IDT Corp (IDT) 2017 Q2 法說會逐字稿

Good morning, and welcome to the IDT Corporation's second-quarter FY17 earnings 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 December 31, 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 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 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 a form K-8 with the SEC.

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

Thank you, operator. Welcome to IDT's second quarter of FY17 earnings call. My remarks today will focus on key operational and financial results for the three months ended January 31, 2017. Unless I indicate otherwise, results are for the second 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, March 13. 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.

While we are still quite reliant on the profitability and cash flows generated by our international long distance voice services, we know and you know that in order to continue to create value, as we have over the last few years, we need to diversify our revenue streams. We made a lot of progress in the second quarter, building applications that will allow for the scaling of that diversification. We also accelerated the development and investment in all of our key growth initiatives.

We also introduce some exciting new products in the BOSS Revolution Money app, with money remittance as its flagship service, and released a major update of the BOSS Revolution Calling app, which now includes messaging and peer-to-peer calling. The two apps now work in tandem to provide a seamless user experience and convenient access to many of our consumer voice and payment offerings.

We also continued rolling out the new BOSS Revolution Retailer Portal across our nationwide network of stores. This upgrade will make it much easier for retailers to sell all BOSS Revolution products and services.

However, our rollouts were not without hiccups, some of which negatively affected revenue. While this was disappointing, I believe that the progress we're making will be well worth the short-term pain.

At the core of our strategy is our ability to develop and market new offerings to meet the needs of our markets. Accordingly, we have significantly increased investment in our in-house engineering team, while opportunistically acquiring synergistic technologies that can be incorporated into our offerings.

In 2014, we acquired HD Messaging, whose technology is now a key component of our calling app. And this quarter, we purchased Live Ninja, a messaging platform for businesses to create and manage their customer relationships. Their technology will soon be an exciting part of our Unified Communications as a Service, or UCaaS, offerings.

At the same time, our longer-term growth initiatives continue to scale up with impressive speed; net2phone UCaaS business has quadrupled its customer base since January of last year, and we continue to invest in the growth of this business. National Retail Solutions expanded its point-of-sale network tenfold over 2000 independent retailers and bodegas, we are on a sale to installation pace to have thousands of more point-of-sale terminals fully deployed by year end. We're also proud to be working with some of the largest CPG companies in the world, who see the benefits of our distribution, advertising capabilities, and loyalty program to help extend their reach into urban and ethnic markets.

Finally, most recently, we started offering our retailers credit card processing and merchant cash advances. Our direct to consumer money remittance business, which was launched just last spring, has shown great promise, growing 80% over the last six months, and we expect its growth to accelerate further with the recent launch of our BR Money app, and its integration into BOSS Revolution Calling app.

Financial results for the second quarter were fairly consistent with the recent trends. Year-over-year, our cost-cutting initiatives partially offset the impact to our bottom line, resulting from the decrease in revenue.

Sequentially, we held revenue relatively flat, while SG&A expense increased, as we stepped up our investment in our growth initiatives. We will be keeping a close eye on our overhead expense.

At the same time, we continued to support our growth initiatives. Second-quarter consolidated revenue was $367.6 million, a decrease of $14.9 million year-over-year, and $1.6 million sequentially. The year-over-year decrease includes $3.5 million in revenue generated by Zedge, in the year-ago quarter, prior to its spinoff last June.

In our TPS segment, Retail Communications revenue declined $13.7 million year-over-year, and Wholesale Carrier Services revenue was down $5.8 million over the same period. However, Wholesale Carrier Services has reversed that trend and posted two consecutive quarters of sequential revenue gains.

Both our Retail and Wholesale verticals have been impacted by longer-term secular headwinds including, increased competition from wireless operators, as well as the continued adoption of free over-the-top voice and messaging services, including our own.

Year-over-year, the decline in BOSS Revolution revenue generated by US to Mexico traffic accounted for roughly 30% of the decline in Retail Communications revenues. Sequentially, however, revenue on that carrier was relatively stable. Going forward, it will not be a significant factor, as the revenue generated there now constitutes less than 2% of Retail Communications revenue. Moreover, some of the marketing spend that was previously utilized to promote the US to Mexico corridor has now been repurposed, most notably to focus on some growing African corridors with higher margins.

The impact of declining revenue in the two largest TPS verticals was partially offset by revenue growth in our Payment Services vertical. Payment Services revenue increased by $6.3 million year-over-year, to $59.6 million, powered by increased international mobile top-up sales, and the growth of our international money transfer business. These two payment offerings contributed approximately 15% of TPS revenue this quarter.

In the months ahead we expect to add to net ticket international bill payment, and certain additional offerings to round out, for now, our payment portfolio. As we begin to scale massively the number of stores and agents where we offer these products. Currently it is under 1000, as we flowed through our BOSS Revolution pin-less service, which is available in over 50,000 stores.

Turning now to revenue from our second largest segment, our UCaaS segment also benefited from our focused investment. This segment consists of net2phone's enterprise offerings, including cable telephony, hosted PBX, and SIP trunking, as well as our recently launched PicuP business.

UCaaS revenue increased by $1 million year-over-year to $7.1 million, a 16.7% increase. TPS' direct cost as a percentage of revenue increased 60 basis points year-over-year, to 85.7%.

The Mexico situation and other headwinds facing our Retail Communications and Wholesale Carrier Service verticals, pressured TPS' margin year-over-year. Sequentially, however, we were able to offset the margin erosion, decreasing TPS' direct cost as a percentage of revenue by 10 basis points.

Moving further down the income statement, SG&A decreased $3.7 million year-over-year, to $47.3 million, as a result of our ongoing effort to streamline operations and reduce costs. Sequentially, there was an uptick of $1.9 million in SG&A, reflecting higher non-cash compensation and accelerated investment in our growth initiatives. But, as I stated earlier, we will keep a close eye on it.

Adjusted EBITDA this quarter was $9.3 million, a decrease of $2.4 million from the year-ago quarter, and a $1.4 million decrease sequentially. Income from operations decreased $3.2 million year-over-year, and $2.1 million sequentially to $3.1 million. Diluted EPS was $0.04, compared to $0.18 in the year-ago quarter, and to $0.96 in the prior quarter, when we posted a net benefit from income taxes of $14.4 million.

Now Marcelo and I will be happy to take your questions. Operator, back to you for the Q&A. Thank you.

We will now begin the question-and-answer session.

(Operator Instructions )

Our first question comes from John Rolfe, of Argand Capital. Please go ahead.

Hey, guys. I think you said that you had the POS terminals in 1,000 different locations at quarter end. Was that correct?

Actually, it is in 2,000 stores.

Okay. It is in 2,000. So, can you talk a little bit about -- do you still have a meaningful backlog of stores that want those terminals? And, sort of how you see that business scaling up over the course of the rest of this year?

We think it is going to scale very nicely. We do still have backlog. We actually unable to install as many as we have sold.

Hopefully we are going to be hiring enough people to be able to deploy them a little bit quicker, but at the same time, our sales keep increasing for the POS. But we expect to end the year with a couple thousand more units, at least.

Okay. And then lastly, with the increased spend on some of these initiatives, would you expect that sort of corporate line item, I think for the quarter was a little over $3.5 million, would you expect that to remain relatively stable or similar to that level for the rest of this year? Or do you see spending levels increasing even further at those corporate line items?

I definitely don't see them increasing. If anything they'll come down a little bit. Again, we are trying to scale this business as fast as we can.

Okay. Great. Thanks very much.

Thank you.

(Operator Instructions )

This concludes our question-and-answer session, and the conference call. Thank you for attending today's presentation. You may now disconnect.