IDT CORP Q3 FY2025 earnings call

Management Statement and Operational Highlights

• NRS: Focus on developing new offerings to help retailers compete with large chains, integrating network with online ordering/delivery platforms; 100+ retailers signed up receive over 2,000 delivery orders weekly. Merchant services and SaaS fees driving growth, despite Advertising & Data revenue decline due to receivables management.
• BOSS Money: Shift to prioritize gross profit per transaction in retail channel, customer preferences for larger send amounts per remittance. Digital send volume up 40% year-over-year. Fintech segment adjusted EBITDA margin expanding.
• net2phone: Steady growth, disciplined cost management, launched AI Agents with plans to verticalize for different business types (call centers, doctors' offices, etc.). Preparing to launch another AI-powered service 'Coach'.
• Traditional Communications: Strong cash generation, SG&A expense down 9.5% due to cost reduction initiatives. Gross and net margin results confirm resilience as long-term cash generator.
• Other: IDT increased stake in NRS via stock exchange with employees, balance sheet saw $53 million cash increase, capital allocation includes stock repurchases and M&A consideration.

Segment Performance

• NRS: Recurring revenue increased 23% year-over-year, driven by 37% revenue growth in merchant services and 33% increase in SaaS fees. Income from operations and adjusted EBITDA both up 29% year-over-year. Advertising & Data revenue decreased 12% due to managing receivables exposure. Recurring revenue contribution significant.
• BOSS Money: Transactions increased 27% and revenue by 25%. Digital transactions via apps constituted over 80% of remittances. Adjusted EBITDA margin for the Fintech segment was 13% in Q3.
• net2phone: Subscription revenue increased 7% to $21.5 million (11% constant currency basis). Adjusted EBITDA up 50% to $3.2 million. Launched AI Agents, with most early customers being existing net2phone clients.
• Traditional Communications: Income from operations and adjusted EBITDA both jumped over 30% year-over-year to $17.3 million and $19.3 million, respectively. Gross profit up 5% supported by IDT Digital Payments and IDT Global wholesale carrier business.

Guidance

• Full year fiscal 2025 adjusted EBITDA expected to double the first half's $63 million to $126 million, remaining on track to meet goal. Currently in fiscal 2026 budgeting process, guidance for next fiscal year to be provided in fourth quarter earnings call.

Risks

• Factors discussed in SEC filings that may cause actual results to differ materially from forecasts. Specifically, NRS' advertising client-related receivables exposure and bad debt provision, and BOSS Money's shift in transaction growth and customer send amount preferences impacting profitability.

Question and Answer

Q: On NRS, provide color on go-to-market strategy, especially with increased sales staff and terminal revenue increase despite fewer net terminals added.

A: More effort on bringing new and existing retailers to merchant processing, helped by new salespeople. No material impact from other terminal form factors this quarter.

Q: On net2phone's AI Agents, type of customers and business focus.

A: Most initial customers are existing net2phone clients; focus on both small and large businesses, with plans to verticalize AI functionality.

Q: On BOSS Money's beta earnings program and M&A plans.

A: Uncertain on beta program results so far; actively looking at acquisitions, pursuing opportunities where good value can be created, including a recent small acquisition in the restaurant tech space.

Q: On capital allocation, repurchasing shares vs dividend.

A: Capital allocation depends on acquisitions and other growth opportunities; repurchasing stock is a good way to allocate capital, but will use cash for growth and M&A if deemed value-creating; no plans to use debt for share buybacks.

Q: On NRS ads business post-partner reduction.

A: Too soon to give exact run rate, but other ad partners are making up for the declined partner, and expanding direct ad team; advertising revenues excluding the partner are growing nicely.

Q: On net2phone's future EBITDA margins.

A: Difficult to pinpoint exact steady state due to new AI initiatives, but AI Agents and 'Coach' are expected to be accretive over time, with costs of implementation currently subsidized but expected to improve with scale.

Q: On BOSS Money's investment in customer acquisition for profitable growth.

A: Budget season involves evaluating unit economics and cost of acquisition; will grow organically and consider acquisitions, with focus on maintaining profitability while growing, balancing organic growth and acquisitions.