IDT Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 4, 2023

There are 6 speakers on the call.

Operator

Good evening, and welcome to the IDT Corporation's First Quarter Fiscal Year 20 24 Earnings Call. In today's presentation, IDT's management will discuss IDT's financial and operational results for the 3 month period ended October 31, 2023. During remarks by IDT's Chief Executive Officer, Shmuel Jonas, all participants will be in listen only mode. After Mr. Jonas' remarks, Marcelo Fischer, IDT's Chief Financial Officer will join Mr.

Operator

Giannis for Q and A. Any forward looking statements made during this conference call, either in the prepared remarks or in the Q and 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 could differ materially from those that they forecast. In their presentation or in the Q and 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.

Operator

A schedule provided in the IDT earnings release I can file adjusted EBITDA, non GAAP net income and non GAAP earnings or loss per share to the nearest corresponding GAAP measures. Please note that the IDT earnings release is available on the Investor Relations page of the IDT Corporation website. The earnings release has also been filed on Form 8 ks with the SEC. I will now turn the conference over to Mr. Jonas.

Speaker 1

Thank you very much, operator. Welcome to IDT's earnings conference call. My remarks today will focus on the Q1 of fiscal year are 2020 for the 3 months ended October 31. For a more detailed discussion of our financial and operational results for the Q1, please read our earnings release filed earlier today and our Form 10 ks that we expect to file with the SEC a week from today. Our 3 primary high growth, high margin businesses delivered strong revenue growth in the Q1, while the businesses in our traditional communications segment performed as is expected.

Speaker 1

In the Q1, the ongoing growth of BOS Money, NRS and Net to Phone drove a 370 basis point year over year increase we are pleased to report that we

Speaker 2

are in the quarter in gross profit margin and

Speaker 1

record gross profit. They are steadily becoming more significant contributors to our top and bottom lines, while the cash generation of our paid Minute businesses has been relatively resilient. Boss Money continued to grow at a rapid clip helped by the are accelerating expansion of our retail money transfer channel. Retail money transfer channel revenue increased 55% year over year, while digital channel revenue we continue to improve the user we see the investment paying off in Boss Money's robust top line growth. Much of the investment we've made in money transfer to date is in the expectation that we are only in the early innings of our money transfer growth.

Speaker 1

As we continue to expand, we expect to realize more of the benefit of our expanding revenue and gross profits in our bottom line profitability. NRS continue to expand its network and upgrade existing accounts, helping to drive strong increases in merchant services and SaaS we will be conducting a few key key factors to our financial results. While advertising and

Speaker 2

data revenue

Speaker 1

increased sequentially propelled by seasonal tailwinds and the gradual recovery of advertising in the digital out of home advertising space, a trend which has accelerated since the quarter close. NRS income from operations was a record $5,500,000 in the Q1. We are also in the process of introducing some of the new POS formats that I've mentioned previously and I'm excited about their potential to help us drive long term expansion. Nettoon delivered steady sequential customer base and top line growth, while its unit economics are strengthening as the business scales and our higher ARPU, higher margin CCAS offerings gradually become a more significant part of the business. Netfilin generated positive

Speaker 3

we have adjusted EBITDA of $1,400,000

Speaker 1

and was near cash flow positive. Now in the second quarter, our beta rollout of Nettofone AI is underway and it has been very well received by we are very optimistic that Netfone AI and Netfone's forthcoming premium plans will help to drive meaningful ARPU and margin expansion. We're working very hard to innovate exciting new offerings, features and functionalities and not just in our growth businesses. At BOSS Revolution Calling, we've redesigned the look and feel of our popular calling app and added a bunch of new products and features. We have also introduced advertising placements into the app and we have already begun to generate some nice revenue from it as a result.

Speaker 1

In addition to our new product offerings, we continue to focus on we are executing on our operations in the quarters ahead, especially in our traditional communications segment. This effort will help preserve the cash generation of our paid minute businesses despite their continued expected top line declines. It also allows to we continue investing in innovative new products and promising initiatives in our existing growth businesses. We also returned value directly to our stock we are pleased to report that we are repurchasing 125,470 shares of Class B common stock for approximately $2,800,000 we will continue to purchase shares opportunistically. We are very well positioned as we head into the Q2 of our fiscal year 2024.

Speaker 1

To wrap up, I want to wish our employees, stockholders and their families a very joyous holiday season and thank each of you for everything you do for the IDT family. Now, Marcel and I'd be happy to take your questions.

Operator

Thank you. We will now begin the question and answer session. We will now pause momentarily to assemble our roster.

Speaker 2

Is

Operator

now open. Okay. The first question comes from Chris Lu with Emmett Partners. Please proceed.

Speaker 3

Hi, guys. Congrats on the quarter. Just a few questions around FinTech and more specifically Boss Money. On the first part, Could you talk about how much of FinTech SG and A or Robloxone SG and A is customer acquisition cost?

Speaker 1

I don't have the number in front of me, but in terms of marketing, I would say that we're probably spending approximately $4,000,000 a quarter. So I mean, but there are other costs that go into customer acquisition besides marketing, but that's the main one.

Speaker 3

Understood. Thank you. And then I guess a follow-up to that. In terms of payback, how are you guys looking at the payback on this advertising and marketing spend? Obviously, you're accelerating retail and digital growing as well.

Speaker 3

I'm just curious about your thoughts there.

Speaker 1

Again, I mean, I think that number 1 is, we need to educate the market on the fact that we're a money transfer company, even though our name is sort of well known in the industry. We're not known necessarily as a money transfer company, particularly at retail, we really only, I'll say, relaunched it over the last 18 months. And therefore there's more of an education that's needed in some of the marketing is really like top of funnel to educate people on the fact that we are

Speaker 4

we are now ready to take our questions. Hi, Chris, it's Marcelo. And just to now add what Shmuel said, indeed, in the digital channel, most of our cost of acquisition is the digital marketing that Sumo made a reference to, but on our retail channel, we have been aggressively growing the number of retail agents in our network, we added roughly almost we grew almost 50% in number of agents during is fiscal 'twenty three. And now we continue to know at that rate as we go into fiscal 'twenty four. So we are getting close to about 1800 retail agents in our network and that is an investment Because when we onboard a retailer agent, there are costs associated with opening a subaccount or the compliance, credit, monitoring collections relating to that agent, it takes time for an average we will be able to ramp up the number of transactions in store and usually we don't start making a real profit on the agent till he's averaging about 150 transactions we are seeing a lot of growth in the retail channel and we are seeing the results, right.

Speaker 4

Our retail channel is growing now

Speaker 2

is a very strong quarter of fiscal year 2020

Speaker 4

for earnings call. And today's presentation, it's really been driving a lot of our transactions and we hope to continue investing in that channel because Retail Channel is also a great way to onboard BOS customers, not only for money transfer, but Customers that eventually will also use our product in painless, in IMTU, It's a great entry point to bring more customers at a low cost into our BOSS ecosystem.

Speaker 3

Okay, great. Thanks a lot

Operator

the next question comes from Aniggo Alonzo with Momentum Financial. Please proceed.

Speaker 5

Hello. In the previous presentations, you have referenced a fixed SG and A number for NRS and Tufon. I was wondering how we should think about this fixed SG and A number. Is this the fixed maintenance SG and A that the daily operation of NRS and NetSuPharm need or is it a growth SG and A and the rest of it is just we'll be conducting a few questions. And could be removed if you would like to run the business forecast for cash?

Speaker 1

I don't think that I've ever said a fixed SG and A. I mean, I think that we've stated previously that we are going to be very careful as it relates to the SG and A in even our growth businesses. And as you've seen this past quarter, we continue to accelerate our growth, add on new products and keep our SG and A relatively flat, even slightly down in NRS this past quarter. That being said, it is both the NRS business and the Nettoam business as well as the BOSS Money business have variable SG The bigger it grows, the SG and A will increase. That being said, our goal is always will bring bottom line results.

Speaker 1

So we're very focused on making sure that the fixed SG and A is as tight as possible.

Speaker 4

Right. If I could just expand on that a little bit, let's take one at a time. So in the case of Nettofone, Nettofone does have material amounts of variable cost in terms of cost of acquisition, primarily related to Because of the actual IP physical the physical IP phone that we deploy to our subscribers as part of the market subscription as well as spiffs and upfront commissions that we pay to our channel agents, as that business However, our fixed overhead, our fixed costs of the business have been continued to be monitored very aggressively. We've been keeping that fixed overhead quite stable even as the business continues to grow. And because of that, scale really makes a difference and we are seeing the benefits of that scale as the business grows is the bottom line profitability of NettoPharm.

Speaker 4

In the case of NRS, it's kind of almost the opposite or different, right, in the sense that the cost of acquisitions for NRS are much, much lower in the model as compared to what Netafone spent on acquisitions. So most of of NRS, cost of acquisitions relate to commissions, some marketing, but they are relatively small is relative to the business, and there is a certain amount of fixed overhead relatively small that also it needs to be leveraged significantly as the business scales and that's why you're seeing both at Nettofone and NRF As those businesses grow, you see the immediate impact that those are having to the bottom line EBITDA of both of those businesses. Okay,

Speaker 5

understood. Then I had a couple of Nettofone specific questions. So how much margin expansion, gross margin expansion are you hoping to get once you migrate the old customers in the old platform to a new platform that you own. And 2 more questions on Nettofon. 1 of the Auzuities was the range of the length of the contracts that you have with your customers that would be the minimum and the maximum and another one of these, what's the backlog right now for NetSuPhone?

Speaker 1

So I'm not going to answer them in particular order. I'm just going to answer them as I remember them. In terms of the backlog, I don't exactly have the answer. I mean, usually we try to get customers active as quickly as we can, but it varies depending on the I'll say the complicated nature of particular customers take longer to move on to the Net2phone platform. So we have customers that can wait as little as 1 to 2 days and we can have customers that can wait as long as 2 months depending on the complexity of their migration.

Speaker 1

As far as the margin expansion, it's there probably is a little bit of margin expansion when we move customers off of our old rented platforms onto our own. That being said, that's not the reason that we want to do it. The reason we want to do it is really about the functionality, the improved experience that the customers' earnings are going to get not about the $1 to $2 per user you know that it cost us to, I'll say, have a rented platform for some of our older customers. I think you asked one more question. I might have forgot it.

Speaker 5

Yes, about the contract length and let me clarify an item there. So what I meant by backlog is the contracts that you already have signed with your customers and are yet to be paid. So those that will be paid in the future. That's when the backlog that has to be collected.

Speaker 1

So I don't know the answer to that Most of our customers are billed monthly. We do have some annual contracts, but the vast majority of our customers pay on a monthly basis. So there's not a huge backlog in terms of payment. As far as the length of the contracts, Most contracts tend to be 3 years, but we have as little as 1 year depending on the country and the specific users.

Speaker 4

And Shmuel is correct, right. We have in total how you're defining backlog, right. The overwhelming majority of our customers on a monthly is a very strong payment basis. So we usually have like 1 month of deferred revenue on the balance sheet and no more than that, And in terms of real backlog, the reality is that we have been adding roughly about 12 we expect to be approximately 30,000 seats quarterly for the last several quarters, and we believe that that trend is likely what we are targeting on in terms of client to achieve going forward as well. With ARPU improvements as we launch Higher Apple Products and also as we as CCaaS customers become Gradually larger portion to the portfolio because CCaaS ARPU is about 7 to 8 times larger than the ARPU of a regular customer.

Speaker 5

Okay. Good. And I think I haven't asked about M and A. Last quarter, you referenced and a small acquisition on the NRS side, I haven't seen any outflows of money dedicated to acquisitions. So if you can provide any updates that would be greatly appreciated.

Speaker 1

It's very small. It will not be it's not material.

Operator

Okay, we have no further questions in queue. 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.

Powered by Quartr
Earnings Conference Call
IDT Q1 2024
00:00 / 00:00