Herb Greenberg from The Street.Com blasts IDTC for funny business:
IDT's Convoluted Earnings Release Tries to
Get Investors to Ignore the Important
Numbers
By Herb Greenberg
Senior Columnist
10/15/99 6:30 AM ET
Talking about trying to make earnings look better than they
really are: IDT (IDTC:Nasdaq) gets this column's chutzpah
award. Not only does it keep the mirrors in plain view, but it
gives detailed instructions on how the trick is played, leaving
investors to decide whether they want to accept the company's version of last
quarter's financial results as a mere illusion.
The headline on the press release sets the tone by boasting a "record fourth quarter"
and "strong market share gains."
It's downhill from there for anybody taking the time to go
line by line through what is an unusually complicated and
highly convoluted earnings report. "I cannot believe that
press release because you cannot really determine what
core earnings per share were," says analyst Greg Miller
of Jefferies & Co., who rates IDT a hold. Adds Vik Grover of Kaufman Brothers,
who has a sell on the company, "I've never seen an earnings release like this."
The company's spin, in the first paragraph, is that IDT reported a 29% gain in
first-quarter revenue and earnings of 22 cents per share. Wow! Sounds great -- until
you read the rest of the same sentence. Those numbers include "several" unspecified
"one-time" gains and don't include several other unspecified SG&A costs. They also
don't include the results of Net2Phone (NTOP:Nasdaq), in which IDT owns a 57%
stake.
It's generally not good when a company includes one-time gains or excludes costs
without providing details of what those gains and costs were and how much they're
for. (It certainly isn't clear in the press release, which is all the average investor has to
go on until documents are filed with the Securities and Exchange Commission.)
It's also not generally a good sign when a company, in its earnings press release,
offers investors their choice of two income statements -- and steers them from the
one reported in accordance with generally accepted accounting principles to a more
watered-down version (which, in the case of IDT, doesn't include results from
Net2Phone).
That's just what IDT did, and for good reason: The GAAP report showed a loss of 15
cents a share, below analysts' expectations for a gain of 8 cents a share, rather than
a profit of 22 cents a share.
IDT's argument, in its press release, is that it would prefer investors look at the
results of its core biz. No prob, but IDT can't have it both ways. Back when
Net2Phone went public, IDT execs were on TV trying to convince investors that they
should consider buying the lower priced IDT instead of the expensive Net2Phone
because as a 57% investor in Net2Phone, IDT was a cheap way to buy into
Net2Phone. "They want credit from owning Net2Phone, but they don't want to accept
the losses," grumbles one short-seller.
The income-statement shell game aside, IDT's basic biz, which includes selling
prepaid phone cards, doesn't look so great. Gross margins are on the wane. Most
telling was that the fastest growth -- 55.6% -- came from non-IDT-branded cards,
which have meager 3.5% gross margins; that compares with an 8.9% gain of
IDT-branded cards, which have margins of 26.9%. There were similar examples in
other parts of the company, which suggests that in order to deliver that stunning
revenue growth, IDT all but gave a good chunk of its biz away. "The fact that they
have a great top line is irrelevant," Miller says. "You and I could create a company
that puts up $200 million with zero margin."
Adding to the confusion, IDT held a brief conference call this morning that lasted all of
about 15 minutes. No questions were permitted. Company officials left the impression
that they had more important things to do.
Oh, and finally, IDT made its debut here in a Hostile-React-O-Meter-spinning column
that questioned a $25 million loan from IDT to Lermer Overseas
Telecommunications, a company run by a close friend of IDT CEO Howard Jonas.
Lermer, however, was dissolved as a corporation in New York in September 1997 for
failing to pay the state franchise tax, which means IDT made a large loan to a
company that technically didn't exist. IDT said if it didn't reincorporate, the loan would
be called. In the conference call Thursday, IDT said the loan had been repaid.
IDT officials didn't return my calls Thursday. |
