IDT Corp (IDT) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to the IDT Corporation's first-quarter FY17 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-month period ended October 31, 2016. Any forward-looking statements made during the 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 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 they forecast.

In the presentation or in the Q&A that will follow, IDT's management may make reference to 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 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. Please go ahead, sir.

Thank you, operator. Welcome to IDT's first-quarter FY17 earnings conference call. My remarks today will focus on key operational and financial results for the three months ended October 31, 2016. Unless I indicate otherwise, results are for the first quarter of FY17 and are compared to the year-ago quarter.

For a comprehensive and detailed discussion of our results, please read our earnings release issued earlier today and our Form 10-Q which we expect to file with the SEC on or about Monday, December 12. 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.

Beginning this quarter we enhanced our segment reporting structure by adding a new reporting segment, Unified Communications as a Service, or UCaaS. This addition is intended to reflect our evolving operational structure and improve visibility into the performance of certain of our growth initiatives.

Our financial results this quarter included a year-over-year decline in revenue and a decrease in SG&A expense which significantly mitigated the impact of the revenue loss on our income from operations and adjusted EBITDA. Meanwhile, our bottom line net income benefited from a number of factors, particularly a one-time benefit from income taxes.

IDT's aggregate revenue in the first quarter was $369.2 million, a decrease of $21.4 million from the year-ago quarter, but a slight $1.1 million increase sequentially. In our largest segment, TPS, revenue declined $18.6 million year over year to $360 million. Within TPS, retail communications revenue decreased $14.3 million, in part reflecting our decision to significantly lower our rates to Mexico this past July, due to changes in the market that we have discussed in the past.

Wholesale carrier services revenue slid by a $8.5 million, primarily resulting from the absence in the first quarter of FY17 of a South American firm arbitrage opportunity that was a factor a year earlier. These declines were partially offset by a $4.1 million increase in payment services revenue. Within payment services our international mobile top-up products, our BOSS Revolution international money transfer business service and National Retail Solutions all delivered robust sales growth.

Turning now to our new UCaaS segment, revenue increased slightly to $7.1 million from $7 million in the year-ago quarter, as rapid growth in sales of our Net2Phone Office hosted PBX offering outstripped the decrease in SIP trunking revenue. In the third quarter of FY17 reduced aggregate SG&A expense to $45.4 million, a $7.7 million reduction from the year-ago quarter. As a result, we were able to significantly mitigate the impact of the aggregate revenue decline on income from operations and adjusted EBITDA which came in at $5.2 million and $10.7 million, respectively. This is the third consecutive quarter that we have delivered adjusted EBITDA of between $10 million and $11 million.

Net income attributable to IDT in the first quarter was $21.9 million, including $2.4 million of other income net, primarily resulting from foreign currency transactions as well as a net benefit from income taxes of $14.4 million, mostly due to the reversal of a previous valuation allowance on foreign deferred tax assets.

Turning now to some key operational developments. We continue to be very encouraged by the progress we are making in our early-stage growth initiatives. Our Net2Phone Office hosted PBX offering, a key component of the newly created UCaaS segment, exceeded our internal goals in the first quarter and is seeing significant positive momentum. In the second quarter we plan to launch this offering in Brazil with a promising line-up of master agents ready to pitch the Net2Phone Office solution and the market appears to be ripe for us.

Also in the first quarter PicuP signed up thousands of customers for our free beta version. And while right now this business has no revenue, we plan to go live with a compelling and disruptive premium offer, including attractive pay plans right after the new year.

At National Retail Solutions, or NRS, we saw incredible growth this quarter. We are working with a rapidly-expanding number of consumer packaged goods companies to make coupons and discounts available to our retailers and their customers. Our business model is a win-win for customers and retailers, CPG suppliers and distributors.

Our international money transfer business has been doing well in recent quarters. We surpassed the one million transaction per year run rate earlier this year, and revenue in the first quarter increased by over 150% compared to the year-ago quarter.

After the quarter closed, we also launched the new BOSS Revolution money app which includes money transfer on Android and iOS. We will begin marketing the new app in the coming weeks and expect it will feed into the growth of our money transfer business.

We also finally launched an update of the BOSS Revolution calling and messaging app on Android and expect to launch on iOS in early 2017. After some hiccups at launch, the app seems to be stable. And in the past two weeks we have seen a steady uptick in users, minutes of use and engagement, largely because of the peer-to-peer calling and messaging features in the new global markets.

Last quarter we began to roll out an update of the BOSS Revolution web platform for retailers. It is a major upgrade and we are confident that it will have a long-term positive impact on many of our businesses. We have migrated approximately half of our retailers to the new version so far and expect to resume the migration right after the holidays.

Also during the first quarter IDT announced an investment in Cornerstone Pharmaceuticals. The company is [pioneering] a metabolic-based approach to treating some of the most intractable cancers, including pancreatic cancer. Early clinical results on its lead compound, CPI-613 have been encouraging and we are looking forward to the next stages of clinical trials.

As you know, our Board of Directors has authorized management to pursue a spin-off of our non-core business and assets. Our preparatory work is proceeding and I expect that we will be in a position to complete the spin during the second half of FY17.

In light of our performance and our increased level in this investment and our new initiatives, our Board of Directors declared a $0.19 per share dividend for the first quarter, maintaining the distribution at its current level. Now Marcelo and I will be happy to take your questions. Operator, back to you for Q&A.

(Operator Instructions)

Saidal Mohmand, GrizzlyRock Capital.

Yes thanks for taking my question. I wanted to see if you could provide any color on the incremental SG&A costs for -- it looks like all the new different initiatives that you guys have.

In terms of the entire amount spent?

In terms of incremental which you guys are looking to spend over the next year or so.

I think that this past quarter actually probably had 75% to 80%, like if you look at a run rate of what we plan to spend on a quarterly basis for it, if that makes sense.

Got it, okay. So run rate, okay, run rate this quarter is what you are saying, minus a little bit extra. Okay.

And then the other question I had too, a little bit -- if you could provide a little bit on the cadence or how we should expect the declines within the BOSS business, particularly for the price -- it looks like to be pretty significant price cuts in Mexico. How should we think about that?

As far as Mexico I think most of it is pretty much accounted for. Maybe Marcelo has further thoughts on it.

Hi. As you know, and actually having called it, we took down the pricing to Mexico back on July 1 before the end of the last quarter. I think then the reaction had been very much like we expected. We have seen a large stabilization in terms of the customer count in Mexico.

We are still losing Mexican customers but probably at just one-third of what we were losing prior to price decline, so very much in line with what we projected. That week had an impact obviously to our revenues and to our gross profit. As we had mentioned on prior calls, our goal was to have adjusted cost structure and our businesses to order destinations so we could neutralize to a large extent the negative impact to margins and customer count as a result of the Mexico situation. And to a large extent now Q1 proves that to be the case.

And just to confirm the severity of the price cut, that was in the what, 50% range, give or take? How should we model that?

It was more than that. We took pricing from about $0.055 per minute down to about $0.019 per minute to Mexico.

Got it, okay. Thank you.

Sure.

(Operator Instructions)

It looks like we have no further questions so this will conclude our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect your lines.