Q3 2023 IDT Corporation Earnings Call
Good evening and welcome to the IDT Corporation's third quarter fiscal year 2023 earnings call in today's presentation, Idt's management will discuss Idt's financial and operational results for the three month period ended April 32023.
During remarks by Idt's, Chief Executive Officer, Shmuel Jonas all participants will be in a listen only mode.
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After Mr. Jonas his 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 risks and uncertainties that may cause actual results to differ materially from those which the company anticipates. These.
These risks and uncertainties include but are not limited to specific risks and uncertainties discussed in the reports that IDT files periodically with the S E C.
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 reference.
May make reference excuse me 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 the form 8-K with the S E C.
I will now turn the conference over to Mr. Jonas.
Hi, Thank you very much operator, welcome to Itt's earnings Conference call. After my remark Marcellus Fischer Idt's Chief Financial Officer will join me and will be available to answer your question.
My brief remarks today focus on the third quarter of our fiscal year 2023. The three months ended April 30th for more detailed discussion of 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 Exchange Commission on Friday.
For the third quarter of our 2023 physical year IDT generated year over year increases in gross profit adjusted EBITDA and EPS.
Highlighted by the continued expansion of our three high growth high margin businesses and by the relatively resilient cash flows from our traditional communications segment, even as revenue from this segment continue to decline.
<unk> added new P O S terminals and payment processing accounts at a record pace this quarter and achieved solid year over year increases in all three of its recurring revenue verticals as well as in recurring revenue per terminal advertising revenue decreased sequentially due to seasonal reductions in demand in the advertising industry has pulled back.
Particularly in the digital out of home segment.
Behind the scenes, we're enhancing our advertising platform and diversifying our network partnership to pursue new opportunities both within and outside of the digital out of home market.
Foundational work should pay up on advertising demand rebounds.
Given our success in accelerating the pace of new payment processing account sign ups, increasing merchant services, <unk> and bringing new premium features to our platform.
That interest will continue to perform extremely well.
And net of phone, we increased subscription in subscription revenue by 20% year over year, while approaching cash flow breakeven.
Weeks, we expect to launch exciting new offering and features that will help to build our momentum.
Including that one AI, which includes a powerful analytical tool however.
However by artificial intelligence technology.
At Bath money remittance volume increased by 38% year over year, driving a 29% revenue increase.
Especially pleased by the robust growth in bus money retail channel over the past few quarters.
Throughout the rest of the boss ecosystem, the synergy between retail and direct to consumer and drive better economics than we could achieve with a single approach. We believe that the same will be true for their money.
For that reason, we continue to focus on retail channel expansion as we invest to achieve scale and long term profitability.
With our diverse mix of businesses backed by a solid balance sheet with no debt I D. T is positioned to continue delivering solid results across a wide variety of economic conditions, while returning value to our stockholders.
We move on to the Q&A I want to thank our employees for their great work and thank our stockholders for putting their faith and their capital with us.
All of them are still on I will be happy to take your questions.
Yeah.
Thank you.
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 speaker. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two we will now pause momentarily to assemble our roster.
Okay. Our first question comes from Alex Roar.
Please announce your affiliation then pose your question.
Yeah.
Hi, guys can you hear me.
Yes, we can.
Hi, guys. So just just quickly this morning, the interesting insights report said 25000 terminals.
Currently which implies a really strong month of may so like a thousand net adds with the month of May just wondering was there anything particular going on in the month of May that the light too unusual shrink.
Yeah, Hi, Alex.
Marcello so you're right, you're you're reading things carefully.
Both because of Ravi made may have been Oh.
Back month ever.
Adding a P lapses are being put in that book.
But it's mostly robbing we added more like a 630.
Nope, you waxes on a net basis.
Because it looked like it was a problem.
But it was our largest increase ever put.
At the moment.
Understood, Thanks, and just shifting gears to the mobile top up.
What's what's driving I mean, Cuba I think at this point is it's sort of we've been dealing with it for a long time, but what's driving the continued declines in the business and is there is there some point at which you would expect that business to resume growing year on year.
There's a bunch of factors that have driven it I mean, one is.
We really focus on profitable growth and we're not just at a high volume.
And you know some players that really come into the market and disrupted really not looking for profitability, maybe even you know, they're they're losing money.
And you know we've decided to sort of you know take a I'll call. It a wait and see approach and to see if they can afford to continue to.
Subsidize the market.
At the same time, you know R. R.
Direct to consumer channel and our you know our retail channel have been you know relatively stable, but it's much more of a situation in the wholesale side of the business than it is in the notes to you know, but we have.
A bunch of new enhancements coming out you know both in retail and indirect to consumer that we expect to you know help increased growth as well as some new marketing campaigns and our news ended platform you know we hope will.
Help with you know the deterioration that we've seen in wholesale.
Great. Thank you.
Okay. The next question is from David Polanski, Please announce your affiliation and pose your question.
Hey, I'm from did the plants you from immersion investment and thanks for taking my question guys.
I wanted to.
Our big picture talking about and our routes and poking kind of around how big this thing can get.
I mean, we've been we've been sitting on sort of a unit Tam figure for N. R. S thought about 200000.
Our retail locations and just looking at market share data for a lot of your state. So I think New York and California, I think you have roughly a 25% market share and I think new Jersey.
Correct me, if I'm wrong, but I think that's somewhere in the 30% to 40% range. So is there a reason to think that we can't get to like a 25% share figure a nation wide, which would put you somewhere in sort of the.
50000 unit range.
And I think two things from walking around I don't feel like we have a 25 or 30%.
You know market share, yet, but I I hope to be there. One day you know that's in the New York, New Jersey area, where I, you know walk around more frequently.
But.
Again.
200000 number it is really a very hard number to put you know you know our finger on it I mean, you know again, we more and more we sell and Ah. Yeah. You know the tours that you know I wouldn't have thought would have been you know.
Typical for for interest locations, whether or not it.
Beauty or the dollar stores are you know general stores I mean so.
You know auto part stores et cetera, and so I think like you.
The Tam is a little bit of a moving.
Target.
So I I don't know if that's really you know our our gating factor is what percentage of of you know.
Of that number will get you know I think you know we have to continue to you know provide.
Great service and great new products and will continue to grow them, you know and and continue to expand our sales channels and and you know again, where we're doing that aggressively you know you can see a little bit of that in the SG&A.
And we expect that to you know you see the you know the number of units increasing you know quite substantially over the next couple of months.
And hopefully you know long past that but I think you'll you'll you'll start to see that you know you know may number ramp up.
Great and does that.
You you mentioned I mean, youre seeing increasing success in areas outside of your core.
C store Bodega channel is that I mean, how material is that at this point or are you willing to discuss like you know it's not like.
10% of the 1500 to 1600 that you're doing I mean is it really Nigeria I don't I don't know the exact number I would say that it's greater than 10%, but I don't know the exact I didn't come here prepared today to you know to know from the sales were disappointingly, how many of them are outside.
Our traditional stores, so I don't want to give you an answer.
You know definitively.
Okay.
And then Arne I apologies for the mundane question, but could you Marcello or Shmuel could you help us understand sort of the seasonality in the N. R. S. That's like well Q3, EBITDA margin always be lower than Q2 as Q4.
We're gonna be like Q1, and Q2 I mean can you just sort of I guess directionally help us out or do you think that this quarter was sort of an aberration in terms of the last couple of quarters.
I mean, I think two things happened I mean, one as you know we had a relatively weak advertising corner and you know you know advertising is our highest you know margin you know a contributor at interest.
So that definitely you know her hurt this quarter in particular, yeah I do think that there is some seasonality to our numbers is not it's not dramatic but there is some.
And you know again, sometimes you know we you know we sell more accounts.
Then you know come online. So I think this particular quarter, we had a very strong you know quarter in terms of.
Merchant processing sales, but a lot of the the that actual volume probably doesn't come on until this quarter. So you know I think you'll see a much better.
For next quarter and again, you know our sales are increasing so you know that that will continue to be you know bedroom better.
Great and.
I have to ask on the capital market side. It seems like things have calmed down a little bit at least year to date.
Is there anything we can be expecting in the near term on sort of in that two phone or on our S monetization or is that sort of a.
Wait and see.
For the time being it's a wait and see I mean again, you know we're going to.
To make those been significantly more mature than.
Then they were and hopefully at the right time, you know great value will be issued.
Alright, great. Thanks, guys.
Thank you.
The next question is from Brian Warner Please announce your affiliation and pose your question.
Hi, guys, a private investor I'm actually you are David pretty much asked one of my questions in that but that was really around the.
Total available market and I'm wondering just as an aside on that question.
Have you what do you view the restaurant area as.
Is it potentially large area and I'm wondering what what progress.
What you might call out as any areas that are particularly.
I think in terms of what sort of the size of the market and what you're thinking.
You get good economics.
And then just final question.
You seem to be reporting monthly sales that are.
Suddenly low to mid single digits better than the industry, which seems to be.
The recurring with a lot of frequency I'm wondering if.
What do you think that is grown and if that's sort of become a selling point for you guys or if you think it's more of an anomalously.
So I think two or three things I mean first one on the you know on the restaurant industry.
Oh Westworld I'll call. It I mean, we we do not have any intentions of trying to become you know a toast or you know or or something like it like that that is not our goal at emera.
You know we do have a goal of serving you know small restaurant you know that wouldn't be maybe the best fit.
Fit for you know for solution you know what like like to as well you know serve you know convenience you know stores.
Or is that sort of have you know restaurants in the back of their locations again, it's not something you see if you're in the New York, New Jersey area very often but if you you know you start getting calls you know Virginia, yeah on you'll start to see a lot of you know stores that have you know a restaurant component to it.
And and we definitely do intend to you know continue to serve that market better and better with where we're.
You know in the process of making a small acquisition that hopefully will help us with that as far as your question. You know regarding you know sort of you know sales at our stores being better than you know then in turn in the market generally.
Okay I don't know enough about you know same store sales everywhere else to know exactly how do they compare but it does seem to me like like what you said is correct.
I'm just based on what I hear on the radio.
And what I would say is that I mean listen I think our stores are very resilient and then some of that as you know from help they get from us.
And but other factors of it is the fact that like we've always felt that you know when when people start going to a grocery store.
And getting there their orders delivered to their house, you know that that's the customer that that grocery store really you know loses most of the time, maybe they come in there you know one out of every three times, they would've gone, but they end up needing.
Small stores, you know like the ones that we serve even more often because you know now there you know depending on them for you know for items that they that they didnt beforehand.
So I think that that has something to do with it Marcello also has some thoughts on if you're speaking to people then yeah. Obviously you know we also look at the national data and pumped up and they're not as bad that we always kind of scratching our heads somehow a little bit and I think we'll definitely that's also.
Oh Cosmos.
Going into this new kind of starts to buy a lot more of what the needs out okay basically that's been good.
And therefore, they'll do the more recurring check transactions.
But the necessity, but maybe that's also what's triggering why the growth in Ohio.
No.
Thanks, very much I appreciate it.
No problem have a good day.
The next question is from Adam look please announce your affiliation then pose your question.
Yeah.
Hi, guys. This is Adam well of course Greystone capital.
Can you hear me.
Can hear you well how are you Adam.
Doing well, thanks, how about yourself.
Thank god better than I deserve.
[laughter] good.
I just had a few or maybe one question wrapped a couple of questions wrapped up into one four net to fall in a really strong results.
They are once again and I'm just wondering.
I know there was a good amount of focus on this at the annual meeting and I'm sure not much has changed so but.
But I just wanted to touch on maybe the sources of operating leverage that you're seeing if anything has changed.
Over the last or year to date, I'll say and then.
Maybe you can talk a little bit about bridgepoint.
They're a channel partner correct and then maybe you know kind of what you're seeing in line with additional opportunities. There in terms of channel partners and maybe the ability to drive more margin or leverage moving forward and then maybe one quick follow up but we can start with those.
Okay, I mean, I don't think that much has changed.
You know the annual meeting in terms of our focus.
You know that we described for Nashville, and then quite thoroughly.
Again, I think that the team of Nexon has really executed very well and they've you know really you know made you know that the you know the cash flow generation you know.
A very big part of of what what they focus on.
At the same time, you know they've really taken the bull by the horn and focusing on areas. You know that that you know we see you know massive growth you know coming down the line, whether or not that you know AI that everyone is talking about or or sika products you know.
<unk> been for you know see cuts for her first for small you know customers are you know how to have those kinds of needs as well and we have a product you know coming out specifically for them.
So I think that youre going to see you know.
You know we try to think some of the learnings that we've seen sort of also you know in other parts of the business of interest like we've been.
Good at you know selling into stores, you know with the with a very low price and you know easy offering to take into the store and then upselling them into higher plans and other services and funding et cetera et cetera that we provide.
And we're really trying to now do that same.
Type of a sale you now at a net phone as well where we come in there you know being a you know a relatively low cost provider.
There are there are there ucas services, but then you know adding on all of these you know them you know much higher tier I'll call. You know products, you know and again, whether or not it you know he cast or you know it you know call intelligence or you know et cetera et cetera.
So that's kind of been I would say the only thing that changes maybe more of a focus on growing the base with with the more you know revenue rather than just growing the number of customers.
In terms of a you know answering your question about you know are our channel partner.
We were channel fees.
You know the business and that the phone you know as opposed to you know a.
Interest, where we have really a very diverse strategy of you know a direct channel.
You know as well as through E T salespeople.
Net phone it really is with the exception of you know you know Canada its really a you know.
A channel of business and you know that's not changing but you know when it comes to adding on you know revenue onto the you know onto these to the customers.
Some of that does become a direct you know sell you know from from net of phone depending on you know whether or not the channel partner field you know.
I'll say sufficiently you know train and being able to sell it. So you know some of our newer products.
Really you know require you know.
A different type of a sale than some of our channel partners traditionally have done I mean, you know ucas and seek out there not necessarily sold by the same people that would be a way to explain it easily.
Yeah, Adam I picked up until the operational leverage.
When we decided to both Paul and didn't have to pull.
Enough about one year ago.
And we mentioned the fact that the focus was going to be.
And demonstrate that <unk> can be a growing and profitable company. So this best she'll do a tremendous focus but they've got the whole team on the making the yield efficiency all kinds of show that because I'd be able to bring the company cash flow positive and God willing we will stop in New York being cash flow positive to know even car.
Bringing all the cutbacks expensive the banker.
And now that we have a cheaper debt of goes without saying that the folks with us won't mention there's going to be more towards you know bringing to market new products.
Kevin who play a bigger role.
It goes by it will help to guide up was slightly higher.
So part of the mix.
Well I think that that's supposed to be the focus for this coming year right.
Right now working on the budget Paul.
Coming here, but I think the.
We continue to be now.
Growing company, but also a cash flow generator.
So the next year.
Okay. Yeah, that's really helpful and I appreciate the comments on cash flow, which is interesting just given the growth runway on reinvestment potential I think that that sits in front of you. One quick question just from your combined answers is the U S where you guys who are kind of less on the <unk>.
A prize side is that more of a channel market for you or is that more duress, because you kind of increase your efforts there.
Yeah.
The U S have been onboard until recently.
A channel.
Uh huh.
We have very little direct sales.
Most recently we.
We started a new group.
To sell directly to larger enterprises.
And then just talking about a few months ago, we're probably going to be adding more resources to that group.
Into this coming year and that's good by the way Robin about one client.
About 4000 feet, so going forward, you're going to have would have a direct.
The group.
Buckeye to onboard larger enterprises.
Okay, Great and then I'm just in terms of Mexico.
There is this may be jumping the gun, but theres a lot of talk about near shoring opportunities or re shoring opportunities and I think just.
Ah I think theres a lot of bullish commentary just regarding the growth of that country in general in terms of.
The economy and I'm curious is that takes place it does that sort of increase the opportunity set for you guys. There or has anything changed on that front. So that specific geography or is there anything to sort of share at this point.
It's interesting I mean, you know you mean, marcello sort of smiling as you're as you're asking that question because when we were talking about it this morning.
And again I do think that that's going to be a big.
Area of growth that had been already but I think it will continue to be even bigger you know the the near shore indefinitely Hum helps that the phone. There is no question about it particularly when one is done in Mexico. Although you know we are looking to expand to other I'll call them near shore market.
Okay, Great I appreciate that that's it for me thanks, a lot I appreciate it.
Thank you have a nice night.
We have a follow up coming from Brian Warner Brian Your line is live.
Hi, just a quick question you guys seem to have pulled the rabbit out of that so a lot of times, the traditional communications and dislike.
Obviously significant revenue headwinds the EBITDA has held up.
Remarkably well for what is generally viewed as you know a rapidly shrinking ice cube.
Just wondering if there's any reason to think that you.
You can't continue to book that business for quite a few years or do you think you know maybe theres a over the next couple of years, if there's anything to sort of watch out for that could sort of be it a cliff in your cash flow there.
Oh, a question if you wanna be generous with a thought.
Wondering.
Where you would think.
Net phone or for that matter are world class.
S company at maturity and you can deploy either to or not or what.
What sort of EBITDA margin do you think that business is is that.
20% or is it something significantly different than that in your mind, just just curious if you might share.
You know again, we have a model that phone business you know that that.
So you know something you know a little better than that you know you know overtime I mean, we're not getting there you know next year that that's for sure.
But but again it will be it will be better than that as far as you know our traditional business.
You know we have to continue you know cut to make you know painful cuts.
To sustain the cash flow.
You know from that business and that you know never fun.
And at the same time, you know we need to continue to develop you know you know features that you know keep our customers.
No you know willing to pay for our services when you know oftentimes they can get it you know free somewhere else.
And you know that's the struggle that we deal with every day.
You know you've seen the you know what.
The reality in the numbers. So you know we can we will do our best to continue it going as long as we can but we do expect nowhere to Luca I had four O.
Long distance voice revenues continued to decline.
Most likely pace.
Oh are we don't see any turnaround in that trend.
We've got some little nationally.
They began to manage the cost structure.
Took back to alleviate the impact to the bottom line, but they become carbon out of anti as time goes by.
So I do expect right there at the gross profit.
EBITDA.
I'll.
Give some voice continued to decline.
Distinct thing right and maybe even at an accelerated rate.
As time goes by and we hope to be able to offset some of that decline.
The stronger performer by IGT.
Stop payment to know with double by top up offerings and other digital offerings.
Got you thanks very much.
Congratulations guys did a great job.
The next night.
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Yeah.
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