IDT Debt Buying Operation Struggles in Latest Quarter

Debt buyer and collector IDT Carmel reported last week a loss from operations of more than $25 million in its fiscal year 2008 on a spike in bad debt expense for the year.

IDT Carmel, a unit of telecom company IDT Corporation (NYSE: IDT), said that it lost $25.3 million in the year ended July 31, 2008, down from a loss of $10.7 million in fiscal 2007. Losses in the fourth quarter drove the total, as the company lost $16.9 million in Q4 compared to net income of $1.9 million in the third quarter.

IDT Carmel blamed bad debt expense of $31.7 million for the results. The losses were recorded in Q2 and Q4 2008, due to actual cash collections that were below expectations and decreases in estimates of future cash collections. The company said that a “particularly challenging collection environment” in the U.S. drove bad debt expense.

The accounts receivable management firm also reported a change in accounting method that drove revenues higher for the year. IDT Carmel switched from the Cost Recovery to Effective Yield method of accounting in its first quarter of 2008. Revenues for all of 2008 were $45.6 million compared to $5.5 million in 2007.

The company said that it spent a total of $67 million on portfolio purchases in the year, down from the $79 million it spent in 2007. But IDT Carmel also noted that it did not spend any money on debt portfolio purchases in the third or fourth quarters of 2008.

IDT Carmel outlined steps it is taking to increase cash flow in the current year, including:

• recruiting an extremely experienced management team, headed by President and COO Mark Meisenbacher, announced on September 4th,
• the consolidation of all collection activities to two centers based in Minnesota, 
• technology implementations, including a dialer, to improve the effectiveness of in-house collectors, 
• sales of underperforming portfolios which are being investigated, and 
• implementation of advanced skip tracing and location services to increase collections which are in process.