IDT Reports Results for Fourth Quarter and Fiscal Year 2002

IDT Reports Results for Fourth Quarter and Fiscal Year 2002

• Annual Revenues Increase 24%
• IDT Telecom Achieves Record Revenues, EBITDA and Operating Profits for Q4
• Cash & Marketable Securities Stand at $1 Billion ($12.72 per Share)

NEWARK, N.J.— October 24, 2002 —IDT Corporation (NYSE: IDT.B, IDT) today reported record revenues of $416.7 million for the fourth quarter of its Fiscal Year 2002, the three months ended July 31, 2002. Revenues for the fourth quarter increased 3.8% from the third quarter, and 25.9% over the revenues recorded during the fourth quarter of Fiscal Year 2001. For the Fiscal Year ended July 31, 2002, IDT recorded revenues of $1.532 billion, up 24.4% from Fiscal 2001. Excluding its Winstar division, acquired in the second quarter, IDT’s revenue gains in the fourth quarter would have been 5.7% above the Q3 figure. Revenue growth for the year would have been 18.0%.

The net loss for the fourth quarter of Fiscal Year 2002 was $78.2 million, or $0.99 per share. This compares with a net loss of $49.6 million, or $0.64 per share, in the third quarter of Fiscal Year 2002, and a net loss of $171.8 million, or $2.44 per share, in last year’s fourth quarter.

The Company’s pro-forma fourth quarter results exclude the following four items, accounting for an $89.1 million after-tax loss:

• Non-cash impairment charges of $61.5 million, primarily related to the write-down of the TyCom fiber asset

• A loss of $20.2 million related to the results of the recently-acquired Winstar business;
• A loss of $5.8 million attributable to IDT's noncash share of losses at Net2Phone;

• A loss of $1.6 million relating to the formation of NTOP Holdings, LLC.

Excluding these items IDT would have reported net income of $10.9 million, or $0.13 per diluted share for the fourth quarter.

For Fiscal Year 2002, the Company recorded a net loss of $303.3 million ($4.04 per share). This compares with net income of $532.4 million ($7.12 per diluted share) in Fiscal Year 2001. Results for Fiscal Year 2002 include a non-cash, after-tax charge of $147.0 million, or $1.96 per share, related to an impairment of goodwill, in connection with the adoption of SFAS No. 142. Excluding the cumulative effect of this accounting change, the net loss for Fiscal Year 2002 amounted to $156.4 million, or $2.08 per share.

“I am about to certify IDT’s 10K financial report for the first time,” said Jim Courter, Vice Chairman and CEO. “And I am proud to do it. The IDT Telecom Division is setting records while competitors are falling by the wayside. The Company is growing responsibly, conserving its strong balance sheet. The IDT Media Division is building entertainment platforms that should develop lasting value as they mature. There is a remarkable turnaround underway in IDT’s Winstar Division.”

RESULTS OF OPERATIONS

IDT recorded a loss from operations for the fourth quarter of Fiscal Year 2002 of $141.1 million, compared to an operating loss of $42.8 million in the third quarter of Fiscal Year 2002, and a loss of $268.6 million in the fourth quarter of Fiscal Year 2001. Excluding impairment charges, the operating losses would have been $29.6 million in the fourth quarter of Fiscal Year 2002, $42.8 million in Fiscal Q3 2002, and $74.4 million in Fiscal Q4 2001. Excluding both the impairment charges and the operating losses of the Winstar division, IDT would have produced operating profits of $4 million for the fourth quarter and an operating loss of $13.3 million for the year.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, and excluding minority interests and impairment charges) in the fourth quarter of Fiscal Year 2002 amounted to a loss of $10.4 million, versus a loss of $57.0 million in the fourth quarter of Fiscal Year 2001 and a loss of $26.1 million in the third quarter of Fiscal Year 2002. Excluding the company's Winstar division results, EBITDA would have been $19.8 million in Q4 of Fiscal Year 2002 (up from $14.8 million on that basis in Q3 of Fiscal Year 2002) and $46.0 million for all of Fiscal Year 2002.

IDT Telecom Division

The IDT Telecom core telecommunications services business enjoyed the most successful quarter in its history in the fourth quarter of Fiscal Year 2002. IDT Telecom reported record revenues of $383.6 million for the fourth quarter of Fiscal Year 2002, and $1.43 billion for Fiscal Year 2002. This represents an increase of 5.3% from the revenues recorded in the third quarter of Fiscal Year 2002, an increase of 18.3% versus the fourth quarter of Fiscal Year 2001, and an increase of 18.8% over Fiscal Year 2001’s revenues. Revenue growth for Fiscal Year 2002 was driven by strong revenue gains in the retail division. Retail telecom revenues for Fiscal Year 2002 were $1.122 billion, up from $816 million in Fiscal Year 2001, an increase of 37.4%. This revenue increase more than offset the decline in the wholesale telecom business, which generated $309 million of revenues during Fiscal Year 2002, down from $388.1 million in Fiscal Year 2001, a decline of 20.4% for the year.

IDT Telecom recorded EBITDA of $29.8 million and operating income of $14.2 million for the fourth quarter, and EBITDA and operating income of $88.7 million and $30.8 million, respectively, for the year. In comparison, EBITDA was $25.6 million in the third quarter of Fiscal Year 2002, and IDT Telecom had an EBITDA loss of $9.9 million in Fiscal Q4 2001 and a loss of $53.4 million for all of Fiscal Year 2001. The EBITDA margin improved from 7.0% in Fiscal Q3 to 7.8% in Fiscal Q4, and amounted to 6.2% for the full fiscal year.

Gross margins for IDT Telecom amounted to 24.0% for Fiscal Q4, up from 14.7% in Fiscal Q4 2001 and virtually unchanged from the margins achieved in Q3 of Fiscal Year 2002. IDT Telecom’s gross margins for Fiscal Year 2002 increased dramatically to 22.6%, from 12.3% in Fiscal Year 2001. Margin improvements were seen across all of IDT Telecom’s major lines of business, reflecting efficiency gains and vigorous cost reduction programs. In addition, Telecom gross margins benefited from a shift in revenues toward higher-margin retail services.

“The timing of the industry’s recovery might remain difficult to predict,” stated Motti Lichtenstein, CEO of IDT Telecom, “but we’ve already demonstrated that we can generate profits amid the industry’s turmoil, and we’ll prove it again in Fiscal ’03.”

Retail

IDT’s retail telecommunications services division posted $296.2 million in revenues for the fourth quarter, up 3.8% from the previous quarter, and 21.3% more than the retail revenues recorded during Fiscal Q4 of Fiscal 2001. Retail Telecom revenues for the Fiscal Year were $1.122 billion, up 37.4% from Fiscal Year 2001.

Calling Cards

Calling card revenues amounted to $263.4 million for the fourth quarter, up 3.2% from the previous quarter, and 17.9% more than the calling card revenues of the fourth quarter of Fiscal 2001. For Fiscal 2002, calling card revenues were $1.009 billion, an increase of 33.6% from 2001, as the business witnessed strong growth in both the U.S. and in Europe.

Gross margins for calling cards were 24.1% in Fiscal Q4 2002, unchanged from the third quarter of Fiscal Year 2002 level but considerably improved from 14.9% in Fiscal Year 2001’s final quarter. Margins for calling cards continued to benefit from increased scale, network efficiency improvements and reduced termination costs to the Company’s highest-volume calling destinations.

Over the next few quarters IDT Telecom expects to significantly ramp-up its early-stage South America prepaid calling card operations. The Company is also working to increase its penetration of some markets, such as Arizona and California in the U.S. and Spain and Germany in Europe, which it has entered most recently. Revenues in the first quarter of Fiscal 2003 are expected to be slightly higher than those of the fourth quarter of Fiscal 2002.

IDT Telecom expects that margins will remain at or near their significantly improved current levels, with some margin slippage possible as a result of aggressive pricing on both new cards as well as on some existing cards.

Private Label Calling Cards

Up to now, the large majority of IDT’s calling card sales have been sales of IDT branded cards, which we sell primarily through our strong US distribution network and to European distributors. IDT sold nearly 200 million cards of various IDT brands in Fiscal 2002 through its traditional distribution channels, and the Company is already one of the largest providers of prepaid calling cards in the world.

One of the Company’s strategies to provide further growth is to penetrate new distribution channels in order to broaden its customer base. During Fiscal Year 2002 IDT Telecom began to offer other corporations, such as major retail chains, their own private label prepaid calling cards. These cards, usually printed with the customer’s logo and design on them, are targeted at the mass-market opportunity presented by placement in high-traffic stores. They also generally feature higher gross margins than do traditional IDT branded prepaid calling cards. If IDT is successful in offering private label prepaid calling cards to many large retail chains, the penetration of this new distribution channel could result in accelerated revenue and profit growth for the company.

Consumer Long Distance

Consumer long distance revenues of $32.3 million for the fourth quarter were up 8.9% from the third quarter level, and 63.3% from Q4 of Fiscal Year 2001. IDT Telecom currently has approximately 550,000 active long distance customers. Gross margins were 53.1% for the fourth quarter and 54.5% for the full fiscal year. Gross margins in the consumer long distance business have been above 50% since the middle of Fiscal Year 2001. For Fiscal 2002, revenues were $110.5 million, a 97% increase from Fiscal Year 2001.

The Company anticipates that the consumer long distance business will continue on its growth track into Fiscal 2003. IDT plans to increase marketing expenditures, with an eye towards maintaining customer acquisition cost at or near current levels. The Company expects that the current margin levels in consumer long distance will be maintained.

WHOLESALE

IDT’s wholesale telecommunications services business reported revenues of $87.5 million in Fiscal Q4, an increase of 10.8% from the third quarter of Fiscal Year 2002 and a 9.0% increase from Fiscal Q4 2001. Wholesale carrier revenues have now increased for three consecutive quarters, after five consecutive quarters of declines. In addition, the year-over-year increase in wholesale carrier revenues was the first recorded since the fourth quarter of Fiscal Year 2000. Fiscal Q4 gross profit margins of 12.9% compare with the third quarter’s 12.8% and with 5.1% in Q4 of Fiscal Year 2001.

IDT expects to experience further revenue growth in this segment through Fiscal Year 2003. However, revenue growth will continue to be tempered somewhat by strict credit policies, which have led to the curtailment or complete cancellation of sales to financially unstable carriers. Therefore, revenue gains are expected to be driven primarily by increased sales to Tier 1 telecom carriers, both in the U.S. and in Europe. The Company anticipates that gross margins will remain stable at the current significantly improved levels. Because revenue growth is also expected in the retail telecommunications services segment, the wholesale segment’s share of overall IDT Telecom revenues should be fairly stable.

Winstar Division

The Winstar Division recorded an operating loss of $33.6 million on revenues of $27.3 million in the fourth quarter of Fiscal Year 2002. This compares to a $43.9 million operating loss on revenues of $33.1 million in the third quarter of Fiscal Year 2002. IDT acquired its Winstar division in December 2001, mid-way through the second quarter of Fiscal Year 2002. Winstar’s operating loss for the fiscal year was $96.6 million.

The Winstar Division’s EBITDA loss in the fourth quarter of Fiscal Year 2002 amounted to $30.2 million, versus an EBITDA loss of $40.9 million in Fiscal Q3 2002. The Company anticipates being cash flow positive by late Fiscal 2003.

Winstar has continued to generate substantial operating improvements during the fourth quarter. For example, the average time it takes to provision a customer was down to 38 days in July 2002 from 52 days in January (compared to an average of 45 days for an RBOC.)

Winstar has had great success with its New York City Landlord Program. This program was designed to evaluate the effectiveness of partnering with building landlords and managers to get greater access to tenants. The test program has resulted in securing 500 new potential customers and will be rolled out across all our markets in the coming months.

In an effort to narrowly focus its selling efforts, Winstar has divided its sales force into five distinct groups:

• General Business, which concentrates on our on-net buildings;
• Major Accounts, which targets on-net customers whose telecom spending is between $5,000 and $50,000 per month;
• Named Accounts, which sells to very large corporations highlighting redundancy as the value added proposition;
• The Government Group, which focuses on Federal, State and Local agencies; and
• The WAN (Wide Area Network) channel, which offers frame relay, dedicated access, web hosting and private lines to corporations, as well as transport capacity off of our backbone to ILECs (incumbent local exchange carriers).

Of particular note, the Government Services Administration has just recently novated (renewed) 12 Metropolitan Area Acquisition (MAA) contracts that had been awarded to Winstar prior to the IDT purchase. Winstar’s Government Group has been working diligently since being acquired by IDT to achieve this approval. The contracts represent a multi-year opportunity for Winstar with a combined total evaluated contract value in excess of $560 million. Winstar is confident it will capture a substantial portion of this opportunity.

"We couldn’t be more excited about the approval we just received from the GSA to novate 12 MAA contracts,” said Brian Finkelstein, CEO of Winstar. “We view this as nothing less than a Federal government validation of our technology. The Defense Department and many other agencies are comfortable relying on our fixed wireless solution for their critical communications needs.”

IDT Media Division (previously known as IDT Ventures)

The IDT Media segment recorded an operating loss of $3.6 million, excluding an impairment charge of $111.1 million, on revenues of $5.7 million in the fourth quarter. This compares to a $5.0 million operating loss on revenues of $4.2 million in the third quarter of Fiscal Year 2002. The impairment charge was primarily related to the write-down of the value of the TyCom fiber asset, due to significant erosion of the market value of undersea fiber since last year.

The most prominent Q4 developments at IDT Media were:

• Talk America Radio Network introduced several new programs, such as Heloise and a Mort Crim feature entitled “American Spirit” celebrating the heroes among us. Talk America will continue to bring important new voices to the radio that will provide informative, intelligent content. We are in negotiation with additional notable voices and will announce these agreements as contracts are signed.
• In order to provide focus on Talk America core elements, the Company made the strategic decision to temporarily exit weekend programming. This reduced costs and focused the affiliate relation’s staff on clearing weekday programming on the rated stations that will drive advertising revenue. Using this approach, we are now clearing programming on over 200 new stations since June. As a result, more than 5 million listeners now hear Talk America programming each week.
• The FCC transferred the license for WMET 1150 AM to IDT this summer. The station is in the midst of building out from 5,000 watts to 50,000-watt for daytime, a signal strength that will allow WMET to cover the entire metropolitan D.C. area and beyond.
• The Company is aggressively marketing the Global Animation Studio to film studios, TV producers, advertising agencies, and as a promotion vehicle. To date, signed contracts range from a commercial application to a TV series pilot to direct-to-consumer videos. Global Animation Studio has also developed its first original animated product, and is negotiating licenses with a prominent content distributor.
• IDT Services group is developing programs that allow outside clients to build marketing relationships with customers who call IDT’s Call Center. This group currently has five clients in a range of industries. The clients are pleased with the initial results of their marketing efforts and we are using our experiences to improve performance.

During the current Fiscal quarter, Talk America Radio took advantage of its increased audience and moved to a more effective advertising sales partner, signing an agreement with Dial Global Communications, to represent the Company to major advertising agencies.

“It’s really exciting to see the progress of these businesses step by step, week by week,” said IDT Media CEO Mitch Burg. "Our mission is to build important, informative, inspirational entertainment and connectivity platforms that continue to move aggressively towards profitability.

We are well on our way to achieving this goal.”

CONFERENCE CALL INFORMATION

In connection with this release of quarterly and annual results, the Company will be hosting a conference call today for analysts, investors and the general public, at 4:30 PM EDT.

To access the call from the U.S., dial 1-800-775-2298. For international callers, the dial-in number is 1-706-679-3357. No passcode is required. A replay of the teleconference will be available for one week after the conference call at 1-800-642-1687, passcode #6174839 for domestic callers, or 1-706-645-9291, passcode #6174839 for international callers.