IDT Corp

NYSE:IDT

Earnings Call Analysis

Company's Steady Growth and Strategic Focus

The company is experiencing a solid performance with same-store sales up by 3.5% year-over-year, even when factoring in the additional day this February, showing well-managed inflation effects. They're eyeing expansions in remittances by entering weaker markets for growth opportunities. Immediate spin-offs aren't on the agenda, especially for net2phone, given the lackluster market reception, but NRS is being groomed for a promising future as an independent entity. Business growth at subdued rates continues, targeting $14 million to $15 million in profitability. Excess cash is potentially earmarked for acquisitions or stock buybacks.

Moderation in Inflation and Solid Sales Growth

The company reported a clear moderation in inflationary pressures, with February's year-over-year average price increase at 1.2%. This was mirrored by an impressive same-store sales rise of 3.5% for that month compared to the previous year. Interestingly, this figure holds even after adjusting for an additional trading day. Moreover, the business saw a significant sales bump in January, with an increase of 7.4%, indicating robust performance in the NRS business.

Strategic Approach to Acquisitions and Organic Growth

Focusing on the company's growth strategy, executive Samuel Jonas expressed a preference for organic development over aggressive acquisition strategies, particularly within the net2phone segment. Although the company is exploring small acquisitions to facilitate entry into new verticals, such as a recent purchase in the technology space, they are cautious with opportunities that do not meet their stringent criteria. This circumspect approach aims to enhance the bottom line and expand their footprint meaningfully.

Considerations for Potential Spin-offs

When inquired about the potential spin-off of net2phone and NRS, Samuel Jonas implied that while there are no immediate plans, NRS is being groomed for independence, and its future spin-off is anticipated to unlock greater value. However, the decision to execute such a move will be influenced by the market's reception to the sectors in which these businesses operate.

BOSS Money Reaching a Profitability Inflection Point

Concerning the BOSS Money business, the company is approaching an inflection point of scale that could potentially lead to future profitability. The ambition, provided that growth continues even at half the current rate, is to achieve $14 million to $15 million in profitability over the next two to three years. This trajectory will depend on the level of reinvestment into customer acquisition and market expansion, especially in lesser-served areas such as Vietnam. The business has already shown encouraging signs with positive EBITDA in the past two quarters.

Growing the Fintech Segment and Utilizing EBITDA

Executive Marcelo Fischer highlighted the noteworthy performance of the BOSS Money segment, which has been profitable for the last two quarters, contributing to investments in other fintech initiatives such as Gibraltar Bank and online banking ventures. Growing organically at a rate of 35-40%, the company sees merit in acquisitions that could help achieve greater scale and profitability within the money transfer industry.

Cash Management and Shareholder Returns Strategy

As the company's cash reserves continue to climb, Jonas mentioned stock buybacks and strategic acquisitions as the primary uses for the surplus funds. Despite the growing cash balance, the company has instituted a modest dividend, suggesting a balanced approach between rewarding shareholders and preserving capital for meaningful uses.

Conclusion of the Earnings Call

The earnings call concluded without any further questions from participants. The executives, having provided insights into the company's financial health, growth strategy, and future plans, ended the session, leaving investors with a clearer understanding of the company's trajectory.

Earnings Call Transcript 2024-Q2

[Operator]

Good evening, and welcome to IDT Corporation's Second Quarter Fiscal Year 2024 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.

[Operator Instructions] After Mr. Jonas' remarks, Marcelo Fischer, IDT's Chief Financial Officer, will join Mr. Jonas for Q&A.

Any forward-looking statements made during this conference, 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 Form 8-K with the SEC.

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

[Samuel Jonas, executive]

Thank you very much. Welcome to IDT's earnings conference call.

My remarks today is focused on the second quarter of our fiscal year 2024, the 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 BOSS Money surpassing the $100 million annual revenue run rate milestone. However, our expense management was not where I want it to be for the quarter, and I expect it will get better.

NRS continued 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 1,500 net new terminals to the NRS network this quarter. We did have some onetime costs related to bad debt, which affected our quarter. BOSS Money delivered another quarter of impressive results with 42% year-over-year revenue growth. Its 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 the remittance corridors where we have launched this offering and will be expanding the service to many other destinations in the coming months.

I am also very pleased with net2phone 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 IDT to achieve another quarter of record consolidated gross profit and increased gross margin.

The businesses within our traditional communications segment continued 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 third quarter and beyond.

Now I want to provide some context to our Board's decision to initiate a quarterly cash dividend. NRS, BOSS Money and net2phone no longer need new cash investments to fund their organic growth. In aggregate, they have become significant contributors to our bottom line, and we expect them to continue to increase those bottom line impacts. Meanwhile, we expect cash flows 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 and other countries in which to add our services.

In light of our robust financial position and positive outlook, the Board felt that we should supplement our ongoing program of opportunistic stock buyback, 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 Marcelo and I will be happy to take your questions.

[Operator]

[Operator Instructions] The first question comes from [ William Vaughan ] with Corient.

[Unknown Analyst]

Congratulations on the great quarter. I just wanted 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 or different business segments out in the marketplace?

[Samuel Jonas, executive]

Good question. Well, I mean the first thing I would say is we put out a monthly report called NRS insights that our data team provides. If you don't get, I suggest you look it up. I mean -- I can give you the base from -- I don't want to 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 were 1.2% year-over-year. And same-store sales February [ this year ] versus February of last year, increased 3.5%. However, there was 1 day more. So I'm not sure -- but I think we might normalize for that. I think if we take it out, I think it's actually 3.5% once it's normalized for that. And then from January, there was a recent bump. I think, our sales were up about 7.4%. Those are the big picture numbers from the insights. You can -- when the report comes out on Friday, you can read the rest of it.

As far as where the business is going and the types of acquisitions that we're looking at, I would say that, in net2phone, we're not really looking to make any large acquisitions. I mean, 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 or countries that we're not so strong in to sort of gain a foothold in and then expand upon. The one or two that we had been looking at relatively recently 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 and does it help us grow into new countries and new verticals?

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

[Operator]

The next question comes from Jason Lustig.

[Jason Lustig, analyst]

Guys, just curious how you're thinking about spin-offs or potential spin-off of net2phone and NRS in light of them both being free cash flow breakeven or better going forward.

[Samuel Jonas, executive]

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 foresees things, particularly in the net2phone area. The market has still really not been particularly strong for companies in our verticals, even though I think we're by far the best. It's still -- when you're in a weak vertical, you get judged amongst them as well.

As for NRS, I think one day, it's going to make a great independent company. And I think that when that 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.

[Operator]

[Operator Instructions] We have a follow-up coming from [ William Vaughan ] with Corient.

[Unknown Analyst]

So I just have a follow-up. 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 can 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?

[Samuel Jonas, executive]

It's not as simple of a question to answer as you would think. 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 we've been growing it at, we could see it getting to, I think, we said $14 million to $15 million of profitability from that part of the business over the next 2 to 3 years.

The one thing I would say is 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. 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 to a larger base of customers, you'll then figure out how to maximize the profits on it.

So we've sort of taken the approach of really trying to be 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.

But Marcelo, do you have anything to add maybe?

[Marcelo Fischer, executive]

I would say, William, just to give more context is that, obviously, the money transfer business, BOSS Money, is the lion's share of the fintech segment in terms of revenue. And that part of the business, BOSS Money, have been generating positive EBITDA now for the last 2 quarters and now probably a little bit more than $1 million in positive EBITDA the last 6 months. So it's doing well and that EBITDA will continue to grow as it scales.

But to some extent, BOSS Money is now growing EBITDA funding other investments in that segment, right? We have our Gibraltar Bank, which is at the cusp of using the full license to operate the full bank. We have our initiatives in online banking, online bank, Royal Biobank.

So Gibraltar, the neo bank, they're kind of pre-revenue at this stage and requires investment. We're kind of investing in those initiatives now with the cash flow from money transfer at this point.

But going back to the money transfer topic and to your earlier comments, a lot of the acquisitions that we have looked at in the last few months more focused on the money transfer space. 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 others did in the industry. But being able to supplement that with an acquisition will probably make a lot of sense in reaching scale.

If we look at a few of them, as we mentioned, right, the one we looked at so far have not met our criteria. And we're going to maybe continue to look at some future opportunities in that area.

[Operator]

[Operator Instructions] We have a question coming from [ Bill Monet ], a private investor.

[Unknown Attendee]

Just a question, I see cash balances are building fairly rapidly. You guys have stated that big acquisitions do not seem to be part of the plan now and the businesses are self-funded. I know you put in a small dividend, I guess about $5 million a year that will be at this point. Do you have any plans for the cash? It seems to be building up fairly rapidly, and it doesn't seem that there's many uses for it.

[Samuel Jonas, executive]

I mean either acquisitions or stock buybacks, that's really the 2 main places.

[Operator]

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.