IDT Corp (IDT) 2003 Q4 法說會逐字稿

Good afternoon and welcome to the IDT Corporation fourth quarter and year end results conference call at this time all participants have been placed on a listen only mode and the floor will open for questions following the presentation.

I would now like to turn the floor over to your host Jim Courter CEO. Sir, the floor is yours.

Good afternoon, this is Jim Courter, I would like to welcome you all to our forth quarter earnings call for fiscal year 2003 which of course ended July 31 past. We are eager to share with you our achievements and financial results.

In a few moments I will turn over the call to the executives of our various divisions, you know them all now. Morris Lichtenstein, CEO of IDT Telecom, Brian Finkelstein, CEO of IDT Solutions, Mitch Burg, CEO of IDT Media, and Steve Brown our Chief Financial Officer.

I will give you an overall picture of the progress IDT has made over the past year, highlight our major achievements and share with you our vision for the company as we go forward.

Before that I have to start out with legal disclaimers. I am sorry about this, you have heard them before. I must caution all those listening today about any forward looking statements that you may hear during the course of this conference call, during both the presentation by executives including myself in the question and answer period that follows we may make forward looking statements either generally or specific in nature. These statements are subject to risk and uncertainties that may cause actual results to differ materially from result that we anticipate. These risks and uncertainties include but are not limited to general economic conditions in the global telecommunication market.

The general condition of the economy in United States and internationally that eruptions of our facilities and operations due to a variety of causes including terrorism, war, excel guard any other specific risks and uncertainties discussed in our annual report on form 10K covering the period end of July 31 2002 and any other factors that effect the business in which we are involved.

We assume no obligation to update any forward looking statements that we have made or may make or to update you about the factor that may cause actual of to differ from those that are forecasted. One more important item in this presentation we will present certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure can be found on the investor relation page of our Web site at "http://www.idt.net4/ir" by clicking on the word 'financials'.

The ancient Greek play writes Repedies (ph) wrote that wisdom buries in proportion to our failure or our achievement. Here at IDT we have become known for taking the road less traveled to go to modern port. We often disregard conventionalism and I believe that no one knows our business better then we. Now that the results are in I believe we have demonstrated our own wisdom. I am delighted to announce another year of record-breaking revenues.

Our revenue increased by more then 15% over 2002 to a total of $1.8 billion. The increase was driven by a spectacular growth of telecom minisciviews (ph), after remarkable 40% to a total $16.5 billion. What makes this remarkable is that the long distance industry as a whole has been in declined that due to both volume shrinkage's and pricing pressures.

It multi (inaudible) team and its talented telecom team have formulated and executed a long-term strategy and it is paying off. They have all set margin declined by generating incrementing through relationship with over 80 new hotel customers including PTTs, Asia, and Africa by linking private label deals with chain such as wandering drug fare cross covers. Now industry analyst now have been crowding a long twilight of the carrier industry (inaudible) IDT grew our wholesale telecommunication business and revenue by over 40% during past year.

The details of our success over the course of fiscal year 2003 are as exciting on the overall picture. Telecom doubled the operating income from $31 million in fiscal 2002 to $63 million this past year. The fourth quarter of fiscal year 2003 was yet again our record breaking quarter for IDT with $485 million revenue and through the fourth quarter IDT Corporation and as a whole was in the black with $8.3 million in that. Our entries in the computer generated animation market net yet some skepticism obviously yet we believe that our proprietary technology embodied in the global animation studio that we have here in North. We revolutionized the way animated movies are created and we will make our self-market leader in this industry as well.

In previous quarters we announced individual agreements with our animation group, stepping back and looking at the larger picture, you will see that IDT is assembling a world-wide chain of animation hub that will allow us to affectivity market and manage our services in Europe, North America and Asia and take advantage of government incentives available in various countries.

We believe that are acquisition of film moment are partnership with Vanguard (ph) Animation and latter with (inaudible) mainframe entertainment, combined with out global technological and creative resources has given us greater production capability than any other animation studio in any part of the world.

We cannot believe that not only can we produce 3D computer generated animation far more cheaply than our competitors so we can also significantly reduce the production cycle for animation products.

In radio, we have reengineered our programs indication network formally known at Talk America and renamed it Liberty Broadcast. We will shortly launch a platform of intelligent and energetic talk. Advance market interest for this is more (inaudible) radio product had been very enthusiastic. We have long ago learned that a company must respect customers intelligence that hopes to meet their needs and win their loyalty that is the story of IDT for fiscal 2003 in an (inaudible).

We decide market trends to generate yet another record quarter and another record year breaking into overall company profitability. Technological intervention and new approaches to old business have positioned us to make breakthrough strives in additional industries. Much of the credit, frankly, belongs to our Chairman, Howard S. Jonas, he has guided IDT to success in achievement with a unique mix of independent and innovation an approach that has been absorbed and implemented by the IDT's talented managers and now I pleased to turn the call over to our Telecom CEO, Morris Lichtenstein.

Thank you, Jim.

Once again, I would like to take the opportunity to speak about the quarter and fiscal year (inaudible) as our expectations in current quarter and fiscal year. About one year ago, when I gave my ramp up Fiscal 02, I mentioned that well Fiscal 2002, was about trekking our core structure, Fiscal 03, would be would be a back log (inaudible) revenue line with all sacrificing much in the way of margin

And you can all see from the numbers that we have reported today matched exactly to that. For the year, revenue has increased by 16% to over $ 1.6 billion, our gross margin (inaudible) 22.7% was essentially unchanged from low Fiscal 2002.with SG&A increasing only slightly and dropping at the percentage of revenues.

We have recorded EBITDA obviously $130 million of 45% from the $ 89 million of EBITDA, we achieved in Fiscal 2002. Our operating income opted to nearly $60.9 million in Fiscal 2003 more than doubling on Fiscal 2002 performance. Fourth quarter was the particularly a strong one for us coming on the (inaudible) of the third quarter where we believe we got our business back on track. The fourth quarter represented a confirmation of the strength of our business model.

We generated revenues of over $ 435 million up 7% from the last quarter and a 15% jump from the last year, fourth quarter, close margin as lower, remained in the range of the previous two quarters of EBITDA at $36 million and operating income at $20 million for the highest ever recorded at IDT Telecom. Steve Brown will provide greater details on our numbers in his discussion to follow.

We will now put together the following (inaudible) eight consecutive quarters of increasing revenue, eight consecutive quarters of EBITDA and eight consecutive quarters of operating income.

However as I said in the past the (inaudible) measure of our performances is our ability to generate cash. Our pre-cash flow calculated after tracking our capital expenditures from EBITDA amount is over $60 million in fiscal 2003 up over 20% from nearly $50 million in fiscal 2002. During fiscal 2003 we made significant investment in our business aimed at growing our network to handle increasing number of (inaudible) expanding our geographic foot print and developing new businesses.

We expect to continue making strategic capital expenditure in fiscal 2004 particularly in new areas such as Asia. However we feel that much of the investment has already been made to support our anticipated growth in fiscal 2004. And so we anticipate a somewhat lower level of capital expenditures for the year to compare at the fiscal 2003. For fiscal 2004 I expect capital expenditures to be about $50 million with a large chunk of that amount going to maintain and upgrade our existing network.

We have also continued to deploy reinforcements around the globe as our business takes on a more global nature. Our sharp focus on cash flow as opposed to simply EBITDA over operating income, (inaudible) that we cannot spend an unlimited amount of money to generate higher revenues and profits. Of course the telecom industry is capital intensive by nature. However I believe that we are running our networks and our businesses even more efficiently, we can generate a higher cash return.

In other words we plan to squeeze even more profit out of our existing robust(ph) global network in our more matured areas of operations. Over the past few months I had delivered that mandate internally throughout all areas of telecom in engineering and operations to finance to the business units being sold the message has been made clear.

We need to generate a higher cash return from our existing network, going forward we will measure our return by switchboard, by circuit etc. We continue to break down our analysis of our networks to the most basic elements to ensure that we are generating the highest cash returns possible for our shareholders.

I am confident that by this time next year we will be looking at a network that has reached previously unheard levels of efficiency and profit generating ability, both in terms of switchboards and circuits.

They need to draw a greater network efficiency is in itself being driven by our minutes(ph) of (inaudible). During fiscal 2003 our network carried nearly $16 .5 billion in (inaudible) minutes than in fiscal 2002. While this does mean after a significant and grown demand for our products, we continue to experience decline revenue per minute realization combined with need to end network elements to accommodate this minute growth we are generating less cash flow per minute than in the past.

In fiscal 2004 we plan to combat this trend by focusing on two basic goals. One increase profit per minute and two lower capital expenditures outlay in incremental minutes based on the network efficiency goals I just mentioned. Let us now take a look at the performance of some our major business lines during the fourth quarter and fiscal year. Our calling card business continued to grow in fiscal 2003 in both U.S. and Europe despite facing some significant challenges.

At the beginning of fiscal 2003 we began to introduce several new aggressively priced cards aimed at allowing us to break into through our targeted new market such as California and Texas and to expand our share (inaudible) Northeast U.S. market. As we have been discussing for a few quarters this has had a sampling effect in our concurring margin however we now find ourself with an extremely globus portfolio card in a discard move to a more powerful state of their respective life cycle. We expect to generate more profit from the business. We are also manage our markets in fiscal 2004 with an eye towards relatively maturity of that particular market.

In our move to market, we are focussing on maintaining markets share and profitability. Into new markets our focus will be on aggressively appealing market share. In Europe fiscal 2003 was about expanding our co-conquer market while expanding in new market. We put balance to depend on market share mainly for UK and Spain market. While we started phone cards in seven new countries with France, Italy, Switzerland and Norway. In general as we faced declining prominent price utilizations for the phone card businesses on both sides of Atlantic

We planned to operate broad range of enhance services on our cards to communicate the decline revenue per minute. By opening other servicing on our card, both telecom related and non-telecom related, you can take our product that is open viewed as a commodity item and turn it into a source of value added services to our customers.

Looking ahead, our goal in Europe is to expand beyond our core calling card and wholesale Business in fiscal 2004. Two important initiatives was in fiscal 2004 would be the new carrier perplex service which is like our consumer healthy business here in US as well as broadening a pipe line for calling card business.

By adding to our business line in its way you will be less available to competitive pressures in any one business. An important element of our European Expansion is our Russian subsidiary. This is one of our fastest concept city areas in the business, which is worth high margins and in remote there are other businesses. This past July after visiting our Russian operation, I came very impressed but not only our operation itself but with numerous opportunities that exists at the Russian Telecom Markets in spite of its risk.

I expect frequent better things from (inaudible) in fiscal 2004. Our wholesale carry business remains on a row so $117 millions in revenue for the fourth quarter that presenting another 8% sequential gain and 42% higher than a year ago. The fourth quarter performance were presented the highest quarterly whole sale revenue number with fourth quarter fiscal 2000 in four years ago. Since bottomry end the first quarter of fiscal 2002 our wholesale revenues have increased by 75%. Although I can guarantee that that type of growth in terms of revenue to continue in fiscal 2004 with happily plenty of growth on the rising to carry particularly overseas

Our consumer on business division incremented solid growth in fiscal 2003 with revenue up nearly 40% from dollars of fiscal 2002 however that business cant undergo significant change many of industries, largest companies are first into this market in April month open (inaudible) have been high however we introduced our own bundle (inaudible) business package. New York, New Jersey (inaudible) Ireland with few more eastern states to come for the next couple of weeks.

By the end of the fiscal 2004 I expect there will be open an order in package in most of the US. Their opening service completely co writing co-party and other possible features for all $3995 per month from taxes and fare charges. Just five points It can be profitable well price in below in the (inaudible) charging in fact even very encourage by the (inaudible) in the peoples (inaudible) fully ordered the service. Welcome to fiscal 2004 your shift air (Inaudible) spending towards a different state, we offer local service as a business will initially take on in more regional look.

Our effort in launching a local service, should not be seen as an indication , that we intend to give up on our LD (ph) only business, on the contrary where we energize that part of the business, we are opening services, targeting international callers.

Our prime level (Inaudible) business continues to show significant promise, going forward we just went adding significantly head counts from a private level division, as we prepare our self to re scale that business. In the coming month, we hope to announce additional deals with large retailers and other millionaires, we have mentioned several times in the past and in developing new business lines, we wanted to give ourselves as much as a (inaudible) provider, but a provider of export value products, to discuss using our strength such as our debit platform our expensive distribution network, and our knowledge of the various ethic market places, develop and market additional non telecom products to our customer base.

I am therefore very pleased to say, that to an extensive development phase, we are holding (inaudible) value payment products at the beginning of November (Inaudible) cash to go, values to go and gifts to go. Cash to go is an alternative method of money transfer, enabling our ethnic customers to send money to family members, more economically and conveniently, cash can be loaded and reloaded at the point of sale which wanted over 800,000 ATM's worldwide, cash to go is for the person who sends money several times a year or more.

This ties well with our US Hispanic customs base, (Inaudible) millions of dollars in aggregate each year to Latin America. Value to go is a reloadable pre-paid visa card providing payment flexibility to the budget conscious credit zone consumer. The card can be used to make purchases wherever Visa debit is accepted, and can also serve as an personal ATM card. Like cash to go, cash can be loaded and reloaded at retail point in sales.

Gift to go is an universal gift card, which can be used to make purchases where ever Visa debit is accepted, it will be over to sixth denomination and is not reloadable. Our initial market these products will be Texas with roll out on a safer side basis. We have (inaudible) distribution by the end of the fiscal year, we are exited about the set of new product as it serves as our point of entry in to the potentially lucrative financial service arena, focused on Hispanic consumers.

Each year at the beginning of the fiscal year when I gather my top managers from around the world to discuss our expectations for coming fiscal year, albeit one topic as a team for the year, of course there are many things we like to improve, we always want an increase revenues and cut our expenses much as humanly possible but at the same time I think that in order to properly focus, we need to have an annual theme.

This year at the end of fiscal 2004, our theme is international expansion we need to derive increasing proportion of our revenues from overseas sources, we have already taken great strides in this area overall our IDT Europe operations are currently generally our run rate of $ 330 million in annual net revenue, current fiscal 2003 approximately 21% of telecom total consolidated revenue came from international sources, this compares to 15% in fiscal 2002 I believe that in order to succeed telecom must ultimately double the percentage of revenues it currently originates internationally.

This is not a short term goal however rather at fiscal 2006 we expected at least 40% of our revenues originating outside of the US. In order to achieve this goal, we must continue to expand our European operations taking some of the steps I outlined earlier.

Even more importantly we must grow our South American business which is growing rapidly but it still represents only a small portion of our over all revenue. In addition Asia, where we have only (inaudible) operation has a potentially large market growth over the longer term.

We have opened offices throughout the region, we are going to put infrastructure in place, human resources and network it is a source of significant future revenue and profit through IDT Telecom. In summary fiscal 2003 was challenging year, but ultimately a very gratifying year as well. We encountered a difficult environment in several of our businesses, but we worked that way through the challenges to deliver another year of solid results.

Fiscal 2003 was the year in which we became more clear than ever that IDT Telecom's future success will depend upon our ability to expand geographically and add new (inaudible) we made significant progress in both of these areas(ph) in fiscal 2003 and results of these effort would become more obvious as we report our result throughout Fiscal 2004 and beyond. I look forward to sharing the details of our progress with overview in the future. Let me now turn the call over to Brian Finkelstein.

Thank you Morris and good afternoon everyone, Winstar continued to build on the momentum we generated last quarter. We posted increasing revenue for the second consecutive quarter. Gross margins widened further from 0.5 % to 6.7% and although operating losses actually increased by 8.7% for the quarter from the loss of $19.6 million to a loss of $21.3 million.

This was due to a one-time impairment charge of $4.5 million to reduce the asset value of optronics equipment and inventories, if not for this charge, operating losses would have declined 14% for the quarter marking the fifth consecutive quarter of double-digit improvements for the bottom line. For the fiscal year operating losses declined by 37% from $33.7 million to $21.3 million and again, if not for the impairment charge full year operating performance would have improved by 50%.

Earnings before interest, tax, depreciation and amortization EBITDA reflected an even more significant improvement as losses were reduced from $30.7 million in the fourth quarter of 2002 to $13.1 million in the fourth quarter of 2003 a note worthy advance of 57% that is significant progress.

Especially when you take into account the state of the economy this past year, the state of the telecommunications industry in particular and the fact that many of the our competitors continue to struggle. Needless to say I am proud of what we accomplished this fiscal year. Having said that this is no time to rest or reflect in our accomplishments.

As you will recall from when I last spoke to you we have an internal goal and corresponding operating plans to lower our monthly cash burn to $2.5 million by the calendar year end. This plan centered on developing a more accountable and efficient sales force grooming our capacity in real estate network and streamlining our work force is being executed impeccably and I feel extremely confident that we will meet our target as previous stated.

I fear company entering the third stage in this development as we begin this new fiscal year. I previously identify the first one as the fire burning stage. We were basically just putting out the fires inevitably inherit ant(ph) by the bankrupt company. The second stage in our development was one where we began to implement controls in processes that allowed us to run the company day to day and position the company for growth and profitability.

I see this third stage we are now entering as a key and significant one. We enter this stage armed with a know how and experience of the past year and a half and as such we can make better strategic decision. For example, we now know that there are target customers one that spends between a $1000 and $20,000 per month in telecom services.

We also know that these customers is more likely to buy long distance services first and that can then be up so by more traditional services, including local and broad band. Following on this strategy, we can actually sell services outside of our native building universe and then other buildings after having a mass and appropriate scale of customers in each building.

We are also now at stage with maximizing efficiency is crucial and as such we have gone through exploring that and how we can work more closely with our colleagues and IDT telecom to both maximize revenues and reduce cost. Well we have attempted to do this in the past. For example we have improved to our (inaudible) offerings to our client substantially by leveraging IDT's long distance network.

There are other areas where similar gains could be had and we (inaudible) those as well this coming year. I would like to take a moment here to point out that our immediate focus on the short term has not in any way deterred us and taking a look at the big picture and planning accordingly. Our business development team continues to identify, assess and cultivate opportunity that will take one star beyond break even and probably into profitability in the near future.

Some of the initiatives presently been persuade includes cellular blank calls, broad band wireless and some specific whole sale opportunities that will leverage on that work such as local access. These are multi-billion dollar market that could open up to be a real boom for us.

I will also point out that the FCC just this month released a landmark rule that allows license in certain spectrum bands. Including in the 39 gigahertz band (inaudible) spectrum in the secondary market. We have formed the spectrum leasing business unit that will over see leasing of our Winstar division spectrum to telecommunications and wireless service providers throughout the United States.

Speaking of the government, we reached a significant milestone recently as we completed our largest government installation today. The sizable department of the (inaudible) went live on Winstar networks and the later approximately a million dollar of annual revenue to our top line.

To conclude, we made great progress this fiscal year transforming Winstar into a reliable efficiently run telecommunication services provider. Further more, we laid the foundation that is required for a company that expected to grow prosperously and profitability both short and long term and I look forward maximizing the opportunities that await us, not just this coming year but in the years ahead as well.

Now I would like to turn the call over to Mitch Burg.

Thank You Brian.

I will spend the next few moments highlighting the progress that we are making at IDT media in three main divisions animation, radio and brochure our animation division which is run for our subsidiary digital production solution or as we call it. DTS is making tremendous progress from both internal growth as well as strategic acquisition perspective. It is hard to believe that we have been actively marketing this new animation parent line for little more than one year.

Today as I speak with you DTS is working on numerous television series, future length (inaudible) director consumer video, advertising and promotion animation and more. We are working with leading creative talent now developing our own new content. We work with the animators across the world and see seamlessly manage content that clubs on East and West coast of United States as well as overseas.

DTS approach allows us to produce the highest quality animation faster than our competition at significantly lower cost and with increase management control. This is true in both 2D as well as 3D, CG animation. We have moved from being a start up company to a studio that sold out by the best in the business. In previous calls we spoke up the acquisitional content from the (inaudible). The acquisition for moment (inaudible) and our involvement with (inaudible) animation.

Today we are excited to discuss some of our new project with you. DTS will be working on a new project with John Williams the originating producer (inaudible) he will handling production on it related film entitled happily never after. We are very excited about this project. One of our home grown properties is called HipHop in Hamilton. We plan to produce a series of children's titles using these adorable characters that will have educational, entertaining, and moral story lines. We are in the final stages of negotiations with a major distributor of children's videos.

DPS is also involved in several new directed consumer projects. One of these projects involve the cabbage patch kids. The animation work on this project is at the highest level and we truly bring them alive importantly, then we own a piece of the back end on this project and the kids were just selected by (inaudible) as a holiday 2003 Hot pick.

Also our first 30 minute episode of Monster Trucks has been completed. A joint venture with noted creative talent Jim Jenkins(ph) and his company Cartoon Pizza. Monster Trucks was previewed to (inaudible) Junior last week. We are currently considering various distribution deals for this property. We announced in September that we signed a letter of intent to acquire our controlling interest in mainframe entertainment. A leading creator of computer animation for TV and directed video products.

This deal which should be completed in early November. We will extend DPS's involvement with major toy brand such Hasbro, Mattel, and Sony, with major international television networks as well as with direct consumer video companies.

In summary DPS is best emerging animation leader. Our protocol works and this business is thriving under the direction of Yehuda Wurtzel and Morris Berger.

Progress continues in our radio division. Radio is a slower build medium and we continue to grow in terms of revenue and affiliation through the year. One example of this is with our (inaudible) features that cumulatively have a 1.5 rating on daily basis. This place is marked among the leading syndicated radio broadcasters in the country.

(Inaudible) we continue to modify our line up, moving talent to areas where they can better succeed and adding new programs such as money matters Jeff Nightcap(ph) and the movie show. But this group headed by COO Trang Nguyen is not resting on its laurels(ph) yet. We are proud to announce that we are beginning a new approach to talk radio, one that uses an informative approach supported by insightful commentary.

The net result would be an engaging new talk format, that will allow listeners to better understand and deal with the world around them. This effort will be marketed under a new name Liberty(ph) Broadcasting System. And we will have new important radio talent that can deliver on as promised.

We are proud to announce today that we have signed (inaudible) Chavez (ph) and William Cristal (ph) programs for Liberty. (inaudible) Chavez is spectacular. A current Fox news analyst noted author and speaker Linda will be hosting a daily two hour show starting at December. We have been very impressed with the shows that she has done for us to date and stations will be thrilled to hear this important new voice in radio.

According to the New York Times, William Cristal is the journalist that has the most influence with the White House and why not as the editor of the Weekly Standard and a frequent television commentator Bill(ph), voice of insight that Americans are already turning to. Bill will be doing a feature entitled the daily agenda starting December and he will be doing a one hour program on weekends starting on the first quarter of 2004.

Radio is a medium that is populated with voices that have been familiar for many years in fact. It is a medium that demands new talk talent versus recycled talent. Host who do not preach and host who do not pander. Chavez and Cristal are the first of the new talent at Liberty Broadcasting System we will bringing to radio audiences across America and we will be announcing new host in the upcoming months. (Inaudible) Washington DC will be a key distribution point for this new talent. This station is filled up 50,000 watts, it is scheduled to be completed over the next month. The FCC will certify this signal for a three month period following the completion of the construction and then our nations capital will enjoy a significant new talk voice.

CTM is IDT Media's Brochure distribution division. It had an incredible year with significant increases on both top line as well as the bottom line. This division headed by Su Ki(ph) (inaudible) Cooper(ph) and Barry Luden (ph) is an outstanding path. We are looking at initiatives including acquisition expanding into new areas of distribution offering the products and entering into brochure production. From the operation side we are looking to further optimize our operations by the use of (inaudible) software as well as electronic collection of data.

We are proud to announce today that we have just completed the acquisition of Promosure(ph) and company that (inaudible) brochures in Puerto Rico. I have focused my remarks today on the three significant divisions of IDT Media. Advancement continues in all three of these areas and I look forward to sharing our progress with you in future announcements and calls. It is now my pleasure to introduce Steve Brown.

Thanks Mitch, not much more(ph) to say I think, Jim, Motti, Brian, and Mitch basically said it all. This was another great and record breaking quarter and its much optimism for the future or to paraphrase Yogi Berra our future is ahead of us. Just had sneak (inaudible). IDT this quarter achieved record consolidated revenues in Q4. Revenues increased 6.7% from last quarter to $485.7 million and we continued to maintain over a billion dollars of cash and securities with virtually no debt on our balance sheet.

IDT Telecom continued its surge with an overall 6.5% revenue increase quarter to quarter to $435.6 million. Retail revenues grew 6.2% to $318.3 million, underlying this growth was a 7.4% increase in prepaid phone card revenues which totaled $279.9 million. This was offset by a 2.2% decrease in long distance revenue, down to $38.1 million. To counter this (inaudible) of revenues on the long distance side IDT Telecom recently announced its (inaudible) into local residential market as well as bundled residential services.

Finally wholesale revenues increased 7.5% this quarter to a healthy $117.3 million. Regarding gross margins retailed gross margins increased 10 basis points to 26.6%. Wholesale gross margins decreased to 130 basis points at 10.9% and overall telecom margins decreased 30 basis points to 22.4%. Telecom SG&A stayed relatively flat at $61.8 million or 14.2% of revenue an improvement of 80 basis points from last quarter.

Telecom EBITDA improved by 13.4% to $35.7 million, and telecom income from operation improved 27.6% to $20 million. Again an excellent quarter that exceeded our expectations. IDT Solutions press (ph) Winstar's revenues increased 3.8% to $21.6 million this quarter. This is the second sequential increase in revenue and is a trend that we hope to continue. Gross profit increased significantly to $1.5 million and that also we expect increasing gross profit going forward.

Winstar (inaudible) though fell to $21.3 million due to a $4.5 million impairment charge due to the impairment of optronics inventory, aborted the original purchase of Winstar. IDT Media, which has been sitting very quietly in our background is ready to breakout and become major and significant (inaudible) and this mostly due to the success of the animation division. People constantly ask me why are you in this TV animation business well, let to say it was an accident and a happy one it that. Then again some of the world's best discoveries was by accident.

And now the word is out that IDT's digital productions solution or DPS as we called them after the mainframe acquisition has completed. We will be producing more minutes of animation than any other studio or production house in the entire world.

Regarding Q4's performance the areas of revenue's overall net results $11.1 million revenue should start to ramp up significantly. As DPS starts moving out its direct retail products over the next six months as well as planning to find distributors with two in-house created feature phones which should be completed in 12 months as well as to consolidating revenues and operating results for (inaudible) film movement and mainframe whose acquisition should be completed in the next few weeks.

A specific guidance is difficult at the present time; IDT media anticipate animation revenue to be in excess of a $100 million for next fiscal year. IDT media from operation this past quarter $2.7 million.

And of course, IDT's consolidate financial include the result in net account operations. Please refer to net account press release specific detail and guidance to their performance and the final component is SG&A (inaudible) SG&A expenses increased to $9 million this quarter mostly due to increased legal expenses.

As you all are aware telecom continues to be a tough industry but we are proud that we can compete with the giants and be quick enough and innovative enough to be one of the few who are able to consistently improve quarter to quarter without know-how and well technology and with our improved median business under (inaudible).

We stand prepared to take this company to the next level and beyond. At this point I am sure there are number of questions so I would like to turn this call over to you listeners for questions and answers.

OK. Mark we are ready for questions.

Thank you the phone is now opens for questions, if you have a question please press '1', followed by '4' on your touch tone phone at this time. Again that is '1' followed by '4' for questions. Once again that is '1' followed by '4' to pose a question at this time, please hold while we pose the questions. Thank you, our first question comes Andrew Sidoti. Please go ahead.

Good afternoon gentlemen. Couple of questions in telecom business a long distance if u can talk little bit about the turn rate there. What they were before you offered your unity and what they are afterwards whether or not you begin to see that turn rate beginning to trend down.

I will be happy to take the call. Prior to our launching IDT America, our turn rate from 3.5% to 6% year over year and now it is attributive to the Joint Entrance Market with very competitive or competitors including wireless, including data solution and local (inaudible). In the past September we launched our 39 (inaudible) plant in New York and New Jersey and we have a very favorable response to it and today we have approximately 25,000 customers and we are very encouraged and hopeful of growing revenues as well as fixing phone card.

We began to see the trend rate come down from ?

Too early to tell the trend rate since he just is (inaudible) the service. I will be more informed in next couple of months.

OK what just curious (inaudible) customers are in the state that you have already rolled out. You began to roll out unity and

Can you repeat that question?

Sure, this to get a feel for the percentage of your current (inaudible) business customers in the state you rolled out your Unity?

Approximately 30%.

30%, OK. Going over to the global excess offering, I want to be talk a little bit about but with the value preposition is there what your pitch is and may be talk a little bit about the revenue potential and margin in to that nature?

Sure, this currently in the U.S approximately 140 million cell phone users. Of the 140 million private phone users, approximately less than 5% with international calling because of the close the Ocean into Europe is 16% cell phone usage is international. We then enable the top of the U.S the core international at a rate lower than the landline so we really believe that this is a great opportunity for telecom.

It is leveraging our debit platform that is all about International Termination Rights through the international caller whether it is a financial market business player or government player other businesses use these cell phones international as great opportunity for us. We are in the final stages of the negotiation to land a major deal that would cover a large part of the country with this product.

Any (inaudible) revenue potential might be modeled?

I would be hopefully in next couple of month (inaudible) in dollars per month.

OK. And the Brian it's a couple of questions now, is break even of Winstar is that all predicated on generating more revenue or you see more opportunities coming on the cost reduction side?

There is a combination and there is no question that the revenue is the key factor that we are looking at going forward we were also continue to grow our network. You know as I also said in my thoughts before the 2.5 million threshold as far as monthly borne by (inaudible) year end is a goal that was very confident going ahead and we see break even, you know in just in future.

How much (inaudible) the break even, I would not start

There are a couple initiative right now if I would break our away the difference between those initiatives would turn out or not enough could be a significant number some extremely reluctant to control number right now and as I said I am extremely confident in giving you the guidance so we are going ahead exceed the between us by the end of the year and I think you are going to see that the overall burden is going to be the incurred the whole break even is very manageable.

OK, Thank you and just a quick questionnaire from looking at the IDT overall, do you think it would be fare to say or that the company would be a cash break even this is a company worldwide may be the second quarter fiscal 2004, is that the mutual expectation.

Unquestionably (inaudible) and we would be very disappointed that (inaudible)

OK, Thank you I'll jump a back in the cue.

Thank you, Our next question comes from Peter Gale (ph) from Schneider Capital Management.

Hi, question on the media side can you talk about any more acquisitions that you guys might have up in mind -- and you know how that would be strategic for you (inaudible) Telecom.

Hello, Steve go ahead.

Yes, this is Steve Brown. I will take that one, yes we are, and obviously we have already done three activities on the animation side. We think, we are pretty good on the content side. We might want to add some more content if we find the right company at the right price. On the production side, once mainframe is closed we have Los Angeles, we have Canada. If we find the right opportunity, you know at the same level in Asia or in Europe you would be interested? We are in no rush, but if there is a bargain out hen we would be interested, so that is the production side.

On the distribution side there are a lot of opportunities out there so if we find the right distribution company at the right price we would probably go for that also. It is good to have cash in the bank; you know it gives you opportunities that other companies do not have.

On the other immediate business is radio it is possible, but I would say less likely, than on the animation side and on the brochure distribution company we are always looking for other regions that we are not in. So there might be some small opportunities on the brochure distribution side, and of course, we did make two acquisitions, on a couple of call centers. So we are looking to extend our call center business also.

Morris in Telecom -- it has been scary how it got on, you have been in this industry for the past -- predicting what has been going on in your passive course, where do you see the carrier business going and is it really just everyone, kind of the tide rising here or is it something that you are doing different.

I think it is the combination of both -- we have a great team in Telecom, which no other company has, so I think it is really implored to that team and their dedication, additionally the geographic expansion and new relationships we have been developing over the past few years were seeing those benefits right now.

If it is the tide rising and you are getting swept up, what are you doing to protect that position then.

We have opened offices in South America, in Africa and in the far east. We have entered into (inaudible) past year. We have people strategically positioned around the world to hold that business and we feel pretty strong in this business and we anticipate growth going forward as well.

Keep up the good work, thank you.

Do we have another question?

We do, our next question comes from Tom Friedberg from Janco.

Hello guys. Great Winstar, great Telecom numbers, great telecom numbers, you clearly blew the roof off. A couple of questions IDT Legals as we call it, EBITDA was a little bit lower than we were expecting, but that might be explained by the progress of some litigation out there that I think a lot of people have interest in. Can you give us an update of the progress and where we stand on both the law suits at this point?

We do not, -- let me just jump in -- we do not, you know with regard to one we expect a ruling its a binding arbitration we expect a ruling any time, any day, any month, it depends on the three judge panel the other major one with regard Telephonica is I would say mid discovery stage, So it has ways to go?

But the arbitration there is reasonable chance, we might get a decision before calendar year-end.

Yes. There is a reasonable chance, I mean its now all the legal requirements, the memorandums briefs the required briefs have been submitted by both sides so it is a matter of the panel making the decision then disclosing that decisions.

OK, great. Steve can you give some color on why there was such a large tax benefits in the quarter.

Well. I mean basically it's the accumulation of number -you know when you talking about the, you know taxes its not the easiest without getting very technical

OK, Why do not we move past that one. If I read the third paragraph in the press release correctly you had total cash restricted cash equivalents and marketable of $1 billion, which one might decrement by $94.1 to get $906 net cash after net2phone.

If my arithmetic is correct at the end of the third quarter there was cash marketable in restricted of 1059 and roughly $81 million of net2phone cash So there are -doing the arithmetic that way and if you get it please check it at the end of the third quarter you were $978. So looks like there was about $72 million of cash used - done on the simplistic basis. Can you guys give us some color on the reasons for that if in fact that arithmetic is correct?

OK, the one thing that you don't have there as we do have some long-term investment. This is not included as marketable securities but they are marketable and I.

Unfortunately I don't have the balance sheet Steve that's the problem.

OK. You will have a balance sheet and I think, once you get the 10K and you look at the cash flow that detail - then the cash flow statement will be extremely detailed.

Right

It will have easier to look at the - I looked it before that when you do have when you do the see full cash flow statement you can give myself a call or investor relation to call, we will run through.

Yes because that important to lots of investors

I understand that too big factors, net-net overall what we consider cash remarkable securities actually at the IDT level nothing at the phone level, relatively stable, want to take a look at the long term investment

OK

Net2phone cash did go down (inaudible) card numbers with me.

OK. No problem will we see the K before the 31st?

Yes I mean, unquestionably.

OK. No problem will we see K before the 31st.

Unquestionably, yes.

Thanks, Sam.

OK.

And Steve.

I apologize basically.

No problem I know when you have a lot of different business that it is not a trivial process to get statements I just wrapped up

OK. Thanks

Thanks.

Thank you our next question comes from Peter Isle from Snider Capital management.

Hello

Hello Peter

Hello, I am on speaker phone, excuse me, Tell me about the telecom the new product, the all inclusive product local on the (inaudible) everything, are there regulatory hurdles state by state, I know you have(ph) skipped my state which. I am no IDT customer, but I still have the (inaudible) and I would like to benefit from this, is there some reasons why go around to different states

I do not know couple of Yankee fans, (inaudible)

Yes. That's right

Peter (inaudible), you have to get approval by each state.

What are the regulatory problems that easier or difficult, how do you decide where to go?

Hello its (inaudible) you know as far as regulatory is concerned it is more red tape than any thing else, in fact you mentioned your state, and up there, if something that should be pretty I would not call eminent but pretty soon, in terms of our strategy, we are sort of going (inaudible) so obviously if you look at where we are, we will going to be with next couple of weeks and months.

We are looking at the (inaudible) territories first and the base things we have to do, first you gotta be able to your block in each individual state agree on a price point, even though it is somewhat regulated. He also have to make sure he got a dealing setup and provisioning setup so with a lot of little steps that

(inaudible) matter doing the work it is no place for (inaudible) stops entire

Steve Brown No

No just grinding about. Thanks very much.

We don't want take a too much (inaudible) everything matter of time

Right Thank you.

Our next question comes from Kim (inaudible) from Third Point Management

Hello gentleman. A great quarter. Couple of questions I want just to clarification on that (inaudible) revenue target for the media group for 2004. Could you refreshment (inaudible) not expect their media group to three possible and fiscal year (inaudible) any point during to the year after four year and (inaudible) the second one with on the cause and opportunity.

Could you talk about that in general terms, but what opportunity is see there quickly and thirdly on (inaudible) over had is earning opportunity is kind of you know rationalized and legal expense you have there, understands one process seems to have gone down once in the midis discovery. What going do there on (inaudible) going forward.

(inaudible) first question and (inaudible) the third question may be Jim or somebody else handle the call center strategy regarding media (inaudible) decide on the (inaudible) is we anticipate revenues to be in excess of $100 million for the next fiscal year. There was no entirely hard to give gardens right now. on a quarter by quarter basis, but over the next fiscal year this revenues will be an excess of $100 million and yes we do expect for the hope for the fiscal year. to be in the block .

Great.

Regarding managing legal expenses.

And yes we do expect for the whole fiscal year to be in the black.

Great.

Regarding managing legal expenses and because everybody is referring to our corporate overhead and we did mention the corporate overhead went up slightly due to increase in legal expenses and most of the legal expenses are regarding the two litigation that we are the (inaudible).

Yes they are all winding up -- when you get to the winding up stage actually legal expenses do increase because you get to -- it requires -- you know when you are in the stretch drive that is really when a lot of legal cost do incur.

Also included in this is a number (inaudible) legal accounting expenses -- if you are not familiar, this is a provision called section 404(ph) which is going to change the way auditing is done and the whole process of being 404 compliant is a $2 million process of which we started incurring some expenses last quarter.

So if you are look for -- you know a sort of guidance going forward on the corporate overhead expenses they should go down slightly because we will have less legal expenses regarding these two cases especially in the last six months of the next year

But we will be incurring over the next year some additional expenses to full -- full implementation of 404 and (inaudible) expenses and then (inaudible) the way.

Let me add to that and that is who is we are aware and we have been looking very carefully at the entire legal department we have made a decision that we are going to increase the number of in house lawyers and the quality of the lawyers that we have in house. And we believe by doing so over time it is going to manifest itself and lower total legal expenses.

When we started -- when I started with the company let us say 7 years ago there is basically no in house or very little in house capability when it came to legal department and much of it was sent to outside law firms that is changing and as we go forward more of day-to-day work will be done by in house lawyers. And we think that will in the longer term save us significant dollars.

I guess the answer question you addressed is to the call centers (inaudible) may be want to talk about that.

IDT Telecom being in (inaudible) in the call center business servicing over hundreds of thousands of business customers both on inbound as well as outbound telemarketing as well as servicing our calling card business, which gets millions and millions of calls per month.

We have decided to leverage that experience infrastructure to enter into the calling card business and to maximize these assets and to grow a business to service other customers as well. But we are going to diversify geographically. This business does not fully service the U.S. it will service Europe as well as the rest of the world and we believe we will lower cost internally and I will hope our bottom line (inaudible) global revenue line and profit to the company.

Thank you.

Thank you. Our next question comes form Steven Errico (ph) from Lotus Wood Capital (ph).

Gentleman how are you? I would just like to clarify this cash burn because my other question was on the Media group and that was just answered. But if you look at the loss from operations for the quarter it is about 13.3 and I think 4 1/2 of that was a cash charge for some asset for Winstar division so that rounds down to about $8 or $9 million. Is that more reflective more to more general direction of a cash burn that you guys would be talking about as supposed to $72 million number About $8 to $9 million, is that more reflective more general direction of the cash burn you guys would be talking about suppose to this $72 million number of the previous call you talked about

Yes

OK and getting in one more in the media business. What type of operating margins you guys see at business longer term wants to more significant part of the business.

We are expecting, you know once the mainframe acquisition is completed, so that talk about turning in Q2

OK

Certainly by Q3 we expecting operating margins to be at the 10% level and hope you know hope slightly improve you know going forward but you know six months down the (inaudible) we looking to be at 10% operating margin.

And to get to the $27 million in revenues from this year to $100 in next year could you break down from the (inaudible) acquisition talking about, how much of that revenue growth is from acquisition and how much would be from the production of some other contact you talking about

OK. We are right now this is the business which changing basically by the date

OK

And somebody else already looking at acquisitions from the year to where the IDT looking right now this which can change you know by next week

OK.

Our existing Animation Hub were working on two full and future (inaudible) you know giving few more details about the product you can understand the business. We will be incurring, expenses but there are capitalized expense we will show that doesn't effect PNO does effect cash so the probably would be you know already next 12 months profit coming down to our cash train but no effect on the PNO and the Product (inaudible) retail

We are, we have contract work existing right now of $11 million to the next 12 months of which the margin should be you know in the 15% operating margin length. We have a number of products that are working on which would be ready in the next say 6 months, now go directly to retail. It is real hard

What are those like videos

Those are video correct there would be videos that would show up we have --you know we were work on a different distribution (inaudible) some how end up you know in the local web mart some would be marketed by other agencies. It is a little, little premature because we have no history with it. It will premature to the same (inaudible) you know what the operating margins are because our cards are very controlled because we do our animation at very low cost level. It would be very hard to get return to the money but the timing of these products is little difficult right now but there should be you know conservative ratio there should be a least $10 millions of revenue only direct to retail products in the fiscal year.

We purchase the company (inaudible) right now has a run rate of about of $40 million years of revenue most of it coming through the because of the RB Animated to the (inaudible) help. There are negotiations of many other contracts right now because they do have some financial backing so we are hoping that run rate of $40 million will grow by 10, 20, 30%

Still have some financial backings so we are hoping that the run rate of $40 million will grow by 10%, 20%, 30% you know over the coarse of the quarter and mainframe right now which is it the acquisition that should close sometime in November has revenues will be about $25 million a year which once you know they incorporated to IDT they should also be able to increase their revenue base. Both of these companies we do anticipate to be profitable I think the operating margins will be closer to 5% on these two companies but it hope they go up.

Again there is (inaudible) development and you know things can change if we do any (inaudible) activities. CTM Brochure business has revenue run rate of $15-20 million. The radio business has a run rate of about $3 million.

Great this is very helpful thanks a lot.

OK, we will thank you everybody for joining us on the call we think it was a solid quarter we anticipate that the next fiscal year '04 is going to be, we are going to build on what we have done. I think the general employment for telecommunication is better both in domestically and internationally and we are going to apply on that and then the other great thing that we are doing besides our traditional telecom business is the future of the IDT media and that could be huge so we are looking forward to next year. Thanks for joining us on the call.

Thank you this concludes the today's teleconference please disconnect your line at this time and have great day.