IDT's CEO Discusses Q4 2011 Results - Earnings Call Transcript

| About: IDT Corporation (IDT)


Q4 2011 Earnings Call

October 06, 2011 5:15 pm ET


Bill S. Pereira - Chief Financial Officer

Howard S. Jonas - Founder, Chairman, Chief Executive Officer and Chairman of Nominating Committee

Bill Ulrey - Vice President of Investor Relations & External Affairs

Bill Ulrey

Welcome to IDT Corporation's Fourth Quarter and Full Year Fiscal 2011 Earnings Presentation. This is Bill Ulrey, IDT's Investor Relations Officer. In this presentation, IDT's Chairman and Chief Executive Officer, Howard Jonas; and Chief Financial Officer, Bill Pereira, will discuss IDT's financial and operational results for the 3 months ended July 31, 2011.

Both, this audio file consisting of management's pre-recorded remarks and our earnings release are available on the Investor Relations page of the IDT Corporation website, The earnings release has also been filed on a Form 8-K with the SEC.

If you have any questions for management related to the announced results after listening to management's presentation and reading the company's earnings release, please email them to us at the following address:, no later than the close of business on Tuesday, October 11. Please include your name and firm name, if applicable, in your email.

If we can constructively answer your question, we will post your question along with your name, your firm's name and our answer on the Investor Relations page of the IDT website as early as Monday, October 17, after market close. We will also file a Form 8-K with the SEC containing the questions and answers.

Any forward-looking statements made during this audio presentation or in the written Q&A, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those which 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 either to update any forward-looking statements that we have made, or may make, or to update the factors that may cause actual results to differ materially from those that we forecast.

In this presentation and in our written responses to questions thereafter, we make reference to adjusted EBITDA and free cash flow. Adjusted EBITDA for all periods discussed during our remarks is a non-GAAP measure representing income from operations or loss from operations, exclusive of depreciation and amortization, severance and other charges and other operating gains or losses net.

Free cash flow for all periods presented during our remarks is derived from the statement of cash flows and is computed as net cash provided by operating activities less capital expenditure. Adjusted EBITDA and free cash flow are among the key financial metrics management uses to evaluate the operating performances of the company and its segments. A schedule provided in the earnings release reconciles adjusted EBITDA to the nearest corresponding GAAP measure, income from operations for each of our segments and to both income from operations and net income for the company as a whole. A separate schedule reconciles IDT's free cash flow to the nearest corresponding GAAP measure, net cash provided by operating activities.

Now, to begin the discussion of our financial and the operating results, here is IDT Corporation's Chairman and CEO, Howard Jonas.

Howard S. Jonas

Thank you, Bill. Good afternoon to everyone. Welcome to our discussion of IDT's fourth quarter and full year 2011 results. Today's call represents a bittersweet milestone. I fully expect that this is the final earnings announcement we'll make while Genie Energy is still a part of the IDT family. If all goes according to plan, Genie will ring the opening bell on the New York Stock Exchange on October 31 as a publicly listed independent company trading under the symbol GNE. That's an amazing feat given that 8 years ago, none of the 3 principal companies that comprise Genie Energy even existed.

We founded IDT Energy in 2004. And in 2008, we acquired AMSO's predecessor, E.G.L. Oil Shale, and we started up IEI. Since then, IDT Energy has generated over $100 million in income from operations, and between them, AMSO and IEI are on their way to accessing billions of barrels of shale oil. That's the magic of the America's entrepreneurial spirit combined with the dedication of our talented employees.

That we are here today is also a tribute to the turnaround effort we undertook in the second half of fiscal 2008. Since then, we have completely reshaped the company. We turned it to profitability, repurchased shares and began paying a regular dividend. I always believed we would get to this point eventually, but even I didn't dare to imagine we would achieve it so quickly.

In the macro sense, the table is now set for the spin-off. At the nuts and bolts level, most of the spin-off related legwork has been done. The Internal Revenue Service has provided the private letter ruling we requested opening positively on the tax-free nature of the spin-off. We have filed a preliminary information statement with the Securities and Exchange Commission. If you have not done so, please take time to review it. It's available on the SEC's website listed under Genie Energy. And in fact, we will likely file an updated Form-10 and information statement very soon, possibly even later today.

In the information statement, we announced some of Genie's key leadership. I will proudly serve as Genie's chairman. Board members, we'll have Wes Perry, a highly regarded Oil and Gas entrepreneur with deep roots in Midland, Texas; Jim Courter, my predecessor as IDT's COO and a former member of Congress; Dr. Allan Sass, a true oil shale pioneer who served as President and CEO of Occidental Oil Shale Corporation; and Alan Rosenthal, a former IDT Director who was the managing partner of ABR Capital and Assistant Professor of oil pathology at NYU. Wes Perry and Jim Courter are giving up their IDT board seats in order to join the Genie board.

Genie's management team is very strong and extremely capable. Claude Pupkin, who has been our Executive Vice President for Corporate Development as well as the President of AMSO, will be Genie's CEO. As a matter of practice, Claude has been managing our oil shale projects in Colorado and Israel since we got into this business. He has done a phenomenal job and he is the right person to lead Genie. Claude has an MBA from Wharton, is a CPA and has had a distinguished career in investment banking, including work with JPMorgan, Morgan Stanley and Citibank.

Geoff Rochwarger, who founded IDT Energy and has grown it from a start-up into the largest residential retail energy provider in New York state, will be Genie's Vice Chairman and will continue to serve as CEO of IDT Energy. He and his management team will focus on growing our business.

Avi Gordon, who performed exceptionally as Vice President of Corporate Development at IDT, will be Genie's Chief Financial Officer. Avi has an MBA from NYU's Stern School of Business and is a chartered Financial Analyst. Operationally, Genie will benefit from a shared service arranged with IDT under which he will continue to receive support from IDT for accounting, human resources and other support functions. This will provide the new company with some time to find and train the right people to round out its administrative capabilities. For now, Genie will continue to be headquartered here in Newark.

Finally, we have received preliminary clearance from the New York Stock Exchange and are working to complete Genie's formal application for listings. All IDT shareholders on the spin-off record date will receive one share of Genie Energy for every share of IDT stock. Investors will be free to buy, sell or hold shares in either company once trading begins.

I have been asked more than once how I thought the 2 companies will be valued. From my perspective, they will both be great companies with experienced management teams, lots of upside potential and very strong balance sheets, including plenty of liquidity and virtually no debt, yet each company will have very different capital requirements, cash flow generation capabilities and growth trajectories.

Our plan right now is to spin-off Genie Energy with approximately $115 million in cash. That cash, along with future cash flows, and potentially funding provided by partners, will be used to fund our investments in oil shale and other unconventional oil and gas projects as well as additional expansions at IDT Energy.

For 2011, IDT Energy generated approximately $22 million in adjusted EBITDA with no CapEx while investing heavily in growing its customer base, particularly in new territories in Pennsylvania and New Jersey.

Looking ahead, I believe that IDT Energy will continue to grow rapidly despite facing an increasingly competitive environment. I'm particularly pleased that we were able to grow our customer base so rapidly in the fourth quarter, adding over 27,000 new customers net of churn.

In Israel, we expect that our R&D expense will rise materially in 2012. Borrowing permitting operational or other delays, we expect to begin pilot test construction next year followed by pilot test operations in 2013.

In all, the pilot test phase, including construction and operation, what we expect require an additional investment of approximately $25 million to $30 million over the next 2 years. If the pilot is successful as Dr. Harold Vinegar, IEI's Chief Scientist, and I expect it to be, then we will construct and operate a demonstration plant. The demonstration will be designed to test specific subsurface commercial scale production techniques. We anticipate that the demo phase will require additional cash of approximately $80 million or $100 million or more over 3 to 4 years.

As the demonstration progresses, our investment could be partially offset by shale oil production. In fact, as currently projected, the demonstration could produce as much as 2,000 barrels of oil per day, generating tens of millions of dollars in annual gross revenue. At AMSO, our shale joint venture with Total, our pilot plant has been constructed and is completing its pre-operational test while we await its final permits.

We are working with the regulatory agencies on the permitting, but that leaves timing partially outside our control. For now, we've had to postpone the expected start of the pilot until later this year. If all goes well, we should have preliminary results by the middle of next year.

The level of our success of our initial pilot test in Colorado will determine the next steps and course of the project. Once we have a successful pilot, we would expect to follow it with a larger-scale demonstration. The AMSO demonstration cost would likely be at levels comparable to IEI's demonstration but would be shared with Total. For both projects, scaling up to commercial oil production would require several billion dollars in investment before reaching positive cash flow, especially given the rigorous environmental protections we require. But given our projected oil production cost in Israel of less than $40 per barrel, exclusive of taxes and royalties, I am confident that capital will be available.

In Colorado, our agreement with Total includes provisions for nonrecourse financing that will minimize Genie's potential dilution. So here is your take away. Given the starting cash balance at Genie posted by the subsequent cash generated by IDT Energy, Genie should have the capital to make the incremental success-based investments that both shale oil projects will require before they scale up for commercial operations. In the interim, both projects will have to achieve milestones, including successful pilot tests and commercial licensing. That represent excellent opportunity for raising project equity and/or debt capital.

I should also reiterate that we continue discussions with potential partners who could provide us with strategic benefits in addition to capital. We will bring them into our projects as we deem appropriate.

Now let's talk about IDT after the Genie spin-off. Like Genie, IDT will have a strong balance sheet. At July 31, 2011, we had $264.4 million. Even after $115 million of cash goes to Genie, IDT will be well-capitalized.

IDT Telecom generated approximately $65 million in cash by operating activities in fiscal 2011. With CapEx of approximately $12 million in fiscal 2011, IDT Telecom's free cash flow was approximately $53 million. Going forward, IDT will continue to invest to drive future growth. We are adding to our direct sales force, which gives us better control over our product distribution and sticky relationships with retailers with which entail somewhat higher SG&A. On the heels of our successes with IMTU and Boss Revolution, a pay-as-you-go cordless international calling service, we intend to continue developing innovative products and capabilities, particularly in the international money remittance space.

We'll continue to invest appropriately in growth opportunities going forward to ensure that this business remains dynamic, vibrant and competitive. Also within IDT, both Fabrix and Zedge have excellent growth prospects and are pursuing game-changing approaches within their respective industries. Fabrix's large North American cable client continues to roll out its remote storage DVR service using the Fabrix video storage and processing platform, and the deployment is going very well. Customer acceptance and satisfaction are good, and we recently received a second order.

Zedge continues to grow robustly as mobile Internet usage continues to expand. More than 8% of U.S. smartphone users have the Zedge apps installed on their device. Zedge's average customer fires up the Zedge app 7x per month and the average session lasts close to 30 minutes. That speaks to our popularity across Android where we are one of the most downloaded apps. Zedge's download more than 7 million games, apps, ringtones and wallpapers daily. Zedge is a phenomenal traffic machine and has an incredible customer acquisition engine. Zedge has a very bright future.

In addition to these businesses, IDT will also retain important IP that was developed by our net-to-phone subsidiary. The IP includes patents which cover technologies that are essential for computer-to-computer communications. The patents were reexamined by the patent and trademark office during our recent litigation with Skype and were upheld.

We believe that net-to-phone IP is infringed by a wide swath of VoIP providers as well as by other Internet-based communication platforms and technology providers, including some of the largest players and household names. We intend to aggressively pursue monetization through licensing and enforcement. We recently hired a dedicated management team and retained an internationally recognized law firm to pursue monetization strategies.

Also, but often overlooked, IDT holds hundreds of 39 and 28 gigahertz spectrum licenses. We continue to work to unlock the value of our spectrum holdings. Following the spin-off, IDT will retain net loss carryforwards totaling approximately $180 million. Until they are depleted, IDT's effective tax rate will be comprised of alternative minimum tax and foreign, state and local levies.

As many of you know, IDT now pays a quarterly dividend of $0.23 per share or $21 million annually in aggregate. Given our current trading range of around 20, that is better than a 4.5% yield. The board has not yet determined what the dividend rate will be going forward without the cash generated by IDT Energy, but we intend to continue paying a dividend to IDT shareholders.

All in, the spin-off represents 2 excellent opportunities for shareholders. Both companies are positioned for strong growth with enormous upside potential. I am also pleased with our fiscal 2011 results and very excited about the future for both Genie and IDT.

Now to discuss the quarter and the year's financial results in detail, I will turn the discussion over to IDT's Chief Financial Officer, Bill Pereira.

Bill S. Pereira

Thank you, Howard. Let's take it from the top and begin by discussing our 2011 fiscal year before moving on to the fourth quarter's results. The most striking fact about 2011 from my perspective was the substantive growth in revenue. After 4 consecutive years of revenue decline, IDT grew revenues by $160.5 million or 11.5% year-over-year to $1.56 billion for fiscal 2011. Substantially all of the revenue growth came out of our Telecom division, which achieved this robust expansion despite contending with some strong headwinds.

During 2011, Telecom shuttered its low-margin domestic, Top-Up Wireless resale business diminishing revenue by approximately $32 million versus fiscal 2010; and our Consumer Phone Services business, which is in harvest mode, saw revenues decline $11 million.

At IDT Telecom, a key driver of revenue growth for 2011 was Boss Revolution. Boss Revolution is an innovative pay-as-you-go cardless, reloadable, international, long-distance calling service accessible from any phone. The revenue growth in Telecom allowed us to increase our consolidated gross profit by $1.9 million year-over-year. IDT Telecom's gross profit was up $3.8 million for the year.

IDT's gross margin declined 200 basis points year-over-year to 18.4%. The decline in margin resulted primarily from the revenue growth in Telecom, which shifted our product mix toward lower margin products, mainly wholesale carrier services, Boss Revolution and international mobile top-up or IMTU. Our IMTU product allows customers here in the U.S. to purchase minutes and load them on mobile phones of friends and family members overseas.

SG&A expense, including research and development costs, increased $24.7 million year-over-year. As a percentage of revenue, SG&A expense was 16%, just slightly lower than the year ago. Our increased SG&A dollars are fueling our current revenue growth and are also a reflection of the investments we are making to take advantage of growth opportunities in several areas. Specifically, during fiscal 2011, IDT Telecom spent approximately $3.6 million in additional sales commissions, compensation and marketing and advertising costs compared to the year ago period.

In addition, IDT Telecom is continuing to aggressively build and develop a direct-to-retailer sales force here in the U.S. As you may recall, in 2009, IDT Telecom bought out its U.S. retail distribution partner and we now manage our distribution network ourselves. Traditionally, that network was comprised of independent distributors. We have been steadily supplementing this network with an internal sales force. This gives us better control over our product mix and the retail sales channel and allows us to expand more quickly into underserved territories.

IDT Energy, likewise, paid an additional $7.4 million in customer acquisition costs to facilitate expansion into Pennsylvania and New Jersey. We added over 35,000 meters or nearly a 9.7% increase year-over-year, and we charge those acquisition costs to expense in their entirety.

In addition, IDT Energy's SG&A in the fourth quarter reflected a $3.3 million catch-up accrual for ongoing tax audits. I should also point out that about $2.3 million in noncash compensation contributed to the overall increase in SG&A.

Corporate SG&A expense for the full year was $14.9 million, at the lower end of our anticipated annual run rate. The drive for growth and the higher SG&A costs they entail as well as the continued and expected decline in our Consumer Phone Services segment, which is in harvest mode, were the main factors in the decline we experienced in adjusted EBITDA year-over-year. Adjusted EBITDA for fiscal 2011 was $37.6 million.

Net income attributable to IDT, however, was up 32.1% from $20.3 million in fiscal 2010 to $26.8 million in fiscal 2011. Depreciation and amortization expense decreased by $12.5 million. Severance and other charges at just $1.1 million in fiscal 2011 were $3.8 million below the fiscal 2010 level. And the bottom line also benefited from a $5.5 million benefit from income taxes.

Cash from operations also increased in fiscal 2011 from $56.2 million in fiscal 2010 to $61.8 million. Our capital expenditures increased by $5.1 million year-over-year. This increase resulted mainly from our efforts to move components of our telecommunications network to a hosted facility. We expect to recoup our investment over the next few years in operational cost savings. Our free cash flow of $48.4 million was slightly above last year.

So even after investing in the long-term growth of our core businesses, financing the accelerating development of the oil shale projects in Israel and Colorado, paying down debt of $9.4 million, buying back $7.5 million of Class B stock from Howard Jonas and paying $15.2 million in dividends, we ended the fiscal year with a stronger and more liquid balance sheet, as exhibited by the $30.5 million more in cash, cash equivalents and CDs as well as our increases in working capital, book value and shareholders' equity compared to a year ago. I would classify that as a pretty good year.

Now let's take a look at the fourth quarter. Revenue growth continued to be very strong, increasing by $52.9 million or 14.9% compared to the fourth quarter of fiscal 2010 to $407.5 million. Sequentially, revenue increased $13.5 million or 3.4%. The year-over-year and sequential revenue growth were generated by the Telecom Platform Services segment at IDT Telecom, which contributed 86.7% of IDT's total revenue in the most recent quarter. Minutes of use, the commodity underlying TPS' service, totaled 6.9 billion minutes in the fourth quarter, an impressive 24.7% increase compared to the year ago quarter and a 5.6% increase sequentially.

Minutes of use for all of fiscal 2011 totaled 26.2 billion minutes, a staggering 26.9% increase over fiscal 2010. IDT Telecom's phenomenal growth in minutes of use suggests that we are gaining market share at a healthy clip and securing our position in the marketplace.

Within TPS, the traditional Wholesale Carrier business, which accounted for approximately 45% of TPS' revenue in the fourth quarter, continued to achieve very strong growth. Carrier revenues increased a noteworthy 42% compared to Q4 2010, rising to $160.2 million. For all of fiscal 2011, wholesale Carrier revenues grew 28%.

TPS' retail channel, which accounted for approximately 42% of TPS' revenues in the fourth quarter, increased the revenues 3% compared to the year ago quarter to $148.5 million and by 7% sequentially. For the full year, retail revenues increased 3% compared to fiscal 2010. The retail channel worldwide includes both traditional prepaid calling cards as well as an array of other voice and financial products and services, such as white label calling cards and prepaid gift and debit cards. Our rapidly growing Boss Revolution and international mobile top-up, IMTU, products are also included within our retail channel products.

Revenues generated by TPS' reseller channel, which provides VoIP-based telephony solutions for call aggregators globally and by the direct-to-consumer channel, accounted for most of the remaining revenues.

At IDT Energy, revenues for the quarter were stable, declining 1/10 of 1% in Q4 compared to the year ago quarter and for the full fiscal year, increasing by 1.1%. As I have said before, IDT Energy's revenues are tied so closely to seasonal swings in demand, temperature fluctuations and the underlying commodity costs that we do not consider it a key metric for evaluating this business. The size of the customer base, as measured by meters and RCEs and margin per unit sold, are more indicative of our performance.

At July 31, 2011, IDT Energy served 405,000 electric and gas meters, a 9.7% increase compared to a year earlier and a 7.2% increase over the meter count at the end of the third quarter. RCE growth was even more robust. And RCE or residential customer equivalent is a standard industry metric reflecting the expected annualized consumption levels of the customer base. At July 31, IDT Energy's RCEs were 235,000, a 14.6% increase compared to the year ago quarter and a 10.3% increase sequentially. So in addition to growing meters on average, IDT Energy was also adding higher consumption meters.

Turning now to gross profit. IDT generated $70.2 million in gross profit in the fourth quarter and $286.1 million for the full fiscal year. Gross profit decreased 2.2% in Q4 compared to the year ago quarter and 5.6% sequentially. Gross profit increased 0.7% for fiscal 2011 compared to 2010.

Gross margin in the fourth quarter was 17.2%, a 300-basis-point decline compared to the year ago quarter and a 170-basis-point decline sequentially. Within the TPS segment, gross profit of $54.2 million in Q4 was substantially the same as the year ago quarter and increased 3.7% sequentially.

For fiscal 2011, TPS' gross profit increased $10.3 million year-over-year to $210.6 million, a 5.2% jump. TPS' gross margin for the quarter decreased 290 basis points year-over-year and 50 basis points sequentially to 15.3%. Gross margin for fiscal 2011 was 16%, a 140-basis-point decrease compared to fiscal 2010.

The decrease in TPS' gross margin is largely attributable to the changing product mix that constitutes our revenue. Boss Revolution and Wholesale Carrier and, to a lesser extent, IMTU all generated significantly higher levels of revenues in gross profit, mostly compensating for the decline in revenues and gross profit from traditional IDT-branded prepaid calling cards. However, because the margins generated by Boss Revolution, Wholesale Carrier Services and IMTU are relatively lower than margins derived from traditional prepaid calling card sales, the TPS segment's aggregate gross margin declined.

Gross margin at IDT Energy fell to 23.8% in the fourth quarter, a 20-basis-point decline year-over-year and a 740-basis-point decline sequentially. IDT Energy's decline in margin during the quarter was largely the result of 2 factors. First, there were several spikes in electricity prices during the summer cooling season, our fiscal fourth quarter, as a result of weather events in the northeast. Because IDT Energy procures its supplies primarily in the spot markets, rapid escalations in commodity price tend to make it less competitive with suppliers who hedge forward significant portions of their suppliers.

To remain competitive in these markets, IDT Energy often accepts lower margins. Just as in falling commodity price environment, it is generally able to expand margins as they can remain competitive without passing along all of the lower costs to its customers. Second, to facilitate customer acquisitions in new territories, management will, as they did in Q4, lower IDT Energy's rates, which reduces its margins.

SG&A expense, including R&D for IDT, totaled $68.1 million in the fourth quarter, a 20% increase compared to the year ago quarter and an 8.2% increase sequentially. As a percentage of revenue SG&A expense for IDT was 16.7% in the fourth quarter compared to 16% in both the year ago quarter and sequentially. For the full year, SG&A totaled $248.5 million, an 11% increase over fiscal 2010.

At the beginning of my remarks, I described the key strategic investments and growth initiatives that led to higher SG&A expense in our core telecom and retail energy businesses. For the TPS segment, SG&A expense was $47.4 million in Q4, a 10.3% increase year-over-year and a 10% increase sequentially.

For the full fiscal year 2011, TPS' SG&A totaled $174 million, a 5.1% increase compared to the year ago. IDT Energy's SG&A expense in the fourth quarter was $11.3 million, a 106.6% increase compared to the year ago quarter and a 38.7% increase sequentially. However, during the quarter, as I mentioned, IDT Energy accrued $3.3 million related to ongoing tax audits.

For the full fiscal year, SG&A expense at IDT Energy totaled $31.4 million, an increase of $11.5 million or 58.2%. Of that increase, approximately $10.7 million, or 93% of it, is attributable to increases in customer acquisition costs and the tax accrual I mentioned earlier.

Corporate SG&A was $2.7 million in the fourth quarter, a 35.1% increase compared to the fourth quarter of fiscal 2010 but a 35.7% decrease sequentially. SG&A expense decreased this quarter mostly due to the reversal of expenses that had been recorded in prior periods, partially offset by increases in legal and professional fees and stock-based compensation. For the year, corporate SG&A totaled $14.9 million, a 26.3% increase compared to fiscal 2010. The increase was largely attributable to the impact of larger nonroutine benefits in fiscal 2010 compared to fiscal 2011 as well as increases in legal expense and stock-based compensation.

And finally, Genie Oil and Gas, which holds Genie's interest in the 2 oil shale projects, had aggregate SG&A and R&D expense of $2.3 million in the fourth quarter and $10.2 million for the full year. Those costs were incurred primarily by IEI as Genie accounts for its 50% interest in AMSO, LLC using the equity method.

Genie's equity and the net loss of AMSO, LLC was $2.3 million in the fourth quarter and $5.2 million for fiscal 2011. This is included in other expense income net in the consolidated statement of income.

Moving down to adjusted EBITDA. We reported $2.1 million in adjusted EBITDA in the fourth quarter, $12.9 million less than in the fourth quarter of last year and a $9.3 million reduction compared to the prior quarter.

IDT Telecom generated $8.3 million in adjusted EBITDA in Q4, 42.2% below the year ago quarter and 22.5% below the prior quarter. The declines reflect in large part $3.3 million in legal accruals and the increased SG&A expense associated with the continuing build-out of our retail channel sales force.

For fiscal 2011, IDT Telecom adjusted EBITDA totaled $43.8 million, a $3.6 million decline from 2010. I need to point out, however, that the decline was all driven by our Consumer Phone Services segment, which as we often mentioned, is in harvest mode. At TPS, our main Telecom segment, adjusted EBITDA increased by 5.3% to $36.6 million. I believe this is a significant accomplishment because, as I just mentioned, this is the segment in which we have continued to invest in the build-out of our retail sales force and incurred a $3.3 million legal accrual.

IDT Energy recorded negative $300,000 in adjusted EBITDA, $6 million less than the year ago quarter and $8.9 million less than last quarter. For all of fiscal 2011, IDT Energy generated $22.5 million in adjusted EBITDA compared to $38 million in fiscal 2010. The declines reflect the factors I mentioned previously, mainly the expansion into new territories in New Jersey and Pennsylvania and the tax accrual.

Depreciation and amortization expense for all of IDT in the fourth quarter was $4.5 million, a 43.2% decline from the year ago level and a 13.4% sequential decline. For all of fiscal 2011, D&A was $21 million, a 37.3% decline compared to 2010. The large majority of the D&A expense is generated by the businesses in TPS and has been declining because we have fully depreciated a growing portion of our capital stock while the investments needed for our network infrastructure, apart from the cost associated with moving components of our network to a hosted facility this year, are on balance decreasing.

As in the prior quarter, we had no restructuring or impairment costs. The loss from operations in the fourth quarter was $3.5 million, an $11.3 million decrease compared to the year ago quarter and a $9.7 million decrease sequentially. The loss from operations in the fourth quarter included an expense of $1.1 million for an adjustment to our accrual for the Alexsam patent litigation after the final judgment against us was issued in August, 2011.

Net interest expense during the quarter, was $1.1 million and for the full fiscal year totaled $5.7 million. Net interest expense reflects in large part mortgage expense on our buildings in Newark and Piscataway as well as the payments made by IDT Energy to BP for purchasing electricity and gas on our behalf pursuant to our preferred supplier agreement.

Net income attributable to IDT in the fourth quarter was $227,000 compared to $7.5 million in the year ago quarter and $7 million in the sequential quarter. For the full fiscal year 2011, net income increased to $26.8 million or $1.19 per diluted share from $20.3 million or $0.94 per diluted share in fiscal 2010. Net income attributable to IDT included a $3.5 million noncash gain from discontinued operations.

In September 2011, we finalized a settlement of open issues related to the first quarter of fiscal 2007 sale of IDT Entertainment to Liberty Media Corporation. Liberty Media also paid us $2 million, which will be recorded as income from discontinued operations in the first quarter of fiscal 2012.

Net cash provided by operating activities in Q4 increased to $11.4 million, rising a healthy $2.7 million compared to the year ago quarter, and as I mentioned earlier, for the full fiscal year, was up $5.6 million to $61.8 million.

To sum up, like Howard, I am very excited about the coming spin-off of Genie. I believe the work we have done over the last few years, both in terms of operational improvements and strengthening the balance sheet, has positioned each company to be able to stand on its own and compete successfully. They each have great potential and will be well-positioned to unlock significant shareholder value in the coming years.

Before I conclude, I want to remind you that we welcome the opportunity to answer your questions, whether about the results this quarter, the company in general or the spin-off of Genie. Please email them to us at by the close of business on Tuesday, October 11, along with your name and firm name. Where we can provide a constructive answer, we will post our response on our website and by filing a Form 8-K with the SEC as early as Monday, October 17, following the market close. Again, as always, thank you for your interest in IDT.

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