IDT - Q4 2024

Transcript

Operator (participant)

Good evening, and welcome to the IDT Corporation's Fourth Quarter and Full Fiscal Year 2024 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 31, 2024. During prepared 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 Fischer, IDT's Chief Financial Officer, will join Mr. Jonas for Q&A with investors. 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 per share. A schedule provided in 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.

Shmuel Jonas (CEO)

Thank you, operator. Welcome to IDT's earnings conference call. My remarks today focus on the fourth quarter and full fiscal year 2024, the three and 12 months ended July 31st. 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-K that we expect to file with the SEC next Tuesday. IDT delivered a strong fourth quarter, highlighted by record Adjusted EBITDA to cap off our 2024 fiscal year. NRS, BOSS Money and net2phone all performed well, while our traditional telecommunications segment businesses delivered solid cash flow.

At NRS, we continue to make good progress on our strategic priorities, expanding our customer base in the large independent retailer market, increasing the penetration of NRS Pay, developing point-of-sale solutions for new verticals, and building out our advertising tech, all while deploying hundreds of new locations every month. At BOSS Money, we again achieved year-over-year transaction volume and revenue growth of over 40% during the fourth quarter. BOSS Money's economics continued to improve as the business scales, which enabled our Fintech segment to achieve its first quarter of positive cash flow generation. net2phone is steadily building its customer base, again, adding approximately 12,000 net new seats, including 2,000 CCaaS seats in the fourth quarter, while also doing a good job of controlling its costs. As a result, net2phone's Adjusted EBITDA margin more than doubled compared to the year-ago quarter.

We are focused on further improving net2phone's bottom line through continued volume growth and increasing revenue per user, driven by expansion of our higher revenue, higher margin CCaaS offering and by migrating customers to premium plans and features, including plans with new AI-powered functionalities. In our traditional communication segment, we significantly improved the economics of our business and began to see the expected payoffs from cost reduction initiatives we implemented throughout fiscal year 2024. In fiscal 2025, we will continue to pursue opportunities to improve the performance of our businesses and lower costs, while maximizing cash flows and reinvesting in customer acquisition. IDT enters fiscal 2025 with strong momentum. NRS, BOSS Money and net2phone are all profitable and each has a long growth runway.

In the year ahead, we will drive their continued expansion and invest in new, exciting growth initiatives that leverage our strategic assets and expertise. We remain committed to maximizing the cash generation from each of our segments, building dynamic businesses for long-term value creation, and returning value to our stockholders through our investments in new initiatives, share buybacks, and dividends. Lastly, I would like to thank everyone at IDT who has really worked very, very hard to deliver the numbers that we delivered to you today. Oftentimes, just looks like numbers on a paper, but it's really a lot of work. Now, Marcel and I will be happy to take your questions. Thank you.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone 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. Okay, our first question comes from Iñigo Alonso with MORAM Capital. Please proceed.

Iñigo Alonso (Analyst)

Hello. Congratulations once again on the amazing results. I had a question first, well, a couple of questions on net2phone. I wanted to ask about the Metaswitch end of life. Is this going to be a tailwind for your business, or you don't really share the platform that you own with other UCaaS players?

Shmuel Jonas (CEO)

It's not, as far as I know, it has no effect on our business.

Iñigo Alonso (Analyst)

Okay. And then regarding the migration in net2phone from your rented platform to your own platform, how, in a percentage, how complete are you with the migration? And are you expecting to have synergies there?

Shmuel Jonas (CEO)

Yeah, I mean, we expect to actually start migrating more customers over the next quarters. Basically, no new customers go on to any other platform other than our own. And, you know, we hope to see savings from it and better, you know, satisfaction from our users once they're on, you know, net2phone's homegrown platform.

Iñigo Alonso (Analyst)

Do you have any hard timeline on when you would like to see the full transition into your own platform?

Shmuel Jonas (CEO)

No.

Iñigo Alonso (Analyst)

Okay. And the last question is about NRS. In previous calls, you have talked about a potential future NRS spinoff. Obviously, market circumstances are not the best today, but what type of circumstances would you like to see in the market and in your own business in order to do the spinoff?

Shmuel Jonas (CEO)

You know, again, I mean, right now, we're focused on building, you know, NRS into, you know, a multi-billion dollar company, and you know, when the time is right, you know, we'll have the ability to, you know, to spin off, you know, or do some other type of transaction. However, at the moment, you know, we're very happy with how it's doing internally.

Operator (participant)

Okay, the next question comes from Greg McKinley. Please announce your affiliation and pose your question.

Greg McKinley (Analyst)

Yeah, good afternoon, Greg McKinley with Asymmetric Management. A couple questions. First of all, on the money transfer business, so it looked like we crossed the threshold there, and we're now EBITDA and operating income positive. Can you help us understand how we should think about sort of incremental margins there now that we've crossed that line? You know, we're growing very rapidly on the top line. What's your view for margin expansion there? And, you know, what kind of big investments, if any, do you need to make there to continue to support growth, or is it more of a margin leverage business now?

Shmuel Jonas (CEO)

Yeah, I'm gonna let Marcelo answer most of the question. But I will say that from, you know, from a very high level, you know, I don't think that we're. You know, our goal is to expand margins tremendously on a per transaction, you know, basis. I think, you know, our main goal is to make sure that our customers, you know, stay with us for very, very long term, even if that means, you know, slightly lower margins, you know, than we could achieve if we, you know, tomorrow, if we decided to, you know, to do so. So to us, it's really about, you know, growing the number of customers and making sure that, you know, every time that they think about sending a money transfer, you know, they only think about using us.

But with that-

Greg McKinley (Analyst)

Yeah, thanks. And just to clarify my question, I wasn't really asking so much from a customer standpoint. I was thinking more of the business unit. It looks like it's now flipped to EBITDA positive. So anyway, just wanted to make sure I was clear on that.

Marcelo Fischer (CFO)

Yeah. Hi, hi, Greg, it's Marcelo.

Greg McKinley (Analyst)

Hi.

Marcelo Fischer (CFO)

Correct. I mean, I think, this 2024 was just a fantastic year for BOSS Money, from all angles. As you see, it's the year that we crossed the $100 million revenue mark. We are now doing more than 20 billion transactions a year on a run rate. It's also the first year that BOSS Money became EBITDA positive, and we became strongly EBITDA positive. It generated about $4 million in positive EBITDA, and by doing so, it lifted not all the entire Fintech segment, which includes also some other businesses, which are much more on investment mode. Some of them are still pre-revenue. So BOSS Money has been a great engine for both top line and bottom line growth.

We finished our budgeting process for 2025, and our new fiscal year has just begun about a month ago. We believe that BOSS Money for 2025 will probably deliver more than $10 million of EBITDA, now more than double the EBITDA that they generated in 2024. What's driving that is all the things that you're seeing, right? It's the continued around 40% growth, both in transactions and in revenues, coming both from the digital channel and the retail channel. Now, we continue to see that strength on the top line as we go into Q1, during the months of August, September. More importantly, now to the leadership of Shmuel and Bill Pereira, we really have tackled the business in terms of improving operational efficiencies, a lot of automation.

And that's starting to show itself on the bottom line on managing that SG&A to allow the business to scale at a faster clip. And our focus actually is going to be shifting a little bit now as we start the new year. Not necessarily to push for continued 40% type of growth, but a little bit more of a focus on trying to improve for us is the most important metric in this business, which is gross profit gross margin per transaction, what we call GMPT. We are starting to make some changes in pricing to generate higher GMPT, even if that costs a little bit in terms of top line growth, but that's going to further yield okay better and stronger bottom line cash flows.

Shmuel Jonas (CEO)

Yeah, I mean, the one thing I would say is, I think Marcelo might be being a little bit conservative on his projections. But again, as you know, I said in the beginning, it's really a question of whether or not you want to have, you know, expanded GMPT or a longer lifetime value of every customer. You know, we try to balance that, both having good profitability as well as many happy customers that stay with us for a very long time.

Marcelo Fischer (CFO)

Right. I think to that extent, now, sometimes when we think about our system business in many ways, like our mobile top-up business, our MTU business, which is part of our, which is our largest revenue business of the corporation in our traditional segment. Also with that, you're gonna start seeing some very nice growth on the top line. We have made some pricing changes to the portfolio, and that's really going to help contribute in terms of the overall decline in traditional communications to be a lot less than what you have seen in the past year.

Greg McKinley (Analyst)

Great. Thank you. And this is my first time dialing in for this call, so I'm not sure historically what topics you guys are willing to comment on from a forward outlook standpoint. But you just mentioned the decline in the traditional business, and you think maybe that decline rate of decline will moderate. I'm wondering, could you comment a little bit on that? And then say, you know, how much of it, how much of an improvement in the rate of decline? And then it also looked like the high growth businesses more than offset the decline in the mature business.

Can you talk a little bit about what that means in your view for revenue growth, if you expect that in 2025 and EBITDA, if you do provide, you know, forward commentary on that? I'm not sure. Thank you.

Marcelo Fischer (CFO)

Sure. Let me take one thing at a time, okay? Let's start with traditional segment and then look at the consolidated picture. So, and it's not a new story. In our traditional segment, most of the businesses there is our legacy long distance voice businesses. Those businesses have been in decline for now many years.

We expect the revenues in the revolution of calling business and wholesale carrier to continue that rate of top-line decline to be double digits. We are managing those businesses for maximum efficiency and strong cash flow generation. Now, we do not allocate significant capital towards those businesses. You saw in fiscal 2024, those businesses, the traditional segment declined its EBITDA by about $11 million. Now, thinking about this new year, 2025, both as a result of the large cost-cutting exercises that we did during 2024, they were quite painful, but we executed on them. As I had mentioned in prior calls, we are going to start seeing the impact of that, of those cuts in Q4 and beyond.

And so as a result of that, as well as what I mentioned earlier, as a result of the fact that, the mobile top-up business, our digital payments business, which is part of that segment, which is now in a faster growth mode, both in terms of volume as well as, due to very strategic pricing, pricing changes. The combination of the cost cutting and that will probably make the decline in traditional EBITDA for this coming year to be a lot less than $11 million, maybe around $5-$6 million, for this coming year.

So that could probably be, we estimate about $60 million of EBITDA coming from the traditional businesses. And that leads really to the combined picture, right? I believe that fiscal 2025 will probably see a slight increase in consolidated revenue, as the new businesses, as the growth businesses, start generating more revenue than the decline in the traditional side. But more important than that, when you look at the bottom line, one of the things that we have been very focused now for many years is to be able to demonstrate that we are able to increase bottom line consolidated EBITDA every year, despite of the fact that our core businesses, EBITDA, have been coming down and been coming down strong.

I think now it's about five or six years that we have grown EBITDA on a consolidated basis. We finished 2024 with a record $90 million in EBITDA. Our Q4 that we just announced today, EBITDA of $25 million, that's... I've been with the company for about more than 20 years. This is our highest EBITDA ever in IDT's history, and looking into 2025, with all the businesses now being EBITDA positive, we believe it could definitely surpass $100 million in EBITDA for 2025 as a soft guidance.

Greg McKinley (Analyst)

Yeah. Great, thank you.

Operator (participant)

Again, if you have a question, please press star, then one. Okay, we have a couple questions in queue. The first coming from Will Carter, private investor. Please proceed.

Yes, on BOSS Money, obviously really strong growth again this quarter and, you know, continues, you know, really strong year. Where are you guys seeing a lot of this growth from? Are you taking share from competitors? Is this a growth pocket within the market? Interesting to just understand where that's coming from within the larger kind of competitive space.

Shmuel Jonas (CEO)

I mean, the truth is, I don't really know. I mean, you know, we do surveys with customers, you know, to find out, you know, who they've, you know, previously used for money transfer. And definitely, you know, you know, most of them have used others, so I guess in some, you know, to some degree, we're taking that business away from, you know, competitors. I think that, you know, you know, we do a very, you know, good job, you know, cross-selling our customers, you know, amongst, you know, all of our different services. And, you know, making sure that, you know, you know, that they're happy so that, you know, when they're, you know, sitting around talking, they tell their friends about it. And, you know, that drives, you know, them to us.

You know, as opposed to some of our competitors who spend wildly on customer acquisition, we really try to, you know, sort of have a, you know, be tame, I'll say about it, and really not, you know, overspend. You know, we're very focused on making sure that, you know, as I said, that we drive profitable, you know, customer relationships, long-term customer relationships. You know, we just make sure that, you know, things work for our customers, and that, you know, our pricing is, you know, as good if not better than all of the, you know, competitors that we track against. That's, you know, really the simple answer.

Marcelo Fischer (CFO)

Yeah, I believe that the BOSS Money brand is becoming a stronger presence in the customers that we're trying to attract for this service. Like, until recently, you know, we used to get comments that, "Oh, you guys at IDT, you do BOSS Revolution Calling," and, "Oh, I didn't know that you guys also offer a money transfer business called BOSS Money." Like, more recently, it's the other way around. You know, we hear from customers saying, "Oh, you guys do BOSS Money on the transfer. I didn't know that you guys also do international long distance calling." Right? So BOSS is becoming a more stronger brand in the marketplace right now.

Yeah. Are there certain payment corridors where you guys feel you have outsized share, or is it sort of across the different corridors between the U.S. and other countries?

Shmuel Jonas (CEO)

Well, I mean, again, we've today, you know, are almost 100%, you know, U.S. outbound. I mean, we do-

Yeah.

from Canada as well, but it's a small percentage. And I would say that, you know, again, we have some countries that we have, you know, a high share of, you know, transactions to. You know, and our goal is to, you know, try to make every country, you know, a country that we have, you know, a high share of transactions to. Obviously, you know, you get to a certain, you know, scale and it becomes more, you know, I'll say self-fulfilling. You know, you have a big enough share and, you know, customers start telling each other about it and we definitely have reached that, you know, in one or two of the markets.

But, hopefully we'll get to, you know, a couple more this year.

Marcelo Fischer (CFO)

Yeah, I mean, part of the irony is that most money transfer operators in the U.S., for them, the largest corridor obviously is Mexico. Now, and for us at IDT, actually, Mexico is not yet a very large corridor. It's not one of the top three corridors. We are growing our presence in Mexico, so we actually view Mexico as an opportunity at this point, you know, to try to get even more market share from some of our competitors.

Got it. That, that's really helpful. And then my last question is on NRS. Another amazing year. Congratulations, guys. It would be helpful just, you know, kind of maybe similar to the overview that Marcelo gave on what you're thinking about 2025. You know, any goals around terminal deployments, kind of revenue targets, and then maybe SG&A levels that would be required to get there?

Yeah, I mean, NRS continues to be very robust. We expect and we have budgeted to continue to grow the network, the POS network, by that roughly about 500 POS a month, or at 6,000 POS a year, which is what has been the trend for the past few years on a net basis. That's our objective going forward. That's going to be driven by the growth in merchant services, by selling more NRS Pay accounts, together with our POS service, continue to increase the operating leverage of the business. I think right now we are doing about 25%... 24% net margins. Probably growth maybe 25% net margins this coming year.

It's always a balancing act of how much you want to be increasing that margin and, you know, top line, bottom line growth. So I think we have gotten a good balance, you know, level of investment and growth at the same time. So I would not be surprised if EBITDA for NRS grows another 30% this coming year on top of the record $25 million that we delivered for this year.

Shmuel Jonas (CEO)

Yeah, I mean, the only thing I would add to that is, you know, I mean, that, you know, we have some products that we only recently launched that, you know, we really don't know yet like, I'll say, how they are going to, you know, impact our numbers long term. I mean, I can tell you just on, you know, we've launched kiosks in our stores for doing self-ordering, and, you know, we're sold out of them. I mean, hopefully we'll have, you know, more of them, you know, in the next, you know, month or so.

I mean, you know, so, you know, there are a lot of pockets of, you know, of growth that I think, you know, we'll continue to, you know, make, you know, volume, you know, in every, you know... For what we do in every store, you know, be greater than what it is today. I mean, the interesting thing to me, you know, about kiosks is that, you know, it actually increases the amount of, you know, merchant services that are done in the store quite significantly. You know, I mean, when people- are going to a counter and paying, you know, they're much more likely to, you know, pull out cash from their wallet versus, you know, paying at a kiosk. You know, and we've launched, you know, our Panther POS, which is our tablet-based POS system, you know, a couple months ago, and it's going very, very well. And, you know, we're about to launch it in, you know, a couple new form factors, you know, as well as, you know, we're now developing it for iOS as well. You know, and we expect to, you know, launch pay on the tablet, you know, as well, probably by the end of this fiscal year.

So there, there's a lot of, you know, demand, and that will also be, you know, able to be self-sign up, you know, from our website. You can go on that, you know, fill out a form, either that or, you know, download it from the App Store, fill out, you know, a form that comes in the app and, you know, start, you know, doing transactions. And it's also been, you know, a very good product, you know, for our existing retailers to help them, you know, move the queue faster, you know, especially on, you know, on days when they're, you know, busier and, you know, they need an extra register. You know, they just, you know, pull out, you know, a tablet and, you know, start, you know, moving the line.

Those are, you know, some of the new things that are happening.

Operator (participant)

Okay, our next question comes from Max Martinyuk, private investor. Max, please proceed.

Hi, guys. First of all, just congratulations on the quarter. My question is relating to the remarks you guys said, quote, on the NRS, quote, "Deploying hundreds of screens in new locations outside of our independent retail market," unquote, and I think you actually just covered a little bit in the previous question, mentioning of the kiosk and the Panther tablets, for the screens. Is it all POS-related screens, or are you guys looking to kinda, like, offer screens where it's just pure digital out-of-home advertising, and the second part of the question is just on the new locations, like, what verticals are you guys looking at? Do you still see, like, a lot of runs within your core market, or are you guys looking to really expand into new verticals now? Thank you.

Shmuel Jonas (CEO)

Okay, so there's a bunch of questions there, so I'll try to remember all of them when I give you an answer. You know, as far as the new locations for screens, you know, we're doing right now, hotel lobbies is actually a big push for screens. We just, I mean, we placed a couple hundred over the, you know, this past quarter. You know, we just ordered a thousand, you know, more for, you know, today for that vertical alone. And, as far as, you know, new verticals, you know, again, we're, you know, we're definitely trying to go to things that are adjacent to us, you know, whether or not that's, you know, hardware stores or, you know, quick service restaurants. Anything that's SKU-based is really, you know, still our main focus.

You know, liquor stores is definitely a big focus. We just hired, you know, someone to run, I'll call it our liquor store division, to really make sure that it's, you know, completely customized for everything that they need. You know, we continue going after, you know, gas stations. You know, we continue, you know, testing the waters, you know, in some other, you know, verticals, but again, you know, QSRs is probably our biggest, you know, verticals that is adjacent to where we are now, and you know, that's. As I said, unfortunately, we're sold out of our kiosks for right now, but, you know, we'll be getting more shortly.

Operator (participant)

Okay, we have a follow-up coming from Iñigo Alonso with MORAM Capital. Please proceed.

Iñigo Alonso (Analyst)

Hey again. I wanted to ask about BOSS Money. It looks like you have a way stronger presence in the Northeast with more retailers. I was wondering what's the strategy to grow nationwide, and if you have considered tracking in the public information that you release, the number of retail locations that you have over the country and maybe the areas, just like you do in NRS. Thank you.

Shmuel Jonas (CEO)

Okay. I don't know if we released that information or not. I mean, I don't consider it to be a state secret, but we're, you know, slightly under 2,000 retailers that we do retail money transfer at. You know, again, similar to the comments that I made about, you know, lifetime customer value and GMPT. You know, we're not focused on the number of locations that we have, but we're focused on making sure that the locations that we have, you know, are profitable and are doing a lot of transactions. That's really our goal. We don't want, you know, retailers that do a handful of transactions. They cost us more to have than they're worth the effort in having.

So, you know, we do open and close a lot of locations, you know, for that reason. However, you know, what I would say is that, you know, we are definitely focused on, you know, growing our retailer base, but the majority of the growth, you know, that you're seeing is really in the digital verticals. And, you know, that continues to be our main focus, and that continues to be where we're having, you know, a solid profitability, you know, from-