IDT Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 6, 2024

There are 4 speakers on the call.

Operator

Good evening, and welcome to IDT Corporation's 2nd Quarter Fiscal Year 20 24 Earnings Call. In today's presentation, IDT's management will discuss IDT's financial and operational results for the 3 month period ended January 31, 2024. During remarks by IDT's Chief Executive Officer, Shmuel Jonez, all participants will be in listen only mode. After Mr. Jonas' remarks, Marcelo Fischer, IDT's Chief Financial Officer, will join Mr.

Operator

Jonas for Q and A. Any forward looking statements made during this conference, either in the prepared remarks or in the Q and A session, whether general or specific in nature, are subject to risks 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 and A session, IDT's management may make reference to non GAAP measures, including adjusted EBITDA, non GAAP net income and non GAAP earnings per share.

Operator

A schedule provided in the IDT earnings release reconciles adjusted EBITDA, non GAAP, net income and non GAAP earnings per share to the nearest corresponding GAAP measures. Please note that the IIDT earnings release available on the Investor Relations page of the IIDT Corporation website. The earnings release has also been filed on Form 8 ks with the SEC. I will now turn the conference over to Mr. Jonas.

Speaker 1

Thank you very much. Welcome to IGT's earnings conference call. I would like to stay focused on the Q2 of our fiscal year 2024 with 3 months ended January 31. For a more detailed discussion of our financial and operational results for the quarter, please read our earnings release filed earlier today and our Form 10 Q that we expect to file with the SEC on Monday. The second quarter was highlighted by the continued expansion of our growth businesses with both NRS and Boston Energy surpassing the $100,000,000 annual revenue run rate milestone.

Speaker 1

However, our expense management was not where I wanted to be for the quarter and I expect it will get better. NRS continue to deliver robust recurring revenue per terminal. We again saw strong growth in merchant services and SaaS revenues and increased merchant services revenue per NRS pay account. We added approximately 1500 net new terminals to the NRS network this quarter. We did have some one time costs related to bad debt, which affected our quarter.

Speaker 1

That BOSS money delivered another quarter of impressive results 42% year over year revenue growth as improving economics helped our Fintech segment to achieve adjusted EBITDA breakeven for the quarter. One key to the continued growth in this business has been our commitment to making money transfers faster, more convenient and secure for our customers. And to that end, we recently introduced an option for our U. S.-based customers to send money directly to bank accounts through the recipient's Visa or Mastercard. We are seeing good customer response in their remittance corridors where we have launched this offering and we'll be expanding the service to many other destinations in the coming months.

Speaker 1

I'm also very pleased with NetComm increasing subscription revenue 19% year over year and achieving cash flow breakeven, which we measure as adjusted EBITDA less CapEx. Together, our combined growth segments propelled IDP to achieve another quarter of retro consolidated gross profit and increased gross margin. The businesses within our traditional communications segment continue to generate strong cash flows. Over the past few months, we have been very focused on reducing our overhead and on streamlining our operations within our businesses and company wide. You will see the benefits of these efforts in the Q3 and beyond.

Speaker 1

Now I want to provide some context to our Board's decision to initiate a quarterly cash dividend. NRS lost money and yet will no longer need new cash investments to fund their organic growth. And aggregate, they become significant contributors to our bottom line, and we expect them to continue to increase those bottom line impacts. Meanwhile, we expect cash flow from our traditional business to continue to remain robust for years to come. The strength of our operational results and our balance sheet, including our enhanced liquidity provides us with flexibility as we invest in the development of our next generation of exciting early stage initiatives and scout for other growth opportunities in other countries in which to add our services.

Speaker 1

In light of our robust financial position and positive outlook, the Board felt that we should supplement our ongoing program of opportunistic fact bias, which can vary from quarter to quarter with regular predictable dividend payments to our stockholders. To wrap up, I want to thank our employees at all our offices worldwide for their hard work to make these results possible and thank our Board for their support. Now, Marcel, I'll now be happy to take your questions.

Operator

Thank you. We will now begin the question and answer session. The first question comes from William Bazalff with Cowen. Please proceed.

Speaker 2

Hi, gentlemen. Congratulations on the great quarter. I just want to ask about what you're seeing in terms of the consumer base for the NRS business. What trends are you seeing in that type of consumer in terms of spending, in terms of inflation? And a follow-up question would be, what are you seeing in terms of acquisition opportunities for expanding to different businesses and different business segments come out in the marketplace?

Speaker 3

It's a good question.

Speaker 1

Well, I mean, the first thing I would say is, we put out a monthly report called NRS Insights that our data team provides, which if you don't get, I suggest you look it up. I mean, I can give you the basis from I don't want to like give away the report before we publish it, but I'll give you just a couple of pieces from it, which I think are probably the highlights you're looking for. So overall, I think that the stores are doing pretty well. Not as definitely I would say that from an inflation standpoint, it's moderated quite a bit. The average price increases for February was 1.2% year over year.

Speaker 1

And same store sales February of this year versus February of last year increased 3.5%. However, there was one day more. I'm not sure, but I think we might normalize for that.

Speaker 3

I think if we take it

Speaker 1

out, I think it's actually 3.5% once it's normalized for that. And then from January, like there was a pretty decent number of sales up about 7.4%. So those are like the big picture numbers from the insights. You can when the report comes out on Friday, you can move the rest of it.

Speaker 3

As

Speaker 1

far as where the business is going and the types of acquisitions that we're looking at, I would say that in NetSol, we're not really looking to make any large acquisitions. And we think that we have a lot of projects that are being worked on internally, and we're very happy with the pace there. In the Remittance side of the business, we've looked at possibly adding on certain channels of countries that we're not so strong in to sort of gain a foothold in and then expand upon. The 1 or 2 that we had been looking at relatively leasing ended up really not fitting our qualifications and we decided not to go ahead with them. But we're always in the market looking for acquisitions that will help our bottom line.

Speaker 1

And businesses that help us grow into new countries and new verticals. As far as

Speaker 3

NRS,

Speaker 1

there are some small acquisitions that we are looking at. We just made an acquisition in the Westburn Technology space to help us get into that vertical. But we overall, I would say that we're really more focused on growing organically. I know that's not as maybe as exciting, but we think we did pretty well and we're going to continue to try to grow things organically.

Operator

Okay. The next question comes from Jason Lustig. Please announce your affiliation then pose your question.

Speaker 2

Hey, guys.

Speaker 1

Just curious how you're thinking about spin offs or potential spinoffs of Beth Tafone and NRS in light of them both being free cash flow breakeven or better going forward? I would say that we're not looking to do anything imminently. I mean, as I talked about on the Investor Day, I mean, I think a big piece of that is how the market perceives things, particularly in the megaphone area. The market is still really not been particularly strong for companies, I'll say, in our verticals, even though I think we're by far the best. It's still you are when you're in a weak vertical, you get judged amongst them as well.

Speaker 1

As for Nrf, I think one day it's going to make a great independent company. And I think that when the right time to spin off is, I can't comment on that today, but we continue to build it for it to become much more valuable than it is now. Okay. Thank you.

Operator

Thank you, Okay. We have a follow-up coming from William Waffen with

Speaker 2

You mentioned this might have been during the annual meeting that in the boss money business or the money transfer business, the key is getting to scale. So getting to a scale where you can reach profitability and getting that transaction volume through. So with the reaching of, I think, adjusted EBITDA breakeven this quarter, do you feel like you've reached that point of scale where you're going to get future profitability in that business? And you talk a little bit more about the trends you're seeing there and what you think the long term profitability could be of the FinTech side?

Speaker 3

I mean, it's not

Speaker 1

as simple of a question to answer as you would think. And what I would say is, I mean, we sort of said that if we continue to grow the business at sort of like half the pace that

Speaker 3

we've been growing it at,

Speaker 1

we could see it getting to, I think, the $14,000,000 to $15,000,000 of profitability from that part of the business over the next 2 to 3 years.

Speaker 3

The one thing I would say is

Speaker 1

like, it's all depending on how much you want to invest back into acquiring more customers and growing verticals that you're not as strong in. So I mean, you can pick any country, but pick Vietnam. Like today, we have no volume to Vietnam. If we wanted to get into Vietnam, there's really 2 ways of doing it. You can either acquire another company that has volume to Vietnam, or you can spend a lot more than you have to acquiring customers and sort of overpaying on the payout side and hope that once you get larger, bigger customers, you'll then figure out how to maximize the profits on it.

Speaker 3

So we've sort of like taken

Speaker 1

the approach of really trying to be like much more focused on verticals that we already had penetration on in our calling business or in our top up business and really trying to like move customers from one place to another. But it's definitely going to be a profitable and growing part of our business. So I mean, I don't know if that answers your question. Marcel, you have anything to add maybe?

Speaker 3

I would say, William, just to put a little more context, is that obviously, the money campus is the boss money is the lion's share of the Fintech segment in terms of revenue. And that part of the business, Boss Money, has been generating positive EBITDA now for the last two quarters and now probably slightly more than $1,000,000 in positive EBITDA the last 6 months. So it's doing well and that EBITDA will continue to grow at its scales. But to some extent, the cost money now growing EBITDA funding our other investments in that segment, right? We have our Gibraltar bank, which is at the cost of receiving the full license to operate as a full bank.

Speaker 3

We have our initiative with online banking, online bank, Elroy, our neo bank. So Gibraltar, the neo bank, they're kind of mostly pre revenue at this stage. And so and it requires investment. So we're kind of investing in those initiatives now with the cash flows from money transfer at this point. But going back to the Money Capital topic and to your earlier comment, a lot of the acquisition that we have looked at in the last few months, we're focused on the money transfer space.

Speaker 3

We do believe that scale matters hugely in terms of getting to higher profitability in that industry. And growing organically has been good for us. We've been growing at around 35%, 40% clip, which is excellent, better than other sectors in this industry. But being able to supplement that with an acquisition, we thought it makes a lot of sense in reaching scale. If you look at a few of them, as you mentioned, right, the ones we looked at so far have not met our criteria.

Speaker 3

And we're going to really continue to look at some future opportunities in that area.

Speaker 2

Okay. Thanks, guys.

Speaker 1

Thanks.

Operator

Okay. We have a question coming from Bill Monet with he is a private investor. Bill, please proceed.

Speaker 1

Hi, guys. Just a question. I see cash balances are building fairly rapidly. You guys have stated that big acquisitions

Speaker 3

do not seem to

Speaker 1

be part of the plan now and the businesses are self funded.

Speaker 3

I know you put in a small dividend, I guess,

Speaker 1

about $5,000,000 a year that will be at this point.

Speaker 3

Do you have any thoughts on the cash?

Speaker 1

It seems to be building up fairly rapidly, and it doesn't seem that there's many uses for it. Either acquisitions or stock buybacks, that's really the 2 main places.

Operator

Okay. It looks like we have no further questions in queue. 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.

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Key Takeaways

  • NRS and Boston Energy both surpassed $100 million annual revenue run rate, with NRS adding approximately 1 500 net new terminals and driving strong merchant services and SaaS revenue per terminal.
  • Boss Money achieved 42% year-over-year revenue growth in the FinTech segment and reached adjusted EBITDA breakeven, while launching direct-to-bank transfers via Visa/Mastercard with positive customer response.
  • NetComm increased subscription revenue by 19% year-over-year and reached cash flow breakeven (adjusted EBITDA less CapEx), helping lift consolidated gross profit and margins.
  • The traditional communications segment continued generating robust cash flows, and management is actively reducing overhead and streamlining operations with benefits expected to materialize in Q3 and beyond.
  • The Board initiated a quarterly cash dividend reflecting the company’s strong liquidity, self-funding growth businesses no longer needing cash investments, and flexibility to pursue opportunistic buybacks and new growth initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
IDT Q2 2024
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