Good evening and welcome to the IDT Corporation’s Second Quarter Fiscal Year 2023 Earnings Call. In today’s presentation, IDT’s management will discuss the company’s financial and operational results for the three-month period ended January 31, 2023. During remarks by IDT’s Chief Executive Officer, Samuel Jonas, all participants will be in listen-only mode. After Mr. Jonas’ remarks, Marcelo Fischer, IDT’s Chief Financial Officer, will join Mr. Jonas for a question and answer session. Any forward-looking statements made during this conference call, whether in the prepared remarks or during the Q&A session, are subject to risks and uncertainties that could cause actual results to vary significantly from what the company expects. These risks and uncertainties include, but are not limited to, those discussed in the reports that IDT files periodically with the SEC. IDT does not assume any obligation to update any forward-looking statements made or to update the factors that could lead actual results to differ from those anticipated. In their presentation or during the Q&A, IDT’s management may reference non-GAAP measures, including adjusted EBITDA, non-GAAP net income, and non-GAAP earnings or loss per share. A schedule 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. The IDT earnings release is available on the Investor Relations page of the IDT Corporation website and has also been filed on Form 8-K with the SEC. I will now turn the conference over to Mr. Jonas.

Thank you, John. Welcome to IDT’s earnings conference call. After my remarks, Marcelo Fischer, IDT’s Chief Financial Officer, will join me and we will be available to answer your questions. My speeches lately have been a little long and personally I prefer short and sweet. So today, that’s what we are going to do. On the second quarter, the 3 months ended January 31, you can read a more detailed discussion of our financial and operational results from our earnings release filed earlier today or our Form 10-Q that we expect to file with the Securities and Exchange Commission early next week. NRS, BOSS Money and net2phone are three primary high growth businesses that again performed very well this quarter. Their formula is simple: deliver exceptional value and superior customer experiences. I am pleased that they continued on their growth trajectories, while remaining very focused on improving their bottom lines. Each of these businesses grew robustly in the second quarter. NRS added approximately 1,600 net new terminals this quarter, a record increase and more than doubled its recurring revenue. The revenue increase was led by a year-over-year jump in advertising and data sales, which grew by 130%. net2phone achieved 30% year-over-year subscription revenue growth, including the 35% increase in our Latin American markets and a 23% increase in our U.S. market. At BOSS Money, transaction volumes through both our retail and direct-to-consumer sales channels increased by 39% year-over-year as we continue to leverage the synergies between these two channels. Led by the contributions of these three businesses, IDT delivered significant year-over-year increases in quarterly adjusted EBITDA, up 25% to $23 million and income from operations of 32% to $18 million and earnings which more than doubled to $0.56 per share. Our strong operating results this past quarter enabled us to further strengthen our balance sheet. At the quarter’s end, we had over $156.8 million in cash, cash equivalents, debt securities and current equity investments, an increase of nearly $20 million over the first 3 months. Once again, we had no debt. I want to wrap up by thanking our stockholders, both our long-term investors and those that are new to our story, for putting their faith and their capital with us. And finally, I want to give a huge thank you to our employees, some of whom continue to work under difficult conditions overseas for their many contributions above and beyond the ordinary. The best thing about IDT is our amazing team, whose hard work and innovation powers all our progress. Now, Marcelo and I will be happy to take your questions.

Thank you. The first question comes from David Polansky with Immersion Investments.

Hey, guys. Samuel, I think you win the award for the shortest prepared remarks of any public company that I have ever listened to. So if they give out medals for that, congrats, I think you should be getting one soon. But on my question, I want to talk about advertising and data a little bit within NRS. It’s now on a trailing 12-month basis. It’s over 50% of NRS revenue excluding terminal sales. So I think the data and advertising piece of that business is not super well understood. I think people know point-of-sale generally and they know about payments, but the marriage of data sales and advertising from a point of sale is not – I don’t think it’s super well understood amongst investors. So, could we get an update on advertising, so like where are you in terms of penetration developing relationships there and selling more advertising? And then on data, could you speak high level about why your data is attractive and sort of what is so interesting about the NRS offering to maybe a third-party data aggregator or a CPG company? That would be great. Thanks.

Okay. Well, first of all, thank you for recommending me for the award for shorter speech, I appreciate that. I wear that badge with honor. And I mean – listen, I wish that we had more direct salespeople working for us at NRS on the advertising front. The ones that we have have been very, very productive and have really done a great job showing our customers the value that they are getting from advertising on the NRS terminals both to consumers as well as to the merchants. As far as the data, I mean there are two things I would say just generally. One is that until now, I would say the data available to CPGs and a variety of other organizations that buy our data has been very, very limited. So the biggest piece is that when people have nothing and you give them something really amazing like they are even more wowed by it than if they had something before. So we have scanned data from pretty much all of our stores. And just to use an example, a manufacturer can see exactly how much in sales they are doing in a particular store in a particular ZIP code, they can see how their competitors are doing. They can see how their pricing affects their sales. They can see how discounts that they are giving to consumers are affecting their sales. They can really see basically what I would say is everything that they could get from a big box retailer, but maybe even more because like in a certain way, I think that we are more open with them than what some of the big box retailers might give them. They might not give them what their competitors sell just as an example. And I give them – if they were doing testing on pricing, how pricing is affecting sales volume and the manufacturers that we deal with see great value in that. And they also want to see how their advertising dollars in our stores are doing for them. And that’s another reason that they buy the data, because they can see the impact from one to the other. Maybe Marcelo wants to add something too.

No, I was just thinking, David, I mean, like, yes, I mean, obviously, we are very, very pleased about advertising data performance. But just to be totally honest, we actually are underperforming versus what we had budgeted in the beginning of the year and of all of our segments, NRS is the one that underperformed versus budget even though it’s our fastest growing segment. Because when we did the budget back in June, July, we were really hoping that the broader advertising market would be stronger than they are. We are feeling the headwinds to advertising revenue like everybody else is feeling. But on the other hand, now we provide our digital screen inventory out there, mostly programmatic buyers to match it with fellows. And we believe that our digital screens are better than most of the inventory out there because of the amount of time that people are looking at the screens as they are approaching to pay for the goods at the NRS stores. So yes, we are very happy with it. It’s a great element of our business model to have the advertising. But even said that, no, it’s a little softer than what we had hoped it would be because of the macro situation.

Great. Thank you. On terminal sales and signing on new relationships, can you give us an update on how many of those sales are coming from direct NRS versus maybe an IDT salesperson from a traditional channel just to help us kind of think about, is NRS ready to sort of stand on its own so to speak or you are still relying heavily on the traditional IDT distribution channels?

I don’t have the numbers in front of me for this quarter in terms of where units are sold from, but I would say that we are still getting about a third from IDT, about a third from direct and about a third through distribution channels.

Okay, great. On net2phone, could you talk a little bit about the profitability and the performance there? I mean, I think I mentioned last quarter, you beat our estimate on EBITDA and you did it again this quarter. So I am just trying to think about where this business could be from a profitability perspective than maybe 12 to 24 months?

I will start by saying that we had a very strong quarter for net2phone, and we are quite pleased with its performance. The business generated approximately $800,000 in EBITDA. Based on this performance, I believe we might finish this fiscal year, around June or July, not only positive in EBITDA but also cash flow positive, meaning it would cover its capital expenditures. We could potentially exit net2phone as a free cash flow generating company. As noted, we achieved a 30% growth in subscriptions this past quarter. However, as we head into Q3, we should note that this will be the first quarter where the CCAP acquisition will impact our year-over-year numbers. Thus, it will be purely organic growth without the effects of acquisitions. We are still aiming for a growth rate of 20% to 25% in Q3 and believe net2phone can sustain this growth moving forward while starting to generate positive cash flow. Q2 typically experiences quieter summer months, but given the business dynamics in South America, a key part of our operations, we may see stronger performance in Q3 compared to Q2. A significant positive indicator from Q2 is that we managed to lower our consolidated churn rate below 1%. I hope this trend continues, as it suggests we are meeting customer expectations effectively. Overall, I’m very pleased with the management team's efforts in this area.

Yes. I don’t have much to add to what Marcelo already said. I mean the one thing I would say is that while the acquisition of Integra was probably a little bit of a weight on next quarter. We’re very, very excited about what that acquisition brings to the table. And we are going to be investing heavily in bringing on more customers for our CCaaS solution because we think a: when you provide a business with both their sales, customer service and regular business lines, you make them a much stickier customer. And frankly, we think it’s really a great solution at a great price, and it also raises our ARPU overall. So I mean I think one of the things you’ll see from net2phone over the course of the next couple of quarters is continued expansion of average revenue per user and margins from Integra, taking a deeper relationship into a lot of the customers that we already have. I mean, some of what we’re doing now is not just going after new accounts, but landing and expanding the accounts that we have into taking more services from us.

That’s great. I want to give you an opportunity to talk a little bit about maybe anything new that’s going on in the pipeline. I mean, I think IDT has been very entrepreneurial in the past, and there is this question hanging out there of what happens when NRS gets spun out, what’s going to happen to IDT, the holding company and should I even be interested in IDP in the holding company as a potential investment. So I guess if you could talk a little bit about if you’re ready, what maybe what’s going on behind the scenes and anything that we could maybe look forward to in the future?

Yes, I mean I will just give you like two or three things that come to my mind quickly today. I mean one is you saw our launch of Zendit. I think that hit the press release a couple of weeks ago. And I was at our booth in Barcelona, where we were showing it off. And that’s a very exciting product for the top of the gift card space. It allows developers to come in and basically set themselves up and start selling. And we think that when you consider like the depth of our portfolio already, the advantages that we have in pricing from the volume that we do already in retail and in Zendit, we think that leverage is really going to bring a lot of customers to us from both other players that are out there already as well as new customers who see this as a way to add services into things that they are already selling to customers. So that’s one example. We started marketing our BOSS Money product overseas this past quarter. And we’re very excited about how that is going to eventually develop to make money transfer, not just like a one-sided product but a two-sided product, both in local markets as well as here. And we think that that’s – I mean, there are a lot of different pieces to that, that we probably won’t get into on the call today, but that’s another one that’s very exciting. And again, we just keep adding on different pieces to all of our businesses and trying to sell them to consumers and businesses that our goal every day.

That’s great. And just as a clarifying point on Zendit, where – what product group is that going to be an IDT digital payment?

Yes, that’s part of IDT digital payments, that’s correct.

Okay. And what does that do – when we think about the decay or the decline within traditional, I mean, can you – I just help understand what that could mean or is it kind of too early to tell?

I don’t have an answer of what it could be. I mean, I could say that part of our business is a very large part of the traditional business, and we expect to make it an even larger part of the traditional business going forward. And Zendit is a big piece of that strategy.

Okay. Great. That’s it for me. Thanks, guys. I will pass it over.

Thank you.

Thank you.

Next question comes from Daniel Koch. Please announce your affiliation then pose your question.

This is Daniel from Alta Fox. Thanks for taking the question. I agree with David that you probably just set a record on the quickest prepared remarks. Had a quick one about net2phone. Pleased to see the net2phone ARPU up year-over-year despite what I thought was some mix headwinds from international markets. Can you shed some light on where the growth specifically is coming from? And are places like Latin America still showing pretty elevated pace of growth? Or is that kind of slowed at this point?

I mean I think – I mean you could see even from my short remarks today that we grew stronger in Latin America than we did in the U.S. So I mean that is definitely a big part of our growth strategy going forward is focusing on those markets. But Marcelo has some stuff to add.

Yes. Hi, Dan. So I mean South America is growing very fast, in some markets like Mexico, Colombia, Brazil continue to grow very fast. Chile faster than the U.S. So the growth is good and strong, and we don’t see it decelerating at all. And we also have, as Samuel mentioned earlier, the higher ARPU growth now happening also from the CCAS side, right? When we acquired Integra, our CCAS player in Uruguay, March of last year, I think they had 5,500 seats at a time. So now we ended January with 9,000 seats. So in 11 months, we grew those seats by about 35% and putting more investment behind them, so they could go faster. So, all of those areas are bringing the growth to net2phone.

Got it. Thanks for that, Marcelo. One more quick one for me. I think you all might have one of the fastest growing money transfer businesses in the market now. The growth there is incredibly impressive. Can you all just shed a little bit more light on what’s the underlying driver there and how sustainable these growth rates are going forward?

I mean, listen, I think that we are giving our customers value. I mean that’s the number one thing that I think is driving our growth. And I think that’s both on the retail side as well as on the direct-to-consumer side. Again, we spend a lot less money than some of the big companies in the space. And we try to be, I mean, very, very responsible when it comes to acquiring customers at a reasonable price. And that’s both on the retail side as well as on the direct-to-consumer side. Like we are not going to go into a store and lose money, and we’re not going to go after quadrants of customers that we’re going to lose money. So we’re very disciplined about that. But by the same token, like we don’t look to make the last dollar off of every transaction, we look to make sure that we have a very, very strong base of customers that comes back to us multiple times a month and recommend their friends. And that’s been a big part of our success, and we’re always tweaking things on the edge. This past quarter, we started marketing our neo bank service to our customers, which we think is a big plus we give them a $2 discount if they pay using our neo bank. And we’re focused on making sure that we provide good value, good customer service. And I think you can see from even just the ratings online that we are doing a good job on that.

Got it. Thanks. Well, appreciate it. That’s all for me.

Thank you.

The next question comes from Adam Wilk. Please announce your affiliation then pose your question.

Hi, guys. Can you hear me?

Very well.

Great. Yes, this is Adam with Greystone Capital. Thanks for taking my questions. And great job on the quarter, really impressive once again. The bulk of my questions were asked and answered, which is great. So maybe just two quick ones, as you think about the advertising opportunity for NRS, it sounds like there is – you’re talking about a little bit of economic softness or cyclicality there, which I guess is to be expected. Is there anything you can – or any color you can add on what to expect for the rest of the year? I know you don’t give guidance, but just curious if maybe the out-of-home trends are different than maybe some different areas of the advertising market or kind of what your – anything you’re seeing there would be helpful?

I’m sure that the trends are different in out-of-home versus other forms of advertising. No. I mean, again, as Marcelo indicated, we definitely are feeling headwinds. We’ve done a good job, as we said, on direct sales, on data sales, etcetera and really making sure that our advertisers see the value from our – from advertising with us. But again, I think that personally, I think inflation will be brought under control in the next 6 months or so. And I think that when that happens, you’ll start to see more budget free up to increase business. But that’s my personal opinion. Don’t take it to the bank, everyone has their own ideas of what’s going to happen.

Yes. I don’t have much more to add. I mean, usually, as you know, the month of January is the weakest month for advertising for us. It was the same this past January. It was not a strong month. It appears to me that advertising budgets either being held obtained right now. Our companies haven’t decided yet how much capital to allocate towards the advertising budget. But we are seeing clearly a soft start to the calendar year in terms of the advertising. And I think it’s across the board.

Okay. Yes, that’s helpful. It makes sense. I appreciate it. And then last one for me. The two – the quarters prior to this one, I thought reflected a really nice pace of share repurchase activity. And I’m just wondering what your current stance is on buybacks moving forward and how you’re thinking about that as a use of cash?

I don’t know. I mean, again, we’re opportunistic, and we don’t have any plans one way or the other as of yet. But – so no change in stance, just no buybacks this past quarter.

Okay. I might just push back on that – or not push back, but just add to that question a bit just by asking, was there something you saw the last two quarters that kind of spurred you to action?

No. I mean, again, like I think the business as well, as you saw, we threw off $20 million plus or minus this past quarter, which did not decide to invest it in buying back stock this quarter.

Sure. I understand. Well, the buybacks at this price remain incredibly accretive. So that’s my $0.02 anyway. But I appreciate you taking my questions and congrats on a great quarter. Thank you.

Thank you.

The next question comes from Alexander Rory. Please announce your affiliation then pose your question.

Hi, guys. Congrats on the numbers. So this is the third consecutive quarter with NRS advertising kind of dramatically higher level. So, it’s been for three straight quarters, roughly a 2x increase in ad revenue per terminal, roughly. I think there is some skepticism out there that these are kind of one-time gains or you guys might revert back to per terminal levels you were seeing a year ago when the total business was doing $4 million-ish per quarter in ad revenue. So, maybe just speak to like the sustainability of the new run rate in ad revenue.

I mean again, we are definitely facing some headwinds in advertising. There is no question about it. I do think that, again, we are doing better in March than we were in January by a large amount. So – but again, there definitely are headwinds in advertising. There is no question about it. That being said, we think that we are going to do well on it.

I mean obviously, we don’t control the macro environment. From a macro perspective, I think we are very well positioned, right. I mean we are competing in the view age segment of advertising, which continues to grow and will be one of the fastest growing segments in advertising growth, and we participate in that segment. And as I mentioned earlier, I think that our digital screens in that segment is a very, very attractive way for advertisers who want to place ads digitally to choose us as a solution. So, we are trying to continue to grow the number of programmatic relationships that we do business with. And I think that we, to a large extent, always from now on, be a function more of the macro situation. But as long as advertising dollars are out there, I think we will be capturing more and more of the share of it. That then goes by and that our network continues to increase.

Got it. And then last quarter, the NRS store base on a same-store sales basis really outperformed the peer set. I am just eyeballing the statistics and the NRS insights released in February. And it looks like for the whole quarter, on a cumulative basis, the NRS stores were doing about 4 percentage points better year-on-year than convenience stores in general nationally. So, what do you attribute that to, or do you expect – and do you expect that to be a sustainable trend?

I don’t really know the answer. That’s the truth. I mean I think that the main thing that I would attribute to is independent business people are really the drivers of the economy, and they are innovative. And when inflation is high, they put things on sale in the front of their stores that make things not seem like they are out of reach for consumers. And they talk to their consumers, and they tell them what’s a good deal. And I think that it’s really that independent businessman mentality that’s keeping them strong. I really don’t have any other explanation. It’s not because they have better access to products or financing or rental rates or etcetera. They have a lot of challenges in my opinion still, but we are trying to help them overcome. But yes, they definitely are resilient.

Got it. And last question for me. Any update on the – Samuel, you talked about this last quarter that the group purchasing effort to try and help some of your NRS customers get scale with distributors. And how is the early progress there?

Unfortunately, this is not a great quarter for that. We don’t lose many good people, but we lost the head of that division this past quarter to a different startup. So, that was a little bit of a setback, but we have high hopes for it going forward.

The next question comes from Sean Berger. Please announce your affiliation and post your question.

Hi. This is Sean Berger from Adirondack Retirement Specialists, and I want to first, congratulate you on a very good quarter. With regard to – and first, also if anybody ever wants to contact me on live, BOSS Money is the best as a consumer, I can give you a lot about it because I use it all the time. One of the things that when I use BOSS Money is they gave me a little discount for downloading mobile wallet. And I was really impressed with the mobile wallet. I was just wondering anything with that in the future as far as the potential, I don’t know if that’s a potential revenue source or just more Glu.

I mean I believe you are referring to our neobanking solution.

Because on my phone, the app, so maybe...

Wallet by BOSS. So, I call it mobile wallet. Alright. So, that’s the neobank. So, that is the neobanking. So, that’s what I was referring to earlier that you get $2 when you use it to pay for a money transfer. So yes, I mean it’s more than Glu. I mean Glu is definitely part of it. But we make money on it the same way that lots of neobanks do, which is the more money and balances you have, the more money we are making in interest. And the more money you spend on your card, the more money we are making on interchange. And we – like all of our products, we are giving customers great value. There are no fees in having a card with us. You get paid early if you have direct deposit. You get the discounts when you use it for bus money. You get some really cool information on how you are spending money and things that will help you budget more appropriately. And we think that we are giving to consumers a really great product and again, at a great value. And we hope that it becomes a much bigger part of our business. And as I said...

I was also very impressed with the technology like it linked up my photo with my wallet or with my driver’s license and boom, like merged the two, so like it identified me well, and I think it’s very good for the unbanked like people that are unbanked like Latin American people that are here and would need to be banked. I think that there is a very underserved community. So, I think that’s great. One of the – the only other question I had was also with regard to – I know that you can’t comment much on lawsuit, but I did know about the judge sustained an injury. I am just wondering if there is any expected delays or if you have been informed in any delays as a result of that with the Straight Path litigation, or that just seems to be progressing along that was it.

Well, I mean first off, I hope he has a full recovery. From afar, he looks like a very, very nice man, and we wish him the best. And, yes, I mean there is probably going to be a slight delay. We don’t know exactly by how much, but we were informed by the court of a delay.

I mean just to clarify, okay. At this point, I think that post trial oral arguments scheduled for sometime in May, tentatively, the judge’s condition may affect that, but that’s always at this point.

Okay. Thank you.

The next question comes from Neigal Alonzo. Please announce your affiliation and post your question.

Hello. Can you guys hear me?

Yes.

Yes. The first question is about NRS. You had the announcement of the Canadian market recently. And if I am not mistaken, this was announced already about a year ago that you were selling in Canada. So, I am wondering, is it that Canada is a bigger part of your strategy right now, or what’s behind it? And have you already tapped into all the U.S. markets? So, the BOSS retail network that you have, I had estimated at 35,000. So, is that market close to being tapped into, or what’s the reason behind the announcement? Thank you.

No. I mean first of all, I mean definitely not. I mean we are selling more stores today than we have ever sold before. So, the market is not tapped at all in the U.S. Listen, we think we have a great product. As I have said, we give great values to our retailers. And again, I don’t want to take any credit for the fact that their numbers are better than convenience stores are doing overall. But it’s sure not hurting them. And we want to bring that same technology to Canada. And it’s the easiest market for us to go into all of our merchant processing solutions, etcetera, work there. We already have a distribution channel there, and it was a natural next step for NRS. But no, it has nothing to do with us believing that we are in any way saturated in the U.S. market.

Okay. And then regarding net2phone, you postponed the spinoff a couple of quarters ago. So, I would like to hear where you are at with the potential spin-off in the future. And also, we have seen your unprofitable peer set a lot. So, I was wondering if you are looking to acquire any technology, expand in a geography or new clients through the acquisition of any competition of net2phone?

I mean listen, we are always looking for good acquisitions that we can help be more successful than they were on their own. That being said, we are not looking at anything actively right now for net2phone, but that doesn’t mean that we will not in the future. As far as our plans on net2phone, again, we definitely do not believe that current market conditions are appropriate for a spinoff. That being said, we have our heads down as you can see, and we are making sure that we are not only a very good growth company, but a profitable company and one that doesn’t need to rely on markets to support it, but we will rely on its actual cash flow to continue to support and grow its business.

Got it. And lastly on BOSS Money Transfer, so I would like to hear about the vision of the company, you completed them in a very – there is a lot of competitors in your industry. And I would like to know why you are going to succeed in this competitive environment? And what’s the end point? When are we going to see consistent positive EBITDA for BOSS Money Transfer?

Well, I mean listen, we definitely have some very strong competitors in the money transfer business. It’s been a business that’s been around for many, many years. And again, as I have said, I don’t think that we do anything unique. What we do is we give – I think what we do is we focus on giving customers good value, and that’s in every way, from the experience that they have using us to the systems that we have in place to make sure that none of their information is compromised, that the transactions are safe, etcetera, etcetera. We give really good value to our customers. And that’s why they come back to us. As I have said, usually multiple times a month. And at the store level, we are really focused on making sure that we are not only an online competitor. The money transfer business is still probably 80% of retail business, definitely moving more and more online every day. But we have a strong base of retailers, as you pointed out, in a different question. And we want our retailers to take advantage of using BOSS Money rather than other competitors of ours. So again, some of them are very good. I am not trying to say that we don’t have good competitors. We have good competitors, but we think we give great value to consumers and to our retailers.

Okay. Thank you and congrats again on the results.

Thank you.

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.