IDT Corp (IDT) 2024 Q1 法說會逐字稿

Good evening, and welcome to the IDT Corporation's first-quarter fiscal year 2024 earnings call. In today's presentation, IDT's management will discuss IDT's financial and operational results for the three month period ended October 31, 2023.

During remarks by IDT's Chief Executive Officer, Shmuel Jonas, all participants will be in listen-only mode. (Operator Instructions)

After Mr. Jonas's remarks, Marcelo Fischer, IDT's Chief Financial Officer, will join Mr. Jonas for Q&A.

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 are 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 session, IDT's management may make reference to non-GAAP measures, including adjusted EBITDA, non-GAAP net income, and non-GAAP earnings or loss per share. A schedule provided in the IDT earnings release reconciles adjusted EBITDA, non-GAAP net income, and non-GAAP earnings or loss per share 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. The earnings release has also been filed on Form 8-K with the SEC.

I will now turn the conference over to Mr. Jonas.

Thank you very much, operator. Welcome to IDT's earnings conference call. My remarks today will focus on the first quarter of fiscal year 2024, the three months ended October 31. For a more detailed discussion of our financial and operational results for the first quarter, please read our earnings release filed earlier today and our Form 10-K that we expect to file with the SEC a week from today.

Our three primary high-growth, high-margin businesses delivered strong revenue growth in the first quarter, while the businesses in our traditional communications segment performed as expected. In the first quarter, the ongoing growth of BOSS Money, NRS, and net2phone drove a 370 basis point year-over-year increase in gross profit margin and record gross profit. They are steadily becoming more significant contributors to our top and bottom lines, while the cash generation of our paid-minute businesses has been relatively resilient.

BOSS Money continue to grow at a rapid clip, helped by the accelerating expansion of our retail money transfer channel. Retail money transfer channel revenue increased 55% year over year, while digital channel revenue for transactions initiated on the BOSS Money and BOSS Revolution Calling apps increased 31% year over year.

We continue to improve the user experience for both retailer agents and digital customers, and we see that investment paying off in BOSS Money's robust top-line growth. Much of the investment we've made in money transfer to date is in the expectation that we are only in the early innings of our money transfer growth. As we continue to expand, we expect to realize more of the benefit of our expanding revenue and gross profit in our bottom-line profitability.

NRS continued to expand its network and upgrade existing accounts, helping to drive strong increases in merchant services and SaaS fee revenues; while advertising and data revenue increased sequentially, propelled by seasonal tailwinds and a gradual recovery of advertising in the digital out-of-home advertising space, a trend which has accelerated since the quarter closed.

NRS income from operations was a record $5.5 million in the first quarter. We are also in the process of introducing some of the new POS formats that I've mentioned previously, and I'm excited about their potential to help us drive long-term expansion.

net2phone delivered steady sequential customer base and top-line growth while its unit economics are strengthening as the business scales and our higher ARPU, higher-margin CCaaS offerings gradually become a more significant part of the business. net2phone generated positive adjusted EBITDA of $1.4 million and was near cash flow positive.

Now in the second quarter, our beta rollout of net2phone AI is underway, and it has been very well received by customers. We are very optimistic that net2phone AI and net2phone's forthcoming premium plans will help to drive meaningful ARPU and margin expansion.

We're working very hard to innovate exciting new offerings, features, and functionalities, and not just in our growth businesses. At BOSS Revolution Calling, we've redesigned the look and feel of our popular calling app and added a bunch of new products and features. We have also introduced advertising placements into the app, and we have already begun to generate some nice revenue from it as a result.

In addition to our new product offerings, we continue to focus on streamlining overhead and wringing significant costs out of our operations in the quarters ahead, especially in our traditional communications segment. This effort will help preserve the cash generation of our paid-minute businesses, despite the continued expected top-line declines. It also allows to continue investing in innovative new products and promising initiatives in our existing growing businesses.

We also returned value directly to our stockholders in the first quarter, repurchasing 125,470 shares of Class B common stock for approximately $2.8 million. Going forward, we will continue to purchase shares opportunistically. We are very well-positioned as we head into the second quarter of our fiscal year 2024.

To wrap up, I want to wish our employees, stockholders, and their families a very joyous holiday season, and thank each of you for everything you do for the IDT family.

Now, Marcel and I'd be happy to take your questions.

(Operator Instructions) [Chris Lu], Emmet Partners.

Hi, guys. Congrats on the quarter. Just a few questions around fintech and more specifically BOSS Money. On the first part, could you talk about how much of fintech SG&A or BOSS Money SG&A is customer acquisition costs?

I don't have the number in front of me, but in terms of marketing, I would say that we're probably spending approximately $4 million a quarter. So I mean -- but there are other costs that go into customer acquisition besides marketing, but that's the main one.

Understood. Thank you. And then I guess a follow-up with that. In terms of payback, how are you guys looking at the payback of this advertising and marketing spend? Obviously, you're accelerating retail, and digital growing as well. I'm just curious of your thoughts there.

Again, I mean, I think that number one is we need to educate the market on the fact that we're a money transfer company. Even though our name is sort of well known in the industry, we're not known necessarily as a money transfer company, particularly at retail, where we really only, I'll say, relaunched it over the last 18 months. And therefore, there's more of an education that's needed. And some of the marketing is really like top of funnel to educate people on the fact that we are a reliable money transfer company, and not just a company that you can come to for calling and top-up.

Hi, Chris. It's Marcelo. And just to add to what Shmuel said, indeed, in the digital channel, most of our cost of acquisition is the digital marketing that you made a reference to. But on our retail channel, we have been aggressively growing the number of retail agents in our network. We added roughly -- we grew by almost 50% in number of agents during fiscal '23. And now, we continue now at that rate as we go into fiscal '24.

So we are getting close to about 1,800 retail agents in our network. And that is an investment, because when we onboard a retail agent, there are costs associated with opening a subaccount: all the compliance, credit, monitoring collections related to that agent. It takes time for an average agent to ramp up the number of transactions in-store. And usually, we don't start making a real profit on the agent till he is averaging about 150 transactions a month, and that takes time. So that's a real investment that we are doing on the retail channel, and we are seeing the results as our retail channel is growing now at a faster clip than digital.

It's really been driving a lot of our transactions, and we hope to continue investing in that channel because the retail channel is also a great way to onboard BOSS customers, not only for money transfer, but customers that eventually will also use our product in pinless, in IMTU. It's a great entry point to bring more customers at a low cost into our BOSS ecosystem.

Okay, great. Thanks a lot, guys.

(Operator Instructions) Iñigo Alonso, Momentum Financial.

Hello. In the previous presentations, you have referenced a fixed SG&A number for NRS and net2phone. I was wondering how we should think about these fixed SG&A numbers. Is this the fixed maintenance SG&A that the daily operation of NRS and net2phone need? Or is it a growth SG&A -- and the rest of it is just growth SG&A that you are allocating and could be removed, if you would like to run the business for cash?

I don't think that I've ever said fixed SG&A. I mean, I think that we've stated previously that we are going to be very careful as it relates to the SG&A in even our growth businesses. And as you've seen this past quarter, we continue to accelerate our growth, add on new products, and keep our SG&A relatively flat, even slightly down in NRS this past quarter.

That being said, both the NRS business and the net2phone business, as well as the BOSS Money business, have variable SG&A. The bigger it grows, the SG&A will increase. That being said, our goal is always to bring bottom-line results, so we're very focused on making sure that the fixed SG&A is as tight as possible.

But if I could just expand on that a little bit, let's take one at a time. So in the case of net2phone, net2phone does have material amount of variable cost in terms of cost of acquisition, primarily related to the cost of the actual physical IP phone that we deploy to our subscribers as part of the monthly subscription, as well as SPIFFS and upfront commissions that we pay to our channel agents.

As that business scales, however, our fixed overhead, our fixed cost of the business have been continued to be monitored very aggressively. We've been keeping that fixed overhead quite stable, even as the business continues to grow. And because of that, scale really makes a difference. And we are seeing the benefit of that scale as the business grows in the bottom-line profitability of net2phone.

In the case of NRS, it's kind of almost the opposite of difference, right, in the sense that the cost of acquisitions for NRS are much, much lower in the model as compared to what net2phone spends on acquisitions. Most of NRS's cost of acquisitions relate to commissions, some marketing, but they are relatively small relative to the business. And there is a certain amount of fixed overhead, relatively small, that also needs to be leveraged significantly as the business scales. And that's why you're seeing both at net2phone and NRS that as those businesses grow, you'll see the immediate impact that those are adding to the bottom-line EBITDA of both of those businesses.

Okay, understood. And then I had a couple of net2phone-specific questions. So how much margin expansion, gross margin expansion, are you hoping to get once you migrate the old customers in the old platform to a new platform that you own?

And two more questions on net2phone. One of these two, it is, what's the range of the length of the contract that you have with your customers, that would be the minimum and the maximum? And another one is, what's the backlog right now for net2phone?

So I'm not going to answer them in particular order; I'm just going to answer them as I remember them. In terms of the backlog, I don't exactly have the answer. Usually, we try to get customers active as quickly as we can, but it varies depending on the -- I'll say, the complicated nature of particular customers take longer to move on to the net2phone platform. So we have customers that can wait as little as one to two days, and we can have customers that can wait as long as two months, depending on the complexity of their migration.

As far as the margin expansion, there probably is a little bit of margin expansion when we move customers off of our old rented platforms onto our own. That being said, that's not the reason that we want to do it. The reason we want to do it is really about the functionality, the improved experience that the customers are going to get, not about the $1 to $2 per user that it costs us to, I'll say, have a rented platform for some of our older customers.

I think you asked one more question I might have forgotten?

Yes, about the contract length, and let me clarify an item there. So what I meant by backlog is the contracts that you already have signed with your customers and are yet to be paid. So those that will be paid in the future. That's, well, the backlog that has to be collected.

So I don't know the answer to that question. I mean, most of our customers are billed monthly. We do have some annual contracts, but the vast majority of our customers pay on a monthly basis. So there's not a huge backlog in terms of payment. As far as the length of the contracts, most contracts tend to be three years, but we have as little as one year depending on the country and the specific users.

Shmuel is correct. We have -- in terms of how you define the backlog, right, the overwhelming majority of our customers are on a monthly payment basis. So usually we have one month of deferred revenue on the balance sheet, and no more than that.

In terms of real backlog, the reality is that we have been adding roughly about 12,000 to 13,000 seats quarterly for the last several quarters. And we believe that that trend is likely what we are targeting on in terms of trying to achieve going forward as well, with ample improvement as we launch higher [upper] products and also as CCaaS customers become a gradually larger portion of total portfolio because CCaaS ARPU is about seven to eight times larger than the ARPU of [a regular] customer.

Good. And I think I haven't asked about M&A. Last quarter, you referenced a small acquisition on the NRS side. I haven't seen any outflows of money dedicated to acquisitions. So if you can provide any updates, that would be greatly appreciated.

It's very small. It will not be -- it's not material.

Okay, thank you.

(Operator Instructions) Okay, we have no further questions in queue. As there are no more questions, this concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect.