IDT Corporation

Good evening and welcome to the IDT Corporation's second quarter fiscal year 2022 earnings call. In today's presentation, IDT's management will discuss IDT's financial and operational results for the three-month period ended January 31st, 2022. 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. After Mr. Jonas' remarks, Marcello Fisher, IDT's Chief Financial Officer, and Jonah Fink, Chief Executive Officer of IDT's Net2 Phone business, will join Mr. Jonas for Q&A. Any forward-looking statements made during this 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 which the company anticipates. These risks and uncertainties include, but are 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 that they forecast. In their presentation or in the Q&A session, IDT's management may make reference to the non-GAAP measures including adjusted EBITDA, non-GAAP net income, and non-GAAP earnings or loss per share. Schedule provided in the IDT earnings release reconciles adjusted EBITDA, non-GAAP net income, and non-GAAP earnings or loss per share to the nearest corresponding GAAP measures. Please note that the IDT earnings release is available on the investor relations page of the IDT Corporation website. The earnings release has also been filed on a form 8K with the SEC. I will now turn the conference over to Mr. Jonas.

Thank you, operator. Welcome to IDT's earnings conference call. I'm joined on the call by Marcelo Fisher, IDT's chief financial officer, and Jonah Fink, CEO of Netophone, who is preparing to do these calls on his own. The three of us will be available to answer questions after my remarks. My discussions today will focus on the second quarter of our fiscal year 2022. The three months ended January 31st, 2022. For a more detailed report and discussion on our financial and operational results, please read our earnings release filed earlier today and our Form 10-Q that we expect to file with the Securities and Exchange Commission on Monday, March 14th. Our second quarter financial results were highlighted by year-over-year improvements in gross profit, income from operations, and adjusted EBITDA, driven by the continued expansion of our growth businesses. In our FinTech segment, NRS accelerated the growth of its customer base, activating nearly 1,400 new POS units and 1,200 NRS pay accounts during the quarter. As of January 31, NRS served 16,500 active POS terminals and 8,000 NRS pay accounts. NRS's recurring revenue increased 118% from the year-ago quarter to $9 million, led by triple-digit gains from advertising and merchant services revenue. For purposes of sequential comparison, keep in mind that our second fiscal quarter includes January, which is invariably the slowest month of the year by far for advertising revenue. are still in the early stages of nrs development in terms of our addressable markets new service offerings and monetization of our current offerings at net phone subscription revenue increased 32 year-over-year to 12 and a half million dollars in the second quarter of 2022. growth is strong in our latin american markets particularly in mexico where we continue to find success with larger customers net phones reach into the mid-enterprise market will expand significantly in the coming quarters as we leverage the Integra acquisition that closed just last week. Integra is a fast-growing CCAS provider with an entrepreneurial team. We are delighted to welcome them to the IDT family. We will incorporate Integra's CCAS service with Netaphone's UCAS solutions to create a higher value, integrated offering that we expect will drive growth and significantly enhance Netaphone's unit economics as we become more competitive of market. We expect to pay a total of approximately $15 million in cash and stock for Integra, inclusive of an earn-out of approximately $3.5 million if the business grows as we expect it will in the next few years. In calendar 2021, Integra generated a little over $3 million in revenue and $1.2 million in EBITDA. Integra's CCAS ARPU is approximately twice that of NetFilm's UCAS offerings. Our goal is to complete the spin-off by the end of the current fiscal year on July 31st, should our Board authorize it. Also within our FinTech segment, Boss Revolution money transfer transactions increased 21% year over year, while revenue decreased 6% to $12.5 million. On an apples-to-apples basis, adjusting for the impact of transitory foreign exchange that improves second quarter fiscal 2021 results, transactions in the second quarter of fiscal 2022 would have increased 36% and revenue would have increased by 48% from the year-ago quarter. We continue to invest in the long-term growth of our payments business with the acquisition of Leaf Global Fintech, a startup with an innovative mobile wallet platform operating in Rwanda, Uganda, and Kenya. Leaf was designed to help traders, refugees, and other vulnerable populations store value and conduct financial transactions safely and securely by leveraging the stellar blockchain network to track balances and activity. Leaf also uses USSD communications protocol. It's also a viable option for 2.4 billion people worldwide who use feature phones rather than smartphones. We are excited to work with Leaf and hope that their team adds lots of stuff to IDT over the coming years. Finally, in our traditional communications segment, revenue decreased 3.2% year-over-year to $300.4 million. However, revenue less direct cost of revenue for the segment increased 6%, led by the expansion of our mobile top-up business. While still growing 20% year over year, mobile top-up revenue has declined over the past three quarters. The decline was predominantly in our lower margin wholesale B2B channel, where we capitalized on a large opportunity during the third quarter of fiscal 2021 that significantly boosted mobile top-up revenue, but which since has narrowed considerably. We continue to believe that there is large opportunity in mobile top-up, and we expect to return that channel to growth mode soon. Also within our traditional communications, segment, both Boss Calling and IDT Global, which is our wholesale carrier services business, experienced an acceleration in the rate of revenue decline, reverting back to the levels we were experiencing before the COVID pandemic. To wrap up, we continue to allocate capital to accelerate the development of our growth businesses, but through R&D and acquisitions, concurrently, our traditional communications segment continues to generate increasing margins and robust cash flow. Across all our businesses, we remain focused on creating value for our stockholders and expect that the spin-off of NetPhone will be exceptional in that regard. Now, Marcelo, Joan, and I will be happy to take your questions.

We will now begin the Q&A session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Brian Warner, private investor. Your line is live. Hi.