IDT Corp (IDT) 2016 Q1 法說會逐字稿

Good day, and welcome to the IDT Corporation's first-quarter FY16 earnings conference call. During Management's prepared remarks, all participants will be in listen-only mode.

(Operator Instructions)

After today's presentation by IDT's Management, there will be an opportunity to ask questions.

(Operator Instructions)

In today's presentation, Shmuel Jonas, CEO of IDT Corporation, will discuss IDT's financial and operational results for the three months ended October 31, 2015. 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 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 make, or to update the factors that may cause actual results to differ materially from those they forecast. In their presentation, or in the Q&A that will follow, IDT's Management may make reference to the non-GAAP measures, adjusted EBITDA, non-GAAP net income, and non-GAAP diluted EPS.

A schedule provided in the earnings release reconciles adjusted EBITDA, non-GAAP net income, and non-GAAP diluted EPS to the nearest corresponding GAAP measures. Please note that the IDT earnings release is available on the investor relations page of the IDT Corporation's website, www.idt.net. The earnings release has also been filed on a Form 8-K with the SEC.

I would now like to turn the conference over to Mr. Jonas.

Hi, thank you very much, operator.

Welcome to IDT's first quarter of FY16 earnings conference call. My remarks today will focus on key operational and financial results for the three months ended October 31, 2015. Throughout my remarks, when giving comparative results, I will compare the first quarter's financial results to the year-ago quarter, unless otherwise indicated. For a comprehensive and detailed discussion of our results, please read our earnings release issued today, and our form 10-Q. Consolidated results for the first quarter of FY16 were highlighted by strong growth in adjusted EBITDA and sequential non-GAAP EPS, both of which are explained and reconciled to GAAP measures in our earnings release.

Mr. Jonas?

Give us one minute. Sorry, we apologize.

Following our remarks today, Marcelo Fischer, IDT's Senior Vice President of Finance and IDT Telecom's Chief Financial Officer, will join me, and we will be glad to take your questions. In considering the quarter's results, I want to call your attention to three notable factors that impacted either this quarter's results or comparisons with prior quarters.

First, in the year-ago quarter, Fabrix contributed $4.2 million in revenue, and income from operations of $948,000 prior to its sale. In the first quarter of this year, there was no contribution from Fabrix. Second, also in the year-ago quarter, the sale of IDT's interest in Fabrix resulted in a gain of $75.1 million that flowed through to income from operations and GAAP net income. Third, following the deregulation of the Mexican telecommunications industry, the cost of terminating a call to Mexico has plummeted by more than 75%.

As a result, our competitors, including major wireless carriers have slashed their rates for calling from the US to Mexico, and many have added unlimited Mexico calling to their monthly plans. In response, we have also lowered our prices to call Mexico on the Boss Revolution app, and introduced the $5 unlimited Mexico plan. However, we generally have chosen to prioritize our margins. And as a result, while we experienced a decrease in retail communications revenues, the impact on our adjusted EBITDA has been relatively mild.

Absent the Mexico rev, Boss Revolution calling revenue increased by approximately 5% year over year. Consolidated revenue in the first quarter was $390.6 million, compared to $412.9 million a year ago. Retail communications revenues declined by $10.7 million. Wholesale carrier revenue decreased by $9.8 million, and as I mentioned, Fabrix contributed $4.2 million in revenue in the year-ago quarter. We have been keenly focused on improving margins across our businesses.

Thanks to strong performances by retail communications and our wholesale carrier business, consolidated revenue less direct cost, expressed as a percentage of revenue, increased nicely to 16.9%, from 16.7% in the first quarter of 2015. Consolidated SG&A expense decreased by $3.9 million year over year, to $53.1 million, which is the lowest level we'd achieved since FY12. Expressed as a percentage of revenue, SG&A expense decreased to 13.6%, compared to 13.8% in the year-ago quarter, despite the revenue reduction.

Adjusted EBITDA, which excludes both the $75.1 million gain on the sale of Fabrix, and $1.5 million in severance in the year-ago quarter, increased 25%, to $13 million, from $10.4 million in the first quarter of FY15. IDT's diluted EPS was $0.18 a share in the first quarter, an increase from the $0.05 a share in the fourth quarter of FY15. In light of these results, and our improving bottom line, IDT's Board of Directors has authorized a $0.01 increase in the quarterly dividend, to $0.19 per share for the first quarter. The dividend will be paid on December 18. This is the third consecutive year we have raised our quarterly dividend.

Now, I want to update you on some exciting operational developments. We recently began beta testing a web-based international money transfer service through the Boss Revolution mobile and website. You can now send money around the world, from the comfort of home, for as little as $3.99 per transaction. This service is a logical complement to our retailer-based international money transfer system.

Looking ahead to the first half of calendar 2016, our popular Boss Revolution app, which has been downloaded more than 3 million times, and is now used by over 500,000 customers to place calls around the world each month, will get an overhaul and a boost, with the integration of peer-to-peer calling and instant messaging. These two free services should significantly increase the app's market penetration, and enhance our already powerful brand.

Also in the first six months of calendar 2016, Net2Phone, our business communication division, will launch Unite. Unite is IDT's new unified communications platform for small businesses. Unite will offer entrepreneurs the free basic service with premium feature optionality, and will complement our current business offerings, including Net2Phone Office, our hosted PBX solution. Unite should prove to be a powerful approach in the very rapidly growing unified communications as a service market.

It clearly has the potential to quickly become a significant part of our story. We believe that Unite, together with our new Boss Revolution app, incorporating messaging and peer-to-peer calling, and other new services coming online later this year, will sustain our positive momentum going forward.

Finally, I want to pass along a piece of breaking news. Earlier today, Zedge, the popular app for getting ringtones, wallpapers and other free content on your mobile phone, was named by Google Play as one of the best apps of 2015 in the personalization category. While I'm on the topic of Zedge, we are making good progress on the spinoff of Zedge to our shareholders, and expect to complete it during the first half of calendar 2016.

That wraps up my discussion on the quarter's financial and operational results. Now, Marcelo and I would be happy to take your questions. Operator, back to you for Q&A.

(Operator Instructions)

John Rolfe, Argand Capital

Hello. A few questions for you. One, I noticed that you paid your outstanding debt down in the quarter. I think that was primarily mortgage debt on some of the properties. Was that done in preparation for the spend?

Hi John. It's Marcelo.

We had one remaining mortgage at IDT, which was the mortgage on our Piscataway property in New Jersey. That mortgage maturity occurred this quarter, and we decided to pay off the mortgage in full, and not to refinance it at this point. Once we complete the spinoff of the real estate assets sometime next year, this property in Piscataway will be one of the assets that will be part of that new entity.

Okay. And what -- can you give any broad expectations for CapEx for the full year?

Sure. As you may recall, the CapEx for 2015 was elevated by about $2 million a quarter, $2.5 million a quarter, because we have the construction here at the headquarters, and trying to fix our headquarter building. Going forward, that have been completed. And our CapEx run rate, which is mostly support of telecom initiatives, is going to be roughly between $4 million to $5 million a quarter.

Okay. Great. A couple other questions. One, can you talk a bit about, with the free person-to-person calling and messaging on the app, how do you think about -- or how are you thinking that you might be able to monetize some of that traffic, so that it has a financial benefit for you?

Hello. This is Shmuel. So I'll try to answer that. I guess it's two- or three-fold.

One is, if you look at companies that are in mostly the free space, but I'll even call it premium space, such as Skype and Viber, they offer free services, but they also offer free paid out-services. They call it Skype Out or Viber Out, just as an example. And a percentage of people who try to call person-to-person, using Wi-Fi or using high-speed data, sometimes are not able to either get a good connection, or one party has a good connection and one party doesn't. And therefore, they need to make a call over traditional phone lines.

That, for Skype, I believe, is over $1 billion a year business. So I don't think that we are going to gain nearly that much in paid out revenue. But I think that we could become a very large player in the peer-to-peer space, and therefore get more people to use our paid-out space. Because again, once you're their only alternative for making calls, they will just use you when they are making a paid call.

Okay. And you mentioned the rollout of Unite, which I think it's certainly the first time I've heard you mention that. How bullish are you on that? Do you think that that could lead to the hosted platform business becoming a growth business again, 12 to 18 months out?

I do believe that. We have signed up a couple thousand lines already for our fully paid version, which is Net2Phone Office. Or you can go online, and you can check it out, Net2PhoneOffice.com And we expect to get in the hundreds of thousands of Freemium lines within a couple months of launch. And we believe that a lot of those will lead to either, eventually, a fully paid version our a partially paid version.

Okay, great. One last question for you.

I get the sense that maybe the decline in the US/Mexico corridor, or the impact of the reduced termination pricing, was a bit more than you had expected. But certainly directionally, you have talked about that happening in prior quarters. And I think last quarter, you said as a result, you were going to focus more on the non-Mexican or Hispanic immigrant groups, particularly Asians, I believe, to try to plug some of that gap.

Has that focus on the non-Mexican cohort groups gone as you would have hoped or planned? Have you been able to grow that business? And where do you stand, in terms of where you are today? And where do you hope to be, in terms of making that a bigger piece of the whole, going forward?

I would answer yes and no to that question. On the one hand, revenues to all other corridors, with the exception of Mexico, continue to go up. On the other hand, our efforts in personalization, I will actually call it, of our products, to better cater to non-Spanish speaking or non-English speaking corridors, has not gone quite as fast as we would like.

We have rolled out a couple of languages. And again, it's a longer and harder process than we would like, but we are continuing to do it. I think we rolled out Creole in the past couple of days, and we're continuing to basically cater to regions, and non-English and non-Spanish speakers.

Okay, great. Thanks very much. I appreciate it.

(Operator Instructions)

This concludes our question-and-answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.