IDT Corporation Chairman Howard Jonas' Address To Shareholders, 6/19/08
[This was made available on Yahoo’s IDT board, by Marty …; I am posting it here, so it goes into one post, and not multiple posts, where issues, problems, prospective pluses and most certainly minuses, including the fact that this is Howard Jonas talking, are easier to take in.]
Business Update Call -- , June 19th, 2008 at 4:30 PM
(C) Bloomberg
Company Participants
• Howard S. Jonas, Chairman
Other Participants
• Clayton Moran
• James Courter
• David Bonsal
MANAGEMENT DISCUSSION SECTION (C) Bloomberg
Operator
Greetings and welcome to the IDT Corporation Chairman's Report. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
[Operator Instructions].
As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Howard Jonas. Thank you. You may begin.
Howard S. Jonas, Chairman
Hi. Before I begin let me get the legal stuff out of the way. Thank you for joining us. I am going to update you on the company's recent progress implementing the plans set forth during our third quarter earnings call, and we will analyze IDT's current situations and future prospects. I will then take questions and will wrap the call up at 5.30.
Because I will be disclosing details of IDT's operational plan and sharing our vision for the company's future, it's particularly important to recall that any forward-looking statements made during the course of this call either during my initial remarks or in the question and answer period that follows, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those that we anticipate. These risks and uncertainties include, but are not limited to, specific risks and uncertainties discussed in the reports that we file periodically with the SEC. We assume no obligation to update any forward-looking statements that we have made or may make or to update you on the factors that may cause actual results to differ materially from those that we forecast.
Now let's start the call. I know you guys are shareholders, and you would like me are suffering from the low share price. So, I thought I would tell you a humorous story to start the call. A guy dies and his wife calls up the newspaper to put in the obituary. Says my husband died, I want to put in an obituary. He says, "Oh, if you want, we can throw you a full page ad for $2,000, and it'll have a picture of your husband and it will tell all about what he did in his life, and it will be a good commemoration." She said, "Well, that's a little more than I was looking to spend." He says, "Well, for $1,200, we can sell you a half page, and it will be a black-and-white photo and we can still get you --" And she says, "That was more than I was looking to spend." And he said, "Well, we can show you half a column for $500 and there will be no picture, but we can put in some bold type." And she says, "No, that's more than I was looking to spend." He says "Well, what are you looking to spend?" She says, "What's the cheapest you have?" And he says, "The cheapest is five words for $25." She says, "Okay, 'Schwartz dead, Buick for sale'."
We are not dead. The reports of our demise are much exaggerated. In fact, this is a renaissance call, marking I think you'll see the beginning of a big upward trajectory in black ink for us, but we have become as cheap as Schwartz's wife. I think we would try to get it for even four words, we'd try to bargain them down to $20 if we could.
Let me tell you where we are, and where we are going.
Right now, after having lost a lot of money largely due to fraud in the debit card industry, which has cost us hundreds of millions of dollars, which the government is finally addressing, and probably too much overhead and too many self-run and the Star business operations which we're closing. The company is now operationally profitable, operationally profitable means that if you took out the cost of severances and closing things down and so forth and so on, there will be profitability.
That profitability will begin to become manifest in the October to January quarter. In that quarter for the first time, you'll see black-end cash flow – free cash flow black-end generated by IDT's operations. The reason this will be coming about is because unless there is some unexpected drop in sales and actually we're looking at sales increasing in telecom, unless there's some unexpected drop in sales, we're expecting a minimum of $40 million in profitability from our turn down telecom unit.
Second, we're expecting a minimum of $8 million in profitability from our ESCO, our energy resale unit. We're expecting $6 million in profitability from our -- and this is cash flow profitability -- from our retail – I'm sorry – display advertising business. In general, because I'm leaving out smaller things, we're looking at about $16 million in [audio gap] profitability for the company based on operations.
Now you have to take away from that the corporate overhead.
We're bringing our corporate overhead down from the $40 million that it was at, we're aiming to get it to $12 million, but we assume we're going to get it to $15 million. That means it will be $45 million a year in operating profitability.
Off of that, you have take our investments in disbanding our IP, our intellectual property, recouping in some lawsuit, some real estate investments and, of course, our investment in shale oil and AMSO, which we're looking at as about $15 million.
So, even though and nothing is profitability because it's money that's being invested, you take the 30 million away from 60 million, you should see $7.5 million a quarter in black-ink and profitability from operations at the company.
In addition to that, you have some explosive possibilities -- explosive possibilities for growth within the company. I will leave shale oil for last.
One explosive possibility is Zedge. This is the largest Internet, Mobile Internet Portal in the world. It has 10 million users who download ringtones and videos and message each other and so forth. It's a community like Facebook but for people who are mobile, and as broadband mobile becomes a bigger and bigger thing, we think this will become one of the most important portals on the Internet. It's probably 50 times the size of Nokia's portal, which they have invested about $200 million in.
So we think this is just going to be, oh, I think 50 million, I'm sorry, we think this is going to be absolutely a home-run business. We have maybe $1.5 million left to invest in it, but there are a lot of strategic investors who are coming to us now who want into it. We probably will close some arrangement in the next month, so that will not be on the balance sheet -- only a tremendous positive.
Number two, in our telecom unit we are having discussions at the CEO and Chairman level with one of the largest telecom providers and we'll turn to couple of them but we have a preferred business combination we would like to make. We think that would at least triple, I mean that's a way understatement. IDT's – the telecom division's revenues and profits should that come about and make us by far the leading terminator of international calls and leading seller prepaid products in the world.
Number three, we believe that we own Real Time communications in the Internet.
We've been engaged and a long and costly suit with the eBay to prove that, but we think there is a very good chance of our prevailing, and I don't have to -- obviously it will be a big thing to own Real Time, to own the IP for Real Time communications on the Internet.
Our food division has gone profitable. The Vero's brand, one of the big chains, is taking it into 2,500 of our supermarkets now across the country. This is probable before that happens, 27 of the items, we think that brand is going to have a great value. Our debt business is functioning well. We think there is possibility of that becoming a valuable standalone company, but I'd like to focus for a moment on our shale oil business.
Shale oil is 50% of the carbon fuel reserves in the world. Fifty percent of those reserves are located on federal land primarily in Colorado, spilling over into Wyoming and Utah. That land has more oil and at more potential oil on it than the entire Middle East.
Four companies have federal contracts to do exploratory work on that land, Chevron, Shell, IDT and OSEC.
OSEC is really in Utah and they really have a contract to do above ground retorting, which is something that's been done for a long time in places like Estonia. It just received a huge investment from Petrobras and Mitsui and we wish them well. But the real heart of getting the oil out is something called in-situ retorting, which means heating the ground, heating the rock that has this thing called Terragen in it that the oil is stored in to 700 degrees, and that releases the oil from the rock, it starts to pour down. And according to Shell's estimate and we've seen their installations in the valley, the Piceance Valley, and where they have recovered the oil in Colorado, they can bring it up to $26 a barrel.
There are over a trillion barrels of oil, one trillion barrels of oil in that valley. It's enough to solve all this nation's fuel needs and to turn us into a net exporter of oil.
The reason Shell is not being allowed to develop the property and get it in production already is because they're having a problem with the environmentalists. And part of the problem with the environmentalists has to do with the fact that there is an aquifer, that halfway down through the shale oil is the water that provides drinking water and so forth for Western Colorado. Shell's working above the aquifer, and what they do is they pump out the water from below where they are working and they freeze, they create a freeze wall so that no water can get in, and then the water, if any oil drips down, the water is not polluted with it. Once the rock – once they remove the heat from the rock and extract the oil and things get cooled down, they unfreeze the water and then it goes back in where everything is clean.
The environmentalists are off the wall concerned that what if something happens to the freeze or what if it doesn't work and the water comes in or the oil drops afterwards or a million concerns which I don't really think are legitimate. I think Shell has all sorts of extra layers of protection to ensure that that won't happen, but we're doing something different. We've taken the top person from the Lawrence Livermore Labs who have worked on it, the top drilling expert in Colorado. We are working with one of the largest oil services companies in the world. And what we're planning to do, we hope to be doing coring in the fall, is to go down below the aquifer, into the elite layer where it's much more tightly packed, the shale rock that the oil was in, crack that elite layer, hold the cracks open with new heat and infusion techniques and then apply the heat below, there is a cap rock that protects the aquifer, and bring the oil up. That probably wouldn't be $26 a barrel because it's deeper down, it'd probably be in the 30s, but when you're looking at oil prices, oil prices are $100, more than $100 above what we believe the cost of this extraction would be.
Our development lease with the government on 160 acres that has 2 million barrels an acre would convert into a 5 million acre lease, if this -- if we're successful and environmentally in a good way bringing the oil up. Those 5,000 acres have 10 billion barrels on it. If only half of that were recoverable the profit would be $50 billion to the company.
Not only there would be 50 billion profit but we would have the technology that everybody else would want to use to get through the rest of the oil, which would make all sorts of things possible, but even more important it would change the whole geopolitical balance of the world. Also, if this project is not successful and we don't get the oil out of shale, I think that there will be no more companies operating on the New York Stock Exchange anyway, so our stock won't be trading any worse than anyone else's.
So, I think conclusion before I take calls, I think we've turned the corner. I don't think we've turned the corner -- we have turned the corner. You can expect black ink from the company on operations. You can expect many good surprises on things that go beyond normal operations with the company.
In fact one thing you don't mention, we have a suit against Tyco, who gave us what we consider $500 million in fiber, we booked it $500 million, never delivered it, the judges rendered some re-judgment against them. They've appealed it. We are waiting for the appeal to come down, but if their appeal is denied, we go into a penalty phase of the trial.
So, much, much good to look forward to, and now I will take your phone calls, your questions. Thank you.
Operator
[Operator Instruction].
A first question is from Clay Moran with Stanford Group. Please go ahead with your question.
<Q - Clayton Moran>: Good afternoon and thanks for taking my questions. I have a few, the first one on the numbers that you laid out which comes to 30 million in annualized cash flow. Is that for fiscal year '09 or does that begin, I think you said the October quarter?
<A - Howard Jonas>: What I said is that you'll see black ink in the October to January quarter.
<Q - Clayton Moran>: Okay.
<A - Howard Jonas>: You would see profitability, I was looking at calendar year '09 I guess mixed up with the fiscal quarters and so forth, but I'm more looking at the quarter that starts from February going out a year, because in that October to January period, you're still going to have some of the costs that were involved in trimming down the operations.
<Q - Clayton Moran>: Okay. And then what you said about the Telecom segment was interesting. Why would you expand, double down on Telecom, given the commoditized nature of the business and the recent struggles you've endured there? And what type of cash flow multiple would you pay for those -- that business? And then lastly on that front, does that imply that you're unlikely to sell any of the Telecom divisions as been previously discussed?
<A - Howard Jonas>: Okay, I think you misunderstood. I don't know what you're talking about doubling down. We -- the business is a good business, it's earning a profit. That profit is going to increase. When we're talking about a strategic combination, we're talking about a giant phone company making an investment into us so that they can -- so they can get the benefit of being connected to all the carriers in the world on a wholesale business and plug in to our whole prepaid distribution network on a retail basis so that together we can share the benefits of scale.
<A - James Courter>: Okay. Clay, this is Jim Courter, just so there's clarity with respect to that. If someone comes forward and wants to buy a piece of the telecom business that's still on the table, but Howard is really looking at a strategic partnership with a major international communications company particularly giving them scale, unimaginable scale on a carrier side.
<Q - Clayton Moran>: Okay, great. That's very helpful...
<A - Howard Jonas>: Which we hope for, it's not signed.
<Q - Clayton Moran>: Okay. And then lastly, one of the other issues surrounding the company has been this ongoing IRS audit. It's never really been fully explained. Would you mind explaining what the IRS is looking into and possibly what the potential size of any liability is and if you have any sense of timing of when that might be resolved, that'd be helpful too.
<A - Howard Jonas>: We have a $130 million reserved on our balance sheet. We believe that that's ample to cover the liability that relates to the Net2Phone sale to AT&T. When the IRS gets around to – the IRS does things at their own pace, we don't control it. So, when they get to us, we'll get to them.
<Q - Clayton Moran>: Okay. And if I could go back to the strategic, potential strategic partnership, do you have any sense on the timing of that, if it doesn't occur say in three or six months it's unlikely your – anything like that that you could help us get a feel for how long we'll wait to see the announcement in such a thing?
<A - Howard Jonas>: When you deal with large companies, it takes time, so I really would – I can't really put a timeframe on it. The sooner it happens, the happier I would be if it happens. I think the happier they'll be, but it takes time.
<Q - Clayton Moran>: Okay, thank you.
Operator
The next question is from [inaudible]. Please go ahead with your question.
<Q>: Good afternoon. Thank you, Mr. Jonas.
<A - Howard Jonas>: Sure.
<Q>: Quick question for you, I got about several questions actually behalf of myself and my clients. Starting with some of the issues we've discussed already, can you define your current breakdown in cash, marketable securities, and investments?
<A - Howard Jonas>: No, I know that there was like $394 million of cash in the balance sheet. I know that doesn't account for money that we have in our debt portfolio, I know that there is some liabilities, I know that there's also real estate that we own. I am not – I know that we're in good shape but I am not the CFO of the company.
<Q>: I understand. And does that include the 130 million you have reserved for the IRS?
<A - Howard Jonas>: I know that that was all in our K and our Q or our K but I think that that's a separate item.
<A - James Courter>: That's a separate item.
<Q>: A separate item?
<A - James Courter>: Yeah.
<Q>: Okay, thank you. So minus that how much cash do you have right now?
<A - James Courter>: You mean if...
<A - Howard Jonas>: You mean if you took $130 million away from $400 million, how much you have?
<Q>: I know, I mean bearing in mind you've had some recent hedge fund liquidations this month...?
<A - Howard Jonas>: Yeah, I know, like I said I could do the math like 400 take away 170 is 230 but nobody says it's going to be 130, and nobody says that if it were 130 that is was all going to be paid at one time, and nobody says that if it was that number that we would agree to that, but we believe the reserves are adequate that's all what we're saying.
<Q>: Okay, that's good. So when do you plan to receive the proceeds from the said liquidations of the hedge funds?
<A - Howard Jonas>: I don't think there's been like, when do we receive it. I mean if you receive anything, they send us that week.
<A - James Courter>: It's ongoing and we've asked for this and some we've already achieved as you know and some we anticipate will be unwound in 30 days, some 60, some 90. But it's not going to be like years.
<Q>: Right. Okay, so given your...
<A - Howard Jonas>: But it's not like we want to unwind everything out, we want to a balanced portfolio so.
<Q>: Okay, the other question my shareholder inquired about is given the low price of your stock why have we not seen any sort of corporate or insider stock purchases?
<A>: [inaudible]
<A - Howard Jonas>: You saw some.
<A - James Courter>: In my family maybe we didn't hit the bottom but probably from the liability standpoint that's good. No, I'm the CEO of the company, and my family and I put in $3 million, so that's significant.
<Q>: Yeah, that's a good chunk of cash.
<A - James Courter>: Yeah.
<Q>: All right. And given the outcome or perceived outcome from the Tyco lawsuit, what do you internally expect to receive, given the favorable appeal decision? What are we talking about, is it 10 million, 100 million....?
<A - Howard Jonas>: We generally expect to see more than 10 million, but it's up to the judge or the jury.
<Q>: Correct.
<A - Howard Jonas>: We...
<Q>: What could we as shareholders expect is I guess what I am saying.
<A - Howard Jonas>: Look, they gave us $500 million worth of fiber. They did not when we signed a settlement agreement with them to get that, Tyco the corporate parent signed on to that.
<Q>: Okay.
<A - Howard Jonas>: When the time came for us to get the fiber, Tyco the corporate parent refused to sign on to work and we said if they are not signing on, the thing wasn't completed, we are not taking it. If it is just a subsidiary type of submarine system but they might not be there. The judge agreed that that was wrong, and so that they should have to pay damages on it, but the appellate court could overrule the judge, but it was -- it's up to the courts to decide how much we were damaged. We think it was substantial.
<Q>: All right. Well, good luck with that.
<A - Howard Jonas>: Thank you.
<Q>: And congratulations gentlemen, I appreciate your time.
<A - Howard Jonas>: Thank you.
Operator
Your next question is from James King with King Financial. Please go ahead with your question.
<Q>: My question actually has been asked and answered. Thank you.
<A - Howard Jonas>: Okay.
Operator
Your next question is from David Bonsal with Universal Money Centers. Please go ahead with your question.
<Q - David Bonsal>: Good afternoon. I am wondering at what depth are you seeking to recover this in-situ oil, in the oil shale project in Colorado?
<A - Howard Jonas>: About 3,000, a little higher, between 2 to 3,000 feet down.
<Q - David Bonsal>: And are you using steam injection or some other form of energy?
<A - Howard Jonas>: We're hoping to – there are different forms of energy that are available, steam might be one thing under consideration.
<Q - David Bonsal>: All right. Thank you very much.
<A - Howard Jonas>: Okay.
Operator
The next question is from [inaudible]. Please go ahead with your question.
<Q>: Hi. I was just wondering what the CapEx plans in the oil shale business look like?
<A - Howard Jonas>: Going forward -- if we want to bring up the 60 billion barrel, if we want to bring up the 10 billion barrels, you are talking about billions and billions of dollars. But we would raise that. Look in all probability, shale will eventually be a freestanding subsidiary because why is somebody who is investing in a telecom company, first is I think it's going to be the other way around, what about somebody who's investing in an oil company wants a part of the telecom, but unrelated to that, that obviously, as the development succeeds, it would become a freestanding company that would have its own enormous capital needs. That's what the oil business has – it has enormous returns.
<Q>: And what was the fourth company that you mentioned, Chevron-Shell, you guys and OSA?
<A - Howard Jonas>: No, there is a company called OSEC. They are not in the same group.
There are three of us in the Piceance Basin, where most of the shale is, and we have the rights to do in-situ retorting and to bring it up. OSEC is in Utah in a separate place. And what they have the right to do is mine the shale and then put it into some sort of a retorter like a machine that heats it up, you put it in and it spins it round, then you mix it up with other things and it heats it up and the oil comes out the other end. And it's a more cumbersome process through to mine it and so forth, but that's something that's already done. And they are looking for ways to do it better.
<Q>: Given that this is all happening on federal government land, are you paying some sort of rent to the federal government to get to test out the different methods or how does that work?
<A - Howard Jonas>: No, the governmental proposals for who could best do it, what were the -- and there were some people who had much more money like Exxon who were turned down, and a small company that they chose it on the basis of the methodology, and without having to pay in. The company that won the right, EGL, we bought 75% of. At one point in time, we laid around, increased that holding to like I think 89.5%, but it was done on merit and so there was no fee due. When the lease converts to the full 5,000 acres, then there'll be a royalty that's through the government on what's brought up. The discussion as to whether that would be a mining royalty or a drilling royalty, but it would be -- it would be good for the government, but it wouldn't really eat that much into what we would owe here because this is not an auction situation. This is sort of a reward for having succeeded in the development.
<A - James Courter>: It would not be a bidding situation, it would be a negotiated royalty between IDT and the Bureau of Land Management.
<Q>: Okay, thanks. And then are you guys presently buying back repurchasing shares?
<A - Howard Jonas>: I think about it everyday. And then I think about all the potential that we have, that we might have to do something else in that we should keep our powder dry. And so I haven't done it lately though at this price, it's -- I wish the price would go up, so I wouldn't have to think about it so much.
<Q>: And has there been any re-pricing of options?
<A - Howard Jonas>: No.
<A - James Courter>: No.
<Q>: And are you getting pressured from any of your executives if there hasn't been?
<A - James Courter>: No.
<A - Howard Jonas>: No. Now, I guess they'll be listening to this call, and maybe they will be picketing outside my office after the call is over, but not so far.
<Q>: And how much turnover has there been at the senior management level, both voluntary and involuntary, maybe you could...
<A - Howard Jonas>: Voluntary and involuntary? Look, we have restructured the senior management of the company. I think there are 50% old faces and 50% new faces, we – I don't really want to answer that question because if I were to say that everything was -- that everything was involuntary, that would cast a very bad light on the people who left. So, I would rather not get into the voluntary/involuntary thing.
<Q>: Okay, well anyway thank you for doing [audio gap] -- do you have plans to do more frequent calls in the future?
<A - Howard Jonas>: No, I thought that this was really a moving like into the black for the first time in 14 years was a seminal moment that deserved a phone call.
<Q>: Okay. Thank you.
Operator
Your next question is from David Smith with Orion Capital. Please go ahead with your question.
<Q>: Hi gentlemen, good afternoon.
<A>: Hi.
<Q>: I have a couple of questions. First Howard, in regards to your earlier comments related to the possibility of a future alliance on a global scale within the telecom space, what's the contingency plan for that business line, if that in fact you don't execute on that?
<A - Howard Jonas>: Make more money and look for different partners.
<Q>: All right. Okay. And in regards to the prepaid phone card division, could you address it or drill down a little bit deeper where you see that business going on a standalone basis as opposed to being roped in as part of the broader Telecom business line?
<A - Howard Jonas>: Well, the business has stabilized, like at around the 27, $28 million a month level. We think that there is going to be good growth now in instruments that are designed to go with cell phones. A cell phone automatically dials into a number if it recognizes it, and then it dials outbound on 99% of cell phones in the country, even if you're a middle class, you can't make an international call. So, we think that's a big area of growth. We're doing very well with our prepaid credit cards, so we think there will be good growth in the financial services area. And we think with government enforcement, we will be able to sell more calls to the immigrant population. So, I don't know if that answers your question. I hope it does.
<Q>: It certainly sheds some more light. So in your mind, to take from this call management's thoughts on that business line is that it's turned the corner in regards to some of the recent, recent defined as last several quarters' worth of turbulence that that business line was facing, whatever repairs needed to happen and take place have happened and for the strategy to broaden that business you think have been implemented?
<A - Howard Jonas>: Oh yeah, like as a for instance, we just signed a three-year renewal with Walgreens on telecards, which is probably the most important chain in the country. People don't go into Wal-Mart to buy a debit card. So I think that's a big vote of confidence in the company.
<A - James Courter>: Let me just add say something. At the end of that the prepaid business, can't be really looked at an isolation as you probably know. If the prepaid business is an accurate tenant to the carrier business the wholesale business and the wholesale business is relying to a degree on all the traffic from the prepaid business to negotiate the good rate. So there's tremendous synergy between those two businesses and one can't be looked at an isolation from the other.
<Q>: Right, understood. So this is more function of good execution by you folks in the management side rather than changing necessarily the playing field, it's just focusing in and finding the better opportunities in the existing playing field?
<A - Howard Jonas>: Yes.
<Q>: Okay. Thank you for that and just one more question related to the shale oil. I know previous caller questioned about what the CapEx costs there before that, your response was more predicated on the long-term view of yes, it will be billion of dollars once the billions have been extracted. In the short-term, until for lack of a better term you guys quote "hit oil", what do you anticipate those costs in the short-term being until you can show to the market that this is something that truly is there? And then I think anybody with any form of intelligence would agree with you that once you guys can prove that it can happen, the money will be there.
<A - Howard Jonas>: Well everything is done in stages. There's a primary analysis stages, there's a $20 million stage and the results of those stages that cause different people to come in. Now even at this stage where we've spent almost nothing, two of the seven largest oil companies in the world are talking with us and we're in deep due diligence with one of them and we're looking at a hypothetical deal that goes something like on the first $50 million of expenditure, they put in 40, and we put in 10. And then there is a technical advisory board set up where they have a member, we have a member and there is a third member.
If the majority of the advisory board decides that the results indicate success in the future, then an additional I forget if it's 75 or $100 million goes in, 80% by them 10% from us and they get 30% of the return on the -- they get a 30% stake in this particular field and the right to be able to use their technology internally and the technology is developed internally in their company. So, if you're looking at it from that point of view I guess you would be looking at a $50 million expenditure over three to five years. My preference is always if we have a partner and certainly to do it quickly so we can get the oil up quicker.
<Q>: But for the short-term strategy, with the people long-term is to bring in a strategic partner to help on the financing side, would that also partner obviously be somebody in the oil space as well as...?
<A - Howard Jonas>: No we want – we have a lot of offers, we have a lot of people coming to us who substantial people who want to like investment in this opportunity. We would prefer a partner in this space because they would bring like carbon sequestration technology, they would bring all sorts of resources to the project that would be enormously beneficial, a financial -- bringing financial partner, I would be a second choice, but we can easily get to the $15 million or we can easily get to $15 million investment level ourselves and prove it out 100% ourselves. We want the partners then, because the partners have all the technology you need to see this thing through.
<Q>: Okay, understood. Thank you.
Operator
We have time for one last question. Your last question is from Alan Young with Raging Capital Management. Please go ahead with your question.
<Q>: Good afternoon. I wonder if you could just first help me with a specific definition of operating cash flow profitability is that EBITDA, GAAP cash flow from operations, could you help me with that?
<A - Howard Jonas>: It's real cash. It's like free cash flow.
<Q>: I would tend to look at that as for example EBITDA less cash interest less cash taxes less capital expenditures, is that something similar to what you are looking at?
<A - Howard Jonas>: Yes.
<Q>: Okay, so we would actually be generating positive cash after your all investments back into the business, which is a pretty powerful statement I would think, is that what you are suggesting?
<A - Howard Jonas>: That's why I said that after 14 years, I am making the phone call, I think this is a seminal moment.
<Q>: Excellent, it would appear to me though if that's the case and the cash on the balance sheet would be truly excess and you would be in a position to do something along the lines of a buyback. Your reticence suggests that there could some material alternatives, could you elaborate on what you might be thinking of, if it would be a big acquisition, what kind of thing might it be?
<A - Howard Jonas>: We are not looking at anything in particular, we're just thinking keeping our power dry, but I could tell you that when you're in – like when you're in this oil space – things, a lot of things come by that like look very interesting and we just – we just believe the company is going to grow, you know I'm a 22% holder in the company, you know I could buyback a whole load of stock, I'd be a 33% holder in the company but, if we succeed like what am I going to do, sleep in two beds? I'd rather the company be secure and profitable.
<Q>: Understood, understood. Would you be willing to kind of go lot in the limb and say after X amount of time and we can debate what that appropriate time period is and if X amount of time if we don't see the kind of cash generation that we should, that you would be willing to wave your supervoting right and simply put the company up for sale?
<A - Howard Jonas>: No, I won't be willing to say that, but I would certainly tell you that I'm out on the limb now, I am sure that plenty of people have recordings of this call and...
<Q>: You can count on that, I'm sure. Fair enough.
<A - Howard Jonas>: All right, thank you very much. I appreciate it.
<Q>: Thanks.
<A - Howard Jonas>: Bye.
<A - James Courter>: Thanks you guys.
Operator
Ladies and gentlemen this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
(C) Bloomberg |
