Q3 2022 IDT Corp Earnings Call
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Thank you for holding ladies and gentlemen, your conference will begin momentarily.
Once again, thank you for holding your conference will begin.
Few minutes, thank you for holding.
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Good evening and welcome to the IDT Corporation's third quarter fiscal year 2022 earnings call in today's presentation, Idt's management will discuss Idt's financial and operational results for the three months period ended April 32022.
During remarks by Idt's, Chief Executive Officer, Shmuel Jonas all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After Mr. Jonas remarks, Marcelo Fischer Idt's, Chief Financial Officer will join Mr. Jonas for Q&A.
The 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 actual excuse me 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.
Alrighty.
Assumes no obligation either to 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, 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 a form 8-K with the SEC I will now turn the conference over to Mr. Jonas.
Thank you operator.
Welcome to Idt's earnings Conference call I'm joined on the call by Marcello Fischer Idt's, Chief Financial Officer will both be available to answer questions. After my remarks.
My discussion today focuses on the third quarter of our fiscal year 2022 to three months ended April 30.
For a more detailed report on discussion on our financial and operational results. Please read our earnings release filed earlier today and our Form 10-Q that we expect to file with the Securities and Exchange Commission on Thursday June nine.
Since its inception over 30 years ago ITT has generated ship IDT excuse me is generated shareholder values by incubating and growing promising business initiatives.
We are currently leveraging our core strategic assets to scale high margin growth businesses, and our us net deferred and boss Revolution money transfer wildfire.
While simultaneously benefiting from the significant cash generated by our traditional communications segment.
Each of these three high margin high growth businesses had a very strong third quarter, helping us to again achieve solid levels of consolidated income from operations and adjusted EBITDA consistent with our results from the first two quarters of our fiscal year.
<unk> added nearly 1400 net Pos terminals and 1200 net payment processing accounts during the third quarter, maintaining the accelerated rate of acquisitions achieved in the second quarter.
<unk> recurring revenue increased 102% year over year keyed by strong merchant service in advertising sales.
Looking ahead, we expect that <unk> will sustain robust high margin growth in the coming quarters in particular, we expect advertising and data offerings to benefit from both long term trends such as the increasing allocation of advertising budgets to out of home venues as Walter from seasonal tailwind, including increased political advertising heading into the <unk>.
Half of the calendar year.
<unk> strategic focus on the SMB and small enterprise markets within North and South America efficient execution and acquisition of T cost provider Integra, all contributed to solid growth in the third quarter.
Subscription revenue increased 42% year over year due primarily to the addition of approximately 22000 seats during the quarter, including almost 7000 seats from the Integra acquisition.
Secret was again strongest in our Latin American markets, although our U S businesses performed very well as well.
We will begin selling our seacoast offerings in North America in the current fourth quarter of our fiscal year end and expect this expansion to gradually become a key driver of both seat growth and <unk> expansion.
A month ago, we announced our decision to postpone the spinoff of medicine in light of market conditions. We believe that we can significantly enhance net funds value by continuing to grow the business and improving net margins and in fact, we're already making good progress and ethical new test segments loss from operations in the third quarter decreased to two.
$3 million from nearly $4 million in the year ago quarter segment Capex in the third quarter was $1 4 million compared to $1 3 million a year earlier.
Plus money, our international remittance business increased revenue, 51% to $15 $5 million driven by a 27% year over year increase in transaction volumes and a comparably robust increase in revenue per transaction, including both transfer fees and revenue and revenue derived from foreign exchange.
We continue to build out our disbursement networks, particularly in Africa, and the Caribbean and to fine tune, our direct to consumer pricing strategies to capture additional revenue and margins.
In our traditional communications segment.
Revenue decreased by $59 9 million or 17% to $285 9 million.
The surge in demand for paid voice that we experienced during the Covid pandemic is now we're treating and exacerbating the impact of the underlying revenue declines in retail, calling and wholesale carrier services our.
Our mobile top up business struggled this quarter, but we are investing in technology marketing and sales to improve its performance.
Because traditional communications lost revenue overall was skewed to lower margin sales income from operations from this segment decreased $3 million year over year to $17 4 million.
On a consolidated basis income from operations decreased $500000 to $13 3 million, while adjusted EBITDA increased $100000 to $18 million.
To wrap up all three of our high margin high growth businesses had a strong quarter. Their expansion continues to offset the decline of the low margin minute base revenues within our traditional communications segment.
We expect that as a growth business continue to expand our consolidated bottom line results in the coming quarters will increasingly reflect their contributions although we have postponed the spinoff with net phone. We continue to believe that the spinoffs can be attractive and appropriate strategy to help shareholder benefit more directly from the expansion of promising young businesses.
Whose assets and operations are readily separable from those of our other businesses.
Marcel and I would be happy to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Once again Thats Star one if you have a question or comment.
The first question comes from.
David Polansky with immersion investments your line is live.
Hey, guys. Thanks for taking my question.
Obviously, great job as usual, especially with an RF.
I wanted to ask you know this is the second consecutive quarter Youre, putting up 1400 installs.
Which is kind of an accelerated rate from what you've been doing previously can you discuss through which channels you're seeing that in our escrow to that.
Direct distribution call Center can you talk about that a little bit please.
It's really.
It's really.
Yes.
Basically enhance sales in each of one in each of the segments.
So it's not coming from one in particular, they're all.
Having an increased rate of sales.
Okay, and I know I've asked you this before but given the fact that I think this is your first time, giving any forward looking commentary.
NRM explicitly in our press release, which it seems like it's coming from the <unk> side of the equation rather than the new unit side. So I wanted to ask again do you have any updated thoughts on where we think our crew for IRS could go from here.
I don't have a specific number in mind, but I do believe that <unk> will go up.
Okay, and any reason to think that we can see 1400 salt per quarter.
Okay.
New normal or should we still be thinking about this as a thousand units per quarter business.
I personally think that we can grow above the 1400.
New units per quarter.
And we're I mean.
One of the things that held US back this particular quarter was really.
<unk> of equipment.
But we spent a lot of money to bring in a lot of inventory.
And equipment, so that we will not have that issue again.
And we think that we're in a good shape now to deploy.
More than we've been deploying.
Do you think you can get so you said you might be able to do more than 14 Andre is that all coming from your traditional C store bodega installed because I know in the past you've talked about initiatives to sell outside of that.
Market is there any update you can give us on that.
I don't have anything like.
At the tip of my fingertips at this moment about.
What kind of stores.
The sales came from obviously, a large percentage came from.
<unk>.
What I would call our primary in a market.
But we really had sales in lots of different areas anything from dollar stores to liquor stores.
Two quick service restaurants et cetera.
To quick service restaurants, I think thats, a new one.
That might be in Aviva, the largest installed in quick serve.
Uh huh.
I don't know the past I would say 12 months since we rolled out modifiers.
We've been we've been adding restaurants.
Okay.
Very meaningful I mean is that going to be a material portion of the business are you putting extra resources in that or is that just are you still solely focused on C store and bodegas.
Again, I don't think that we're solely focused on that but I would say that we're primarily focused on it.
When we build new features.
And functionality like that is who we primarily have in mind.
If other customers also see the benefits in those same features.
Then then great.
But we definitely do target our our development towards.
Towards our core market.
Okay great.
Great.
On the payment side payment.
Payment processing can you disclose.
The proportion of new customers. So I think so last quarter. You had 8000 now you have 9200, what percentage of that was from new installs was that substantially new customers are or are you, making progress on penetrating your existing base.
I would say substantially new customers.
But we are also making some progress and going after the base of existing Pos customers.
Right right.
Okay.
Should we think about and RF.
The payments business in particular in an inflationary environment I mean I think.
As a taking a percentage of the swipe I would think that at least on a dollar basis, you would keep up.
With inflation I mean, how do we how do we kind of.
Think about that I mean, given the current economic environment.
I don't have.
No.
I will answer to you I would say that our stores.
We have been doing well.
There.
Their average check size or ticket has grown.
And.
By that happening the average credit card volume has grown.
Long with that.
No.
What effects.
Inflation.
In specific has to do with that I can't give you an answer.
But I don't expect that to have a material answer although maybe Marcel has more to add on that David you, Hi, David Hi, David muscle Youll have right okay.
No.
Being that our payment processing is really more of a variable component of the total cost of the total charge now we are kind of inflation protected.
Okay.
From that perspective, so we write the inflation label. Please.
Right yes.
Yes.
Last one for me is there.
Is there any desire to make an acquisition on the <unk> side, something maybe in the <unk>.
Payments space data space, just something too.
Sort of accelerate your growth I mean, your growth, obviously fantastic, but I'm still looking at <unk> within the larger.
Key.
Right so yes.
Im trying to think about what what attracts people to the stock and.
With traditional with there would that EBITDA kind of going down and looking at flat year on year growth at flight.
Spine and your growth is great, but I would one I really want to see people focusing on this on our Sps and so on.
I'm just curious if theres anything that we can do to kind of accelerate that in any way or what are you thinking about that.
I mean, I'd say two things I mean, one is.
We look at lots of things.
Some of them are.
Outside of our comfort zone.
And and for that reason alone we do not we do not do them I would say that we are.
Conservative by nature.
On the other hand, I would say that I believe that organic growth is going to be very very strong and when you do an acquisition. It does take a lot of effort and time from management of integrating that acquisition into your into your business and.
We're we're a little bit hesitant.
To throw a monkey wrench into something that's working well.
So.
I would say that if the right opportunity comes along we're definitely open to.
Acquisitions that.
In particular areas.
Preferred interest, but we're not.
By any means in need of an acquisition to help us continue to grow both stores and our tubes.
Alright, great. Thanks, guys.
Fair enough.
Okay. The next question is coming from Adam <unk> with Greystone Capital Management. Your line is live.
Hey, guys how are you.
Thanks for taking my questions great job really strong quarter, just one for me.
An update on mobile top up would be helpful. I think especially as I believe last quarter, you talked a little bit about competition in wholesale and the potential negative effects from that.
So anything you'd like to add would be really helpful. Thank you.
I don't want to give away anything to our competitors that also listen to the calls but.
I would say that listen a bunch of our competitors have got in.
Large investments into them into their mobile top up businesses.
And I think too.
So maybe pleased their investors, they're focusing more on revenue growth than on <unk>.
Unprofitable growth.
And we try to focus on both this.
This quarter Unfortunately.
We didn't do maybe a good enough job focusing on on the revenue side of the business.
But I do believe that a lot of the products that we have in the pipeline.
We are going to make our offerings much stickier and therefore, the revenue from them much more predictable and profitable.
Okay, great. Yes. Thank you for the color I appreciate it.
Okay. The next question is coming from Sean Burger.
With Adirondack retirement.
Your line is live.
Hi, congratulations on a great quarter, and particularly interest I just have one other question actually I have two quick ones. One is with regard to mris and I'm wondering about the expansion possibilities. So again, it's kind of land and expand the seller.
Terminal and then.
You get more services and I am wondering on the services side have you.
I guess without giving away too much.
Thought about or given.
We have a strategy with regard to expansion sounds like more interest pay adoption.
On the on the.
The <unk> side.
And then the other the other quick question was with regard to the <unk> spin off.
If you have a new target date for that as well I know that it's been postponed I talked to Marcello about it.
That having been postponed.
This quarter.
And that can happen by the July 30th time, because of market conditions, which is which I think was wise, but just wondering if you have a new.
Target date on that.
So ill answer your second question first.
Do not have a new target date on it as of yet.
Again, as we stated both and I guess my remarks today as well as in.
Our press release related to delaying the spin off.
We're very focused on improving net bottom line.
As well as expanding their base of customers.
And we think that.
When the right time Ria.
Reoccurs, which it will.
The next one will be a much more valuable company at that point in time.
As far as your question regarding.
Land and expand relating to <unk>.
<unk> I would say that that is definitely a big part of our strategy.
We had we had a well.
Let's say, we didn't have a great quarter expanding merchant services into existing.
Into existing stores, we did have a very good quarter expanding.
The software side of the business into into new outlets.
Expanding the software offerings that we offer into into new stores 19, new stores into existing stores. So so upselling them into higher software.
<unk>.
Programs and our software programs and our merchant service programs are actually aligned and the fact that the if you take our merchant services, you get significantly lower pricing on our software services.
And that has definitely been a reason why so many of our customers have taken merchant services from the beginning and now we need to do.
Also a good job of going back out to some of our stores in.
Re telling them the reasons why they need to switch to our merchant services and to take more software solutions from us. So we will continue doing that in the coming quarters.
Okay. Thank you and congratulations on a great quarter.
Thank you.
Okay. The next question is coming from Tim Delaney with immersion investments.
Hey, guys.
Thanks for taking my coffee.
Absolute Beast within IRS, obviously, so my question is about net to phone.
It's nice to see that.
North America growth is happening in or give us any color around that and your expectations going forward, particularly around North America.
I would say that.
I think that the level of sales that we achieved.
This quarter in North America.
We feel.
Pretty confident that we can achieve.
Achieve at least those level of sales going forward.
If not quite a bit higher and again.
As I remarked also during during the prepared remarks, we are adding.
Our CCAR.
Solutions beginning this quarter.
And I'm already starting to see some sales coming through from that and that will lead to both.
Both the higher <unk>.
As well as higher margins.
Great. That's awesome. Thank you so much.
Okay. The next question is coming from Jason <unk> with J Goldman Your line is live.
Hey, guys. Thanks for the question.
I'd just like to start off by building on what David asked earlier on that IRS, but.
What would it take to get to call. It 2000 net adds from the current fortune 100.
One or two good months.
So a four month quarter.
Yeah.
I mean I think that.
<unk>.
Again, I can't say that we are I don't we don't give forward guidance and I want to be careful not to give forward guidance, but I do believe though that we are going to get to those kind of numbers.
You know relatively soon.
Okay.
And again it comes from it comes from multiple channels, it's not from from any one specific channel it comes from having <unk>.
Success from all the different.
Channel that we sell through.
Okay, and what was that our EBITDA mcwhorter Mysore.
Okay.
The EBITDA.
If you exclude some one time non cash compensation items was about $1 $9 million EBITDA to interest.
Okay.
And switching to <unk> can you just small can you just elaborate a little bit on the plan for improving the bottom line there.
Yes, I mean, I guess, it's a variety of things.
It's.
Being more careful on marketing spend being more careful on only keeping productive salespeople.
Being more careful about which customers you decide.
To work with and what size deals.
So after.
It's really a lot of.
I would say, it's focusing on the details.
And I think Marcel has some yes.
Focusing on geographies right.
No.
As you know we operate in a number of countries. Some countries are growing at a much faster clip than others.
We are looking at our cost of acquisitions.
More.
Disciplined way.
In terms of <unk>.
Kidney debt capital to the geography that are getting the highest return.
Mexico, Yes growth is exploding right now for example.
Although all of them all of the markets are growing so there could be multiple could be targeted.
Investments so we get.
The capital going to the highest IRR generating.
Customer positions.
A very very deep look at the coal cost structure.
And I do think that continue to grow the topline and let me tell you as the business continues to grow.
This scale matter significantly.
Q3 was a great quarter for us in that the phone.
And <unk> continued to scale this way.
We do hope.
Going to next year.
Youre going to see a net from visa.
Strong too.
Two growing no.
20%, perhaps more now.
On the top line and getting very close to profitability if not already.
Being EBITDA accretive.
Okay. Thank you for the questions.
Again, if you have a question. Please press Star then one.
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.
Yes.