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. 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 risk 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 risk 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 they 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 31st. 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 communication 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 continued 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 retail 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 growth profits 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 & Data revenue increased sequentially propelled by seasonal tailwinds and the gradual recovery of advertising in the digital out-of-home advertising space, a trend which has accelerated since the quarter close. 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 topline 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 are 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 their continued, expected topline declines. They also will allow us to continue investing in innovative new products and promising initiatives in our existing growth 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 to thank each of you for everything you do for the IDT family. Now, Marcelo and I will be happy to take your questions.

Thank you. We will now begin the question-and-answer session. Okay, the first question comes from Chris Liu with Emmet Partners. Please proceed.

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 cost?

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 to that. In terms of payback, are you guys looking at the payback on this advertising and marketing spend? Obviously, you're accelerating retail and digital growing as well. I'm just curious. 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 you know 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 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 in the fact that we are a reliable money transfer company and not just a service for calling and topping up.

Hi Chris, it's Marcelo. To build on what Shmuel mentioned, in our digital channel, a significant portion of our acquisition costs comes from digital marketing. However, in our retail channel, we have been actively increasing the number of retail agents in our network. We nearly increased the number of agents by 50% during fiscal 2023, and we plan to maintain that rate as we move into fiscal 2024. We are approaching around 1,800 retail agents in our network, which represents a real investment. Onboarding a retail agent incurs costs related to setting up a sub-account, compliance, credit monitoring, and collections. It takes time for an average agent to reach a sufficient volume of transactions in-store, and we typically start to see real profits when an agent averages about 150 transactions each month, which doesn't happen overnight. This is indeed a significant investment in the retail channel, and we're seeing positive results. Our retail channel is now growing at a rate comparable to our digital segment. It’s driving a substantial number of transactions, and we plan to keep investing in this channel because it effectively brings in customers—not only for money transfers but also for those who will eventually use our offerings in prepaid services and International Mobile Top-Up. It's an excellent entry point for attracting more customers into our BOSS ecosystem at a low cost.

Okay, great. Thanks a lot, guys.

The next question comes from Anigo Alonzo with Momentum Financial. Please proceed.

Hello. In previous presentations, you mentioned a fixed SG&A number for NRS and net2phone. I am curious about how we should interpret this fixed SG&A number. Is it the fixed maintenance SG&A required for the daily operations of NRS and net2phone? Or is it a growth SG&A, with the remainder being just additional growth SG&A that you have allocated? Also, could we eliminate it if you want to adjust the business forecast for cash?

I don't believe I've ever mentioned a fixed SG&A. We've previously indicated that we will be cautious regarding SG&A even in our growth businesses. As you may have noticed this past quarter, we're continuing to enhance our growth, introduce new products, and maintain a relatively flat SG&A, with a slight decrease in NRS this past quarter. However, both the NRS business and the net2phone business, along with the BOSS money business, have variable SG&A that will grow as the businesses expand. Our primary aim is to improve our bottom line, so we remain dedicated to keeping fixed SG&A as tight as possible.

Right, 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 amounts 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 market subscription, as well as commissions and upfront commissions that we pay to our channel agents. As that business scales, however, our fixed overhead, our fixed costs 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 benefits 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 or different, 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 the NRS 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 net2phone and NRS, as those businesses grow, you see the immediate impact that those are having to the bottom line EBITDA of both of those businesses.

Okay, understood. I have a few specific questions about net2phone. How much gross margin expansion do you anticipate achieving once you transition your customers from the old platform to the new platform you own? Additionally, what is the range of contract lengths you have with your customers in terms of minimum and maximum? Lastly, what is the current backlog 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. I mean, usually we try to get customers active as quickly as we can, but it varies depending on the complicated nature of particular customers takes longer to move onto 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 have a rented platform for some of our older customers. I think you asked one more question, I might've forgot.

Yes, about the contract length. 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 where 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. In terms of how we define backlog, the majority of our customers are on a monthly payment basis, so we typically have one month of deferred revenue on the balance sheet, no more than that. We have built a solid backlog. We have been adding approximately 12,000 to 13,000 seats every quarter for the last several quarters. We believe this trend is likely what we will continue to target going forward as we launch new higher-end Apple products and as CCaaS customers gradually become a larger portion of our overall portfolio because CCaaS ARPU is about 7 to 8 times larger than the ARPU of a regular customer.

Okay, 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's not material.

Okay, we have no further questions. 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.