NEWARK, NJ — December 7, 2016: IDT
Corporation (NYSE: IDT) reported diluted earnings per share (EPS) of $0.96 and
Non-GAAP diluted EPS* of $0.44 on revenue of $369.2 million for the first quarter
of its fiscal year 2017, the three months ended October 31, 2016.
HIGHLIGHTS
(Results for 1Q17 compared to 1Q16) · Revenue was $369.2 million compared to $390.6
million;
· Income from operations was $5.2 million compared
to $7.9 million;
·
Adjusted EBITDA* was $10.7 million compared to $13.0
million;
· Diluted EPS was $0.96 - including
a net benefit from income taxes of $14.4 million - compared to $0.18;
·
Non-GAAP diluted EPS* was $0.44 compared to $0.35;
·
IDT has declared a dividend of $0.19 per share
for 1Q17 to be paid on or about December 23, 2016. *Throughout this release, Adjusted EBITDA,
Non-GAAP Net Income, and Non-GAAP diluted EPS for all periods presented are
non-GAAP measures intended to provide useful information that supplements IDT’s
or the relevant segment’s core results in accordance with GAAP. Please refer to the Reconciliation of
Non-GAAP Financial Measures at the end of this release for an explanation of
these terms and their respective reconciliation to the most directly comparable
GAAP measure.
Management Remarks
Shmuel Jonas, IDT’s Chief Executive Officer, said, “IDT’s
financial results for the first quarter fiscal 2017 include a year over year
decline in revenue and a decrease in SG&A expense. Our continuing efforts to reduce overhead
expense and streamline our operations mitigated the impact of the revenue loss
on our bottom line. Our net income was impacted positively by a one-time
benefit from income taxes among other factors.
“Operationally, we had a productive first quarter
highlighted by the introduction of several new retail and wholesale products. Significantly, our key growth initiatives - Net2Phone
Office, PicuP, National Retail Solutions and our Boss Revolution international
money transfer business - all performed well. Beginning this quarter, we are expanding our
reporting segment disclosure to provide additional visibility into some of
these initiatives.”
1Q17 CONSOLIDATED RESULTS
Results
(in
millions, except EPS)
|
1Q17
|
4Q16
|
1Q16
|
1Q17 - 1Q16
Change (%/$)
|
Revenue
|
$369.2
|
$368.1
|
$390.6
|
(5.5)%
|
Direct
cost of revenue
|
$313.0
|
$309.1
|
$324.5
|
(3.5)%
|
Direct cost of revenue as a percentage of revenue
|
84.8%
|
84.0%
|
83.1%
|
+170 BP
|
SG&A
expense
|
$45.4
|
$48.9
|
$53.1
|
(14.4)%
|
Depreciation
and amortization
|
$5.3
|
$5.0
|
$5.1
|
+4.9%
|
Severance
expense
|
-
|
$6.3
|
-
|
-
|
Other (expense)
gains
|
$(0.2)
|
$7.5
|
-
|
$(0.2)
|
Income
from operations
|
$5.2
|
$6.2
|
$7.9
|
$(2.7)
|
Adjusted
EBITDA*
|
$10.7
|
$10.0
|
$13.0
|
$(2.3)
|
Net
income attributable to IDT
|
$21.9
|
$11.0
|
$4.2
|
+$17.7
|
Diluted
EPS
|
$0.96
|
$0.48
|
$0.18
|
+$0.78
|
Non-GAAP
net income*
|
$10.1
|
$11.5
|
$8.1
|
+$2.0
|
Non-GAAP
diluted EPS*
|
$0.44
|
$0.50
|
$0.35
|
+$0.09
|
Net cash
provided by operating activities
|
$5.5
|
$13.2
|
$14.0
|
$(8.5)
|
1Q17 OPERATING
RESULTS BY SEGMENT
(Results are for 1Q17 unless otherwise
noted).
Effective this quarter, IDT is creating a new
reportable segment, Unified Communications as a Service (UCaaS). This new segment consists predominantly of
the business lines formerly comprising the Hosted Platform Solutions product
category within the Telecom Platform Services (TPS) segment. Accordingly, the TPS segment will now consist
of three business categories: Retail Communications, Wholesale Carrier Services
and Payment Services. All comparative periods presented have been reclassified
and restated to reflect this new segment presentation.
Telecom Platform
Services (TPS)
The Telecom Platform Services segment accounted for 97.5% of
IDT’s revenue in 1Q17 compared to 96.9% in 1Q16 and 97.3% in 4Q16. TPS markets and distributes multiple
communications and payments services across three broad business categories:
Retail Communications, Wholesale Carrier Services and Payment Services. Most of the lines of business revenue previously
reported in TPS’ Hosted Platform Services category are now included in the new
UCaaS segment and the remainder has been shifted into the Wholesale Carrier
Services category.
TPS’ quarterly minutes of use
(MOU) in 1Q17 were 5.91 billion, a decrease from 6.72 billion (-12.1%) in 1Q16 and
from 6.62 billion (-10.8%) in 4Q16. MOU in
both Wholesale Carrier Services and Retail Communications decreased year over
year and sequentially. In Retail Communications, MOU decreased for both BOSS
Revolution voice products and traditional calling cards sold domestically and
overseas.
TPS’ revenue in 1Q17 was $360.0
million, a decrease from $378.6 million (-4.9%) in the year ago quarter and an
increase from $358.1 million (+0.5%) in the prior quarter. The year over year
revenue decline resulted from softness in both Retail Communications and Wholesale
Carries Services, partially offset by growth in Payment Services. The sequential quarterly increase reflects growth
in both Wholesale Carrier Services’ and Payment Services’ revenue offset by a
decline in Retail Communications’ revenue.
TPS
Revenue by Product Category
(in
millions)
|
1Q17
|
4Q16
|
1Q16
|
1Q17-1Q16
% Change in Revenue
|
1Q17 Revenue as a % of Total TPS Revenue
|
Retail Communications
|
$157.0
|
$163.6
|
$171.3
|
(8.3)%
|
43.6%
|
Wholesale Carrier Services
|
$143.3
|
$139.1
|
$151.8
|
(5.6)%
|
39.8%
|
Payment Services
|
$59.7
|
$55.4
|
$55.5
|
+7.4%
|
16.6%
|
Total TPS
|
$360.0
|
$358.1
|
$378.6
|
(4.9)%
|
100.0%
|
Retail Communications’ revenue
in 1Q17 declined $14.3 million (-8.4%) year over year to $157.0 million. Sales of BOSS Revolution voice products,
which accounted for over 85% of Retail Communications’ revenue, decreased 5.1%,
reflecting continued declines in revenue generated in the US - Mexico corridor. Sales of traditional calling card products in
the U.S. and overseas also decreased year over year in line with expectations.
Wholesale Carrier Services’ revenue
in 1Q17 decreased $8.5 million (-5.6%) year over year to $143.3 million. The decrease resulted primarily from the absence
in 1Q17 of a Latin American pricing opportunity pertaining to local currency
exchange rate disparities, which existed in the year ago period.
Payment Services’ revenue in 1Q17 increased $4.2 million
(+7.4%) year over year to $59.7 million.
The sale of international mobile top-up (IMTU) minutes, which allows
customers in the US to purchase air time for mobile phone users overseas, is currently
the dominant line of business in the Payment Services vertical. IMTU revenue increased 4.2% compared to the
year ago quarter, and was augmented by revenue gains generated by the BOSS
Revolution international money remittance business (where revenue increased 151.8%
year over year) and the smaller but also rapidly growing retail point-of-sale
based services business, National Retail Solutions.
TPS’ direct cost of revenue in 1Q17, expressed as a percentage
of TPS’ revenue, was 85.9%, an increase of 150 basis points year over year and 80
points sequentially, primarily reflecting margin pressure on Retail
Communications and Wholesale Carrier Services offerings.
The year over year decreases in TPS’ MOU and revenue, as well
the increase in direct cost as a percentage of revenue, reflect the collapse of
rates industry-wide on the US to Mexico corridor as well as longer term secular
trends impacting the telecom industry. These include increased competition from
wireless network operators and MVNOs and alternative communications solutions such
as over-the-top voice and messaging. In anticipation of these developments, IDT
has increased investment in long term growth initiatives in recent years while reducing
SG&A expense and streamlining operations.
TPS’ SG&A expense in 1Q17 decreased to $40.5 million
from $45.2 million (-10.4%) in 1Q16 and from $41.9 million (-3.2%) in 4Q16. The year over year and sequential decreases
primarily reflect reduced employee compensation costs and lower bad debt
expense. TPS’ SG&A expense was 11.3%
of TPS’ revenue in 1Q17, a 60 basis points decrease compared to the year ago
quarter and a 40 basis point decrease compared to the prior quarter.
TPS’ depreciation and amortization expense in 1Q17 increased
to $4.2 million from $3.8 million (+10.5%) in 1Q16 and from $3.9 million (+7.9%)
in 4Q16. Depreciation increased year-over-year
due to higher levels of capital expenditures in recent periods to support
investments in new products, including our payment services’ offerings, Net2Phone
Office, National Retail Solutions and the new BOSS Revolution calling app with
messaging.
TPS’ income from operations in 1Q17 decreased to $6.2
million from $10.0 million (-37.7%) in 1Q16 and from $9.1 million (-31.1%) in 4Q16.
TPS’ Adjusted EBITDA decreased to $10.4
million from $13.8 million (-24.6%) in 1Q16 and from $11.4 million (-8.8%) in
4Q16.
Unified
Communications as a Service (UCaaS)
The UCaaS segment is comprised of offerings from IDT’s Net2Phone
division, including (1) cable telephony (2) Net2Phone Office, a hosted PBX
service, (3) SIP trunking which supports inbound and outbound domestic and
international calling from an IP PBX and, 4) PicuP, a highly-automated business
phone service that answers, routes and manages voice calls. PicuP is currently
in open beta. UCaaS’ lines of business were previously included in the TPS
segment.
UCaaS’ revenue was $7.1 million in 1Q17 compared to $7.0
million in both 1Q16 and 4Q16. Year over
year, revenue of Net2Phone Office increased by over 350%, but was mostly offset
by a decrease in SIP trunking revenue.
Sequentially, both Net2Phone Office and SIP trunking revenues increased.
UCaaS’ direct cost of revenue in 1Q17 expressed as a
percentage of UCaaS’ revenue was 46.1%, a significant improvement from 53.2% in
1Q16 and from 49.5% in 4Q16.
SG&A expense for the segment was $3.3 million compared
to $2.9 million (+11.9%) in 1Q16 and $3.0 million in 4Q16 (+8.0%). As a percentage of UCaaS’ revenue, SG&A
in 1Q17 increased to 46.1%, compared to 41.8% in 1Q16 and 43.6% in 4Q16. The increases resulted from investments in
both technology development and customer acquisition costs for Net2Phone Office
and PicuP.
Depreciation and amortization expense in 1Q17 was $726
thousand compared to $657 thousand (+10.5%) in 1Q16 and $673 thousand (+7.9%)
in 4Q16, reflecting the increase in capitalized costs relating to new products
offerings.
UCaaS’ loss from operations was $174 thousand in 1Q17
compared to $302 thousand (-42.2%) in 1Q16 and $190 thousand (-8.2%) in 4Q16.
UCaaS’ Adjusted EBITDA in 1Q17 was $552 thousand compared to
$355 thousand (+55.2%) in the year ago quarter and $483 thousand (+14.2%) in
the sequential quarter.
Consumer Phone
Services (CPS)
Consumer Phone Services sells local and long distance
services domestically in 11 states, marketed under the brand name IDT America. CPS has been in harvest mode since fiscal
2006 - maximizing revenue from current customers while maintaining SG&A and
other expenses at the minimum levels essential to operate the business. Results this quarter conformed to
expectations.
CPS’ revenue decreased to $1.5
million in 1Q17 from $1.8 million (-18.5%) in 1Q16. CPS’ income from operations and Adjusted
EBITDA in both 1Q17 and 1Q16 were $0.3 million.
All Other
All Other includes IDT’s real estate holdings comprised of
its public garage in Newark and commercial properties in Newark, Piscataway and
Jerusalem, as well as other small businesses and investments including a minority
interest in Cornerstone Pharmaceuticals, Inc.
During 1Q17, IDT invested $8 million in Cornerstone, a
clinical stage, oncology-focused pharmaceutical company committed to the
development and commercialization of therapies that exploit the metabolic
differences between normal cells and cancer cells. IDT has invested $10 million in Cornerstone
to date.
All Other previously included Zedge, a platform and mobile
app centered on self-expression. Zedge
was fully spun off from IDT to IDT’s shareholders on June 1, 2016. Because the disposition of our interest in
Zedge did not meet the criteria to be reported as a discontinued operation,
Zedge’s results of operations and cash flows continue to be included in prior
comparative periods.
All Other’s revenue in 1Q17 was $0.5 million, a decrease
from $3.1 million (-83.6%) in 1Q16. Exclusive
of Zedge, revenue in 1Q16 was also $0.5 million.
All Other’s income from operations in 1Q17 was $90 thousand
compared to $430 thousand in 1Q16.
Exclusive of Zedge, income from operations in 1Q16 was $79
thousand.
OTHER CONSOLIDATED RESULTS
Consolidated results for all periods presented include
corporate overhead. In 1Q17, corporate G&A
expense decreased to $1.1 million from $2.6 million (-58.1%) in the year ago
quarter and from $2.7 million (-59.6%) in the prior quarter. The year over year and sequential reductions
resulted from lower compensation costs and legal expenses, primarily due to
non-routine reversals that may not be repeated in future periods.
Net income attributable to IDT in 1Q17 was $21.9 million, an
increase from $4.2 million in the year ago quarter and from $11.0 million in
4Q16. Net income attributable to IDT in
1Q17 included a $2.1 million gain resulting from foreign currency transactions
and a net benefit from income taxes of $14.4 million mostly due to the reversal
of a previous valuation allowance on foreign deferred tax assets. Net income attributable to IDT in 1Q16 of
$4.2 million included a provision for income taxes of $2.9 million. Net income
attributable to IDT in 4Q16 was $11.0 million, including a $2.7 million gain on
foreign currency transactions and a benefit from income taxes of $2.1 million.
At October 31, 2016, IDT had $149.7 million in unrestricted
cash, cash equivalents and marketable securities. Additionally, at that date, IDT
reported $81.1 million in current restricted cash and cash equivalents, which
included $80.8 million of customer deposits held by IDT’s Gibraltar-based
bank. Current assets and current liabilities
were $318.7 million and $320.2 million, respectively.
Net cash provided by operating activities during 1Q17 was $5.5
million, compared to $14.0 million in 1Q16 and $13.2 million in 4Q16. For the
same periods, capital expenditures were $5.5 million compared to $5.5 million
and $4.4 million, respectively.
DIVIDEND
IDT’s Board of Directors has declared a quarterly dividend of
$0.19 per share of Class A and Class B common stock for 1Q17 to be paid on or
about December 23, 2016. The dividend will
be paid to stockholders of record as of the close of business on December 19,
2016. The ex-dividend date will be December 15, 2016. This distribution will be treated as an
ordinary dividend for tax purposes.
IDT EARNINGS ANNOUNCEMENT
& SUPPLEMENTAL INFORMATION
IDT will host an earnings conference call beginning at 5:30
PM ET today with management’s discussion of results, outlook and strategy
followed by Q&A with investors.
To listen to the call and participate in the Q&A, dial
toll-free 1-888-348-8417 (from U.S.) or 1-412-902-4243 (international) and
request the IDT Corporation call.
A recording of the conference call can be accessed one hour
after the call concludes through December 14, 2016 by dialing 1-844-512-2921
(toll free from the US) or 1-412-317-6671 (international) and providing this
pin code: 10096086. The recording will
also be available via streaming audio at the IDT investor relations website
(www.idt.net/ir) following the call.
Copies of this release - including the reconciliation of the
non-GAAP financial measures that are both used herein and referenced during
management’s discussion of results - are also available in the Investor
Relations portion of IDT’s website.
About IDT:
IDT Corporation
(NYSE: IDT), through its IDT Telecom division, provides telecommunications and
payment services to individuals and businesses primarily through its flagship
BOSS Revolution® and Net2Phone® brands. IDT Telecom’s wholesale business is a leading
global carrier of international long distance calls. For more information on IDT, visit www.idt.net.
All statements above that
are not purely about historical facts, including, but not limited to, those in
which we use the words “believe,” “anticipate,” “expect,” “plan,” “intend,”
“estimate,” “target” and similar expressions, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
While these forward-looking statements represent our current judgment of what
may happen in the future, actual results may differ materially from the results
expressed or implied by these statements due to numerous important
factors. Our filings with the SEC
provide detailed information on such statements and risks, and should be
consulted along with this release. To the extent permitted under applicable
law, IDT assumes no obligation to update any forward-looking statements.
Contact:
IDT
Corporation Investor Relations Bill
Ulrey william.ulrey@idt.net 973-438-3838PLEASE SEE ATTACHED PDF OF COMPLETE EARNINGS RELEASE FOR FINANCIAL STATEMENTS AND NON-GAAP RECONCILIATIONS |