Q4 2022 IDT Corp Earnings Call

Good afternoon, ladies and gentlemen, thank you for standing by today's conference call will begin momentarily. Please remain connected at this time once again today's conference call will begin momentarily. Thank you again for your patience.

[music].

Good evening and welcome to IDT Corporation's fourth quarter and full fiscal year 2022 earnings call in today's presentation, Idt's management will discuss Idt's financial and operational results for the three and 12 month periods.

Ended July 31 2022.

During remarks by Idt's, Chief Executive Officer, Shmuel Jonas all participants will be in listen only mode should.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Mr. Jonases remarks solo Fischer Idt's, Chief Financial Officer will join Mr. Jonas for Q&A.

Any forward looking statements made during this conference call.

In the prepared remarks or in the Q&A session, whether general or specific in nature are subject to risks and uncertainties that may cause actual results to differ materially from those which the company anticipates.

These risks and uncertainties include but are not limited to specific risks and uncertainties discussed in the reports that IDT files periodically with the SEC.

IDT assumes no obligation 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.

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 operator welcome to Idt's earnings Conference call. After my remarks, Marcelo Fischer Idt's, Chief Financial Officer will join me and will be available to enter questions.

My discussion today focuses on the fourth quarter of our fiscal year 2022. The three months ended July 31.

For a more detailed discussion on our financial and operational results, including our full fiscal year 2022 results. Please read our earnings release filed earlier today and our Form 10-K that we expect to file with the Securities and Exchange Commission by Friday October 14th.

In the fourth quarter and for the full 2022 fiscal year, our high margin rapidly growing fintech in cloud communications businesses delivered impressive gains.

For several years, we have invested in these businesses to develop the next generation of Itt's value creation.

This dynamic and ongoing transformation helped drive Idt's consolidated quarterly and annual adjusted EBITDA to their highest levels in our history.

Within our Fintech segment, and Earth had another outstanding quarter, increasing recurring revenue by 157% year over year to $17 7 million.

Monthly average recurring revenue per terminal, which excludes <unk> terminal hardware sales nearly doubled to $316.

Each of <unk> key offerings contributed to the quarter's growth.

Looking ahead, we are entering what is typically a seasonally strong period for advertising generally.

However, macroeconomic driven.

Headwinds are buffeting the advertising market.

As a result, we will likely encounter some volatility from quarter to quarter, even as we expect to continue to generate strong year over year revenue increases.

<unk> merchant services and SaaS fee revenue also grew nicely we are continuing to convert our existing customers and we are signing up new customers to aerospace at a very good clip.

On the SaaS side, we are Upselling store owners to premium features and bundles and we have many exciting features coming soon.

And also again achieved strong growth in its Pos terminal network footprint, adding over 4500 net new terminals in the fourth quarter.

All in all we are more excited than ever by the potential of this business.

Also in our Fintech segment bus money performed exceptionally well revenue increased 56% to $17 million transaction volumes grew by 31% year over year and revenue per transaction increased 19%.

We continue to attract new customers grow revenue and improve margins by focusing on several strategic strategic priorities.

Cross selling within the larger boss Revolution ecosystem, expanding our payout networks, enhancing our retailer and digital transaction platform to improve the user experience and enable more sophisticated pricing strategy tool.

During fiscal 2023, we are planning on taking the first step to expand our origination service internationally, introducing our bus money remittance service in Canada, and then expanding from there.

Overall, our Fintech segment generated income from operations of $5 $4 million in the fourth quarter compared to a loss from operations of $2 $9 million in the year ago quarter.

Interest is now contributing meaningfully to our bottomline profitability and bus money delivered impressive growth, while moving significantly closer to profitability.

Net phone likewise delivered another very good quarter fourth quarter subscription revenue increased 37% year over year to $15 1 million.

Expanding at a faster clip than many industry players.

Added approximately 12000 net seats and boosted revenue per seat for the third consecutive quarter.

Following the acquisition of Integra. This spring we brought its contact center as a service offerings to market under the net phone umbrella in the fourth quarter, we expect that <unk> will drive additional increases in per seat revenue.

As I noted last quarter, we are laser focused on accelerating net funds path to profitability by streamlining operations and optimizing our investment in growth capital. We are making very good progress net funds loss from operations decreased to $1 $8 million in the fourth quarter past the level of a year ago quarter.

And we expect our net phone segment will achieve EBITDA profitability by the fourth quarter of fiscal 2023, while continuing to grow robustly.

Turning now to our traditional communications segment fourth quarter revenue decreased 23% to $276 million.

Boss Revolution, calling decreased by $22 million or 20% of IDT global wholesale carrier revenue declined by $34 million or 35%.

We have long compared to paid minute International voice communications market, which is the basis for both our boss Revolution, calling and IDT global carrier businesses to slowly melting ice cube.

Our fourth quarter results reflect the acceleration of the melt rate as a result of fading COVID-19 boosted demand and by weaker consumer purchasing in this economy.

Also within the traditional communications segment, our mobile top up business was again impacted by the deterioration of foreign exchange conditions in our largest revenue Carter.

Total them up total mobile top up sales decreased $24 million or 18% from the year ago quarter to $113 million.

However, thinking about the future of mobile top up which is now the largest revenue generator within the traditional.

Traditional communications segment.

It is instructive to look at our fourth quarter results exclusive of that volatile core corridor.

<unk> revenue would've increased if not for that.

We continue to be bullish about the long run growth prospects for mobile top up we have now substantially worked through the quarters year over year comparative negative foreign exchange impacts global demand for broadband bundles continues to increase and we're making progress developing new digital offerings.

Traditional communications fourth quarter income from operations decreased by $8 million or 33% to $17 million.

We have been very successful in recent years minimizing the bottomline impact of the volume declines from Bosch, calling in IDT global's by optimizing our pricing strategies and distribution channels as well as by right sizing operating expenses, we remain sharply focused on streamlining these businesses going forward so as to maintain as much cash flow as possible.

Nevertheless, we do believe that our payments business.

We will continue to be pressured and as a result, both segment revenue and EBITDA will continue to decline in fiscal 2023, though moderate by return to stability in our mobile top up businesses.

For IDT as a whole the outlook remains very positive we anticipate that the continued growth of high margin Fintech in cloud communications businesses, and our mobile top up offerings will further significantly improve idt's consolidated adjusted EBITDA more than offsetting the decreasing contributions that we expect from our boss Revolution, calling and IDT global businesses.

Within the lower margin traditional communications segment.

Reflecting on our progress this quarter and positive outlook IDT repurchased 554000 shares of its class B common stock.

In the open market for approximately $13 4 million during the fourth quarter in.

In fiscal 2023 as always we will continue to look for opportunities to return value to our stockholders.

The quarter and the fiscal year strong results would.

Not have been possible without the hard work of Idt's employees worldwide, who continue to rise to the challenges and beat expectations I want to wrap up by knowledge and their success in thinking them now Marcel and I will 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.

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.

The first question comes from.

Hayley.

Also Fox capital your line is live.

Hi, guys first congratulations to the entire team I mean, it really incredibly impressive quarter cnrs growth accelerating to 134% this quarter I mean, the non hardware piece up a 157 year on year.

Really excited to see that.

The buyback is while we agree shares are a great opportunity I guess, maybe just to start.

On interest am I thinking about this right I mean growth of 134% year on year or two year stack and observed 290%. We just roll. This forward for the next three quarters interest will be doing $80 million plus in annual revenue is already significantly profitable.

Thinking about this right in terms of rolling it forward in sort of that $80 million ish number.

Over the next three quarters.

I mean, I think that we could possibly do better but.

But yes, I think you are thinking about it correctly.

That's incredible and then I guess, if I look at the EBITDA contribution from the Fintech segment, which obviously includes both in our <unk> and boss money transfer segment did $6 2 million in EBITDA. This quarter alone you mentioned in your prepared comments shneur that fast money transfer is close to breakeven. So I can assume all of the $6 2 million.

EBITDA is from an RF, which would imply it's already doing over 32% EBITDA margins in this latest quarter just want to make sure my logic on that is correct.

Okay.

Yes, I mean, I think your logic is correct.

It's doing more than that I mean it is.

It is subsidizing some of we'll call it.

But moneys small losses.

And we expect those to go away in the next coming quarters, but more silicon after that as well take off ill toss out.

Thanks for joining the call.

A couple of thoughts.

Yes, no we believe that.

We might do even better than $80 million on recurring revenue.

23.

Yes.

The profitability.

I would like to point out that even though we.

Had a real strong.

During the quarter now in Q4.

Because of the headwinds we're seeing.

Looking into August September and Q1.

Slightly.

The <unk> data was to be double what we saw a year ago look likely but.

We are probably not going to have the same absolute dollar amount, okay advertising and data into one as we saw in Q2.

A significant growth.

And the revenue per terminal, probably will not be above $200 or maybe slightly slower than that.

And again, that's all in.

I'll have to difficult about the type of data and how choppy days and we see.

<unk> companies cutting government advertising budgets et cetera, the auto sources of cash flow.

Four.

<unk> SaaS fees above the multiple services continue to grow as you think that that you saw expect churn to far continue to support that type of growth going into Q1.

And beyond so we do expect a very robust and diverse.

Topline and bottom line for this coming year in terms of bottom line EBITDA profitability.

The modest $7 million in EBITDA in Q4.

So we are on target.

Having a rep can lever.

By putting the above EBITDA in fiscal 'twenty three.

Wow Thats incredible.

All congratulates congratulations on that.

I mean, I don't know of any other asset in a market that's growing a 134% year on year with 30% plus EBITDA margins and such a strong competitive position I mean on the rule of 40 basis. This is really off the charts seems to me like interest alone is worth far more than the current market cap of ITT today. So it's great to see the buybacks as well and then we haven't even talked.

The other businesses doing $80 million of annualized EBITDA in excess of that so I look I guess the last one for me.

It's just given the scale and momentum and interest today any sense for the potential timing of and our spend could this be a 2024 events for example.

I mean, I think it's largely market determined rather than an IRS determined.

The market as you all know have not been particularly.

Particularly kind to.

Even fast growing profitable fintech.

So I just don't believe that we think that the timing is right right now.

That being said you know if markets improve.

By then we would be more than happy to do something.

Awesome well. Thank you very much incredible execution I wish all of my portfolio companies had the capital allocation and discipline of IDT best wishes for the rest of the year. Thanks guys.

Thank you.

Okay. The next question is coming from Adam Walsh with Greystone capital management.

Your line is lives.

Hey, how are you guys. Thanks for taking my question can you hear me.

Yes, Hi, how are you.

Great.

Thanks, how are you.

I missed the net to follow an EBIT number Marcello that you cited I think you cut out on my end do you mind just repeating that.

The net EBITDA was negative $1 8 million for the quarter about half of what it was last year.

Okay was there something about finishing what you anticipate finishing.

Three with or did I Miss that.

We intend to be at least breakeven by the end of 2023.

Okay perfect. Thank you.

Yes so.

Yeah.

Just to just to correct. The income from operation of the loss of operations, Paul not to fall with minus one 8 billion of EBITDA itself was about.

Microphone $100000, Okay. So we're getting closer to reaching EBITDA profitability and based on our 2015 projections, we do hope to exit 23 weeks.

<unk> net to phone being EBITDA positive company, even as it continues to grow at rates, which are probably higher than the average ucas players in the industry.

Yeah, that's great. Thank you I think in line with.

The <unk> results, that's pretty incredible as well and.

I was saying before Connor asked the bulk of my questions, which is great and I definitely share his sentiments about just.

Just phenomenal work there.

I'm wondering you talked a little bit about this on that.

Advertising and data side.

Large jump is probably not sort of a normal kind of cadence maybe year over year moving forward or is there anything you can talk about that drove that in terms of a larger deal and I apologize if I missed something but I am curious maybe.

Maybe if you can just break down that segment for me.

I think it was really broad based we had more more sales from every vertical that we that we sell to.

And again this quarter is looking very strong.

Marcello said there are some headwinds I would say generally in the advertising.

And data world.

With some companies.

Sort of being a little cautious about their spending.

That being said.

We're seeing very strong numbers of late.

Okay, Great that's helpful.

And then Victor.

Delivery home delivery partnership that you entered into in August is there any opportunity there for any sort of additional customer acceleration or uptake or is it purely just to kind of supplement the existing.

Customer base.

You know I don't know the answer to that question, what I would say is that a happy customer brings more happy customers and we believe that this is a service that is very.

Much needed by our retailers and we we think that the up.

That it will that it will be.

It will do well for our current retailers and they do all the they tell their friends about it and that's how we bring on more accounts.

Sure that makes sense.

And then switching gears to mobile top up is there any color to be added on the <unk>.

In deterioration in one of the core doors.

As you mentioned.

I mean.

I can comment a little bit about it I mean.

The quarter that we did very well in with Cuba.

And there is a.

I don't know how else to clinic, but theres, a black market currency in.

And our regular currency.

And people are basically choosing to do business in in cash in Cuba, because they can buy way more on the black market.

Versus paying for things.

Here, we have to obviously.

Not do that.

And that's really the situation and it's and again, it's not just for US it's for all of our competitors as well they are all seeing the same.

Deterioration.

Yeah, Adam if you remember right Q3, and Q4 of one year ago. That's why we had a large lift in revenues for <unk> to you.

I had explained back then most of that lift was because of these opportunities we had in Cuba.

We know which would basically wholesale.

B to B type of traffic low margin high revenue.

And in the course of the fiscal year.

Those revenues start to come down.

Apostrophe protection will just massive right.

No.

The spread between the coupon.

Official rate and the black market rate has almost doubled that spread and as such.

It's more economical for coupons to ask.

And frankly in the U S will lead to that cash cash remittance and Dave will talk about.

Mobile services domestically, therefore adapt to our family in France to bike with them and Maggie Pim Puke out and top two services on the U S. So that's the.

Part of the advantage.

Which we took advantage of about a year ago.

And as we start having comparisons right.

Progressive right most of those competitors will be viewed as not being part of the point I think is the fact that if you exclude that corridor and you look at all of our the IMTT you operations worldwide and cargoes are revenue no you will be able to actually have increased.

In the low single digits.

Okay I understand that's helpful. Thank you.

Last one from me, obviously, great to see the buyback I know we've.

<unk> talked about it and I think they are valued today given what your business units are doing is just incredible I mean, just an unbelievable quarterly and fiscal year report.

Sure.

Our quarterly cadence that we can kind of think about for buybacks or how are you guys kind of approaching that as we move forward.

I mean, obviously I can see.

We continue to be opportunistic.

In our buy back a bunch of opportunities now.

Our strategy is now to the extent that we may or may not have purchased any further.

As you go into Q1, but we will let you know when we announced earnings.

In early December .

Gotcha, Alright, well, yes, great job chief.

Keep up the great work and thanks again.

Thank you.

Question is coming from Shawn Berger with Adirondack retirement, Sean your lives.

Hi, Thank you and congratulations on a great quarter.

And I want also just comment that it.

It's very recession time.

Have a management team that understands the meaning of fiduciary. So I appreciate that and appreciate the buyback is a return of capital to shareholders.

Just wondering if there's any update whatsoever at least you could say is our park is our poker hand stronger with regards to the straight path litigation.

After the FCC included the <unk>.

Corey.

They didn't pay any further action or is there any update you can provide in that at all because I believe that may be part of the overhang.

But I appreciate you guys business knocked it out of the park.

I appreciate you.

Well. Thank you know unfortunately, we really try not to.

To comment on litigation that's ongoing.

I have a lot of strong words to say.

But I have been advised to.

To keep my mouth shut so I'm going to listen and keep my mouth shut for one.

I apologize and to your question nothing.

Delaware for an entire week and.

From my perspective.

<unk>.

We did an excellent job.

Again, if you have a question please.

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As there are no more questions. This concludes our question and answer session and conference call. Thank.

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