IDT Corporation
Q1 2010 Earnings Call Transcript

Published: 11 Dec 2009

[Operator:]

Welcome to IDT's Corporations first quarter fiscal 2010 earnings webcast. This is Bill Ulrey, Investor Relations Officer. IDT’s Chairman and Chief Executive Officer, Howard Jonas and Chief Financial Officer, Bill Pereira will be reporting to you shortly on IDT’s financial and operational results for the three months ended October 31, 2009. This quarter we are following the same announcement format we have used in prior quarters. Our earnings release is available on the Investor Relations page of IDT Corporation's website at www.IDT.net. We have also filed the release on Form 8-K with the SEC. These remarks are pre-recorded. If you have any questions after listening to them and reading the company’s earnings release, please email them to us at the following address

[Howard Jonas:]

Thanks Bill. Good afternoon. This is Howard Jonas. Let me begin while welcoming my fellow shareholders and IDT employees. Thank you for listening in. You are used to listening to James Courter present as CEO on these calls. I cannot hope to match Jim’s eloquence but I hope that my own confidence in IDT will keep your interest. Jim has been invaluable to IDT and we look forward to reaping the benefits of his advice and service as a Vice Chairman for years to come. With our results this quarter IDT has achieved six consecutive quarters of positive EBITDA. Adjusted EBIDTA is one metric we use to provide a meaningful measure and basis of comparison of core operating results. During these six quarters we generated $65 million in adjusted EBITDA despite the worst global economic environment in a generation. That is not bad especially when you consider during the previous 18 months our adjusted EBITDA loss totaled $181 million. That is nearly one quarter-billion dollars net improvement. A big part of the turnaround was achieved by divesting non-core businesses and aggressively cutting costs both in terms of corporate overhead and streamlining our core businesses. None of these moves have been easy. I have been with IDT since the beginning and some of the businesses cut were very dear to me and the people we had to let go were good friends but we did what was needed to provide a platform for future growth. So we have come a long way. That doesn’t mean much if we stop at cost cutting. So now we are all focused on growth strategies and our core businesses as well as in a few select projects where we are investing very judiciously. At IDT Telecom we began leveraging a recent consolidation of our UTA business subsidiary by rolling out and promoting a new very competitive national brand of calling cards in the fourth quarter of last year. As a result, in the first quarter the rate of decline in US prepaid calling cards slowed and we are looking to turn this around and produce revenue growth in this line of business although probably at lower margins initially. Overseas our retail business in Asia and Europe has had double digit sales increases year-over-year. Keep in mind that as our retail prepaid businesses generate more mass our wholesale carrier business can leverage their traffic to obtain better rates and margins. We have a healthy growing retail business and in order to have a carrier business and vice versa. We are also leveraging our UTA distribution network to resell international mobile top-up product line. This service allows our customers in the United States to buy minutes and transfer them to the accounts of their friends and family with participating wireless carriers overseas. We weren’t really even in this business a year ago but it really took off in the last half of 2009. We expect great growth for this business in the year ahead. At our headquarters, I am the in-house optimist and I am optimistic that these and other growth initiatives will gain momentum this fiscal year significantly improving our top line outlook for IDT Telecom’s global retail businesses while aiding our carrier business as well. Now let’s talk about our Genie Energy division. We formed Genie Energy to put our energy business and growth initiatives under a common managerial structure and provide focus and coordination. Within Genie, our [inaudible] IDT strategy has had a solid performance for several quarters. We have maintained margins well above expected levels and have been successful in times of rising, declining and stable prices. We have recently refocused sales and marketing on bringing in higher value customers and our continued growth will depend on how that program develops. We are pleased with IDT’s energy performance and are expanding our model to more space. We are monitoring de-regulation developments in a number of states and as the regulatory parameters are right for us and if the utilities take a supportive approach then we will start up operations elsewhere. If we do enter new markets, we will invest to build our customer base much as we have already but we already have a proven model and seasoned management in place to optimize our use of capital and maximize our return on that investment. Our alternative energy segment, AMSO’s R&D operations in Colorado, continue according to plan. We are currently designing our pilot plan and plan to begin our pilot heating test late in calendar 2010 or early 2011. Upon successful completion of the pilot test we intend to work to design and implement a larger demonstration to evaluate the commercial viability of our in-situ approach. In Israel our alternative energy subsidiary, IEI, has begun drilling and other work characterized by the oil shale resource in the license area. The early results are promising and if all continues to go well they will begin to design, build and eventually operate a pilot stage to test the feasibility of and prepare the company for commercialization. However, the scope of the project and its technical and capital requirements are very high. That is why we will recruit a well capitalized partner just as we did with Total in Colorado. Taken together, these two shale initiatives are tremendously exciting especially given the advances the industry is making to develop environmentally friendly shale oil extraction technologies. The magnitude of importance of the oil shale resource is such that it can favorably shape the geopolitical landscape of the United States and its allies around the world, while at the same time becoming a powerful engine for economic growth and job creation here at home. In addition to shale oil we have continued to invest modestly in a very few targeted initiatives with high growth potential. Zedge, our destination for mobile content continues to exceed expectations. The Zedge website received approximately 23 million unique visitors in the first quarter of 2010 compared to approximately 15 million in the year-ago quarter. Zedge mobile enjoyed phenomenal growth year-over-year. In the first quarter 2009 had 4 million unique visitors. A year later, 25 million unique visitors came to the site. There is of course a fundamental shift underway in the marketplace for mobile content. That is one reason Google paid $750 million for mobile advertising provided by [ads] last month. So I am very pleased that Zedge Mobile has developed such a large following so quickly in this corner of the market. We are working to ensure that it remains one of the key mobile content destinations. The Zedge community growth combined with the slow rebound in the global advertising market should help Zedge Mobile to become financially self-sustaining. If Zedge’s community continues to grow at its current pace, Zedge will become an increasingly valuable tool to reach young people around the world. Finally, we continue to invest modestly in [Fabric TV] in which we are a majority shareholder. Fabric has developed a highly innovative video content delivery and storage platform enabling content operators, telecommunication providers and ISPs to provide television applications including next generation video on demand and remote video storage capabilities. [Fabric] software is being OEM’d and is currently being deployed across several cable systems. We believe that [Fabric] has great potential to be a winner in a new world of content delivery and I expect exciting developments in the quarters to come. We are aggressively pursuing growth strategies in our core businesses and we have potential game changes in the oil shale, Zedge and [inaudible]. Overall, I am extremely happy with our recent progress and where IDT is headed. Before turning the call over to Bill Pereira I want to take a moment to thank all IDT employees who worked so hard to make our progress and turnaround possible and also express my appreciation for our long-term shareholders who have stuck with us while so many others bailed. I am grateful for your commitment to IDT. Now here is IDT’s Chief Financial Officer, Bill Pereira.

[Bill Pereira:]

Thank you Howard. Good afternoon everyone. As most of you are aware, by the end of fiscal 2009 we had substantially implemented the company-wide restructuring and streamlining plan which we viewed as essential in providing IDT with a solid foundation for growth. Nevertheless, there have been several developments during and subsequent to the first quarter of 2010 that have allowed us to further sharpen our focus on our core businesses. Before getting to the quarter’s results I would like to discuss some of these developments. In August 2009 we received $4.4 million in proceeds from the sale of our Palo Alto real estate holdings of which we paid $1.5 million for our non-controlling partner in November and we followed that up in October with the sale of our building in Puerto Rico that previously housed our call center operations. The Puerto Rico sale netted $800,000 in cash on a total sale price of $7.4 million. These real estate transactions follow the sale of our Jerusalem, Israel building last fiscal year. At this point our remaining real estate holdings consist of our former headquarters building at 520 Broad Street in Newark and two sister properties in New Jersey which house part of our telecom network infrastructure and related employees. The $37 million in notes payable remaining on our balance sheet consist essentially of the mortgages underlying these three remaining properties. In mid-September we spun off to our shareholders the equity of CTM Media Holdings, Inc. which included the CTM Media Group, IDW Publishing and the WMEP Radio Station in Washington, D.C. The spinoff of CTM Media holdings reduced our total assets by $21.2 million. Included in that total is $9.8 million in cash, $4.1 million in property and equipment net of accumulated appreciation and $3 million in net accounts receivable. In addition the CTM spin off reduced our liability by $5.4 million. During the quarter we also announced the formation of our Genie Energy Division bringing our energy related businesses under a common organizational umbrella. Within Genie we operate two segments; IDT Energy, our escrow operating in New York State and our alternative energy segment. The latter consists of AMSO which holds our interest in the joint oil shale venture in Colorado with Total, and Israel Energy Initiative (NASDAQ

[Operator:]

Thank you. This concludes the IDT Corporations first quarter 2009 earnings results webcast.