IDT Corp (IDT) 2012 Q3 法說會逐字稿

Good day, and welcome to the IDT Corporation third-quarter fiscal 2012 earnings conference call. During management's prepared remarks, all participants will be in listen-only mode. (Operator Instructions) After today's presentation by IDT's management, there will be an opportunity to ask questions. ( Operator Instructions)

In today's presentation, IDT's Chief Operating Officer, Shmuel Jonas, will discuss IDT's financial and operational results for the three months ended April 30, 2012. Any forward-looking statements made during this conference call, either in the prepared remarks or in the Q&A session, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those which the Company anticipates. These risks and uncertainties include, but are not limited to, specific risks and uncertainties discussed in the reports that IDT files periodically with the SEC. IDT assumes no obligation either to update any forward-looking statements that they have made or may make, or to update the factors that may cause actual results to differ materially from those that they forecast.

In their presentation, or the Q&A, IDT's management may make reference to the non-GAAP measures, adjusted EBITDA, non-GAAP net income and non-GAAP EPS. A schedule provided in the earnings release reconciles adjusted EBITDA, non-GAAP net income and non-GAAP EPS to the nearest corresponding GAAP measures. Please note that the IDT earnings release is available on the Investor Relations page of the IDT Corporation website, www.IDT.net. The earnings release has also been filed on a Form 8-K with the SEC. Finally, please note that this event is being recorded.

I would now like to turn the conference over to IDT's Chief Operating Officer, Shmuel Jonas.

Thank you all for joining the call and for your interest in IDT.

From a profit and loss perspective, the third quarter was consistent with the positive trend of the past two years. We again delivered strong revenue growth, which was balanced against lower margins, leading to consistent levels of gross profit. This quarter, IDT achieved the highest level of gross profit since the fourth quarter of fiscal 2010, while IDT's adjusted EBITDA increased to $7.5 million compared to $5.6 million in the year ago quarter. Earnings were reduced by accruals taken in connection with four legal matters. These charges more than offset the gain we realized from the sale of Spectrum licenses previously announced by IDT Spectrum.

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

Now I want to provide some additional details and color on the results of the telecom platform services segment, or TPS, which generates nearly 98% of our revenue. However, I will try not to replicate the ins and outs of the earnings release, which is available for your review through the IDT website, at www.IDT.net.

We grew TPS' revenue to $372.1 million, an increase of 12.3% year-over-year. Within TPS, retail communication revenue increased by 18% year-over-year, to $139.5 million. Growth in sales of our PIN-less calling service on the Boss Revolution platform more than offset the decline of traditional prepaid calling card revenue. Our wholesale termination service business grew revenue 10.6% year-over-year, to $179.5 million. On the strong revenue growth, TPS increased gross profit to $54.9 million, a 4.9% increase compared to the year ago quarter and the highest level we have achieved since the fourth quarter of fiscal 2009.

TPS' gross margin decreased to 14.7%, down 110 basis points year-over-year. The decline primarily reflects the product mix shift within TPS. Both our Boss Revolution platform sales and wholesale carrier revenues are growing rapidly with relatively lower margins, while revenue from the sale of higher-margin, traditional prepaid calling cards continues to decline. Looking ahead, our goal is to stabilize and then grow TPS' gross margins.

TPS generated $9.9 million of adjusted EBITDA during the quarter, the highest in over a year. TPS' depreciation and amortization expense continued to decline, decreasing to $3.5 million compared to $4.3 million in the year ago quarter. TPS also took a charge of $6.5 million during the third quarter related to four legal matters. As a result of these accruals, TPS recorded a loss from operations of approximately $100,000.

The all other segment generated income from operations of $4.3 million, which includes a gain of $5.3 million resulting from the sale of Spectrum licenses mentioned earlier. Absent that gain, the loss from operations would have been $1 million, compared to a loss of $1.7 million in the year ago quarter. Also, corporate overhead continued to decline, falling to $3 million in the third quarter, compared to $4.4 million in the year ago quarter. Company wide, income from operations was $2.2 million, and would have been $3.3 million absent non-routine events, being four legal matter accruals and the gain from the Spectrum license sale.

Net income attributable to IDT for the quarter was $3 million, or $0.14 per basic and diluted share. In response to feedback from investors, we have begun to report non-GAAP net income and non-GAAP net income per share. By backing out certain items that we feel do not properly reflect the ongoing performance of our core operating businesses and asset base, we hope to provide you with additional insights into our businesses. Non-GAAP net income for the quarter was $9.8 million, or $0.46 per basic and $0.44 per diluted share. The non-GAAP net income result excludes depreciation and amortization expense of $4.2 million, net other operating losses of $1.1 million and non-cash compensation of $1 million.

That concludes my remarks. Marcelo Fischer, our Senior Vice President of Finance and CFO of IDT Telecom, will join me now. We would be happy to answer any questions you may have.

Operator, we are ready for the Q&A. Thank you.

We will now begin the question-and-answer session.

(Operator Instructions) Jay Srivatsa, Chardan Capital Markets. I apologize for mispronouncing your name.

That is quite alright. It has happened before. Just a quick question on Boss Revolution. In the past you talked about presence in UK and then expanding into Hong Kong and Spain. Can you give us an update on where things are in terms of rolling out Boss Revolution?

Yes, we've already rolled out the UK, and by the end of the year we are intending to roll out in six more countries.

Okay. How has been the reception so far for Boss Revolution? In terms of percentage of revenues within TPS, could you give us a sense of how much Boss Revolution was relative to the previous quarter?

You are talking about in general, or in foreign country?

Hello, Jay, it's Marcelo. Thank you for participating in the call today. As you have seen in the past two quarters, Boss Revolution continues to propel the telecom TPS retail segment and continues to grow quite strongly. As we announced in our earnings release, for the Boss Revolution revenues of Q3 continues to grow double digits. The leads are going very strongly, and it is really driving the growth in the retail segment and more than compensating the fact that the traditional calling card business continues to decline. So, we are really excited about it.

And as Shmuel mentioned before, we have just began to launch that in the UK, the minutes are growing slowly. That's in investment mode for us. We are putting some investment in marketing, in providing discounts. So at this point, obviously, in the UK we are incurring profitability losses as part of our investment plan over there, and we hope that turns around over time.

All right. Thanks for the clarity on that, Marcelo. But in terms of as a percentage of total minutes, how much is Boss Revolution now relative to what it was last quarter, or in terms of revenues? Either one is good.

We try not to disclose it for competitive reasons, but it is growing quite well. As you said. It's in the double-digit growth.

Okay. Fair enough. In terms of the prepaid calling card business, you had partnered with Rite Aid and Costco and some of the other drugstore chains, how has that been progressing? Are you in the process of further collaborations, or is it something you're backing off of?

All the programs are doing pretty well, and a couple more are being turned on, hopefully in the next couple weeks.

And Jay, because we have (technical difficulties) some of these box accounts, (Technical difficulties) as we try to sell more to those accounts, and yet we haven't seen the usage yet from the personal intake, though we expect to see that down the pipeline.

All right. Last question for me. In the past in Q3, you've tended to have some decline, revenue decline relative to Q2, just by way of the numbers it's played out over the last few years; yet this year you've had a nice growth quarter over quarter. Can you tell us what changed to really give you a nice growth?

I think we basically described it already. Our Boss product continues to grow and our traditional wholesale business also continues to grow.

Yes, Jay, you are absolutely correct. Usually Q3 shows a down time. This time it went up, because if you recall in Q2, we saw a temporary dip in the wholesale carrier revenues at the time. Some of it was because of regulatory pricing in some Latin American countries.

We were able to more than compensate for that. Now that we are in Q3, we saw nice growth in our wholesale carrier revenues and we saw also the steady growth in Boss Rev, and that more than compensated the dip that we saw last quarter. And we expect that those two businesses, wholesale carrier and Boss Rev, continue to propel telecom growth and revenue growth.

All right, maybe one follow-up on that. Last quarter you had a little bit of disruption in North Africa that negatively impacted revenue. So has that been sorted out? Have you seen the revenues come back yet from that region, or is that still in flux?

Yes. Last quarter it was not really a disruption, it was really the end of a one-time opportunity that we had for about two quarters which related to the situation in Libya. That opportunity ended last quarter with the end of the resurgence in Libya. So we had to work harder to make up for that opportunity that was lost, and I think we delivered that during Q3.

All right. You didn't speak much about the Fabrix and Zedge part,, outside of what is in the press release. Can you give us some highlights on what the status is and how the developments are going over there?

Yes, during the quarter Zedge rolled out live wallpapers and games. It is still very early to tell how that is going to affect revenues. Their initial testing is that it is doing pretty well. Fabrix is also doing quite well, and they are bringing on more customers and their current customers are taking more of their product. As we said, we took in $7 million this quarter from Fabrix alone.

All right. Maybe one follow-up related to the Spectrum auction -- the licensing last quarter. Is that something you're going to pursue longer-term, to see that -- do you see that as a viable strategy, licensing the Spectrum space that you have?

The answer is yes. I don't know how quickly it will play out and I don't know if you can gain any insight into the total portfolio value from what we've sold to date, but we definitely believe that there will be future sales and we hope to see a lot of money from that.

Thank you so much. Good luck.

Michael Salzhauer, Benjamin Partners.

Hello. Thanks for taking the call. You have a lot of cash flow and a lot of cash and a company that I don't think people follow very well. Have you given thought to buying back stock?

We have given it thought. We currently do have authorization to buy back up to 5.4 million shares. And if the price is right, we might.

But the company is not in the market now?

No. We are not in the market now.

Thank you.

(Operator Instructions)

This concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect.

Thank you.