IDT Corporation

Good evening and welcome to IDT Corporation's fourth quarter and full fiscal year 2022 earnings call. In today's presentation, IDT's management will discuss IDT's financial and operational results for the three and 12-month periods ended July 31st, 2022. During remarks by IDT's Chief Executive Officer, Shmuel Jonas, all participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After Mr. Jonas' remarks, Marcelo Fisher, IDT's Chief Financial Officer, 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 non-GAAP measures, including adjusted EBITDA, non-GAAP net income, and non-GAAP earnings or loss per share. A 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 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. After my remarks, Marcella Fisher, IDT's Chief Financial Officer, will join me and will be available to answer questions. My discussion today focuses on the fourth quarter of our fiscal year 2022. The three months ended July 31st. For a more detailed discussion on our financial and operational results, including our full fiscal year 2022 results, please read our earnings release filed earlier today and our Form 10-K that we expect to file with the Securities and Exchange Commission by Friday, October 14th. In the fourth quarter and for the full 2022 fiscal year, our high margin, rapidly growing fintech and cloud communications businesses delivered impressive gains. For several years, we have invested in these businesses to develop the next generation of IDTs value creation. This dynamic and ongoing transformation helped drive IDTs consolidated quarterly and annual adjusted EBITDA to their highest levels in our history. Within our FinTech segment, NRS had another outstanding quarter, increasing recurring revenue by 157% year-over-year to $17.7 million. Monthly average recurring revenue per terminal, which excludes POS terminal hardware sales, nearly doubled to $316. Each of NRS's key offerings contribute to the quarter's growth. Looking ahead, we are entering what is typically a seasonally strong period for advertising generally. However, macroeconomic-driven headwinds are buffeting the advertising market. As a result, we will likely encounter some volatility from quarter to quarter, even as we expect to continue to generate strong year-over-year revenue increases. NRS Merchant Services and SASP revenue also grew nicely. We are continuing to convert our existing POS customers, and we are signing up new POS customers to NRS Pay at a very good clip. On the SaaS side, we are upselling store owners to premium features and bundles, and we have many exciting features coming soon. NRS also again achieved strong growth in its POS terminal network footprint, adding over 1,400 net new terminals in the fourth quarter. All in all, we are more excited than ever by the potential of this business. Also in our FinTech segment, BOSS money performed exceptionally well. Revenue increased 56% to $17 million. Transaction volumes grew by 31% year-over-year, and revenue per transaction increased 19%. We continue to attract new customers, grow revenue, and improve margins by focusing on several strategic priorities. Cross-selling within the larger BOSS revolution ecosystem expanding our payout networks and enhancing our retailer and digital transaction platforms to improve the user experience and enable more sophisticated pricing strategy tools. During fiscal 2023, we are planning on taking the first step to expand our origination service internationally, introducing our BOSS money remittance service in Canada and then expanding from there. Overall, our FinTech segment generated income from operations of $5.4 million in the fourth quarter, compared to a loss from operations of $2.9 million in the year-ago quarter. NRS is now contributing meaningfully to our bottom line profitability and BOSS money delivered impressive growth while moving significantly closer to profitability. Net to phone likewise delivered another very good quarter. Fourth quarter subscription revenue increased 37% year over year to $15.1 million, expanding at a faster clip than many industry players. We added approximately 12,000 net seats and boosted revenue per seat for the third consecutive quarter. Following the acquisition of Integra this spring, we brought its contact center as-a-service offerings to market under the Netto Phone umbrella in the fourth quarter. We expect that CCAST will drive additional increases in per-seat revenue. As I noted last quarter, we are laser-focused on accelerating Netto Phone's path to profitability by streamlining operations and optimizing our investment and growth capital. We are making very good progress. Netophone's loss from operations decreased to $1.8 million in the fourth quarter, half the level of a year-ago quarter. And we expect that Netophone's segment will achieve EBITDA profitability by the fourth quarter of fiscal 2023, while continuing to grow robustly. Turning now to our traditional communications segment, Fourth quarter revenue decreased 23% to $276 million. Boss revolution calling decreased by $22 million, or 20%, while IDT Global's wholesale carry revenue declined by $34 million, or 35%. We have long compared the paid minute international voice communications market, which is the basis for both our boss revolution calling and IDT global carrier businesses to a slowly melting ice cube. The fourth quarter results reflect the acceleration of the melt rate as a result of fading COVID boosted demand and by weaker consumer purchasing in this economy. Also within the traditional communication segment, our mobile top of business was again impacted by the deterioration of foreign exchange conditions in our largest revenue corridor. Total mobile top-up sales decreased $24 million, or 18%, from the year-ago quarter to $113 million. However, thinking about the future of mobile top-up, which is now the largest revenue generator within the traditional communications segment, it's instructive to look at our fourth quarter results exclusive of that volatile corridor. Mobile top-up revenue would have increased if not for that. We continue to be bullish about the long run growth prospects for mobile top-up. We have now substantially worked through the quarter's year-over-year comparative negative foreign exchange impacts. Global demand for broadband bundles continues to increase, and we are making progress developing new digital offerings. Traditional communications fourth quarter income from operations decreased by $8 million, or 33%, to $17 million. We have been very successful in recent years minimizing the bottom line impact of the volume declines from boss calling and IDT Global by optimizing our pricing strategies and distribution channels, as well as by right-sizing operating expenses. We will remain sharply focused on streamlining these businesses going forward so as to maintain as much cash flow as possible. Nevertheless, we do believe that our payment of business will continue to be pressured, and as a result, both segment revenue and EBITDA will continue to decline in fiscal 2023, though moderated by a return to stability in our mobile top-up businesses. For IDT as a whole, the outlook remains very positive. We anticipate that the continued growth of high-margin fintech and cloud communications businesses and our mobile top offerings will further significantly improve IDT's consolidated adjusted EBITDA, more than offsetting the decreasing contributions that we expect from our bus revolution calling and IDT global businesses within the lower-margin traditional communications segment. Reflecting on our progress this quarter and positive outlook, IDT repurchased over 554,000 shares of its Class B common stock in the open market for approximately $13.4 million during the fourth quarter. In fiscal 2023, as always, we will continue to look for opportunities to return value to our stockholders. The quarter and the fiscal year's strong results would not have been possible without the hard work of IDT's employees worldwide, who continue to rise to the challenges and beat expectations. I want to wrap up by acknowledging their success and thanking them. Now Marcel and I will be happy to take your questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two at this time.

We will pause momentarily to assemble our roster.

The first question comes from Connor Haley with AltaFox Capital. Your line is live.

Hi, guys. First, congratulations to the entire team. I mean, really incredibly impressive quarter to see NRS growth accelerating to 134% this quarter. I mean, the non-hardware piece up 157 year-on-year. Really excited to see the progress. The buyback as well, we agree shares are a great opportunity. I guess maybe just to start on NRS, am I thinking about this right? I mean, growth was 134% year-on-year, two-year stack, an absurd 290%. If we just roll this forward for the next three quarters, you know, NRS will be doing $80 million plus in annual revenue. It's already significantly profitable. I mean, am I thinking about this right in terms of rolling it forward and sort of that $80 million-ish number over the next, you know, three quarters?

I mean, I think that we could possibly do better, but yeah, I think you are thinking about it correctly.

That's incredible. And then I guess if I look at the EBITDA contribution from the FinTech segment, which obviously includes both NRS and Boss Money Transfer, the segment did $6.2 million in EBITDA this quarter alone. You mentioned in your prepared comments, Shmuel, that Boss Money Transfer is close to breakeven. So I can assume all of the $6.2 million EBITDAs from NRS which would imply it's already doing over 32% EBITDA margins in this latest quarter. I just want to make sure my logic on that is correct.

Yeah, I mean, I think your logic is correct. I mean, it's doing more than that. I mean, it is subsidizing some of, we'll call it, boss monies, you know, small losses. And, you know, we expect those to go away in the next coming quarters. But Marcelo can add to that as well. Hey, Conor, it's Marcelo.

Thanks for joining the call. So a couple thoughts. So yes, no, we believe that we might do even better than $80 million on recurring revenue in fiscal 23. that's a possibility. I would like to point out that even though we had a real strong adult timing quarter now in Q4, because of the headwinds, We are seeing, you know, as we're looking into August, September, and Q1, most likely, advertising data will still be double what we saw a year ago, most likely, but we're probably not going to have the same absolute dollar amount, okay, advertising and data in Q1 as we saw in Q2. So you're going to see a significant growth. You know, the revenue per terminal probably will not be above $200, so probably, maybe slightly slower than that. And again, that's only, all I have to do is look at the timing and data and how choppy it is, and we see, you know, companies cutting down on the other timing budgets, et cetera. The other sources of cash flow, for NRS, the SES fees, the merchant services, all of those are continuing to grow at the same trend that you saw this past year and before. You're going to continue to see that type of growth going into Q1 and beyond. So we do expect a very robust NRS top line and bottom line for this coming year. In terms of bottom line EBITDA profitability, NRS did more than $7 million in EBITDA in Q4. So we are on target of having NRS deliver perhaps more than $30 million in EBITDA in fiscal 23.

Wow, that's incredible. Congratulations on that. I mean, I don't know of any other asset in the market that's growing 134% year on year with 30% plus EBITDA margins and such a strong competitive position. I mean, on a rule of 40 basis, this is really off the charts. Seems to me like NRS alone is worth far more than the current market cap. of IDT today, so it's great to see the buybacks as well. And then we haven't even talked about the other businesses doing 80 million of annualized EBITDA in excess of that. So look, I guess the last one for me is just given the scale and momentum in NRS today, any sense for the potential timing of an NRS spend? Could this be a 2024 event, for example?

I mean, I think it's largely market-determined rather than NRS-determined. The markets, as you all know, have not been particularly kind to even fast-growing profitable fintechs. So I just don't believe that we think that the timing is right now. That being said, if markets improve by then, we would be more than happy to do something

Awesome. Well, thank you very much. Incredible execution. I wish all of my portfolio companies had the capital allocation and discipline of IDT. Best wishes for the rest of the year. Thanks, guys.

Thank you.

Okay. The next question is coming from Adam Wilk with Greystone Capital Management. Adam, your line is live.

Hey, how are you guys? Thanks for taking my questions. Can you hear me? Yeah.

Hi, Adam. How are you? Great.

Good. Good. Thanks. How are you? I missed the Netafone EBITDA number, Marcelo, that you cited. I think you cut out on my end. Do you mind just repeating that?

The Netafone EBITDA was negative $1.8 million for the quarter, about half of what it was last year.

Okay, was there something about what you anticipate finishing fiscal year 2023 with, or did I miss that?

No, we intend to be at least breakeven by the end of 2023.

Okay, perfect. Thank you.

Yeah, so Connor actually asked. Just to correct, the income from operations, the loss of operations for NetoFoam was minus $1.8 billion. EBITDA itself was about minus $400,000. So we are getting closer to reaching EBITDA profitability. And based on our 2023 projections, we do hope to exit 2023 with NetoFoam being an EBITDA-positive company. even as it continues to grow, you know, at rates which are probably higher than the average UCAS player in the industry.

Yeah, that's great. Thank you. I think in line with the NRS results, that's pretty incredible as well. And I was saying before, Connor asked the bulk of my questions, which is great, and I definitely share his sentiments about NRS. Just phenomenal work there. I'm wondering... You talked a little bit about this on the advertising and data side. The large jump is probably not sort of a normal kind of cadence, maybe year over year moving forward. Is there anything you can talk about that drove that in terms of a larger deal? And I apologize if I missed something, but I'm curious maybe if you can just break down that segment for me.

I mean, listen, it was really broad-based. We had more sales from every vertical that we sell to. And again, this quarter is looking very strong. As Marcelo said, there are some headwinds, I would say, generally in the advertising and data world with some companies sort of being a little cautious about their spending and

you know that being said you know you know we're seeing very strong numbers of late okay great that's helpful and then the delivery home delivery partnership that you entered into in August is there any opportunity there for any sort of additional customer acceleration or uptake or is it purely just to kind of supplement the existing customer base you know I

I don't know the answer to that question. What I would say is that a happy customer brings more happy customers. And we believe that this is a service that is very much needed by our retailers. And we think that it will do well for our current retailers. And if they do well, they tell their friends about it. And that's how we bring on more accounts.

Sure, that makes sense. And then switching gears to mobile top-up, is there any color to be added on the sudden deterioration in one of the corridors that you mentioned?

I mean, I can, you know, comment a little bit about it. I mean, you know, the corridor that, you know, that we did very well in with Cuba and, you know, there's a, you know, I don't know how else to explain it, but there's a, you know, black market currency and a regular currency. And, you know, people are basically choosing to do business in cash in Cuba because, you They can buy way more on the black market versus paying for things here where we have to obviously not do that. And that's really the situation. And again, it's not just for us. It's for all of our competitors as well. They're all seeing the same deterioration.

Yeah, Adam, if you remember, Q3 and Q4 of one year ago, that's when we had a very large lift in revenues for IMTU. As we had explained back then, most of that lift was because of these opportunities we had in Cuba, which was basically wholesale B2B type of traffic, low margin, high revenue. And in the course of the fiscal year, those revenues start to come down. For the reasons that you just mentioned, right? The spread between the Cuban official rate and the black market rate has almost doubled that spread. And as such, it's more economical for Cubans to ask family and friends in the U.S. to remit to them cash remittance and they then would top up the mobile services domestically, then for them to ask family and friends to buy for them an IDTI-MTU card and top those services from the US. So that's the corridor advantage, which we took advantage of about a year ago, that disappeared. And as we start having comparisons, right, as the year progresses, right, most of those comparisons will be muted. Now, the important point, I think, is the fact that if you exclude that corridor and you look at all of our other IMTU operations worldwide and corridors, our revenues, you know, you will actually have increased, you know, in the low single digits.

Okay. I understand. That's helpful. Thank you. Last one from me. Obviously, great to see the buyback. I know Marcelo and I, we've talked about it, and I think the value today, given what your business units are doing, is just incredible. I mean, just an unbelievable quarterly and fiscal year report. Wishful thinking about the quarterly cadence that we can kind of think about for buybacks, or how are you guys kind of approaching that as we move forward?

Yeah, I mean, obviously, IDT will continue to be opportunistic in our buyback opportunities, our strategies. To the extent that we may or may not have purchased any further as we go into Q1, we will let you know when we announce earnings in early December.

Gotcha. All right, well, yeah, great job, Keith, of the great work, and thanks again. Thank you.

Question is coming from Sean Berger with Adirondack Retirement. Sean, you're live.

Hi, thank you and congratulations on a great quarter. And I want to also just comment that it's very refreshing to have a management team that understands the meaning of fiduciary. So I appreciate that and appreciate the buyback as a return of capital to shareholders. Just wondering if there's any update whatsoever, at least you could say, is our poker hand stronger with regards to straight path litigation after the FCC included the inquiry of the, you know, that they didn't plan any further action? Or is there any update that you can provide on that at all? Because I believe that may be part of the overhangs. But I appreciate you guys' business knocked it out of the park, and I appreciate you.

Well, thank you. Unfortunately, we really try not to comment on litigation that's ongoing. I have a lot of strong words to say, but I've been advised to keep my mouth shut, so I'm going to listen and keep my mouth shut for once. I apologize for not answering your question. That being said, I was in Delaware for an entire week, and from my perspective, you know, we did an excellent job.

Okay. Again, if you have a question, please press star then 1 on your touchtone phone.

As there are no more questions, this concludes our question and answer session and conference call. Thank you for attending today's presentation. You may now disconnect.