One of the best performing stocks in our All Investable Screener, which you can register for here, is IDT Corporation (NYSE:IDT).
IDT Corporation, through its IDT Telecom division, provides telecommunications and payment services to individuals and businesses primarily through its flagship BOSS Revolution® and Net2Phone (NTOP)®brands. IDT Telecom’s wholesale business is a leading global carrier of international long distance calls.
Back in September, IDT released its 2016 annual report. With annual revenues down 6% Shmuel Jonas, IDT’s Chief Executive Officer, said, “Our financial results in the fourth quarter were consistent with recent trends. Our core telecom offerings continued to face revenue and margin pressure stemming in significant part from deregulation of the Mexico telecom market. The impact was mitigated by our continued focus on reducing SG&A expense.”
“Operationally, our BOSS Revolution international money transfer business, Net2Phone’s unified communications as a service offerings and our National Retail Solutions initiative are all meeting or beating expectations.”
“As they achieve scale, each of these initiatives has the potential to become a significant contributor to IDT’s bottom line. In addition, we beta launched two new products after the quarter close — PicuP, a telephony solution for very small businesses and, just two weeks ago, the next generation of the BOSS Revolution app with free peer-to-peer calling and messaging.”
“Both are getting rave reviews. Across the IDT enterprise, we are intensifying our commitment to developing, deploying, investing and supporting innovative growth initiatives,” Mr. Jonas added.
As you can see from the chart below, IDT has had a great run over the past 12 months with its share price up 33.75%, but I believe there’s still lots more growth to come.
(Source: Google Finance)
Solid Revenues & Net Income
A quick look at the company’s income statement for the twelve months ending July 31, 2016 shows revenues were down 6% for the year from $1.6 Billion in 2015 to 1.5 Billion in 2016 while operating income was $26 Million, also down on the previous year but, its important to note that in 2015 the company had a significant gain from its sale of its interest in Fabrix Systems, which boosted operating income by $76.8 Million.
The good news for IDT is that it’s managed to maintain its gross margins around 17% for the past four years and ultimately the company had $23.5 Million in net income in 2016.
| (Amounts in thousands) | 2016 | 2015 | ||
| REVENUES | $ | 1,496,261 | $ | 1,596,777 |
| COSTS AND EXPENSES: | ||||
| Direct cost of revenues (exclusive of depreciation and amortization) | 1,246,594 | 1,328,363 | ||
| Selling, general and administrative (i) | 204,655 | 222,239 | ||
| Depreciation and amortization | 20,535 | 18,418 | ||
| Research and development | — | 1,656 | ||
| Severance | 6,510 | 8,363 | ||
| TOTAL COSTS AND EXPENSES | 1,478,294 | 1,579,039 | ||
| Gain on sale of member interest in Visa Europe Ltd. | 7,476 | — | ||
| Gain on sale of interest in Fabrix Systems, Ltd. | 1,086 | 76,864 | ||
| Other operating (losses) gains, net | (326) | (1,552) | ||
| Income from operations | 26,203 | 93,050 | ||
| Interest income (expense), net | 1,216 | (159) | ||
| Other income (expense), net | 2,049 | (688) | ||
| Income before income taxes | 29,468 | 92,203 | ||
| Provision for income taxes | (4,110) | (6,088) | ||
| NET INCOME | 25,358 | 86,115 | ||
| Net income attributable to noncontrolling interests | (1,844) | (1,625) | ||
| NET INCOME ATTRIBUTABLE TO IDT CORPORATION | $ | 23,514 | $ | 84,490 |
Real Value on the Balance Sheet
Here’s where I see the real value of IDT. If you take a look at its current assets (below) for the twelve months ending July 31, 2016 you’ll notice that the company has cash and cash equivalents of $109 Million, restricted cash and cash equivalents totaling $99 Million, and marketable securities totaling $53 Million. All of that adds up to $261 Million.
Now, take a look at the company’s debt. There is none. So, with a current market cap around $397 Million, when you subtract the $261 Million in net debt (cash and cash equivalents minus debt) you’re left with an Enterprise Value of just $136 Million, around one third of the current market cap.
Moreover, check out IDT’s net current asset value. The company has current assets totaling $339 Million and total liabilities just slightly higher at $345 Million.
| (Amounts in thousands) | 2016 | 2015 | ||
| ASSETS | ||||
| CURRENT ASSETS: | ||||
| Cash and cash equivalents | $ | 109,537 | $ | 110,361 |
| Restricted cash and cash equivalents | 98,822 | 91,035 | ||
| Marketable securities | 52,949 | 40,287 | ||
| Trade accounts receivable, net of allowance for doubtful accounts of $4,818 and $5,645 at July 31, 2016 and 2015, respectively | 49,283 | 58,543 | ||
| Receivable from sale of interest in Fabrix Systems, Ltd. | — | 8,471 | ||
| Prepaid expenses | 15,189 | 17,304 | ||
| Other current assets | 13,273 | 14,344 | ||
| TOTAL CURRENT ASSETS | 339,053 | 340,345 | ||
| Property, plant and equipment, net | 87,374 | 91,316 | ||
| Goodwill | 11,218 | 14,388 | ||
| Other intangibles, net | 843 | 1,277 | ||
| Investments | 14,024 | 12,344 | ||
| Deferred income tax assets, net | 9,554 | 13,324 | ||
| Other assets | 7,592 | 12,688 | ||
| TOTAL ASSETS | $ | 469,658 | $ | 485,682 |
| LIABILITIES AND EQUITY | ||||
| CURRENT LIABILITIES: | ||||
| Trade accounts payable | $ | 30,253 | $ | 29,140 |
| Accrued expenses | 117,434 | 139,272 | ||
| Deferred revenue | 86,178 | 86,302 | ||
| Customer deposits | 95,843 | 84,454 | ||
| Income taxes payable | 578 | 391 | ||
| Note payable—current portion | — | 6,353 | ||
| Other current liabilities | 13,534 | 3,000 | ||
| TOTAL CURRENT LIABILITIES | 343,820 | 348,912 | ||
| Other liabilities | 1,635 | 1,830 | ||
| TOTAL LIABILITIES | 345,455 | 350,742 | ||
Strong Cash Flows
There’s more good news on the statement of cashflows for the twelve months ending July 31, 2016.
While the company reported net profit of $25 Million, before net income attributable to noncontrolling interests, IDT had $49 Million in operating cashflow. With capex of $18.4 Million that leaves the company with $30.6 Million in free cash flow. While the company’s entire investing cashflow was (-$16.5 Million), its important to note that the company spent $47 Million of its investing activities on marketable securities.
When we subtract the $16.5 Million for investing activities from the operating cashflow of $49 Million you get $32.5 in cashflows after investing. With this excess cash, the company was able to pay dividends of $17.4 Million, pay down debt of $6.4 Million, and repurchase Class B shares totaling $4.8 Billion.
After exchange rate effects, all of this left IDT with a small net decrease at the end of the year of ($824,000). And, the company still has around $110 Million in the bank and zero debt.
| Year ended July 31 (in thousands) | 2016 | 2015 | ||
| OPERATING ACTIVITIES | ||||
| Net income | $ | 25,358 | $ | 86,115 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 20,535 | 18,418 | ||
| Deferred income taxes | 3,809 | 5,877 | ||
| Provision for doubtful accounts receivable | 1,519 | 97 | ||
| Gain on sale of interest in Fabrix Systems Ltd. | (1,086) | (76,864) | ||
| Gain on sale of member interest in Visa Europe Ltd. | (7,476) | — | ||
| Net realized (gain) loss from marketable securities | (543) | 54 | ||
| Gain on proceeds from insurance | — | — | ||
| Interest in the equity of investments | 362 | (1,699) | ||
| Stock-based compensation | 2,680 | 5,185 | ||
| Change in assets and liabilities: | ||||
| Restricted cash and cash equivalents | (22,548) | (28,286) | ||
| Trade accounts receivable | 616 | 640 | ||
| Prepaid expenses, other current assets and other assets | 8,372 | 2,122 | ||
| Trade accounts payable, accrued expenses, other current liabilities and other liabilities | (10,337) | (3,824) | ||
| Customer deposits | 25,344 | 25,939 | ||
| Income taxes payable | 238 | (301) | ||
| Deferred revenue | 2,211 | (2,939) | ||
| Net cash provided by operating activities | 49,054 | 30,534 | ||
| INVESTING ACTIVITIES | ||||
| Capital expenditures | (18,370) | (28,556) | ||
| Proceeds from sale of interest in Fabrix Systems Ltd., net of cash and cash equivalents sold | 9,557 | 59,678 | ||
| Proceeds from sale of member interest in Visa Europe Ltd | 5,597 | — | ||
| Cash used for acquisition and purchase of investments | (2,002) | (125) | ||
| Proceeds from sales and redemptions of investments | 634 | 119 | ||
| Purchases of other intangibles | — | — | ||
| Proceeds from sale of building | — | — | ||
| Proceeds from insurance | — | — | ||
| Purchases of marketable securities | (46,909) | (52,360) | ||
| Proceeds from maturities and sales of marketable securities | 35,011 | 24,126 | ||
| Net cash (used in) provided by investing activities | (16,482) | 2,882 | ||
| FINANCING ACTIVITIES | ||||
| Dividends paid | (17,358) | (47,594) | ||
| Distributions to noncontrolling interests | (1,834) | (2,050) | ||
| Cash of Zedge deconsolidated as a result of spin-off | (6,381) | — | ||
| Proceeds from sale of Zedge equity prior to the spin-off | 374 | — | ||
| Proceeds from capital raised by subsidiary | 8,750 | — | ||
| Purchases of stock of subsidiary | — | — | ||
| Proceeds from exercise of stock options | — | 3,424 | ||
| Proceeds from revolving credit loan payable | — | — | ||
| Repayments of borrowings including revolving credit loan payable | (6,353) | (13,271) | ||
| Purchase of Class B common stock from Howard S. Jonas | — | (7,500) | ||
| Repurchases of Class B common stock | (4,773) | (3,202) | ||
| Net cash used in financing activities | (27,575) | (70,193) | ||
| Effect of exchange rate changes on cash and cash equivalents | (5,821) | (6,685) | ||
| Net (decrease) increase in cash and cash equivalents | (824) | (43,462) | ||
| Cash and cash equivalents at beginning of year | 110,361 | 153,823 | ||
| Cash and cash equivalents at end of year | $ | 109,537 | $ | 110,361 |
Valuation
As mentioned above, IDT’s current market cap is around $397 Million. When you subtract the $261 Million in net debt (cash and cash equivalents minus debt) you’re left with an Enterprise Value of $136 Million, or just 5.5 times operating earnings (TTM). The company has a very healthy FCF/EV ratio of 10% (TTM), and a shareholder yield of 6% (TTM), when you add the buyback yield (2%) to the dividend yield (4%).
IDT represents great value. Its enterprise value is around one third of its market cap, it has a strong balance sheet, loads of cash, no debt, and a nice shareholder yield.
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