IDT Corporation (New York Stock Exchange:IDT) Third Quarter 2024 Earnings Conference Call June 5, 2024, 5:30 PM ET
Corporate Participants
Shmuel Jonas – CEO
Marcelo Fischer – CFO
Conference Call Participants
operator
Good evening and welcome to IDT Corporation’s third quarter fiscal year 2024 earnings call. During today’s presentation, IDT’s management will discuss IDT’s financial and operational performance for the three months ended April 30, 2024. All participants will be in listen-only mode while IDT’s Chief Executive Officer, Shmuel Jonas, speaks. (Operator Instructions) Following Mr. Jonas’ remarks, Marcelo Fischer, IDT’s Chief Financial Officer, will join Mr. Jonas for a question-and-answer session.
Any forward-looking statements made in prepared remarks or during the question-and-answer session during this conference call, whether general or specific in nature, are subject to risks and uncertainties that could cause actual results to differ materially from the Company’s expectations, including, but not limited to, certain risks and uncertainties discussed in IDT’s periodic filings with the SEC.
IDT assumes no obligation to update any forward-looking statements it has made or may make, or to update factors that could cause actual results to differ materially from expectations. During the presentation or question-and-answer session, IDT’s management may refer to non-GAAP measures, such as adjusted EBITDA, non-GAAP net income and non-GAAP earnings per share.
The schedule provided with IDT’s earnings release reconciles Adjusted EBITDA, non-GAAP net income and non-GAAP earnings per share to the most closely comparable GAAP measures. IDT’s earnings releases are available on the Investor Relations page of the IDT Corporation website. Earnings releases are filed with the SEC on Form 8-K.
I will now hand the conference over to Mr. Jonas.
Shmuel Jonas
Thank you, John. First of all, First and foremost, I’m sorry that the lease is longer than you’d like to read, but nevertheless, here it is. Welcome to IDT’s earnings conference call. My remarks today will focus on our third quarter of fiscal 2024, or the three months ending April 30. For a more detailed discussion of our financial and operational performance, please see our IDT earnings call. For information on the quarterly results, please see the company’s earnings release filed today and its Form 10-Q, which it plans to file with the SEC on Monday.
IDT’s three high-growth, high-margin businesses continued to perform well in the third quarter, contributing to a 310 basis point improvement in consolidated gross margins. NRS surpassed 30,000 active terminals during the quarter, making it the largest convenience store point-of-sale network in the country, and net2phone doubled its adjusted EBITDA year-over-year during the quarter as the business continued to scale and improve operating leverage.
Additionally, at BOSS Money, our balanced omnichannel approach to customer acquisition and focus on customer service and user experience has helped us generate another quarter of revenue growth and our Fintech division’s first quarter of positive adjusted EBITDA. Looking forward, we are excited about the potential for sustained profitable growth in each of these three businesses. In our traditional communications division, we are continuing to turnaround our IDT digital payments business and expect our bottom line to continue to improve.
I’d like to talk a little bit about each of our three high-growth businesses. In our NRS division, we added 1,600 new POS terminals during the quarter. And we have a long sales window ahead in the independent convenience store retail market, and we have some initiatives that we recently launched. We’ve significantly expanded our product offering, which has expanded our overall addressable market.
In addition to expanding our retail store network, we are also bundling many of the new devices we sell with NRS Pay, improving our per-device economics. We are also successfully upselling profitable payment processing and SaaS plans to our existing customers. Advertising and data revenue increased 16% year over year, delivering strong year-over-year growth and positioning us well for continued advertising revenue growth. Advertising and data revenue are inherently volatile and driven by industry-wide trends and seasonality.
As we continue to grow in this space, we have made progress and strengthened our positioning in three key areas: building our base of direct advertising clients, including CPGs, positioning our digital screen inventory offering within the retail media network market, a popular advertising space, and expanding our content partnerships to attract new programmatic buyers.
Merchant Services revenue increased 66% year over year driven by growth in NRS Pay accounts. As we optimize incentives for POS users to utilize our payment processing solutions, we are also benefiting from a steady and measurable increase in credit card usage as a percentage of total transactions at retail stores. Overall, driven by solid growth in each revenue area, NRS operating profit and adjusted EBITDA more than doubled year over year, and we intend to maintain this momentum for the remainder of 2024 and certainly beyond.
The net2phone division continues to increase its contribution to IDT’s overall revenue, with adjusted EBITDA exceeding $2 million for the quarter, more than double that of the same period last year. As the business expands, we are seeing benefits in net2phone’s operating leverage. At the same time, we continue to focus on cost management and improving unit economics. For example, we have enhanced net2phone’s customer and channel partner portals to enable deeper self-management and account management, improving user convenience while reducing demands on the rest of the organization.
As a result of our efforts, net2phone’s combined SG&A expenses and technology development expenses have decreased as a percentage of net2phone’s revenue in each quarter of the current fiscal year. Overall, we continue to improve net2phone’s revenue while investing and acquiring customers at very attractive ROI. Net2phone’s seats grew 13% year over year, subscription revenue increased 17%, with particularly strong contributions from the United States, Mexico and Brazil, and average revenue per seat increased 4%.
Over the next few quarters, net2phone will transition from its current single all-in UCaaS pricing plan to a basic plan with premium feature-focused services, including AI-powered features, which we believe will continue to drive ARPU growth. In addition, in the coming months, we plan to roll out new features with significantly enhanced user experience, including a powerful single-screen interface for all net2phone services and all types of devices.
With new plans and deeper customer engagement, and with the significant market opportunity in the U.S. and especially in Latin America, I’m excited about the growth potential for net2phone, and I expect all of these initiatives to drive ARPU and C-count growth, and also CCaaS services, which we didn’t even discuss today.
In Fintech, our BOSS Money business had a strong quarter, expanding transaction and revenue growth rates that were already well above the industry average. The company continues to gain market share in key corridors from the US to Latin America and the Caribbean, and from the US to Africa. BOSS Money’s growth strategy is three-pronged:
First, we are expanding our agent network by adding new retail locations. Transactions generated through our retail agent channel have increased 49% year-over-year. Second, we are consistently focusing on cross-selling BOSS Money services to the much broader BOSS ecosystem and customer base. And third, we are continuously improving and refining our ability to profitably acquire new customers by paying close attention to customer acquisition costs and lifetime value.
Overall, we have doubled our transaction volumes over the past eight quarters and are committed to doubling them again, ideally sooner. We are very encouraged that BOSS Money has recently become cash flow positive and as we continue to scale, we aim to generate adjusted EBITDA margins in line with industry leaders. As the economics of our remittance business improved, our overall fintech division achieved positive adjusted EBITDA for the first time this quarter.
In the traditional communications segment, we remain focused on maximizing cash flow through cost reductions and operational efficiencies in our ILD voice and wholesale communications businesses as the paid airtime market continues to contract. At the same time, our IDT digital payments business has stabilized in recent quarters and we are working to return it to a growth trajectory through Zendit and a number of other applications we have developed. We are also rolling out price changes to our international mobile top-up products in various regions and will continue to monitor the impact of these closely. However, profitability has improved significantly so far.
On a consolidated basis, IDT’s three higher growth, higher margin businesses are steadily contributing more to consolidated results than the larger, lower margin legacy communications division. This transition will position IDT to achieve stronger total margins over time, with IDT’s consolidated gross margins steadily increasing over the past four quarters, while continuing to return profits directly to shareholders through additional share repurchases and quarterly dividends.
So Marcelo and I will be happy to answer your questions.
Q&A session
operator
Thank you. We’ll now move on to questions and answers. (Operator Instructions) Our first question comes from Alex Rohr (ph). Please state your affiliation and then your question.
Unidentified participant
Hi, Shmuel and Marcelo. So just briefly, I think in the traditional case, you were optimistic that you could get efficiencies in SG&A. I was a little surprised to see that SG&A was up year-over-year and quarter-over-quarter. Can you tell us a little bit about the drivers of that? And then we’ll have a follow-up.
Marcelo Fischer
Yes. Hello, Alex. Thanks for joining the conference call. Yes. We have significant cost reduction actions in place right now. You should see a lot of that in the coming quarters. Some of that was obscured in the third quarter by increased spending on one-time compensation agreements under executive agreements that we entered into and filed a few weeks ago. So, this is a one-time, non-cash compensation type expense that drove the increase in SG&A. But once you remove some of those expenses, you start to see some of the cost savings that were already planned to show up in the third quarter, but the bulk of it, many of it, will show up in the fourth quarter and beyond.
Unidentified participant
Okay. Thank you. Shmuel, it’s amazing that NRS has 30,000 kiosks. That’s over 1000 today. I think they’re the largest convenience store chain in the country. And they pay much less for most of the products, most of the cost of goods that are distributed in their stores. Smaller stores pay more, right? How do you think NRS is going to bring the benefits of NRS’s large scale to the individual customer when it comes to running their stores and sourcing their goods?
Shmuel Jonas
We’ve tried multiple times with group buying and shipping to rebuild inventory. So far, we haven’t seen much success in terms of using the savings to fund our retailer reserves and turn a profit from them. We’ll try again next year, but right now we’re focused on getting more customers into our stores and having them spend more, rather than reducing our cost of goods sold.
Unidentified participant
Got it, thanks everyone.
operator
(Operator Instructions) As there are no further questions, we will now conclude the Q&A and the conference call. Thank you for participating in today’s presentation. You may now hang up.
