IDT Corp (IDT) 2013 Q2 法說會逐字稿

Good day, and welcome to the IDT Corporation's second-quarter fiscal 2013 earnings conference call. During management's prepared remarks, all participants will be in a listen-only mode. 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 January 31, 2013. Any forward-looking statements made during this conference call either in the prepared remarks or in the Q&A session, either 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 may have made or may make or to update the factors that may cause actual results to differ materially.

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 measure.

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 this event is being recorded. Now I would like to turn the conference over to IDT's Chief Operating Officer, Shmuel Jonas. Please go ahead.

Thank you all for joining the call and for your interest in IDT. For the second quarter of fiscal 2013, we again delivered solid results from both our Telecom operations and our earlier-stage businesses. Our performance continued to be in line with or slightly better than our high-level guidance. Telecom's top-line growth was again quite good. We also experienced revenue in gross profit growth in our All Other segment attributable primarily to Zedge and Fabrix, which benefited in part from seasonal and other timing-related factors.

On a consolidated basis, revenue increased to $411.7 million from $365.4 million in the year-ago quarter. This is the twelfth consecutive quarter of year-over-year increases. Gross profit for the quarter was $67.2 million compared to $59.1 million in the year-ago quarter. Gross margin increased slightly to 16.3% compared to 16.2% in the year-ago quarter.

SG&A expense was $56.4 million compared to $51.6 million in the year-ago quarter. Corporate G&A rose to $4.4 million from $3.2 million in the year-ago quarter namely as a result of a $945,000 donation made to the IDT Charitable Foundation and to increased non-cash compensation. Research and development expense incurred wholly by Fabrix was $1.8 million compared to $1.1 million in the second quarter of fiscal 2011.

Adjusted EBITDA increased to $9 million from $6.4 million in the second quarter of fiscal 2012. Depreciation and amortization expense was $3.9 million, compared to $4.2 million in the year-ago quarter. The decrease was primarily the result of lower investments in Telecom infrastructure in recent years and the impact of some of our older Telecom assets becoming fully depreciated. Income from operations grew to $5.3 million from $4 million in the year-ago quarter, a $1.3 million increase. The year-ago quarter included $1.9 million in gain from a settlement with a former cable telephony customer.

Now I would like to review with you the performance of our specific reporting segments starting with results from Telecom Platform Services segment, or TPS, which generated 98% of IDT's revenue in the second quarter. TPS's revenue increased to $402.8 million and $357.6 million in the second quarter of fiscal 2012. Within TPS, our three largest business categories, Wholesale Termination, Retail Communications, and Payment Services, each achieved year-over-year revenue growth rates of 5%, 21%, and 28% respectively. Our Boss Revolution PIN-less-less calling and INT products were again the key growth drivers and their expansion in the US more than compensated for declines in revenue from traditional prepaid phone cards in both the US and in Europe.

TPS's gross margin was unchanged at 15.1%. TPS's gross profit increased 12.3% to $60.6 million year over year from $54 million. Within Retail Communications, improving gross profits generated by Boss Revolution's PIN-less calling service more than offset declines in gross profit from the sales of traditional prepaid calling cards.

TPS's SG&A expense, including non-cash compensation, was $47.3 million compared to $45.6 million in the year-ago quarter. Employee compensation costs, legal expenses, and credit card processing fees all increased, but SG&A as a whole was below what we had anticipated. We expect the SG&A expense will likely increase at a faster rate for the remainder of the year as we accelerate execution on several product development initiatives and enhancements. And this may cause adjusted EBITDA and income from operations to be lower throughout the second half of the year as compared to the first half.

One likely driver of the increase in the coming quarters will be the roll-out in the US of some of our new payment products within our Boss Revolution platform such as domestic bill payments and international money transfer services. Over the past year, we have applied for money licenses in all US jurisdictions where they are required and so far we have received licenses from 22 states. We expect to begin the roll-out on a very limited basis in some of these states during the third quarter and ramp up the pace of operations as conditions warrant thereafter.

We also plan to continue adding additional payment services to the Boss Revolution platform and marketing those capabilities. In tandem with these efforts on the products side, we continue to expand our distribution footprint here in the US by growing our internal sales force. This has proven to be a successful strategy, but a costly one. TPS's adjusted EBITDA in the second quarter of 2013 was $13.3 million compared to $8.4 million in the year-ago quarter.

TPS's depreciation and amortization expense continue to decline, falling to $3.2 million compared to $3.6 million in the year-ago quarter, primarily as a result of lower levels of CapEx at IDT Telecom in recent years and more legacy equipment becoming fully depreciated. TPS's income from operations was $10.1 million, a strong increase from $6.5 million in the year-ago quarter. Income from operations in last year's second quarter benefited from a $1.9 million gain on the cable telephony settlement I mentioned earlier, thus making the apples-to-apples comparison to growth in income from operations even more significant.

Our All Other businesses reported a loss from operations of $800,000 compared to a loss from operations of $300,000 in the year-ago quarter. Our expenditures at our IP holding company, ITTI, and our real estate holdings caused the year-over-year increase, but we expect the bottom line to improve significantly during the remainder of the fiscal year.

Within the All Other, Fabrix and Zedge are performing very well. Their revenues increased by 177% and 63% respectively year over year, and both have very exciting upsides. Zedge came out with its iOS app this quarter and already has over 1.5 million downloads. The Zedge team will be adding ring tones on iOS in the third quarter which should significantly boost its user base.

Zedge's game channel continues to propel the Android app to new heights. It is currently in the top ten of the most downloaded free apps on Google Play and revenue from games has just started. Net income attributable to IDT in the second quarter was $3 million compared to $2.7 million in the second quarter of last year. However, the provision for income taxes in the second quarter of '13 was $3.1 million, compared to a benefit from income taxes of $0.7 million in the year-ago quarter.

I should make it clear that this provision does not effect our cash position. We will continue to use our NOL to offset our federal tax obligations. As of January 31 of this year, the company's NOL totalled at least $173 million. Non-GAAP net income was $9 million in the second quarter of fiscal 2013, compared to $6.2 million in the year-ago quarter. Diluted non-GAAP EPS was $0.41, compared to $0.29 in the year-ago quarter.

Those of you who follow us closely or read the full description and reconciliations in the earnings release will know we omit depreciation and amortization expense, stock-based compensation, discontinued operations, and other operating gains and losses in our calculation of non-GAAP net income to arrive at non-GAAP earnings. Now Marcelo Fischer, who serves as both our Senior Vice President of Finance and CFO of IDT Telecom, will join me to answer your questions. Thank you. Marcelo? Operator, back to you.

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

(Operator Instructions)

Ty Carmichael of Gothic Capital.

Just a quick question on your cash flows during the quarter. It looks like you generated a $12 million in cash operations but your cash balance sequentially went down by about $16 million. $166 million to $150 million it looks like. And I'm just trying to reconcile the difference there.

Sure. Hi. It's Marcelo. Thanks for calling into this call. You're correct. The cash went -- in the balance sheet went down by about $16 million. And most of that is because of the one-time dividend of close to $14 million that we paid during the second quarter. That would be $0.60 per share that we paid during Q2.

Okay. And cash from operations has been pretty strong during the first two quarters of the fiscal year. Do you have any -- can you provide any perspective on what you think the current run rate on an annual basis is, the cash earning capability of the business?

Yes. I mean, we are currently generating roughly about $35 million to $40 million in EBITDA, [less the] CapEx. We are probably on a run rate of about $20 million to $25 million in cash flow generation right now.

Okay. And then last question would be in the past I know you talked about moving into the transfer payment space. Any updates on the strategy there and how that may play out?

Well, as you heard, I guess, from the prerecorded remarks we'll be rolling them out over the next -- I mean over this quarter, it will begin.

More, I guess, more I think in the past you talked about maybe accelerating that process. You were looking at a potential acquisition in that for whatever reason that didn't come to fruition or -- and now is that -- is the strategy just to build organically or is there still a chance to kind of buy your way into that space to accelerate the roll out?

As of right now the plan is to do it organically. We are not currently looking at any acquisitions. That doesn't mean that if a good opportunity came our way we wouldn't take it.

Okay. Great. Thank you.

(Operator Instructions)

Having no further questions, this concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect.