the termination, we immediately make the adjustment to revenue.

I think you mentioned that in the month of July, your loss was about 5 million for that month. Is that right?

The cash burn from occurring operations, not including the internal expenses, internal inter-co charges that we had, as well as one-time payments; there were a number of one time payments that we had to spend, you know, certain settlements with carriers, with the landlords. But excluding those payments and the inter-companies, there was $5 million from occurring operations.

So the quarter coming up, the first quarter, which has almost ended -- I think, Brian, I thought you said a 20 to $23 million loss. Is that right?

We anticipate an EBITDA of 20 to 23, and that’s all-inclusive. It’s inclusive of the inter-companies. It’s inclusive of any settlements that we -- that have been made or that we anticipate that needs to be made between now and the end of the month.

Well, are you still seeing an improvement in terms of the month-to-month loss, or are we [indiscernible]?

Oh, absolutely. No, no, no, no. We -- the same way that I spoke earlier about the gradual increase in the -- in gross revenues, you’re going to see a gradual decrease in the burn.

Okay.

So as I mentioned in the call, in terms of profitability, which again, as certainly everyone here has used that as the ultimate goal, we’re very much on target to be hitting that in somewhere between mid and late 2003.

I guess I saw before in my notes, I’d written down that you’re supposed to hit that goal towards the end of this calendar year. It looks like that got pushed back six months?

Well, I will tell you, I’m not one to make excuses, but I will tell you just a few facts that are responsible for that. Yeah, I mentioned the fact that our GSA contracts were novated. That was a process that we thought was going to happen, at the latest, in April. I’m not going to get into the details behind that. Let’s just say that that is truly a testament to the strength of this company and the strength of our technology, because despite major lobbying effects by the RBOCs and by others, the fact that the GSA stood in our corner and novated those contracts, speaks volumes. But unfortunately, as a result of that, revenue that we counted from our government channel was certainly delayed, number one.

Number two, the process of disconnects, because we chose to do it the right way, which means the right way for our customers, even if they’re not going to remain customers because they’re in locations that we’re no longer servicing; that process was a lot longer, and you know, it was a much more difficult one than we anticipated. So there were external reasons that kind of slowed down our growth. I can just say that when we spoke about initially hitting our first target of the $5 million burn, there were people that, when they heard that, thought frankly that we were completely insane. And yet we hit those targets. You know, when I talked about the mid to late 2003, those numbers, I feel very, very comfortable hitting. The obstacles, as I mentioned, we had a lot of fires that we had to put out. We’ve done that, and we’re ready to move on.

I might add one other thing, and this is Jim Courter, that when we bought Winstar in December of last year, you know, all the best information that we got from the due diligence led us to believe that the losses would be about $10 million a month. And after two or three or four months down the road, we find out, you know, that it wasn’t 10; it was closer to 19. So and it was such a state of confusion; I think that, more than anything else, has to do with the fact that we’re pushing this off a little bit. But we’re confident now that we have a handle on it.

Okay. Just in the telecom segment, did I hear correct? I think you said that the gross margins would decline slightly in the first quarter. Is that right?

That is a correct statement, a minimal decline. Revenue growth and a minimal decline in margins.

What’s causing that decline?

General market conditions, nothing risking the business in long-term margins; just different traffic patterns and different market rates. But in the big picture, the business is growing extraordinarily solid, and we anticipate to see continued revenue growth. And additionally, when you do revenue growth at a quick pace, you have sometimes slippage in margins, but we are not concerned with the margin slippage. We are focused on keeping costs under control, and ensuring that we continue to fill the bank account with free cash flow.

I have been advised that we unfortunately have time for just one further question, and that may have something to do with the fact that the Net2Phone has a conference call coming up soon. And I know that people want to get onto that.

Okay.

So we’ll take one more caller question.

Your next question comes from Mr. Peter DeWelb [sp] with Account Management, LLC.

It’s a privilege to finish up. What is -- wait a second. I have lost -- it was mentioned in the -- oh, here it is. Vartech [sp], I can’t find out anything about them. Do they have about the same prices as you do -- no, not as good as yours, $19, 17-1/2. Can you tell me anything about Vartech.

I’ll give you a limited understanding of Vartech. They’re, I think, the successor of Excel. They ride a network, which I would say is not as equal in quality as ours. I would say Nationwide Network is probably the best in the country. It’s a small company, but attempting to compete as well with the WorldComs, AT&Ts, and Sprints of the world. But I truly believe we’re better positioned to service the U.S. population.

Is it public or private?

A private company.

A private company. Okay. Thanks very much.

Okay. One last thing then, and I apologize for not having entertained more questions, but we can’t because of other events. I promise you next quarter, we’ll make sure that the prepared remarks are shorter, so there’ll be more time for questions. For those of you, however, who want to talk to IDT’s Investor Relations people, you can call, as I mentioned before, a new person, Sam Abraham, or a person that’s been with us for quite some time now, Mary Jennings, at 973-438-3124, and they are manning the phones now. Thank you very much and good evening.

This concludes today’s IDT conference call. You may now disconnect.