IDT Europe - Corporate - Press Releases

NEWARK, N.J.— December 9, 2002 — IDT Corporation (NYSE: IDT.B, IDT) today reported record revenues of $443.2 million for the first quarter of its Fiscal Year 2003, the three months ended October 31, 2002. Revenues increased 30.6% over the first quarter of Fiscal Year 2002, and 6.3% over the fourth quarter of Fiscal Year 2002. Excluding its Winstar division, acquired in the second quarter of Fiscal Year 2002, and Net2Phone, which was not consolidated during Fiscal Year 2002, IDT's revenue would have been $396.0 million, and its revenue growth in the first quarter would have been 16.8% over the first quarter of Fiscal Year 2002 and 1.7% over the fourth quarter of 2002.

The net loss for the first quarter of Fiscal Year 2003 was $4.1 million, or $0.05 per share. This compares with a net loss of $158.3 million, or $2.22 per share, in Fiscal Year 2002’s first quarter, and a net loss of $78.2 million, or $0.99 per share, in Fiscal Year 2002’s fourth quarter. As of the close of the first quarter of Fiscal Year 2003 consolidated cash and marketable securities stood at $1.114 billion, which includes $119 million held by Net2Phone.

Excluding certain items which aggregately accounted for a loss of $19.2 million after taxes, IDT would have reported net income of $15.1 million for the first quarter of Fiscal Year 2003. These items are: · Loss of $24.7 million related to the results of its Winstar division; · Income of $7.0 million related to the results of Net2Phone; and · Non-cash impairment charges of $1.5 million, primarily related to the write-down of certain network assets.

"While IDT continues to set revenue records, this year's challenge is to improve the bottom line." said Jim Courter, Vice Chairman and CEO. "We have improved our operating performance this quarter, and we'd like to see black ink on the bottom line by the end of Fiscal 2003."

IDT recorded income from operations for the first quarter of Fiscal Year 2003 of $24.3 million, compared to a loss from operations of $12.6 million in the first quarter of Fiscal Year 2002, and a loss from operations of $141.1 million in the fourth quarter of Fiscal Year 2002. Excluding impairment charges and the results of Winstar and Net2Phone, income from operations would have been $5.1 million in the first quarter of Fiscal Year 2003, versus a loss from operations of $9.7 million in Q1 of Fiscal Year 2002 and income from operations of $4.1 million in Fiscal Q4 2002. Contributing to the reported $24.3 million in income from operations was a gain of $58.4 million from the settlement of litigation against Cisco Systems by Net2Phone. Excluding that one-time item, IDT would have reported a $34.1 million loss from operations.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, and excluding restructuring, severance, impairment and other items) in the first quarter of Fiscal Year 2003 amounted to a loss of $6.1 million, versus earnings of $5.5 million in the first quarter of Fiscal Year 2002 and a loss of $10.4 million in the fourth quarter of Fiscal Year 2002. Excluding Winstar and Net2Phone results, EBITDA would have been $21.4 million in Q1 of Fiscal Year 2003 (up from $5.5 million on that basis in Q1 of Fiscal Year 2002 and up from $19.8 million on that basis in Q4 of Fiscal Year 2002).

IDT Telecom reported record revenues of $390.2 million for the first quarter of Fiscal Year 2003. This represents an increase of 17.0% versus the first quarter of Fiscal Year 2002, and an increase of 1.7% from the fourth quarter of Fiscal Year 2002.

IDT Telecom recorded EBITDA of $30.3 million and income from operations of $13.4 million (after an asset impairment charge of approximately $1.5 million) for the first quarter of Fiscal Year 2003. In comparison, IDT Telecom had EBITDA of $16.2 million in Q1 of Fiscal Year 2002, and income from operations of $0.1 million (after an asset impairment charge of approximately $2.8 million). EBITDA was $29.8 million (after an asset impairment charge of approximately $0.4 million) in the fourth quarter of Fiscal Year 2002, and income from operations was $14.2 million. The EBITDA margin for Q1 of Fiscal Year 2003 was unchanged from the Q4 2002 level, at 7.8%.

Gross margins for IDT Telecom amounted to 23.5% for Q1 of Fiscal Year 2003, versus 20.2% in Q1 of Fiscal Year 2002 and 24.0% in Q4 of Fiscal Year 2002. Margin improvement compared with the year-ago period was due to efficiency gains and vigorous cost reduction efforts. The fractional decline in margins compared with the Q4 level was due to a combination of cost increases on some key routes where minutes termination services are provided by third parties, and the recent introduction of more aggressively priced calling card products. IDT expects gross margins to remain relatively stable in the range of 23% to 24% during the remainder of Fiscal Year 2003.

Selling, general and administrative (SG&A) expenses for IDT Telecom were $61.6 million in the first quarter of Fiscal Year 2003, representing to 15.8% of revenues. This compares to $51.2 million (15.4% of revenues) in the first quarter of Fiscal Year 2002 and $62.2 million (16.2% of revenues) in the fourth quarter of Fiscal Year 2002. IDT anticipates that these costs will remain steady, as a percentage of revenues, as IDT continues to add to its personnel base in order to accommodate the expected revenue growth during the next few quarters.

"With another quarter of record revenues and EBITDA, we have certainly gotten off on the right foot in Fiscal Year 2003," stated Motti Lichtenstein, CEO of IDT Telecom. "More importantly, by investing in our network infrastructure, such as installing a second gateway switch in the U.K., we are taking steps to prepare for anticipated further revenue and profit growth throughout the remainder of the fiscal year."

IDT's retail telecommunications services segment posted $306.8 million in revenues for the first quarter, 15.6% more than the retail revenues recorded during Q1 of Fiscal Year 2002, and up 3.6% over Q4 of Fiscal Year 2002.

Calling card revenues amounted to $270.7 million for the first quarter of Fiscal Year 2003, 11.7% more than the calling card revenues of the first quarter of Fiscal Year 2002, and up 2.8% over the fourth quarter of Fiscal Year 2002.

Gross margins for calling cards were 23.4% in the first quarter of Fiscal Year 2003, representing 270 basis points improvement from 20.7% in Fiscal Year 2002’s first quarter, although 70 basis points lower than the level of fourth quarter of Fiscal Year 2002. Margins for calling cards were impacted by modestly increased costs on some very high volume routes, and also by the introduction during the quarter of a large number of new cards. New cards are generally introduced with very aggressive pricing, which is gradually adjusted as they build market share. The surge in new card introductions was part of IDT's plan to aggressively seek market share in both its traditional Northeast U.S. markets, as well as in several other key areas, such as California, Florida and Texas.

In early December, IDT's Private Label Calling Card business began to offer privately-labeled Walgreen's calling cards for sale. When the program is fully launched later this month, the calling cards will be available in approximately 4,000 Walgreen's stores throughout the U.S. IDT expects that this product will generate approximately $45 million in revenues over the next 12 months.

Looking to the remainder of Fiscal Year 2003, IDT anticipates continued quarterly revenue growth in the single-digit range, with a significant portion of the growth to be driven by further expansion of its European calling card operations. IDT also plans to continue the aggressive growth of its nascent South America calling card business.

IDT anticipates that calling card margins for the remainder of the fiscal year will remain at or near the levels experienced in the first quarter. Calling card margins will be largely dependent upon the timing and magnitude of the introduction of new, aggressively-priced cards.

Consumer long distance revenues of $35.7 million for the first quarter of Fiscal Year 2003 were up 60.8% from Q1 of Fiscal Year 2002 and 10.4% from the fourth quarter of Fiscal Year 2002. IDT Telecom currently has approximately 600,000 active long distance customers. Gross margins were 56.9% for the first quarter of Fiscal Year 2003. Gross margins in IDT’s consumer long distance business have been well above 50% since the middle of Fiscal Year 2002.

Beginning early in Fiscal Year 2003, IDT significantly increased its marketing and advertising expenditures in its Consumer Long Distance business, in an attempt to accelerate the growth of its customer base. These expenditures, while reducing Consumer Long Distance operating profits in the near term, are expected to lead to a rise in the number of active customers, revenues and profits over the longer term. In addition, as IDT's customer base has grown, IDT has begun to place an increased emphasis on customer retention. Over the remainder of Fiscal Year 2003, IDT expects to dedicate a significant portion of its marketing and advertising budget to programs designed to improve customer retention. IDT expects to sustain margins at about current levels.

IDT's wholesale telecommunications services segment reported revenues of $83.4 million in Q1 of Fiscal Year 2003, a 22.4% increase from Q1 of Fiscal Year 2002, but down 4.6% from Q4 of Fiscal Year 2002. The revenue decline was mostly due to consolidating Net2Phone, and therefore eliminating Wholesale Telecom’s sales to Net2Phone from IDT's consolidated revenues. Without consolidating Net2Phone, wholesale revenues would have been essentially unchanged from those of the prior quarter.

Gross profit margins of 10.0% in Q1 of Fiscal Year 2003 compare with 7.5% in Q1 of Fiscal Year 2002 and with 12.9% in Q4 of Fiscal Year 2002. The margin decline versus the fourth quarter of Fiscal Year 2002 reflects increases in termination costs to some key destinations and increased connectivity costs, which were incurred as IDT expanded its capacity in expectation of continued ramp-up in wholesale carrier minutes.

It is difficult to accurately predict revenue and gross margin trends in the wholesale carrier business. However, IDT anticipates solid revenue growth from its wholesale operations in the second quarter of Fiscal Year 2003, with further gains expected in the second half of the fiscal year as well. Revenue gains are expected to be driven primarily by increased sales to Tier 1 telecom carriers, both in the U.S. and in Europe. IDT anticipates that the fastest growing segment of its worldwide wholesale carrier business will be its fledgling South American carrier operation. However, given its size relative to IDT’s U.S.-based and Europe-based wholesale divisions, IDT does not expect its South American carrier business to represent a significant portion of its overall wholesale carrier business in Fiscal Year 2003. IDT expects that gross margins will improve slightly in the second quarter, with those levels to be maintained over the balance of the fiscal year.

Throughout Fiscal Year 2003, IDT anticipates making considerable expenditures, designed to expand its global telecommunications network. Key elements of its network expansion plan for Fiscal Year 2003 include the addition of a second international gateway switch in the UK, and another two international gateway switches in the U.S. (which will bring IDT’s total to six U.S. gateway switches). IDT also expects to expand its calling card platform in the U.S. In addition, IDT anticipates making additional expenditures to upgrade its network in South America.

For the full 2003 fiscal year, IDT anticipates capital expenditures in the range of $50 million to $75 million. IDT’s estimates are based in large part on its belief that the market for telecommunications equipment will remain depressed, allowing IDT to procure such equipment at a relatively low cost. In implementing IDT's network expansion plan, IDT will continue to employ its long-standing, "smart build" approach, whereby IDT only adds network elements when justified by existing or readily anticipated traffic volumes. Thus, IDT's network expansion plan, particularly in South America, will largely depend on the timing and magnitude of the growth in IDT's minutes-of-use.

IDT Telecom is on track to report revenues in the range of $400 to $410 million in Q2 of Fiscal Year 2003, and $1.6 to $1.7 billion for Fiscal Year 2003. IDT expects EBITDA of $31 million to $33 million and operating income of $16 million to $18 million in Q2. EBITDA for the year is expected to be in the $125 million to $140 million range, with income from operations in the $65 to $80 million range.

The Winstar division recorded a loss from operations of $24.7 million on revenues of $24.5 million in the first quarter of Fiscal Year 2003. This compares to a $33.6 million loss from operations on revenues of $27.3 million in the fourth quarter of Fiscal Year 2002. The decrease in loss from operations came from the continued reduction of expenses associated with network connectivity, employee compensation and benefits, as well as rents.

On the cost side, Winstar has various ongoing initiatives to groom its network. One in particular, called the LF Wireless project, involves using the Winstar wireless technology to link its hubs (which collect traffic from its wireless sites) to its switches (where the traffic is routed to the world at large). It aims to replace the traditional terrestrial wireline capacity provided by local exchange phone companies connecting the hubs to the switches with Winstar wireless technology. This initiative reduces costs by eliminating payments to local exchange carriers for those wireline connections. More importantly, it extends Winstar’s control over customer traffic and provides further redundancy for customers by reducing the dependence on terrestrial capacity to carry their traffic.

Winstar is continuing to add new service offerings to its suite of value-added products. For example, Voice Over IP has recently been added to the suite of products for the enterprise market. Presently deployed in the New York metropolitan area, this service is already adding a small increment to revenues in the second quarter of Fiscal Year 2003. Winstar anticipates rolling out this offering in other markets such as Boston, L.A. and Miami in the upcoming months.

"We are committed to driving harder and harder, expanding the sales force, and being ever more innovative in the marketing of our product offerings," said Brian Finkelstein, CEO of Winstar.

In terms of offering guidance for the second quarter of Fiscal Year 2003, Winstar anticipates an EBITDA loss in the range of $18 million to $20 million. This would represent a decrease of the pace at which Winstar has been reducing its losses. This is mainly attributable to the fact that a majority of the large cost cutting initiatives has been completed and Winstar does not foresee the current Holiday quarter as being conducive to particularly strong growth on the revenue side.

The IDT Media division recorded a loss from operations of $1.3 million on revenues of $5.8 million in the first quarter of Fiscal Year 2003. This compares to a $6.5 million loss from operations in Q1 of Fiscal Year 2002 and a $3.6 million loss from operations (before impairment charges) on revenues of $5.7 million in the fourth quarter of Fiscal Year 2002. The Corporation’s near term financial goal for IDT Media is to break even on an operating basis.

Much of the financial improvement was at Talk America, where IDT Media both reduced costs and focused on steps to drive advertising revenue. In last quarter's earnings release, IDT described Talk America's new focus on weekday programming, new shows and its aggressive new sales partner, Dial Global. IDT is pleased to report that these initiatives are bearing fruit, and revenue growth is expected in Q2 of Fiscal Year 2003.

The Global Animation Studio’s results are also improving. The Studio is currently in production on "Cartoon Pizza," a pilot for an early childhood show, the animation for "Monsters by Mistake," a 26 episode television show, plus a project for the Sesame Workshop. While the Studio also is involved in contracts involving advertising applications, interactive games, direct to consumer videos, as well as television pilots, the Studio has also developed its own animated product, "Hip Hop and Hamilton." The pilot of this series has been very well received by distributors, licensing professionals and by textbook publishers.

"We are focused on building our businesses," said IDT Media CEO Mitch Burg, "and we are making progress towards profitability."

Net2Phone is a separate public company whose common stock is quoted on the NASDAQ National Market under the symbol NTOP. Net2Phone is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. On or about December 9, 2002, we expect that Net2Phone will issue a press release with a summary of its earnings with respect to its fiscal first quarter ended October 31, 2002. Set forth below is a brief description of the Net2Phone results which are consolidated in IDT Corp.'s results. For further information with respect to Net2Phone, reference may be made to the above-referenced press release and other Net2Phone press releases, Net2Phone's Annual Report on Form 10-K and to prior and subsequent reports and other information filed by Net2Phone from time to time with the Securities and Exchange Commission. None of such releases, reports or information is incorporated into this release and such releases, reports and information do not form a part of this release.

IDT reported Net2Phone's income from operations of $45.5 million on revenues of $22.6 million in the first quarter of Fiscal Year 2003, net of intercompany transactions with IDT Corp. Excluding Net2Phone’s restructuring, severance and impairment charges, and excluding the gain from a large litigation settlement, the loss from operations associated with Net2Phone was $7.8 million, versus $50.7 million in the year-ago quarter and $18.2 million in Q4 of Fiscal Year 2002. Since IDT did not consolidate Net2Phone results in Fiscal Year 2002, neither the $50.7 million nor the $18.2 million contributed to IDT's reported loss from operations for those periods.

Highlights of Net2Phone’s quarter include continued growth of the International Communications Services division, its core business, which now comprises 47% of revenues, as compared to 21% in the first quarter of Fiscal Year 2002. Also, the settlement of litigation with Cisco Systems resulted in a cash increase of $19.5 million.

"The continued growth in our core business indicates that we’ve made the right decision to reorganize and deliver quality revenues with solid gross margins," said Stephen Greenberg, CEO of Net2Phone.

In connection with this release of quarterly and annual results, IDT will be hosting a conference call today for analysts, investors and the general public, at 5:30 PM EST.

To access the call from the U.S., dial 1-800-775-2298. For international callers, the dial-in number is 1-706-679-3357. No passcode is required. A replay of the teleconference will be available for one week after the conference call at 1-800-642-1687, passcode #7014197 for domestic callers, or 1-706-645-9291, passcode #7014197 for international callers.

Alternatively, interested participants may access a webcast of the conference call by visiting the IDT. website, at HYPERLINK "http://www.idt.net/". A direct link to the call will be found on the website. Listening to the webcast of the call will require Windows Media software. Please allow at least 15 minutes to download the necessary audio software prior to the call. An archived copy of the call will be available at the IDT website in the Investor Relations section’s Presentations.

IDT Corporation, through its IDT Telecom subsidiary, is a facilities-based, multinational carrier that provides a broad range of telecommunications services to its retail and wholesale customers worldwide. IDT Telecom, by means of its own national telecommunications backbone and fiber optic network infrastructure, provides its customers with integrated and competitively priced international and domestic long distance telephony and prepaid calling cards. IDT and Liberty Media own 95% and 5 % of IDT Telecom, respectively. IDT Media is the IDT subsidiary principally responsible for the Company's initiatives in media, new video technologies and print media.

Through its various subsidiaries, IDT has interests in several telecom, Internet-related and media companies. IDT acquired assets of Winstar Communications in December 2001. IDT Corporation common shares trade on the New York Stock Exchange under the ticker symbols IDT.B and IDT. As of October 18, 2002, there were about 54.1 million shares of Class B common stock (IDT.B) outstanding, and about 25.0 million shares of common stock (IDT). Of these, approximately 4.0 million shares of Class B common stock and approximately 5.4 million shares of common stock were held by IDT Corporation.

In this press release, all statements 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, including, but not limited to, those described in our most recent report on SEC Form 10-K (under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations"), which may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K. These factors include, but are not limited to, the following: potential declines in prices for our products and services; our ability to maintain and grow our retail telecommunications services, particularly our prepaid calling card business; availability of termination capacity; financial stability of our customers; our ability to maintain carrier agreements with foreign carriers; effectiveness of our marketing and distribution efforts; increased competition, particularly from regional bell operating companies; our ability to manage our growth; competitiveness of our Winstar subsidiary; impact of government regulation; our ability to obtain telecommunications products or services required for our products and services; and general economic conditions, particularly in the telecommunications markets. We are under no obligation, and expressly disclaim any obligation, to update the forward-looking statements in this press release, whether as a result of new information, future events or otherwise.