Idt Corp (IDT) Q4 2021 Earnings Call Transcript

Good evening. And welcome to the IDT Corporation’s Fourth Quarter and Full Fiscal Year 2021 Earnings Call. In today’s presentation, IDT’s management will discuss IDT’s financial and operational results for the three-month and 12-month periods ended July 31, 2021. During remarks by IDT’s Chief Executive Officer, Samuel Jonas, all participants will be in listen-only mode. After the prepared 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 to either 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 session, IDT’s management may make reference to the non-GAAP measures, including adjusted EBITDA, adjusted EBITDA less CapEx, non-GAAP net income and non-GAAP earnings per share. A schedule provided in IDT’s earnings release reconciles adjusted EBITDA, adjusted EBITDA less CapEx, non-GAAP net income and non-GAAP earnings 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 a Form 8-K with the SEC. I will now turn the conference over to Mr. Jonas.

Thank you, Operator. Welcome to IDT’s fourth quarter and full fiscal year 2021 earnings call, covering results for the three and 12 months ended July 31, 2021. I’m joined today on the call by Marcelo Fischer, IDT’s Chief Financial Officer, and we’ll both be available to answer questions after my remarks. My discussion today is focused on the fourth quarter fiscal 2021 results. For a more detailed report and discussion on our financial and operational results for both Q4 and the full fiscal year 2021, please read our earnings release filed earlier today and our Form 10-K. We expect to file the 10-K with the SEC on or about October 14th. We continue to drive strong improvement in IDT’s results during the fourth quarter powered by growth in net2phone, NRS and our Mobile Top-Up business. Let’s focus first on net2phone. net2phone subscription revenue growth accelerated in the fourth quarter, increasing 46% year-over-year; growth in our Latin America and U.S. and Canadian markets was again very strong. Our subscription revenue margin remained robust, increasing 10 basis points to 83.5%. net2phone's strategic focus on midsize businesses, our multi-channel go-to-market strategies, and deeply localized in-country offerings consistently generate gross margins and revenue growth metrics above UCaaS industry averages. But the exceptional results in net2phone are the collective efforts of the focused, customer-centric group of people around the globe that is net2phone. Customers in net2phone don’t hear 'no' very often. If they want or need something to help them better communicate, we find a solution for them. net2phone is becoming a big company, but we are not becoming the kind of big company that has different departments for large enterprises and a different department for small companies. We don’t have SLAs that differ depending on what you pay us. At net2phone, no matter whether you’re running a large global enterprise from Texas or a five-person startup in Brazil, you are going to get a truly localized, custom-tailored communication solution with outstanding service and reliability. Of course, we continue to work on the spin-off of net2phone. We believe the financial and legal preparations will be substantially completed by calendar year-end to enable a tax-free spin-off early in 2022, should our Board authorize it. Within our Fintech segment, NRS revenue increased by 76% year-over-year, led by increased sales of merchant services and specifically NRS Pay payment processing; advertising and data sales at NRS were also robust in the fourth quarter. As of July 31st, NRS has over 14,000 active terminals and over 5,600 payment processing accounts, more than double the number of accounts a year earlier. Average revenue per terminal exclusive of terminal sales increased from $126 in the year-ago quarter to $169 in the fourth quarter of 2021. We believe that ARPU will continue to climb with the addition of new NRS Pay accounts, increased utilization of our enormously powerful advertising network, and further utilization of data offerings by our consumer packaged goods partners, just to name a few. Also, within our Fintech segment, Money Transfer revenue decreased 49% compared to the year-ago quarter. As we have discussed previously, a transitory foreign exchange market condition materially boosted revenue and gross profit in the fourth quarter of fiscal 2020 and persisted through the second quarter of fiscal 2021. Absent that impact, fourth quarter fiscal 2021 revenue would have increased by 36% compared to the year-ago quarter; sequentially, Money Transfer revenue increased by over 6%. Finally, turning to our largest segment, Traditional Communications continue to exceed our expectations. Traditional Communications revenue in the fourth quarter increased by 10% year-over-year; within Traditional Communications, Mobile Top-Up revenue increased by 41%, powered by increases in sales in its B2B channel. We expect that our efforts over the past year to expand our Mobile Top-Up business into the African market, led by the recent acquisition of a majority stake in a mobile top-up operator with an extensive footprint in Africa, our increased focus in the B2B space, as well as the growing demand for data-heavy services worldwide, will continue to drive Mobile Top-Up revenue growth. Fourth quarter earnings per diluted share increased to $1.46 from $0.82 in the fourth quarter last year. The increase reflects the positive impact of an income tax valuation allowance reversal, in addition to the strong improvements in the underlying profitability of several of our business units. Cash generation during the quarter helped to drive an increase in cash and current investments of $34 million during the quarter and $52 million during the fiscal year to $161 million as of July 31st, and we have no debt. Following the quarter close, our NRS business sold a 2.5% stake to a private investment fund for $10 million, implying a $400 million valuation for that business. That was based on approximately 19 times NRS’ trailing 12-month revenue at the end of our third quarter. I want to wrap up by thanking and congratulating everyone in our organization on what was, by any standard, a remarkable ending to a very strong fiscal year. We have not only endured COVID multifaceted challenges, but over the past several quarters, we have dealt, like many other companies across the country and across the globe, with supply chain issues that impacted our inventories of phones, POS terminals, and other hardware. Throughout, we have maintained our focus and succeeded in executing our key objectives. Now Marcelo and I will be happy to take your questions.

Okay. The first question is coming from Connor Haley from Alta Fox Capital. Your line is live.

Hi, guys. Congrats on the great quarter. Just one quick one from me. Your international Mobile Top-Up business had another quarter of very impressive growth. We noticed that a private equity firm recently bought a majority stake in a Mobile Top-Up business called Ding, valuing it at $300 million according to press reports. Can you maybe explain to investors how your international Mobile Top-Up business compares to Ding? How do you think about the growth opportunity for your IMTU business going forward? Thanks.

Hey, Connor. Thank you for joining our call today. You are right. We also read about a month ago that Ding received a valuation of about $300 million on concessions that they did; Ding is a private company, an Irish company. So we don’t know any of the details of the transaction. But we do welcome seeing the valuation that they got, given that we consider them to be a pretty good comparable to our business. Business-wise, both Ding and ourselves compete in the same space. We really believe that we’ve measured up to Ding quite well both in terms of size and performance, while we are very strong in the U.S. in our own Mobile Top-Up offerings and not too strong outside of the U.S. Ding is the opposite; they have no, they have a very small presence in the U.S. They are very strong outside of the U.S. Their sales presence is just online. We at IDT have a very robust presence both online and in the retail channels in the U.S. While our Mobile Top-Up is part of a broader BOSS Revolution suite of products, I think they are probably a little larger than us in the wholesale B2B channel. But that has been a channel that we have grown quite substantially in the last six months, and we are very focused on growing that channel as well. So that’s kind of how we compare a little bit ourselves to Ding. In terms of where our Mobile Top-Up business is heading, I mean, we are doing now over $500 million in sales for Mobile Top-Up, but we really believe there is still significant growth opportunities for us in growing that business. For example, if you think about it from a market perspective, as I said earlier, we are generating all of our sales both out of the U.S. and there is significant potential for us to expand to other markets like in Canada, Europe, Asia, Africa, the Caribbean. As Samuel mentioned in his remarks, we recently acquired a Mobile Top-Up operator that has an extended footprint in Africa, and we’re going to take advantage of that to expand our services and participate in that massive opportunity that Africa represents. We also have the opportunity of acquiring that company to continue to grow beyond our retail channel in the U.S., now into the B2B channel, and we are putting a lot of investment into our platform to provide those B2B services. And finally, I will say the following, and I think Ding is primarily a Mobile Top-Up operator; so are we today. But we view this business to be much more broad than just Mobile Top-Ups. We think of ourselves as a company that is facilitating all kinds of prepaid payments across the world. So not only do we have an active catalogue right now of thousands of Mobile Top-Ups, but we also have grown our offering to include gift vouchers, data packages, and content subscriptions. So we really want to become a global hub for all things that are prepaid digital.

I mean, I think Marcelo said enough. I don’t really need to add much to what he already said. But I guess, I mean, the only bad part I can see is it’s always better when your competitors have less money than when they have more money. But I think that really what differentiates us more than anything is we really are the only company of our kind that competes in every vertical of Mobile Top-Up, both from being a wholesaler to being a retailer to being direct-to-consumer. And I think that’s really another feature that makes us unique: we’re not a one-trick pony; we’re everywhere you need us to be, and again, there’s more to come, we’ll expand on that in further quarters.

Yeah. I would just add one more thing, Connor. As you know, we have been in the telecom space for almost three decades, and because of that, we have been able to establish very strong, robust direct connections with most of the leading mobile operators globally. Therefore, today, more than 90% of our sales volumes in Mobile Top-Up come from those direct connections, those direct deals we have made. We use very little in terms of aggregators in this space, and that, I believe, definitely gives us a significant edge in our cost structure and margin for this business.

Thanks, guys.

Okay. The next question is coming from Hassan El Sawi from EH Research. Your line is live.

Hey, everyone. I have a quick question regarding the BOSS Revolution Money Transfer business. How are you approaching the issue of conflict related to RTGS? There’s a discussion about potential reductions in take rates and international money transfer fees approaching zero. Are you encountering any of these challenges in BOSS Revolution, and if so, are you treating it as a loss leader for Mobile Top-Up? How is this affecting BOSS Revolution more broadly beyond just the Money Transfer aspect?

I mean, I definitely don’t see the headwinds that you’re referring to, or I mean, I haven’t, to be honest, heard them remark that. I will say that, over time, the way people make money on Money Transfer will change. I think that more of it is going to be made on the spend of the money that’s sent rather than the fee that’s paid or the FX margin that’s made like you have today. We intend on being in that space to make money in-country, I’ll call it, rather than just on the send side. And you’ll see the beginnings of our foray into that with our own new banking products here, which we intend to also launch outside of the U.S., including some other things that I don’t really feel like I can talk about that much yet. But I don’t view it as a gateway to IMTU at all. I view it as its own substantial business. It happens to be that a lot of the same customers also buy IMTU; I will agree with that.

Thank you. I have a quick follow-up question. A couple of quarters ago, you mentioned that you were working on several businesses behind the scenes. We've recently heard about some of your neobanking initiatives. Are these primarily focused on banking, payments, and telecommunications, or can you provide more details on the different markets you are targeting and the various businesses you are developing in the background?

Yeah. I mean, again, I would say, the most of the things that we’re working on in the background are somewhat related to things we already do: communications, payments, Fintech in general. So, again, I could go on and on for hours about it. But, yes, I mean, the very simple answer is most of them are related to payments and communications, both on the consumer side and the business side.

Awesome. Thanks, guys.

Okay. The next question is coming from Matthew. Your line is live.

Hey, guys. So my question is kind of pertaining to how IDT looks like a business that has a lot of exposure to various components or segments of the telecommunication space. How do you see these companies, like, segments growing given their lack of individual scale and ability to differentiate their product or service?

I don’t know. I mean, I think we continue to scale every one of our businesses. I’m not sure where that question comes from. But maybe you want to elaborate?

Sure. Obviously, you have kind of four main business segments. Obviously, I think, you’re not the largest competitor within those segments. How do you see your products specifically or services growing given the lack of scale?

Well, I mean, again, I like to believe that the real thing that makes IDT better than everyone else, in my opinion, is grit. We are scrappy; we work hard; we fight harder than, I’m not going to say, every competitor that we have; we have some great competitors and lots of businesses, and there are some great products out there that aren’t our products. That being said, I think that we really try harder, both in the service that we give to our retailers and the products we give to our consumers. We focus on the details. We really try to give all of our customers a great experience with us, and I think that that’s what has helped us achieve continued growth in all the different segments that we’re in. Yes, we’re not the biggest UCaaS player, but you try to get the biggest UCaaS player’s engineering department on the phone when you have an issue and you’re a nine-person law office in Brazil, I can pretty much guarantee you, you’re going to wait on the phone for about nine hours and they’re going to hang up on you. We serve our customers day in and day out; our tickets that get opened get closed, and that’s really what differentiates us: our customer focus.

Yeah. Exactly. Just to add to that, in all the businesses that we have chosen, we have chosen to compete in very unique niche categories, looking for opportunities in each one of those segments. For example, in the case of NRS, we really dominate the bodega independent retailer market; we have a huge distribution into that space, and we are becoming the primary provider of POS systems, leveraging everything we can out of that network. Similar to the case of net2phone, we have chosen to compete primarily in the small and medium-sized SMB business, with our multi-channel offering, choosing the right geographies where we see above-average growth and opportunities, which differentiates us a lot from some of the larger number one and number two players in each of these categories. Our goal is not necessarily to be the number one or number two player, but to be the best player in the categories and niche markets that we choose. When you think about our international long-distance voice businesses, being a listed carrier, I think we are probably the best operator in the international long-distance minutes business, and no other company draws better economics out of the minute of use than we do.

Awesome. Second question here. You appear to have made several new hires in the sales space as of late; could you just walk us through your thought process behind that and how you see that accelerating growth?

I mean, hiring more salespeople means you’re going to have more sales. I think that it’s really very simple. Like, if we’re getting good economics or good returns on investment, we invest more. It’s really that simple.

Awesome. Thank you.

Your next question is coming from David Polansky from Immersion. David, your line is live.

Hey, guys. Thanks for taking my question. I want to talk about NRS. I’m really impressed with that business, particularly the monthly average revenue per terminal expansion from $131 to $169 a month. That’s 29% in just one quarter. So I just have a high-level question: can you talk about the drivers for continued growth in that number, and do you think that you can continue that performance?

I mean, probably not indefinitely. But, yes, I think that we can continue that performance. A: on the merchant processing side of the business, we really don’t have anywhere near the penetration that we believe that we can get to. On the advertising side, I don’t believe we have even scratched the surface of where we can get to. On the data, the same; we just started lending money to stores this past quarter. This is completely nascent. We’re going to show remarkable growth from NRS that I think everyone will be very happy with. In terms of the amount we get per store, again, I think, as we do a better job of signing up stores for more services and more products when we acquire them at first, probably over time the number will somewhat stabilize, but we believe there’s lots of areas that we can add revenue from, everything from selling them curated lists of products; we just started doing that to manage their delivery services for them, which we’ll be rolling out over the next couple of months. Each one of these services are things that our stores need to compete, and we can make money on it. We think we’re driving a lot of incremental revenue for us, but we’re driving way more incremental revenue for them from the products and services that we’re bringing to them.

Yeah. As a benefit to all investors, as you have noticed, this is the first earnings release that we have started to include a breakdown of the NRS different revenue streams. Now with the advertising, data, the factories, the merchant services, and we hope that by giving that the ability to invest, you could see the potential for growth from both revenue streams and how they will help significantly to leverage our existing POS network.

Yeah. That’s great. I mean, we all, I’m sure everyone really appreciates the disclosure. I mean, it’s highlighting what is going to be one day a super valuable asset. I guess if you could just highlight a little, one, this was my last question. Could you talk a little bit about the data opportunities, so the data that you’re selling? I feel like when I talk to other investors, they don’t really understand just how lucrative that could be. So could you talk, I guess, at a high level just on the data opportunities specifically within NRS?

At a very high level, it's been a year or two since I last pitched it to a company on my own. The people involved do an excellent job. If you're Procter & Gamble, it's crucial to know what Unilever is doing in the same stores. You need to understand how products in each category compare to theirs. It's important to verify if the companies you hire to ensure products are on shelves are actually doing so. You also want to know how sales are affected when you lower prices or provide incentives. There are numerous data points that consumer packaged goods companies need to determine their next steps. Unfortunately, the independent convenience store market has been largely overlooked by them. We believe that as time goes on, this data will become increasingly valuable, and as we expand our network to larger stores and chains, its value will increase further. This growth follows a self-fulfilling pattern based on the business's development.

So you’re able to sell data to individual CPG companies, not just third-party data aggregators. So there’s a lot of potential customers.

That’s correct. When purchasing data from a third-party aggregator, which is currently our largest revenue source, you're obtaining a broader range of information, which I liken to a shotgun approach. In contrast, when you buy it tailored specifically for your needs, you receive the data exactly as you want in the report format you desire. This results in a completely different product. One option provides general information, while the other delivers very specific details, such as the performance of stores in different regions of the city or even between nearby zip codes. You can customize the data any way you need.

So you are operating like a black box, which means this is really valuable data that no one else has collected. This is detailed data that people desire.

Absolutely. This is the kind of data that a Walmart can provide to a consumer packaged goods company, but they sell products at a fixed price. They lack the ability to determine the impact of reducing the price by a dollar, offering a one-dollar incentive, or running a promotion in one area and not another. The kind of testing and experimentation that we can conduct in our markets is something they are unable to do even in larger chains. I believe they are leveraging this to enhance their business beyond just our specific market.

That’s great. What I meant was that in terms of markets, like the bodega communities, no one else has insights into that market. Is that what I was asking?

I mean, I’m sure there’s somebody else that has some eyes in bodegas, but there is no one that has anywhere near the amount of data and the granularity and the systems to process that data that we do.

Awesome. Alright. Thanks, guys. I’ll hand it over.

Okay. We have a follow-up from Hassan Ansari from EH Research. Hassan, your line is live.

Hey, guys. Just wanted to hop back in line and follow up on something David asked about. You mentioned, when you’re deploying these NRS terminals, the stores are actually seeing their own revenues get a little bit of an uplift? Can you just, A, explain really like how that’s working, and then, B, if you have any idea direction on what’s the magnitude of that revenue uplift for the stores that you’re deploying these terminals?

We don’t specify the exact numbers, and it really varies across different retailers. Some have experienced significant increases in their business, ranging from 80% to 100% after implementing our system. We provide management tools that help them track their business performance, including gross profit on items, out-of-stock levels, and the top 50 items they’re not carrying. Like any tool, its effectiveness depends on how well it's utilized. For instance, having an iPhone and using it just for calls is less effective than leveraging its full capabilities. Retailers benefit in various ways, particularly from our low-fee merchant processing, which encourages more credit card use and consequently boosts sales. Additionally, in-store advertising for products helps drive sales. Our data tools enable retailers to monitor their performance in different categories, allowing them to make informed decisions to enhance sales. We provide insights into their busiest hours, which can help them optimize their operating times, ultimately leading to smarter business choices.

Okay. That’s interesting. It’s like a little business intelligence tool combined with a payment system. I'm not sure if I saw it in your filings, but could you walk us through the economics of deploying a single terminal? I'm curious about the cost to deploy. I imagine it gets a bit complicated with the top line, given that you have data and payments processing fees, but if you could guide us on how you view the per terminal return as you start rolling these out in more stores.

Well, I think that we sort of got a similar question earlier when we broke up the ARPU per terminal this quarter. Again, as I said, I believe that you are going to continue to see good improvement on that ARPU for a significant period of time. As I said, I don’t think it expands at the same rate that we’ve been doing it forever; I wish I could do that, but I don’t think that’s reality. That being said, as I said, I think the penetration in stores of all of our services is still very low. So you’re going to see massive improvement from just better penetration in general. We are adding lots and lots of features. I mean, essentially, NRS is a degree one business, but it’s also many different businesses all in one. The funding is one business all unto itself. The data is one business unto itself. The payments are one business unto itself. The software is one business unto itself. The delivery and e-commerce is a business unto itself. The core of that product is the POS and the great user experience and the great service that we provide our customers for this product. You can get a POS that probably does some of the things that we do; it’s just going to cost you probably 8 to 10 times as much upfront, and probably 20 to 30 times as much on a monthly basis. SAP and any major company sell fancier equivalents, but for an independent store, this is really an amazing deal besides everything else.

Awesome. And just one more quick one before I’ll maybe hop back in line again.

Okay.

It seems like you're employing the POS system as a way to gradually expand your business with customers. How effective has that approach been? Are many customers initially attracted just by the terminal, and then over time, you begin to generate revenue from additional services, or is it more that you have the capability to do this, and it's just now beginning to gain traction?

I mean, it’s both. I mean, I think that, A, things always take time until they improve to a point where the ball really starts rolling quickly. By the same token, there are also a lot of new products that we barely introduced and already you’re not going to see those in our results for a couple of quarters, but they’re going to be huge.

Okay. We have a question coming from Jackel King, Private Investor. Jackel, your line is live.

Hello. Hello.

Yeah. You’re here. We hear you. You hear us?

I had a question about the monthly average revenue at the terminal. Could you talk more about the difference between the average revenue for NRS Pay and the regular terminal?

We don’t break it up specifically. But I mean, again, the price that we charge for our terminal and the price we charge for our service, as well as our merchant processing, is all very, very simple and easy to find. Go to nrsplus.com and the pricing is right there.

I have another question about the growth of NRS Pay. It looks like there are 900 more terminals this quarter and 900 new NRS Pay terminals. Were these primarily ordered from NRS Pay, or was it a combination of both?

I’m not 100% sure I understand your question, but about two-thirds of the new terminals are taking NRS Pay.

Yeah. That was my question. Yeah. So it was a mix. Okay. Okay. Thank you.

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