Card cellular phone prepaid wholesale

IDT Corporation (NASDAQ: IDTC) Thursday reported revenues of $271.5 million for the second quarter of its fiscal year 2000, the three months ended January 31, 2000. The financial information in this report is presented before the consolidation of the Net2Phone (NASDAQ: NTOP) subsidiary, and accordingly excludes Net2Phone's operations for the quarter. Revenues were approximately flat with those of the prior quarter, and increased 77% over the same period last year. Net income for the quarter was $105.7 million or $2.90 per diluted share. This compares with $29.1 million ($0.80 per share) in Q1 2000 and $3.2 million ($0.09 per share) a year ago. Net income includes $107.3 million or $2.94 per share (net of taxes) in non-recurring investment income, consisting primarily of gains relating to the sale and secondary offering of Net2Phone stock in December 1999, as well as an extraordinary charge (net of taxes) of $3.0 million, or $0.08 a share, related to the early retirement of the Company's bank line of credit.

Net income excluding the investment gains and the extraordinary item was $1.5 million or $0.04 per share. EBITDA (earnings before interest, taxes, depreciation and amortization, and minority interest) for the core telecommunications business was $16.8 million, versus $16.2 million in the first quarter and $13.1 million for the year-ago quarter.

"We are pleased to report record EBITDA for our core telecommunications business this quarter," said Howard Jonas, IDT's Chairman and CEO. "Our renewed focus on margins has yielded improved operating results for our core telecom business.

Our financial condition is extremely strong, given our cash balances of nearly $90 million, and the market value of our investments in Net2Phone and Terra Networks, which total approximately $1.55 billion, or more than $45.00 per IDTC share. In addition, we are very excited about our prospects for IDT Ventures' new businesses, which we believe will yield significant shareholder value in the future."

TELECOMMUNICATIONS SERVICES

IDT's core telecommunications business reported revenues of $268.4 million, an increase of 6.5% from the first quarter's levels, excluding the impact of $20 million in non-recurring wholesale revenues recorded in the first quarter of 2000. Revenues were 80% higher than those reported in the second quarter of last year.

EBITDA for the telecommunications business amounted to $16.8 million in the second quarter, up 3.9% from the first quarter, and an increase of 27.8% from last year's second quarter. Operating income for the telecommunications business amounted to $11.4 million, up 11% from $10.3 million in the first quarter and 34% higher than the $8.5 million in operating income recorded in the same quarter last year.

The Company's wholesale and retail operations both posted solid results, reflecting the positive effects of continued network build-out, which has allowed both businesses to capture market share from competitors and to reduce operating costs. Gross margins for the Company's core telecommunications business amounted to 18.1%, up from 16.9% in the first quarter of 2000.

"The improved margins experienced by our telecommunications business this quarter reflect the investments we've made in our network," said Jim Courter, Vice Chairman and President of IDT. "Our plans to further enhance our network, with significant additional investment, will allow us to continue to grow our telecom minutes while improving overall profitability."

WHOLESALE

IDT's wholesale carrier business continued its solid growth during the second quarter of 2000. Excluding the effects of the first quarter's non-recurring revenues, carrier revenues of $132.4 million were up 9.1% from the prior quarter. Overall carrier gross margins were 14.0%, down from 14.4% in the first quarter. During the quarter, the Company recorded about $4.7 million in carrier revenues related to sales to Net2Phone, up from $3.6 million in the first quarter. The gross margin on the sales to Net2Phone in both periods was 10%.

The growth in the carrier business reflects a greater number of carrier customers, as well as increased minutes sales to existing customers. The Company continues to capitalize on its relationships with PTTs, and currently serves 18 of the top 25 global carriers, with operating, terminating and alternate carrier agreements throughout the world.

IDT continues to benefit from the diverse nature of its customer base and its ability to move quickly in a dynamic marketplace. The past several quarters have witnessed a shift in carrier's geographic mix, both in terms of minutes and revenues, with Asia and Africa exhibiting the fastest growth. The Company is pursuing a strategy of carrying all of its incremental wholesale minutes on its own network, enabling the Company to reduce its per-minute operating costs. By carrying a greater proportion of its minutes "on-net," the Company expects to be able to stabilize, and improve, its wholesale gross margins in the face of declining prices.

RETAIL

IDT's retail operations posted $136.0 million in revenues, up 4.0% from the previous quarter, and 44% higher than during the same quarter last year. Gross margins improved across all business lines. Prepaid calling card revenues amounted to $127.1 million, a 2.3% gain from the previous quarter and 48% higher than during the second quarter of Fiscal 1999. The blended prepaid calling card gross margin amounted to 20.7%, versus 19.3% in the previous quarter. The increase in prepaid margins reflected a shift in sales towards higher-margin IDT calling cards as well as an improvement in gross margins on IDT calling cards. The average gross margin on IDT calling cards was at its highest level in five quarters.

Growth in prepaid calling card revenues was driven by the introduction of several new IDT branded calling cards, as well as increased card sales in both the traditionally strong East Coast markets and in relatively new geographic markets. In particular, solid growth was seen in California, Florida and Illinois. Already a leading seller of minutes to Latin America, the Company during the quarter launched its prepaid calling card distribution operation in the Dominican Republic. Further geographic expansion will focus on Massachusetts, Texas, Puerto Rico and Nicaragua.

INTERNET

IDT's Internet business recorded a net operating loss for the quarter of $3.6 million, versus a loss of $3.6 million in the prior quarter and a loss of $2.4 million in the second quarter of Fiscal 1999. Internet revenues declined approximately 15% from the prior quarter, to $3.2 million, and were 27% lower than during the same quarter last year.

During the quarter, the Company announced the formation of its Internet Service Provider (ISP) joint venture with Terra Networks (NASDAQ: TRRA), the leading provider of Internet access in the Spanish-speaking world. The joint venture, in which IDT has a 49% stake, will target the large U.S. Hispanic market. IDT contributed its customer base to the venture, while Terra will contribute $30 million, to fund the venture's start-up, marketing and expansion. The joint venture aims to aggressively expand its existing customer base. IDT is also a 10% owner of Terra's recently launched U.S. Internet portal.

IDT VENTURES

The IDT Ventures business, comprised of several new telecom and Internet related ventures currently being developed by IDT, recorded an operating loss of $3.0 million in the second quarter, related to ongoing start-up and development costs. IDT Ventures did not record material revenues for the period.

During the quarter, IDT launched its Brix Communications Corp. subsidiary. Brix will partner with landlords across the country to install building-centric infrastructure, enabling Brix to offer dedicated, high-speed Internet access, local and long distance telephony, and digital satellite television to tenants of residential multifamily properties. At its January launch, Brix announced an agreement with the Kushner Companies of Florham Park, NJ to be the exclusive provider of broadband data services, digital satellite television, and long distance telephony across its portfolio. The Kushner portfolio represents in excess of 15,000 residential units in New Jersey, New York, Florida, and Delaware. Since that time, Brix has been actively negotiating to add additional access contracts to its portfolio, and including both contracts signed or pending, has added in excess of 40,000 additional multifamily units to its portfolio.

Recently, IDT announced the formation of its Wireless business, which plans to enter the cellular industry by utilizing its proprietary "calling party pays" technology for cellular phone and paging services. This technology will eliminate the fees that subscribers currently must pay for incoming calls and pages in the U.S.