Part II, NTOP Earnings/Conference Call
John: Hi guys. Great quarter. I am so excited to hear you guys are finally EBITDA positive!
Steve: You are not as excited as we are!
John: Oh, I bet. I bet. Congratulations. I’ve got a quick question. With regards to NGS versus NCT and the margins that you’ve been able to sustain in the NGS side, can we go under the assumption that the margins in NCT going forward will be somewhat similar, and if so, do you have some sort of a point close to this $20 million number that we could use as a guidance as to EBIDTA positive on the cable telephony side?
Steve: Let me answer the question that is clear to me. I think you can expect to see our margins on the cable side in the same 40% range that Arthur mentioned for the NGS side.
John: Wow.
Steve: Okay, yes, so that I can answer clearly. I think there may have been a subpart that I didn’t quite understand.
John: Okay, basically what I am saying with revenue at NGS at roughly $20 million, you are showing EBIDTA positive numbers. My question is, could you use that $20 million rough number on the cable telephony side to use as kind of a break even point in revenue?
Steve: I usually want to avoid giving any revenue guidance on NCT because we are in negotiations and the like. But I want to make clear that we do expect to see the same range of margins – the 40% margins that you’ve historically seen on the NGS side. And I wish I could go further now, but I can’t.
John: Alright. We’ll wait then. Wonderful quarter. I am very excited.
Steve: Thank you very much, and have a great evening.
Glen Wilder, Normras Securities: Hi. One housekeeping question. What was the study that you said at the beginning of the call – in terms of Net2Phone being terrifically positioned for the market?
Steve: It’s a Goldman analysis that came out on the 9th, entitled “Telecom Services – United States Competitive Analysis.”
Glen: So it was street research; not independent research.
Steve: Correct.
Glen: Okay. Terrific. When I heard you present the other day, I think you gave a little bit more detail in terms of the difference between your cooperative model with cable companies versus the franchise. Is there any way you can go over those numbers with some sort of broad brush version of that again that you said in a public setting a few days ago? I just want to be sure I’ve got the numbers right.
Steve: It’s actually all laid out in our prospectus. And rather than … I’d rather not do it broad brush because we’ve laid it out carefully. And if you give Sarah a call right afterwards, she’d be happy to email to you.
Glen: Okay, because you said something about EBIDTA positive over a certain time period.
Steve: Correct.
Glen: Do you have any comments on gross margins and how long it takes?
Steve: Let’s be clear. We did that on a market by market basis. If you will recall, when the presentation was made, and as I said earlier in answer to one of the questions, that we really describe when we woild be EBIDTA positive and cash flow positive on a market by market basis and rather than doing it want to be sure because we have been laying all of this out. And we will get to you that page of the prospectus that lays it out very clearly.
Glen: Okay, happy to do that offline. When I heard you present the other day,
Jules: Hi Steve.
Steve: Hello Jules. Are you having a good evening, Jules?
Jules: Steve, could you please describe in a little bit more detail what the difficulty is in finalizing the Cebridge Connections deal, as well as future MSO cable companies.
Steve: I don’t think I have ever used the word difficulty, and so far we have encountered no difficulty. But I think that – and you know like everybody else, I often lack patience. And I am really trying, Jules, as I go through life and when there are great opportunities staring us in the face, at perhaps being more patient than I have in the past. But let’s remember, that we have now basically sold through two very important cable companies. And we have a definite agreement – a six year agreement with Liberty of Puerto Rico. And we signed the MOU with Cebridge, and it is correct, and I meant what I said that we have people in St. Louis literally in the last few days moving towards that agreement.
But it’s a complex type of arrangement. And it’s a very important arrangement, both for us and for the MSO, because we are adding really a new revenue generating unit to the business. And what we’re doing, Jules, is integrating, you know, an existing network and infrastructure. And both from the technical side and from the modeling side, it’s just not a snap decision. And the most important thing for Net2Phone, because you know you and I have talked about this before, and this $10 billion revenue switch and the fact that we can see a potential 82 million subscriber base almost pass in front of us, the most important thing for us is to do it right. Especially, from the get go. It’s very important to be perfect as we have in the past at Puerto Rico, and with the folks at Cebridge who we actually like tremendously Here the operator has made a decision to outsource. And now the question is , once that decision is made let’s do it the best way. Every particular negotiation in every particular market is going to be different. But I don’t think using the adjective “difficult” is necessarily the right one. I would say let’s do it right and be proprietious about it Jules.
Jules: But Steve, 18 months ago we first talked when we first got the Puerto Rico/Liberty deal that there would be more deals coming very shortly. Six months ago, we are going to have another cable operator imminently join us.
Steve: We did.
Jules: We got the Cebridge. But it’s an MOU, it’s not a definite contract. And we have this list of all these MSOs that have been waiting to sign up, and with all the publicity that voice over internet, especially for cable, has had in the recent two months, it’s very very difficult to have the patience that you seem to be able to acquire, but we investors are more or less in the dark as to when something more will begin to generate revenues and more cable companies will come on line.
Steve: Jules, you know, I am sorry that you feel that you are in the dark. I think that you will see the light. And I would also just want to remind you that we are not just selling white bread. This is a very, very important and complex solution that we are selling. And it’s taken us – as you know we had an 18-month trial with Liberty, and a very serious negotiation with them. And we’ve achieved the kind of quality where folks, as you’ve seen in a recent report, can come and go down there and look at it and put out a report saying that if you are a cable company and you are a little skeptical, if you go with Net2Phone, the possibility of your failing because of a quality issue is exceptionally low.
Now, you know the cable guys are not going away Jules. They are going to be around. And as I said in almost every presentation that I’ve given, we know that they have to have the service because we talk about the fact that their churn reduction as Cox has shown – and Cox has become the 9th largest company in the United States – you know, with two legs of the stool, it is 28% churn reduction, and when you add our solution it is 53%. So, yes, I am going to be somewhat patient.
Listen. I am interested in maximizing shareholder value. I’ve said it to you personally, and I will say it to you again. But I want to make sure and we want to make sure from a technical side and the business side we do it right. I have every belief it is going to be successful. But I am sorry if I can’t help any more in terms of expectations. And you know, the kind of progress – if you read the Goldman report that I mentioned – it’s actually a very good report –and it specifically talks about the kind of progress that we’re making at Net2Phone, and what they point out is that we have demonstrated that our quality is ready for prime time. And I want to keep it that way. And I want to make sure that we are right, because the market is too enormous, and I think that we’re all going to be very satisfied as we go forward. So I am sorry if you are somewhat disappointed.
Jules: I’ve gone to the dictionary and looked up imminent many times now. And I hope that by the next conference call we will have more concrete signings of completed deals.
Steve: And I am with you Jules. And I look forward to speaking with you before and during the next conference call and I wish you a good evening.
Jules: Thank you. You too. |
