IDT Corporation (IDT)

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Q4 2012 Earnings Call

September 27, 2012 6:00 pm ET


Samuel Jonas - Chief Operating Officer

Howard S. Jonas - Founder, Chairman of The Board, Chief Executive Officer and Chairman of Nominating Committee

Marcelo Fischer - Senior Vice President of Finance



Good morning and welcome to the IDT Corporation Fourth Quarter and Full Year Fiscal 2012 Earnings Conference Call. [Operator Instructions] In today's presentation, IDT's Chief Operating Officer, Samuel Jonas, will discuss IDT's financial and operational results for the 3-month and 12-month period ended July 31, 2012.

Any forward-looking statements made during this conference call, either in the prepared remarks and in the Q&A sessions, is 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.

The 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, The earnings release has also been filed on the 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, Samuel Jonas.

Samuel Jonas

Thank you, all, for joining the call and for your interest in IDT. In the fourth quarter of fiscal 2012, we again delivered strong year-over-year revenue growth. Revenues increased 6.6% to $384.9 million, while our gross margin declined 60 basis points to 15.8%. Those 2 factors netted out to a slight increase in gross profit to $60.9 million. The fourth quarter's SG&A, relatively flat year-over-year, the result was an increase in EBITDA to $6.4 million in the quarter, compared to $4.8 million in the fourth quarter of last year.

Our TPS segment has generated between $36 million and $37 million a year in adjusted EBITDA for the past 2 years.

Looking ahead to fiscal 2013, we expect to do as well, if not better. Our CPS segment, which is in harvest mode, generated $4 million in adjusted EBITDA in fiscal 2012 and we expect it to contribute approximately $3 million in adjusted EBITDA in fiscal 2013.

This year, we invested a little over $2 million to grow the businesses in the all other segment, mostly in the form of additional R&D and other SG&A costs.

We expect to continue investing in the growth of these breakout opportunities during fiscal 2013. Our corporate G&A run rate is approximately $13 million a year, and CapEx is likely to be between $10 million and $11 million in 2013.

Finally, we are returning approximately $15 million a year in dividend to shareholders at the current dividend rate of $0.60 per share a year.

Now, let's look at some of the key drivers behind the results and how we are working to exploit the opportunities we see in our businesses.

The TPS segment within IDT Telecom generates 98% of IDT's total revenue. TPS results this quarter were consistent with recent quarter results. We continue to grow revenue strongly year-over-year. Revenues generated by our Retail Communications vertical were historically driven by the sale of traditional disposable calling cards. The sales of Boss Revolution are playing a role. Revenues from our wholesale termination business which carries international long-distance traffic from telecoms and call aggregators around the globe have also been trending higher. And within the payment services vertical, we're growing sales of international mobile top-up products, which we distribute and sell for overseas wireless carriers.

While these changes in our product mix have delivered revenue growth, it also lowered consolidated TPS's gross margin, which has been trending downwards for years. The relatively higher margin prepaid calling card revenues are being supplanted by the rapid growth of these lower-margin services.

Decline in gross margin has slowed recently. Our Wholesale Carrier business has strategically and gradually targeted its growth to more profitable routes. Within our Retail Communications vertical, sales of higher-margin prepaid calling cards are declining at a slower rate. As a result, TPS's gross margin has been relatively stable over the past 6 quarters, declining by 80 basis points net.

In the fourth quarter, TPS's gross margin actually increased sequentially by 30 basis points.

Gross profit dollars increased nicely this quarter. In fact, GP has grown slowly in the past 2 years as a healthy increases in revenue have more than outpaced the incremental declines in gross margins. We continue to view GP dollar trends as one of the key metrics in measuring success and we hope and expect continued increases in GP throughout fiscal 2013.

SG&A expense, although down year-over-year, increased sequentially and we expect that it will continue to increase in fiscal 2013 at moderate levels as we invest in several crucially important long-term TPS growth initiatives. This include development of new value-added services for our Wholesale Carrier business customers, expansion of IDT's retail sales force here in the U.S., development of new payment and remittance services and expansion of Boss Revolution in both Europe and Asia. In fact, we launched Boss in U.K. earlier this year, and after the close of the fiscal year, we went live in Germany and Spain. Before the end of the calendar year, we expect to have launched in Hong Kong, Australia and Singapore. However, we don't expect that the Boss Revolution will have the same growth trajectory overseas that we have enjoyed in the U.S. In general, the competitive landscape in Europe and Asia are not as favorable since many already have strong entrenched incumbents.

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