IDT Corp (IDT) 2016 Q3 法說會逐字稿

Hello and welcome to the IDT Corporation's third-quarter FY16 earnings conference call.

(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 April 30, 2016. 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 anticipate.

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 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 website, www.idt.net. The earnings release has also been filed on the Form 8-K with the SEC.

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

Thank you, operator.

Welcome to IDT's third quarter of FY16 earnings conference call. My remarks today will focus on our business strategy, as well as key operational and financial results for the three months ended April 30, 2016. Unless I indicate otherwise, any comparison to the third quarter's results are to the year-ago quarter. For a comprehensive and detailed discussion of our results, please read our earnings release issued earlier today in our Form 10-Q, which we expect to file with the SEC by June 9th.

Following my remarks, 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.

Yesterday, IDT spun off to our stockholders our interest in Zedge as an independent public company. The hugely popular and fast-forming Zedge app for mobile device personalization began trading the regular way on the NYSE market exchange today.

I want to congratulate the entire Zedge team, and particularly Tom Arnoy and Jonathan Reich, and wish them good luck and much success as an independent Company. We believe Zedge has tremendous potential and the right team to fully realize it.

IDT has spun off or monetized a series of promising businesses in recent years, including CTM Media in 2009, Genie Energy in 2011, and Straight Path in 2013, as well as the sale of fabrics in 2014, and paid over $5 per share in dividends. We believe this strategy has worked out well for our shareholders. Zedge, we believe, is in a great position to continue this tradition by generating long-term value for its shareholders.

Looking ahead, we expect to continue to identify and nurture promising early-stage opportunities within and outside of telecom, with a potential to become game changes in their industries. Whether we realize value for shareholders by keeping in this core business operations that provide growth and free cash flow or monetize them through a sale or spin off, IDT shareholders will benefit from the targeted portfolio of growing business initiatives we are pursuing today.

One of the most promising of these initiatives is our nascent international money remittance business. Although it is still quite small, revenues increased from $1.1 million in the year-ago quarter to $1.8 million this quarter on the increasing transaction volume. It is now approaching a run rate of 1 million remittances per year.

We see tremendous potential for additional growth in this business. We are operating in only about a dozen states, and those states' operations are not anywhere near full penetration. We also are not yet in some of the biggest markets for money transfer, including California and New York. And we expect a geographic expansion alone will be a significant growth driver in coming quarters.

The Boss Revolution brand and transaction platform and our extensive retail networks of point-of-sale focused on immigrant populations provide us with a huge opportunity that no other online player can match. Our money transfer team is working hard to further accelerate the business' growth, and I'll update you on their progress during future calls.

Our Net2Phone office -- offering is also getting traction and we project it will expand greatly over the next few years. Net2Phone will also get a big boost with pickup. As I mentioned last quarter, pickup offers a free inbound and cloud PBX service with premium feature optionality, and is a great entry point for startups and small businesses.

In addition to these initiatives, we have also launched National Retail Solutions to provide services to our vast network of retailers and consumers. While still in the nascent stage, it has already developed a sophisticated platform, and we are partnering with financial service firms and consumer package good companies.

Innovation at IDT is not confined to new businesses. We are making good progress transferring Boss Revolution from a payments calling service to a communications and payments platform for immigrants to stay close to their friends and family around the world.

For the near term, best strategy is currently focused on two key objectives. First, we are upgrading the Boss Revolution retailer platform to improve our interactions with our retail network. The new version of our retail portal integrates our own money transfer software and enables retailers to sell our bill payment services and general purpose reloadable cards domestically and overseas. This is a big step in our goal in offering a comprehensive payment suite.

Second, as we talked about on previous calls, we will roll out a new generation Boss Revolution app. The app has had 4 million downloads and 2 billion minutes carried. Recently, we added mobile pop-up in money transfer, and that helped us achieve very nice growth in the apps active monthly users. The next version that includes peer-to-peer calling and instant messaging is almost ready for launch.

Now I want to make a few points regarding the quarter's financial results. I am going to try not just to repeat the information contained in our earnings release, which you can and should read for yourself, but I do want to make a couple of observations.

IDT delivered solid bottom-line results this quarter. The sequential revenue decreased, primarily from our wholesale carrier business, was disappointing but had a muted impact on our bottom line. That's largely because the revenue we lost was very low margin and because we continued to manage our overhead spend, even as we invest more heavily in our growth initiatives.

$24 million of the $27.3 million sequential revenue decline was from our wholesale carrier business, which lost a couple of high-volume but very low margin customers. Revenue in the retail communications vertical declined $18.5 million year over year and $4.1 million sequentially. Most of the revenue decrease was from sales of traditional calling cards in the US and overseas.

Sales of Boss Revolution's pinless calling service, which compromises the majority of retail communications revenues and generally captures higher margin decreased 4.5% year over year and 1.1% sequentially. The year-over-year decrease reflected the impact of the deregulation of the Mexican telecom market that we have discussed on previous calls.

Sequentially, the decline was largely a function of the shorter third quarter, which had two fewer days than the second. On a per-day basis, sales of Boss Revolution's international calling service increased 1.1% sequentially.

Adjusted EBITDA in the third quarter totaled $10.3 million. Our continuing effort to manage our overhead limited the decrease in adjusted EBITDA to $3.3 million year over year and $1.3 million sequentially. In light of these results, IDT's Board declared a quarterly dividend of $0.19 for the third quarter.

That is the end of my remarks. Now Marcelo and I would be happy to take your questions. Operator, back to you.

(Operator Instructions)

John Rolfe, Argand Capital.

Good afternoon. Few questions. You made some initial comments about the international money transfer business. I just was hoping you could repeat those. I thought what I heard you say was that in the quarter revenue from that business had grown from $1.1 million to $1.8 million. But then -- is that correct?

That's correct.

But then I subsequently thought I heard you say that that was a million -- you made some comment about that being a million annual business, which doesn't make any sense. So I --

A million transactions, like number of actual transfers made.

A million transactions.

Correct.

Okay, got it. And what would be a typical revenue you would generate on a transaction?

It depends on if it's online or off-line, and where the destination is. But I'd say it's anywhere from $2 to $5.

Okay. Great.

Could be a little more, actually.

A couple other questions. It appeared to me this was actually the first quarter in some time that you have shown growth year to year in your deferred revenues. I was just trying to square that with the fact that Boss Revolution growth slowed to close to nothing sequentially and that you had some declines in the calling card business. So what really drove that deferred revenue increase?

Hi. It's Marcelo. The deferred revenue continues to increase -- has been stable, primarily because of still of the strength of Boss Revolution. Although, we have seen declines in Boss Revolution because of the erosion of our Mexico card customer base because of the revelation that's happening in Mexico. Our other destinations, on the other hand, and the customer base for that continues to grow. And makes it pretty difficult to put revenue pretty much on a constant.

Okay. Okay. Great. And my last question, do you expect any material change in the corporate overhead run rate with Zedge being spun out? Or was that not really material just for that line item?

With the spinoff of Zedge, IDT entered into agreements with Zedge to continue to provide on a conditional basis. Certain back-office functionalities for them, like finance functions and HR, et cetera, and to that extent, IDT will charge Zedge for those services. So for the foreseeable next year or so, the corporate costs for IDT will come down slightly. It's going to be a decline next year at the corporate level, but the totality of it in absolute terms is not going to be meaningful for IDT.

Okay. Great. Thanks very much.

(Operator Instructions)

This concludes our question-and-answer session and the conference call. You may now disconnect.