IDT Corp (IDT) 2018 Q2 法說會逐字稿

Good day, everyone, and welcome to the IDT Corporation Second Quarter Fiscal Year 2018 Earnings Call. In today's presentation, IDT's management team will discuss IDT's financial and operational results for the 3-month period ended January 31, 2018. (Operator Instructions) After the prepared remarks, Marcelo Fischer, IDT's Senior Vice President of Finance and Chief Financial Officer of IDT Telecom will join Mr. Jonas for a Q&A. (Operator Instructions)

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 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 non-GAAP measures adjusted EBITDA, non-GAAP net income and non-GAAP EPS. A schedule provided in the earnings release reconciles adjusted EBITDA, non-GAAP net income and non-GAAP 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, and that's www.idt.net. The earnings release has also been filed with Form 8-K with the SEC.

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

Thank you, operator. Welcome to IDT's Second Quarter Fiscal Year 2018 Earnings Call for the 3 months ended January 31, 2018.

Last week, the Securities and Exchange Commission concluded its review of our spin-off of Rafael Holdings. As announced, we now expect to distribute the Rafael Holdings' shares to our stockholders on or about March 26. The spin-off continues to process the strategic divestments of noncore assets that we started nearly a decade ago and which has delivered incredible value to our shareholders. The spin-off of Rafael Holdings will include our pharma investments and over $100 million of cash, marketable securities, real estate and investments.

Turning now to our second quarter results. Consolidated revenue increased by $28.3 million compared to the second quarter of 2017 and by $2.3 million, sequentially. Our Wholesale Carrier business achieved its sixth consecutive quarter of revenue growth. However, due to margin pressures in the market, Wholesale Carrier's revenue growth has not generated corresponding increases in gross profit. Payment Services revenue grew by $9.8 million compared to the year ago quarter, which was driven by increases in money remittance transactions originating from our direct-to-consumer channel and by sales of international and domestic mobile top-up. Retail Communications revenue decreased this quarter by $9.4 million compared to the year ago quarter, but we have slowed the rate of decline over the past year, while also improving retail's margin contribution.

We also continue to invest heavily in enhancing our BOSS Revolution mobile app. That investment has helped to increase customer stickiness and improved our margins over the last year. The mobile app is also important as a path to monetize the millions of eyeballs that use it, over 18 times a month on average. As we add more content and features, we believe that the revenue from it will grow outside of just telecom.

The consolidated revenue growth generated an additional $2 million in revenue, less direct costs in the second quarter versus 1 year ago. However, SG&A increased an unacceptable $5 million year-over-year to $52.4 million, as we ramped up our investment in our growth initiatives. We will be reducing our SG&A spend over the next couple of months, primarily in our legacy businesses, while continuing to maintain and support the investment behind our growth initiatives.

Consolidated adjusted EBITDA was $6.3 million, a $3 million decrease compared to the year ago quarter, and our EPS was $0.06 a share.

Now let me update you on our growth initiatives. Net2phone cloud communication solution continues to accelerate growth in both the U.S. and South America. Later this year, we plan to deploy net2phone's next-generation platform and user management portal with a suite of industry-leading communications features, including physical phones, virtual phones, live chat, messaging and collaboration tools.

In our international money transfer business, we are doing very well on the direct-to-consumer side, especially through our BOSS Revolution money app, which is growing rapidly. Our direct-to-consumer money transfer business is now contributing a majority of our transactions and gross profit.

Similar to our migration years ago from selling primarily telephony hard parts, our BOSS Revolution PIN-less digital platform, the direct-to-consumer money transfer channel offers important advantages over the retail channel, including greater scalability, increased stickiness and lower operating costs.

We are investing heavily in building a better and more robust platform as well as adding many in-country payers for money transfer services and in adding new features to further enhance the user experience and further accelerate growth. Money transfer services through our retail site has been a big disappointment, but it's not in our nature to give up, so we are soon launching a new pricing model and feature program aimed at incentivizing both the retails and customers to remit smaller dollar denomination transfers, which we think will be our niche.

Our National Retail Solutions business continues its aggressive expansion. NRS POS terminals are now deployed in over 10% of our BOSS Revolution retail stores around the U.S., and the fruits of this investment are starting to pay off. We see ourselves as becoming the square for bodegas and other small markets. You can learn more about the products and services that NRS currently offers at retailers.nrsplus.com.

BOSS Revolution mobile, our U.S. wireless service offering, has now been deployed to retailers nationwide. It's a pay-as-you-go with a monthly cap pricing model, sort of like insurance. It is better valued than any unlimited plan out there. I encourage everyone listening to this call to give it a try. You can sign up at bossrevolutionmobile.com.com or even better, go to a store anywhere around the country.

We also expect to complete the scale of our Gibraltar-based bank soon. The sale is still pending approval by the Gibraltar Financial Services Commission.

IDT is not perceived by Wall Street as a technology company. We are seen as a legacy telecom company. But the truth is, we are a technology company, first and foremost. However, many elements of our technology were in disarray. That disarray really hurt us immensely. It delayed many projects and led to numerous small outages, which both hurt our business in the short term and damaged the reputation of delivering excellent products. So we recently on-boarded a new management team in our technology group. They are driven and dedicated to improving our processes, quality, scalability and, most important, great product. They have been working diligently over the past couple of months with our product owners and our extremely talented developers to improve and/or rebuild legacy systems, while, at the same time, launching those new products. As a matter of fact, during the massive snow storm yesterday, they were all at their desks hard at work here in Newark.

I have never sold any of my shareholdings in IDT, well, except to give charities and/or pay taxes stemming from stock grants I received. And I sure as hell am not wanting to selling any now. I believe that those shares are going to be worth a lot of money in the not-too-distant future because great things are going to come out of our technology group. And the rest of the team here at IDT knows how to sell and support our products and features.

In light of our intention to continue to invest heavily in our promising growth initiatives and the impact of the spin-off of Rafael on our balance sheet, IDT's Board of Directors has reduced our dividend for the second quarter to $0.09 per share. I hope you stay along for the ride, and I wish Rafael much success in their very noble cause in doing good, while doing well and as an independent company.

Now Marcelo and I will be happy to take your calls.

(Operator Instructions) And our first questioner today will be (inaudible) with [Cole Capital].

I have 2 questions. Number one, regarding BOSS Revolution mobile, can -- your first effort is going to try to market the service to your preexisting BOSS Revolution customers. Can you -- do you have a good demographic understanding of who these customers are in terms of for what portion of them, English or other languages, are their first languages, so, obviously, they make international calls? And the reason I ask is to what degree will your marketing materials communications be hopefully in the first languages of all these existing users to better be able to encourage them to give your mobile offering a try.

I would say that we have a pretty good idea of who our customers are and what countries they're from. And we definitely intend to market to them in their native tongue and in the places that they watch or look at, et cetera. I think that, that is our specialty, in general, and we will definitely continue that with BOSS Revolution mobile.

Okay, fine. And the second question, can you give us a little extra insight in terms of how large this new technology team is that you've on-boarded in the past, let's say, 3 months? I mean, is it 2 people, 10 people? And if you can just give us a little extra understanding about their backgrounds and capabilities because I understand you're excited about what they might create, but as outsiders, we've never met them. So I'm hoping through your eyes, you can maybe convey to us what it -- what is it about these people that makes them so talented, in your mind, that you're hoping for them to have outstanding achievements in the future.

Well, we brought inside people in management. We brought -- he has not been officially appointed as CTO, but we have a meeting about that scheduled for later this month, which we expect him to be appointed at that time. We brought in a new CTO named David Wartell, who's from a company called IDERA, which was a startup that he was a part of growing and sold. We brought in somebody named Keith Powe, who is the head of QA, who worked with David Wartell at IDERA. We also brought in a head of engineering for BOSS Revolution as well as a head of engineering for net2phone as well as someone who is running our database in BI department. So it's a pretty robust staff. And they have, in turn, brought in a lot of new people under them and changed the processes of the way we do things. And I think, again, it's not a 1-day process or a 6-month process to fix some things. But just today, I mean, I came from a meeting a couple of minutes ago where we're having a discussion about rebuilding a billing system. And I mean, if you can imagine how complicated billing systems are when you do $1.5 billion in multiple businesses, you can -- so to date, I mean, I would say the strategy in the past has always been to fix and patch what we have. But they are actually looking at whether or not to rebuild it or to use an outsourced service. And I think that that's the kind of new thinking that they've brought to all different problems around here. So again, we're, I'll say, optimistic.

(Operator Instructions) And there look to be no further questions, so this will conclude our question-and-answer session as well as today's conference call. Thank you for attending today's presentation, and you may now disconnect your lines.