Description

I had previously posted an investment thesis on IDT in the comment thread of the prior writeup.  Although the share price has performed well over the past 3 months, I believe that it is still meaningfully undervalued.  IDT is conservatively worth $27 and thus should provide 50% upside with some nice near-term catalysts that should help close this gap between price and value.  The most recently reported quarter subsequent to that writeup, Q2, in particular saw very strong performance across the board.  The company has also since begun the process of spinning out their spectrum and patent assets, and further analysis there suggests even greater values than initial modelled.  I will re-post that write up from 3 months ago below, and then below that I will provide an update and additional details on the sum of the parts.

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IDT Corp is an entrepreneurial holding company run by its founder, Howard Jonas.  After selling Net2Phone to AT&T for $1.1 billion in 2000, Howard stepped down as CEO the following year, and IDT spent much of the last decade both entering dozens of disparate businesses and losing a lot of money in the process.  Howard reassumed the CEO position in 2009 and began a dramatic turnaround of the company.  Over the next 3-4 years IDT either exited or spun-off various unrelated businesses that ran the gamut from shale gas exploration to retail energy distribution to debt collection, and refocused the company on its telecommunications roots.  The share price rose from well under $1 per share to $11.30 per share in October 2011, adjusted for the final spin-off and just prior to the release of Q4 2011 results.

While the share price has fallen to around $10 over the past year and a half, the business has actually continued its transformation and grown in value significantly.  Fabrix, IDT’s video storage and streaming business, has seen its revenues more than double and go from losing money to 18% operating margins in the last quarter.  Zedge, an online community for mobile phones and tablets to share wallpapers, ringtones, and games, has grown revenues over 15% in each of the past five quarters, accelerating to 27% growth last quarter.  It has also generated around 20% margins in several quarters over this period.  IDT’s largest gains over the past 18 months, however, have occurred in its core telecommunications business.

First of all, the telecom business has increased its quarterly EBITDA from around $11 M to $12.5 M in the last quarter.  This figure on its own, however, understates the sizeable value creation that has occurred as growth in several new businesses has been masked by several other businesses that have been in steep terminal decline and are now increasingly inconsequential.  As a result of this ongoing transformation, telecom EBITDA growth has consistently accelerated over the past year, posting 40% growth in the most recent quarter:

Q1 2012     $8.9 M EBITDA     (27%)
Q2 2012     $9.3 M               (25%) 
Q3 2012     $10.9 M              +2%  
Q4 2012     $11.0 M              +29%  
Q1 2013     $12.5 M              +40%

The telecom business is currently growing its EBITDA around 25-30% organically and should see similar growth through the balance of the fiscal year, with my expectation of reaching $15 M in EBITDA by Q4.

With the stock price down from $11.30 in October 2011 to around $10 per share today, while the company has transformed itself and grown considerably over this one and a half year period, it’s not surprising that IDT trades for a very large discount to its intrinsic value, which I conservatively estimate at around $20 per share.  Importantly, I think that the overall business is now at an inflection point, as evidenced by the quarterly telecom EBITDA figures shown above, which will highlight to the market how much IDT’s business has improved from two years ago, and help to close the gap between price and value.

I will now walk through the sum of the parts and explain each of the businesses in more detail.
 

Cash and investments

Pro-forma for a special dividend paid at the end of the year, the company has around $160 M in cash, or $7 per share -- 70% of the company’s market cap.  Management has noted on past conference calls that they would like to maintain at least $50 M in cash to keep their partners and customers in the telecom business happy.  I think it’s debatable whether the company really needs to keep even $50 M in cash on the balance sheet considering the float business here is actually growing, not shrinking.  That said, I’ve used this figure from management and assumed $50 M just sits there idly and have only included the remaining $110 M in cash in my sum of the parts.
 

Real estate

The company has two real estate properties.  The first is their former headquarters, a now vacant 500k sqft office building at 550 Broad Street in downtown Newark, NJ.  They purchased this building in February 2008 for $50 M.  Based on my survey of office rents in this area, I believe they should be able to get $15 psf.  Assuming a 75% NOI margin and an 8% cap rate, the building is worth around $70 M.  There’s a $23 M mortgage here, so IDT has $47 M in equity here.

The 2nd property is a 65k sqft building at 225 Old New Brunswick in Piscataway, NJ.  According to listings that I’ve seen, they are presently trying to lease 28k sqft for $15 psf.  As recently as last year they were trying to lease out 43k sqft.  I don’t believe that IDT is using any of this building for their own purposes.  Assuming $13 psf in rent, a 75% NOI margin, and an 8% cap rate gets you $8 M in value.  Between the $6.8 M mortage here and the $0.6 M in current mortgage debt, there’s only really around another $1 M in equity from this building.  Combined with Broad Street, that gets you to $48 M in real estate equity.
 

IDT Telecom

Telecom is IDT’s core business, and is easily the most misunderstood part of the story here.  There are actually 6 different businesses within telecom:

• $335 M revenue virtual international calling service, growing over 75% year-over-year

• $280 M revenue traditional international calling card business

• $725 M revenue wholesale termination services business

• $175 M revenue international mobile top up (IMTU) business, growing 25% y-o-y

• $50 M revenue hosted platform solutions business, in terminal decline

• $15 M revenue CLEC, in terminal decline
   

Retail Communications

IDT’s legacy is in selling international calling cards to immigrants through a network of 100k+ corner stores and bodegas.  The international calling card market peaked in 2006 and has been gradually declining ever since.  It’s not a terribly exciting business, and when most people think about IDT this is the business they think of. 

Several years ago, however, IDT developed and rolled out a new product called Boss Revolution which has completely changed the makeup of IDT’s retail business.  Boss Revolution is essentially an international calling service intended to replace traditional calling cards.  There’s no more card (it’s virtual, you create an account on the website), there’s no PIN to remember or carry around (you register up to 10 phone numbers online so that you only have to dial a 4 digit access code when making calls), and it is reloadable.   It is a clearly superior alternative to traditional calling cards and as a result has been growing extremely quickly for the past several years.

It was at that point around 18 months ago that I mentioned above when the company hit an inflection point and growth in Boss Revolution started to overwhelm the gradual declines in traditional calling cards.  Retail communications revenues had been declining 4-5% year-over-year up to this point, and then started posting the following growth:

Q4 2011     +6% revenue growth
Q1 2012     +12%
Q2 2012     +13%
Q3 2012     +18%
Q4 2012     +15%
Q1 2013     +16% 

As you can see, this is not exactly a boring calling card business in decline.  

Importantly, this growth profile does not appear to be changing anytime soon; I am expecting 16-17% revenue growth through the last 3 quarters of this fiscal year.  They do not break out Boss Revolution explicitly in their filings, but based on various disclosure that management has made over the past few years I’ve figured out that it’s around a $335 M revenue business vs. traditional calling cards which are now down to only $280 M.  And that $335 M business is growing very quickly, posting around 75% year over year revenue growth last quarter and up to this point is almost entirely domestic.  

International should be a significant growth driver for Boss Revolution going forward.  IDT just launched it in the UK (where they have a particularly large calling card business) and Spain in Q4, in Germany in Q1, and in Hong Kong and Australia this past quarter.  Because it takes a bit of time for the business to ramp up and the fact that they promote it heavily when first entering a market, I don’t believe that international has contributed anything to EBITDA at this point (and has probably been losing a bit of money due to startup costs).  I think the probability of success with international expansion is very high when you consider that they are able to piggyback on their traditional calling card distribution network, and this should fuel continued growth over the next few years as it is built out.

Furthermore, it appears that over the past 3 quarters the declines in traditional calling cards have actually slowed.  Over this period they have had only around $2-3 M sequential declines in revenues each quarter, whereas in the past the declines were often much larger.  Any stabilization or moderation in the rate of decline in this business should serve to further enhance the overall growth profile in retail communications, although traditional cards become increasingly less important with each passing quarter of huge Boss Revolution growth.

In addition to international expansion, I think that Boss Revolution (and to some extent, their traditional calling cards) still have a lot of growth left in the US.  The business has not really shown any signs of slowdown yet at all, with around 15% sequential quarterly growth in recent quarters.  Furthermore, I believe that the company is starting to expand their distribution in the US to take advantage of wounded competitors.  

There are two large calling card businesses, IDT and STi/Vivaro.  It’s tough to find much data on a small market like this, but a few years ago I believe that IDT had around 30% share and STi/Vivaro had around 40% of the market.  STi was owned by Leucadia but it didn’t make any money, so they finally sold it in October 2010 to Grupo Marcatel for $20 M.  Grupo Marcatel’s business plan was basically to put together two calling card businesses that were both losing money with $100 M in operating costs, take out $40 M in costs and make the combined entity profitable.  Well that plan didn’t exactly work because the combined company, Vivaro, saw its revenues decline by 40% over the next two years and it filed for Chapter 11 in September 2012.  It is interesting to contrast this dramatic revenue decline against the significant growth that IDT has seen over the same period.

Even more interesting is that all of a sudden IDT has been talking about domestic expansion and increasing their retail distribution on the west coast.  Well, Vivaro’s business is heavily focused on hispanic consumers, to the point that their distribution arm, Kare Distribution, is really just a DSD network for hispanic independent stores.  I don’t think it’s a coincidence that IDT’s mature calling card business is all of a sudden expanding distribution to increase penetration in California.  They are clearly looking to take advantage of Vivaro’s weakness and you have to think that the $225 M revenue business that Vivaro still has is vulnerable to being poached by IDT.

Wholesale Termination Services

IDT terminates international calls for other carriers using their own network.  It’s a large revenue revenue business at $725 M, although the margins are somewhat lower so it’s not as important as the revenue figure alone would suggest.  They grew revenues 33% in FY 2011, 12% in FY 2012, and I expect low single digit revenue growth in the current fiscal year.
 

Payment Services

International mobile top-up (IMTU) is their other growth business, which they built from scratch starting in FY 2008 to around $175 M today.  This product allows someone to purchase minutes for a mobile phone in another country, so for example an immigrant might use it to top up the minutes for their mother’s phone.  IDT purchases minutes from international carriers, tacks on a small margin, and resells it through their distribution network.  Because the core customer is the same as in the calling card business, it has ramped up quickly.  This is mainly sold using traditional cards, although a small piece of it is on the Boss Revolution platform (which I excluded from the retail communications numbers).
 

Consumer (CLEC) and Hosted Platform Solutions 

These two businesses have been in steep decline, but they now comprise only 4% of telecom revenues.  

The CLEC is particularly small and has been declining at a 25-30% year-over-year rate, but it’s erosion was able to partly mask the growth in other areas of telecom due to how high margin it’s revenues were.  A few years ago this business had 25% operating margins on revenues that were 60% higher whereas overall telecom margins are only around 3%.  Today the business is less than 1% of revenues and operating margins are down to 15% so its continued declines no longer have much effect on telecom profitability.

Hosted Platform Solutions is a cable telephony business that is declining at a 15% year-over-year rate and is specifically identified as being in “harvest mode.”  This business had been declining at a 25-30% rate as well, so it used to be larger and had a bigger impact on profitability, but now at 3% of revenues it too no longer has much of an effect on telecom profitability.  They had lost their largest customer when they were acquired by Cablevision, but have now lapped this customer loss and so the rate of decline has moderated.
 

Overall Telecom Valuation

In terms of valuation, I am expecting $55 M in EBITDA from telecom this fiscal year, which we are halfway through.  There is also around $11 M in corporate costs which I have deducted from this, leaving $44 M in EBITDA.  The company anticipates $12 M in capex over the next 12 months, and this is a reasonable run-rate.  They also have $180 M in NOLs, have not been paying meaningful cash taxes, and do not anticipate paying cash taxes for the foreseeable future.  As a result, telecom net of corporate costs should generate around $32 M in FCF this year.

I have valued the telecom business at $215 M, which is 6.7x FCF and 4.9x EBITDA.  Of course, as I mentioned above, I have assumed that management maintains $50 M in cash in this business and have thus excluded it from the valuation; if they ever sold IDT Telecom this cash would be be freed up again for other purposes.  So in a sense, at $215 M the valuation is more like 5.2x FCF and 3.8x EBITDA.

As I wrote earlier, telecom is the most misunderstood part of IDT as the market views the company as a declining voice business deserving of a low multiple, when in fact they have been actually been a very innovative and entrepreneurial company that has built several large, growing businesses in the past few years and continue to work at developing new ones.

I think my valuation multiples here are very conservative when you consider that the telecom business is growing at a 25-30% rate and should see strong growth over the next few years.  If you’re wondering how EBITDA is and will continue growing at a 25-30% rate with only around 10% revenue growth, it is largely due to the mix shift away from wholesale to retail, the culling of the lowest margin wholesale routes, and improvements in Boss Revolution margins as the business matures.  Also, overall company EBITDA should grow even faster than this as they leverage corporate costs which will be relatively flat and are meaningful at 20% of telecom EBITDA.

I think it’s also interesting that management has even higher revenue expectations than I do built into their compensation agreement.  Revenues grew 6% in Q1 and in the proxy it was disclosed that the compensation committee set a 10% revenue growth goal for this year.  This means that they have to grow revenues around 12% over the next 3 quarters vs. the 10% I have assumed in my numbers.  And while several of the goals were simply reiterations or updates on prior goals, the revenue target was a brand new goal for 2013, so it’s probably safe to say that the 10% threshold was not picked arbitrarily.

As the market recognizes that the sizeable EBITDA growth here is sustainable, I think the business will eventually be awarded with a valuation much higher than the less than 7x FCF I have modelled here.
 

Fabrix

Fabrix develops software for video storage and streaming, with applications for video-on-demand, time-place shifting, and remote DVR.  Their most notable business win to date has been providing some of the technology behind Cablevision’s cloud-based DVR.  They’ve won business for other applications like video storage and in other geographies like Europe.  

This is a hot area, cloud/remote DVR in particular, and the business is clearly gaining momentum.  Revenues grew 40-50% in every quarter of last year, and growth stepped up again in Q1 with revenues increasing four-fold to $2.4 M as a significant amount of new business shipped in the quarter.  That $12.8 M booking in Q1 will be amortized over 3 years and thus should drive continued strong revenue growth through the balance of the year.  They were up to 18% operating margins last quarter, and with around 90% gross margins the business should see meaningful operating leverage as they grow revenues.

There is definitely significant interest on the part of other cable operators around the world to offer remote DVR service.  Cisco just unveiled a product to address these needs a few months ago in January.  According to job postings I saw, Comcast is also working on rolling out a remote DVR service.  A simple web search will no doubt turn up many other stories that validate this high level of interest.  The Cablevision case study positions Fabrix well to gain their fair share of business in this emerging market.

Valuing a nascent business with explosive growth like this is more art than science.  There were rumors two years ago that both IBM and Dell had an interest in either investing in or acquiring Fabrix, and in the case of IBM it was rumored to be at around a $100 M valuation.  Bear in mind this is when the company had de minimis revenues.  Given where margins are already and the current growth trajectory I have valued Fabrix at $70 M.  That works out to 7x last quarter’s revenue run-rate, and if the company is able to continue growing as it has been, that multiple will drop very quickly.  IDT owns around 70% of Fabrix, so I have valued their stake in the company at $49 M.
 

Zedge

Zedge is an online community for mobile phones and tablets to share wallpapers, ringtones, and most recently, games.  The business generates its revenues from advertising.  It has posted consistent sequential revenue increases, with at least 15% year over year revenue growth in each of the last 5 quarters, accelerating to 27% growth in Q1.  With the exception of one quarter, it’s operating margin has been at least 9-10% in every quarter of the past nine.  Operating margins have actually been 19% twice during this period but the company continually increases its spending to drive more revenue growth, a strategy which appears to be working.

Three years ago an investor bought 1% of the company at a $30 M valuation.  I don’t have financials from this far back, but it looks like revenues have at least doubled since then.  I have valued the business at 4x last quarter’s revenue run rate of $4.4 M, which $18 M.  Given where operating margins are likely to end up and the business’ strong growth prospects, this seems reasonable, although it’s obviously at a very sharp discount to that prior investment made by Shaman II LP.  IDT owns 81% of Zedge, and so I have valued their stake in the company at $14 M.
 

Innovative Communications Technologies (ICTI)

As I mentioned in the introduction, IDT’s biggest score was selling Net2Phone to AT&T in 2000 for $1.1 billion.  What I didn’t mention was that they bought the company back six years later for only $28 M.  All that seems to be left at this point are 44 US VoIP patents (and some foreign ones) which IDT believes are valuable.  They transferred 11 of the patents into ICTI and filed complaints in a Virginia court alleging infringement by three companies around a year ago. A markman hearing was held in October and the judge issued an opinion that was favorable to them.  All 3 companies subsequently settled in October and November.  It seems that the markman hearing was very successful, which I think clears the way for IDT to start going after some bigger companies.  They have hired a law firm to work for them entirely on a contingency basis, which in and of itself speaks to the value here.

Last quarter IDT granted Howard Jonas 10% of the equity in ICTI, and in this transaction they valued ICTI at $12 M.  IDT owns around 85% of ICTI, and so I have valued their stake in the patent portfolio at $10 M.  I would note, however, that I suspect ICTI will turn out to be a lot more valuable than this.  Management has stated that they intend to spinoff ICTI and I don’t think they would bother if they thought the business was only worth $12 M.  After a successful “trial run” last year with these patents, I think they are now confident that there’s enough value there to make a small public company out of it.
 

IDT Spectrum

IDT still owns a lot of spectrum that they obtained when they purchased Winstar Communications out of bankruptcy in 2001.  They specifically own 633 38-GHz licenses and 16 28-GHz LMDS licenses.  What’s special about the 38-GHz licenses is that they provide nearly full coverage of the US (~285 M people).  As for the 16 LMDS licenses, those are all in key high demand areas like New York.  Last year they sold 8 of their licenses for $6.8 M.  It’s tough to say what this portfolio might be worth, but I don’t think they’ll have much trouble getting another $10 M out of it, which is where I have valued it.

New Business Opportunities

IDT has always been a very entrepreneurial company, and the past few years are obviously no exception as I have already detailed.  They have built new businesses like Boss Revolution and IMTU to compensate for declines in other areas.  They continue to invest in developing other new products and services like gift cards and mobile money remittance.   

Considering the size of Western Union’s business, the money remittance opportunity is obviously very large.  I have no idea how successful they will be here, but they definitely have some assets that will help like their 100k+ point distribution network to the same customer base and now the Boss Revolution platform.  I have not placed any value on these new business opportunities, but I suspect they’ll have their fair share of successes over the next few years given their track record.

Legal Judgments and Tax Audits

IDT has a number of legal judgments that they have accrued for, a surety bond for one of the judgments, some tax audits, and a tax refund.  I will spare you the math, but when you add everything up, it’s basically a wash.  Assuming there are no positive or negative turn of events in these cases, there’s $1 M in value here.

To summarize the sum-of-the-parts, it is as follows:

• Excess cash     $110 M

• Real estate      $48 M

• IDT Telecom    $215 M

• Fabrix             $49 M

• Zedge            $14 M

• ICTI               $10 M

• IDT Spectrum  $10 M

• Other             $1 M

• Total value     $457 M     $20.00 per share

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UPDATE:
 

IDT Telecom

After growing between a 12% and 18% rate in the prior 5 quarters, retail communications actually accelerated to 21% growth in Q2.  It appears that Boss Revolution is sustaining its very high rates of growth, and I believe that revenues grew around 70% year over year in the past quarter and this is now roughly 60% of retail communications.  It's important to remember that international is still a small part of Boss Revolution, and so they should be able to maintain fairly strong growth here for a while as they increase their market penetration outside of the US.  

Almost as important, it looks like the traditional calling card business is starting to see a moderation in its rate of decline.  A year ago I believe that it was posting year over year declines around 25% and this has steadily improved each quarter and now sits at a 10-15% decline rate.  At this point, arguably all of the decline is simply due to IDT cannibalizing itself with Boss Revolution.

With the combined retail communications business showing very strong trends (minimal deceleration in Boss Rev, moderating declines in traditional), I'm even more bullish on the core business than I was before.  Retail communications should grow revenues around 19% in the back half of the year, and that assumes weaker sequential revenue improvements than they managed to achieve last quarter.

In terms of valuation, the telecom business was already at a $55 M EBITDA run-rate last quarter.  Over the next 12 months they should do around $59 M in EBITDA, and based on that current run-rate it clearly won't take much growth to hit.  After subtracting around $11 M in corporate costs and $12 M in capex, that leaves $36 M in FCF.  This figure also bakes in $5-6 M in stock compensation, so technically FCF is higher by this amount.  I've now valued the telecom business at 8.0x this $36 M in FCF, or $288 M.

Fabrix

Fabrix revenues can be lumpy, so after posting $700k in revenues in Q4 and then $2.4 M in revenues in Q1, I figured that this business might see a bit of a sequential decline for at least one quarter.  Q2, however, saw revenues grow to $2.8 M.  The momentum within Fabrix seems to be even greater than I initially thought.  Apparently 8 of the top 10 cable companies in the US are testing Fabrix in their labs, and management has said that all of their clients have been repeat customers.  I've valued this business at 7x run-rate revenues again, which gets us to $54 M for IDT's stake.

Zedge

Zedge had been growing its revenues around 20% for the past year, and then in Q4 this picked up to 27%.  They've been doing a number of things here -- adding an iPhone app, rolling out game downloads -- and it's tough to know what exactly is having such a profound impact, but that growth spiked up to 63% year over year in the last quarter.  Zedge is probably running around $6.5 M in revenues now.

There is definitely the potential to drive significantly greater revenues out of Zedge.  They have 50 million active users -- in a lot of ways this is a latent asset -- but it predominantly has just provided them with wallpapers and ringtones.  I think the long-term vision here is probably to turn this into some sort of a mobile game/app recommendation portal.  The Android and Apple app stores don't do a particularly good job with recommendations, so there's an opportunity here to do something useful.  Ads placed to drive game/app downloads in a portal like this should presumably have conversion rates that are an order of magnitude greater than their existing ads.  There is clearly a far greater willingness on the part of consumers to pay for apps than to pay for wallpapers and ringtones. It's not hard to see that if they are successful with this strategy they should achieve a significantly higher monetization of the user base; $30 M in revenues from the current base of users seems like a realistic possibility to me.  $0.60 per year in ad revenues is not much when you consider how much game/app commerce a recommendation engine like this would be able to potentially drive directly.

Furthermore, I think what is particularly intriguing about Zedge is how scalable the business should be.  Other than marketing costs to drive app downloads and maintain a base of active users, revenue growth should fall to the bottom line at very high incremental margins.  We got a glimpse of that last quarter where operating margins which had previously peaked at 19% increased to 26%.  If this business can keep growing, I think there's no reason not to expect EBITDA margins to exceed 50% in a few years.  

I have now valued Zedge at $60 M, making IDT's stake worth $49 M.  This is around 9x that $6.5 M in revenues.  A very small recent financing pegged Zedge's valuation somewhere between $70 and $215 M, so clearly the internal view is that Zedge is even more valuable than this.
 

Innovative Communications Technologies (ICTI)

The more that I've read about the patents here, the more likely I think it is that they announce a very sizeable infringement lawsuit against Cisco and/or Avaya.  In the IP communications market, it seems like fairly foundational IP.  It is also encouraging to see how extensively the key patents are referenced by companies like IBM, Nortel, Intel, HP, and EMC.  There is a 6 year lookback on damages, and while I don't know exactly how many VOIP systems have been sold by these companies over that time frame, it is surely in the billions.    It's also possible that they lodge an infringement lawsuit against Apple for FaceTime.  VirnetX was already awarded $370 M in damages for different technology that FaceTime infringes on, so clearly the potential there is significant as well.

With an office established in Richmond, they will have no problem having the case tried in the eastern district of Virginia, which is probably the most famous "rocket docket" in the US.  I have valued the patents at only $20 M, but I expect the market to get a lot more excited by the potential here once a significant lawsuit is finally announced.

IDT Spectrum

IDT holds the largest 38 GHz footprint in the US, and this spectrum is considered ideal for small cell wireless backhaul.  It is licensed (so it's guaranteed to be interference free) and there are relatively few holders (so it's not crowded).  It is relatively cheap while providing nearly equivalent service as fiber.  AT&T in particular has apparently talked about rolling out 40k small cells by 2015.  

IDT is certainly not the only company that thinks the emerging small cell opportunity should be a boon for 38 GHz spectrum.  The other substantial holder of this spectrum in the US was First Avenue Networks.  First Avenue merged with Fibertower and then filed for Chapter 11 in July 2012.  Fibertower has also been talking up the small cell opportunity for a while, and if you search around you can find a lot of material on it.  For example, here's a presentation they gave:

http://www.nsma.org/conf2012/Sandri%20NSMA%202012.pdf

An interesting twist to this story is that Fibertower failed to show "substantial service" in the required time frame, so the FCC basically terminated their licenses (IDT's substantial service requirement on the other hand has been met through 2020).  Fibertower not surprisingly is trying to stay the termination pending their restructuring and this is currently being argued in an adversary case to the Chapter 11 proceedings.  While the government will no doubt look to re-auction the spectrum eventually, I think the termination arguably makes IDT's holdings here even more valuable.

One of my biggest reservations with the spectrum before was that unless they could find a buyer for it, it didn't have much value because they didn't seem to be actively leasing it either.  And so even though the spectrum might have great value, they depended on a buyer with a plan for the spectrum in order to realize that value.  It sounds like they are now taking matters into their own hands, however, which makes me a lot more bullish on realizing value from this asset.  They have said that they are now doing a small cell deployment with an integrator this summer.  It looks like they intend on building out a wireless backhaul business themselves, and I have a lot more confidence in this approach than just waiting for a buyer for the spectrum to approach them.

The spectrum which they acquired from Winstar out of bankruptcy was originally purchased at auction for $220 M.  Even after writedowns in 2007, Fibertower's fairly comparable portfolio was being carried at around $100 M.  And this was really before the small cell opportunity came into being.  IDT has already rejected a $30 M offer for the spectrum.  I've now valued the spectrum at $40 M and I think there is definitely the possibility of building a wireless backhaul business that is worth far more than this.
 

Other

The only change to the other category is that one of the judgments lodged against them was partially overturned, so I've assumed around another $4 M in value from this.
 

To summarize the sum-of-the-parts, it is now as follows:

• Excess cash     $109 M

• Real estate        $49 M

• IDT Telecom     $288 M

• Fabrix               $54 M

• Zedge              $49 M

• ICTI                 $20 M

• IDT Spectrum    $40 M

• Other                $5 M

• Total value      $614 M        $27 per share

Catalyst