IDT Corp

NYSE:IDT

Earnings Call Analysis

IDT Corporation Reports Strong Growth in Q1 Fiscal 2025

In the first quarter of fiscal 2025, IDT Corporation displayed impressive growth with record levels in gross profit and adjusted EBITDA. Sequential revenue increases have continued for three quarters. The fintech segment BOSS Money enhanced margins, achieving a $4.6 million rise in income from operations year-over-year, while transaction growth slowed slightly. Net2phone grew subscription revenue by 13%, despite foreign exchange challenges. Additionally, the traditional communications segment experienced a 2% rise in income from operations, although revenues decreased by 4%. Overall, IDT is set to exceed prior EBITDA projections, reinforcing positive long-term growth expectations.

Strong Start to Fiscal Year 2025

IDT Corporation kicked off fiscal year 2025 with impressive momentum, boasting significant year-over-year improvements in key financial metrics for the first quarter that ended on October 31. The company reported record levels of gross profit, with gross profit margins and adjusted EBITDA also reaching new heights. Notably, consolidated revenue has now experienced sequential growth for the third consecutive quarter, signaling a robust operational performance.

Diverse Revenue Drivers

The success can be attributed to remarkable growth across various segments. The company’s NRS (National Retail Solutions), BOSS Money fintech division, and net2phone all contributed to rising revenues, gross profits, and adjusted EBITDA. For instance, BOSS Money took steps to enhance profit margins, yielding a significant boost in income from operations—up $4.6 million year-over-year—despite a slight slowdown in transaction growth during the quarter.

Challenges in Currency Exchange Impact

Despite strong subscription revenue growth of 13% for net2phone, adverse currency exchange rates posed challenges. Specifically, the Brazilian real depreciated approximately 14% and the Mexican peso about 11%, negatively impacting revenue translation into U.S. dollars. If not for these foreign exchange (FX) impacts, subscription revenue growth would have reached around 16%. The management remains vigilant, actively working to manage costs and offset potential profitability constraints while observing healthy local currency growth in those markets.

Seasonality and Operational Adjustments in NRS

In the NRS segment, operating results were influenced by seasonal fluctuations, particularly tied to a significant customer in the fireworks industry. The quarter also saw a slight decrease in terminal sales due to a prior kiosk runout, although the focus remains on new product launches and expanding addressable markets. Analysts noticed increased adoption rates in pain processing offerings, indicating ongoing investment in vital product development.

Future Outlook and Margin Improvement

The company’s management expressed a confident outlook, suggesting they are on track to exceed previous EBITDA projections, based on robust performance across core business units. Furthermore, they are strategically pivoting to enhance investment in the U.S. market where profitability is highest, while continuing to fine-tune product offerings to attract and retain their customer base. This strategic shift is fostering an optimistic environment for sustained growth and profitability.

Earnings Call Transcript 2025-Q1

[Operator]

Good evening, and welcome to the IDT Corporation's First Quarter Fiscal Year 2025 Earnings Call. In today's presentation, IDT's management will discuss IDT's financial and operational results for the 3-month period ended October 31, 2024. During prepared remarks by IDT's Chief Executive Officer, Shmuel Jonas, [Operator Instructions] After Mr. Jonas remarks, Marcelo Fischer, IDT's Chief Financial Officer, will join Mr. Jonas for Q&A with investors.

Any forward-looking statement 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 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&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 a Form 8-K with the SEC.

I will now turn the conference over to Mr. Jonas

[Samuel Jonas, executive]

Thank you, John. I apologize for my voice. Welcome to IDT's earnings conference call. And I [ remark today ] focused on the first quarter of our fiscal year 2025, the 3 and 12 months ended October 31. For a more detailed discussion of our financial and operational results for the quarter, please read our earnings release filed earlier today in our Form 10-K that we expect to file with the SEC next Tuesday.

Building on our momentum from fiscal 2024, IDT delivered strong financial results in the first quarter of fiscal 2025, including record levels of gross profit, gross profit margin and adjusted EBITDA. Consolidated revenue has now increased sequentially for three consecutive quarters. NRS along with our fintech segment powered by BOSS Money and net2phone each achieved robust increases in revenue, gross profit and adjusted EBITDA.

At NRS, we are focused on providing solutions to address the needs of our independent retailer market while heavily investing to develop new products and services to broaden our addressable markets. In Q1, we continued to achieve increased adoption rates on our pain processing offerings and CCaaS feature plans. We look forward to continuing this momentum through the remainder of the fiscal year.

BOSS Money's Q1 results reflected our decision to enhance margins, particularly within our retail channel. As a result, BOSS Money's gross margin expanded significantly and transaction growth slowed somewhat. The enhanced margins boosted FinTech's Q1 income from operations by $4.6 million year-over-year. And in November, following the quarter's closed transaction growth rebounded led by D2C.

Net2phone increase seats served to over 400,000, driving a 13% increase in subscription revenue despite the negative FX impact to [indiscernible] American operations from a strong U.S. dollar. Net2phone financial discipline also contributed to healthy increases in income from operations and adjusted EBITDA.

In the traditional communications segment [indiscernible], improved our economics and that continued to pay off in Q1. The year-over-year revenue decrease was 4%, while income from operations increased by 2%. In light of the strong financial performance across our key businesses this quarter, we are now on track to significantly the EBITDA projections that we've previously had. [ Followed up ] by wishing the entire IT team, including all of our colleagues across the globe, retail partners and investors a very joyous holiday season shared with family and friends. We very much appreciate your support and hard work and look forward to sharing more good IDT news with you in 2025. Now Marcelo and I will be happy to take your questions.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from [ Anigo Alonzo].

[Unknown Analyst]

Thank you for the results again. I have questions on the three growing businesses. I'll start with a double question on net2phone and BOSS Money. BOSS money has had extraordinary growth in the last couple of years, and a lot of that growth has been driven by the mass immigration into the U.S. during the last presidential term. So how confident do you feel on your ability to keep growing at those rates and in stealing market share from your competitors in the immigration policies into the U.S. [ titan ]?

And then the second question about net2phone is, we have over 50% of the revenues coming from Latin America. And with the strengthening of the USD, we are seeing the ForEx impact. Last week, we had a huge event in the [ Brazilian real ] with devaluation on currency, where you are really strong. I was wondering on your confidence level to achieve double-digit revenue growth this year. Thank you.

[Samuel Jonas, executive]

Okay. So I'll try to answer your question on immigration first. It's really, in my opinion, too early to tell what will really be the end result of the new administration policies. My personal opinion is that you can't build things in America and make America stronger without immigration into this country. So if you're going to have tariffs, you need immigrants to work hard and help build America like they always have. That's my personal opinion. But as for what really happened, I don't know.

One thing I would say is that we continue to focus on improving the product every day and that, that is, in my opinion, what really drives the results, not how many people cross the border on a daily basis. But that's my own opinion.

[Marcelo Fischer, executive]

Yes, I'll answer the question to you on net2phone. So you're absolutely right. The exchange rates are not helping net2phone right now. As you know, a significant portion of the business comes from Latin American countries, Brazil and Mexico, in particular. When you look at year-over-year, Q1 versus Q1. The Brazilian real is down about 14%. Net [indiscernible] down about 11%. So those clearly [ that ] the business when you cancellate into U.S. dollars. Our subscription revenue growth was 13% for Q1. If not this FX impact, it would have been 16%. So we are looking at it carefully that we keep on monitoring that and also, some of the cost inputs in operating the business in Latin America are really U.S. pegged if not U.S., not denominated necessarily. So that has also a slight impact on the economics, on the profitability, not just on the translation side. And net2phone team and our sales are really focusing very much on how we could offset some of those cost implications as well as the growth rates going forward because it does sound like the U.S. dollar will continue to be strong for the possible future. That being said, those markets in local currencies are really doing very well. and continue to grow at a real nice pace, and we feel very positive about the long-term success and growth.

[Samuel Jonas, executive]

Yes. And I'll just say to add on to what Marcelo already said is that it also lets us put more investment into the U.S. market, where we already have, by far, the best profitability so if anything, it gets us to focus our energies in the places where we get the most payoff from it. So not a completely bad story, in my opinion.

[Unknown Analyst]

Can I ask about NRS? So NRS, this quarter, there was a seasonal churn. I would appreciate if you can provide a little bit of color on the seasonality of the terminal deployments. And I also noted that the terminal sales were lower and I wonder if this is due to the kiosk runout that you mentioned last quarter or there's different impacts here.

[Samuel Jonas, executive]

Yes. I mean, so we have a large seasonal customer in the fireworks business that comes and goes. They were larger this year than they have been previously, which is both good and bad. And so that's really the seasonal impact.

As far as your question related to the kiosk, it definitely did have in effect. And we also had a lot of new product launches in terms of our software plans. And that also really -- I think, unfortunately, I'll say shifted some of the sales people's attention to educating customers on those new plans and away from pushing out more units, but we're back on track.

[Unknown Analyst]

And one final question on NRS. In the last few quarters, you have mentioned how you are offering new forms of advertisement between the initial customer facing checkout screens. I was wondering what categories or real estate of businesses you are targeting for these newer screens. Are these screens located in outdoor high traffic areas? Or are they inside businesses? How many of these screens did you place in Q1, for example?

[Samuel Jonas, executive]

I don't have the numbers off hand, how many we placed in Q1. I do know that we ordered over 3,000 new screens. I don't believe that they've all arrived yet. And we've mostly placed them into hotels and entertainment attraction and all of them are pretty highly traffic.

[Operator]

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.