- --------------------------------------------------------------------------------
Note: Net2Phone CEO Stephen Greenberg will host a conference call at 4:30 p.m.
EST today. The call can be accessed at http://web.net2phone.com/about/investor/
or www.vcall.com. A replay of the conference call will be available online as
well.
- --------------------------------------------------------------------------------
CONTACT: Sarah Hofstetter
Net2Phone Corporate Communications
973-438-3838/investor@net2phone.com
Net2Phone Reports Fourth Quarter and Fiscal Year 2003 Results
Gross margins above 40% for ninth consecutive quarter
Liberty Cablevision enters into full production agreement
Newark, NJ - October 22, 2003 - Net2Phone, Inc. (Nasdaq: NTOP), a leading
provider of Voice over IP (VoIP) services, today announced its fourth quarter
and year end results for fiscal year 2003.
Financial highlights for fiscal year 2003 include:
o Net income of $16.8 million in fiscal 2003 compared to a net loss of
($246.1) million in fiscal 2002
o Gross margin of 42.4%
o SG&A expense reductions of $62.8 million, or 54%, reflecting the company's
successful alignment of its cost structure with its reduced revenue base
o Strong balance sheet with $94.1 million in cash and equivalents as of July
31, 2003 (including restricted cash of $24.2 million)
Recent achievements by the company include:
o Executed production agreement with Liberty Cablevision of Puerto Rico to
offer cable telephony services to their upgraded digital two-way footprint
o Agreements in place with Hughes Network Systems and AFSAT Communications to
deliver satellite VoIP
o Improvements and upgrades to our platforms to support a variety of VoIP
services, including managed cable VoIP, enterprise VoIP solutions, and
enhanced consumer applications
FISCAL YEAR 2003 REVIEW
Results for the fiscal year reflect the Company's focus on quality of revenue.
Revenue for the fiscal year was $91.8 million down 33% from $137.9 million in
the prior fiscal year. Net income for the fiscal year was $16.8 million compared
to a net loss of ($246.1) million in fiscal 2002. 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, gain from the settlement of Cisco litigation and
restructuring, severance impairment and other items), which excludes the impact
these aforementioned items have on the company's results. Net loss before
special and non-cash items for the fiscal year was ($13.1) million, a 75% year
over year improvement compared to ($51.4) million in fiscal 2002. 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 measures prepared 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.
- --------
(1) The schedule accompanying this release provides reconciliations to generally
accepted accounting principles (GAAP) for all non-GAAP financial measures
mentioned in this release.
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 measures used by management. Management uses
this measure, instead of net income (loss), as a basis for allocating resources
and making other daily operating decisions. The company appointed a new
management team during fiscal 2002 to restructure its activities and focus on
achieving operating profitability. Many of the items excluded from net income
(loss) in calculating net income (loss) before special and non-cash items
reflect the financial impact of actions taken by the previous management team.
The accompanying table includes a detailed reconciliation of net income (loss)
reported in accordance with generally accepted accounting principles to net
income (loss) before special and non-cash items.
Capital expenditures during the fiscal year totaled $7.1 million. As of July 31,
2003 the Company held a total of $94.1 million in cash, cash equivalents and
marketable securities (including restricted cash of $24.2 million), as compared
to $108.7 million at the end of the prior fiscal year (including restricted cash
of $23.0 million).
FOURTH QUARTER REVIEW
Revenue for the fourth quarter was $21.0 million, a 12% sequential quarterly
decline, due to the company's continued focus on higher margin services combined
with pricing pressure within the international telecommunications marketplace.
Rates to high revenue-per-minute destinations have declined considerably over
the last several quarters, an expected result of the more competitive
environment for some of our more established services in existing markets. The
company had expected to bridge the revenue gap with newfound high-margin minutes
from corporate and consumer retail services in conjunction with
telecommunications providers in newly liberalized markets. However, the delay in
liberalization of certain markets has created a short-term gap in achieving
revenue growth.
As a result of the company's decision to concentrate on maintaining margins
instead of reducing prices to the point where it would materially affect margins
and the resolution of several carrier disputes, the company reported gross
margins for the fourth quarter of 40.7%, the ninth consecutive quarter where the
company has achieved gross margins above 40%. The company remains optimistic
about the medium and long-term prospects for partnering with and deploying a
host of carrier-grade retail VoIP services with licensed communications
providers in newly liberalizing markets, and is pleased with its current
progress in laying the groundwork to roll out services.
The company's net loss for the fourth quarter totaled ($10.8) million compared
to ($9.3) million in the third quarter of fiscal 2003 and ($19.8) million in the
fourth quarter of fiscal 2002. The sequential increase in net loss was driven by
an increase in non-cash compensation caused by the company's increased share
price at the end of the fourth quarter, shifting of a portion of bonus awards
from cash to stock and other factors. Net loss before special and non-cash items
in the fourth quarter was ($2.9) million, a 6% sequential improvement over a
($3.1) million net loss before special and non-cash items in the third quarter
of fiscal 2003. The net loss before special and non-cash items in the fourth
quarter is a 43% year over year improvement over a ($5.1) million net loss
before special and non-cash items reported in the fourth quarter of fiscal 2002.
NEW CORPORATE STRUCTURE
In the fourth quarter, Net2Phone's Board of Directors approved a plan to create
two wholly-owned operating subsidiaries to provide the investment community with
a clearer picture of Net2Phone's operations, and the ability to understand the
value elements of its two business lines. The new structure will also allow each
of the newly created units to facilitate its growth opportunities through
investments by strategic partners in each subsidiary, if appropriate.
One subsidiary, Net2Phone Global Services (NGS), is comprised of the company's
international retail VoIP business and domestic calling card business, while the
other, Net2Phone Cable Telephony (NCT), is focused on delivering an end-to-end
managed telecommunications solution to cable operators utilizing VoIP
technology. While the company views NCT as a strong growth opportunity as cable
operators sign up to outsource their telephony operations, Net2Phone's revenues
today come primarily from NGS.
"Our accomplishments in the past fiscal year are integral to our laying
important groundwork for the next 12-36 months," said Stephen Greenberg, CEO of
Net2Phone. "Our new corporate structure has made us a leaner, more focused
company capable of delivering key solutions to our customers in each of their
respective markets."
Net2Phone Global Services
NGS reported revenue of $91.1 million in fiscal year 2003 compared to revenue of
$133.0 million in fiscal 2002. Segment income was $1.8 million compared to a
segment loss of ($20.6) million in fiscal 2002. 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. NGS
achieved operating profitability, eliminating unprofitable service offerings and
significantly reducing its expense base.
In the fourth quarter, Net2Phone Global Services introduced a series of new
retail products and services, including enterprise solutions and hosted calling
card solutions, all leveraging its centrally managed platform that has been
delivering core VoIP services globally for more than seven years. Most recently,
Net2Phone also signed an agreement to deliver satellite VoIP services in Africa
in conjunction with AFSAT and Hughes Network Systems. NGS plans to continue
working with strong partners in newly liberalizing markets to promote its suite
of hosted VoIP solutions.
Net2Phone Cable Telephony
NCT recently executed an agreement with Liberty Cablevision of Puerto Rico to
deliver managed VoIP cable telephony services on an outsourced basis to its
customers. Liberty Cablevision will retain their respective customer
relationships, service brand, and Tier I customer and technical support, while
Net2Phone supports the back office platform, switching and transport, ongoing
operations and Tier II+ technical support to deliver a fully managed QoS IP
solution. Net2Phone tracks and monitors voice quality and network performance
metrics from start to finish and provides the cable operator with a full view
into telephone calls routed over its network. Consumers benefit on two fronts:
inexpensive stand alone telephony when compared against traditional phone
service and savings derived from the video, data and voice triple play in cable
TV, high-speed Internet access and telephone services. In each of fiscal years
2003 and 2002, NCT reported less than $0.1 million in revenue. NCT reported a
segment loss of ($7.2) million in fiscal 2003 compared to a segment loss of
($6.0) million in the prior fiscal year as it continued to invest in the staff
and resources necessary to address the global cable telephony marketplace.
"Our two business segments provide a healthy balance between an established
international company that has already reached positive segment income and an
exciting new venture with significant potential for growth," said Stephen
Greenberg, CEO of Net2Phone. "With the signing of Liberty Cablevision of Puerto
Rico, we have proven that our quality of service is equivalent to that of
traditional telephone service, and that we can provide cable operators like
Liberty Cablevision with a comprehensive telephony solution with a business
model that suits their needs."
ABOUT NET2PHONE
Founded in 1995, Net2Phone is a leading provider of voice services over IP
networks worldwide, enabling toll-quality calls between computers, telephones,
and broadband devices. Recognized as the first Company to bridge the Internet
with the public switched telephone network, Net2Phone has routed billions of
minutes of traffic over its award-winning network. Incorporated within the
company are (1) Net2Phone Global Services, which sells retail VoIP solutions
globally and (2) Net2Phone Cable Telephony, which has developed a fully
outsourced standards-compliant telephony solution for cable operators, using
components from companies such as Arris, Motorola, Gallery iPT, Mind CTI, Nuera
and CoreOS. Traded on the NASDAQ under the symbol NTOP, Net2Phone's strategic
partners and investors include Liberty Media Corporation (NYSE: L; LMC.B) and
IDT Corporation (NYSE: IDT; IDT.C). For more information about Net2Phone's
products and services, please visit www.net2phone.com.
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward- looking statements
involve risks and uncertainties and actual results could differ materially from
those discussed in the forward-looking statements. For this purpose, any
statements contained in this press release that are not statements of historical
fact may be deemed to be forward-looking statements. Factors which may affect
the Company's results include, but are not limited to, the Company's ability to
expand its customer base, the Company's ability to develop additional and
leverage its existing distribution channels for its products and solutions,
dependence on strategic and channel partners including their ability to
distribute the Company's products and meet or renew their financial commitments,
the Company's ability to address international markets, the effectiveness of the
Company's sales and marketing activities, the acceptance of the Company's
products in the marketplace, the timing and scope of deployments of the
Company's products by customers, fluctuations in customer sales cycles,
customers' ability to obtain additional funding, technical difficulties with
respect to the Company's products or products in development, the need for
ongoing product development in an environment of rapid technological change, the
emergence of new competitors in the marketplace, the Company's ability to
compete successfully against established competitors with greater resources, the
uncertainty of future governmental regulation, the Company's ability to manage
growth, obtain patent protection, and obtain additional funds, general economic
conditions and other risks discussed in this Report and in the Company's other
filings with the Securities and Exchange Commission. All forward-looking
statements and risk factors included in this document are made as of the date
hereof, based on information available to the Company as of the date thereof,
and the Company assumes no obligation to update any forward-looking statement or
risk factors.
Net2Phone, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Three months Three months
Year End Year End ended ended
2003 2002 July 31, 2003 July 31, 2002
------------------------- -----------------------------
Revenue $ 91,750 $ 137,855 $ 20,963 $ 26,562
Direct cost of revenue 52,820 78,502 12,434 15,090
Selling, general and administrative 53,728 116,570 12,767 16,809
Depreciation and amortization 11,037 23,980 3,877 2,864
Restructuring, severance, impairment and other items 7,363 141,619 (221) 5,986
Settlement of Cisco litigation (58,034) 1,572 -- 1,572
Acquired in-process research and development -- 13,850 -- --
Non-cash compensation 15,304 19,556 8,245 1,737
------------------------- -------------------------
Total cost and expense 82,218 395,649 37,102 44,058
------------------------- -------------------------
Income (loss) from operations 9,532 (257,794) (16,140) (17,496)
Interest income, net 2,021 4,162 91 720
Other Income (loss) 696 (7,887) 763 401
------------------------- -------------------------
Income (loss) before minority interests 12,249 (261,519) (15,286) (16,375)
Minority interests (4,546) (15,591) (4,486) 3,392
Net income (loss) 16,795 (245,928) (10,800) (19,767)
Redeemable common stock accretion -- (133) -- --
------------------------- -------------------------
Net income (loss) available to common stockholders $ 16,795 $(246,061) $ (10,800) $ (19,767)
Net income (loss) per common share-basic and diluted $ 0.28 $ (4.21) $ (0.18) $ (0.33)
Weighted Average number of common shares used in the
calculation of basic net gain (loss) per common share 59,700 58,442 59,897 58,442
Weighted Average number of common shares used in the
calculation of diluted net gain (loss) per common share 60,101 58,442 59,897 58,442
------------------------- -------------------------
-------------------------
Cash, cash equivalents and marketable securities $ 94,111 $ 108,691
Fixed assets (net) 24,172 28,779
Total assets 144,646 183,405
Total Stockholders' Equity 76,329 45,913
-------------------------
------------------------- -------------------------
Net income (loss) available to common stockholders $ 16,795 $(246,061) $ (10,800) $ (19,767)
EXCLUDING
Redeemable common stock accretion -- (133) -- --
Minority interests 4,546 15,591 4,486 (3,392)
Other Income (loss) 696 (7,887) 763 401
Interest income, net 2,021 4,162 91 720
Depreciation and amortization (11,037) (23,980) (3,877) (2,864)
Inventory obsolescence expense (66) (2,773) (66) (248)
Non-recurring SG&A expense (1,663) (3,001) (1,248) --
Settlement of Cisco litigation 58,034 (1,572) -- (1,572)
Restructuring, severance, impairment and other items (7,363) (141,619) 221 (5,986)
Acquired in-process R&D -- (13,850) -- --
Non-cash compensation (15,304) (19,556) (8,245) (1,737)
------------------------- -------------------------
Net income (loss) before special and non-cash items $ (13,069) $ (51,444) $ (2,924) $ (5,088)
------------------------- -------------------------