IDT Corporation

Good day, and welcome to the IDT Corporation's second quarter fiscal year 2020 earnings call. In today's presentation, IDT's management will discuss IDT's financial and operational results for the three-month period ending January 31st of 2020. During prepared remarks by IDT's Chief Executive Officer, Shmuel Jonas, all participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. The prepared remarks, Marcello Fisher, IDT's Chief Financial Officer, will join Mr. Jonas for Q&A. Any forelooking statements made during the conference call, either in the prepared remarks or in the Q&A session, whether general or specific in nature, are subject to risk and uncertainties that may cause actual results to differ materially from those in which the company anticipates. These risks and uncertainties include, but not limited to, specific risks and uncertainties discussed in the reports that IDT files periodically with the SEC. IDT assumes no obligation either to update any forward-looking statements that they have made or may make, or to update the factors that may cause actual results to differ materially from those they forecast. In their presentation or in the Q&A session, IDT's management may make reference to non-GAAP measures, including adjusted EBITDA, non-GAAP net income, and non-GAAP EPS. A schedule provided in the IDT earnings release reconciles adjusted EBITDA, non-GAAP net income, and non-GAAP EPS to the nearest corresponding GAAP measure. Please know that IDT's earnings release is available on the investor relations page of the IDT Corporation website at www.idt.net. The earnings release has also been filed on Form 8K with the SEC. I will now turn the conference over to Mr. Jonas. Please go ahead, sir.

Thank you, Operator. Welcome to IDT's second quarter fiscal 2020 earnings call, covering results for the three months ended January 31, 2020. I am joined today on the call by Marcelo Fisher, IDT's Chief Financial Officer. For a more detailed report on our financial and operational results, please read our earnings release filed earlier today and our Form 10-Q, which we will file with the SEC next week. During the second quarter, we continue to invest in our higher growth and higher margin businesses, including net-to-phone, national retail solutions, and money transfer, while maximizing the cash generation of our core offerings. As in prior quarters, this investment was funded entirely from core cash generation. The second quarter's financial results reflect the growing margin impact of these new businesses and a stable contribution from our legacy core offerings, even as core revenues continue to decrease in line with expectations. In our NetPhone business, subscription revenue for our cloud-based unified communications offering grew by 42% year-over-year to $7.5 million. We added 11,000 NetSeats from organic growth this quarter, bringing our cumulative total seats served as of January 31st to 123,000 seats, exclusive of the impact of the RingSouth acquisition during the second quarter. RingSouth, a highly regarded Spanish UCAS provider, gives us a foothold to address the broad EU market with an initial focus on Spain. As I mentioned last quarter, we are also accelerating software development and deployment of new Netafone platform features to drive larger account wins. For instance, we recently released an integration solution with Microsoft Teams. Teams is Microsoft's collaboration platform that facilitates communications, sharing, and collaborative work within groups and organizations. With our integration, Teams users can now access NetPhone services, including unlimited international calling from inside the Teams environment. This integration, in combination with others we'll be releasing later this year, will enhance NetPhone's ability to address enterprise market customers. And we have already started to see the benefits this quarter with a 500-plus seat deal and multiple other large deals. In our NRS business, revenue in the second quarter was roughly in line with our expectations, increasing 35% year-over-year to $2.1 million, but decreasing from $2.4 million in Q1. One of the reasons for the lower revenue was that we incentivized new retailers to sign up for both NRS pay and our POS. In exchange, they received a discount of approximately 33% of their purchase. That's a great deal for them and for us. NRSP is our payment processing solution that enables retailers to accept all major forms of electronic payments, including credit card and debit cards, as well as electronic benefits transfer, or EBT, and soon WIC. Because of the service's compelling economics, new NRSP retailers quickly generate more than enough incremental margin to cover the discount on the terminal. Nevertheless, in the second quarter, revenue from the sale of new POS terminals was negatively impacted by this change. NRS continued to expand its retailer customer network in the quarter, deploying over 750 POS terminals. At January 31st, the NRS network comprised approximately 8,700 active terminals. In our Boston Revolution International money transfer service business, revenue increased 45% year-over-year to $7.7 million. Last quarter, I mentioned that we were working hard to grow retailer origination transaction volumes. That approach is working well with year-over-year transaction growth exceeding 60% for the quarter. In our core offerings, we have been contending with an industry-wide decline in the paid-minute telecommunications market for years. These headwinds drove a year-over-year decrease in core of approximately 9% of revenue, or $29.9 million to $301.2 million. However, the margin contribution percentage of our three largest core offerings, Boss Revolution Calling, carrier services, and mobile top-up all increased year over year, offsetting virtually all of the revenue impact on our bottom line. The stable contribution from the core businesses in combination with the expansion of our higher margin growth businesses resulted in an increase in consolidated revenue, less direct cost of revenue, to $61.2 million, the highest it has been in any quarter since fiscal 2016, exclusive of an outlier in Q4 2018. Income from operations was $1.3 million in the second quarter compared to a loss from operations of $457,000 in the year-ago quarter and a loss from operations of $1.4 million in the first quarter. Adjusted EBITDA was $7.4 million unchanged from the year-ago quarter and a slight increase from $7.3 million in the first quarter. Overall, this quarter's results were consistent with recent quarters, with growth from our new businesses and stable margin contribution from our core. and our growth accelerated into the quarter end. Now Marcel and I would be happy to take your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster. Again, if you have a question, please press star, then 1. As there are no more questions, this concludes our question and answer session and our conference call. You may now disconnect.