Net2Phone Reports 2nd Quarter Fiscal 2004 Results
Tuesday March 9, 4:00 pm ET
11th Consecutive Quarter of 40%+ Gross Margins
Signs Three Caribbean VoIP Deals
NEWARK, N.J.--(BUSINESS WIRE)--March 9, 2004--Net2Phone Inc. (Nasdaq: NTOP - News), a leading provider of retail Voice over IP (VoIP) services, today announced results for the second quarter of fiscal 2004 ended January 31, 2004.
Financial highlights for the quarter and recent achievements include:
NGS reports second consecutive quarter of segment income exceeding capital expenditures 11th consecutive quarter of gross margins above 40% 1000th cable telephony subscriber installed in Puerto Rico in eight weeks of market deployment.
Three Caribbean agreements to deliver a suite of VoIP solutions
"The results of this quarter demonstrate that we are successfully continuing on the path we had mapped out two years ago. Once again NGS segment income exceeded its capital expenditures and NCT continues its steadfast progress in our cable telephony initiative," said Stephen Greenberg, CEO of Net2Phone. "Our recent successes in the Caribbean - exclusive partnerships with two cable operators and an incumbent phone company - serve as a regional microcosm for Net2Phone's opportunities to empower service providers globally with incremental revenue and customer retention tools by deploying VoIP in their markets."
Revenue for the company for the second quarter totaled $19.8 million, as compared with $20.4 million in the prior quarter and $23.1 million in the second quarter of fiscal 2003. Gross margin for the second quarter was above 40% for the 11th consecutive quarter at 43.3%, as compared to 46.3% in the prior quarter and 46.7% in the second quarter of 2003.
Net loss for the second quarter was ($9.5) million compared to net income of $5.1 million in the prior quarter (the income was primarily attributable to the resolution of various matters with respect to our ADIR subsidiary, resulting in a one-time gain of $12.2 million) and net loss of ($9.2) million in the second quarter of 2003. The second quarter loss of ($9.5) million in fiscal 2004 includes $2.3 million of non-cash services provided by IDT. This is the first time the company is incurring this expense based on a Memorandum of Understanding (MOU) executed by IDT and Net2Phone on October 29, 2003. The expense reflects 356,000 shares of Net2Phone Class A stock that were earned by IDT during the second quarter and will be issued and released to IDT based on the terms of a definitive agreement contemplated by the MOU and expected to be executed in the next few months. Net income (loss) includes certain non-operational, non-cash and/or non-recurring items that management excludes in assessing the company's performance. As a result, the company also reports net income (loss) before special and non-cash items(1) (adjusted for depreciation and amortization, minority interests, other income, interest income, non-cash compensation, non-cash services provided by IDT, gain from litigation, inventory obsolescence expense, non-recurring selling, general and administrative expenses and restructuring, severance, impairment and other items), which excludes the impact these aforementioned items have on the company's financial results.
Net loss before special and non-cash items for the quarter was $3.1 million, compared to $2.6 million in the prior quarter and a loss of $3.4 million in the second quarter of 2003. Net income (loss) before special and non-cash items is not a term defined by generally accepted accounting principles (GAAP) and may not be comparable to other similarly titled measurements used by other companies. Such non-GAAP measures should be considered in addition to, and not as a substitute for, performance measures calculated in accordance with GAAP.
The company believes that net income (loss) before special and non-cash items provides investors with a measure of the company's operational and financial progress that corresponds with the measurements used by management. Management uses this measurement, instead of net income (loss), as a basis for allocating resources and making other daily operating decisions. The accompanying table includes a detailed reconciliation of net income (loss) reported in accordance with GAAP to net income (loss) before special and non-cash items.
Capital expenditures during the second quarter were $1.6 million, compared with $1.3 million in the prior quarter, and $1.4 million in the second quarter of 2003. The company reported cash, cash equivalents and marketable securities of $138.8 million as of January 31, 2004, including $25.9 million of restricted funds.
Net2Phone Global Services (NGS)
NGS revenue for the second quarter was $19.7 million, as compared to $20.4 million in the prior quarter and $23.0 million in the second quarter of fiscal year 2003. A significant factor in the revenue decline resulted from the company's exit from the US disposable calling card business. The company had been scaling back its efforts in this historically high-revenue, low-margin business for the past two years by raising its prices and allowing this revenue stream to run off. NGS reported segment income of $1.1 million this quarter, exceeding its capital expenditures by $0.2 million, representing the second consecutive quarter of successfully managing its business profitably. Segment income (loss) is the net income (loss) before special and non-cash items directly attributable to the segment's operations less the allocation of certain corporate expenses.
Earlier this month, NGS announced a two-year exclusive agreement with Telecommunications Services of Trinidad and Tobago (TSTT), 51% government owned and 49% owned by Cable & Wireless, to deliver a suite of co-branded VoIP solutions throughout Trinidad, including calling cards, prefix dialing services, (similar to 10-10 services in the US), and Internet telephony call shop services.
Net2Phone also unveiled its strategy to offer VoiceLine, hosted broadband telephony services that will be marketed to service providers globally. By offering VoIP solutions to their residential and small office/home office (SOHO) subscribers via Net2Phone, service providers can rapidly generate incremental revenue as well as deliver added value, features and functionality to their customers, thereby retaining existing customers.
In that regard, Net2Phone announced that it has signed a Memorandum of Understanding with The Cable of St. Kitts, the only cable operator on St. Kitts, to deliver residential broadband telephony service to its customers. The Cable will also sell customers prefix dialing service throughout St. Kitts, thereby maximizing telephony revenue and leveraging the same infrastructure and technology that is supporting its residential broadband telephony offering.
These partnerships build on Net2Phone's strategy to offer hosted VoIP solutions to partners globally, enabling them to expedite their time to market while benefiting from outsourcing their deployments to a provider that has the technical expertise, robust back-office and worldwide network to support multiple services on a single platform.
The rollout of new services, such as VoiceLine, combined with continued penetration into newly liberalized telecommunications markets, is expected to result in increased revenue over time as well as expanded operating margins on a segment basis. By laying the groundwork for new services utilizing existing infrastructure and technology, NGS can continue to innovate while limiting the extent of required up-front investments in capital expenditures.
Net2Phone Cable Telephony (NCT)
After beginning the rollout of Liberty VoiceLinks in conjunction with Liberty Cablevision of Puerto Rico in mid-December, more than 1,000 telephony subscribers have been installed to date. As announced in October 2003, Net2Phone signed a full production agreement with Liberty Cablevision of Puerto Rico to deliver managed VoIP telephony to its subscribers. The companies plan to support the 1,000 subscribers through the spring, at which point they intend to expand the marketing throughout Liberty's footprint in Puerto Rico, which reaches more than 300,000 homes.
Net2Phone's cable voice platform utilizes PacketCable compliant standards and permits cable operators like Liberty Cablevision of Puerto Rico to deploy toll-quality residential telephone service over their existing cable network. The company also has signed a memorandum of understanding with Cebridge Connections, the 12th largest cable operator in the US, and is currently negotiating final contractual terms. |
