IDT Corporation (IDT)

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IDT (IDT)

F1Q 2013 Earnings Call

December 10, 2012 8:30 am ET

Executives

Samuel Jonas - Chief Operating Officer

Marcelo Fischer - Senior Vice President of Finance

Analysts

Jay Srivatsa - Chardan Capital Markets, LLC, Research Division

James Joseph Kilroy - Willis Investment Counsel Inc

Presentation

Operator

Good morning, and welcome to the IDT Corporation's First Quarter Fiscal 2013 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 months ended October 31, 2012.

Any forward-looking statements made during the 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 they forecast.

In their presentation or the Q&A, IDT's management may make reference to 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 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 Form 8-K with the SEC. Finally, please note this event is being recorded.

I would now like to turn the conference over to IDT's Chief Operating Officer, Samuel Jonas. Please go ahead.

Samuel Jonas

Good morning, and thank you, all, for joining the call and for your interest in IDT. For the first quarter of fiscal 2013, we delivered solid results both from our telecom operations and our earlier-stage businesses. Our performance was in line or may be a little bit better than the high-level guidance we gave you last quarter. Our results this quarter were also without a lot of nonroutine events.

On a consolidated basis, revenue increased 6.3% year-over-year to $400.6 million. Our gross margin, which had been declining for some time, rose to 16.3% compared to 15.2% in the year-ago quarter. Gross profits for the quarter was $65.3 million. SG&A expense was $55.2 million, a 6.7% increase year-over-year, in part reflecting our continued investment in several growth initiatives that are being prepared for launch.

Now I want to provide some additional details and color on the results of the Telecom Platform Services segment or TPS, which generated 98% of our revenue in the first quarter of fiscal 2013. Within TPS, our Retail Communications segment continues to perform very well. Revenue increased by 16.4% year-over-year, led by higher sales in Boss Revolution's pinless calling services, which more than compensated for reductions in revenue from calling cards and a decline in retail sales in Europe. Sales in Europe have now decreased for 4 consecutive quarters. Although we recently rolled out Boss Revolution in the U.K., Spain and Germany, those efforts have yet to have had a significant impact on sales.

Revenues generated by our Wholesale Termination Services business decreased 2.8% year-over-year. TPS' gross margin increased to 15.1%, an 80-basis-point increase year-over-year, and gross profit reached $59 million, a very nice increase of 12.1% year-over-year. One of the primary drivers of the improvements in gross margins and gross profit is the slight shift in product mix.

Our Retail Communications segment's revenue growth continues to outpace our Wholesale Terminations' revenue growth. TPS' SG&A expense, including noncash compensation of $480,000, totaled $47.1 million for the quarter, a 4.8% increase year-over-year. We continue to invest in expanding our domestic market penetration, particularly in the West Coast, which was outside of our traditional distribution footprint.

As we have discussed in the past, we also are investing in new products, services and technologies to drive long-term growth, including additional payment services and money remittance offerings, as well as multiple voice and message services. These new services have incurred significant development costs but have yet -- but have not yet impacted revenue. Looking ahead, we also expect to increase our marketing spend later this year to help drive sales, launch new products and increase our market share.

TPS' adjusted EBITDA in the first quarter of '13 is $11.9 million compared to $7.7 million in the year-ago quarter. TPS' depreciation and amortization expense also continues to decline. This quarter, it was $2.5 million compared to $3.8 million in the year-ago quarter. However, $700,000 of that decrease was a nonroutine reduction in our estimate of capital expenditures subject to use tax as a result of a New Jersey audit.

TPS' income from operations was $9 million, which includes the impact of $400,000 legal settlement charge. Our All Other businesses generated a loss from operations of $1.6 million compared to a loss from operations of $900,000 in the year-ago quarter, largely reflecting the impact of the noncash compensation expense. In fact, both Fabrix and Zedge are at or very near breakeven on an income from operations basis, and their businesses are performing very well and have tremendous upside potential.

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