Net2Phone Reports Fourth Quarter and Fiscal Year 2003 Results; Gross margins above 40% for ninth consecutive quarter; Liberty Cablevision enters into full production agreement.Business Editors NEWARK, N.J.--(BUSINESS WIRE)--Oct. 22, 2003 Net2Phone, Inc. (Nasdaq: NTOP NTOP Nt Option Pack ), 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: -- Net income of $16.8 million in fiscal 2003 compared to a net loss of ($246.1) million in fiscal 2002 -- Gross margin of 42.4% -- 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 -- 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: -- Executed production agreement with Liberty Cablevision of Puerto Rico Puerto Rico (pwār`tō rē`kō), island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla. to offer cable telephony See cable telephone. services to their upgraded digital two-way footprint The amount of geographic space covered by an object. A computer footprint is the desk or floor surface it occupies. A satellite's footprint is the earth area covered by its downlink. See form factor. 1. -- Agreements in place with Hughes Network Systems Hughes Network Systems, LLC (HNS), is a provider of broadband satellite network products for businesses and consumers. HNS pioneered the development of high-speed satellite Internet access services and IP-based networks with its original DirecPC service but which it now markets and AFSAT AFSAT Air Force Security Assistance Training (squadron) AFSAT Air Force Satellite AFSAT Air Force Subscale Aerial Target Communications to deliver satellite VoIP -- 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(a) (adjusted for depreciation and amortization, minority interests, other income, interest income, non-cash compensation, gain from the settlement of Cisco litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. and restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). , severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. and other items), which excludes the impact these aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. 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 The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See 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 Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP. The company believes that net income (loss) before special and non-cash items provides investors with a measure of the company's operational and financial progress that corresponds with the 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 Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has (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 Communicating information, including data, text, pictures, voice and video over long distance. See communications. 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 new·found adj. Recently discovered: a newfound pastime. Adj. 1. newfound - newly discovered; "his newfound aggressiveness"; "Hudson pointed his ship down the coast of the newfound sea" high-margin minutes from corporate and consumer retail services in conjunction with telecommunications providers in newly liberalized markets. However, the delay in liberalization lib·er·al·ize v. lib·er·al·ized, lib·er·al·iz·ing, lib·er·al·iz·es v.tr. To make liberal or more liberal: "Our standards of private conduct have been greatly liberalized . . . of certain markets has created a short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. 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 op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the medium and long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-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 An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. 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 NGS National Geographic Society NGS National Geodetic Survey NGS National Genealogical Society NGS Next Generation Security (software) NGS National Garden Scheme NGS National Graduate School NGS Next Generation Services ), is comprised of the company's international retail VoIP business and domestic calling card business, while the other, Net2Phone Cable Telephony (NCT NCT National Childbirth Trust NCT National Car Test NCT North Carolina Theatre NCT National Coordination Team NCT Northern California TRACON NCT Noise Cancellation Technology NCT Network Control and Timing NCT Nicotine Replacement Therapy ), is focused on delivering an end-to-end end-to-end a pattern of anastomosis in which severed ends are matched and united, in contrast with other patterns such as end-to-side or side-to-side. Usually applied to anastomosis of the intestine. 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 Meaning "sound over distance," it refers to electronically transmitting the human voice. In the beginning, telephony dealt only with analog signals in the circuit-switched networks of the telephone companies. 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 (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. 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 The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as 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 Performance metrics are measures of an organizations activities and performance. Performance metrics should support a range of stakeholder needs from customers, shareholders to employees [1]. 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 See broadband. 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 broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). 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 ar·ris n. pl. arris or ar·ris·es The sharp edge or ridge formed by two surfaces meeting at an angle, as in a molding. [Alteration of Old French areste, fishbone, spine , Motorola, Gallery iPT, Mind CTI  This article or section is written like an .Please help [ rewrite this article] from a neutral point of view. Mark blatant advertising for , using . , Nuera and CoreOS. Traded on the NASDAQ under the symbol NTOP, Net2Phone's strategic partners and investors include Liberty Media Corporation (NYSE NYSE See: New York Stock Exchange : L; LMC LMC Large Magellanic Cloud (also see SMC) LMC Library Media Center LMC Lees-McRae College (Banner Elk, NC) LMC Lutheran Medical Center LMC League of Minnesota Cities LMC Local Medical Committee .B) and IDT IDT Integrated Device Technology, Inc. (Santa Clara, CA, USA) IDT I Don't Think IDT Identity Theft IDT Interrupt Descriptor Table IDT Integrated DNA Technologies IDT Inactive Duty Training IDT Instructional Design & Technology 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 forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of Section 27A of the Securities Act of 1933, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. , 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 here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" , 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. (a) The schedule accompanying this release provides reconciliations to generally accepted accounting principles (GAAP) for all non-GAAP financial measures mentioned in this release. Note: Net2Phone CEO Stephen Greenberg will host a conference call at 4:30 p.m. EST P.M. also p.m. or p.m. abbr. post meridiem Usage Note: By definition, 12 a.m. 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.
Net2Phone, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
--------------------- ------------------
Three Three
months months
Year Year ended ended
End End July 31, July 31,
2003 2002 2003 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)
--------------------- ------------------
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