IDT Q3 2024 Earnings Report

IDT EPS Results

• Actual EPS: $0.33
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

IDT Revenue Results

• Actual Revenue: $299.64 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

IDT Announcement Details

• Quarter: Q3 2024
• Date: 6/5/2024
• Time: N/A
• Conference Call Date: Wednesday, June 5, 2024
• Conference Call Time: 5:30PM ET

IDT (NYSE:IDT) is a telecommunications and financial technology company that provides communications, payment and business services to consumers, small businesses and retail customers. The company operates through brands and businesses focused on international calling, mobile top-ups, money transfers, cloud communications and retail technology.

Its BOSS Revolution platform offers international calling, prepaid wireless services, mobile recharging and international money transfers, primarily serving immigrant and international communities. National Retail Solutions provides independent retailers with point-of-sale systems, payment processing, inventory tools and related services. IDT also operates net2phone, which supplies cloud-based business communications, including voice, video, messaging and contact-center solutions.

Founded in 1990 by Howard Jonas, IDT has expanded from its roots as an international telecommunications provider into a broader portfolio of communications and fintech businesses. The company serves customers in the United States and international markets through digital platforms, telecommunications networks, retail distribution and business-to-business services. Howard Jonas serves as executive chairman, and Samuel Jonas is chief executive officer.

IDT Q3 2024 Earnings Call Transcript

Key Takeaways

• IDT's three high-growth, high-margin segments collectively drove a 310 bp increase in consolidated gross margin in Q3, underlining strong overall profitability trends.
• The NRS segment exceeded 30,000 active POS terminals, grew merchant services revenue by 66% YoY, and more than doubled its adjusted EBITDA through upselling NRS Pay and expanding advertising revenue.
• Net2phone generated over $2 million in adjusted EBITDA—doubling YoY—while growing seats by 13% and subscription revenue by 17%, as ongoing cost controls and portal enhancements improved operating leverage.
• Boston Money delivered its first positive adjusted EBITDA quarter, with transaction volumes doubling over eight quarters and retail agent transactions up 49% YoY, driving FinTech segment profitability.
• IDT's traditional communications segment continues shrinking, but management expects future SG&A efficiencies from cost-cutting initiatives, stabilized digital payments, and ongoing stock repurchases and dividends.

Presentation

[John Bell, Head of Investor Relations at IDT Corporation]

Good evening, and welcome to the IDT Corporation's Third Quarter Fiscal Year 2024 Earnings Call. In today's presentation, IDT's management will discuss IDT's financial and operational results for the three-month period ended April 30, 2024. During remarks by IDT's Chief Executive Officer, Shmuel Jonas, all participants will be on a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After Mr. Jonas's remarks, Marcelo Fischer, 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.

[John Bell, Head of Investor Relations at IDT Corporation]

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 per share. 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 IDT earnings release is available on the investor relations page of the IDT Corporation website. The earnings release has also been filed on Form 8-K with the SEC.

[John Bell, Head of Investor Relations at IDT Corporation]

I will now turn the conference over to Mr. Jonas.

[Shmuel Jonas, CEO at IDT Corporation]

Thank you, John. First of all, I apologize. The release is a little longer than I'd prefer to read, but nonetheless, here it goes. Welcome to IDT's earnings conference call. My remarks today focus on the third quarter of our fiscal year 2024, the three months ended April 30th. 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. IDT's three high-growth, high-margin businesses again delivered strong results in the third quarter, contributing to a 310 basis point improvement in our consolidated gross margin. NRS has surpassed 30,000 active terminals this quarter, making it the largest POS network for C-stores in the country.

[Shmuel Jonas, CEO at IDT Corporation]

net2phone Adjusted EBITDA doubled year-over-year in the current quarter as the business continues to scale and improve its operating leverage. At Boss Money, our balanced omni-channel approach to customer acquisition and focus on customer service and user experience drove another quarter of strong revenue increases, helping the Fintech segment to its first Adjusted EBITDA positive quarter. Looking ahead, we are very excited by the potential of each of these three businesses for sustainable, profitable growth. In our traditional communication segment, we are making progress turning around our IDT Digital Payments business and expect its bottom-line results will continue to improve. Now, I want to spend a few minutes on each of the three high-growth businesses. NRS.

[Shmuel Jonas, CEO at IDT Corporation]

The NRS segment added 1,600 net new point-of-sale terminals during the quarter, and we see a long sales runway ahead in our independent C-store retailer market, and we have several initiatives that recently launched. Our product offering range has really increased, and this has increased our total addressable market. In addition to growing our retailer network, we are continuing to improve per-terminal economics by bundling more of the new terminals we sell with NRS Pay, and for existing customers, by successfully upselling higher revenue payment processing and SaaS plans. We generated a solid year-over-year increase in advertising and data revenue, up 16% year-over-year, and are well positioned, are well positioned for continued advertising revenue growth. Advertising and data revenue is inherently volatile and driven by industry-wide trends and seasonality.

[Shmuel Jonas, CEO at IDT Corporation]

As we continue to grow in this space, we are strengthening our positioning by making progress on three important fronts: building our base of direct advertising customers, including CPGs, positioning our digital screen inventory offerings within the retail media network market, which is a popular advertising space, and expanding content partnerships to attract new programmatic buyers. Merchant services revenue increased 66% year-over-year, driven by increases in NRS Pay accounts as we optimize the incentives for POS users to take our payment processing solution. We are also benefiting from a steady and measurable rise in credit card usage as a percentage of total transactions in our retail locations.

[John Bell, Head of Investor Relations at IDT Corporation]

All in all, boosted by the solid increases from each of our revenue verticals, NRS's income from operations and Adjusted EBITDA more than doubled year-over-year, and we are going to build on that momentum as we move through the remainder of calendar 2024 and definitely beyond. The net2phone segment continued to increase its contribution to IDT's total bottom line, generating over $2 million in Adjusted EBITDA this quarter, more than double the year-ago quarter's level. We are seeing the benefits to net2phone's operating leverage as the business continues to scale. At the same time, we continue to rigorously focus on cost control and improving unit economics. For example, we have enhanced net2phone's customer and channel partners portal to enable deeper self-management and account administration, increasing user convenience while decreasing demands in the rest of the organization.

[John Bell, Head of Investor Relations at IDT Corporation]

As a result of our initiatives, net2phone's combined SG&A expense and technology and development costs have declined as a percentage of net2phone's revenue in each quarter of this fiscal year. All in all, we continue to improve net2phone's bottom line while investing in acquiring customers at a very attractive ROI. net2phone seats served increased 13% year-over-year, driving a 17% increase in subscription revenue, with especially strong contributions from the U.S., Mexico and Brazil, while average revenue per seat increased 4%. Over the next several quarters, net2phone will transition from its current single all-in UCaaS pricing plan to a basic plan with premium feature-driven offerings, including AI-powered functionalities, which we believe will drive continued ARPU expansion.

[John Bell, Head of Investor Relations at IDT Corporation]

We will also be rolling out significant new enhancements to the user experience in the coming months, including a powerful single pane of glass interface for all net2phone services and on all types of devices. With new plans and deeper customer engagement and the large market opportunities in the U.S. and especially Latin America, I'm excited by net2phone's growth potential, and we expect all these initiatives to increase growth in ARPU and seat counts, along with our CCaaS offerings, which we didn't even discuss today. Within our Fintech segment, our Boss Money business had a strong quarter, further expanding its transaction and revenue growth rates, both of which were already well above industry averages. We continue to take market share in our primary corridors, from the U.S. to Latin America and the Caribbean, and in key U.S. to Africa corridors as well.

[John Bell, Head of Investor Relations at IDT Corporation]

Our Boss Money growth strategy is three-pronged. First, we're expanding our agent network by adding new retail locations. Transactions originated in our retail agent channel are up 49% year-over-year. Second, we consistently focus on cross-selling Boss Money services to our much broader Boss ecosystem in our customer base. And third, we continue to improve and refine our ability to profitably acquire new customers by paying close attention to customer acquisition costs, vis-a-vis the lifetime value. All in all, we doubled our transaction volume over the past 8 quarters and are pushing hard to double it again, hopefully much more quickly. We feel very encouraged that Boss Money recently became cash flow positive, and as it continues to scale, we aim to generate Adjusted EBITDA margins in line with the industry's leaders.

[John Bell, Head of Investor Relations at IDT Corporation]

Due to the improving economics of our money transfer business, our Fintech segment overall was able to achieve positive Adjusted EBITDA for the first time this quarter. In our traditional communication segment, we continue to focus on maximizing cash flow by reducing costs and streamlining operations in our ILD voice and wholesale communications businesses as the market for paid minute communications continues to decline. At the same time, we have stabilized our IDT Digital Payments business in recent quarters and are working to return it to the growth through Xendit and many other applications that we have developed. We are also rolling out pricing changes for our international mobile top-up products to various corridors, and we'll be carefully monitoring the effects of those changes. However, so far, they have created a lot more profitability.

[John Bell, Head of Investor Relations at IDT Corporation]

Looking at IDT on a consolidated basis, our three high-growth, high-margin businesses are steadily becoming more significant contributors to our consolidated results relative to our larger, lower-margin traditional telecommunication segment. This transition has driven consistent increases in IDT's consolidated gross profit over the past four quarters and will gradually enable us to deliver stronger total bottom-line results. At the same time, we will continue to return value directly to shareholders through additional repurchases of stock and a quarterly dividend. Now, Marcelo and I will be happy to take your questions.

[John Bell, Head of Investor Relations at IDT Corporation]

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one 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 then two. We will now pause momentarily to assemble our roster. Your first question is coming from Alex Rohr. Please announce your affiliation, then pose your question.

[Analyst]

Hi, Shmuel and Marcelo. So quickly, in traditional, I think you had expressed some optimism that SG&A, you would find some efficiencies there. I was a little bit surprised to see the SG&A up year-over-year and quarter-over-quarter. So can you share a little bit what drove that? And then I have a follow-up.

[Marcelo Fischer, CFO at IDT Corporation]

Yeah. Hi, Alex. Thank you for joining the call. Yes, now we have put in place a large cost-cutting initiative. We should be seeing a lot of that coming through in future quarters. In Q3, some of that was obfuscated by the fact that we had higher spending to one-time compensatory arrangements now based on executive contracts that we have entered into, and filed on those on that contract a few weeks ago. So that was a one-time more non-cash compensation type of charge that led for the SG&A to be higher.

[Marcelo Fischer, CFO at IDT Corporation]

But when you remove some of the, some of those charges, you would start seeing some of the cost-cutting already now being designed to show in Q3. But you're gonna see most of it, a lot of it, in Q4 and beyond.

[Analyst]

Understood. Thank you. And Shmuel, in NRS, obviously, it's amazing to see you know, 30,000 kiosks. That's, you know, it's more than Circle K. I think they're the biggest, you know, C-store chain in the country, and I know they are paying a lot less for most of the items, most of the cost of goods sold that's flowing through the stores. And your folks, you know, the smaller stores are paying more, right? So, like, at NRS, how do you think about bringing some of the benefits of the massive scale of NRS to your individual customers as they run their stores, procure product, et cetera?

[Shmuel Jonas, CEO at IDT Corporation]

Well, we've more than once, you know, tried to do stuff in, you know, in terms of buying groups and deliveries, to the store of their inventory. You know, to date, we haven't had massive success, you know, bringing, I will say, those savings to fruition for our retailers and, you know, benefits to us from that. I do expect that to be, you know, something that we try again, you know, in the coming year. But, you know, at the moment, you know, we're more focused on bringing in more customers to the store and getting, you know, the customers to spend more rather than to bring down their cost of goods sold.

[Analyst]

Understood. Thank you, guys.

Participants

Executives

• John Bell, Head of Investor Relations
• Marcelo Fischer, CFO
• Shmuel Jonas, CEO

Analysts

• Analyst