Net2Phone Reports Fourth Quarter and Year-End Results - 4th qtr 1999, FY 1999 - Company Financial Information

Cambridge Telcom Report, Oct 4, 1999

Net2Phone Inc. (NASDAQ: NTOP) Monday reported net revenues totaling $11.1 million for the fourth quarter ended July 31, 1999, nearly triple the net revenues of $4.1 million for the fourth quarter of 1998, and a 22% increase over the prior quarter.

Pro forma net loss from operations for the fourth quarter of 1999 excluding the non-cash compensation charge was ($3.9) million or ($0.10) per share, as compared to a net loss of ($2.9) million or ($0.09) per share for the fourth quarter of 1998 and ($0.80) million or ($0.03) per share in the prior quarter. The pro forma per share amounts assume the conversion of the preferred stock to common stock subsequent to the IPO, occurred on May 17, 1999.

Net revenues for fiscal 1999 were $33.3 million, nearly triple the net revenues of $12.0 for fiscal 1998. Pro forma net loss from operations for Fiscal Year 1999 excluding the non-cash compensation charge was ($6.5) million or ($0.20) per share compared to a net loss from operations of ($3.5) million or ($0.11) per share in fiscal 1998.

EBITDA before the non-cash compensation charges for the fourth quarter was ($2.7) million or ($0.07) per share as compared to EBITDA of ($2.6) million or ($0.08) per share for the same quarter year-ago, and ($0.4) million or ($0.01) per share in the third quarter of fiscal year 1999. EBITDA margins improved as a percentage of total revenues.

Gross margins for the quarter were 46.0% as compared to 19.6% in the same quarter year-ago and 49.9% in the prior quarter. Depreciation for the fourth quarter was $0.9 million as compared to $0.3 million in the same quarter year-ago, and $0.5 million for the prior quarter.

Gross margins for Fiscal Year 1999 were 46.4% up from 43.0% in Fiscal Year 1998. Depreciation for Fiscal Year 1999 was $2.1 million as compared to $0.7 million in the prior year.

Pro forma shares used to calculate earnings per share for the fourth quarter were 39.9 million, which assumes the conversion of the preferred to common on May 17, 1999.

"Fiscal Year 1999 was a landmark year for Net2Phone. Aside from going public and raising strategic equity from prestigious global corporations, we locked up strong distribution agreements with the top players in the Internet today," said Howie Balter, CEO of Net2Phone. "Our constant evaluation and upgrading of our product as well as the introduction of value-added services will help us dominate the market as well as increase revenues and customer base."

PUBLIC OFFERING

In August, Net2Phone completed an initial public offering of 6.2 million shares of Common Stock at a price of $15 per share, or $93 million in gross proceeds, through a syndicate of underwriters led by Hambrecht & Quist LLC, BT Alex. Brown, and Bear Stearns. IDT Corporation (NASDAQ: IDTC), Net2Phone's parent, owns 57% of the Company, with SOFTBANK Technology Ventures as the second largest stockholder with 9.6%. America Online and GE Capital (NYSE: GE) own 5.9% and 5.5% respectively. Following their earlier investments in the Company, AOL and GE/NBC invested an additional $12.5 million at the IPO.

MINUTES OF USE

Net2Phone minutes of use for Fiscal Year 1999 were 229 million, a 445% increase over 42 million minutes for Fiscal Year 1998. Total Net2Phone minutes of use grew to 77 million minutes for the quarter, a 20% increase over the prior quarter's 64 million minutes and a 250% increase over 22 million minutes for the same quarter year-ago. To date, over 300 million minutes of use have been routed using Net2Phone's Internet telephony services by more than one million customers in over 200 countries. International Data Corp. recently rated Net2Phone #1 in Internet telephony minutes with a 39.4% market share. As of July 31, 1999, Net2Phone had over 325,000 active customers who had used Net2Phone's services during the past three months, a 30% increase over the prior quarter.

DISTRIBUTION

PC-to-phone In addition to ongoing distribution with Yahoo!, Excite, and IBM, Net2Phone has also entered into a four-year contract with AOL's ICQ, the leading instant messaging company with over 40 million users, to market Net2Phone's PC-to-PC, PC-to-phone, phone-to-phone, and phone-to-PC services. Additionally, Net2Phone will be embedded exclusively on Netscape's new browser in a multi-year exclusive deal and throughout the Netcenter web portal. The ICQ and Netscape deals are scheduled to go live in the next two quarters. This past fiscal year, Net2Phone signed PC-to-phone distribution agreements with Compaq, Geocities, Commtouch, Creative Labs, and ZDNet.

Phone-to-phone

Net2Phone has also signed distribution agreements with Sprint to market Net2Phone's phone-to-phone services. Through other agreements, Net2Phone will begin offering phone-to-phone services from Brazil, Russia, Philippines, Spain, Italy, and Oman.

PRODUCT ENHANCEMENTS

This year, Net2Phone unveiled a redesigned version of its PC-to-phone software. The software downloads 30% faster than previous versions, installs considerably more quickly than its predecessors, and takes up less space in a computer. Software enhancements include a new compact graphical user interface, enhanced e-commerce functionality with the ability to push web pages from sales and customer service centers, and up to 100 programmable speed-dial numbers. Additionally, Net2Phone 9.0 enables improved speech quality and a streamlined user interface with a cell phone-like appearance.