IDT Corporation

Good evening and welcome to the IDT Corporation's fourth quarter and full fiscal year 2023 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, 2023. 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 IDT's 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, Marcelo Fisher will be joining me virtually. First of all, I just want to say it's really been a very hard week, a really tragic week in Israel, and our thoughts and prayers are with our family, our friends, our colleagues, some of who are on the front lines, and may they, God willing, be safe. My brief remarks today focus on the fourth quarter of fiscal year 2023 and the three months end of July 31st. For more detailed discussion of our financial and operational results for the fourth quarter and full fiscal year 2023, please read our earnings release filed earlier today and our Form 10-K that we expect to file with the SEC on Monday. Our results this quarter were highlighted by the continued expansion of our three high-growth, high-margin businesses, while our traditional communications segment performed as expected. At NRS, we have ramped up our investment to accelerate the growth of the NRS terminal and payment networks, and we delivered record quarterly increases in both net new terminals and net new NRS pay accounts. With that tailwind, merchant services Q4 revenue increased 79% year over year. Advertising and data revenue, while 40% below the year-ago peak, improved sequentially. And advertising and data revenue increased 7% from the prior quarter and is on track for a larger sequential increase in the current quarter. NRS results also reflected our investment in growth initiatives, including development of new features and functionalities, as well as our new tablet POS. At Net-to-Phone, subscription revenue increased 19% year-over-year, powered by the increase in seats served and an increase in average subscription revenue per seat in Latin America. Here, too, we are investing in initiatives to expand the business. In the coming quarters, we are preparing to roll out two exciting premium services, NetPhone AI and Call Center Essentials, that we expect to enhance ARPU and margins across our markets. Within our FinTech segment, Boss Money, our international remittance business, continued to benefit from the synergies between its retail and direct-to-consumer channels and from our cross-marketing programs within the larger Boss ecosystem. Also in our FinTech segment, we've begun enrolling customers in our new mobile banking app, Elroy. Elroy is replete with innovative features to help underbanked and unbanked customers integrate into the U.S. financial mainstream while appealing to anyone who despises bank fees but appreciates financial convenience. Within our traditional communications segment, we are working to further streamline the operations of our boss revolution calling in IDT global businesses while pushing new initiatives to return our IDT digital payments business to growth. Last week, the chance recording Delaware dismissed all claims against IDT in the class action lawsuit related to the Straight Path sale and found that the plaintiff and the class suffered no damage. We appreciate the time the court invested in resolving this matter and salute our legal team whose sound judgment and tireless efforts proved invaluable throughout the course of the litigation. As we noted in our earnings release, we continued to buy back our stock in the fourth quarter and after the start of fiscal 2024, consistent with our view that the plaintiff's claims in this case were premised on flawed assumptions and that justice would prevail, as well as the fact that we thought our stock was very undervalued, especially given the strong performance of our three high-growth businesses. Before we move on to the Q&A, I want to again thank our employees for their great work and our stockholders for putting their faith and their capital with us. Now Marcel and I will 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 touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the star keys. To withdraw your question, please press star, then two. We will now pause momentarily to assemble our roster. Okay, our first question comes from Alex Rohr with Emmett. Please proceed.

Hi, guys. So just quickly on mobile top-up, I was hoping you could speak to that business in particular, and if there's any hope. It's been a while now. If there's any hope for a bottoming there anytime soon.

I think the answer is yes. In terms of our gross margin on it, it's actually been improving of late. We've been selling more of it through our direct-to-consumer channels. Unfortunately, the wholesale business has not come back as quickly as we would have liked or expected. Our new platform just recently got launched, and we've actually brought on, I think, about five new customers just this week alone onto it. So we're very hopeful that we'll see some good revenue growth going forward on it.

Great. And just one more. So obviously we can see the increase in spending in NRS on the SG&A line, Do you, I mean, was this kind of, um, you know, a, a period of significantly increased spending and now you're going to wait and see, or are you, you know, are you, should we expect to see kind of similar significant year over year increases off of this new base in, um, in the NRS SG&A line?

No, I expect SG&A to be much, uh, more well controlled than, than it has been. Um, you know, both in NRS and across the company.

Great. Thank you, guys. Okay. Our next question comes from Inigo Alonso.

Please state your affiliation. Your line is live.

Hello. Congrats on the strong deployments in NRS. I wanted to ask about the new tablets that you mentioned. I know that your supplier, Pax Global, has released this new product line called ELIS. And I was wondering if this is going to trigger you expanding into new markets, in particular in the restaurant market, and competing against the likes of toast and those people. What are the initial results from the Ulysse product line?

We actually don't use that specific product from Pax. We do use other products from Pax, although we have looked into that product in specific. As far as your question related to restaurants, we're in the process of acquiring a company that's in that space already, a very small company. And we think that that will help us get into it. That being said, our goal is not to be a toast competitor or it's really to be for restaurants that have a convenience store or something similar to it attached to their store. So I would say it's not going to be, our goal is not to be a toast.

Wonderful. Great to hear, especially considering that a lot of immigrant owned businesses are restaurants and we know how you have a brand among immigrants in the US. So that's great news. And you kind of answered already one and the follow up question, but it was around the capital allocation. So after the result of the litigation, you have unlocked some capital I assume you had as a provision in waiting for the outcome of the litigation and now that you have an outcome, I was wondering how are you going to allocate that capital other than this acquisition that you already mentioned.

I think that we're on the lookout for smart acquisitions and investing in growth when we're getting good returns on those investments. Again, I expect us to keep you know more cash on the balance sheet then then you know some investors believe is necessary but you know at the same time you know expect us you know to deploy some of that cash to you know get good returns for our investors okay so have you well do you intend to proceed with repurchases once the discerning release I mean you've been inquiring period so far so

Is that a plan of the allocation?

It's very possible. I mean, again, you know, you've seen, you know, I mean, just in, you know, the past, I don't know, you know, year, we've probably purchased over $15 million of stock. So, yeah, I mean, I expect us to continue to purchase shares, you know, when the price is, you know, low.

Wonderful. And last question is about Net2Fone. Do you have your own platform or do you use the platform of another provider?

The answer is both. You know, originally when we got into the business, we used a third-party platform, and eventually we built our own. So today we unfortunately have not migrated everyone off of, you know, I will call it a rented platform, but we have people on both a rented platform as well as our own platform. And hopefully, you know, over time we'll move everyone off of the rented platform and onto ours.

Okay. Thank you a lot, and congratulations again.

Thank you. The next question comes from Jason Lustig. Please announce your affiliation, then pose your question.

Hey, Shmuel. I know you, and I'm sure many other IDC employees have family and friends in Israel, so just wanted to say my thoughts are with you all. Thank you. So we saw in NRS a really nice step up in merchant services revenue per unit. Should we expect continued growth in that ARPU, or is merchant services more likely to grow kind of more in line with units going forward? And can you speak to some of the drivers?

Again, I mean, there's definitely been, I will say, a higher take rate for us both in terms of new sales that are coming with merchant services. So I think that we've done a good job of incentivizing our sales organization, both distributor, direct, et cetera, to really try as much as you possibly can not to sell a POS that doesn't include merchant services. And you can see that very clearly in the numbers. So I expect there to be a higher percentage of our terminals just in general having merchant services from them. And therefore, you're just going to see, again, less and less cash being used in stores and more and more merchant processing coming from it. I don't know if every quarter will have the same increase like we had this quarter, but every quarter will increase.

Okay. And you mentioned in the release a seasonal uptick you're expecting in advertising. How much of that is macro recovery and how much of that is kind of advertising seasonality into the holidays?

I wish I knew the answer to that question. Again, I don't even know You know, if it's really seasonal, I mean, like, you know, we're pre the holiday season and, you know, we've seen quite, you know, a big jump. You know, hopefully the holiday season will be, you know, even better. So I wish I could answer the question, you know, better, but I don't have an answer.

All right. Thank you.

Thank you.

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 the conference call. Thank you for attending today's presentation. You may now disconnect.