Idt Corp Q3 FY2026 Earnings Call

Welcome to the IDT Corporation's third quarter fiscal year 2026 earnings conference call. All participants are now in a listen-only mode. The question and answer session will follow management's remarks. Anyone requiring operator assistance during the conference call should press star zero on your telephone keypad. Please note this conference call is being recorded. I will now turn the call over to Bill O'Reilly of IDT Investor Relations.

Bill, you may begin. Thank you, John. In today's presentation, IDP's Chief Executive Officer, Shmuel Jonas, and Chief Financial Officer, Marcelo Fisher, will discuss IDP's financial and operational results for the three months ended April 30th, 2026. After their remarks, they will take your questions. Any forward-looking statements made during this conference call, either in their remarks or during the Q&A that follows, 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 non-GAAP measures, including adjusted EBITDA, adjusted EBITDA margin, non-GAAP earnings per share, NRS's Rule of 40 score, and adjusted net cash provided by operating activities. Schedules provided in the IDT earnings release reconcile these non-GAAP measures to their 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. And now I'll turn the call over to Shmuel for his comments on the quarter's results. Thank you, Bill.

And thanks to everyone on the call for joining us this evening. Last Friday, my father rang the opening bell at the NYSC to celebrate ITC's 25th anniversary at the NYSC-listed company and their 30th anniversary at the public company. Over 100 employees on their own dime from all over the world made the trip into Manhattan to be part of the event. After the event, I agreed to reimburse them, but I wanted only people to come who generally wanted to be there. I'll be honest. I wasn't sure what to expect going in, and as you can tell from my notoriously short speeches, I don't really like long-winded events. But the moment we approached the exchange and my father saw the IDT sign and smiled at me, something shifted for me. The NYIC team had done something really special. They pulled together photos and documents from our past listing anniversaries, creating a timeline of the people to document the, I don't know, history of IDT. And it was a very proud moment. What struck me most throughout the morning was the pride of being part of an organization that has stayed relevant and innovative throughout those 30 years, including a spin-off of five public companies, and that has consistently delivered for employees and shareholders alike, although not always in a straight line. IDT's year-over-year revenue and earnings growth was again powered by the continued expansion and operating leverage of our three higher-margin businesses. Paired with another quarter of steady cash generation from our traditional communications segment, Consolidated revenue grew 5% to $315.7 million, gross profit grew 9% to $122.5 million, gross margin expanding by 170 points to 38.8%. A record quarterly high, income from operations grew 12% to $29.8 million, and adjusted easing 13% to $37.5 million. Based on our year-to-date performance and forward visibility, we are raising our full year FY26 to just EBITDA guidance to $150 to $152 million, representing 50% growth at the midpoint over fiscal year 2025. NRS recurring revenue grew 22% year-over-year, and monthly average recurring revenue per terminal increased approximately 10%, driven by merchant services and fast use. We expect both categories to continue driving growth in the coming quarters. The terminal network now stands at over 39,000 active POS terminals, and payment processing accounts are also above 29,000, up 14% year-over-year. NRS's Rule of 40 score was 50 in the quarter, reflecting a healthy balance between growth and profitability. After the quarter close, we acquired a controlling stake in Encore Digital, a digital media brokerage. Encore's platform, demand relationships, and publisher network will be integrated with NRS' screen network and first-party transaction data to create a more competitive retail offering. Our digital channel revenue growth rate accelerated in the third quarter compared to the second quarter. Digital transactions grew 20% year-over-year and digital send volume, the actual dollars our customers are moving through 40%. We gained market share following the implementation of the new federal remittance task as customers sought reliable, cost-effective alternatives. The next one continued its growth trajectory with subscription revenue up 12% and total revenue up 11%. Seats served reached $441,000, up 6% year-over-year, with CCAS seats growing faster than UCAS, driving revenue per seat higher. Gross margins expanded 130 basis points to 80.6%. Most significantly, income from operations was up 76%. We are gaining traction with our AI offerings and expect them to become accretive growth drivers in fiscal year 2027. All NetFone offerings will also benefit from the recent release of Integrate by NetFone, an integration layer that enables our clients to easily, through a straightforward no-code interface, use our offerings with the tools they already work with every day, such as popular CRMs and ERPs and much more. Our traditional communication segment continue this role as a reliable cash generator. SGMA declined $2.6 million over a year as we continue to right-side the cost structure and adjusted EBITDA was essentially flat at $19.7 billion. IDT's global revenue grew 11%, partially offsetting the expected decline in Boss Revolution calling. Across all our business segments, we are integrating machine learning and AI tools to better understand new expectations for our customers, develop and provide new features faster, better, and cheaper. Additionally, we are enhancing customer service, refining pricing strategies, accelerating product launches, creating marketing campaigns, streamlining back office operations, excuse me, to name just a few. We expect that our AI efforts in some cases will serve as the basis for AI offerings that we can sell to our customers. 30 years ago, IDT was a scrappy long-distance company. Today, we operate a POS network serving nearly 40,000 independent retailers with growing digital remittance business, gaining market share in real time, and a cloud communication platform with AI capabilities, and a traditional communication segment that continues to generate meaningful cash. Thank you all for your continued confidence in IPT. Marcelo will now walk through the financial statement.

Thank you, Shemro. My remarks on our third quarter fiscal 2016 results will focus on deal-over-deal comparisons in order to set aside the seasonal impacts on our business. As a reminder, our fiscal third quarter, February through April, have just 89 days, roughly 3% fewer days than our other fiscal quarters. With that as context, we were very pleased with our consolidated performance. The third quarter extended the trajectory that we have been on for several years. The underlying growth dynamic at IDP remains in force. Our consolidated results increasingly reflect the growing contribution of our three higher-margin growth segments, NRS, Pintech, and Metaphone, even as our large traditional communications segment becomes relatively less impactful. That rotation again produced record consolidated gross profit and a record consolidated gross profit margin in the quarter. Gross profit increased 9% to $122.5 million, and our gross profit margin expanded 170 basis points to 38.8%. Let me put that rotation in number terms. Our three growth segments contributed $107 million of revenue in the quarter, about 34% of our consolidated total up from 30% a year ago. Because their combined gross margin is far higher than that of traditional communications, that shift continues to generate substantial operating leverage as their revenue scales. In the third quarter, our growth business' gross profit contribution increased to 67% from 51% a year earlier. The combined adjusted EBITDA from NRS, FinTech, and NetoFone grew 27% year-over-year to $20.5 million. In aggregate, our three growth segments generated 55% of IDTs consolidated adjusted EBITDA in the third quarter, up from 49% in the year-ago quarter. Because these segments still account for only about one-third of our revenue, that rotation has a long way left to run. I also want to call your attention to the consistent profitability of traditional communications, which slightly increased its adjusted EBITDA contribution year-over-year this quarter, even as its revenue edged slightly lower. This segment will remain a reliable contributor to our cash generation for many years to come. On the balance sheet, we ended the quarter with $251 million in cash, cash equivalent, and current debt and equity securities exclusive of restricted cash. Last week, our board declared a quarterly cash dividend of seven cents per share. We also continued to re-purchase our shares opportunistically during the quarter, re-purchasing approximately 84,000 shares for $4 million. Our growing free cash flow and debt-free balance sheet let us keep investing in our growth initiatives while returning cash to stockholders, and we expect to continue doing both. In terms of our outlook, given our results through the first nine months of the year and our visibility into the fourth quarter, we are again raising our full-year fiscal 26 guidance for consolidated adjusted EBITDA from the $147 to $149 million range we provided last quarter to a new range of $150 to $152 million. At the midpoint, this $3 million increase represents 15% growth over our fiscal 2025 adjusted EBITDA of $121.7 million. This latest guidance raise reflects both the increase in operating leverage we are seeing in our growth statements and the resilience of traditional communications contributions. To sum up, this was another quarter of discipline, profitable growth, and we are carrying real momentum into the close of our fiscal year. Just to finish up on a nostalgic note, as Shmuel mentioned, this year is our 30th year as a public company. So naturally, I had to take a look at IDT's first annual 10K report from 30 years ago. 1996. That year, IDP reported revenue of $58 million and a net loss of $16 billion. Today, even after spinning off size public companies, we are generating 22 times the revenue and over $100 million more in net earnings. I am especially pleased by our performance over the past few years. In fiscal 2021, just five years ago, IDP reported $75 million in adjusted EBITDA. In fiscal 26, we are now on track to more than double that amount. So indeed, there was much to celebrate at the New York Stock Exchange last Friday. We are proud of all that we have accomplished and excited by the opportunities ahead. Now, Shmour and I will do our best to answer your questions. Operator, that's you from Q&A.

Thank you. The question and answer session will now begin. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we assemble the roster. Our first question is from Inigo Alonzo with Stoic Capital. Please go ahead with your question.

Hello, Bill, Marcelo, and the Schmoll. First, congratulations on the 25 years, and thank you for sharing the touching words. I'm happy you spent some money flying people over to a nearest target chance, knowing how tightly you manage money, so I'm glad you're celebrating how it is worth it. So the first, that was not the only milestone this quarter, and I have a question on another milestone which was NRS having the first terminal in a non-North American country. So this year, this quarter, sorry, Columbia was the first country where you had an NRS I'm wondering why you selected that country, and is it better testing? How should we think about the growth of NRS in that country?

The real answer is we could have selected, you know, a bunch of different countries, you know, to have an extension, and we have, you know, some partners there that, you know, suggested that we try it there, and we decided, you know, why not.

Okay. I would like to ask you another question on core and the acquisition. We know that advertisement has been a challenging industry in the last few years with so many streaming services offering screen time, and you have suffered those consequences. Now, with this acquisition, how should we think about advertisement in NRS? What can we expect of it?

I mean, listen, you know, we definitely think that they are going to be, you know, a help to our advertising group. I mean, they have, you know, a lot of expertise internally that we as a company didn't have. They have a lot of relationships that we as a company didn't have. And, you know, they're very, you know, good guys to work with. And we've worked with them as partners for a number of years already. So this is, you know, sort of a long-term relationship already. And, you know, we expect it, you know, to be in a creative acquisition.

In terms of Net-to-Fone, a couple of years ago, you went through the process of getting those papers ready to do the spin-off. That was canceled. Now we are in an environment where IPOs are the topic of the hour again and valuations are stretched. I'm looking at one of your peers in the segment that is growing organically less than you has literally the same amount of revenue. and they're creating a three-time sales plus. Is this enough of an evaluation for you to spin off NetSoup Phone or in view of the excitement that you have around the new AI offerings, you would like to keep it close to your chest for a longer time?

That's a good question. I'm not prepared to really give an answer on today's call. I mean, I would definitely say that, you know, it's becoming, you know, more, you know, appealing to possibly do something. That being said, you know, I'm very, very, you know, confident the next one is going to do much better than our investors think it's going to do and much better than some of the competitors that you mentioned that I'm mentioning. Okay.

Okay. And one last question on Boss Money. The performance this quarter has been impressive. if you are acquiring customers like, I mean, like I haven't seen in a long time, and I'm wondering, you expanded margin despite these customer acquisition costs. If we think about bonds money in a steady state, what kind of EBITDA margins do you think it can produce? In a steady state, meaning less marketing expenses.

Yeah, I don't know the answer. to the question I mean we had you know relatively good margins I agree you know we try to you know be opportunistic you know when we can be and by the same token we're very you know I'll say sensitive to the fact that you know we want to continue to have our customers for a long time and continue to attract new customers. And to do so, you cannot have, you know, prices that aren't, you know, correct in the market. But Marcelo has a couple of things that he'd like to say about it as well.

Hey, Diego. I mean, indeed, this was a real good product for us. It's kind of a continuation of what we've started to see already in the beginning of the year. Our digital channel is really doing very, very strongly as you saw in the numbers. digital channel that I've mentioned before, those command much higher margin than our retail channel and that shift in channel continues, it adds to the total margin, the net margin. But the start is not just that, you know, we're doing a better job understanding our customer, understand how to price the service better, how to manage the effect that we call to our customers for the various corridors managing the entire cost structure taking advantage of AI features to make our workflows and processes more efficient so and the business obviously as it grows now it continues to scale quite nicely to the bottom line I mean we We took that release a few weeks ago about how modern day was a record weekend for us. Now that we've seen the May results, the month of May that just finished, our first month into Q4, it's our strongest transaction month ever, it's going to be our strongest gross profit month ever. And I think that's our reason. We're not just trying to grow transactions or revenue, we're trying to do so. Okay, with a very large focus into making that to be higher gross margin, higher gross profit. So I think we're in a really good situation about competition, gaining market share. And if it continues that way, you know, obviously we have to be going to continue to invest before being the behind-the-buying customer. But I do expect to see margin expansion as you can find.

Thank you a lot for your time.

Our next question comes from William Vaughn with Coyant. Please proceed.

Hi, guys. Congrats on the great quarter. Awesome selling anniversary as well. So, once again, congratulations. First one on core digital acquisition. Is there any color you can give on, you know, the price date or whatever it is, EBITDA?

Yeah, I mean, we're going to put a little more detail when we follow the thank you next week, right? But now, this company, you know, it's a small, touching acquisition, as Shmo mentioned earlier. This is a relationship that we have had for many years. The company, you know, carries a lot of our media for TV or our advertising screens. We took a majority percent controlling position in the company. valuation about $60,000, you know, some earnouts, etc. We believe that the price is an excellent price. And again, the focus is to have them be able to better monetize our screen inventory, you know, and now that we are probably, you you know, we'll be able to work better together so we can maximize that opportunity.

Awesome. Are there any other types of acquisitions or different places, you know, within your three growth businesses that you're looking, you're just being attractive? You know, if there's some tuck-ins or bolt-ons or other things you can do in that space, that would be attractive to you? And it could be any one of them, NRS, Boss Money, or S&Pone.

You know, we always have our, you know, ears open, you know, and we've done some, you know, successful acquisitions and some not as successful acquisitions. So, you know, we might have dodged the bullet with some of our acquisitions, too, so it didn't happen. So, I don't know, we keep, you know, our eyes open and, you know, remain, you know, cautious. it.

Okay, staying opportunistic. I like that. So, I just have just a question on NetSuite One AI. You brought it up in the release. It seems like it's something that is getting a lot more traction. What features of your AR offering do you find your clients are really liking or are excited about or using the most?

It's a good question. I mean, my first suggestion always is you should go and use the product yourself. Become a customer. We always want more customers. And, you know, again, what I think is really exciting is really, first of all, you know, like for everyone, you know, there are continuous advancements in it. And, you know, again, we use a lot of the products inside of, you know, IEP. And we're probably, you know, one of the biggest customers, we'll call it, of our own product. And, you know, I mean, already we're handling, you know, probably 30% of our customer service calls, you know, using our own products, we'll call it. Obviously, they're not our own models, they're our own products. And, you know, on chat, it's, I think, above 50% at this point that's being handled by our products again. And, you know, all of those, you know, interactions are, you know, having to, you know, you know, dip into our systems and, you know, provide real-time information to customers. It's not just like, you know, hi, how are you? It's just called to say hi. Like, no, they want to know, like, you know, I sent, you know, $200 to my brother in Mexico and he still hasn't received it. and they want to know, you know, where it is, is there an issue, when will it be available, you know, and it's able to give, you know, as accurate answers as, you know, any one of our customer service reps would be able to give that customer. And it does it, you know, perfectly every time. And again, those same kinds of integrations are what we're providing to our customers in a way that they don't even have to be able to, you know, to code anything. So I'm very excited about that. You know, we have a freemium product that we're starting for businesses so they can try it out, you know, called Plex. so you can check it out on our website. Yeah, I mean, I think they're doing great things, and I think it's really, really, like, not even early innings. It's like pre-innings, but, you know, the warm-ups are super impressive.

And already we're selling, you know, tens of thousands of dollars a month of product to, you know, customers outside of IDT besides what we're using ourselves here. in the numbers right at this point I mean that the phone is doing really great right now right you just have you just crossed a hundred million dollars and our revenue barrier so now we have out that for the month of May for them was the best month ever in terms of new sales and they are going to show that that the AI element you know it's becoming a large portion of those new sales too small practically but becoming a big portion so we are looking forward going back to the previous question about monetizing and action at some point I think we are building the right assets and features when they can have the phone assets a lot more attractive than people believe it is.

In the past, you guys have mentioned, you don't see too much competition in terms of COS systems in terms of single store operators for bodegas and convenience stores. We're following other players in the space. I'm starting to see other players start to expand into different segments, thinking about or actually starting to expand into convenience stores. and so I can ask the question again are you guys seeing any more competition coming to the state in terms of point of sale operators and you know bigger players coming in or is it still sort of kind of I'm sorry white space but you know not as much competition I definitely think that we are seeing you know more competition you know at NRS and it's definitely you know

affected the You know, in terms of, you know, some of the bigger players, I mean, again, I think, you know, Toast is a, you know, a great company. You know, I might buy some for my personal portfolio, you know, but in terms of, you know, like the offerings that we provide to, you know, convenience stores, liquor stores, I really think that we're, you know, a much better value and a much more purpose-built product, you know, for those markets. I mean, the same way, you know, if you were starting, you know, a nice, you know, sit-down restaurant in your neighborhood, I wouldn't suggest you come to NRS to, you know, have us do your restaurant. I basically would tell you the same thing if you were starting a convenience store. Like, I don't think you would be best off, you know, financially or otherwise from choosing anyone's NRS. You know, and again, it's only going to, you know, get better, you know, in terms of, you know, our own roadmap for NRS. It's really, you know, really going back and strengthening the product even more. We're not nearly as focused about expanding into verticals, but more about just continuing to improve the verticals that we're in so much that nobody will be able to compete with that.

Okay. That's good. I think focus and scaling a solution to the particular vertical is really, really important. Moving through our bought money, love to see the growth. love to see the increased gross profit and the shift from retail to digital. I also saw that it's a healthy investment in marketing and new customer acquisition. There are other digital players in the space, especially I brought up before, who are growing as well. They spend a lot more in marketing, and I think I agree with your assessment that they probably shouldn't be spending nearly as much as those players. But I guess I'm curious to hear your thoughts on, you know, maybe not putting a ton in terms of marketing, just in general, a customer acquisition, a new customer acquisition, but let's say for specific verticals, does it make sense to be more aggressive in verticals where you are on the precipice of high market share and gaining dominance in those verticals of specific countries? Or do you think it makes more sense to try to tax specific verticals in countries where you have a very low market share? sort of broaden the reach to more and more countries. How do you guys think about that dynamic?

I have a good question. I mean, again, I think we, to some degree, try to do, you know, a little bit of both, if I understand your question correctly. I wouldn't say in terms of, like, 10 countries right now are really obviously, you know, only from the USA as opposed to some of, you know, our larger competitors who are really much more global in terms of, you know, send out, you know, countries. I think that, you know, over time we would like to expand, you know, into other countries, you know, on a send out basis as well. You know, in terms of, you know, in terms of, like, our penetration into, we'll call it, countries that you send to, you know, we definitely take a market-by-market, you know, approach to it. And, you know, we do offer, you know, better pricing, you know, more incentives, et cetera, to, you know, to customers in certain destinations than we do to others, either because, you know, there's more profitability to that country over time or because, you know, we're trying to get to a certain, you know, critical mass, we'll call it, inside of that country. So, you know, the benefits of being a larger player. So, again, we have really good competitors, you know, in that business as well. So, you know, every day, you know, we have to, you know, come in and, you know, win customers over with, you know, honest, good pricing and great service. And because if we don't do that, like, we won't have a business. So, you know, that's really our main focus. and, you know, possibly speaking, you know, it seems to be working.

Great color. Do you foresee a similar case of Primack taking advantage of maybe more in stock than the stock price, or do you think, you know, based on where we are, we'll probably do that?

I mean, I added a lot of color on this, you know, one or two calls ago, so you can go back and listen to that rather than sort of, you know, repeating redundant information. But, I mean, in general, you know, I will continue to buy that stock. You know, obviously we're opportunistic at the price. You know, for some reason, you know, to fall a lot, like we would be buying like crazy. You know, and, you know, if the price goes up a lot, we'll probably buy a little less. But, you know, that being said, you know, we are trying to stay on pace, you know, to continuously buy, you know, our stock in this quarter.

I mean, if I'm looking at, you know, ebit.guide in terms of where the value is, love to see the buyback, appreciate the color, and that's my question.

Thank you for asking.

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.